<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1999
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
FIRST COMMUNITY FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 6036 APPLIED FOR
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
708 SOUTH CHURCH STREET
POST OFFICE BOX 1837
BURLINGTON, NORTH CAROLINA 27216-1837
(336) 227-3631
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
______________________
<TABLE>
<S> <C>
WILLIAM R. GILLIAM, PRESIDENT COPIES TO:
First Community Financial Corporation EDWARD C. WINSLOW III
708 South Church Street RANDALL A. UNDERWOOD
Post Office Box 1837 Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Burlington, North Carolina 27216-1837 2000 Renaissance Plaza
(336) 227-3631 Post Office Box 26000
Greensboro, North Carolina 27420
(Name and address, including zip code,
and telephone number, including area
code, of agent for service)
</TABLE>
____________________
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
______________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS DOLLAR PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED BE REGISTERED PER SHARE OFFERING PRICE FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value.. $37,207,500/(1)(2)/ $15.00 $37,207,500 $10,343.69
===================================================================================================
</TABLE>
(1) The amount to be registered is based upon the maximum of the valuation
range of Community Savings Bank, SSB and the Registrant, as
established by an independent appraisal.
(2) Includes $1,500,000 for shares to be contributed to a charitable
foundation, as described herein.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS
FIRST COMMUNITY FINANCIAL CORPORATION
(Proposed Holding Company for Community Savings Bank, SSB)
UP TO 2,380,500 SHARES OF COMMON STOCK
$15.00 PER SHARE
First Community Financial Corporation (the "Company") is offering up to
2,380,500 shares of its common stock in connection with the conversion of
Community Savings Bank, SSB ("Community Savings") from a mutual savings bank
which has no stockholders to a stock savings bank (the "Conversion"). In the
Conversion, the Holding Company will become the sole stockholder and parent
holding company of Community Savings. For a discussion of certain factors that
should be considered by each prospective investor, see "Risk Factors" beginning
on page _____.
The Company has received conditional approval for the common stock to be
listed for quotation on the Nasdaq National Market under the symbol FCFN upon
completion of the offering.
The shares are being offered first in a subscription offering to persons
who have specified priorities of subscription rights based on their relationship
with Community Savings. In order to purchase shares, you must submit a properly
completed order form, together with full payment for the shares, to Community
Savings prior to __________, Eastern time, on __________, 1999, unless extended.
To the extent sufficient shares to complete the Conversion are not sold in
the subscription offering, the remaining shares will be offered for sale in a
community offering and, if necessary, in a syndicated community offering. Any
community offering could begin at any time during the subscription offering and
may be terminated at any time without notice.
Neither the Securities and Exchange Commission, the Administrator of the
Savings Institutions Division, North Carolina Department of Commerce, any State
Securities Commission, nor the Federal Deposit Insurance Corporation has
approved or disapproved of these securities or passed on the accuracy or
adequacy of the disclosures in this prospectus. Any representation to the
contrary is a criminal offense.
The shares of common stock offered hereby are not savings accounts or
savings deposits and are not insured by the Federal Deposit Insurance
Corporation or any other government agency. The securities are subject to
investment risks, including the possible loss of the principal invested.
<TABLE>
<CAPTION>
ESTIMATED UNDERWRITING,
MARKETING AND OTHER FEES AND ESTIMATED NET CONVERSION
PURCHASE PRICE EXPENSES(2) PROCEEDS(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share at Minimum............... $ 15.00 $ 0.57 $ 14.43
Per Share at Midpoint.............. $ 15.00 $ 0.52 $ 14.48
Per Share at Maximum............... $ 15.00 $ 0.49 $ 14.51
Per Share at Maximum, as adjusted.. $ 15.00 $ 0.45 $ 14.55
Total at Minimum (1)............... $22,950,000 $ 874,000 $22,076,000
Total at Midpoint (1).............. $27,000,000 $ 940,000 $26,060,000
Total at Maximum (1)............... $31,050,000 $1,005,000 $30,045,000
Total at Maximum, as adjusted...... $35,707,500 $1,080,000 $34,627,500
==============================================================================================================
</TABLE>
(1) Determined in accordance with an independent appraisal.
(2) See "Pro Forma Data" for the assumptions used to arrive at estimated
expenses. Actual net proceeds may vary substantially from the estimated
amount, depending upon actual expenses of the offerings, the number of
shares sold in the offerings and other factors.
TRIDENT SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS ________________, 1999.
<PAGE>
Trident Securities, Inc. has agreed to assist the Company in selling the
shares, but does not guarantee that at least the minimum number of shares will
be sold. Trident Securities, Inc. has not agreed to purchase any shares in the
offerings.
The Conversion and the acceptance of subscriptions are, among other things,
contingent upon approval of the Conversion by Community Savings' members at a
special meeting scheduled to be held on ________________, 1999 and upon the sale
of shares of Common Stock for an aggregate purchase price of not less than
$22,950,000 nor more than $35,707,500. The Company and Community Savings will
hold all funds received from subscribers in an interest-bearing savings account
at Community Savings until the completion or termination of the Conversion.
A Stock Information Center has been established at Community Savings'
headquarters office at 708 South Church Street, Burlington, North Carolina,
telephone number (336) __________.
2
<PAGE>
COMMUNITY SAVINGS BANK, SSB
BURLINGTON, NORTH CAROLINA
[MAP OF NORTH CAROLINA WITH
ALAMANCE COUNTY HIGHLIGHTED]
3
<PAGE>
SUMMARY
This summary highlights selected information from this Prospectus and does
not contain all the information that you need to know before making an informed
investment decision. To understand the stock offerings fully, you should read
this entire Prospectus carefully, including the financial statements and the
notes to the financial statements of Community Savings. References in this
document to "Community Savings" refer to Community Savings Bank, SSB.
References in this document to the "Company" refer to First Community Financial
Corporation.
FIRST COMMUNITY FINANCIAL The Company is a North Carolina corporation recently
CORPORATION organized by the Board of Directors of Community
Savings to acquire all of the capital stock that
Community Savings will issue upon its conversion from
the mutual to stock form of ownership. The Company
has not yet engaged in any business. Upon completion
of the Conversion, its business will initially
consist solely of owning Community Savings, investing
the proceeds of the Conversion that are retained by
the Company and holding the indebtedness to be
outstanding from Community Savings' Employee Stock
Ownership Plan (the "ESOP").
The executive office of the Company is located at 708
South Church Street, Burlington, North Carolina, and
its telephone number is (336) 227-3631.
COMMUNITY SAVINGS BANK, Community Savings, a North Carolina-chartered
SSB mutual savings bank headquartered in Burlington,
North Carolina was organized in 1934. Community
Savings has been a member of the Federal Home Loan
Bank ("FHLB") system and its deposits have been
federally insured since 1934. Community Savings'
deposits are now insured by the Savings Association
Insurance Fund (the "SAIF") of the Federal Deposit
Insurance Corporation ("FDIC") to the maximum amount
permitted by law.
Community Savings conducts business through its
headquarters office in Burlington, North Carolina,
its two full service branches in Burlington, its full
service branch in Graham, North Carolina and its loan
origination office in Burlington. Community Savings'
primary market area consists of the communities in
Alamance County, North Carolina. Alamance County is
located in the Piedmont area of North Carolina east
of Greensboro and west of Durham. At September 30,
1998, Community Savings had total assets of $170.4
million, net loans of $127.4 million, deposits of
$138.0 million and retained income of $23.3 million.
Community Savings is primarily engaged in the
business of attracting deposits from the general
public and using such deposits to make loans in
Community Savings' primary market area. Community
Savings makes a wide variety of loans, including
mortgage loans, home equity line of credit loans,
commercial loans, construction loans and various
types of consumer loans. Most of Community Savings'
fixed interest rate home mortgage loans are
originated with the intention that they will be sold
in the secondary market. Variable rate loans are
generally held in Community Savings' portfolio.
Community Savings has been, and intends to continue
to be, a community-oriented financial institution
offering a variety of financial services to meet the
needs of the communities it serves.
4
<PAGE>
Highlights of Community Savings' operations include:
. Capital Position. As of September 30, 1998, Community
Savings had retained income of $23.3 million. Its
capital substantially exceeded all minimum capital
requirements imposed by its federal and state
regulators.
. Profitable Operations. For the nine months ended
September 30, 1998 Community Savings had net income of
$433,000 and a return on average assets of 0.34%. For
the fiscal years ended December 31, 1997 and 1996,
Community Savings had net income of $590,000 and
$399,000, respectively, and a return on average assets
of 0.36% and 0.26%, respectively. As is described in
the "Risk Factors" section of this Prospectus, future
profitability of Community Savings will be affected by
changes in market interest rates and other factors.
. Asset Quality. On September 30, 1998, December 31, 1997
and December 31, 1996, Community Savings' ratio of
nonperforming assets to total assets was 0.13%, 0.14%
and 0.14%, respectively. Community Savings did not own
any foreclosed properties on any of those dates.
. Offerings of New Products. For many years, Community
Savings operated as a traditional thrift institution in
accepting deposits and making almost exclusively home
mortgage loans. However, Community Savings has recently
begun to change its methods of operation so that in the
future it will be able to offer its customers a wider
array of products and operate more like a community
bank than a traditional thrift institution. While this
transformation process is not yet complete, many of the
organizational changes necessary to the process have
occurred at substantial cost to Community Savings.
Community Savings is committed to offering a broader
array of services to its customers and competing with
the community banks in its market area.
. Changing Asset Mix. On December 31, 1995, investments
and mortgage-backed securities accounted for 43% of
Community Savings' assets and net loans accounted for
51% of Community Savings' assets. In addition, 91% of
its loan portfolio, before net items, was composed of
home mortgage loans, and less than 2% of its loan
portfolio, before net items, was composed of
commercial, construction and consumer loans. On
September 30, 1998, investments and mortgage-backed
securities accounted for only 20% of Community Savings'
assets, and net loans accounted for 75%. On such date,
home mortgage loans accounted for 73% of Community
Savings' loan portfolio, before net items, and
commercial, construction and consumer loans accounted
for over 23%. Net items consist of the allowance for
loan losses, deferred fees, and loans in process.
5
<PAGE>
THE CONVERSION Community Savings has adopted a Plan of Conversion
which is subject to requirements of the Administrator,
Savings Institutions Division, North Carolina
Department of Commerce (the "Administrator"). The
Conversion is governed by the Plan of Conversion and
has three major components:
. The conversion of Community Savings from mutual to
stock form;
. The acquisition by the Company of all of the
outstanding capital stock of Community Savings;
. The sale by the Company of its common stock (the
"Common Stock") to the depositors and borrowers of
Community Savings and certain others.
The Conversion is subject to the approval of various
federal and state regulatory officials, and is subject
to approval of members of Community Savings eligible to
vote at a special meeting to be held on
_______________, 1999 (the "Special Meeting").
REASONS FOR THE The management of Community Savings recognizes that
CONVERSION banking and financial services organizations are in the
process of fundamental changes, reflecting changes in
local, national and international economies, changes in
technology and changes in state and federal laws.
Management believes that converting Community Savings
from mutual to stock form and organizing the Company as
a holding company will enhance Community Savings'
flexibility to react to changes in its operating
environment. Community Savings also believes that its
performance will be enhanced if its customers, its
employees, its directors and others in its local
community are given the opportunity to invest in its
future as owners.
Community Savings believes that the Conversion, and the
increased flexibility that will result from it, will
help facilitate the changes already begun which will
allow Community Savings to offer a wider array of
products and operate more like a community bank than a
traditional thrift institution.
The existing management of Community Savings and the
Company believes that it will be in the best interests
of Community Savings, the Company and the stockholders
of the Company for the Company to remain an independent
financial institution. Assuming consummation of the
Conversion, the Company and Community Savings intend to
pursue the business strategy described in this
Prospectus with the goal of enhancing shareholder value
over the long term. Neither the Company nor Community
Savings has any plan to be acquired by any larger
financial institution.
COMMUNITY SAVINGS In furtherance of its long-standing support of
CHARITABLE FOUNDATION charitable causes in its local community, Community
Savings has established a charitable foundation called
Community Savings Charitable Foundation (the
"Foundation"). In conjunction with the Conversion,
Community Savings expects to acquire up to 100,000
6
<PAGE>
newly issued shares of the Company's Common Stock for
$1,500,000 and contribute such shares to the
Foundation. The Foundation will use such assets to
support various charitable causes in the communities in
which Community Savings operates.
THE OFFERINGS Pursuant to the Plan of Conversion, 1,530,000 to
2,380,500 shares of the Company's Common Stock are
being offered at the price of $15.00 per share in a
subscription offering (the "Subscription Offering") to
the following persons in the following order of
priority:
(i) Community Savings' depositors as of June 30, 1997
who had aggregate deposits at the close of
business on such date of at least $50 ("Eligible
Account Holders");
(ii) Community Savings' Employee Stock Ownership Plan
(the "ESOP");
(iii) Community Savings' depositors as of
_______________ who had aggregate deposits at the
close of business on such date of at least $50
("Supplemental Eligible Account Holders");
(iv) Community Savings' depositor and borrower members
as of _______________, 1999 who are not Eligible
Account Holders or Supplemental Eligible Account
Holders ("Other Members"); and
(v) directors, officers and employees of Community
Savings who are not Eligible Account Holders,
Supplemental Eligible Account Holders or Other
Members.
Beneficial owners of individual retirement accounts
("IRAs"), Keogh savings accounts and other similar
retirement accounts have been deemed to be the holders
of such accounts for purposes of the exercise of
subscription rights in the Subscription Offering.
Subscription rights received in any of the foregoing
categories will be subordinate to the subscription
rights received by those in a prior category. In the
event subscriptions exceed the shares being offered,
available shares will be allocated among subscribers,
with subscriptions of subscribers in prior categories
being filled first.
Shares of Common Stock not subscribed for in the
Subscription Offering, if any, will be offered in a
community offering (the "Community Offering") to
members of the general public, with priority given to
natural persons and trusts of natural persons who are
residents of Alamance County, North Carolina, including
IRAs, Keogh accounts and similar retirement accounts
established for the benefit of such natural persons.
The Company and Community Savings have the absolute
right to reject orders in the Community Offering in
whole or in part. If there is a Community Offering, it
is anticipated that all shares of Common Stock not
purchased in the Community Offering will be offered for
sale by the Company to the general public, in a
syndicated community offering.
7
<PAGE>
EXPIRATION DATE OF THE Subscription rights in the Subscription Offering
SUBSCRIPTION AND expire at 12:00 Noon., Eastern Time, on
COMMUNITY OFFERINGS _______________, 1999, unless extended. This is the
"Expiration Time." The Community Offering, if any, may
commence at any time after the commencement of the
Subscription Offering and may terminate at the
Expiration Time or at any time thereafter, but not
later than _______________, 1999, unless extended with
the approval of regulatory officials.
STOCK PURCHASE
LIMITATIONS Minimum: 30 shares ($450).
Maximum:
. No person or entity may purchase more than 15,000
shares ($225,000).
. No persons or entities exercising subscription
rights as a result of a single account may
purchase more than 15,000 shares ($225,000) in the
aggregate.
. No persons or entities "acting in concert" may
purchase more than 20,000 shares ($300,000) in the
aggregate.
. No person or entity, together with any
"associate", may purchase more than 20,000 shares
($300,000) in the aggregate.
. The ESOP may purchase up to 8% of the sum of the
shares issued in the Conversion and the shares
contributed to the Foundation, estimated to be
between 130,400 and 198,440 shares.
The maximum purchase limitations set forth above are
each separate and distinct limitations; none may be
exceeded. Community Savings' Board of Directors has the
right, at any time prior to completion of the
Conversion, to decrease the maximum purchase
limitations or to increase such limitations to an
amount up to 5% of the shares issued in the Conversion.
If there is a decrease or increase in the maximum
purchase limitations, there will be no notice to, or
resolicitation of, subscribers or resolicitation of
proxies in connection with the Special Meeting.
However, if the maximum purchase limitations are
increased, subscribers submitting orders for maximum
purchases will be contacted and given an opportunity to
increase their subscriptions.
The terms "acting in concert" and "associate" are
defined at "The Conversion - Maximum Purchase
Limitations."
HOW TO ORDER STOCK If you have a subscription right, you may order shares
of stock in the Subscription Offering only by returning
the original of the stock order form accompanying this
Prospectus, properly completed with full payment for
the aggregate dollar amount of stock desired. Original
stock order forms and required payments for purchases
in the Subscription Offering must be received prior to
12:00 noon on _______________, 1999, the Expiration
Time. Copies of stock order forms, including facsimile
copies, will not be accepted. Original stock order
forms and required payments for purchases in the
Community
8
<PAGE>
Offering must be delivered prior to the time
the Community Offering terminates, which may be at the
Expiration Time or at any time thereafter (but not
later than ________________, 1999, unless extended with
the consent of regulatory officials).
REQUIRED FORMS OF Payment for subscriptions may be made:
PAYMENT FOR SHARES
. in cash (if delivered in person);
. by check, bank draft or money order; or
. by authorization of withdrawal from certain deposit
accounts maintained at Community Savings which
contain sufficient funds for the purchase.
No wire transfers will be accepted.
Payments made in cash, by check, bank draft, negotiable
order of withdrawal or money order will earn interest
at Community Savings' statement savings rate from the
date payment in good funds is received by Community
Savings until the completion or termination of the
Conversion or, in the case of an order submitted in the
Community Offering, until it is determined that such
order cannot or will not be accepted. Subscription
payments made by authorization of withdrawal from a
deposit account at Community Savings will continue to
earn interest at the applicable contractual rate until
the Conversion is completed or terminated; such funds
will be otherwise unavailable to the depositor.
No early withdrawal penalties will be incurred in
connection with payments made through authorization of
withdrawals from certificate accounts, including IRA,
Keogh and similar retirement accounts, maintained at
Community Savings. However, if after such withdrawal
the applicable minimum balance requirement ceases to be
satisfied, the certificate account will be canceled and
the remaining balance thereof will earn interest at
Community Savings' statement savings rate.
Payment for Common Stock may be made from funds in an
IRA, Keogh or similar account at Community Savings only
if the beneficial owner of such account directs
Community Savings to transfer that account to a self-
directed account in the name of an independent trustee.
Persons wishing to use their Community Savings IRA's to
purchase shares of Common Stock must visit the Stock
Information Center on or before ________________, 1999
in order for the necessary paperwork for such purchases
to be completed and executed prior to the Expiration
Time.
Once an order is delivered, it cannot be revoked or
changed without the consent of Community Savings.
SUBSCRIPTION RIGHTS Subscription rights granted under the Plan of
ARE NOT TRANSFERABLE Conversion are not transferable. Subscription rights
may be exercised only by the person to whom they are
issued and only for his or her own account. Persons
exercising subscription rights are required to certify
that they are purchasing shares for
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<PAGE>
their own accounts within the purchase limitations set
forth in the Plan of Conversion and that they have no
agreement or understanding for the sale or transfer of
such shares. Any persons found to be transferring
subscription rights will be subject to forfeiture of
their right to purchase and other possible sanctions.
STOCK PRICING AND The purchase price of the stock offered in the
NUMBER OF SHARES Conversion is $15.00 per share. The Plan of Conversion
TO BE OFFERED and applicable regulations require that the aggregate
amount of stock sold be based upon an independent
valuation of the estimated aggregate pro forma market
value of the Company and Community Savings. Ferguson &
Company ("Ferguson") has determined that, in its
opinion, on December 9, 1998, the aggregate estimated
pro forma market value of the Company and Community
Savings was from $22,950,000 to $31,050,000. This is
called the "Valuation Range." At the closing of the
offerings, Ferguson will determine the final estimated
aggregate pro forma market value, and that is the
aggregate amount of stock which will be sold in the
offerings.
Depending upon market and financial conditions after
commencement of the Subscription Offering, the
estimated aggregate pro forma value and the aggregate
amount of stock to be sold could be increased to up to
15% above the maximum of the Valuation Range, or to
$35,707,500, without any resolicitation of
subscriptions or right to cancel, rescind or change
subscription orders. If the final estimated aggregate
pro forma market value is less than $22,950,000 or more
than $35,707,500, a resolicitation of subscribers would
be required before the offerings could close.
Ferguson's appraisal is not intended and should not be
viewed as a recommendation of any kind as to the
advisability of purchasing stock.
The Plan of Conversion also provides that, in the event
of errors in the allocation of shares in the
Conversion, the Company may issue additional shares of
its Common Stock, up to 3% of the number of shares
otherwise issued in the Conversion, to correct such
errors. Such shares would be issued for $15.00 per
share.
USE OF PROCEEDS The net proceeds from the sale of the Common Stock in
the Conversion, including shares purchased by the ESOP
with funds loaned by the Company, are estimated to be
between $22,076,000 and $34,627,500, depending upon the
actual expenses of the Conversion and other factors.
The Company intends to use a portion of the net
proceeds of the offerings to fund the loan to be made
to the ESOP (estimated to be between $1,956,000 and
$2,976,600 assuming the ESOP's purchase of 8% of the
sum of the shares issued in the offerings and the
shares contributed to the Foundation) to enable it to
purchase shares of Common Stock in the Conversion.
After deducting the amount of such loan from the
proceeds, the Company is expected to retain
approximately 50% of the remaining net proceeds from
the issuance of the Common Stock. The Company will
initially invest these proceeds primarily in interest-
earning deposits, U.S. government, federal agency and
other marketable securities and mortgage-backed
securities.
10
<PAGE>
The remainder of the net proceeds from the sale of the
Common Stock will be paid by the Company to Community
Savings in exchange for all of the capital stock of
Community Savings. Up to $1,500,000 will be used by
Community Savings to purchase up to 100,000 newly issued
shares of Common Stock from the Company, which shares will
then be contributed to the Foundation. The remaining net
proceeds paid to Community Savings will become part of
Community Savings' general funds, and will initially be
invested in loans, mortgage-backed securities and
investments consisting primarily of U.S. government and
federal agency obligations, interest-earning deposits and
other marketable securities in accordance with Community
Savings' lending and investment policies.
Proceeds of the offerings may be used to acquire Common
Stock in the open market for use in a Management Recognition
Plan (the "MRP") and a Stock Option Plan (the "Stock Option
Plan") expected to be adopted by the Company and Community
Savings after the Conversion. See "- Benefits of the
Conversion to Management."
In addition, proceeds of the offerings could be used by the
Company and Community Savings to acquire or construct other
branch offices in Alamance County or surrounding counties
and to acquire other financial institutions. However,
neither the Company nor Community Savings has entered into
any agreements or made any definite plans with respect to
any such transaction.
DIVIDEND POLICY Following the Conversion, the Company currently expects to
pay semiannual cash dividends on the Common Stock at an
initial semiannual rate of 15 cents per share (or an annual
rate of 30 cents per share). The Company expects that the
first dividend will be paid after the end of the first
calendar quarter which ends at least six months after the
Conversion. In addition, the Company may determine from time
to time that it is prudent to pay special nonrecurring cash
dividends. Payment of dividends will be subject to
determination and declaration by the Company's Board of
Directors. The Board of Directors will periodically review
its dividend policy in view of the operating results and
financial condition of the Company and Community Savings,
net worth and capital requirements, regulatory restrictions,
tax consequences, industry standards, and general economic
conditions, and will authorize cash dividends to be paid as
it deems appropriate and in compliance with applicable law.
There can be no assurance that dividends will in fact be
paid on the Common Stock or that, if paid, such dividends
will not be reduced or eliminated in future periods.
In connection with the Conversion, Community Savings has
agreed with the FDIC that, within the first year after
completion of the Conversion, neither the Company nor
Community Savings will pay any dividend or make any
distribution that represents, or is characterized as or
treated for income tax purposes as, a return of capital.
The ability of the Company to pay dividends may be
dependent upon the Company's receipt of dividends from
Community Savings. Community Savings' ability to pay
dividends is restricted by applicable regulations and
federal income tax laws.
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MARKET FOR COMMON STOCK Neither the Company nor Community Savings has ever
issued stock before, and there is no existing
market for the Common Stock. The Company has
received conditional approval to have the Common
Stock listed for quotation on the Nasdaq National
Market under the symbol "FCFN", subject to
completion of the Conversion and satisfaction of
other conditions.
STOCK OWNERSHIP BY The directors and executive officers of the
MANAGEMENT Company and of Community Savings and their
associates currently anticipate subscribing for
Common Stock in the aggregate amount of
$3,275,000, or 218,333 shares, representing 9.2%
to 14.3% of the shares of Common Stock issued in
the Conversion at the maximum, as adjusted, and
minimum of the Valuation Range, respectively.
In addition, it is expected that the ESOP will
subscribe for 8% of the sum of the number of
shares of Common Stock issued in the Conversion
and the number of shares contributed to the
Foundation.
Subsequent to the Conversion, it is expected that
directors and certain employees of the Company and
Community Savings will receive restricted stock
grants under the MRP for a number of shares of
Common Stock equal to 4% of the sum of the number
of shares issued in the Conversion and the number
of shares of Common Stock contributed to the
Foundation. It is also expected that directors and
certain employees will receive options under the
Stock Option Plan to purchase a number of shares
of Common Stock equal to 10% of the sum of the
number of shares issued in the Conversion and the
number of shares of Common Stock contributed to
the Foundation. Shares to be issued upon the
exercise of options could be issued to the Stock
Option Plan or acquired by the Stock Option Plan
in the open market and held by the Plan pending
issuance to optionees. The MRP and Stock Option
Plan will be subject to approval by the
stockholders of the Company at a meeting of
stockholders following the Conversion.
BENEFITS OF THE CONVERSION Among the benefits the Company and Community
TO MANAGEMENT Savings anticipate from the Conversion is the
ability to attract and retain personnel through
the use of restricted stock, stock options and
other stock related benefit programs. The ESOP,
which is a tax qualified plan, will be established
to provide retirement benefits to employees.
Benefits under that plan will be allocated to
eligible employees over an approximate 15 year
period.
12
<PAGE>
Subsequent to the Conversion, the Company and Community
Savings intend to adopt the MRP and the Stock Option Plan
for the benefit of directors and certain employees of the
Company and Community Savings. The MRP and Stock Option
Plans will be subject to approval at a meeting of
stockholders which may not be held earlier than six months
after the Conversion. If approved, it is expected the MRP
and stock option benefits set forth in the table below would
be available for distribution to employees and directors.
<TABLE>
<CAPTION>
ESTIMATED PERCENTAGE OF SHARES ISSUED,
VALUE OF INCLUDING SHARES ISSUED
SHARES(1) TO THE FOUNDATION
<S> <C> <C>
ESOP $2,280,000 8.0%
MRP stock awards (2) $1,140,000 4.0%
Stock Options (3) 10.0%
</TABLE>
____________________
(1) Assumes shares are allocated to participants at $15.00
per share and that shares are issued in the Conversion
at the midpoint of the Valuation Range.
(2) Any Common Stock awarded under the MRP will be awarded
at no cost to the recipients.
(3) Stock options will be granted with an exercise price
equal to the fair market value of the Company's Common
Stock on the day of grant. Recipients of stock options
will realize value only in the event of an increase in
the price of the Common Stock of the Company following
the date the stock options are granted.
The Company and Community Savings will enter into an
employment agreement with W. R. Gilliam, its President and
Chief Executive Officer. This agreement will have a three
year term and may be extended at the end of each year to
preserve the three year term.
The Company and Community Savings will also enter into
special termination agreements with four other executive
officers. These agreements will have two year terms and may
be extended at the end of each year to preserve the two year
terms. These special termination agreements will provide
certain benefits if the officers are terminated or if their
employment is adversely changed after a change in control.
See "Management of the Bank" for more details regarding
these benefits.
RISK FACTORS Special attention should be given to the "Risk Factors"
section of this Prospectus, which discusses the possible
effects of changes in interest rates on Community Savings
and the thrift industry in general, risks of anticipated
increases in construction, commercial and consumer lending,
anticipated low return on equity following the Conversion,
the limited market for the Common Stock, the cost of the
ESOP, the cost and possible dilutive effect of the MRP and
Stock Option Plan, the dilution of stockholders' interests
and negative impact on earnings caused by the Foundation,
potential financial institution regulation and legislation,
competition, certain anti-takeover considerations, income
tax consequences of subscription rights, risks related to
the year 2000,
13
<PAGE>
the possibility of a delay in completing the offerings and
issuing the shares of Common Stock and certain other matters
that potential purchasers should consider before deciding
whether to subscribe for the Common Stock offered hereby.
14
<PAGE>
SELECTED FINANCIAL
AND OTHER DATA OF COMMUNITY SAVINGS
Set forth below are summaries of historical financial and other data of
Community Savings. This information is derived in part from, and should be read
in conjunction with, the Financial Statements and Notes to Financial Statements
of Community Savings presented elsewhere herein and with the section of this
Prospectus entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations." All averages presented in this Prospectus have been
calculated on a monthly basis unless otherwise stated.
<TABLE>
<CAPTION>
At or for the At or for the At or for the
Nine Months Ended Year Ended Year Ended
September 30, 1998 December 31, 1997 December 31, 1996
------------------ ----------------- -----------------
(Dollars In Thousands)
<S> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $ 170,374 $167,817 $156,751
Loans receivable, net
Held for sale -- 287 2,256
Held for investment 127,403 114,546 85,871
Investments
Available for sale 12,197 9,082 6,991
Held to maturity 3,502 13,397 25,403
Mortgage-backed securities
Available for sale 10,006 9,497 12,486
Held to maturity 5,237 8,650 11,314
Federal funds sold -- 300 350
Deposits 138,024 134,697 122,524
Advances from FHLB 5,000 6,700 9,000
Retained income 23,267 22,837 22,167
SELECTED OPERATING DATA:
Total interest and dividend income $ 9,434 $ 11,583 $ 10,620
Total interest expense 5,221 6,740 6,380
----------- -------- --------
Net interest income 4,213 4,843 4,240
Provision for loan loss 350 360 60
Net interest income after provision for ----------- -------- --------
loan loss
Other operating income 3,863 4,483 4,180
Other operating expense 377 365 357
3,599 3,879 3,937
Income before income taxes ----------- -------- --------
Income tax expense 641 969 600
208 379 201
Net income ----------- -------- --------
$ 433 $ 590 $ 399
=========== ======== ========
SELECTED OTHER DATA:
Return on average assets 0.34%/(1)/ 0.36% 0.26%
Return on average retained income 2.48%/(1)/ 2.60% 1.82%
Average retained income to average assets 13.66% 13.94% 14.26%
Tangible retained income to end of period assets 13.66% 13.61% 14.14%
Interest rate spread for period 2.89%/(1)/ 2.54% 2.20%
Net interest margin 3.49%/(1)/ 3.14% 2.87%
Nonperforming assets to total assets 0.13% 0.14% 0.14%
Loan loss reserves to nonperforming loans 518.81% 324.07% 226.73%
Average interest-earning assets to average-
interest bearing liabilities 114.07% 113.79% 115.48%
Other operating expense to average assets 2.81%/(1)/ 2.38% 2.55%
</TABLE>
(1) Annualized
15
<PAGE>
RISK FACTORS
INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS, IN ADDITION TO THE
INFORMATION PRESENTED ELSEWHERE IN THIS PROSPECTUS, BEFORE DECIDING WHETHER TO
PURCHASE THE COMMON STOCK OFFERED HEREBY.
ANTICIPATED LOW RETURN ON EQUITY FOLLOWING CONVERSION
Historically, Community Savings' earnings have been negatively impacted by
the fact that its asset portfolio contained lower levels of loans and higher
levels of investment securities than its peer institutions. Investments
generally produce lower rates of return than loans, and in recent years the
Company has taken steps to increase the amount of loans outstanding. Much of
this increase has occurred in the higher yielding construction, commercial and
consumer loan portfolios.
At September 30, 1998, Community Savings' ratio of retained income to
assets was 13.7%. On a pro forma basis at September 30, 1998, assuming the sale
of 1,800,000 shares of Common Stock in the Conversion and the contribution of
100,000 shares to the Foundation, the Company's ratio of equity to assets would
have been 24%. With its higher capital position as a result of the Conversion,
it is doubtful that the Company will be able to quickly deploy the capital
raised in the Conversion in loans and other earning assets in a manner
consistent with its business plan and operating philosophies and in a manner
which will generate earnings to support its high capital position. In addition,
the implementation of stock-based employee benefits plans such as the ESOP and
MRP will increase the Company's future compensation expenses, thereby adversely
affecting its net income and return on equity. As a result, it is expected that
the Company's return on equity initially will be below industry norms.
Consequently, investors expecting a return on equity which will meet or exceed
industry norms for the foreseeable future should carefully evaluate and consider
the risk that such returns will not be achieved.
Following the Conversion, the Company may consider plans to reduce capital
if the opportunities to effectively deploy it are not found. Such plans may
include payment of cash dividends and repurchasing shares. Any such steps would
be taken based on conditions as they exist following the Conversion and in
compliance with applicable regulatory and other factors which limit the
Company's ability to pay dividends and repurchase its stock. See "Use of
Proceeds," "Dividend Policy" and "Supervision and Regulation - Regulation of the
Company - General" and "- Dividend Limitations" and "Supervision and Regulation
- - Regulation of Community Savings - Restrictions on Dividends and Other Capital
Distributions."
INCREASED RISKS ASSOCIATED WITH HIGHER LEVELS OF CONSTRUCTION, COMMERCIAL AND
CONSUMER LOANS
Community Savings plans to continue making higher levels of construction,
commercial and consumer loans in the near future. Construction, commercial and
consumer loans generally have short terms or adjustable rates that are subject
to frequent adjustment to reflect changes in market rates. Construction,
commercial and consumer loans also generally have higher rates of return than
first mortgage home loans.
However, such loans generally require specialized underwriting skills and
involve a higher degree of risk than single family mortgage lending. Many of
Community Savings' construction loans are, and are expected to continue to be,
loans to builders constructing homes and other properties on a speculative
basis. As a result, repayment is often dependent upon the builder's ability to
sell the building upon completion. Community Savings' risk of loss is also
influenced by the accuracy of the estimate of the property's value upon
completion and by the accuracy of estimated costs of construction. As a result,
the risks in construction lending are affected by the abilities of the builders
and by general economic and market conditions.
Commercial loans are generally larger than other loans and involve greater
concentration of assets. In addition, payments on these loans depend to a large
degree on results of operation and management abilities and may be affected to a
greater extent by adverse conditions in real estate markets or the economy in
general.
16
<PAGE>
Consumer loans also generally involve more risk than first mortgage home
lending because payment patterns are more significantly influenced by general
economic conditions and because the collateral for such loans, such as
automobiles, frequently consists of depreciating property.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The results of operations of Community Savings, as with savings
institutions generally, are dependent to a large degree on its net interest
income, which is generally the difference between interest income from loans and
investments and interest expense on deposits and borrowings. Community Savings'
interest income and interest expense are significantly affected by general
economic conditions and by policies of the federal government and various
regulatory agencies.
In recent years, the assets of many savings institutions, including
Community Savings, have been negatively "gapped"- which means that the dollar
amount of interest-bearing liabilities which reprice within specific time
periods, either through maturity or rate adjustment, exceeds the dollar amount
of interest-earning assets which reprice within such time periods. As a result,
the net interest income of these savings institutions, including Community
Savings, would be expected to be negatively impacted by increases in interest
rates.
Some thrift and banking institutions have a positive gap, which means that
the amount of interest-earning assets maturing or otherwise repricing within
specific time periods exceeds the amount of interest-bearing liabilities
maturing or otherwise repricing within such periods. Accordingly, in a rising
interest rate environment, absent the effect of other factors, those
institutions would expect to experience a larger increase in the yield on their
assets relative to the cost of their liabilities, thus their net interest income
should be positively affected.
At September 30, 1998, Community Savings' cumulative one year gap as a
percentage of total average interest-earning assets was a negative 18.02%, and
its cumulative five year gap as a percentage of total average interest-earning
assets was a positive 9.28%. This gap position reflects the fact that while a
large percentage of Community Savings' assets have adjustable rates, the rates
on many of its adjustable rate loans do not adjust during the first five years
of the loan term. Community Savings' computes its gap position using certain
prepayment, deposit decay and other assumptions used by the FHLB in making such
computations. The results of Community Savings' gap computations could be
substantially different if other assumptions were used.
In addition to the interest rate gap analysis discussed above, Community
Savings' management monitors interest rate sensitivity through the use of a
model which estimates the change in net portfolio value and net interest income
in response to a range of assumed changes in market interest rates. Net
portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet items. The model estimates the effect on
Community Savings' net portfolio value and net interest income of instantaneous
and permanent 100 to 400 basis point increases and decreases in market interest
rates. Community Savings' Board of Directors has established maximum acceptable
decreases in net portfolio value and net interest income for various rate
scenarios. Computations as of September 30, 1998, indicated that a 200 basis
point increase in interest rates would result in a 13.36% decrease in Community
Savings' net portfolio value and a 200 basis point decrease in interest rates
would result in a 12.47% increase in Community Savings' net portfolio value.
Such computations also indicate that the same 200 basis point increase in
interest rates would result in a 12.68% decrease in net interest income and that
a 200 basis point decrease in interest rates would result in a 1.28% increase in
net interest income. Computations of the prospective effects of hypothetical
interest rate changes in determining the effect on net portfolio value and net
interest income 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 and the
gap computations described above do not incorporate any actions management may
undertake in response to changes in interest rates.
17
<PAGE>
The computations described above indicate that Community Savings' asset and
liability structure presents significant interest rate risk and that Community
Savings' portfolio value and net interest income could be negatively impacted by
increases in interest rates. Because of Community Savings' capital position and
historical results of operations, Community Savings' management did not consider
Community Savings' interest rate risk position as of September 30, 1998 to be
unacceptable.
Community Savings' results of operations will continue to be significantly
affected by changes in interest rates due, among other factors, to (i) the fact
that a large percentage of Community Savings' adjustable rate assets do not
reprice during the first five years of the loan term, (ii) the fact that a large
percentage of Community Savings' deposit accounts are subject to immediate
repricing or to repricing within one year, (iii) the fact that Community
Savings' interest-earning assets and interest-bearing liabilities reprice at
different times and with different frequencies, (iv) the effects of periodic and
lifetime interest rate caps on Community Savings' interest-earning assets, (v)
the fact that the index used in adjusting many of Community Savings' older
adjustable rate loans, a national cost of funds index, tends to lag behind
changes in market interest rates, (vi) the fact that interest rates on Community
Savings' assets and liabilities respond differently to economic, market and
competitive factors, and (vii) the fact that sustained high levels of interest
rates may adversely affect real estate and lending markets in general. Changes
in the level of interest rates also can affect the amount of loans originated by
Community Savings. Changes in interest rates also can result in
disintermediation, which is the flow of funds away from savings institutions
into direct investments, such as U.S. government and corporate securities, and
other investment vehicles which, because of the absence of federal deposit
insurance premiums and reserve requirements, sometimes can pay higher rates of
interest than savings institutions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Asset/Liability Management."
LIMITED MARKET FOR THE COMMON STOCK
Neither the Company nor Community Savings has ever issued shares of its
Common Stock to the public. Consequently, no market now exists for the Common
Stock. The Company has received conditional approval to have the Common Stock
listed for quotation on the Nasdaq National Market under the symbol "FCFN",
subject to consummation of the Conversion and other conditions.
The existence of a public trading market will depend upon the presence in
the marketplace of both willing buyers and willing sellers at any given time.
The presence of a sufficient number of buyers and sellers at any given time is a
factor over which neither the Company nor any broker or dealer has control; and
there can be no assurance that an active and liquid trading market will develop,
or once developed, continue. Purchasers of Common Stock should recognize that
the absence of an active and liquid trading market may make it difficult to sell
the Common Stock and may have an adverse effect on the price. Purchasers should
consider the potentially illiquid and long-term nature of their investment in
the shares offered hereby. See "Market for Common Stock."
COST OF ESOP
It is expected that the ESOP will purchase, with funds borrowed from the
Company, 8% of the sum of the number of shares of Common Stock issued in the
Conversion and the number of shares contributed to the Foundation. See
"Management of Community Savings - Employee Stock Ownership Plan." Assuming the
issuance of 2,070,000 shares in the Conversion and the contribution of 100,000
shares to the Foundation, it is expected that 173,600 shares will be purchased
by the ESOP, which - if such shares are acquired at $15.00 per share - would
have a value of $2,604,000.
If, because of an oversubscription for shares of Common Stock or for any
other reason, the ESOP is unable to purchase in the Conversion 8% of the sum of
the number of shares issued in the Conversion and the number of shares
contributed to the Foundation, then the Board of Directors of the Company
intends to approve the purchase by the ESOP in the open market after the
Conversion of such shares as are necessary for the ESOP to acquire such
18
<PAGE>
number. In that event, the actual cost of the ESOP may be more or less than the
amounts set forth above because the price paid for its shares will depend upon
the price at which the ESOP can acquire shares in the open market. The purchase
of Common Stock by the ESOP will reduce the pro forma stockholders' equity of
Community Savings. See "Pro Forma Data."
American Institute of Certified Public Accountants Statement of Position
("SOP") 93-6, "Employers' Accounting for Employee Stock Ownership Plans", among
other things, requires the measure of compensation recorded by employers to be
based upon the fair value of ESOP shares. Since the fair value of the shares
following the offerings cannot be predicted, Community Savings cannot reasonably
estimate the impact of SOP 93-6 on its financial statements. While an increase
in such fair value will cause an increase in ESOP-related expenses for
accounting purposes, an increase in the fair value of the shares after they are
acquired would not increase the actual out-of-pocket cost of the ESOP.
COST AND POSSIBLE DILUTIVE EFFECT OF THE MRP AND STOCK OPTION PLAN
It is expected that the stockholders of the Company will be asked to
approve the Stock Option Plan and the MRP at a meeting of stockholders after the
Conversion. Under the MRP, directors and certain employees of Community Savings
would be awarded an aggregate amount of Common Stock equal to 4% of the sum of
the number of shares issued in the Conversion and the number of shares
contributed to the Foundation. Under the Stock Option Plan, directors and
certain employees of Community Savings would be granted options to purchase an
aggregate amount of Common Stock equal to 10% of the sum of the number of shares
issued in the Conversion and the number of shares contributed to the Foundation
at exercise prices equal to the market price of the Common Stock on the date of
grants.
Shares issued under the MRP and the Stock Option Plan may be from
authorized but unissued shares of Common Stock or they may be purchased in the
open market. In the event the shares issued under the MRP and the Stock Option
Plan consist of newly issued shares of Common Stock, the interests of existing
stockholders would be diluted. If 2,070,000 shares of the Common Stock are
issued in the Conversion and 100,000 shares are contributed to Foundation, it is
expected that awards of 86,800 shares could be made under the MRP and options to
acquire 217,000 shares of the Common Stock could be granted under the Stock
Option Plan. If all such shares were newly issued, the exercise price was $15.00
for the shares issued pursuant to the options, and all of the options were
exercised, the number of outstanding shares of Common Stock would increase from
2,170,000 to 2,473,800, the pro forma book value per share of the outstanding
Common Stock at September 30, 1998 would have been $22.03 compared with $23.00
if such plans did not exist, and the pro forma net income per share of the
outstanding Common Stock for the fiscal year ended December 31, 1997 would have
been $0.52 compared with $0.53 if such plans did not exist.
The cost of the shares acquired by the MRP will be expensed equally over
the vesting period set forth in the MRP. If 2,070,000 shares of Common Stock are
issued in the Conversion and 100,000 shares are contributed to Foundation, the
MRP acquired 86,800 shares at a cost of $15.00 per share and the shares vested
equally over a five year period, the total annual expense of the MRP would be
$260,400 per year. See "Pro Forma Data" and "Management of Community Savings -
Proposed Management Recognition Plan" and "- Proposed Stock Option Plan."
COSTS AND RISKS ASSOCIATED WITH ESTABLISHMENT OF THE FOUNDATION
If the Conversion is approved by Community Savings' members, the Company
intends to establish the Foundation and to contribute to the Foundation up to
100,000 shares of Common Stock having a value of $1,500,000. The establishment
of the Foundation will be dilutive to the voting and ownership interests of
stockholders and will have an adverse impact on the operating results of the
Company for its year ending December 31, 1999, possibly resulting in an
operating loss for that year.
19
<PAGE>
DILUTION OF STOCKHOLDERS' INTERESTS. The contribution to the Foundation
will be 100,000 shares, with a value of $1,500,000 based on the public offering
price of $15.00 per share. Upon completion of the Conversion and establishment
of the Foundation, the Company would have 1,630,000, 1,900,000, 2,170,000 and
2,480,500 shares issued and outstanding at the minimum, midpoint, maximum and
maximum as adjusted, of the Valuation Range, of which the Foundation would own
6.13%, 5.26%, 4.61% or 4.03%, respectively. AS A RESULT, PERSONS PURCHASING
SHARES IN THE CONVERSION WILL HAVE THEIR OWNERSHIP AND VOTING INTERESTS IN THE
COMPANY DILUTED ACCORDINGLY. SEE "PRO FORMA DATA."
NEGATIVE IMPACT ON EARNINGS. The Company will recognize a $1,500,000
expense in the amount of the contribution to the Foundation in the quarter in
which it occurs, which is expected to be the second quarter of 1999. Such
expense will have a material adverse impact on the Company's earnings for the
fiscal year. The contribution expense will be partially offset by the tax
deductibility of the expense. The Company has been advised by its tax counsel
that the contribution to the Foundation will be deductible for federal income
tax purposes, subject to a limitation based on 10% of the Company's annual
taxable income. If the Foundation had been established at September 30, 1998,
Community Savings would have reported a net loss of $547,000 for the nine months
of 1998 rather than reporting net income of $443,000.
POSSIBLE NONDEDUCTIBILITY OF THE CONTRIBUTION. The Company estimates that
substantially all of the contribution to the Foundation should be deductible for
federal tax purposes over the permissible six-year period. However, no assurance
can be made that the Company will have sufficient pre-tax income over the five-
year period following the year in which the contribution is initially made to
fully utilize the carryover related to the excess contribution. Furthermore,
although the Company and Community Savings have received an opinion of their tax
counsel that the Company should be entitled to the deduction for the
contribution to the Foundation, there can be no assurance that the IRS will
recognize the Foundation as a Section 501(c)(3) exempt organization or that the
deduction will be permitted. In such event, there would be no tax benefit
related to the Foundation.
POTENTIAL ANTI-TAKEOVER EFFECT. Upon completion of the Conversion, the
Foundation will own 6.13%, 5.26%, 4.61% or 4.03% of the total shares of the
Company's Common Stock outstanding at the minimum, midpoint, maximum and
maximum, as adjusted, of the Valuation Range.
The Foundation's board of directors (who initially will be appointed by
Community Savings' Board of Directors) will exercise sole voting power over such
shares, subject to their fiduciary duties. This potential voting power might be
used to preclude takeover attempts that certain stockholders deem to be in their
best interests, and might tend to perpetuate management.
POTENTIAL CHALLENGES. The establishment and funding of a charitable
foundation as a part of a conversion is innovative and has been done in only a
limited number of instances. As such, the Foundation may be subject to potential
challenges notwithstanding that the Board of Directors of the Company and
Community Savings have carefully considered the various factors involved in the
establishment of the Foundation. If anyone were to institute an action seeking
to require that Community Savings eliminate establishment of the Foundation, no
assurances can be made that the resolution of such action would not result in a
delay in the consummation of the Conversion or that such persons would not be
ultimately successful in obtaining elimination of the Foundation or other
equitable relief or monetary damages against the Company or Community Savings.
Additionally, if the Company and Community Savings were forced to eliminate the
Foundation, the aggregate pro forma market value of the Company and Community
Savings would increase because the current Valuation Range takes into account
the dilutive impact of the issuance of the shares to the Foundation. Because of
its effect on the valuation of the shares of Common Stock, the elimination of
the Foundation could necessitate a resolicitation of subscribers in the
offerings, which would delay consummation of the Conversion and the issuance of
shares.
20
<PAGE>
FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION
Community Savings is subject to extensive regulation and supervision as a
North Carolina-chartered savings bank. In addition, the Company, as a bank
holding company, is subject to extensive regulation and supervision. Any change
in the regulatory structure or the applicable statutes or regulations, whether
by the Administrator, the Board of Governors of the Federal Reserve System (the
"Federal Reserve"), the FDIC, the North Carolina Legislature or the Congress,
could have a material impact on the Company, Community Savings, or the
Conversion.
Congress currently has under consideration various proposals to consolidate
the regulatory functions of the four federal banking agencies: the Office of
Thrift Supervision, the FDIC, the Office of the Comptroller of the Currency and
the Federal Reserve. The outcome of efforts to effect regulatory consolidation
is uncertain. Therefore, Community Savings is unable to determine the extent to
which legislation, if enacted, would affect its business.
ANTI-TAKEOVER CONSIDERATIONS
PROVISIONS IN THE ARTICLES OF INCORPORATION AND BYLAWS. The Company's
Articles of Incorporation and Bylaws contain certain provisions that may
discourage attempts to acquire control of the Company that are not negotiated
with the Company's Board of Directors. These provisions may result in the
Company being less attractive to a potential acquiror and may result in
stockholders receiving less for their shares than otherwise might be available
in the event of a takeover attempt. In addition, these provisions may have the
effect of discouraging takeover attempts that some stockholders might deem to be
in their best interests, including takeover proposals in which stockholders
might receive a premium for their shares over the then-current market price, as
well as making it more difficult for individual stockholders or a group of
stockholders to elect directors or to remove incumbent management. The
Company's Board of Directors believes, however, that these provisions are in the
best interests of the Company and its stockholders because such provisions
encourage potential acquirors to negotiate directly with the Board of Directors,
which the Board of Directors believes is in the best position to act on behalf
of all stockholders.
These provisions include, among others, that (i) the Board of Directors has
the authority to change the number of directors within a range from five to 15;
(ii) stockholders who intend to nominate a candidate for election to the Board
of Directors must give advance notice to the Secretary of the Company; (iii)
terms for directors will be staggered at any time that the number of directors
exceeds nine; (iv) certain merger, consolidation, or other business combinations
(as defined in the Articles of Incorporation) must receive the affirmative vote
of at least 75% of the Continuing Directors (as defined in the Articles of
Incorporation); (v) special meetings of stockholders may be called only by the
Chairman of the Board, the Chief Executive Officer, the President or by the
Board of Directors and (vi) directors may be removed from office prior to the
end of their term only for cause.
In addition, the Articles of Incorporation do not provide for cumulative
voting for any purpose. As a result, a majority of shareholders will be able to
approve matters presented to the shareholders for consideration, except such
matters as require more than a majority vote for approval. The Company's
Articles of Incorporation state that the Board of Directors, without the
approval of the stockholders, may authorize the issuance of shares of preferred
stock with such voting rights, designations, preferences, limitations and
relative rights as the Board of Directors shall determine. As a result, the
Board of Directors has the power, to the extent consistent with its fiduciary
duties, to issue preferred stock to persons friendly to management or otherwise
in order to impede attempts by third parties to acquire voting control of the
Company and to impede other transactions not favored by management. The amended
Certificate of Incorporation and Bylaws of Community Savings upon its conversion
to stock form also contain certain provisions that might discourage potential
takeover attempts of Community Savings. See "Anti-Takeover Provisions Affecting
the Holding Company and Community Savings."
21
<PAGE>
REGULATORY PROVISIONS. Regulations of the Administrator contain provisions
that, for a period of three years after the Conversion is consummated, prohibit
any person from directly or indirectly acquiring or offering to acquire
beneficial ownership of more than 10% of any class of equity security of the
Company or Community Savings, with certain exceptions, without the prior
approval of the Administrator. If any person should acquire beneficial
ownership of more than 10% of any class of equity security without prior
approval, any shares beneficially owned in excess of 10% would not be counted as
shares entitled to vote and would not be voted in connection with any matter
submitted to the stockholders for a vote.
Regulations provide that the Administrator will give his approval of such
an acquisition during the first year after the Conversion only to protect the
safety and soundness of the Company and Community Savings. Approval will be
given during the second and third years after the Conversion upon a finding by
the Administrator that (i) the acquisition is necessary to protect the safety
and soundness of the Company and Community Savings or the Board of Directors of
the Company supports the acquisition, and (ii) the acquiror is of good character
and integrity and possesses satisfactory managerial skills, after the
acquisition the acquiror will be a source of financial strength to the Company
and Community Savings, and the interests of the public will not be adversely
affected by the acquisition. Approval is not required for (i) any offer with a
view toward public resale made exclusively to the Company or its underwriters or
the selling group acting on its behalf, or (ii) any offer to acquire or
acquisition of beneficial ownership of more than 10% of the common stock of the
Company by a corporation whose ownership is or will be substantially the same as
the ownership of the Company, provided that the offer or acquisition is made
more than one year following the consummation of the Conversion. See "Anti-
Takeover Provisions Affecting the Company and Community Savings."
The Change in Bank Control Act, together with North Carolina regulations,
require that the consent of the Administrator and Federal Reserve be obtained
prior to any person or company acquiring "control" of a savings bank or a
savings 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 the Company or Community
Savings 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
(i) the issuer's securities are registered under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as the Company's
securities will be, or (ii) the person would be the single largest stockholder.
Restrictions applicable to the operations of bank holding companies and
conditions imposed by the Federal Reserve in connection with its approval of
such acquisitions may deter potential acquirors from seeking to obtain control
of the Company. See "Supervision and Regulation - Regulation of the Company."
VOTING CONTROL OF OFFICERS, DIRECTORS AND EMPLOYEES. Directors and
executive officers of Community Savings and the Company expect to purchase
approximately 13.39% to 8.80% of the shares of Common Stock issued in the
Conversion and contributed to the Foundation based upon the minimum and the
maximum, as adjusted, of the Valuation Range, respectively. See "Anticipated
Stock Purchases by Management."
In addition, it is expected that the ESOP will acquire a number of shares
equal to 8% of the sum of the shares issued in the Conversion and the shares
contributed to the Foundation. Employees will vote the shares allocated to them
under the ESOP. The ESOP trustees (directors of Community Savings) will vote
unallocated shares, and allocated shares for which no voting instructions have
been received, in their discretion, subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
Under the proposed MRP, if approved by the stockholders of the Company, a
number of shares equal to 4% of the sum of the number of shares issued in the
Conversion and the number of shares contributed to the Foundation could be
issued to directors and certain employees of Community Savings. Such shares
could be purchased in the open market or could be issued out of authorized but
unissued shares. Recipients of shares under the MRP will have voting control
over such shares regardless of whether such shares have vested. See "Management
of Community Savings - Proposed Management Recognition Plan."
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<PAGE>
Under the proposed Stock Option Plan, if approved by the stockholders of
the Company, directors and certain employees of Community Savings could receive
options to purchase a number of shares equal to 10% of the sum of the number of
shares issued in the Conversion and the number of shares contributed to the
Foundation. Shares to fund such options could be acquired in the open market or
could be acquired through the issuance of authorized but unissued shares. If
shares are acquired in the open market and held by the Stock Option Plan prior
to the exercise of options under the Plan, holders of unexercised options will
have voting control over the shares held to fund their options. See "Management
of Community Savings - Proposed Stock Option Plan."
In addition, the Foundation's directors (who will be initially appointed
by Community Savings' Board of directors) could exercise sole voting power of
between 6.13% and 4.03% of the shares of Common Stock outstanding based upon
the minimum and maximum, as adjusted, of the Valuation Range, respectively.
Because the Company's Articles of Incorporation require the affirmative
vote of 75% of the outstanding shares entitled to vote to approve certain
mergers, consolidations or other business combinations, the directors, officers
and employees, as a group, could effectively block such transactions. See
"Anti-Takeover Provisions Affecting the Company and Community Savings - The
Company - Supermajority Voting Provisions."
AGREEMENTS WITH EMPLOYEES. In connection with the Conversion, Community
Savings will enter into an employment agreement with W. R. Gilliam, its
President and Chief Executive Officer and will enter into Special Termination
Agreements with four other executive officers. See "Management of Community
Savings - Employment Agreement" and "Special Termination Agreements." The
existence of the employment agreements and special termination agreements may
tend to discourage mergers, consolidations, acquisitions or other transactions
that would result in a change in control of the Company or Community Savings.
See "Anti-Takeover Provisions Affecting the Company and Community Savings - The
Company - Anti-Takeover Effect of Employment Agreement, Special Termination
Agreements and Benefit Plans."
INCOME TAX CONSEQUENCES OF SUBSCRIPTION RIGHTS
If the subscription rights granted in connection with the Conversion are
deemed to have an ascertainable value, receipt of such rights will be taxable to
recipients who exercise such subscription rights to purchase shares, either as
ordinary income or capital gain, in an amount not in excess of such value.
Whether such subscription rights are considered to have any ascertainable value
is an inherently factual determination. Community Savings has received an
opinion from Ferguson stating that the subscription rights do not have any
ascertainable value. The opinion of Ferguson is not binding on the IRS. See
"The Conversion - Income Tax Consequences."
RISKS RELATED TO YEAR 2000
As the year 2000 approaches, an important business issue has emerged
regarding how existing software programs and operating systems can accommodate
this date change. Many existing software products were designed to accommodate
only two-digits. For example, "98" is stored on the system and represents 1998.
Community Savings has conducted a comprehensive review of its systems to
identify applications that could be affected by the "Year 2000" issue and has
developed an implementation plan to address the issue. Community Savings has
already begun testing on its own systems and expects that such testing will be
completed during the first quarter of 1999. Community Savings' primary service
providers have indicated that all their reprogramming efforts are substantially
complete, allowing Community Savings significant time for testing. Preliminary
testing has already been successfully completed. Community Savings believes
that its costs related to Year 2000 will total approximately $550,000, of which
approximately $428,000 had been incurred at December 31, 1998. These costs
include replacing all computer hardware with year 2000 certified systems and
replacing nearly all existing software systems.
23
<PAGE>
There can be no assurances, however, that the actions taken by Community
Savings and its service providers will be effective to remedy all potential
problems. To the extent Community Savings' or its vendors' systems are not
fully Year 2000 compliant, there can be no assurance that resulting errors,
potential systems interruptions or the costs necessary to update software would
not have a materially adverse effect on the Company's business, financial
condition, results of operations and business prospects.
POSSIBLE DELAYS IN CONSUMMATION OF THE CONVERSION
Consummation of the Conversion is contingent upon receipt of approvals from
the Administrator and Federal Reserve. In addition, the Conversion cannot be
consummated until the FDIC issues a notice of non-objection with respect to the
transaction and until the Conversion has been approved by the members of
Community Savings. Final regulatory approval is subject to receipt and review of
an updated appraisal from Ferguson which considers the results of the offerings
and any material developments occurring subsequent to the most recent appraisal
submitted in connection with the Conversion. Consummation will be delayed if the
Foundation is not approved by the members of Community Savings at the Special
Meeting and, as a result, subscribers must be resolicited. See "- Costs and
Risks Associated with Establishment of the Foundation - Approval of Members."
Accordingly, consummation of the Conversion and issuance of certificates
for shares of Common Stock could be delayed. Until the Conversion is
consummated, no shares of Common Stock may be traded.
If the Conversion is not consummated, all subscription funds held will be
returned with interest and all withdrawal authorizations will be terminated.
BEST EFFORTS OFFERING
The Company and Community Savings have engaged Trident Securities, Inc.
("Trident Securities") to consult with and advise them 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 offerings. Trident Securities is under no obligation to purchase any shares
of Common Stock in any of the offerings. Trident Securities has not prepared or
delivered any opinion or recommendation with respect to the appropriateness of
the amount of Common Stock to be issued in the Conversion. Trident Securities
has not prepared any fairness opinion with respect to the terms of the offerings
or any opinion with respect to the price at which shares of Common Stock may
trade.
DILUTIVE EFFECT OF THE ISSUANCE OF ADDITIONAL SHARES TO CORRECT ERRORS IN
ALLOCATIONS
The Plan of Conversion provides that, if errors are made in allocating
shares among subscribers, the Company may issue additional shares up to three
percent of the shares issued in the Conversion, in order to correct such errors.
Such additional shares, if any, would be issued at $15.00 per share. The
Company does not anticipate the need to issue such additional shares, but if
such shares were issued, the ownership and voting interests of existing
shareholders would be diluted accordingly.
FIRST COMMUNITY FINANCIAL CORPORATION
The Company was incorporated under North Carolina law in October 1998 at
the direction of Community Savings for the purpose of acquiring and holding all
of the outstanding capital stock of Community Savings to be issued in connection
with the Conversion. The Company has received conditional approval from the
Federal Reserve and the Administrator to become a bank holding company and as
such will be subject to regulation by the Federal Reserve and the Administrator.
The holding company structure will give the Company greater flexibility than
Community Savings currently has to expand and diversify its business activities.
See "Supervision and Regulation - Regulation of the Company."
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<PAGE>
Prior to completion of the Conversion, the Company will not own any
material assets or transact any material business. Upon completion of the
Conversion, on an unconsolidated basis, the Company will have no significant
assets other than the stock of Community Savings acquired in the Conversion, the
loan receivable with respect to the loan made to the ESOP to enable the ESOP to
purchase shares of Common Stock in the Conversion, and the portion of the net
proceeds from the sale of Common Stock in the Conversion which are retained by
the Company. Some of the proceeds of the offerings retained by the Company
could subsequently be deposited in, loaned to, or invested in Community Savings.
The Company will have no significant liabilities upon completion of the
Conversion. The management of the Company is set forth under "Management of the
Holding Company." The executive office of the Company is located at the
headquarters office of Community Savings at 708 South Church Street, Burlington,
North Carolina.
The existing management of the Company believes it will be in the best
interests of the Company, Community Savings and the Company's stockholders for
the Company to remain an independent company.
COMMUNITY SAVINGS BANK, SSB
Community Savings is a North Carolina-chartered mutual savings bank.
Community Savings was organized in 1934. Community Savings has been a member of
the Federal Home Loan Bank ("FHLB") system and its deposits have been federally
insured since 1934. The deposits of Community Savings are insured by the Savings
Association Insurance Fund ("SAIF") of the FDIC to the maximum extent permitted
by law.
Community Savings is a member of the FHLB of Atlanta, which is one of the
12 regional banks for federally-insured savings institutions and other eligible
members comprising the FHLB system. As a North Carolina-chartered savings bank,
Community Savings is regulated by the Administrator. Community Savings is
further subject to regulations of the FDIC with respect to certain matters and,
as a subsidiary of the Company, will be indirectly subject to regulation by the
Federal Reserve. See "Supervision and Regulation - Regulation of the Company"
and "- Regulation of Community Savings."
Community Savings conducts business through three full service offices in
Burlington, North Carolina, one full service office in Graham, North Carolina
and one loan origination office in Burlington. Community Savings' primary
market area encompasses Alamance County, North Carolina, although the bank has
recently begun making significant amounts of loans to borrowers in Guilford
County to the west. At September 30, 1998, Community Savings had total assets
of $170.4 million, net loans of $127.4 million, deposits of $138.0 million and
retained income of $23.3 million.
Community Savings is a community-oriented financial institution which
offers a variety of financial services to meet the needs of the communities it
serves. Community Savings is principally engaged in the business of attracting
deposits from the general public and using such deposits to make residential
real estate loans, commercial loans, construction loans, home equity line of
credit loans, consumer loans and various investments.
Revenues of Community Savings are derived primarily from interest on loans.
Community Savings also receives interest income from its investments, mortgage-
backed securities and interest-earning deposit balances. Community Savings also
receives non-interest income from transaction and service fees and other
sources. The major expenses of Community Savings are interest on deposits and
general and administrative expenses such as compensation and employee benefits,
federal deposit insurance premiums, data processing expenses and occupancy and
related expenses.
25
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently estimated that
such net proceeds will be between $22,076,000 and $30,045,000, based on the
current Valuation Range. If the gross proceeds of the shares sold are increased
to 15% above the maximum of the Valuation Range, it is estimated that net
proceeds will equal $34,627,500. See "Pro Forma Data" for the assumptions used
to arrive at these amounts. The actual net proceeds may vary materially from
the estimated amounts.
The estimated amount of net proceeds includes proceeds from the sale of the
shares which are expected to be purchased by the ESOP in the Subscription
Offering with funds borrowed from the Company. The amount loaned to the ESOP to
enable such purchases is estimated to range from $1,956,000 (if 1,530,000 shares
are issued in the Conversion) to $2,604,000 (if 2,070,000 shares are issued in
the Conversion). If for any reason the ESOP is unable to purchase its shares in
the Subscription Offering, the ESOP is expected to purchase its shares in the
open market - in which event the cost of the purchases may be higher or lower
because the purchase price per share may be higher or lower than $15.00. See
"Management of Community Savings - Employee Stock Ownership Plan."
After first deducting the amount of the net proceeds used by the Company to
make the loan to the ESOP (estimated to range from $1,956,000 to $2,604,000), it
is expected that the Company will retain approximately 50% of the remaining net
proceeds of the offerings and will pay the balance of the net proceeds to
Community Savings in exchange for all of the common stock of Community Savings
to be issued in connection with the Conversion. From such balance paid to
Community Savings, it is expected that Community Savings will pay $1,500,000
back to the Company for the 100,000 shares of Common Stock to be issued to
Community Savings and then contributed to the Foundation.
The Company expects to use the portion of the net proceeds it retains for
working capital and investment purposes. The Company does not expect to have
significant operating expenses and anticipates that it will initially invest the
net proceeds it retains primarily in interest-earning deposits, U.S. government,
federal agency and other marketable securities and mortgage-backed securities.
Such proceeds could also be loaned to, deposited in or invested in Community
Savings. The types and amounts of such investments will vary from time to time
based upon the interest rate environment, asset/liability mix considerations and
other factors.
Net proceeds paid to Community Savings initially will become part of
Community Savings' general funds and will be invested primarily in loans,
mortgage-backed securities and investments consisting primarily of interest-
earning deposit balances, U.S. government and federal agency obligations and
other marketable securities in accordance with Community Savings' lending and
investment policies. The relative amounts to be invested in each of these types
of investments will depend upon loan demand, rates of return and asset/liability
matching considerations at the time the investments are to be made. Management
is not able to predict the yields which will be produced by the investment of
the proceeds of the offerings because such yields will be significantly
influenced by general economic conditions and the interest rate environment
existing at the time the investments are made. Proceeds not so invested will be
used for general corporate purposes.
The net proceeds retained by the Company and Community Savings could also
be used to support the future expansion of operations of the Company and
Community Savings through acquisitions of other financial institutions or their
branches or the opening of new branches in or near Community Savings' primary
market area. The Company has no pending agreements or understandings regarding
any such acquisitions or branch openings, and there are no pending negotiations
regarding any such acquisitions or branch openings at this time.
26
<PAGE>
The proceeds of the offerings will result in an increase in Community
Savings' net worth and regulatory capital and may enhance the potential for
growth through increased lending and investment activities, branch acquisitions,
business combinations or otherwise. Payments for shares of Common Stock of the
Company made through the withdrawal of existing deposit accounts at Community
Savings will not result in the receipt of new funds for investment.
If the MRP is adopted, the MRP will acquire a number of shares of Common
Stock equal to 4% of the sum of the number of shares issued in the Conversion
and the number of shares contributed to the Foundation. See "Management of
Community Savings - Proposed Management Recognition Plan." Such shares may be
acquired in the open market or acquired through the Company's issuance of
authorized but unissued shares. In the event shares are acquired in the open
market, the funds for such purchase may be provided by Community Savings from
the proceeds of the Conversion. It is estimated that between 65,200 and 86,800
shares will be acquired by the MRP, assuming the issuance of between 1,530,000
and 2,070,000 shares, respectively, and the contribution of 100,000 shares to
the Foundation, in the Conversion. If all such shares were acquired by the MRP
in the open market, and if such shares were acquired at a price of $15.00 per
share, Community Savings would contribute between $978,000 and $1,302,000,
respectively, to the MRP for this purpose.
If the Stock Option Plan is adopted, the Stock Option Plan could acquire a
number of shares of Common Stock in the open market equal to 10% of the sum of
the number of shares issued in the Conversion and the number of shares
contributed to the Foundation. These shares would be held by the Stock Option
Plan for issuance upon the exercise of stock options. To the extent the Stock
Option Plan does not acquire sufficient shares to satisfy options granted under
the Stock Option Plan, the Company will reserve authorized but unissued shares
for this purpose. See "Management of Community Savings - Proposed Stock Option
Plan." In the event shares are acquired in the open market, the funds for such
purchase may be provided by the Company or Community Savings from the proceeds
of the Conversion. It is estimated that between 163,000 and 217,000 shares will
be acquired by the Stock Option Plan, assuming the issuance of between 1,530,000
and 2,070,000 shares, respectively, in the Conversion. If all such shares were
acquired by the Stock Option Plan in the open market, and if such shares were
acquired at a price of $15.00 per share, the Company or Community Savings would
contribute between $2,445,000 and $3,255,000 respectively, to the Stock Option
Plan for this purpose.
Upon completion of the Conversion, the Board of Directors will have the
authority to adopt stock repurchase plans, subject to statutory and regulatory
requirements. Based upon facts and circumstances which may arise following the
Conversion, the Board of Directors may determine to repurchase stock in the
future. Such facts and circumstances may include, but are not limited to (i)
market and economic factors such as the price at which the Common Stock is
trading, the volume of trading, the attractiveness of other investment
alternatives in terms of the rates of return and risks involved in the
investments, (ii) the ability to increase the book value and earnings per share
of the remaining outstanding shares and improve the Company's return on equity;
(iii) the reduction of dilution to stockholders caused by having to issue
additional shares to cover the exercise of stock options or to fund employee
stock benefit plans; and (iv) any other circumstances in which repurchases would
be in the best interests of the Company and its stockholders.
Any stock repurchases will be subject to the determination of the Board of
Directors that both the Company and Community Savings will be capitalized in
excess of applicable regulatory requirements after any such repurchases and that
capital will be adequate taking into account, among other things, the level of
nonperforming assets and other risks, the Company's and Community Savings'
current and projected results of operations and asset/liability structure, the
economic environment and tax and other regulatory considerations. Federal
regulations require that, subject to certain exceptions, the Company must
obtain approval of the Federal Reserve prior to repurchasing Common Stock for in
excess of 10% of its net worth during any 12 month period. See "Supervision and
Regulation - Regulation of the Company - Dividend and Repurchase Limitations."
The Company has no intention to repurchase any Common Stock during the first
year following the Conversion.
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<PAGE>
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. The Company now expects to pay semiannual cash
dividends on the Common Stock at an initial semiannual rate of 15 cents per
share (or an annual rate of 30 cents per share). The Company expects that the
first dividend will be paid after the end of the first calendar quarter ending
at least six months after the Conversion. In addition, the Board of Directors
may determine from time to time that it is prudent to pay special nonrecurring
cash dividends. Special cash dividends, if paid, may be in addition to, or in
lieu of, regular cash dividends.
The Company's Board of Directors will periodically review its policy
concerning dividends. Declarations of dividends, if any, by the Board of
Directors will depend upon a number of factors, including investment
opportunities available to the Company and Community Savings, capital
requirements, regulatory limitations, the Company's and Community Savings'
results of operations and financial condition, tax considerations and general
economic conditions. Upon review of such considerations, the Board of Directors
of the Company may authorize dividends to be paid in the future if it deems such
payment appropriate and in compliance with applicable law and regulation. No
assurances can be given that any dividends will in fact be paid on the Common
Stock or, if dividends are paid, that they will not be reduced or discontinued
in the future.
In connection with the Conversion, Community Savings has agreed with the
FDIC that, within the first year after completion of the Conversion, neither the
Company nor Community Savings will pay any dividend or make any distribution
that represents, or is characterized as, or is treated for tax purposes as, a
return of capital.
The sources of income to the Company initially will consist of earnings on
the capital retained by the Company, interest received from the loan to the ESOP
and dividends paid by Community Savings to the Company, if any. Consequently,
future declarations of cash dividends by the Company may depend upon dividend
payments by Community Savings to the Company, which payments are subject to
various restrictions. Under current North Carolina regulations, Community
Savings could not declare or pay a cash dividend if the effect thereof would be
to reduce its net worth to an amount which is less than the minimum required by
the FDIC and the Administrator. In addition, for a period of five years after
the consummation of the Conversion, Community Savings will be required, under
existing regulations, to obtain the prior written approval of the Administrator
before it can declare and pay a cash dividend on its capital stock in an amount
in excess of one-half of the greater of (i) its net income for the most recent
fiscal year, or (ii) the average of its net income after dividends for the most
recent fiscal year and not more than two of the immediately preceding fiscal
years, if applicable. See "Supervision and Regulation - Regulation of Community
Savings - Restrictions on Dividends and Other Capital Distributions." As a
converted institution, Community Savings also will be subject to the regulatory
restriction that it will not be permitted to declare or pay a dividend on or
repurchase any of its capital stock if the effect thereof would be to cause its
regulatory capital to be reduced below the amount required for the liquidation
account established in connection with the Conversion. See "The Conversion -
Effects of Conversion - Liquidation Rights" and "- Liquidation Rights After the
Conversion." Also, see "Taxation - Federal Income Taxation" for a discussion of
federal income tax provisions that may limit the ability of Community Savings to
pay dividends to the Company without incurring a recapture tax.
MARKET FOR COMMON STOCK
The Company, as a newly organized company, has never issued capital stock,
and consequently, there is no established market for the Common Stock at this
time. The Company has received conditional approval to have the Common Stock
listed for quotation on the Nasdaq National Market under the symbol "FCFN."
There can be no assurance that the Common Stock will in fact be listed for
quotation on the Nasdaq National Market. In order to initially qualify for
listing on the Nasdaq National Market, the Company must have at
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<PAGE>
least 400 stockholders and at least three market makers. Although management
believes that the Company will have at least 400 stockholders, there can be no
assurance that it will. The Company will seek to encourage and assist at least
three market makers to make a market in the Common Stock, but there is no
assurance that will occur. The Company expects that Trident Securities will act
as a market maker.
A public trading market having the desirable characteristics of depth,
liquidity and orderliness will depend upon the presence in the marketplace of
both willing buyers and willing sellers at any given time, which is not within
the Company's control. No assurance can be given that an active trading market
will develop or be maintained or that any investor will be able to sell the
Common Stock at or above the purchase price paid in the offerings.
CAPITALIZATION
The following tables present the historical capitalization of Community
Savings at September 30, 1998 and the pro forma capitalization of the Company at
such date after giving effect to the sale of the Common Stock, the contribution
of 100,000 shares of Common Stock to the Foundation and application of the
assumptions set forth under "Pro Forma Data," assuming that 1,530,000;
1,800,000; 2,070,000; and 2,380,500 shares of Common Stock are sold at the
minimum, midpoint, maximum and 15% above the maximum of the current Valuation
Range. A change in the number of shares issued in the Conversion may materially
affect such pro forma capitalization. See "Use of Proceeds" and "The
Conversion - Purchase Price of Common Stock and Number of Shares Offered."
29
<PAGE>
<TABLE>
<CAPTION>
COMPANY PRO FORMA CAPITALIZATION AT SEPTEMBER 30, 1998
BASED UPON SALE OF
------------------------------------------------------------------------------
1,530,000 1,800,000 2,070,000 2,380,500
HISTORICAL SHARES AT A SHARES AT A SHARES AT A SHARES AT A
CAPITALIZATION PRICE OF PRICE OF PRICE OF PRICE OF
SEPTEMBER 30, 1998 $15.00 PER SHARE $15.00 PER SHARE $15.00 PER SHARE $15.00 PER SHARE(1)
------------------ ---------------- ---------------- ---------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits (2) $138,024 $ 138,024 $ 138,024 $ 138,024 $ 138,024
Borrowings 5,000 5,000 5,000 5,000 5,000
-------- ---------- ---------- ---------- ----------
Total deposits and borrowings $143,024 $ 143,024 $ 143,024 $ 143,024 $ 143,024
======== ========== ========== ========== ==========
Capital stock:
Preferred stock, no par
value per share:
authorized - 5,000,000
shares; assumed
outstanding - none $ - $ - $ - $ - $ -
Common Stock, no par value
per share;
authorized -- 20,000,000
shares; assumed
outstanding - as shown
plus 100,000 shares to be
contributed to Foundation (3) - 23,576 27,560 31,545 36,128
Less: Expense of contribution
to Foundation - (1,500) (1,500) (1,500) (1,500)
Plus: Tax benefit of
contribution to
Foundation (4) - 510 510 510 510
Less: Common Stock acquired
by ESOP (5) - (1,956) (2,280) (2,604) (2,977)
Common Stock
acquired by MRP (5) - (978) (1,140) (1,302) (1,488)
Retained earnings - substantially
restricted 23,172 23,172 23,172 23,172 23,172
Accumulated other comprehensive
income 95 95 95 95 95
-------- ---------- ---------- ---------- ----------
Total Equity $ 23,267 $ 42,919 $ 46,417 $ 49,916 $ 53,940
======== ========== ========== ========== ==========
</TABLE>
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<PAGE>
(1) Represents the number of shares of Common Stock that would be issued in the
Conversion after giving effect to a 15% increase in maximum valuation in
the Valuation Range.
(2) Withdrawals from deposit accounts for the purchase of Common Stock are not
reflected. Any such withdrawals would reduce pro forma deposits by the
amount of such withdrawals.
(3) Does not reflect the issuance of any shares of Common Stock reserved for
issuance pursuant to Community Savings' stock option plan. See "Management
of Community Savings - Proposed Stock Option Plan."
(4) Based upon an effective tax rate of 34%, the recognition of the federal tax
benefit is limited annually to 10% of the Company's annual taxable income,
subject to the ability of the Company to carry forward any unused portion
of the deduction for five years following the year of the contribution.
(5) Assumes that 8% of the sum of the number of shares of Common Stock offered
hereby plus the number of shares contributed to the Foundation will be
purchased by the ESOP in the Conversion. The funds used to acquire the ESOP
shares will be borrowed from the Company. Assumes that, after the
Conversion, a number of shares equal to 4% of the sum of the number of
shares of Common Stock offered hereby plus the number of shares contributed
to the Foundation will be purchased by the MRP with funds contributed by
Community Savings. The Common Stock acquired by both the ESOP and the MRP
is reflected as a reduction of stockholders' equity. See "Management of
Community Savings - Employee Stock Ownership Plan" and "- Proposed
Management Recognition Plan."
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<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $22,076,000 and $34,627,500 (including net
proceeds from shares expected to be purchased by the ESOP with funds borrowed
from the Company), based upon the following assumptions: (i) 22.8%, 20.6%,
18.9% and 17.5% of the Common Stock sold in the Conversion at the minimum,
midpoint, maximum and 15% above the maximum, respectively, of the Valuation
Range will be sold to the ESOP, directors and executive officers and their
associates as defined in the Plan of Conversion (and that Trident Securities
will not receive certain compensation with respect to such sales), and none of
the shares of Common Stock will be sold in any Syndicated Community Offering
pursuant to selected dealer agreements; (ii) fees will be payable to Trident
Securities with respect to the Subscription and Community Offerings as described
in "The Conversion - Marketing Arrangements;" and (iii) Conversion expenses,
excluding the fees and commissions to Trident Securities, will be approximately
$558,000. Actual net proceeds may vary depending upon the number of shares sold
to the ESOP and to directors, executive officers and their associates, the
number of shares, if any, sold in the Syndicated Community Offering pursuant to
selected dealer arrangements and the actual expenses of the Conversion.
Payments for shares made through withdrawals from existing Community Savings
deposit accounts will not result in the receipt of new funds for investment by
Community Savings. However, capital will increase and interest-bearing
liabilities will decrease by the amount of such withdrawals.
Under the Plan of Conversion, the Common Stock must be sold at an aggregate
price equal to not less than the minimum nor more than the maximum of the
Valuation Range based upon an independent appraisal. The Valuation Range as of
December 9, 1998 is from a minimum of $22,950,000 to a maximum of $31,050,000,
with a midpoint of $27,000,000. However, with the consent of the Administrator
and the FDIC, the aggregate price of the Common Stock sold may be increased to
up to 15% above the maximum of the Valuation Range, or to $35,707,500, without a
resolicitation and without any right to cancel, rescind or change subscription
orders, to reflect changes in market and financial conditions following
commencement of the Subscription Offering. See "The Conversion - Purchase Price
of Common Stock and Number of Shares Offered."
Pro forma consolidated net earnings and book value of the Company at or for
the year ended December 31, 1997 and the nine months ended September 30, 1998
have been based upon the following assumptions: (i) the sale of shares of Common
Stock in connection with the Conversion occurred at the beginning of such
periods and yielded net proceeds available for investment of $22,076,000,
$26,060,000, $30,045,000 and $34,627,500 (based upon the issuance of 1,530,000,
1,800,000; 2,070,000 and 2,380,500 shares, respectively, at $15.00 per share)
on such dates; and (ii) such net proceeds were invested on a consolidated basis
at the beginning of the periods at a yield of 4.50%, which represents the
average one-year treasury constant maturity rate for the last week of September,
1998. The Company did not use the arithmetic average of Community Savings'
weighted-average yield on interest-earning assets and weighted-average interest
rate paid on deposits. Management believes that the one-year Treasury rate is a
more appropriate rate for purposes of preparing the pro forma data because
proceeds from the Conversion are expected to be initially invested in
instruments with similar yields and maturities. The effect of withdrawals from
deposit accounts for the purchase of Common Stock has not been reflected. Such
withdrawals have no effect on pro forma stockholders' equity, and management
does not believe that such withdrawals will have a material impact on pro forma
net earnings or pro forma net earnings per share. In calculating pro forma net
earnings, an effective tax rate of 36% has been assumed, resulting in a yield
after taxes of 2.88%. Historical and pro forma per share amounts have been
calculated by dividing Community Savings' historical amounts and the Company's
pro forma amounts by the indicated number of shares of Common Stock, assuming
that such number of shares had been outstanding during the entire period.
32
<PAGE>
The following tables assume that the Foundation is approved by Community
Savings' members at the Special Meeting and therefore give effect to the
issuance of 100,000 shares of the Company's Common Stock to Community Savings
and the contribution of such shares to Foundation at the time the Conversion is
completed. In addition, the Valuation Range takes into account the dilutive
impact of the issuance of the shares to be contributed to the Foundation.
The following pro forma information is not intended to represent the market
value of the Common Stock, the value of net assets and liabilities or of future
results of operations. The assumptions regarding investment yields should not
be considered indicative of actual yields for future periods. The following
information is not intended to be used as a basis for projection of results of
operations for future periods.
33
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
--------------------------------------------------------------------------
1,530,000 1,800,000 2,070,000 2,380,500
shares at $15.00 shares at $15.00 shares at $15.00 shares at $15.00
per share per share per share per share
(Minimum) (Midpoint) (Maximum) (15% above Max.)
--------------- --------------- --------------- -----------------
(Dollars in Thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 22,950 $ 27,000 $ 31,050 $ 35,708
Plus shares contributed to Foundation (1) 1,500 1,500 1,500 1,500
---------- ---------- ---------- ----------
Pro forma market capitalization $ 24,450 $ 28,500 $ 32,550 $ 37,208
========== ========== ========== ==========
Gross proceeds $ 22,950 $ 27,000 $ 31,050 $ 35,708
Less offering expenses and commissions (874) (940) (1,005) (1,080)
---------- ---------- ---------- ----------
Estimated net Conversion proceeds (2) 22,076 26,060 30,045 34,628
Less Common Stock acquired by ESOP (3) (1,956) (2,280) (2,604) (2,977)
Less Common Stock acquired by MRP (4) (978) (1,140) (1,302) (1,488)
---------- ---------- ---------- ----------
Estimated proceeds available for investment $ 19,142 $ 22,640 $ 26,139 $ 30,163
========== ========== ========== ==========
Net income
Historical $ 590 $ 590 $ 590 $ 590
Pro forma adjustments:
Net income from proceeds 551 652 753 869
ESOP (83) (97) (111) (127)
MRP (125) (146) (167) (191)
---------- ---------- ---------- ----------
Pro forma $ 933 $ 999 $ 1,065 $ 1,141
========== ========== ========== ==========
Net income per share
Historical $ 0.39 $ 0.34 $ 0.30 $ 0.26
Pro forma adjustments:
Net income from proceeds 0.37 0.37 0.37 0.38
ESOP (3) (0.06) (0.06) (0.06) (0.06)
MRP (4) (0.08) (0.08) (0.08) (0.08)
---------- ---------- ---------- ----------
Pro forma net income per share (5) $ 0.62 $ 0.57 $ 0.53 $ 0.50
========== ========== ========== ==========
Number of shares used in calculating earnings per share (7) 1,508,293 1,758,133 2,007,973 2,295,289
========== ========== ========== ==========
Stockholders' equity (book value) (6)
Historical $ 22,837 $ 22,837 $ 22,837 $ 22,837
Estimated net Conversion proceeds 22,076 26,060 30,045 34,628
Plus: Shares contributed to Foundation 1,500 1,500 1,500 1,500
Less: Contribution to Foundation (1,500) (1,500) (1,500) (1,500)
Plus: Tax benefit of contribution to Foundation (5) 510 510 510 510
Less Common Stock acquired by:
ESOP (1,956) (2,280) (2,604) (2,977)
MRP (978) (1,140) (1,302) (1,488)
---------- ---------- ---------- ----------
Pro forma stockholders' equity $ 42,489 $ 45,987 $ 49,486 $ 53,510
========== ========== ========== ==========
Stockholders' equity (book value) per share (6)
Historical $ 14.01 $ 12.02 $ 10.52 $ 9.21
Estimated net Conversion proceeds 13.54 13.72 13.85 13.96
Plus: Shares contributed to Foundation 0.92 0.79 0.69 0.60
Less: Contribution to Foundation (0.92) (0.79) (0.69) (0.60)
Plus: Tax benefit of contribution to Foundation (5) 0.31 0.27 0.24 0.21
Less Common Stock acquired by:
ESOP (3) (1.20) (1.20) (1.20) (1.20)
MRP (4) (0.60) (0.60) (0.60) (0.60)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share $ 26.06 $ 24.21 $ 22.81 $ 21.58
========== ========== ========== ==========
Pro forma price to book value 57.5% 62.0% 65.8% 69.5%
========== ========== ========== ==========
Pro forma price to net income (P/E ratio) 24.2 26.3 28.3 30.0
========== ========== ========== ==========
Number of shares used in calculating equity per
share (6) 1,630,000 1,900,000 2,170,000 2,480,500
========== ========== ========== ==========
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
At or For the Nine Months Ended September 30, 1998
-------------------------------------------------------------------------
1,530,000 1,800,000 2,070,000 2,380,500
shares at $15.00 shares at $15.00 shares at $15.00 shares at $15.00
per share per share per share per share
(Minimum) (Midpoint) (Maximum) (15% above Max.)
---------------- ---------------- ---------------- ----------------
(Dollars in Thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 22,950 $ 27,000 $ 31,050 $ 35,708
Plus shares contributed to Foundation (1) 1,500 1,500 1,500 1,500
---------- ---------- ---------- ----------
Pro forma market capitalization $ 24,450 $ 28,500 $ 32,550 $ 37,208
========== ========== ========== ==========
Gross proceeds $ 22,950 $ 27,000 $ 31,050 $ 35,708
Less offering expenses and commissions (874) (940) (1,005) (1,080)
---------- ---------- ---------- ----------
Estimated net Conversion proceeds (2) 22,076 26,060 30,045 34,628
Less Common Stock acquired by ESOP (3) (1,956) (2,280) (2,604) (2,977)
Less Common Stock acquired by MRP (4) (978) (1,140) (1,302) (1,488)
---------- ---------- ---------- ----------
Estimated proceeds available for investment $ 19,142 $ 22,640 $ 26,139 $ 30,163
========== ========== ========== ==========
Net income
Historical $ 433 $ 433 $ 433 $ 433
Pro forma adjustments:
Net income from proceeds 414 489 564 651
ESOP (63) (73) (83) (95)
MRP (94) (109) (125) (143)
---------- ---------- ---------- ----------
Pro forma $ 690 $ 740 $ 789 $ 846
========== ========== ========== ==========
Net income per share
Historical $ 0.29 $ 0.25 $ 0.22 $ 0.19
Pro forma adjustments:
Net income from proceeds 0.27 0.28 0.27 0.28
ESOP (3) (0.04) (0.04) (0.04) (0.04)
MRP (4) (0.06) (0.06) (0.06) (0.06)
---------- ---------- ---------- ----------
Pro forma net income per share (5) $ 0.46 $ 0.43 $ 0.39 $ 0.37
========== ========== ========== ==========
Number of shares used in calculating earnings per
share (7) 1,508,293 1,758,133 2,007,973 2,295,289
========== ========== ========== ==========
Stockholders' equity (book value) (6)
Historical $ 23,267 $ 23,267 $ 23,267 $ 23,267
Estimated net Conversion proceeds 22,076 26,060 30,045 34,628
Plus: Shares contributed to Foundation 1,500 1,500 1,500 1,500
Less: Contribution to Foundation (1,500) (1,500) (1,500) (1,500)
Plus: Tax benefit of contribution to Foundation (5) 510 510 510 510
Less Common Stock acquired by:
ESOP (1,956) (2,280) (2,604) (2,977)
MRP (978) (1,140) (1,302) (1,488)
---------- ---------- ---------- ----------
Pro forma stockholders' equity $ 42,919 $ 46,417 $ 49,916 $ 53,940
========== ========== ========== ==========
Stockholders' equity (book value) per share (6)
Historical $ 14.27 $ 12.25 $ 10.72 $ 9.38
Estimated net Conversion proceeds 13.55 13.72 13.84 13.96
Plus: Shares contributed to Foundation 0.92 0.79 0.69 0.60
Less: Contribution to Foundation (0.92) (0.79) (0.69) (0.60)
Plus: Tax benefit of contribution to Foundation (5) 0.31 0.27 0.24 0.21
Less Common Stock acquired by:
ESOP (3) (1.20) (1.20) (1.20) (1.20)
MRP (4) (0.60) (0.60) (0.60) (0.60)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share $ 26.33 $ 24.44 $ 23.00 $ 21.75
========== ========== ========== ==========
Pro forma price to book value 57.0% 61.4% 65.2% 69.0%
========== ========== ========== ==========
Pro forma price to net income (P/E ratio) 24.5 26.8 28.8 30.4
========== ========== ========== ==========
Number of shares used in calculating equity per
share (6) 1,630,000 1,900,000 2,170,000 2,480,500
========== ========== ========== ==========
</TABLE>
35
<PAGE>
(1) It is assumed that Community Savings contributes to the Foundation 100,000
shares of the Common Stock of the Company which is valued at $1,500,000.
(2) Subject to approval by the Company's stockholders at a meeting to be held
no sooner than six months after the Conversion, 10% of the sum of the
number of shares issued in the Conversion and the number of shares
contributed to the Foundation may be reserved for issuance to directors,
officers, and employees under the Stock Option Plan. In lieu of reserving
shares for issuance, the Stock Option Plan may purchase shares in the open
market to be delivered upon the exercise of options. Because management
cannot reasonably estimate the number of options which might be exercised
or the option exercise price or whether the shares will be purchased in the
open market, no provision for the Stock Option Plan has been made in the
pro forma calculations. At 15% above the maximum of the Valuation Range,
it is expected that options to acquire 248,050 shares of the Common Stock
could be granted under the Stock Option Plan. If all shares under the
Stock Option Plan were newly issued, the exercise price was $15.00 for the
shares issued pursuant to the options, and all of the options were
exercised, the number of outstanding shares of Common Stock would increase
from 2,480,500 to 2,728,550 and the pro forma earnings per share of the
outstanding Common Stock for the year ended December 31, 1997 and nine
months ended September 30, 1998 (based on shares released for the period
pursuant to SOP 93-6) would have been $0.49 and $0.36, respectively,
compared with $0.50 and $0.37, respectively, if the Stock Option Plan did
not exist. See "Management of Community Savings - Proposed Stock Option
Plan."
(3) It is assumed that the ESOP will purchase 8% of the sum of the number of
shares of Common Stock issued in the Conversion and the number of shares
contributed to the Foundation. Pro forma ESOP adjustments assume that
6.67% of the shares will be committed to be released each year, and that
expense is reduced by a 36% tax rate. See "Management of Community Savings
- Employee Stock Ownership Plan."
(4) It is assumed that the MRP will purchase a number of shares equal to 4% of
the sum of the number of shares of Common Stock issued in the Conversion
and the number of shares contributed to the Foundation for issuance to
directors, officers and employees, subject to approval by the Company's
stockholders at a meeting to be held no sooner than six months after
Conversion. Pro forma MRP adjustments assume that expense will be
amortized over five years, and that expense is reduced by a 36% tax rate.
See "Management of Community Savings - Proposed Management Recognition
Plan."
(5) Does not give affect to the non-recurring expense that is expected to be
recognized in the second quarter of 1999 if the Foundation is approved. In
that event, the Company will recognize an after-tax expense for the amount
of the contribution to the Foundation which is expected to be $990,000
based upon an effective tax rate of 34%.
(6) The retained earnings of Community Savings will be substantially restricted
after the Conversion. See "Dividend Policy," "Supervision and Regulation -
Regulation of Community Savings - Restrictions on Dividends and Other
Capital Distributions."
(7) Earnings per share is calculated based on the number of shares outstanding
indicated in the previous tables, which include shares to be acquired by
the ESOP and the MRP. Pursuant to SOP 93-6, earnings per share is
calculated based on the ESOP shares released for the period according to
scheduled contributions.
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
Community Savings is subject to the North Carolina savings bank requirement
that net worth, computed in accordance with the requirements of the
Administrator, equal or exceed 5% of total assets. In addition, Community
Savings is 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 I 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 I capital to risk-weighted assets equal at least 4%, and (ii) the ratio of
total capital to risk-weighted assets equal at least 8%. As demonstrated in the
table below, Community Savings exceeds the North Carolina capital requirements
and the FDIC Tier I and risk-based capital requirements on a historical and pro
forma basis.
36
<PAGE>
The following table presents (i) Community Savings' historical regulatory
capital position on September 30, 1998 and (ii) Community Savings' pro forma
regulatory capital position on such date after giving effect to the assumptions
set forth under "PRO FORMA DATA" and "CAPITALIZATION" and further assuming that
the Company will retain 50% of the net proceeds of the Common Stock sold in the
Conversion after deducting the amount necessary to fund the loan to the ESOP and
that Community Savings will pay to the Company $1,500,000 in exchange for the
shares to be issued to Community Savings and contributed to the Foundation.
37
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA REGULATORY CAPITAL POSITION AT SEPTEMBER 30, 1998
-----------------------------------------------------------
COMMUNITY SAVINGS'
HISTORICAL 1,530,000 1,800,000
REGULARTORY CAPITAL SHARES SOLD AT SHARES SOLD AT
POSITION AT PRICE OF $15.00 PRICE OF $15.00
SEPTEMBER 30, 1998 PER SHARE PER SHARE
-------------------- -------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF
REGULATORY REGULATORY REGULATORY
AMOUNT ASSETS (1) AMOUNT ASSETS (1) AMOUNT ASSETS (1)
------ ---------- ------ ---------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 (leverage) capital $23,172 13.5% $33,232 18.4% $35,062 19.3%
Tier 1 (leverage) capital requirement (2) 6,870 4.0% 7,211 4.0% 7,285 4.0%
------- ------- ------- ------- ------- -------
Excess $16,302 9.5% $26,021 14.4% $27,777 15.3%
======= ======= ======= ======= ======= =======
Tier 1 risk adjusted capital $23,172 23.8% $33,232 33.5% $35,062 35.2%
Tier 1 risk adjusted capital requirement 3,892 4.0% 3,973 4.0% 3,987 4.0%
------- ------- ------- ------- ------- -------
Excess $19,280 19.8% $29,259 29.5% $31,075 31.2%
======= ======= ======= ======= ======= =======
Total risk based capital $24,304 25.0% $34,364 34.6% 36,194 36.3%
Total risk based capital requirement 7,785 8.0% 7,946 8.0% 7,975 8.0%
------- ------- ------- ------- ------- -------
Excess $16,519 17.0% $26,418 26.6% $28,219 28.3%
======= ======= ======= ======= ======= =======
NC regulatory capital $24,304 14.3% $34.364 19.0% $36,194 19.9%
NC regulatory capital requirement 8,519 5.0% 9,022 5.0% 9,113 5.0%
------- ------- ------- ------- ------- -------
Excess $15,785 9.3% $25,342 14.0% $27,081 14.9%
======= ======= ======= ======= ======= =======
<CAPTION>
-------------------------------------------
2,070,000 2,380,500
SHARES SOLD AT SHARES SOLD AT
PRICE OF $15.00 PRICE OF $15.00
PER SHARE PER SHARE
-------------------- --------------------
PERCENT OF PERCENT OF
REGULATORY REGULATORY
AMOUNT ASSETS (1) AMOUNT ASSETS (1)
------ --------- ------ ----------
<S> <C> <C> <C> <C>
Tier 1 (leverage) capital $36,893 20.1% $38,998 21.0%
Tier 1 (leverage) capital requirement (2) 7,358 4.0% 7,442 4.0%
------- ------- ------- -------
Excess $29,535 16.1% $31,555 17.0%
======= ======= ======= ========
Tier 1 risk adjusted capital $36,893 36.9% $38,998 38.8%
Tier 1 risk adjusted capital requirement 4,002 4.0% 4,019 4.0%
------- ------- ------- -------
Excess $32,890 32.9% $34,979 34.8%
======= ======= ======= =======
Total risk based capital $38,025 38.0% $40,130 39.9%
Total risk based capital requirement 8,004 8.0% 8,038 8.0%
------- ------- ------- -------
Excess $30,020 30.0% $32,092 31.9%
======= ======= ======= =======
NC regulatory capital $38,025 20.7% $40,130 21.6%
NC regulatory capital requirement 9,205 5.0% 9,310 5.0%
------- ------- ------- -------
Excess $28,820 15.7% $30,820 16.6%
======= ======= ======= =======
</TABLE>
________________________________
(1) For the Tier 1 (leverage) capital and North Carolina regulatory capital
calculations, percent of total average assets. For the Tier 1 risk-adjusted
capital and total risk-based capital calculations, percent of total risk-
weighted assets. Net proceeds (after ESOP and MRP) were assumed to be
invested in short-term treasury securities (0% risk-weight) and one-to-four
family residential mortgage loans (50% risk-weight) with a weighted average
risk-weight of 20%.
(2) For the purposes of this table, Community Savings has assumed that its
leverage capital requirement is 4% of total average assets.
38
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
If the Foundation was not being established as part of the Conversion,
Ferguson has estimated that the pro forma market value of the Company and
Community Savings would be approximately $29,500,000 at the midpoint of the
Valuation Range, which is approximately $1,000,000 greater than the pro forma
market value of Community Savings if the Foundation is established and funded by
Community Savings as described in this Prospectus. This would result in
approximately $2,500,000, or a 9.26%, increase, in the amount of Common Stock
offered for sale in the Conversion at the midpoint of the Valuation Range. The
price to pro forma stockholders' equity (book value) ratio and the price to pro
forma income ratio would be approximately the same under both the current
appraisal and the estimate of the value of the Company without the Foundation.
Further, at the midpoint of the Valuation Range, pro forma stockholders' equity
per share and pro forma net income per share would be essentially the same with
the Foundation as without the Foundation. This estimate by Ferguson is solely
for purposes of providing members with sufficient information with which to make
an informed decision about the effect of the Foundation. The following table
does not reflect the $1,500,000 expense Community Savings will accrue during the
year ended December 31, 1999 as a result of its contribution of 100,000 shares
to the Foundation. There is no assurance that in the event the Foundation was
not established that the appraisal prepared at that time would conclude that the
pro forma market value of the Company and Community Savings would be same as
that estimated below. Any appraisal prepared at that time would be based on the
facts and circumstances existing at that time, including, among other things,
then current market and economic conditions.
For comparative purposes only, set forth below are certain pricing ratios
and financial data and other ratios, at the minimum, midpoint, maximum and
maximum, as adjusted, of the Valuation Range, assuming the Conversion was
completed at September 30, 1998.
39
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH AND WITHOUT FOUNDATION
AT SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS THEN ENDED
<TABLE>
<CAPTION>
AT THE MINIMUM AT THE MIDPOINT AT THE MAXIMUM
----------------------------- ---------------------------- ----------------------------
WITH NO WITH NO WITH NO
FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION
-------------- -------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Estimated offering amount.. $ 22,950 $ 25,075 $ 27,000 $ 29,500 $ 31,050 $ 33,925
Pro forma market
capitalization............ 24,250 25,075 28,500 29,500 32,550 33,925
Total assets............... 190,025 191,529 193,523 195,351 197,022 199,174
Total liabilities.......... 147,106 147,106 147,106 147,106 147,106 147,106
Pro forma stockholders'
equity.................... 42,919 44,423 46,417 48,245 49,916 52,068
Pro forma consolidated
net income.............. 690 729 740 784 789 838
Pro forma stockholders'
equity
per share............... 26.33 26.57 24.44 24.53 23.00 23.02
Pro forma consolidated net
income per share........ 0.46 0.47 0.43 0.43 0.39 0.40
Pro Forma Pricing Ratios:
Offering price as a
percentage of pro forma
stockholders'
equity per share......... 57.0% 56.4% 61.4% 61.1% 65.2% 65.2%
Offering price to pro
forma net
income per share......... 24.5 23.9 26.8 26.2 28.8 28.1
Pro forma market
capitalization
to total assets.......... 12.9% 13.1% 14.8% 15.1% 16.6% 17.0%
Pro Forma Financial Ratios:
Return on total assets.. 0.37% 0.38% 0.39% 0.40% 0.40% 0.42%
Return on stockholders'
equity
(annualized)......... 1.62% 1.65% 1.60% 1.63% 1.59% 1.62%
Stockholders' equity to
total assets........... 22.6% 23.2% 24.0% 24.7% 25.3% 26.1%
<CAPTION>
AT THE MAXIMUM,
AS ADJUSTED
-----------------------------
WITH NO
FOUNDATION FOUNDATION
-------------- ---------------
<S> <C> <C>
Estimated offering amount.. $ 35,708 $ 39,014
Pro forma market
capitalization............ 37,208 39,014
Total assets............... 201,046 203,570
Total liabilities.......... 147,106 147,106
Pro forma stockholders'
equity.................... 53,940 56,464
Pro forma consolidated
net income.............. 846 900
Pro forma stockholders'
equity
per share............... 21.75 21.71
Pro forma consolidated net
income per share........ 0.37 0.37
Pro Forma Pricing Ratios:
Offering price as a
percentage of pro forma
stockholders'
equity per share......... 69.0% 69.1%
Offering price to pro
forma net
income per share......... 30.4 30.4
Pro forma market
capitalization
to total assets.......... 18.5% 19.2%
Pro Forma Financial Ratios:
Return on total assets.. 0.42% 0.45%
Return on stockholders'
equity
(annualized)......... 1.58% 1.60%
Stockholders' equity to
total assets........... 26.8% 27.7%
</TABLE>
40
<PAGE>
STOCK PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
Directors, officers and employees of Community Savings will be entitled to
subscribe for shares of Common Stock in the Subscription Offering in their
capacities as such and to the extent they qualify as Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members. They may also purchase
Common Stock in the Community Offering or in the Syndicated Community Offering,
if any. Shares purchased by such persons will be purchased at the same price
per share - $15.00 - that will be paid by other purchasers in the offerings and
such persons will be subject to the maximum purchase limitations applicable to
all other purchasers of shares in the Conversion.
41
<PAGE>
The following table sets forth for each of the executive officers and
directors of Community Savings who intend to purchase Common Stock, and for all
executive officers and directors as a group (including in each case all
"associates" of such persons), the aggregate dollar amount of Common Stock for
which such director or executive officer has informed Community Savings he and
his associates intend to subscribe. The amounts reflected in the table are
estimates only, and the number of shares of Common Stock actually subscribed for
by the listed individuals may differ from the number reflected in the table.
The following table assumes that 1,800,000 shares of Common Stock will be issued
and that sufficient shares will be available to satisfy the subscriptions of
Community Savings' executive officers and directors and their associates.
<TABLE>
<CAPTION>
ANTICIPATED
ANTICIPATED NUMBER
AMOUNT OF SHARES AS A PERCENT
TO BE PAID TO BE OF SHARES
NAME FOR SHARES PURCHASED (1) ISSUED
- ---- ------------ ------------- ------------
<S> <C> <C> <C>
Jimmy L. Byrd, Director $ 300,000 20,000 1.11%
W. R. Gilliam, Director, President and Chief Executive Officer 300,000 20,000 1.11%
Julian P. Griffin, Director 300,000 20,000 1.11%
Edgar L. Hartgrove, Director 300,000 20,000 1.11%
William C. Ingold, Director 300,000 20,000 1.11%
Charles A. LeGrand, Director 300,000 20,000 1.11%
James D. Moser, Jr., Director 300,000 20,000 1.11%
W. Joseph Rich, Director 160,000 10,666 0.59%
Alfred J. Spitzner, Director 200,000 13,333 0.74%
Herbert N. Wellons, Director 200,000 13,333 0.74%
Larry H. Hall, Executive Vice President 225,000 15,000 0.83%
Joseph C. Canada, Senior Vice President and Secretary 300,000 20,000 1.11%
Judy L. Pennington, Vice President 40,000 2,666 0.14%
Christopher B. Redcay, Treasurer and Chief Financial Officer 50,000 3,333 0.18%
---------- ------- -----
Total $3,275,000 218,333 12.12%
========== ======= =====
</TABLE>
(1) Subscriptions by the ESOP are not aggregated with shares of Common Stock
purchased by the executive officers and directors listed above. See
"Management of Community Savings - Employee Stock Ownership Plan." Also,
grants under the proposed MRP and shares subject to option under the
proposed Stock Option Plan, if adopted following the Conversion, are not
aggregated with shares of Common Stock purchased by the executive officers
and directors listed above. It is expected that the ESOP will acquire 8%
of the sum of the number of shares issued in the Conversion and the number
of shares contributed to the Foundation . Recipients of shares under the
ESOP will have voting control over the shares allocated to them, and
trustees of the ESOP (directors of Community Savings) will have voting
control over unallocated shares. See "Management of Community Savings -
Employee Stock Ownership Plan." Under the proposed MRP, if approved by the
Company, a number of shares equal to 4% of the sum of the number of shares
issued in the Conversion and the number of shares contributed to the
Foundation could be issued to directors and certain employees of Community
Savings. Recipients of shares under the MRP will have voting control over
such shares regardless of whether such shares have vested. See "Management
of Community Savings - Proposed Management Recognition Plan." Under the
proposed Stock Option Plan, if approved by the Company, directors and
certain employees of Community Savings could receive options to purchase a
number of shares equal to 10% of the sum of the number of shares issued in
the Conversion and the number of shares contributed to the Foundation. If
shares are acquired in the open market and held by the Stock Option Plan
prior to the exercise of options under the Plan, holders of unexercised
options will have voting control over the shares held to fund their
options. See "Management of Community Savings - Proposed Stock Option
Plan."
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Without the prior written consent of the Administrator, shares of Common
Stock purchased by directors or executive officers of Community Savings in the
Conversion cannot be sold during a period of one year following the Conversion,
except upon death of the director or executive officer. Such restriction also
applies to any shares issued to such person as a stock dividend, stock split or
otherwise with respect to any of such originally restricted stock.
In addition, the North Carolina conversion regulations provide that
directors and executive officers and their associates are prohibited from
purchasing outstanding shares of Common Stock for a period of three years
following the Conversion, except from or through a broker or dealer registered
with the SEC or Secretary of State of North Carolina, unless the prior written
approval of the Administrator is obtained. This provision does not apply to
negotiated transactions involving more than 1% of the Company's outstanding
Common Stock or to purchases of stock made by or held by one or more tax-
qualified or non-tax-qualified employee stock benefit plans of Community Savings
or the Company which may be attributable to individual executive officers or
directors. Purchases and sales of Common Stock by officers and directors will
also be subject to the short-swing trading prohibitions contained in Section
16(b) of the Exchange Act, and other rules promulgated pursuant to the Exchange
Act.
THE CONVERSION
THE BOARD OF DIRECTORS OF COMMUNITY SAVINGS HAS ADOPTED AND THE ADMINISTRATOR
HAS APPROVED COMPLETION OF THE TRANSACTIONS DESCRIBED IN THE PLAN OF CONVERSION
SUBJECT TO APPROVAL BY THE MEMBERS OF COMMUNITY SAVINGS AND THE SATISFACTION OF
CERTAIN OTHER CONDITIONS. APPROVAL BY THE ADMINISTRATOR DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE ADMINISTRATOR.
GENERAL
Community Savings was organized in 1934 and has operated since that time as
a traditional savings and loan association. It recognizes that the banking and
financial services industries are in the process of fundamental changes,
reflecting changes in the local, national and international economies,
technological changes and changes in state and federal laws. As a result, for
several years Community Savings has been studying the environment in which it
operates and its strategic options.
As a result of its study of its strategic options, Community Savings
adopted the Plan of Conversion. Community Savings believes that converting the
bank from the mutual to stock form and organizing the Company to be its holding
company will provide increased flexibility for Community Savings and the Company
to react to changes in their operating environment, regardless of the strategies
ultimately chosen.
The existing management of Community Savings and the Company believes that
it will be in the best interests of Community Savings, the Company and the
stockholders of the Company for the Company to remain an independent financial
institution. Assuming consummation of the Conversion, the Company and Community
Savings intend to pursue the business strategy described in this Prospectus with
the goal of enhancing shareholder value over the long term. Neither the Company
nor Community Savings has any existing plan to consider any business combination
in which the Company or Community Savings would be acquired by another entity,
and neither company has any agreement or understanding with respect to any such
business combination.
The Board of Director's adoption of the Plan of Conversion is subject to
approval by the members of Community Savings and receipt of required regulatory
approvals. Pursuant to the Plan of Conversion, Community Savings will be
converted from a North Carolina-chartered mutual savings bank to a North
Carolina-chartered stock
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savings bank and will become a wholly-owned subsidiary of the Company. The
Company will issue the Common Stock to be sold in the Conversion and will use
that portion of the net proceeds thereof which it does not retain to purchase
the capital stock of Community Savings. By letter dated ______________, 1999,
the Administrator approved the Plan of Conversion, subject to approval by the
members of Community Savings and satisfaction of certain other conditions. The
Special Meeting will be held on ______________, 1999 for the purpose of
considering approval of the Plan of Conversion.
Consummation of the Conversion is contingent also upon receipt of the
approvals of the Federal Reserve and the Administrator for the Company to
acquire Community Savings. Those approvals have been received. The Conversion
cannot be consummated until the expiration of the Bank Merger Act of 1956
waiting period which began to run upon approval by the Federal Reserve of the
Company's application and expires ______________, 1999. Finally, consummation
of the Conversion is contingent upon receipt from the FDIC of a final non-
objection letter with respect to the transaction. The FDIC has issued a
conditional notification that it does not intend to object to the Conversion.
The following is a summary of all material provisions of the Plan of
Conversion. It is qualified in its entirety by the provisions of the Plan of
Conversion, which contains a more detailed description of the terms of the
Conversion. The Plan of Conversion is attached as Attachment I to Community
Savings' Proxy Statement for the Special Meeting which has been delivered to all
members of Community Savings. The Plan of Conversion can also be obtained by
written request from Community Savings. See "Additional Information."
PURPOSES OF CONVERSION
Community Savings, as a mutual savings bank, now has no stockholders and no
authority to issue capital stock. By converting to the stock form of
organization, Community Savings will be structured in the form used by most
commercial banks, other business entities and a substantial number of savings
institutions. Conversion to a North Carolina-chartered capital stock savings
bank and the formation of a holding company offers a number of advantages which
may be important to the future performance of Community Savings, including (i) a
larger capital base for Community Savings' operations, (ii) enhanced future
access to capital markets and (iii) an opportunity for depositors of Community
Savings to become stockholders of the Company.
After completion of the Conversion, the unissued common and preferred stock
authorized by the Company's Articles of Incorporation will permit the Company,
subject to market conditions, to raise additional equity capital through further
sales of securities. Following the Conversion, the Company will also be able to
use stock-related incentive programs to attract, retain and provide incentives
for qualified directors and executive and other personnel of the Company and
Community Savings. See "Management of Community Savings - Employee Stock
Ownership Plan," "- Proposed Management Recognition Plan" and "- Proposed Stock
Option Plan."
Formation of the Company will provide greater flexibility than Community
Savings would otherwise have to expand and diversify its business activities
through existing or newly formed subsidiaries, or through acquisitions of, or
mergers with, both mutual and stock institutions, as well as other companies.
However, there are no current understandings or agreements regarding any such
business combinations.
ESTABLISHMENT OF THE CHARITABLE FOUNDATION
GENERAL. In furtherance of Community Savings' long-standing commitment to
its local community, the Plan of Conversion provides for the establishment of a
charitable foundation in connection with the Conversion. The Plan of Conversion
provides that Community Savings and the Company will establish the Foundation,
which will be incorporated under North Carolina law as a not for profit
corporation, and Community Savings will fund the Foundation with Common Stock of
the Company, as further described below.
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The Company and Community Savings believe that the funding of the
Foundation with Common Stock of the Company is a means of establishing a common
bond between Community Savings and the communities in which Community Savings
operates. This will enable such communities to share in the potential growth and
success of the Company and Community Savings over the long term. By further
enhancing Community Saving's visibility and reputation in the communities in
which it operates, management also believes the Foundation will enhance the
long-term value of Community Savings' community banking franchise.
The Foundation will be dedicated to the promotion of charitable purposes
within the communities in which Community Savings operates, including, but not
limited to, providing grants or donations to support housing assistance, not-
for-profit medical facilities, community groups and other types of organizations
or projects.
Establishment of the Foundation is contingent on the approval of the Plan
of Conversion.
PURPOSE OF THE FOUNDATION. The purpose of the Foundation is to provide
funding to support charitable purposes within the communities in which Community
Savings operates. Community Savings has long emphasized community lending and
community development activities. Community Savings intends to continue to
emphasize community lending and community development activities following the
Conversion. However, such activities are not Community Savings' sole corporate
purpose. The Foundation, conversely, will be completely dedicated to community
activities and the promotion of charitable causes and may be able to support
such activities in ways that are not presently available to Community Savings.
Community Savings believes that the Foundation will enable the Company and
Community Savings to assist their local community in areas beyond community
development and lending. As a result, the Board of Directors believes the
establishment of a charitable foundation is consistent with Community Saving's
commitment to community service.
The Boards of Directors of Community Savings and Company also believe that
the funding of the Foundation with Common Stock of the Company is a means of
enabling the communities in which Community Savings operates to share in the
potential growth and success of the Company and Community Savings long after
completion of the Conversion. The Foundation accomplishes that goal by
providing for continued ties between the Foundation and Community Savings,
thereby forming a partnership with the community. The establishment of the
Foundation could also enable the Company and Community Savings to develop a
unified charitable donation strategy and would centralize the responsibility for
administration and allocation of corporate charitable funds. Community Savings,
however, does not expect the contribution to the Foundation to take the place of
its traditional community lending and charitable activities.
STRUCTURE OF THE FOUNDATION. The Foundation will be incorporated under
North Carolina law as a not for profit corporation. Pursuant to the
Foundation's bylaws, the Foundation's board of directors will be comprised of 10
members. The initial board of directors will be appointed by the Board of
Directors of Community Savings, and the initial board of directors is expected
to include all existing directors of Community Savings. Future directors of the
Foundation will be appointed by the Foundation's then existing board of
directors. The articles of incorporation of the Foundation provides that the
corporation is organized exclusively for charitable purposes as set forth in
Section 501(c)(3) of the Code. The Foundation's articles of incorporation
further provides that no part of the net earnings of the Foundation will inure
to the benefit of, or be distributable to its directors, officers or members.
The authority for the affairs of the Foundation will be vested in its board
of directors. The directors of the Foundation will be responsible for
establishing the policies of the Foundation regarding grants or donations by the
Foundation, consistent with the stated purposes for which the Foundation was
established. 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.
There will be no agreements or understandings with directors of the
Foundation regarding the exercise of control, directly or indirectly, over the
management or policies of the Company or Community Savings, including
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<PAGE>
agreements related to voting, acquisition or disposition of the Company's stock.
As directors of a not for profit 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 purposes for which the Foundation is established.
Community Savings will provide administrative support services to the
Foundation. Initially, the Foundation is expected to have no employees. The
board of directors of the Foundation will appoint such officers as may be
necessary to manage the operations of the Foundation. It is anticipated that
initially such officers will be selected from the board of directors of the
Foundation. Any transaction between Community Savings and the Foundation will
comply with the affiliate transaction restrictions set forth in Sections 23A and
23B of the Federal Reserve Act, as amended.
Community Savings determined to fund the Foundation with Common Stock
rather than cash because it desired to form a bond with its community in a
manner that would allow the community to share in the potential growth and
success of the Company and Community Savings over the long term. The funding of
the Foundation with stock also provides the Foundation with a potentially larger
endowment than if Community Savings contributed cash to the Foundation since, as
a shareholder, the Foundation will share in the potential growth and success of
the Company. As such, the contribution of stock to the Foundation has the
potential to provide a self-sustaining funding mechanism which reduces the
amount of cash that Community Savings, if it were not making the stock
contribution, would have to contribute to the Foundation in future years to
maintain a level amount of charitable grants and donations.
The Foundation will receive working capital from any dividends or other
distributions that may be paid or made on the Common Stock in the future and,
subject to applicable federal and state laws, from loans collateralized by the
Common Stock and from the proceeds of sales of the Common Stock in the open
market from time to time as may be permitted to provide the Foundation with
additional liquidity. As a private foundation 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. One of the conditions imposed on the gift of Common Stock by
Community Savings is that the amount of Common Stock that may be sold by the
Foundation in any one year shall not exceed 5% of the average market value of
the assets held by the Foundation, except where the board of directors of the
Foundation determines that the failure to sell an amount of Common Stock greater
than such amount would result in a long-term reduction of the value of the
Foundation's assets or would otherwise jeopardize the Foundation's capacity to
carry out its charitable purposes. While there may be greater risk associated
with a one-stock portfolio in comparison to a diversified portfolio, the Company
believes any such risk is mitigated by the ability of the Foundation's directors
to sell more than 5% of its stock in such circumstances.
Immediately upon consummation of the Conversion, Community Savings will
purchase 100,000 shares of newly issued shares of Common Stock from the Company
at a price of $15.00 per share and will contribute such shares to the
Foundation. As a result, upon completion of the Conversion, the issuance of
100,000 shares to Community Savings and the contribution of such shares to the
Foundation, immediately following the Conversion, the Company would have
1,630,000, 1,900,000 and 2,170,000 shares issued and outstanding at the minimum,
midpoint and maximum, respectively, of the Valuation Range. Because the Company
will have an increased number of shares outstanding, the voting and ownership
interests of shareholders in the Company's Common Stock would be diluted, as
compared to their interests in the Company if the Foundation was not
established. For additional discussion of the dilutive effect, see "Comparison
of Valuation and Pro Forma Information With No Foundation", "Pro Forma Data" and
"Risk Factors - Costs and Risks Associated with Establishment of the Foundation
- - Dilution of Stockholders' Interests."
COMPARISON OF VALUATION AND OTHER FACTORS ASSUMING THE FOUNDATION IS NOT
ESTABLISHED AS PART OF THE CONVERSION. Community Savings proposes to capitalize
the Foundation with 100,000 shares of Common Stock which would have a market
value of $1.5 million, based on the purchase price of $15.00 per share. Such
46
<PAGE>
contribution, once made, will not be recoverable by Community Savings. As a
result of the anticipated establishment of the Foundation, the Valuation Range,
as estimated by Ferguson, has decreased and the amount of stock available for
sale in the offerings has also correspondingly decreased. The amount of the
decrease is 141,667, 166,667, 191,667 and 220,400 shares, or $2.13 million,
$2.50 million, $2.88 million and $3.31 million, at the minimum, midpoint,
maximum and 15% above the maximum of the Valuation Range, respectively. See
"Pro Forma Data" and "Comparison of Valuation and Pro Forma Data Information
with No Foundation."
TAX CONSIDERATIONS. The Company and Community Savings have been advised by
their tax counsel that an organization created for the above purposes will
qualify as a section 501(c)(3) exempt organization under the Code and will be
classified as a private foundation rather than a public charity. A private
foundation typically receives its support from one person or one corporation
whereas a public charity receives its support from the public. The Foundation
will submit a request to the IRS to be recognized as an exempt organization
after the Special Meeting. As long as the Foundation files its application for
tax-exempt status within 15 months from the date of its organization and
provided the IRS approves the application, the effective date of the
Foundation's status as a section 501(c)(3) organization will be the date of its
organization.
Under the Code, Community Savings may deduct charitable contributions up to
10% of its taxable income in any one year and any contributions made by
Community Savings in excess of the deductible amount will be deductible for
federal tax purposes over each of the five succeeding taxable years. Community
Savings believes that the Conversion presents a unique opportunity to establish
and fund a charitable foundation given the substantial amount of additional
capital being raised in the Conversion. In making such a determination,
Community Savings considered the dilutive impact of the Foundation on the amount
of Common Stock available to be offered for sale in the Conversion. See
"Comparison of Valuation and Pro Forma Information with No Foundation." Based
on such consideration, management believes that the contribution to the
Foundation in excess of the 10% annual limitation is justified given Community
Savings' capital position and its earnings, the substantial additional capital
being raised in the Conversion and the potential benefits of the Foundation to
the community. Assuming sale of the Common Stock at the midpoint of the
Valuation Range, the Company would have pro forma consolidated capital of $46.4
million, or 24.0% of consolidated assets and Community Savings' pro forma tier 1
leverage and risk-based capital ratios would be 19.3 and 36.3%, respectively.
See "Regulatory Capital Compliance," "Capitalization" and "Comparison of
Valuation and Pro Form Information with No Foundation." Thus, the amount of the
contribution will not adversely impact the financial condition of the Company
and Community Savings. Community Savings therefore believes that the amount of
the charitable contribution is reasonable given the Company's and Community
Saving's pro forma capital positions. As such, management does not believe that
the contribution raises any safety and soundness concerns.
Community Savings has received an opinion of its tax counsel that Community
Savings' contribution of the Company's Common Stock to the Foundation will not
constitute an act of self-dealing and that Community Savings 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 a limitation based on 10% of Community Savings'
annual taxable income. Community Savings, however, would be able to carry
forward any unused portion of the deduction for five years following the year in
which the contribution is made for federal tax purposes. Thus, while Community
Savings expects to receive a charitable contribution deduction of approximately
$1.5 million in 1999, which is expected to substantially exceed 10% of its 1999
taxable income, Community Savings will be permitted under the Code to carry over
the excess contribution over a five-year period for federal income tax purposes.
Assuming the close of the offerings at the midpoint of the Valuation Range,
Community Savings estimates that substantially all of the deduction should be
deductible over the six-year period. However, no assurances can be made that
Community Savings will have sufficient pre-tax income over the five year period
following the year in which the contribution is made to fully use the carryover
related to the excess contribution. Community Savings does not expect to make
any further contributions to the Foundation within the first five years
following the initial contribution. After that time,
47
<PAGE>
Community Savings may consider future contributions to the Foundation. Any such
decisions would be based on an assessment of, among other factors, the financial
condition of the Company and Community Savings and at that time, the interests
of shareholders and depositors of the Company and Community Savings and the
financial condition and operations of the Foundation.
Although Community Savings has received an opinion of its tax counsel that
Community Savings is entitled to a deduction for the charitable contribution,
there can be no assurances that the IRS will recognize the Foundation as a
Section 501(c)(3) exempt organization or that the deduction will be permitted.
In such event, Community Savings' contribution to the Foundation would be
expensed without tax benefit, resulting in a reduction in earnings in the year
in which the IRS makes such a determination. See "Risk Factors - Costs and Risks
Associated With Establishment of the Foundation."
In cases of willful, flagrant or repeated acts or failures to act which
result in violations of the IRS rules governing private foundations, a private
foundation's status as a private foundation may be involuntarily terminated by
the IRS. In such event, the managers of a private foundation could be liable
for excise taxes based on such violations and the private foundation could be
liable for a termination tax under the Code. The Foundation's articles of
incorporation provide that it shall have a perpetual existence. In the event,
however, the Foundation were subsequently dissolved as a result of a loss of
its tax exempt status, the Foundation would be required under the Code and its
articles of incorporation to distribute any assets remaining in the Foundation
at that time for one or more exempt purposes within the meaning of Section
501(c)(3) of the Code, or to distribute such assets to the federal government,
or to a state or local government, for a public purpose.
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Foundation's managers and a concise statement
of the purpose of each grant.
APPROVAL OF FOUNDATION. Establishment of the Foundation is contingent upon
the approval of the Conversion at the Special Meeting.
EFFECTS OF CONVERSION
GENERAL. Each person with a deposit account in Community Savings has pro
rata rights, based upon the balance in his or her account, in the net worth of
Community Savings upon liquidation. However, this right is tied to the
depositor's account and has no tangible market value separate from such deposit
account. Further, Community Savings' depositors can realize value with respect
to their interests only in the unlikely event that Community Savings is
liquidated and has a positive net worth. In such an event, the depositors of
record at that time, as owners, would share pro rata in any residual surplus
after other claims, including those with respect to the deposit accounts of
depositors, are paid.
Upon Community Savings' conversion to stock form, its Certificate of
Incorporation will be amended to authorize the issuance of permanent
nonwithdrawable capital stock to represent the ownership of Community Savings,
including its net worth. The capital stock of Community Savings also will be
separate and apart from deposit accounts and will not be insured by the FDIC or
any other governmental entity. Certificates will be issued to evidence
ownership of the capital stock. All of the outstanding capital stock of
Community Savings will be acquired by the Company, which in turn will issue its
Common Stock to purchasers in the Conversion. The stock
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<PAGE>
certificates issued by the Company will be transferable and, therefore, subject
to applicable law, the stock could be sold or traded if a purchaser is available
with no effect on any deposit account the seller may hold at Community Savings.
The capital stock of the Company also will not be insured by the FDIC or any
other governmental entity.
VOTING RIGHTS. Under Community Savings' current Certificate of
Incorporation and Bylaws, deposit account holders and borrowers have voting
rights with respect to certain matters relating to Community Savings, including
the election of directors. After the Conversion, (i) neither deposit account
holders nor borrowers will have voting rights with respect to Community Savings
and will therefore not be able to elect directors of Community Savings or
control its affairs; (ii) voting rights with respect to Community Savings will
be vested in the Company as the sole stockholder of Community Savings; and (iii)
voting rights with respect to the Company will be vested in the Company's
stockholders. Each purchaser of Common Stock will be entitled to vote on any
matters to be considered by the Company's stockholders. For a description of
the voting rights of the holders of Common Stock, see "Description of Capital
Stock."
DEPOSIT ACCOUNTS AND LOANS. The account balances, interest rates and other
terms of deposit accounts at Community Savings and the existing deposit
insurance coverage of such accounts will not be affected by the Conversion
(except to the extent that a depositor directs Community Savings to withdraw
funds to pay for his or her Common Stock). Furthermore, the Conversion will not
affect the balances, interest rates, maturities or other terms of loan accounts,
or the obligations of borrowers under their individual contractual arrangements
with Community Savings.
CONTINUITY. Community Savings will continue without interruption, during
and after completion of the Conversion, to provide its services to depositors
and borrowers pursuant to existing policies and will maintain its current
offices operated by the existing management and employees of Community Savings.
LIQUIDATION RIGHTS. In the unlikely event of a complete liquidation of
Community Savings, either before or after Conversion, account holders would have
claims for the amount of their deposit accounts, including accrued interest, and
would receive the protection of deposit insurance up to applicable limits. In
addition to deposit insurance coverage, depositor liquidation rights before and
after Conversion would be as set forth below.
Liquidation Rights Prior to the Conversion. As described above under "-
General", prior to the Conversion, in the event of a complete liquidation of
Community Savings, each holder of a deposit account in Community Savings would
receive such holder's pro rata share of any assets of Community Savings
remaining after payment of claims of all creditors (including the claims of all
depositors to the withdrawal value of their accounts, including accrued
interest). Such holder's pro rata share of such remaining assets, if any, would
be in the same proportion of such assets as the value of such holder's deposit
account was to the total value of all deposit accounts in Community Savings at
the time of liquidation.
Liquidation Rights After the Conversion. As required by North Carolina
conversion regulations, the Plan of Conversion provides that, upon completion of
the Conversion, a memorandum account called a "Liquidation Account" will be
established for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. The amount of the Liquidation Account will be equal
to the net worth of Community Savings as of the date of its latest statement of
financial condition contained in this Prospectus. Under applicable regulations,
Community Savings will not be permitted to pay dividends on, or repurchase any
of, its capital stock if its net worth would thereby be reduced below the
aggregate amount then required for the Liquidation Account. See "Dividend
Policy" and Supervision and Regulation - Regulation of Community Savings -
Restrictions on Dividends and Other Capital Distributions." After the
Conversion, Eligible Account Holders and Supplemental Eligible Account Holders
will be entitled, in the event of a liquidation of Community Savings, to
receive liquidating distributions of any assets remaining after payment of all
creditors' claims (including the claims of all depositors to the withdrawal
values of their deposit accounts, including accrued interest), before any
distributions are made on Community Savings' capital stock, equal to their
proportionate interests at that time in the Liquidation Account.
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Each Eligible Account Holder and Supplemental Eligible Account Holder will
have an initial interest ("subaccount balance") in the Liquidation Account for
each deposit account held as of June 30, 1997 (the Eligibility Record Date) or
as of ___________________ (the Supplemental Eligibility Record Date),
respectively. Each initial subaccount balance will be the amount determined by
multiplying the total opening balance in the Liquidation Account by the
Qualifying Deposit (a deposit of at least $50 as of the Eligibility Record Date
or Supplemental Eligibility Record Date, as applicable) of such deposit account
divided by the total of all Qualifying Deposits on that date. If the amount in
the deposit account on any subsequent annual closing date of Community Savings
is less than the balance in such deposit account on any other annual closing
date or the balance in such an account on the Eligibility Record Date or
Supplemental Eligibility Record Date, as the case may be, this interest in the
Liquidation Account will be reduced by an amount proportionate to any such
reduction, and will not thereafter be increased despite any subsequent increase
in the related deposit account. An Eligible Account Holder's or Supplemental
Eligible Account Holder's interest in the Liquidation Account will cease to
exist if the deposit account is closed. The Liquidation Account will never
increase and will be correspondingly reduced as the interests in the Liquidation
Account are reduced or cease to exist. In the event of a liquidation, any assets
remaining after the above liquidation rights of Eligible Account Holders and
Supplemental Eligible Account Holders are satisfied would be distributed to the
Company, as sole stockholder of Community Savings.
A merger, consolidation, sale of bulk assets or similar combination or
transaction with another FDIC-insured depository institution, whether or not
Community Savings is the surviving institution, would not be viewed as a
complete liquidation for purposes of distribution of the Liquidation Account.
In any such transaction, the Liquidation Account would be assumed by the
surviving institution to the full extent authorized by regulations of the
Administrator as then in effect.
OFFERING OF COMMON STOCK
As part of the Conversion, the Company is making the Subscription Offering
of Common Stock in the priorities and to the persons described below under "-
Subscription Offering." In addition, any shares which remain unsubscribed for
in the Subscription Offering will be offered in the Community Offering to
members of the general public, with priority being given to natural persons and
trusts of natural persons residing or located in Alamance County, North
Carolina, including IRAs, Keogh accounts and similar retirement accounts
established for the benefit of natural persons who are residents of Alamance
County. See "- Community Offering." If necessary, all shares of Common Stock
not purchased in the Subscription Offering and Community Offering, if any, may
be offered for sale to the general public through a syndicate of registered
broker-dealers as selected dealers to be managed by Trident Securities. See "-
Syndicated Community Offering."
The Plan of Conversion requires that the aggregate dollar amount of the
Common Stock sold equal not less than the minimum nor more than the maximum of
the Valuation Range which is established in connection with the Conversion;
provided, however, with the consent of the Administrator and the FDIC, the
aggregate dollar amount of the Common Stock sold may be increased to as much as
15% above the maximum of the Valuation Range, without a resolicitation of
subscribers or any right to cancel subscriptions, in order to reflect changes in
market and financial conditions following commencement of the Subscription
Offering. See "- Purchase Price of Common Stock and Number of Shares Offered."
If a Syndicated Community Offering is not feasible or successful and Common
Stock having an aggregate value of at least the minimum of the Valuation Range
is not subscribed for in the Subscription and Community Offerings, the Company
will consult with the Administrator to determine an appropriate alternative
method of selling all shares of Common Stock offered in the Conversion and not
subscribed for in the offerings. The same per share price ($15.00) will be paid
by purchasers in the Subscription, Community and Syndicated Community Offerings.
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The Subscription Offering will expire at the Expiration Time, which is
12:00 noon, Eastern Time, on _______________, 1999, unless, with the approval of
the Administrator, the offering period is extended by the Company and Community
Savings. The Community Offering, if any, may begin at any time after the
Subscription Offering begins and will terminate at the Expiration Time or at any
time thereafter, but not later than _______________, 1999, unless extended with
the approval of the Administrator. The Syndicated Community Offering, if any,
or other sale of all shares not subscribed for in the Subscription and Community
Offerings, will be made as soon as practicable following the Expiration Time.
The sale of the Common Stock must, under the North Carolina conversion
regulations, be completed within 45 days after the Expiration Time unless such
period is extended with the approval of the Administrator. In the event such an
extension is approved, subscribers would be given the opportunity to increase
(subject to maximum purchase limitations), decrease (subject to minimum purchase
limitations) or rescind their subscriptions. In such event, substantial
additional printing, legal and accounting expenses may be incurred in completing
the Conversion.
The commencement and completion of any required Community or Syndicated
Community Offering will be subject to market conditions and other factors beyond
the Company's control. Accordingly, no assurance can be given that any required
Community or Syndicated Community Offering or other sale of Common Stock will be
commenced at any particular time or as to the length of time that will be
required to complete the sale of all shares of Common Stock offered, and
significant changes may occur in the estimated pro forma market value of the
Common Stock, together with corresponding changes in the offering price, the
number of shares being offered, and the net proceeds realized from the sale of
the Common Stock. The Plan of Conversion requires that the Conversion be
completed within 24 months after the date of approval of the Plan of Conversion
by Community Savings' members.
SUBSCRIPTION OFFERING
In accordance with North Carolina conversion regulations, non-transferable
subscription rights have been granted under the Plan of Conversion to the
following persons in the following order of priority:
(i) Community Savings' Eligible Account Holders, who are depositors as of
June 30, 1997 who had aggregate deposits at the close of business on such
date of at least $50 ("Qualifying Deposits");
(ii) the ESOP;
(iii) Community Savings' Supplemental Eligible Account Holders, who are
depositors as of ____________________, who had Qualifying Deposits on such
date;
(iv) Community Savings' Other Members, who are depositor and borrower
members of Community Savings as of _______________, 1999, the voting record
date for the Special Meeting, who are not Eligible Account Holders or
Supplemental Eligible Account Holders; and
(v) directors, officers and employees of Community Savings who are not
Eligible Account Holders, Supplemental Eligible Account Holders or Other
Members.
All subscriptions received will be subject to the availability of Common Stock
after satisfaction of subscriptions of all persons having prior rights in the
Subscription Offering, and to the maximum purchase limitations and other terms
and conditions set forth in the Plan of Conversion and described below.
In order to ensure proper identification of subscription rights, it is the
responsibility of subscribers in the Subscription Offering to provide correct
account verification information on the stock order form.
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ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder has been granted,
without payment therefor, non-transferable subscription rights to purchase
Common Stock up to the maximum purchase limitation described in "- Minimum and
Maximum Purchase Limitations." If Eligible Account Holders subscribe for more
shares of Common Stock than are available for purchase, the shares offered will
first be allocated among the subscribing Eligible Account Holders so as to
enable each subscribing Eligible Account Holder to the extent possible, to
purchase the number of shares necessary to make his or her total allocation of
Common Stock equal to the lesser of 100 shares of Common Stock or the number of
shares subscribed for by such Eligible Account Holder. Any shares remaining
after such allocation will be allocated among the subscribing Eligible Account
Holders whose subscriptions remain unsatisfied in the proportion that each such
Eligible Account Holder's Qualifying Deposits bears to the total of the
Qualifying Deposits of all such Eligible Account Holders.
ESOP. The ESOP has been granted, without payment therefor, subscription
rights to purchase a number of shares of Common Stock up to 8% of the sum of the
aggregate number of shares issued in the Conversion and the number of shares
contributed to the Foundation. The ESOP is expected to purchase such number of
shares in the Conversion. If, because of an oversubscription for shares of
Common Stock or for any other reason, the ESOP is unable to purchase in the
Conversion 8% of the sum of the total number of shares offered in the Conversion
and the number of shares contributed to the Foundation, then the Board of
Directors of the Company intends to approve the purchase by the ESOP in the open
market, after the Conversion, of such shares as are necessary for the ESOP to
acquire such number of shares.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible Account
Holders and the ESOP, each Supplemental Eligible Account Holder has been
granted, without payment therefor, non-transferable subscription rights to
purchase Common Stock up to the maximum purchase limitation described in "-
Minimum and Maximum Purchase Limitations." If Supplemental Eligible Account
Holders subscribe for more shares of Common Stock than are available for
purchase, the shares offered will first be allocated among the subscribing
Supplemental Eligible Account Holders so as to enable each subscribing
Supplemental Eligible Account Holder to the extent possible, to purchase the
number of shares necessary to make his or her total allocation of Common Stock
equal to the lesser of 100 shares of Common Stock or the number of shares
subscribed for by such Supplemental Eligible Account Holder. Any shares
remaining after such allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that each such Supplemental Eligible Account Holder's Qualifying
Deposits bears to the total of the Qualifying Deposits of all such Supplemental
Eligible Account Holders.
OTHER MEMBERS. To the extent that shares remain available for purchase
after satisfaction of subscriptions of Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders, each Other Member (a member of Community
Savings as of _______________, 1999 who is not an Eligible Account Holder or
Supplemental Eligible Account Holder) has been granted, without payment
therefor, non-transferable subscription rights to purchase Common Stock up to
the maximum purchase limitation described in "- Minimum and Maximum Purchase
Limitations." If Other Members subscribe for more shares of Common Stock than
remain available for purchase by Other Members, shares will be allocated among
the subscribing Other Members in the proportion that the number of votes
eligible to be cast by each Other Member bears to the total number of votes
eligible to be cast at the Special Meeting by all Other Members whose
subscriptions remain unsatisfied.
EMPLOYEES, OFFICERS, AND DIRECTORS. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible Account
Holders, the ESOP, Supplemental Eligible Account Holders and Other Members,
Community Savings' employees, officers and directors who are not Eligible
Account Holders, Supplemental Eligible Account Holders or Other Members have
each been granted, without payment therefor, non-
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transferable subscription rights to purchase Common Stock up to the maximum
purchase limitation described in "- Minimum and Maximum Purchase Limitations."
If more shares are subscribed for by such employees, officers and directors than
are available for purchase by them, the available shares will be allocated among
subscribing employees, officers and directors pro rata on the basis of the
amount of their respective subscriptions.
COMMUNITY OFFERING
Any shares of Common Stock which remain unsubscribed for in the
Subscription Offering may be offered by the Company to members of the general
public in the Community Offering, which may commence at any time after
commencement of the Subscription Offering, with priority given to natural
persons and trusts of natural persons residing or located in Alamance County,
North Carolina, including IRA accounts, Keogh accounts and similar retirement
accounts established for the benefit of natural persons who are residents of
Alamance County. The Community Offering may terminate at the Expiration Time or
at any time thereafter, but no later than _______________, 1999, unless further
extended with the consent of the Administrator. The opportunity to subscribe
for shares of Common Stock in the Community Offering is subject to the right of
Community Savings and the Company, in their sole discretion, to accept or reject
any such orders, in whole or in part, either at the time of receipt of an order
or as soon as practicable following the termination of the Community Offering.
In the event Community Savings and the Company reject any such orders after
receipt, subscribers will be promptly notified and all funds submitted with
subscriptions will be returned with interest at Community Savings' statement
savings rate.
In the event that subscriptions by subscribers in the Community Offering
whose orders would otherwise be accepted exceed the shares available for
purchase in the Community Offering, then subscriptions of natural persons and
trusts of natural persons residing in Alamance County, including IRAs, Keogh
accounts and similar retirement accounts established for the benefit of natural
persons who are residents of Alamance County ("First Priority Community
Subscribers") will be filled in full up to applicable purchase limitations (to
the extent such subscriptions are not rejected by Community Savings and the
Company) prior to any allocation to other subscribers in the Community Offering.
In the event of an oversubscription by First Priority Community Subscribers
whose orders would otherwise be accepted, shares of Common Stock will be
allocated first to each First Priority Community Subscriber whose order is
accepted in full or in part by Community Savings and the Company in the entire
amount of such order up to a number of shares no greater than 15,000 shares,
which number shall be determined by the Board of Directors of Community Savings
prior to the time the Conversion is consummated with the intent to provide for a
wide distribution of shares among such subscribers. Any shares remaining after
such allocation will be allocated to each First Priority Community Subscriber
whose order is accepted in full or in part on an equal number of shares basis
until all orders are filled. Such allocation shall also be applied to
subscriptions by other subscribers in the Community Offering, in the event
shares are available for such subscribers but there is an oversubscription by
them.
In order to ensure proper allocation of shares in the event of an
oversubscription, it is the responsibility of subscribers in the Community
Offering to provide correct addresses of residence on the stock order form.
SYNDICATED COMMUNITY OFFERING
The Plan of Conversion provides that, if necessary, all shares of Common
Stock not purchased in the Subscription and Community Offerings, if any, may be
offered for sale to the general public in a syndicated community offering
through a syndicate of registered broker-dealers as selected dealers (the
"Selected Dealers") to be formed and managed by Trident Securities acting as
agent of the Company. The Company and Community Savings have the right to
reject orders, in whole or in part, in their sole discretion in the syndicated
community offering. Neither Trident Securities nor any registered broker-dealer
shall have any obligation to take or purchase
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any shares of the Common Stock in the syndicated community offering; however,
Trident Securities has agreed to use its best efforts in the sale of shares in
the syndicated community offering. Common Stock sold in the syndicated community
offering will be sold at the purchase price of $15.00 per share which is the
same price as all other shares being offered in the Conversion.
It is estimated that the Selected Dealers, including Trident Securities,
will receive a negotiated commission based on the amount of Common Stock sold by
the Selected Dealer, payable by the Company. During the syndicated community
offering, Selected Dealers may only solicit indications of interest from their
customers to place orders for the purchase of shares of Common Stock with the
Company as of a certain date (the "Order Date"). When and if Trident Securities
and the Company 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 such customers on the next
business day after the Order Date. Selected Dealers will debit the accounts of
their customers on a date which will be three business days from the Order Date
("Debit 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 Debit Date. On the next business day following the Debit
Date, Selected Dealers will remit funds to the account that the Company
established for each Selected Dealer. After payment has been received by the
Company from Selected Dealers, funds will earn interest at Community Savings'
statement savings rate until the consummation of the Conversion. In the event
the Conversion is not consummated as described above, funds with interest will
be returned promptly to the Selected Dealers, who, in turn, will promptly credit
their customers' brokerage accounts.
The syndicated community offering may close at any time after the
Expiration Time at the discretion of Community Savings and the Company, but in
no case later than _______________, 1999.
FRACTIONAL SHARES
In making allocations in the event of oversubscriptions, all computations
will be rounded down to the nearest whole share; no fractional shares will be
issued. Excess and other amounts sent by subscribers which are not used to
satisfy subscriptions will be refunded with interest at Community Savings'
statement savings rate, and amounts designated for withdrawal from deposit
accounts will be released.
PURCHASE PRICE OF COMMON STOCK AND NUMBER OF SHARES OFFERED
The purchase price of shares of Common Stock sold in the Subscription
Offering, Community Offering and Syndicated Community Offering will be $15.00
per share. The purchase price was determined by the Boards of Directors of the
Company and Community Savings in consultation with Community Savings' financial
advisor and sales agent, Trident Securities.
The North Carolina regulations governing conversions of North Carolina-
chartered mutual savings banks to stock form require that the aggregate purchase
price of the shares of Common Stock of the Company sold in connection with the
Conversion be equal to not less than the minimum, nor more than the maximum, of
the Valuation Range which is established by an independent appraisal in the
Conversion and is described below; provided, however, that with the consent of
the Administrator and the FDIC the aggregate purchase price of the Common Stock
sold may be increased to up to 15% above the maximum of the Valuation Range,
without a resolicitation of subscribers or any right to cancel, rescind or
change subscription orders, to reflect changes in market and financial
conditions following commencement of the Subscription Offering.
FDIC rules with respect to appraisals require that the independent
appraisal must include a complete and detailed description of the elements of
the appraisal report, justification for the methodology employed and sufficient
support for the conclusions reached. The appraisal report must include a full
discussion of each peer
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group member and documented analytical evidence supporting variances from peer
group statistics. The appraisal report must also include a complete analysis of
the converting institution's pro forma earnings, which should include the
institution's full potential once it fully deploys the capital from the
Conversion pursuant to its business plan.
Community Savings has retained Ferguson, an independent appraisal firm
experienced in the valuation and appraisal of savings institutions and their
holding companies, to prepare an appraisal of the pro forma market value of
Community Savings and the Company and to assist Community Savings in preparing a
business plan. For its services in determining such valuation and assisting
with the business plan, Ferguson will receive an aggregate fee of $25,000, plus
$3,500 for each written opinion or update of its appraisal, and will be
reimbursed for its out-of-pocket expenses.
Ferguson has informed Community Savings that its appraisal has been made in
reliance upon the information contained in this Prospectus, including the
financial statements of Community Savings. Ferguson has further informed
Community Savings that it also considered the following factors, among others,
in making the appraisal: (i) the present and projected operating results and
financial condition of the Company and Community Savings; (ii) the economic and
demographic conditions in Community Savings' existing market area; (iii) certain
historical, financial and other information relating to Community Savings; (iv)
the proposed dividend policy of the Company; (v) a comparative evaluation of the
operating and financial statistics of Community Savings with those of other
savings institutions; (vi) the aggregate size of the offering of the Common
Stock; and (vii) the trading market for the securities of institutions Ferguson
believes to be comparable in relevant respects to the Company and Community
Savings and general conditions in the markets for such securities. In addition,
Ferguson has advised Community Savings that it has considered the effect of the
Conversion on the net worth and earnings potential of the Company and Community
Savings. Ferguson has also advised Community Savings that its appraisal has
been based upon the assumption that the Foundation is approved at the Special
Meeting and that Community Savings will purchase 100,000 newly issued shares of
the Holding Company's Common Stock for $15.00 per share and contribute such
shares to the Foundation immediately after consummation of the Conversion.
On the basis of its consideration of the above factors, Ferguson has
advised Community Savings that, in its opinion, at December 9, 1998, the
Valuation Range of Community Savings and the Company was from a minimum of
$22,950,000 to a maximum of $31,050,000, with a midpoint of $27,000,000. Based
upon such valuation and a purchase price for shares offered in the Conversion of
$15.00 per share, the number of shares to be offered ranges from a minimum of
1,530,000 shares to a maximum of 2,070,000 shares, with a midpoint of 1,800,000
shares.
The Board of Directors of Community Savings has reviewed the methodology
and assumptions used by Ferguson in preparing the appraisal and has determined
that the Valuation Range, as well as the methodology and assumptions used, were
reasonable and appropriate.
Upon completion of the offerings, Ferguson will confirm or update its
valuation of the estimated aggregate pro forma market value of Community Savings
and the Company. Based on the confirmed or updated appraisal, a determination
will be made of the total number of shares of Common Stock which will be offered
and sold in the Conversion.
With the consent of the Administrator and the FDIC, the aggregate price of
the shares sold in the Conversion may be increased by up to 15% above the
maximum of the Valuation Range, or to $35,707,500 (2,380,500 shares), without a
resolicitation of subscribers and without any right to cancel, rescind or change
subscription orders, to reflect changes in market and financial conditions
following commencement of the Subscription Offering.
Because of the establishment of the Foundation, the number of shares to be
issued and outstanding following the Conversion will be increased by 100,000
shares. Funding the Foundation with authorized but
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unissued shares will have the effect of diluting the ownership and voting
interests of persons purchasing shares in the Conversion, since a greater number
of shares will be outstanding upon completion of the Conversion than would be if
the Foundation were not established. See "Risk Factors - Costs and Risks
Associated with Establishment of the Foundation - Dilution of Stockholders'
Interests."
No sale of shares of Common Stock may be consummated unless, after the
expiration of the offering period, Ferguson confirms to Community Savings, the
Company, the Administrator and the FDIC, that, to the best of its knowledge,
nothing of a material nature has occurred which, taking into account all
relevant factors, would cause Ferguson to conclude that the aggregate purchase
price of the Common Stock sold in the Conversion is incompatible with its
estimate of the aggregate pro forma market value of Community Savings and the
Company at the conclusion of the offerings. If the aggregate pro forma market
value of Community Savings and the Company as of such date is within the
Valuation Range (or, with the consent of the Administrator and FDIC, not more
than 15% above the maximum of the Valuation Range), then such pro forma market
value will determine the number of shares of Common Stock to be sold in the
Conversion. If there has occurred a change in the aggregate pro forma market
value of Community Savings and the Company so that the aggregate pro forma
market value is below the minimum of the Valuation Range or more than 15% above
the maximum of the Valuation Range, a resolicitation of subscribers may be made
based upon a new Valuation Range, the Plan of Conversion may be terminated or
such other actions as the Administrator and the FDIC may permit may be taken.
In the event of a resolicitation, subscribers would be given a specified
time period within which to respond to the resolicitation. If a subscriber
fails to respond to the resolicitation by the end of such period, the
subscription of such subscriber will be canceled, funds submitted with the
subscription will be refunded promptly with interest at Community Savings'
statement savings rate, and holds on accounts from which withdrawals were
designated will be released. Any such resolicitation will be by means of an
amended prospectus filed with the SEC. A resolicitation may delay completion of
the Conversion. If the Plan of Conversion is terminated, all funds will be
returned promptly with interest at Community Savings' statement savings rate
from the date payment was deemed received, and holds on funds authorized for
withdrawal from deposit accounts will be released. See "- Exercise of
Subscription Rights and Purchases in the Community Offering."
The valuation by Ferguson is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing Common Stock.
Ferguson did not independently verify the financial statements and other
information provided by Community Savings, nor did Ferguson value independently
the assets or liabilities of Community Savings. The valuation considers
Community Savings as a going concern and should not be considered as an
indication of the liquidation value of Community Savings or the Company.
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 purchasing such shares in the
Conversion will thereafter be able to sell shares at prices in the range of the
foregoing valuation of the pro forma market value thereof.
A copy of the complete appraisal by Ferguson is on file and available for
inspection at the office of the Savings Institutions Division of the North
Carolina Department of Commerce, Tower Building, Suite 301, 1110 Navaho Drive,
Raleigh, North Carolina 27609. A copy is also available for inspection at the
Stock Information Center. A copy of the appraisal has also been filed as an
exhibit to the Registration Statement filed with the SEC with respect to the
Common Stock offered hereby. See "Additional Information."
EXERCISE OF SUBSCRIPTION RIGHTS AND PURCHASES IN COMMUNITY OFFERING
In order for subscription rights to be effectively exercised in the
Subscription Offering and in order to purchase in the Subscription Offering, the
original signed stock order form in the form provided by the Company and
Community Savings, accompanied by the required payment for the aggregate dollar
amount of Common Stock
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desired or appropriate instructions authorizing withdrawal from one or more
Community Savings deposit accounts (other than negotiable order of withdrawal
accounts or other demand deposit accounts), must be received by Community
Savings by the Expiration Time, which is 12:00 noon, Eastern Time, on
__________________, 1999.
Subscription rights (i) for which Community Savings does not receive
original signed stock order forms by the Expiration Time (unless such time is
extended), or (ii) for which stock order forms are executed defectively or are
not accompanied by full payment (or appropriate withdrawal instructions) for
subscribed shares, will expire whether or not Community Savings has been able to
locate the persons entitled to such rights. Copies of the stock order form,
including copies sent by facsimile, will not be accepted.
In order to purchase in the Community Offering, the stock order form,
accompanied by the required payment for the aggregate dollar amount of Common
Stock desired or appropriate instructions authorizing withdrawal from one or
more Community Savings deposit accounts (other than negotiable order of
withdrawal accounts or other demand deposit accounts), must be received by
Community Savings prior to the time the Community Offering terminates, which
could be at any time at or subsequent to the Expiration Time. No orders will be
accepted from persons who do not have subscription rights in the Subscription
Offering unless a Community Offering is commenced.
Persons wishing to use funds in a Community Savings IRA to purchase Common
Stock must transfer the funds in such account to a self-directed IRA at an
institution other than Community Savings. The Stock Information Center can
assist with such transfers. However, persons desiring to use funds in a
Community Savings IRA to purchase Common Stock must visit the Stock Information
Center on or before __________________, 1999 in order to complete that purchase
so that the necessary forms may be forwarded for execution and returned prior to
the Expiration Time.
An executed stock order form once received by Community Savings, may not be
modified, amended or rescinded without the consent of Community Savings.
Community Savings has the right to extend the subscription period subject to
applicable regulations or to waive or permit correction of incomplete or
improperly executed stock order forms, but does not represent that it will do
so.
The amount to be remitted with the stock order form shall be the aggregate
dollar amount that a subscriber or purchaser desires to invest in the
Subscription and Community Offerings. Complete payment must accompany all
completed stock order forms submitted in the Subscription and Community
Offerings in order for subscriptions to be valid. See "- Purchase Price of
Common Stock and Number of Shares Offered."
Payment for shares will be permitted to be made by any of the following
means:
(i) in cash, if delivered in person to any office of Community Savings;
(ii) by check, bank draft, negotiable order of withdrawal or money order,
provided that the foregoing will only be accepted subject to collection and
payment; or
(iii) by appropriate authorization of withdrawal from any deposit account
in Community Savings (other than a negotiable order of withdrawal account
or other demand deposit account).
In order to ensure proper identification of subscription rights and proper
allocations in the event of an oversubscription, it is the responsibility of
subscribers to provide correct account verification information on the stock
order form. Stock order forms submitted by unauthorized purchasers or in
amounts exceeding purchase limitations will not be honored.
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Interest will be paid by Community Savings on payments for Common Stock
made in cash or by check, bank draft, negotiable order of withdrawal or money
order at Community Savings' statement savings rate. Such interest shall be paid
from the date the order is accepted for processing and payment in good funds is
received by Community Savings until consummation or termination of the
Conversion. Community Savings is entitled to invest all amounts paid on
subscriptions for Common Stock for its own account until completion or
termination of the Conversion. After amounts submitted for payment are applied
to the purchase price for shares sold, they will no longer earn interest, and
they will not be insured by the FDIC or any other government agency or other
entity. Community Savings may not knowingly lend funds or otherwise extend
credit to any person to purchase Common Stock.
Payment may not be made by wire transfer. Stock order forms directing that
payment for shares be made by authorization of withdrawal will be accepted only
if, at the time the stock order form is received, there exists sufficient funds
in the account from which withdrawal is authorized to pay the full purchase
price for the number of shares ordered.
For purposes of determining the withdrawal balance of deposit accounts from
which withdrawals have been authorized, such withdrawals will be deemed to have
been made upon receipt of appropriate authorization therefor, but interest will
be paid by Community Savings on the amount deemed to have been withdrawn at the
contractual rate of interest paid on such accounts until the date on which the
Conversion is completed or terminated.
The stock order forms contain appropriate means by which authorization of
withdrawals from deposit accounts may be made to pay for subscribed shares.
Once such a withdrawal has been authorized, none of the designated withdrawal
amount may be withdrawn (except by Community Savings as payment for Common
Stock) until the Conversion is completed or terminated. Savings accounts will
be permitted to be established for the purpose of making payment for subscribed
shares of Common Stock. Funds authorized for withdrawal will continue to earn
interest at the applicable contract interest rate until completion or
termination of the Conversion or, in the case of an order submitted in the
Community Offering, until it is determined that such order cannot or will not be
accepted.
Notwithstanding any regulatory provision regarding penalties for early
withdrawal from certificate accounts, payment for subscribed shares of Common
Stock will be permitted through authorization of withdrawals from such accounts
without the assessment of such penalties. However, if after such withdrawal the
applicable minimum balance requirement ceases to be satisfied, such certificate
account will be canceled and the remaining balance thereof will earn interest at
Community Savings' statement savings rate.
Upon completion or termination of the Conversion, Community Savings will
return to subscribers all amounts paid with subscriptions which are not applied
to the purchase price for shares, plus interest at its passbook savings rate
from the date good funds are received until the consummation or termination of
the Conversion, and Community Savings will release deposit account withdrawal
orders given in connection with the subscriptions to the extent funds are not
withdrawn and applied toward the purchase of shares.
DELIVERY OF STOCK CERTIFICATES
Certificates representing Common Stock issued in the Conversion will be
mailed by the Company's transfer agent to persons entitled thereto at the
address of such persons appearing on the stock order form as soon as practicable
following consummation of the Conversion. Any certificates returned as
undeliverable will be held by the Company until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable law.
Until certificates for Common Stock are available and delivered to subscribers,
subscribers may not be able to sell the shares of Common Stock for which they
have subscribed, even though trading of the Common Stock may have commenced.
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PERSONS IN NON-QUALIFIED OR FOREIGN JURISDICTIONS
The Company will make reasonable efforts to comply with the securities laws
of all states of the United States in which Eligible Account Holders,
Supplemental Eligible Account Holders, or Other Members reside. However, no
shares of Common Stock or subscription rights under the Plan of Conversion will
be offered or sold in a foreign country, or in a state in the United States (i)
where a small number of persons otherwise eligible to subscribe for shares under
the Plan of Conversion reside or (ii) if the Company determines that compliance
with the securities laws of such state would be impracticable for reasons of
cost or otherwise, including, but not limited to, a requirement that the
Company, Community Savings or any employee or representative thereof register as
a broker, dealer, agent or salesperson or register or otherwise qualify the
subscription rights or Common Stock for sale in such state. No payments will be
made in lieu of the granting of subscription rights to persons residing in such
jurisdictions.
MARKETING ARRANGEMENTS
Community Savings has retained Trident Securities to consult with and
advise Community Savings and the Company and to assist the Company, on a best-
efforts basis, in the marketing of shares in the offerings. Trident Securities
is a broker-dealer registered with the SEC and a member of the National
Association of Securities Dealers, Inc. ("NASD"). Trident Securities is
headquartered in Raleigh, North Carolina, and its telephone number is (919) 781-
8900.
Trident Securities will assist Community Savings and the Company in the
Conversion as follows: (i) it will act as marketing advisor with respect to the
Subscription Offering and will represent the Company as placement agent on a
best-efforts basis in the sale of the Common Stock in the Community Offering and
Syndicated Community Offering; (ii) members of its staff will conduct training
sessions to ensure that directors, officers and employees of Community Savings
are knowledgeable regarding the Conversion process; and (iii) it will provide
assistance in the establishment and supervision of the Stock Information Center,
including training staff to properly record and tabulate orders for the purchase
of Common Stock and to appropriately respond to customer inquiries.
For rendering its services, Community Savings has agreed to pay Trident
Securities a commission equal to 1.75% of the aggregate dollar amount of Common
Stock sold in the Subscription and Community Offerings, excluding shares
purchased by the ESOP, directors, executive officers and their "associates" (as
defined in the Plan of Conversion) and excluding shares sold by other NASD
member firms under Selected Dealers agreements. Community Savings has also
agreed to pay negotiated commissions in connection with any sales made under
Selected Dealers agreements. Community Savings has paid Trident Securities
$2,500 toward amounts due to such agent.
Community Savings has agreed to reimburse Trident Securities for its
reasonable out-of-pocket expenses, including but not limited to travel,
communications, legal fees and postage, and to indemnify Trident Securities
against certain claims or liabilities, including certain liabilities under the
Securities Act. Trident Securities has agreed that Community Savings is not
required to pay its legal fees to the extent they exceed $27,500 or its other
out of pocket expenses to the extent they exceed $7,500. Total fees and
commissions to Trident Securities are expected to be between $310,083 and
$515,478 at the minimum and 15% above the maximum, respectively, of the
Valuation Range. See "PRO FORMA DATA" for the assumptions used to determine
these estimates.
Sales of Common Stock will be made primarily by registered representatives
affiliated with Trident Securities or by the broker-dealers managed by Trident
Securities. In addition, subject to applicable law, executive officers of the
Company and Community Savings may participate in the solicitation of offers to
purchase Common Stock. Other employees of Community Savings may participate in
the offerings in clerical capacities, providing administrative support in
effecting sales transactions and answering questions of a mechanical nature
relating to the
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proper execution of the stock order forms. Other questions of prospective
purchasers, including questions as to the advisability or nature of the
investment, will be directed to registered representatives. Such other employees
have been instructed not to solicit offers to purchase Common Stock or provide
advice regarding the purchase of Common Stock.
A Stock Information Center has been established in Community Savings'
office at 708 South Church Street, Burlington, North Carolina, in an area
separate from Community Savings' banking operations. Employees will inform
prospective purchasers that their questions should be directed to the Stock
Information Center and will provide such persons with the telephone number of
the Stock Information Center which is (336) ________________.
Stock orders will be accepted at Community Savings' offices and will be
promptly forwarded to the Stock Information Center for processing. Sales of
Common Stock by registered representatives will be made from the Stock
Information Center. In addition, Community Savings may hire one or more
temporary clerical persons to assist in typing, opening mail, answering the
phone, and with other clerical duties. An employee of Community Savings will
also be present at the Stock Information Center to process funds and answer
questions regarding payment for stock, including verification of account numbers
in the case of payment by withdrawal authorization and similar matters.
Subject to applicable state law, the Company will rely on Rule 3a4-1 under
the Exchange Act, and sales of Common Stock will be conducted within the
requirements of Rule 3a4-1, so as to permit officers and current full and part-
time Community Savings employees to participate in the sale of Common Stock. No
officer, director or employee of the Company or Community Savings will be
compensated in connection with his or her participation by the payment of
commissions or other remuneration based either directly or indirectly on
transactions in the Common Stock.
The engagement of Trident Securities and the work performed by Trident
Securities pursuant to its engagement, including a due diligence investigation,
should not be construed by purchasers of Common Stock as constituting an
endorsement or recommendation relating to such investment or a verification of
the accuracy or completeness of information contained in this Prospectus.
MINIMUM AND MAXIMUM PURCHASE LIMITATIONS
Each person subscribing for Common Stock in the Conversion must subscribe
for at least 30 shares ($450) of the Common Stock to be offered in the
Conversion. The maximum number of shares of Common Stock which may be purchased
in the Conversion by (i) any person or entity or (ii) persons or entities
exercising subscription rights through a single account, is 15,000 shares
($225,000); provided, however, that the ESOP may purchase up to 8% of the sum of
number of shares offered in the Conversion plus the number of shares contributed
to the Foundation. In addition to the maximum purchase limits just set forth
(and not in lieu thereof), (i) no person or entity together with any associates
(as defined in the Plan of Conversion), may subscribe for more than 20,000
shares ($300,000) of Common Stock sold in the Conversion in the aggregate and
(ii) no persons or entities acting in concert may purchase more than 20,000
shares ($300,000) of the Common Stock sold in the Conversion in the aggregate.
The Board of Directors of Community Savings may in its absolute discretion
(i) reduce the above-described 15,000 and 20,000 share maximum purchase
limitations or (ii) increase such 15,000 and 20,000 share maximum purchase
limitations to an amount of up to 5% of the shares of Common Stock offered and
sold. Any reduction or increase in the maximum purchase limitation by
Community Savings' Board of Directors may occur at any time prior to
consummation of the Conversion, either before or after the Special Meeting on
__________________, 1999. In the event the 15,000 or 20,000 share maximum
purchase limitation is increased,
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<PAGE>
any subscriber or group of subscribers in the Subscription, Community or
Syndicated Community Offering who has subscribed for the maximum amount which is
increased, and certain other large subscribers in the discretion of the Company,
shall be given the opportunity to increase their subscriptions up to the then
applicable maximum purchase limitation.
The Plan of Conversion further provides that for purposes of the foregoing
limitations the term "associate" is used to indicate any of the following
relationships with a person:
(i) any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a director or
officer of Community Savings, the Company or any subsidiary of
Community Savings or of the Company;
(ii) any corporation or organization (other than Community Savings, the
Company or a majority-owned subsidiary of Community Savings or the
Company) of which the person is an officer or partner or is,
directly or indirectly, the beneficial owner of 10% or more of any
class of equity security; and
(iii) 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 for any tax-qualified
employee stock benefit plan or any charitable trust which is exempt
from federal taxation pursuant to Section 501(c)(3) of the Code.
For purposes of the foregoing limitations, (i) directors and officers of
Community Savings or the Company shall not be deemed to be associates or a group
of persons acting in concert solely as a result of their serving in such
capacities, (ii) the ESOP will not be deemed to be acting in concert with any of
its trustees for purposes of determining the number of shares which any such
trustee, individually, may purchase and (iii) shares of Common Stock held by the
ESOP and attributed to an individual will not be aggregated with other shares
purchased directly by, or otherwise attributable to, that individual.
For purposes of the foregoing limitations, persons will be deemed to be
"acting in concert" if they are (i) knowingly participating in a joint activity
or interdependent conscious parallel action towards a common goal (whether or
not pursuant to an express agreement), with respect to the purchase, ownership,
voting or sale of Common Stock or (ii) engaged in a combination or pooling of
voting or other interests in the securities of the Company for a common purpose
pursuant to any contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise. The Company and Community Savings
may presume that certain persons are acting in concert based upon, among other
things, joint account relationships and the fact that such persons have filed
joint Schedules 13D with the SEC with respect to other companies.
APPROVAL, INTERPRETATION, AMENDMENT AND TERMINATION
Under the Plan of Conversion, the Administrator's approval thereof, and
applicable North Carolina conversion regulations, consummation of the Conversion
is subject to satisfaction of certain conditions, including the following: (i)
approval of the Plan of Conversion by the affirmative vote of a majority of the
votes eligible to be cast by members of Community Savings at the Special
Meeting; (ii) sale of shares of Common Stock for an aggregate purchase price
equal to not less than the minimum or more than the maximum of the Valuation
Range unless the aggregate purchase price is increased to as much as 15% above
the maximum with the consent of the Administrator and FDIC, and (iii) receipt by
the Company and Community Savings of favorable opinions of counsel or other tax
advisor as to the federal and state tax consequences of the Conversion. See "-
Income Tax Consequences."
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<PAGE>
If all conditions for consummation of the Conversion are not satisfied, no
Common Stock will be issued, Community Savings will continue to operate as a
North Carolina-chartered mutual savings bank, all subscription funds will be
promptly returned with interest at Community Savings' statement savings rate,
and all deposit withdrawal authorizations (and holds placed on such accounts)
will be canceled. In such an event, the Company would not acquire control of
Community Savings.
All interpretations by Community Savings and the Company of the Plan of
Conversion and of the stock order forms and related materials for the
Subscription and Community Offerings will be final, subject to the authority of
the Administrator. Community Savings and the Company may reject stock order
forms that are not properly completed. However, the Company and Community
Savings retain the right, but will not be required, to waive irregularities in
submitted stock order forms or to require the submission of corrected stock
order forms or the remittance of full payment for all shares subscribed for by
such dates as they may specify.
The Plan of Conversion may be substantively amended by a two-thirds vote of
Community Savings' Board of Directors at any time prior to the Special Meeting,
and at any time thereafter by a two-thirds vote of Community Savings' Board of
Directors with the concurrence of the Administrator. If Community Savings
determines upon the advice of counsel and after consultation with the
Administrator that any such amendment is material, subscribers would be given
the opportunity to increase, decrease or cancel their subscriptions. Also, as
required by the regulations of the Administrator, the Plan of Conversion
provides that the transactions contemplated thereby may be terminated by a two-
thirds vote of Community Savings' Board of Directors at any time prior to the
Special Meeting and may be terminated by a two-thirds vote of Community Savings'
Board of Directors at any time thereafter but prior to the completion of the
Conversion with the concurrence of the Administrator, notwithstanding approval
of the Plan of Conversion by the Community Savings' Members at the Special
Meeting.
CERTAIN RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS; FALSE OR MISLEADING
ORDER FORMS
The subscription rights granted under the Plan of Conversion are non-
transferable. Subscription rights may be exercised only by the person to whom
they are issued and only for his or her own account. Persons exercising
subscription rights are required to certify that they are purchasing shares for
their own accounts within the purchase limitations set forth in the Plan of
Conversion and that they have no agreement or understanding for the sale or
transfer of such shares.
Community Savings reserves the right to make an independent investigation
of any facts or circumstances brought to its attention that indicate or tend to
indicate that one or more persons acting independently or as a group acting in
concert may be attempting to violate or circumvent the regulatory prohibition on
transferability of subscription rights. The nature and extent of such
investigation will be at Community Savings' sole discretion and Community
Savings may require a holder of subscription rights to provide certified
affidavits and other documentation to satisfy Community Savings that its Plan of
Conversion and North Carolina and federal conversion regulations regarding
nontransferability are not being subverted by actions of holders of subscription
rights. In extreme cases Community Savings reserves the right to seek legal
advice from the General Counsel for the Administrator as to compliance with all
regulations governing the Conversion, including the nontransferability of
subscription rights.
The Plan of Conversion provides that, if Community Savings' Board of
Directors determines that a subscriber (i) has submitted a false or misleading
information on his or her stock order form or otherwise in connection with the
attempted purchase of shares, (ii) has attempted to purchase shares of Common
Stock in violation of provisions of the Plan of Conversion or (iii) fails to
cooperate with attempts by Community Savings or the Company or their employees
or agents to verify information with respect to purchase rights, the Board of
Directors may reject the order of such subscriber.
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INCOME TAX CONSEQUENCES
Community Savings has received an opinion from its special counsel, Brooks,
Pierce, McLendon, Humphrey & Leonard, L.L.P., of Greensboro, North Carolina, to
the effect that for federal income tax purposes: (i) the Conversion will
constitute a tax free reorganization with respect to Community Savings and no
gain or loss will be recognized by Community Savings either in its mutual or
stock form; (ii) no gain or loss will be recognized by Community Savings upon
the purchase of Community Savings' stock by the Company or upon the sale by the
Company of its Common Stock; (iii) no gain or loss will be recognized by
Community Savings' depositors with respect to their deposit accounts at
Community Savings as a consequence of the Conversion; (iv) the tax basis of
depositors' deposit accounts at Community Savings will not be changed as a
result of the Conversion; (v) assuming the subscription rights have no value, no
gain or loss will be recognized by Eligible Account Holders, Supplemental
Eligible Account Holders, Other Members, or directors, officers and employees of
Community Savings upon either the issuance to them of the subscription rights or
the exercise or lapse thereof; (vi) no gain or loss will be recognized by
Eligible Account Holders or Supplemental Eligible Account Holders upon the
distribution to them of interests in the Liquidation Account; (vii) assuming the
subscription rights have no value, the tax basis for Common Stock purchased in
the Conversion will be the amount paid therefor; and (viii) the tax basis of
interests in the Liquidation Account will be zero. Community Savings has been
further advised by its special counsel, Brooks, Pierce, McLendon, Humphrey &
Leonard, L.L.P., that the tax effects of the Conversion under North Carolina tax
laws will be consistent with the federal income tax consequences.
Several of the foregoing legal opinions are premised on the assumption that
the subscription rights will have no value. Community Savings has been advised
by Ferguson that, in its opinion, the subscription rights will not have any
ascertainable value, based on the fact that such rights are acquired by the
recipients without cost, are non-transferable, are of short duration and afford
the recipients the right only to purchase Common Stock at a price equal to its
estimated fair market value as of the date such rights are issued, which will be
the same price paid by all purchasers in the Conversion. The opinion of
Ferguson is not binding on the IRS and if the subscription rights were
ultimately determined to have ascertainable value, recipients of subscription
rights would have to include in gross income an amount equal to the value of the
subscription rights received by them. The basis of the Common Stock purchased
pursuant to subscription rights would be increased by the amount of income
realized with respect to the receipt or exercise of the subscription rights.
Moreover, recipients of subscription rights could then have to report the
transaction to the IRS. Each Eligible Account Holder, Supplemental Eligible
Account Holder, Other Member or other recipient of subscription rights is
encouraged to consult with his, her or its own tax advisor as to the tax
consequences in the event the subscription rights are deemed to have
ascertainable value.
No legal opinion has been or will be received with respect to any tax
consequences of the Conversion not specifically described above, including the
tax consequences to Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members, other recipients of subscription rights or purchasers of
Common Stock under the laws of any other state, local or foreign taxing
jurisdiction to which they may be subject. Special counsel expresses no opinion
regarding the value of the subscription rights.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of Community Savings. The information contained in this
section should be read in conjunction with the Financial Statements, the
accompanying Notes to Financial Statements and the other sections contained in
this Prospectus.
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The Company was incorporated under North Carolina law in October 1998 at
the direction of Community Savings for the purpose of acquiring and holding all
of the outstanding stock of Community Savings to be issued in the Conversion.
The Company's principal business activities after the Conversion are expected
to be conducted solely through Community Savings.
Community Savings' results of operations depend primarily on net interest
income, which is the difference between interest income from interest-earning
assets and interest expense on interest-bearing liabilities. Community Savings'
operations are affected to a much lesser degree by non-interest income, such as
transaction and other service fee income, and other sources of income.
Community Savings' principal operating expenses, aside from interest expense,
consist of compensation and employee benefits, office occupancy costs and data
processing expenses.
MANAGEMENT STRATEGY
Community Savings' mission is to provide quality customer service, maximum
safety and security for depositors, and an equitable rate of return for
stockholders, while operating under high standards of fiscal soundness and
profitability. Community Savings intends to offer the fullest practicable range
of basic, progressive, competitive, quality products and services to its
clientele, and to provide attractive working conditions, training and
advancement opportunities for its employees. The Company endorses the ideals of
serving as an involved corporate citizen and shares in the responsibility of
participating in activities that enhance the economic and social health of the
communities it serves.
Historically, Community Savings' lending activities have concentrated on
the origination of conventional mortgage loans for the purpose of constructing,
financing or refinancing one-to-four family residential properties. As of
September 30, 1998, $94.4 million, or 72.8% of Community Savings' loan
portfolio, before net items, consisted of loans secured by residential
properties. Also at that date, approximately 91.7% of Community Saving's total
loan portfolio, before net items, consisted of loans secured by real estate
Community Savings also originates multi-family and nonresidential real
estate loans, home equity lines of credit, and secured and unsecured consumer
and business loans. In recent years, Community Savings has been proactive in
diversifying its loan portfolio by pursuing commercial credits and construction
and consumer loans. Community Savings has traditionally emphasized variable
rate loan originations. As of September 30, 1998, adjustable rate loans totaled
$120.1 million, or 92.6% of total loans outstanding, before net items, while
fixed rate loans totaled $9.6 million or 7.4% of total outstanding loans, before
net items.
For many years, Community Savings operated as a traditional thrift
institution primarily engaged in the taking of savings deposits and the making
of home mortgage loans. Community Savings is in the process of making
operational and other changes needed to enable it to offer a broader array of
products and services to its customers. As a result of this process, Community
Savings expects that it will in the future operate more like a community bank
than a traditional thrift institution. Many of the organizational changes
necessary to complete this transformation have been made, at significant cost to
the institution. This transformation will take several years to complete;
however, management believes that the increased flexibility provided by the
Conversion will help facilitate this process.
INTEREST RATE SENSITIVITY ANALYSIS
Interest rate sensitivity refers to the potential change in Community
Savings' interest spread resulting from changes in market interest rate.
Community Savings' net interest margin may be adversely affected during interest
rate cycles that cause interest income and interest expense to respond to
changes in market interest rates in a non-symmetrical manner.
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<PAGE>
GAP ANALYSIS. As part of Community Savings' interest rate risk management
policy, Community Savings calculates an interest rate "gap". Interest rate gap
analysis is a common, though imperfect, measure of interest rate risk, which
measures the relative dollar amounts of interest-earning assets (primarily
loans, investments and mortgage-backed securities) and interest-bearing
liabilities (primarily deposits and borrowings) which reprice within a specific
time period, either through maturity or rate adjustment. The "gap" is the
difference between the amounts of such assets and liabilities that are subject
to repricing during stated periods. A "negative" gap for a given period means
the amount of interest-bearing liabilities maturing or otherwise repricing
within that period exceeds the amount of interest-earning assets maturing or
repricing within the same period. Accordingly, in a declining interest rate
environment, an institution with a negative gap would generally be expected,
absent the effects of other factors, to experience a lower decrease in the yield
of its earning assets relative to the cost of its liabilities, and its income
should be positively affected. Conversely, the cost of liabilities for an
institution with a negative gap would generally be expected to increase more
quickly than the yield on its assets in a rising interest rate environment, and
such institution's net interest income generally would be expected to be
adversely affected by rising interest rates. Changes in the interest rates
generally have the opposite effect on an institution with a positive gap.
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At September 30, 1998, Community Savings had a one-year cumulative negative
gap of 18.02% of average interest-earning assets. The following table indicates
the time periods in which interest-earning assets and interest-bearing
liabilities mature or reprice in accordance with their contractual terms. The
table assumes prepayments and scheduled principal amortization of fixed-rate
loans and mortgage-backed securities, and assumes that adjustable rate loans
will reprice at contractual repricing intervals. In making the computations,
Community Savings used certain assumptions frequently employed in its industry
with respect to prepayment rates and deposit decay rates. The computations
would vary significantly if different assumptions were used, and Community
Savings' actual interest rate sensitivity will be substantially different if its
actual experience differs from the assumptions used in the table.
<TABLE>
<CAPTION>
Terms to Repricing at September 30, 1998
-----------------------------------------------------------
More Than More Than
3 Months 3 Months to 1 Year to More Than
or Less 1 Year 5 Years 5 Years Total
---------- ------------- ---------- ---------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Mortgage loans-fixed rate $ 361 $ 947 $ 2,836 $ 1,436 $ 5,580
Consumer loans - fixed rate 678 741 2,006 445 3,870
------- -------- ------- ------- --------
Subtotal 1,039 1,688 4,842 1,881 9,450
Mortgage loans-adjustable rate 13,476 32,929 42,452 - 88,857
Home equity 4,835 - - - 4,835
Construction 11,736 - - - 11,736
Commercial 14,839 - - - 14,839
------- -------- ------- ------- --------
Subtotal 44,886 32,929 42,452 - 120,267
Investments /(1)/
Interest bearing cash 1,803 1,803
Investment securities 8,721 5,305 13,928 3,119 31,073
------- -------- ------- ------- --------
Subtotal 10,524 5,305 13,928 3,119 32,876
Total rate sensitive assets 56,449 39,922 61,222 5,000 162,593
------- -------- ------- ------- --------
Interest-bearing liabilities:
Deposits
Savings 17,983 - - - 17,983
NOW and money market accounts 14,847 - - - 14,847
Certificates 21,154 66,354 17,338 2 104,848
FHLB borrowings 5,000 - - - 5,000
------- -------- ------- ------- --------
Total rate sensitive liabilities
58,984 66,354 17,338 2 142,678
------- -------- ------- ------- --------
Interest rate sensitivity gap $(2,535) $(26,432) $43,884 $ 4,998 $ 19,915
======= ======== ======= ======= ========
Cumulative gap $(2,535) $(28,968) $14,916 $19,914
======= ======== ======= =======
Cumulative gap as a % of average interest-
earning assets /(2)/ (1.58%) (18.02%) 9.28% 12.39%
Cumulative gap as a % of average total assets (1.49%) (16.98%) 8.74% 11.67%
/(1)/ Includes mortgage-backed securities.
/(2)/ During the nine month period ended September 30, 1998.
</TABLE>
NET PORTFOLIO VALUE AND NET INTEREST INCOME ANALYSIS. In addition to the
interest rate gap analysis as discussed above, management monitors Community
Savings' interest rate sensitivity through the use of a model
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which estimates the change in net portfolio value and net interest income in
response to a range of assumed changes in market interest rates. Net portfolio
value is the present value of expected cash flows from assets, liabilities, and
off-balance sheet items. The model estimates the effect on Community Savings'
net portfolio value and net interest income of instantaneous and permanent 100
to 400 basis point increases and decreases in market interest rates.
The following table presents the predicted effects on Community Savings'
net portfolio value, as of September 30, 1998, of instantaneous and permanent
100 to 400 basis point changes in market interest rates.
<TABLE>
<CAPTION>
CHANGE IN
INTEREST RATES
IN BASIS POINTS % CHANGE IN
(RATE SHOCK) NET PORTFOLIO VALUE
----------------- ---------------------
<S> <C>
Up 400 (30.05%)
Up 300 (21.96%)
Up 200 (13.36%)
Up 100 (6.56%)
Static -
Down 100 6.27%
Down 200 12.47%
Down 300 17.82%
Down 400 24.36%
</TABLE>
The following table presents the predicted effects on Community
Savings' net interest income as of September 30, 1998 of instantaneous and
permanent 100 to 400 basis point changes in market interest rates.
<TABLE>
<CAPTION>
CHANGE IN
INTEREST RATES
IN BASIS POINTS % CHANGE IN
(RATE SHOCK) NET INTEREST INCOME
----------------- ---------------------
<S> <C>
Up 400 (16.82%)
Up 300 (10.46%)
Up 200 (12.68%)
Up 100 (1.49%)
Static -
Down 100 1.94%
Down 200 (1.28%)
Down 300 (2.83%)
Down 400 (3.88%)
</TABLE>
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Computations of prospective effects of hypothetical interest rate
changes 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 reflect
any actions management may undertake in response to changes in interest rates.
The tables set forth above indicate that, in the event of a 200 basis
point decrease in interest rates, Community Savings would be expected to
experience a 12.47% increase in net portfolio value and a 1.28% decrease in net
interest income. In the event of a 200 basis point increase in interest rates,
Community Savings would be expected to experience a 13.36% decrease in net
portfolio value and a 12.68% decrease in net interest income.
Certain shortcomings are inherent in the method of analysis presented
in both the net portfolio value and net interest income computations and in the
gap computations presented in the tables above. Although certain assets and
liabilities may have similar maturities or periods within which they will
reprice, they may react differently 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, adjustable-rate mortgages
have interest rate caps which restrict changes in interest rates on a short-term
basis and over the life of the assets. The proportion of adjustable-rate loans
could be reduced in future periods if market interest rates decline and remain
at lower levels for a sustained period due to increased refinancing 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
tables. Finally, the ability of many borrowers to service their adjustable-rate
debt may decrease in the event of a sustained interest rate increase.
Community Savings' net income in the near future is likely to be
reduced if interest rates increase. However, management did not view Community
Savings' interest rate sensitivity position at September 30, 1998 to be
unacceptable in view of Community Savings' historical results of operations and
highly capitalized position.
LIQUIDITY
Community Savings' policy is to provide adequate liquidity to meet
continuing loan demand and withdrawal requirements while servicing normal
operating expenses and satisfying regulatory liquidity guidelines. Maturing
securities, principal repayments of loans and securities, deposits, income from
operations and borrowings are Community Savings' main sources of liquidity.
Short-term investments (overnight investments with the FHLB and federal funds
sold) and short-term borrowings are the primary cash management liquidity tools.
The investment portfolio provides secondary liquidity.
At September 30, 1998, the estimated market value of liquid assets
(cash, cash equivalents, and marketable securities) was approximately $35.7
million, representing 25.0% of deposits and borrowed funds.
Community Savings' investment portfolio consists of U.S. government
and agency obligations, mortgage-backed securities guaranteed by United States
agencies, bank-qualified state, county and municipal obligations issued by local
governmental agencies of the state of North Carolina and other permissible
securities. Mortgage-backed securities entitle Community Savings to receive a
pro rata portion of the cash flows from an identified pool of mortgages.
Although mortgage-backed securities generally offer lesser yields than the loans
by which they are collateralized, they represent substantially lower credit risk
by virtue of the guarantees that back them. Mortgage-backed securities are also
more liquid than individual mortgage loans, and may be used to collateralize
borrowings or other obligations of Community Savings.
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The primary uses of Community Savings' liquidity are to fund loans,
provide for deposit fluctuations and invest in other non-loan earning assets.
At September 30, 1998, outstanding off-balance sheet commitments to extend
credit in the form of loan originations totaled $8 million. Undrawn lines of
credit totaled $4.7 million. Management considers current liquidity levels
adequate to meet Community Saving's cash flow requirements.
Following the Conversion, the Company will initially conduct no
business other than holding the capital stock of Community Savings and the loan
it will make to the ESOP. In order to provide sufficient funds for its
operations, the Company expects to retain and invest at the Company level 50% of
the net proceeds of the Conversion remaining after making the loan to the ESOP.
In the future, the Company's primary source of funds, other than income from its
investments and principal and interest payments received from the ESOP with
respect to the ESOP loan, is expected to be dividends from Community Savings.
There are limitations imposed by banking laws and regulations and tax laws upon
the ability of Community Savings to pay dividends and make other distributions
to the Company. See "Dividend Policy," "Supervision and Regulation - Regulation
of Community Savings - Restrictions on Dividends and Other Capital
Distributions," "The "Conversion - Effects of Conversion -Liquidation Rights"
and "- Liquidation Rights after the Conversion" and "Taxation - Federal Income
Taxation."
CAPITAL
Retained income is derived primarily from the retention of prior
period net income. Retained income at September 30, 1998, was $23.3 million, an
increase of 1.88% from $22.8 million at December 31, 1997. Totals include
$95,000 and $98,000, respectively, of unrealized gains on securities marked to
estimated fair market value under Statement of Financial Accounting Standards
("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Retained income at December 31, 1997 increased $670,000 over
December 31, 1996 levels, an increase of 3.0%.
FDIC regulations require savings banks to maintain certain capital
adequacy ratios, leverage ratios and risk-based capital ratios. Institutions
supervised by the FDIC must maintain a minimum leverage ratio of core (Tier I)
capital to average adjusted assets ranging from 3% to 5%. At September 30,
1998, Community Savings' ratio of Tier I capital to average assets was 14.2%.
The FDIC's risk-based capital guidelines require savings banks to maintain
qualifying total capital to risk-weighted assets of at least 8%. Qualifying
total capital for Community Savings is defined as Tier I capital and the reserve
for loan losses. At September 30, 1998, Community Savings had a ratio of
qualifying total capital to risk-weighted assets of 25.0%.
Regulations of the Administrator require savings banks to maintain net
worth, computed in accordance with the Administrator's requirements, equal to at
least 5% of assets. At September 30, 1998, Community Savings' net worth totaled
13.7% of assets.
The Company is subject to capital adequacy guidelines of the Federal
Reserve. Capital requirements of the Federal Reserve Board are similar to those
of the FDIC.
Community Savings significantly exceeds all regulatory capital
requirements. Management anticipates that the Company and Community Savings
will continue to exceed capital adequacy requirements without altering current
operations or strategies.
RECAPITALIZATION OF INSURANCE FUND
On September 30, 1996, Congress passed into law a re-capitalization
plan for the SAIF, the insurance fund covering deposits of savings institutions.
The approved plan provided for a special assessment of 0.657% of SAIF-insured
deposits as of March 31, 1996. Community Savings' assessment, which was paid
during the last calendar quarter of 1996, amounted to approximately $767,000.
As a result of this legislation, Community Savings' deposit insurance premiums
declined substantially effective January 1, 1997.
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<PAGE>
YEAR 2000
Potential computer programming and operational problems related to the
year 2000 have become a worldwide concern. The underlying cause of this Year
2000 problem rests with antiquated computer programs identifying dates of
calendar years with two digits rather than four digits. Most old computer
programs with date-sensitive software may recognize the year 2000 as "00" and
misinterpret the year as 1900. This date misinterpretation could result in
system failures or miscalculations causing disruptions of operations, including
temporary interruption of utilities, telephone lines, inability to process
transactions, general statements, or engage in normal business activities.
Community Savings retains the services of a third party data
processing service center to process loan, deposit, general ledger, retail
platform and compliance data. Community Savings, in conjunction with its data
processing service center, conducted a Year 2000 test during October, 1998,
along with eleven of the service center's other clients. Fifteen errors were
detected during the test. Fourteen of the errors were cosmetic, having to do
with the appearance of the year rather than a true data error. The fourteen
cosmetic errors were corrected during the test period. The one actual Year 2000
error that was reported was repaired and successfully re-tested during a
November, 1998 test.
Community Savings has replaced all of its computer hardware and nearly
all of its software with Year 2000 certified compliant systems. Several of
Community Savings telecommunications systems have been replaced with Year 2000
compliant systems. Plans are being formulated to test all mission critical
functions during the first quarter of 1999. Contingency plans are also in the
developmental phase for possible technology failures. Management is in the
process of identifying customers who may pose Year 2000 risks to the institution
and is developing plans to respond to the risks identified.
The cost to bring all systems up to Year 2000 specifications are
expected to total approximately $550,000, of which amount approximately $428,000
has already been incurred. There can be no guarantee that systems of other
companies on which Community Savings relies will be converted in a timely manner
or that Community Saving's actions will effectively deal with all potential Year
2000 problems. Any such failures in addressing potential Year 2000 problems
could have a materially adverse effect on the Company.
FINANCIAL CONDITION AT SEPTEMBER 30, 1998 COMPARED TO DECEMBER 31, 1997 AND
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1997
FINANCIAL CONDITION. Total assets increased 1.52% to $170.3 million
at September 30, 1998, compared to $167.8 million at December 31, 1997. Loan
production continued to emphasize commercial and consumer credits in an effort
to diversify the loan portfolio and reduce reliance on home mortgage loans. At
September 30, 1998, approximately 76.5% of Community Savings' loan portfolio,
before net items, consisted of loans secured by residential properties, while at
December 31, 1997, 88.0% of loans, before net items, were secured by residential
properties.
Deposits increased to $138 million at September 30, 1998 from $134.7
million at December 31, 1997, an increase of 2.5%. Loans, net of reserves,
increased 10.9% at September 30, 1998 to $127.4 million from the December 31,
1997 balance of $114.8 million. Total investments and mortgage-backed
securities decreased $9.7 million, or 23.8%, at September 30, 1998 from the
December 31, 1997 balance. Management's emphasis on building a solid net
interest income stream via loan portfolio growth is evidenced by the $12.6
million increase in net loans funded by the $9.7 million reduction in
investments and mortgage-backed securities and the $3.3 million increase in
deposits for the nine month period ended September 30, 1998.
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<PAGE>
Borrowed funds, collateralized through an agreement with the FHLB,
decreased 25.4% to $5 million at September 30, 1998 from $6.7 million at
December 31, 1997. The FHLB borrowings have a variable interest rate and mature
annually at September 30. The borrowings are matched with a collateralized
mortgage obligation (CMO) in a structured, leveraged, match-funded arbitrage.
The CMO collateralizes the FHLB borrowings.
Community Savings' nonperforming assets (loans 90 days or more
delinquent and foreclosed real estate) were $218,000, or 0.13% of total assets,
at September 30, 1998, compared to $241,000, or 0.14% of total assets, at
December 31, 1997. In the opinion of management, the allowance for loan losses
of $1.1 million at September, 1998 or 0.88% of gross loans was adequate to cover
potential losses.
RESULTS OF OPERATIONS. Net income is influenced significantly by net
interest income. Net interest income is the difference between interest income
(derived from revenues generated from loans, investments, mortgage-backed
securities and other earning assets), and interest expense (consisting
principally of interest paid on deposits and borrowings). Operations may be
materially affected by national and international economic conditions, monetary
and fiscal policies of the Federal government, and policies of regulatory
authorities.
Net Income. Net income for the nine month period ended September 30,
1998, decreased 49.3% to $433,000 compared to net income for the nine months
ended September 30, 1997 of $855,000. The reduction in earnings was a result of
management's efforts to eliminate inefficient resources and obsolete equipment
in preparation for operating the institution in a commercial banking
environment. Also, during the nine months ended September 30, 1998,
approximately $806,000 of expenses were incurred to retire recurring overhead
costs related to compensation agreements and fixed assets.
Interest Income. Interest income increased by 10.34% to $9.4 million
for the nine-month period ended September 30, 1998 compared to the same period
in 1997. The increase in interest income can be principally attributed to the
30.7% increase in interest and fees on loans.
Interest Expense. Interest expense increased by 5.2% to $5.2 million
for the nine-month period ended September 30, 1998 compared to the same period
in 1997. The increase in interest expense is a result of 7.8% growth in
interest expense on deposits, partially attributable to the $13.3 million
increase in deposits for the period, and offset in part by a 28.7% decrease in
FHLB borrowing interest expense.
Net Interest Income. Net interest income, before the provision for
loan losses, for the nine-month period ended September 30, 1998, was $4.2
million, an increase of 17.5% or $627,000 from 1997. Again, the emphasis placed
on loan growth was the primary cause of the increase.
Provision for Loan Losses. No loans were charged-off against the
allowance for loan losses for the period ended September 30, 1998. A provision
of $350,000 was added to the allowance for loan losses, increasing the end of
period balance to $1.1 million or .88% of outstanding loans. Management
considered the reserve for loan loss level to be adequate at September 30, 1998.
Management felt it was prudent to increase the provision to reflect the increase
in risk levels which accompany the decision to change loan composition, increase
loan volume and operate more like a community bank.
Non-Interest Income. Non-interest income increased $103,000 or 37.5%
to $377,000 for the nine months ended September 30, 1998. Although management
is encouraged by the increase in non-interest income, continued emphasis will be
placed on improving non-interest income. A wholly owned subsidiary of Community
Savings, Community Financial Services, Inc., a retail securities broker and
financial advisor, was formed in December 1997 for the sole purpose of enhancing
non-interest income.
Non-Interest Expenses. Non-interest expenses increased to $3.6
million for the nine months ended September 30, 1998, an increase of 47.5 %
from the same period in 1997. Management has placed significant
71
<PAGE>
emphasis on eliminating expenses and overhead in preparation for operating as a
public company. Approximately $533,000 of overhead related expenditures have
been incurred over the nine-month period to fully fund deferred compensation and
retirement plans for directors and salary continuation plans for the president
of Community Savings in order to make the plans more comparable to plans offered
by other financial institutions. Management believes that these plans are
substantially funded. In addition, $273,000 in expenses were incurred in the
write off of certain abandoned fixed assets.
Income Taxes. Income taxes decreased to $207,000 during the nine
months ended September 30, 1998 from $474,000 for the same period in 1997. The
decrease was directly related to the decrease in income before income taxes from
1997 to 1998.
FINANCIAL CONDITION AT DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996
AND DECEMBER 31, 1995 AND RESULTS OF OPERATIONS FOR THE TWELVE MONTH PERIODS
ENDED DECEMBER 31, 1997 AS COMPARED TO THE TWELVE MONTH ENDED DECEMBER 31, 1996
AND DECEMBER 31, 1995.
FINANCIAL CONDITION. Total assets increased 7.0% to $167.8 million at
December 31, 1997, compared to $156.7 million at December 31, 1996. Total
assets increased 2.9% to $156.7 million at December 31, 1996, compared to $152.2
million at December 31, 1995. Two significant changes in the asset mix in 1997
were the $26.7 million (30.3%) increase in net loans receivable and the $15.6
million (27.7%) decrease in investments and mortgage-backed securities. The
changes in asset mix highlight management's efforts to improve Community
Savings' net interest margin by emphasizing growth of higher yielding assets.
Lending activities have begun to concentrate on commercial, construction and
consumer credits in an effort to diversify the loan portfolio and reduce the
reliance on single family home loans. At December 31, 1997, approximately 88.0%
of Community Savings' net loan portfolio consisted of loans secured by one-to-
four family residential properties, while at December 31, 1996, 95.7% of net
loans were secured by one-to-four family residential properties.
Deposits increased to $134.7 million at December 31, 1997 from $122.5
million at December 31, 1996, an increase of 9.9%. Deposits increased 3.0% at
December 31, 1996 from December 31, 1995 levels of $118.9 million. The increase
in deposits was used in part to fund the increase in loans receivable, as loans,
net of reserves, increased 30.3% on December 31, 1997 to $114.8 million from the
December 31, 1996 balance of $88.1 million. Net loans increased 13.7% at
December 31, 1996 compared to the December 31, 1995 balance of $77.5 million.
Borrowed funds, collateralized through an agreement with the FHLB,
decreased 25.5% to $6.7 million at December 31, 1997 from $9.0 million at
December 31, 1996. Borrowed funds remained unchanged from December 31, 1995 to
December 31, 1996. The interest rate on the FHLB borrowings are variable and
the borrowings mature annually at September 30. The borrowings are matched with
a collateralized mortgage obligation (CMO) in a structured, leveraged, match-
funded arbitrage. The CMO floats at 95 basis points over the one-month LIBOR
index. The CMO collateralizes the FHLB borrowings.
Community Savings' nonperforming assets (loans 90 days or more
delinquent and foreclosed real estate) were $241,000 or 0.14% of total assets,
at December 31, 1997, compared to $217,000, or 0.14% of total assets, at
December 31, 1996. Management takes an aggressive position in collecting
delinquent loans to keep nonperforming assets to a minimum and evaluates the
quality of all portfolios to insure the maintenance of loan loss reserves at
levels believed to be adequate. In the opinion of management, the $781,000
allowance for loan losses at December 31, 1997 was adequate to cover potential
losses.
RESULTS OF OPERATIONS. Net income is influenced significantly by
changes in net interest income. Net interest income is the difference between
interest income (derived from revenues generated from loans, investments,
mortgage-backed securities and other earning assets), and interest expense
(consisting principally of interest paid on deposits and borrowings).
Operations may be materially affected by national and international economic
conditions, monetary and fiscal policies of the federal government, and policies
of regulatory authorities.
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<PAGE>
Net Income. Net income for the year ended December 31, 1997 increased
47.8% to $590,000 compared to $399,000 for year-end December 31, 1996. The
special one time assessment levied in 1996 to recapitalize the SAIF reduced net
income, before income taxes, for the year ended December 31, 1996 by $767,000.
Principally, as a result of that special assessment, net income for the year
ended December 31, 1996, was $510,000 below the net income of $909,000 earned in
the year ended December 31, 1995.
Interest Income. Interest income increased to $11.6 million, an
increase of 9.0%, for the year ended December 31, 1997 from $10.6 million during
the same period in 1996. Interest income for the period ending December 31,
1996 increased 8.6% over the $9.8 million for the period ending December 31,
1995. The increase in interest income for 1997 can be principally attributed to
the $19.4 million or 23.5% increase in the average balance of the loan
portfolio, partially offset by a $12.8 million decrease in the average balance
of investments and mortgage-backed securities. Overall, the yield on average
interest-earning assets increased to 7.51% at year-end 1997 compared to 7.19%
for the year-ending December 31, 1996. The primary reason for this increase was
an increase in the amount of higher yielding commercial, construction and
consumer loans. The 1996 increase in interest income was principally due to a
$8.7 million increase in the average balance of the loan portfolio from 1995.
Interest Expense. Interest expense increased 5.6% to $6.7 million for
the year ended December 31, 1997 compared to $6.4 million for the same period
for 1996. The 1997 increase in interest expense is a result of the 9.9% growth
in deposits, principally in certificates of deposit, during the same time
period. Interest expense increased 11.3% for the year ending December 31, 1996.
The increase in 1996 can be attributed to an increase of $7.6 million in average
FHLB borrowings and a $3.8 million increase in the average balance of
certificates of deposit.
Net Interest Income. Net interest income, before the provision for
loan losses, for the year ended December 31, 1997 was $4.8 million, an increase
of 14.2%, or $605,000, from $4.2 million for the year ended December 31, 1996.
For the year ended December 31, 1996, net interest income, before the provision
for loan losses, increased $191,000 or 4.7% from the $4.0 million for 1995. The
yield on average interest-earning assets increased 32 basis points to 7.51% in
1997 and 6 basis points to 7.19% in 1996. The cost of average interest-bearing
liabilities decreased 2 basis points to 4.97% in 1997 and increased 14 basis
points in 1996, causing net interest margins to increase 27 basis points in 1997
and decrease by 8 basis points in 1996. The ratio of average interest-earning
assets to average interest-bearing liabilities of 113.8% for the year ended
December 31, 1997, and 115.5% for 1996 reflects a decrease in the balances of
non-interest bearing deposits.
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<PAGE>
Average Yield/Cost Analysis. The following table contains information
relating to Community Savings' average balance sheet and reflects the average
yield on assets and average cost of liabilities for the periods indicated. Such
annualized yields and costs are derived by dividing income or expense by the
average month-end balances of assets or liabilities, respectively, for the
periods presented. The average month-end balances of loans receivable include
loans on which Community Savings has discontinued accruing interest.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996
------------------------------------- -----------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------ ---------- ---------- ---------- ---------------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-bearing deposits $ 4,340 $ 258 5.94% $ 4,202 $ 236 5.62%
Federal funds sold 304 17 5.59 500 26 5.20
Investment and mortgage-backed
securities 47,760 3,294 6.90 60,560 3,631 6.00
Loans receivable, net 101,826 8,015 7.87 82,450 6,728 8.16
-------- ------- ---- -------- ------- ----
Total interest-earning assets 154,230 11,584 7.51% 147,712 10,621 7.19%
-------- ------- ---- -------- ------- ----
Non-interest-earning assets 8,693 6,415
-------- --------
Total $162,923 $154,127
======== ========
Liabilities:
Interest-bearing liabilities:
Certificates of deposit $ 93,643 5,248 5.60% $ 85,210 4,839 5.68%
Savings accounts 20,010 605 3.02 20,774 628 3.02
NOW accounts 14,102 427 3.03 13,593 455 3.35
FHLB borrowings 7,788 460 5.91 8,333 460 5.52
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities 135,543 6,740 4.97% 127,910 6,382 4.99%
-------- ------- ---- -------- ------- ----
Non-interest-bearing liabilities 4,672 4,234
Equity 22,708 21,983
-------- --------
Total $162,923 $154,127
======== ========
Net interest income $ 4,844 $ 4,239
======= =======
Interest rate spread /(1)/ 2.54% 2.20%
==== ====
Net interest-earning assets $ 18,687 $ 19,802
======== ========
Net yield on interest-earning assets /(2)/ 3.14% 2.87%
==== ====
</TABLE>
(1) Represents the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.
(2) Represents the net interest income divided by average interest-earning
assets.
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<PAGE>
Rate/Volume Analysis. The table below provides information regarding
changes in interest income and interest expense. 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 period rate); (ii) changes in rate (changes in rate multiplied by prior
period volume); and (iii) net change (the sum of the previous columns).
<TABLE>
<CAPTION>
Year Ended December 31, 1997 vs. 1996 Year Ended December 31, 1996 vs. 1995
-------------------------------------- ----------------------------------------
Increase (Decrease) Due To Increase (Decrease) Due To
-------------------------------------- ----------------------------------------
Volume Rate Net Volume Rate Net
--------- --------- -------- --------- --------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Interest-bearing deposits $ 8 $ 14 $ 22 $ 86 $ (7) $ 79
Fed funds (10) 1 (9) (13) (9) (22)
Investments and (835) 498 (337) 32 (41) (9)
mortgage-backed securities 1,532 (245) 1,287 713 77 790
Loans receivable ------ ----- ------ ---- ----- -----
Total interest-earning assets 695 268 963 818 20 838
------ ----- ------ ---- ----- -----
Interest expense on:
Certificates of deposit 473 (64) 409 213 171 384
Savings accounts (23) 0 (23) (58) (72) (130)
NOW and money market 17 (45) (28) 3 (58) (55)
accounts (31) 31 (0) 360 88 448
FHLB borrowings ------ ----- ------ ---- ----- -----
Total interest-bearing 436 (78) 358 518 129 647
liabilities ------ ----- ------ ---- ----- -----
Increase (decrease) in net $ 259 $ 346 $ 606 $300 $(109) $ 191
interest income ------ ----- ------ ---- ----- -----
</TABLE>
Provision for Loan Losses. Loans in the amount of $71,000 were
charged-off against the allowance for loan losses for the period ended December
31, 1997. A provision of $360,000 was added to the allowance for loan losses,
increasing the end of period balance to $781,000 or .67% of outstanding loans.
Management considered the reserve for loan loss level to be adequate at December
31, 1997. Management feels it is prudent to increase the provision due to
decisions to change loan composition and loan volume and the resulting increases
in the risk levels of the portfolio. During the fiscal year ended December 31,
1996 a $60,000 provision was added to the allowance for loan losses, as compared
to no provision during the year ended December 31, 1995.
Other Income. Non-interest or "other" income increased $8,000 or 2.2%
to $365,000 for the year ended December 31, 1997. During the year ended
December 31, 1996, non-interest income amounted to $357,000, a decrease of
$211,000 or 37.1% from year-end 1995. Non-interest income is typically derived
from service charges on deposit accounts, loan servicing fees, certain fees
associated with loans and other services. The decrease in non-interest income
in 1996 resulted from the absence of gains on off-balance sheet hedging
activities conducted successfully in 1995 and discontinued in 1996.
General and Administrative Expenses. General and administrative, or
non-interest, expenses include compensation and fringe benefits, advertising,
data-processing, deposit insurance premiums, occupancy expenses and other costs.
Such expenses decreased 1.5% to $3.88 million for the year ended December 31,
1997 from $3.94 million for 1996. Ignoring the $767,000 special one-time FDIC
assessment during 1996, general and administrative expenses were 22.4% higher
during 1997 than in 1996. The primary reason for this increase was a $601,000
increase in compensation and fringe benefit expenses. Non-interest expenses
increased 23.1% for the year ended December 31, 1996 as compared to the year
ended December 31, 1995. Excluding the one-time $767,000 assessment in 1996,
non-interest expense decreased 0.86% for the year. The ratio of expenses to
average assets was 2.38% and 2.55% respectively for the years ending December
31, 1997 and 1996.
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<PAGE>
Income Taxes. The effective tax rates for the years ended December 31,
1997, 1996 and 1995 approximate the statutory rate of 34% after giving effect
to nontaxable interest, other permanent tax differences, and adjustments to
certain deferred tax liabilities.
BUSINESS OF THE COMPANY
Prior to the Conversion, the Company will not transact any material
business. Following the Conversion, in addition to directing, planning and
coordinating the business activities of Community Savings, the Company will
invest the portion of the Conversion proceeds retained by it. See "Use of
Proceeds." Upon consummation of the Conversion, the Company will have no
significant assets other than the shares of Community Savings' capital stock
acquired in the Conversion, the loan receivable held with respect to its loan to
the ESOP and that portion of the net proceeds of the Conversion retained by it,
and it will have no significant liabilities. As a bank holding company, the
Company will be regulated by the Federal Reserve and by the Administrator.
Cash flow to the Company will be dependent upon investment earnings
from the net proceeds retained by it, payments on the ESOP loan and any
dividends received from Community Savings. Initially, the Company will neither
own nor lease any property, but will instead use the premises, equipment and
furniture of Community Savings. At the present time, the Company does not intend
to employ any persons other than its officers (who are not anticipated to be
separately compensated by the Company), but will utilize the support staff of
Community Savings from time to time. The Company expects that employees will be
hired as appropriate in the event the Company expands its business in the
future. In the future, the Company may loan to, or may deposit or invest in
Community Savings, some of the Conversion proceeds it retains. In addition, the
Company may consider using some of the proceeds of the Conversion retained by it
to expand its operations in its existing primary market and other nearby areas
by acquiring other financial institutions or their branches or opening new
Community Savings branches. The Company has no existing agreements or
understandings with respect to any such acquisitions or branch openings,
however.
Existing management of the Company believes it is in the best
interests of the Company and its shareholders for the Company to remain an
independent company.
BUSINESS OF COMMUNITY SAVINGS
GENERAL
Community Savings is engaged primarily in the business of attracting
deposits from the general public and using such deposits to make loans secured
by real estate. Community Savings' primary source of revenue is interest income
from its lending activities. Community Savings' other major sources of revenue
are interest and dividend income from investments and mortgage-backed
securities, interest income from its interest-earning deposit balances in other
depository institutions, and transaction and fee income from its lending and
deposit activities. The major expenses of Community Savings are interest on
deposits and borrowings and general and administrative expenses such as employee
compensation and benefits, federal deposit insurance premiums, data processing
expenses, advertising expenses and occupancy expenses.
For many years, Community Savings has operated as a traditional thrift
institution in accepting deposits and making almost exclusively mortgage loans.
Community Savings has recently begun a transformation process which will enable
it to offer more products and services to its customers. Management believes
that, when this transformation process is complete, Community Savings will
operate more like a community bank than a traditional thrift institution.
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<PAGE>
As a North Carolina-chartered savings bank, Community Savings is
subject to examination and regulation by the FDIC and the Administrator. Upon
consummation of the Conversion, Community Savings, as a subsidiary of the
Company, will be subject to indirect regulation by the Federal Reserve. The
business and regulation of Community Savings are subject to legislative and
regulatory changes from time to time. See "SUPERVISION AND REGULATION -
Regulation of Community Savings."
MARKET AREA
Community Savings' primary market area consists of the communities in
Alamance County, North Carolina. Alamance County is located in the Piedmont
area of North Carolina east of Greensboro and west of Durham. Its 1990
population was 108,213 and was expected to grow to 120,759 by the year 2010.
The average wage in Alamance County as of 1996 was $22,626, which was below the
North Carolina average of $25,393. Employment in Alamance County is diversified
among manufacturing, agricultural, retail and wholesale trade, government,
services and utilities. Major employers in Alamance County include LabCorp,
Alamance County-Burlington Public Schools, Burlington Industries, Inc. and Glen
Raven Mills. Employment in Alamance County as of December, 1997 was strong,
with an unemployment rate of 2.8%. Based upon 1997 comparative data, Community
Savings had 8.63% of the deposits in Alamance County.
LENDING ACTIVITIES
GENERAL. Community Savings' primary source of revenue is interest and
fee income from its lending activities, consisting primarily of mortgage loans
for the purchase or refinancing of homes located in its primary market area.
Community Savings also makes home equity line of credit loans, construction
loans, commercial loans and various types of consumer loans. As of September 30,
1998, only 8.3% of Community Savings' loan portfolio, before net items, was not
secured by real estate. On September 30, 1998, Community Savings' largest single
outstanding loan had a balance of approximately $1.2 million. In addition to
interest earned on loans, Community Savings receives fees in connection with
loan originations, loan servicing, loan modifications, late payments, loan
assumptions and other miscellaneous services. Community Savings generally
originates its fixed-rate mortgage loans with the intention that they will be
sold in the secondary market. Its other loans are generally held in its
portfolio.
LOAN PORTFOLIO COMPOSITION. Community Savings' net loan portfolio
totaled approximately $127.4 million at September 30, 1998 representing 74.8% of
Community Savings' total assets at such date. At such date, 72.8% of Community
Savings' loan portfolio, before net items, was composed of home mortgage loans.
Commercial, financial and agricultural loans represented 11.4% of Community
Savings' loan portfolio, before net items, and construction loans and home
equity loans represented 9.1% and 3.7%, respectively, of Community Savings' loan
portfolio, before net items, on such date. Consumer loans represented 3.0% of
the loan portfolio, before net items. As of September 30, 1998, 92.6% of the
loans in Community Savings' loan portfolio, before net items, had adjustable
interest rates.
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The following table sets forth the composition of Community Savings'
loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
At September 30 At December 31
----------------- ----------------------------------
1998 1997 1996
----------------- ---------------- ----------------
% of % of % of
Amount Total Amount Total Amount Total
--------- ------ -------- ------ -------- ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage $ 94,391 72.8% $ 97,581 83.9% $84,652 91.2%
Home equity line of credit 4,835 3.7 4,778 4.1 4,131 4.5
Construction 11,736 9.1 5,871 5.1 1,058 1.1
Commercial, financial and agriculture 14,839 11.4 6,120 5.3 400 0.4
Consumer 3,916 3.0 1,686 1.4 333 0.4
Held for sale - - 287 0.2 2,256 2.4
-------- ----- -------- ----- ------- -----
Total gross loans 129,717 100.0% 116,323 100.0% 92,830 100.0%
===== ===== =====
Less:
Unearned fees and discounts 456 439 363
Loans in process 727 270 3,848
Allowance for loan loss 1,131 781 492
-------- -------- -------
Net loan receivable $127,403 $114,833 $88,127
======== ======== =======
</TABLE>
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<PAGE>
The following table sets forth the time to contractual maturity or
repricing of Community Savings' loan portfolio at September 30, 1998. Loans
which have adjustable rates are shown as being due in the period during which
rates are next subject to change, while fixed rate and other loans are shown as
due in the period of contractual maturity. Demand loans, loans having no stated
maturity and overdraft loans are reported as due in one year or less. The table
does not include prepayments or scheduled principal repayments. Amounts in the
table are net of loans in process and are net of unamortized loan fees.
<TABLE>
<CAPTION>
At September 30, 1998
------------------------------------------------------------------
More Than More Than More Than
1 Year 1 Year to 3 Years to 5 Years to More Than
or Less 3 Years 5 Years 10 Years 10 Years Total
--------- --------- ---------- ---------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage $ 47,595 $19,383 $25,902 $ 1,133 $ 378 $ 94,391
Home equity 4,835 - - - - 4,835
Construction 11,736 - - - - 11,736
Commercial, financial and agricultural 14,839 - - - - 14,839
Consumer 1,419 1,286 720 445 - 3,870
Other 46 - - - - 46
Less: Allowance for loan losses (1,131) - - - - (1,131)
Loans in process (727) - - - - (727)
Unearned fees (456) - - - - (456)
--------- -------- -------- -------- -------- --------
$ 78,156 $20,669 $26,622 $ 1,578 $ 378 $127,403
========= ======== ======== ======== ======== ========
</TABLE>
The following table sets forth the dollar amount at September 30, 1998
of all loans maturing or repricing more than one year after September 30, 1998
which have fixed or adjustable interest rates.
<TABLE>
<CAPTION>
Fixed Adjustable Totals
------- ---------- --------
(In Thousands)
<S> <C> <C> <C>
Mortgage $4,347 $42,449 $46,796
Consumer 2,451 -- 2,451
------ ------- -------
Total $6,798 $42,449 $49,247
====== ======= =======
</TABLE>
ORIGINATION AND SALE OF LOANS. Most of the fixed interest rate home
mortgage loans originated by Community Savings are underwritten in conformity
with Federal National Mortgage Association ("FNMA") or Federal Home Loan
Mortgage Corporation ("FHLMC") underwriting standards and are sold to FHLMC or
other secondary market purchasers. Loans are generally sold without recourse.
Community Savings generally continues to service the loans it sells to FHLMC,
which generates servicing fee income. Adjustable rate mortgage loans are
generally held in Community Savings' portfolio.
The table below sets forth Community Savings' loan origination and
sale activity and loan portfolio repayment experience during the periods
indicated.
79
<PAGE>
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------
1997 1996
--------------- --------------
(In Thousands)
<S> <C> <C>
Loans receivable, net, beginning of period $ 88,127 $77,591
Loan originations, net of principal repayments:
Held-for-investment /(1)/ 29,189 10,622
Held-for-sale 415 637
-------- -------
Total loan originations, net of principal repayments 29,604 11,259
Loan sales (2,429) (588)
Changes in loan allowance, net (470) (134)
-------- -------
Loans receivable, net, end of period $114,833 $88,127
======== =======
</TABLE>
(1) Includes $125,000 and $165,000 in loan purchases during 1997 and 1996,
respectively.
HOME MORTGAGE LENDING. Community Savings' primary lending activity is
the origination of mortgage loans to enable borrowers to purchase or refinance
homes. Consistent with Community Savings' emphasis on being a community-
oriented financial institution, it is and has been Community Savings' strategy
to focus its lending efforts in its primary market area and in surrounding
areas. On September 30, 1998, approximately 72.8% of Community Savings' real
estate loan portfolio, before net items, consisted of home mortgage loans.
These include both loans secured by detached single-family residences and
condominiums and loans secured by housing containing not more than four separate
dwelling units.
Community Savings originates conventional mortgage loans secured by
owner-occupied property in amounts of up to 95% of the value of the property.
Private mortgage insurance is generally required if the loan amount exceeds 80%
of the value of the property. The loans have both fixed and adjustable rates;
however, fixed rate home mortgage loans are generally sold in the secondary
market. The maximum term for home mortgage loans is 30 years. Substantially
all of the fixed-rate loans in Community Savings' mortgage loan portfolio have
due on sale provisions allowing Community Savings to declare the unpaid balance
due and payable in full upon the sale or transfer of an interest in the property
securing the loan.
The interest rates on adjustable rate loans are generally fixed for
the first one, three or five year period of the loan term and thereafter adjust
annually. Many adjustable rate loans have rates which are fixed for the first
five years of the loan term. Rate changes on adjustable rate loans are now
generally tied to the rates of one-year United States treasury securities
adjusted to a constant maturity of one year. Some older adjustable rate loans
are indexed to a cost of funds index. The loans have rate caps which limit the
amount of changes at the time of each adjustment and over the lives of the
loans. Adjustable rate loans are generally considered to involve a greater
degree of credit risk than fixed rate loans because borrowers may have
difficulty meeting their payment obligations if interest rates and required
payment amounts increase substantially. While home mortgage loans are normally
originated for up to 30 year terms, Community Savings estimates that such loans
remain outstanding for only approximately 80 months, because borrowers often
prepay their loans in full upon sale of the property pledged as security or upon
refinancing the original loan. Actual loan maturity is a function of, among
other factors, the level of purchase and sale activity in the real estate
market, prevailing interest rates, and the interest rates payable on outstanding
loans.
Community Savings generally requires title insurance for its home
mortgage loans. Community Savings also generally requires that fire and
extended coverage casualty insurance (and, if appropriate, flood insurance) be
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<PAGE>
maintained in an amount at least equal to the greater of the loan amount or
replacement cost of the improvements on the property securing the loans.
COMMERCIAL, FINANCIAL AND AGRICULTURAL LENDING. On September 30,
1998, Community Savings had $14.8 million outstanding in commercial, financial
and agricultural loans, comprising 11.4% of its loan portfolio, before net
items. These loans are generally secured by apartments, office, retail and
other commercial real estate or by church properties or other real estate in
Community Savings' primary market area and most have adjustable interest rates.
These loans generally do not exceed 80% of the appraised value of the collateral
securing the loans. Community Savings also provides floor plan financing of
used automobile dealerships, which loans are secured by inventories of used
automobiles. Commercial loans generally have terms of up to five years. Most
commercial loans have adjustable interest rates which are generally tied to
prime lending rates. Community Savings generally requires title insurance in
connection with its commercial, financial and agricultural loans which are
secured by real estate. Community Savings also generally requires that fire and
extended coverage casualty insurance (and, if appropriate, flood insurance) be
maintained in an amount at least equal to the greater of the loan amount or the
replacement cost of the improvements on the property securing the loans.
Commercial loans generally are larger than home mortgage loans and
involve greater concentration of assets and a greater degree of risk. Payments
on these loans depend to a large degree on results of operations and management
of the properties and may be affected to a greater extent by adverse conditions
in real estate markets or the economy in general. Since commercial lending is
frequently secured by leased or operating commercial properties, repayment
frequently depends upon the results of operations of the tenant or operating
entity. Commercial loans also generally involve more specialized and
complicated underwriting decisions than home mortgage lending. Community
Savings has significantly increased its commercial, financial and agricultural
lending in recent years and intends to continue to increase the percentage of
its loan portfolio devoted to such loans.
CONSTRUCTION LENDING. Community Savings makes construction loans for
the construction of single-family dwellings and for the construction of multi-
family residential and commercial buildings. The aggregate outstanding balance
of such loans on September 30, 1998 was approximately $11.7 million,
representing approximately 9.1% of Community Savings' loan portfolio, before net
items. Some of these loans were made to persons who are constructing properties
for the purpose of occupying them; others were made to builders who were
constructing properties for sale. Loans made to builders are generally "pure"
construction loans, which require the payment of interest during the
construction period of generally one year or less and the payment of the
principal in full at the end of the construction period. Loans made to
individual property owners are both "pure" construction loans and "construction-
permanent" loans. Construction-permanent loans generally provide for the
payment of interest only during a construction period, after which the loans
generally convert to permanent loans with adjustable interest rates having terms
similar to home mortgage loans.
Construction loans for one-to-four family real estate to be occupied
by the borrower generally have a maximum loan-to-value ratio of up to 95% of the
appraised value of the property. Other construction loans are made at loan to
value ratios of up to 80%. Title insurance is generally required for
construction loans. In addition, Community Savings generally requires builders
risk or casualty insurance (and, if appropriate, flood insurance) on such loans.
Construction loans are generally considered to involve a higher degree
of risk than long-term financing secured by real estate which is already
occupied. A lender's risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at the
completion of construction and the accuracy of the estimated cost (including
interest) of construction. If the estimate of construction costs proves to be
inaccurate, the lender may be required to advance funds beyond the amount
originally committed to permit completion of construction. Also, if the
estimate of anticipated value proves to be inaccurate, the lender may have
security which has value insufficient to assure full repayment. In addition,
repayment of loans made to builders to
81
<PAGE>
finance construction of properties for sale is often dependent upon the
builder's ability to sell the property once construction is completed.
HOME EQUITY LENDING. At September 30, 1998, Community Savings had
approximately $4.8 million in home equity line of credit loans, representing
approximately 3.7% of its loan portfolio, before net items. Community Savings'
home equity lines of credit have adjustable interest rates tied to prime
interest rates plus a margin. The home equity lines of credit require payments
of principal and interest monthly, and all outstanding amounts must be paid in
full at the end of 15 years. Home equity lines of credit are generally secured
by subordinate liens against residential real property. Community Savings
requires title opinions from attorneys in connection with these loans. Community
Savings requires that fire and extended coverage casualty insurance (and, if
appropriate, flood insurance) be maintained in an amount at least sufficient to
cover its loan. Home equity loans are generally 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.
Because home equity loans involve revolving lines of credit which can
be drawn over a period of time, Community Savings faces risks associated with
changes in the borrower's financial condition. Because home equity loans have
adjustable interest rates, increased delinquencies could occur if interest rates
increase and borrowers are unable to satisfy higher payment requirements.
CONSUMER LOANS. Community Savings offers various consumer loans,
including automobile loans, boat loans, mobile home loans, loans secured by
deposit accounts, overdraft protection account loans and other secured and
unsecured loans. At September 30, 1998, Community Savings' consumer loan
portfolio totaled $3.9 million, representing 3.0% of its total loan portfolio,
before net items. Automobile loans generally have terms not exceeding 60
months, have fixed interest rates and do not exceed 90% of the fair market value
of the automobile securing the loan. Other types of consumer loans have terms
and collateral requirements tailored to match the type of loan being made.
Community Savings generally does not make unsecured loans exceeding $50,000.
Consumer lending usually involves more risk than residential mortgage
lending because payment patterns are more significantly influenced by general
economic conditions and because any collateral for such loans frequently
consists of depreciating property.
LOAN SOLICITATION, PROCESSING AND UNDERWRITING. Loan originations are
derived from a number of sources such as referrals from real estate brokers,
present depositors and borrowers, builders, attorneys, walk-in customers and in
some instances, other lenders.
During its loan approval process, Community Savings assesses the
applicant's ability to make principal and interest payments on the loan and the
value of the property securing the loan. Community Savings obtains detailed
written loan applications to determine the borrower's ability to repay and
verifies responses on the loan application through the use of credit reports,
financial statements, and other confirmations. Community Savings analyzes the
loan application and the property involved, and an appraiser inspects and
appraises the property. Community Savings generally requires independent fee
appraisals on mortgage loans. Loan officers appraise properties securing
consumer loans unless the collateral is complex and justifies an independent fee
appraisal. Collateral securing commercial loans of over $250,000 is appraised
by outside fee appraisers. Community Savings also obtains information
concerning the income, financial condition, employment and the credit history of
the applicant.
In general, loans of up to $500,000 may be approved by a loan committee
composed of either two or three senior officers of Community Savings, depending
upon the size of the loan. Loans of over $500,000 must be approved by the Board
of Directors of Community Savings. Certain types of loans of less than $250,000
can be approved by other loan officers of Community Savings who have specified
loan approval authority.
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<PAGE>
Normally, upon approval of a home mortgage loan application, Community
Savings gives a commitment to the applicant that it will make the approved loan
at a stipulated rate any time within a 60 day period. The loan is typically
funded at such rate of interest and on other terms which are based on market
conditions existing as of the date of the commitment. As of September 30, 1998,
Community Savings had $1.0 million in such unfunded mortgage loan commitments
and $646,000 unfunded commitments to make other types of loans. In addition, on
such date Community Savings had $14.3 million in undisbursed lines of credit.
NONPERFORMING ASSETS AND ASSET CLASSIFICATION. When a borrower fails
to make a required payment on a loan and does not cure the delinquency promptly,
the loan is classified as delinquent. In this event, the normal procedure
followed by Community Savings is to make contact with the borrower at prescribed
intervals in an effort to bring the loan to a current status, and late charges
are assessed as allowed by law. In most cases, delinquencies are cured. If a
delinquency is not cured, Community Savings normally, subject to any required
prior notice to the borrower, commences foreclosure proceedings. If the loan is
not reinstated within the time permitted for reinstatement, or the property is
not redeemed prior to sale, the property may be sold at a foreclosure sale. In
foreclosure sales, Community Savings may acquire title to the property through
foreclosure, in which case the property so acquired is offered for sale and may
be financed by a loan involving terms more favorable to the borrower than those
normally offered.
Any property acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as real estate owned until such time as it is sold or
otherwise disposed of by Community Savings in an effort to recover its
investment. Real estate acquired through, or in lieu of, foreclosure is carried
at the lower of the estimated fair value of the property less estimated costs to
sell or the carrying amount of the defaulted loan plus accrued unpaid interest.
The carrying amount is subsequently reduced by additional allowances which are
charged to earnings if the estimated fair value declines below its initial value
plus any capitalized costs. Costs relating to the development and improvement of
the property are capitalized, and costs relating to holding the property are
charged to expenses. As of September 30, 1998, Community Savings had no real
estate acquired in settlement of loans.
Loans, including impaired loans, are generally classified as
nonaccrual and accrual of interest is suspended if they are past due as to
maturity or payment of principal or interest for a period of more than 90 days,
unless such loans are well-secured and in the process of collection. If a loan
or a portion of a loan is classified as doubtful (as discussed below) or is
partially charged off, the loan is generally classified as nonaccrual. Loans
that are on a current payment status or past due less than 90 days, may also be
classified as nonaccrual if repayment in full of principal and/or interest is in
doubt.
Loans may be returned to accrual status when all principal and
interest amounts contractually due (including arrearages) are reasonably assured
of repayment within an acceptable period of time, and there is a sustained
period of repayment performance (generally a minimum of six months) by the
borrower.
While a loan is classified as nonaccrual and the future collectibility
of the recorded loan balance is doubtful, collections of interest and principal
are generally applied as a reduction to principal outstanding, except in the
case of loans with scheduled amortization for which the payment is generally
applied to the oldest payment due. When the future collection of the recorded
loan balance is expected, interest income may be recognized on a cash basis
limited to that which would have been recognized on the recorded loan balance at
the contractual interest rate. Receipts in excess of that amount are recorded
as recoveries to the allowance for loan losses until prior charge-offs have been
fully recovered.
The following table sets forth information with respect to
nonperforming assets identified by Community Savings, including accruing loans
90 days past due, non-accruing loans and real estate owned at the dates
indicated.
83
<PAGE>
<TABLE>
<CAPTION>
At September 30 At December 31
---------------- ---------------------
1998 1997 1996
---------------- ---------- ---------
(In Thousands)
<S> <C> <C> <C>
Loans 90 days past due and still accruing $ 218 $ 241 $ 217
Nonaccrual loans - - -
Real estate owned - - -
-------- -------- --------
Total nonperforming assets $ 218 $ 241 $ 217
======== ======== ========
Nonperforming loans to total loans 0.17% 0.21% 0.23%
Nonperforming assets to total assets 0.13% 0.14% 0.14%
Total assets $170,374 $167,817 $156,751
Total loans, before net items $129,718 $116,323 $ 92,830
</TABLE>
Applicable regulations require Community Savings to "classify" its own
assets on a regular basis. In addition, in connection with examinations of
savings institutions, regulatory examiners have authority to identify problem
assets and, if appropriate, classify them. Problem assets are classified as
"substandard," "doubtful" or "loss," depending on the presence of certain
characteristics as discussed below.
An asset is considered "substandard" if not adequately protected by
the current net worth and paying capacity of the obligor or the collateral
pledged, if any. "Substandard" assets include those characterized by well-
defined weakness with possible risk of loss if the deficiency is not corrected.
Assets classified as "doubtful" have all of the weaknesses inherent in those
classified "substandard" with the added characteristic that the weaknesses
present make "collection or liquidation in full," on the basis of currently
existing facts, conditions, and values, "highly questionable." Assets
classified "loss" are those considered "uncollectible" and of such little value
that their continuance as assets without the establishment of a loss reserve is
not warranted.
As of September 30, 1998, Community Savings had approximately $1.4
million of loans internally classified as "substandard," no loans classified as
"doubtful" and no loans classified as "loss." Total classified loans as of
December 31, 1997 and 1996 were approximately $1.1 million and $927,000,
respectively.
When an insured institution classifies problem assets as either
substandard or doubtful, it is required to establish general allowances for loan
losses in an amount deemed prudent by management. These allowances represent
loss allowances which have been established to recognize the inherent risk
associated with lending activities and the risks associated with particular
problem assets. When an insured institution classifies problem assets as
"loss," it charges off, or writes down the balance of, the asset. Community
Savings' determination as to the classification of its assets and the amount of
its valuation allowances is subject to review by the FDIC and the Administrator
which can order the establishment of additional loss allowances.
Community Savings also identifies assets which possess credit
deficiencies or potential weaknesses deserving close attention by management.
These assets are maintained on a "special mention" listing and do not yet
warrant adverse classification. At September 30, 1998, Community Savings had no
loans categorized as special mention.
ALLOWANCE FOR LOAN LOSSES. In originating loans, Community Savings
recognizes that credit losses will be experienced and that the risk of loss will
vary with, among other things, the type of loan being made, the creditworthiness
of the borrower over the term of the loan and, in the case of a secured loan,
the quality of the
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<PAGE>
security for the loan, as well as general economic conditions. It is
management's policy to maintain an adequate allowance for loan losses based on,
among other things, Community Savings' historical loan loss experience,
evaluation of economic conditions and regular reviews of delinquencies and loan
portfolio quality. Specific allowances are provided for individual loans when
ultimate collection is considered questionable by management after reviewing the
current status of loans which are contractually past due and considering the net
realizable value of the security for the loans.
In recent periods, Community Savings has significantly increased its
allowance for loan losses to reflect the greater inherent risks associated with
the increasing size of Community Savings loan portfolio and, in particular, the
increasing size of its commercial, construction and consumer loan portfolio.
Management continues to actively monitor Community Savings' asset
quality, to charge off loans against the allowance for loan losses when
appropriate and to provide specific loss reserves when necessary. Although
management believes it uses the best information available to make
determinations with respect to the allowance for loan losses, future adjustments
may be necessary if economic conditions differ substantially from the economic
conditions in the assumptions used in making the initial determinations.
The following table describes the activity related to Community
Savings' allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
-------------- -------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Beginning balance $ 781 $ 492 $ 431
Provision for loan losses 350 360 60
Charge-offs - 71 -
Recoveries - - (1)
-------- -------- -------
Net charge-offs - 71 (1)
-------- -------- -------
Balance, end of period $ 1,131 $ 781 $ 492
======== ======== =======
Ratio of net charge-offs to average loans
outstanding 0.00% 0.07% 0.00%
Ratio of allowance to total loans outstanding
at end of period 0.87% 0.67% 0.54%
Ratio of allowance to total nonperforming
assets at end of period 518.81% 324.07% 226.73%
Total loans, before net items $129,718 $116,323 $92,830
Average loans, before allowance $121,355 $102,607 $82,942
Nonperforming assets $ 218 $ 241 $ 217
</TABLE>
The following table sets forth the composition of the allowance for
loan losses by type of loan at the dates indicated. The allowance is allocated
to specific categories of loans for statistical purposes only, and may be
applied to loan losses incurred in any loan category.
85
<PAGE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
-------------------------------- -------------------------------------------------------
1998 1997 1996
-------------------------------- -------------------------------- ---------------------------------
PERCENT OF AMOUNT PERCENT OF AMOUNT PERCENT OF AMOUNT
ALLOWANCE OF LOANS ALLOWANCE OF LOANS ALLOWANCE OF LOANS
AMOUNT OF TO TOTAL TO GROSS AMOUNT OF TO TOTAL TO GROSS AMOUNT OF TO TOTAL TO GROSS
ALLOWANCE ALLOWANCE LOANS ALLOWANCE ALLOWANCE LOANS ALLOWANCE ALLOWANCE LOANS
--------- ----------- -------- ----------- ----------- -------- ----------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage $ 451 40 % 72.8% $578 74 % 83.9% $363 74% 91.2%
Home equity line of credit 136 12 3.7 39 5 4.1 25 5 4.5
Construction 170 15 9.1 62 8 5.1 15 3 1.1
Commercial, financial , 283 25 11.4 78 10 5.3 49 10 0.4
agricultural
Consumer 91 8 3.0 20 2 1.4 25 5 0.4
Held-for-sale - - 0.0 4 1 0.2 15 3 2.4
------ --- ----- ---- --- ----- ---- --- -----
Total $1,131 100% 100.0% $781 100% 100.0% $492 100% 100.0%
====== === ===== ==== === ===== ==== === =====
</TABLE>
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<PAGE>
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Interest and dividend income from investment and mortgage-backed
securities generally provides the second largest source of income to Community
Savings after interest on loans. In addition, Community Savings receives
interest income from deposits in other financial institutions and from federal
funds sold. At September 30, 1998, Community Savings' investment and mortgage-
backed securities portfolio totaled approximately $30.9 million, consisting of
U.S. government and agency securities, municipal bonds, stock of the Federal
Home Loan Bank of Atlanta and participation certificates issued by the
Government National Mortgage Association ("GNMA") FNMA, FHLMC and Real Estate
Mortgage Investment Conduits ("REMICS").
Investments in mortgage-backed securities involve a risk that, because
of changes in the interest rate environment, actual prepayments will be greater
than estimated prepayments over the life of the security, which may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments, thereby reducing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities. In addition, the market value of such securities may be adversely
affected by changes in interest rates.
The Financial Accounting Standards Board has issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" which
addresses the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. These investments are to be classified in three categories and
accounted for as follows: (1) debt securities that the entity has the positive
intent and ability to hold to maturity are classified as held-to-maturity and
reported at amortized cost; (2) debt and equity securities that are bought and
held principally for the purpose of selling them in the near term are classified
as trading securities and reported at fair value, with net unrealized gains and
losses included in earnings; and (3) debt and equity securities not classified
as either held-to-maturity or trading securities are classified as securities
available-for-sale and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of equity. At
September 30, 1998, Community Savings had no trading securities.
The amortized cost of securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Interest and dividends are included in interest income
from investments. Realized gains and losses, and declines in value judged to be
other than temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method.
As a member of the FHLB of Atlanta, Community Savings is required to
maintain an investment in stock of the FHLB of Atlanta equal to the greater of
1% of Community Savings' outstanding home loans or 5% of its outstanding
advances from the FHLB of Atlanta. No ready market exists for such stock, which
is carried at cost. As of September 30, 1998, Community Savings' investment in
stock of the FHLB of Atlanta was $1.4 million.
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<PAGE>
The following table sets forth certain information regarding Community
Savings' investment and mortgage-backed securities portfolio at the dates
indicated.
<TABLE>
<CAPTION>
At September 30 At December 31
--------------- ------------------
1998 1997 1996
--------------- -------- --------
(In Thousands)
<S> <C> <C> <C>
US government and agency obligations
US treasury securities - Held to maturity $ 504 $ 6,347 $15,249
US treasury securities - Available for sale 1,029 4,030 4,975
Federal agency securities - Held to maturity 2,997 6,955 9,959
Federal agency securities - Available for sale 10,263 5,037 2,002
------- ------- -------
Total U.S. Government and agency 14,793 22,369 32,185
------- ------- -------
Municipal securities - Held to maturity - 95 195
Municipal securities - Available for sale 889 - -
------- ------- -------
Total municipal securities 889 95 195
------- ------- -------
Other equity securities - Available for sale 14 14 14
------- ------- -------
Total other equity securities 14 14 14
------- ------- -------
Mortgage - backed securities
GNMA - Held to maturity 1,375 2,254 2,570
GNMA - Available for sale - - 2,189
FNMA - Available for sale 1,255 - -
FHLMC - Held to maturity 3,173 4,498 5,434
FHLMC - Available for sale - 49 85
REMIC's - Held to maturity 689 1,898 3,310
REMIC's - Available for sale 8,751 9,448 10,212
------- ------- -------
Total mortgage-backed securities 15,243 18,147 23,800
------- ------- -------
Total investment and mortgage-backed securities $30,939 $40,625 $56,194
======= ======= =======
</TABLE>
At September 30, 1998, the market value of Community Savings'
investment securities available for sale and held to maturity were $22.2 million
and $9.0 million, respectively.
The following table sets forth certain information regarding the
carrying value, weighted average yields and contractual maturities of Community
Savings' debt securities portfolio as of September 30, 1998.
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<PAGE>
<TABLE>
<CAPTION>
After One Year After Five
One Year or Less Through Five Years Through Ten Years
----------------- ------------------ -----------------
Weighted Weighted Weighted
Average Average Average
Amount Yield Amount Yield Amount Yield
------- ------- ------ ------- ------ -------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Debt securities
U.S. treasury notes - held to maturity $ 504 6.32% $ - -% $ - -%
Federal agency securities - held to maturity 1,998 5.78 999 6.67 - -
------- ------- ------- ------ ------- --------
Total debt securities - held to maturity 2,502 5.89 999 6.67 - -
------- ------- ------- ------ ------- --------
U.S. treasury notes - available for sale - - 1,029 6.19 - -
Federal Home Loan Bank bonds - available for sale - - 7,998 6.05 - -
------- ------- ------- ------ ------- --------
Total debt securities - available for sale - - 9,027 6.07 - -
------- ------- ------- ------ ------- --------
Mortgage - backed securities - held to maturity-
GNMA participation certificates- - - - - 168 10.360%
FHLMC participation certificates - - - - - -
REMIC's - - - - 417 6.05%
------- ------- ------- ------ ------- --------
Total mortgage-backed securities - held to maturity - - 585 7.29%
------- ------- ------- ------ ------- --------
Mortgage-backed securities - available for sale
FNMA participation certificates - - - - - -
REMIC's - - - - - -
------- ------- ------- ------ ------- --------
Total mortgage-backed securities - available for sale - - - - - -
Municipal Securities - available for sale - - - - - -
------- ------- ------- ------ ------- --------
Total debt securities $ 2,502 5.89% $10,026 6.12% $ 585 7.29%
======= ======= ======= ====== ======= ========
After Ten Years Total
-------------------- ----------------------------
Weighted Weighted
Average Average
Amount Yield Amount Yield
--------- -------- ----------------- ---------
<S> <C> <C> <C> <C>
Debt securities
U.S. treasury notes - held to maturity $ - -% $ 504 6.32%
Federal agency securities - held to maturity - - 2,997 6.08
--------- -------- ---------- ---------
Total debt securities - held to maturity - - 3,501 6.11
--------- -------- ---------- ---------
1,029 6.19
U.S. treasury notes - available for sale - -
Federal Home Loan Bank bonds - available for sale 2,265 6.87 10,263 6.40
--------- -------- ---------- ---------
Total debt securities - available for sale 2,265 6.87 11,292 6.38
--------- -------- ---------- ---------
Mortgage - backed securities - held to maturity-
GNMA participation certificates- 1,207 8.79 1,375 8.98
FHLMC participation certificates 3,173 9.56 3,173 9.56
REMIC's 272 6.50 689 6.50
--------- -------- ---------- ---------
Total mortgage-backed securities - held to maturity 4,652 9.18 5,237 9.01
--------- -------- ---------- ---------
Mortgage-backed securities - available for sale
FNMA participation certificates 1,255 6.30 1,255 6.30
REMIC's 8,751 6.42 8,751 6.42
--------- -------- ---------- ---------
Total mortgage-backed securities - available for sale 10,006 6.42 10,006 6.40
--------- -------- ---------- ---------
Municipal Securities - available for sale 889 6.89 889 6.89
Total debt securities $17,812 7.15% $ 30,925 6.77%
========= ======== ========== =========
</TABLE>
89
<PAGE>
DEPOSITS AND BORROWINGS
GENERAL. Deposits are the primary source of Community Savings' funds
for lending and other investment purposes. In addition to deposits, Community
Savings derives funds from loan principal repayments, loan interest payments,
interest and principal repayments from investments and mortgage-backed
securities, interest from its own interest-earning deposits and otherwise from
its operations. Repayments and income are relatively stable sources of funds
while deposit inflows and outflows may be 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 from other
sources. They may also be used on a longer term basis for general business
purposes.
DEPOSITS. Community Savings attracts both short-term and long-term
deposits from the general public by offering a variety of accounts and rates.
Community Savings offers statement savings accounts, negotiable order of
withdrawal accounts, money market demand accounts, non-interest-bearing
accounts, and fixed interest rate certificates with varying maturities. At
September 30, 1998, 76.0% of Community Savings' deposits consisted of
certificate accounts, 13.0% consisted of statement savings accounts, 10.8%
consisted of interest-bearing transaction accounts and an insignificant amount
consisted of noninterest-bearing transaction accounts.
Deposit flows are greatly influenced by economic conditions, the
general level of interest rates, competition, and other factors, including the
restructuring of the thrift industry. Community Savings' savings deposits
traditionally have been obtained primarily from its primary market area.
Community Savings utilizes traditional marketing methods to attract new
customers and savings deposits, including print media advertising and direct
mailings. Community Savings does not advertise for deposits outside of its local
market area or utilize the services of deposit brokers.
The following table sets forth information relating to Community
Savings' deposit flows during the periods shown and deposits at the end of such
periods.
<TABLE>
<CAPTION>
At or for the
Nine Months At or for the
Ended Year Ended
September 30, December 31,
------------- ------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Total deposits at beginning of period $ 134,697 $ 122,524 $ 118,907
Net increase (decrease) before interest
credited 106 8,225 156
Interest credited 3,721 3,948 3,461
--------- --------- ---------
Total deposits at end of period $ 138,024 $ 134,697 $ 122,524
========= ========= =========
</TABLE>
The following table sets forth certain other information regarding
Community Savings' savings deposits at the dates indicated.
90
<PAGE>
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997 December 31, 1996
------------------------------------------- --------------------------------- -----------------------
Minimum Percent Weighted Percent Weighted Percent
Deposit of Average of Average of
Required Balance Deposits Rate Balance Deposits Rate Balance Deposits
----------- -------- --------- --------- ----------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars In Thousands)
Demand accounts:
Non-interest bearing $ 1 $ 345 0.25% $ 716 0.53% $ 744 0.61%
NOW and money market $ 100 14,847 10.76 2.35% 14,712 10.92 3.01% 13,968 11.40
accounts $ 100 17,984 13.03 2.76% 19,069 14.16 3.00% 21,051 17.18
Statement/passbook -------- ------ -------- --------- -------- ---------
Total demand deposits 33,176 24.04 34,497 25.61 35,763 29.19
-------- ------ -------- --------- ---------
Time Deposits:
Certificate accounts
with original
maturities of:
3 months $ 500 239 0.17 217 0.16 350 0.29
6 months $ 500 11,281 8.17 6,060 4.50 8,692 7.09
7 months $10,000 7,202 5.22 15,838 11.76 4,987 4.07
9 months $ 500 24,914 18.05 8,438 6.26 10,028 8.18
12 months $ 500 21,390 15.50 12,809 9.51 9,344 7.63
18 months - IRA $ 100 15,588 11.29 15,062 11.18 14,296 11.67
18 months $ 500 11,796 8.55 25,223 18.73 18,400 15.02
24 months $ 500 4,347 3.15 5,429 4.03 7,518 6.14
30 months $ 500 3,108 2.25 4,697 3.49 4,665 3.81
36 months $ 500 2,347 1.70 3,549 2.63 4,386 3.58
48 months $ 500 577 0.42 744 0.55 1,764 1.44
60 months and over $ 500 2,059 1.49 2,134 1.58 2,331 1.90
-------- ------ -------- -------- -------- ---------
Total time deposits 104,848 75.96 5.52% 100,200 74.39 5.72% 86,761 70.81
-------- ------ -------- -------- -------- ---------
Total deposits $138,024 100.00% $134,697 100.00% $122,524 100.00%
======== ====== ======== ======== ======== =========
<CAPTION>
December 31, 1996
----------------------
Weighted
Average
Rate
----------------------
<C>
Demand accounts:
Non-interest bearing
NOW and money market
accounts 3.13%
Statement/passbook 3.00%
Total demand deposits
Time Deposits:
Certificate accounts
with original
maturities of:
3 months
6 months
7 months
9 months
12 months
18 months - IRA
18 months
24 months
30 months
36 months
48 months
60 months and over
Total time deposits 5.58%
Total deposits
</TABLE>
91
<PAGE>
The following table presents the maturities of all certificates of deposits
as of September 30, 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
One year or less $ 87,842
More than 1 and less than 3 years 15,697
More than 3 years 1,309
--------
Total $104,848
========
</TABLE>
Based upon historical experience, Community Savings expects that a substantial
percentage of its time deposits coming due within twelve months after September
30, 1998 will be renewed.
As of September 30, 1998, the aggregate amount of outstanding
certificates of deposit in amounts greater than or equal to $100,000 was $17.0
million, representing 16.2% of all certificates of deposit on such date. Some of
these deposits were deposits of state and local governments which are subject to
rebidding from time to time and to securitization requirements. The following
table presents the maturity of these time certificates of deposit at such date.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
3 Months or less $ 3,352
Over 3 months through 12 months 11,338
Over 12 months 2,291
-------
Total $16,981
=======
</TABLE>
BORROWINGS. Community Savings' principal source of long-term
borrowings is advances from the FHLB of Atlanta. The FHLB system functions in a
reserve credit capacity for savings institutions. As a member, Community Savings
is required to own capital stock in the FHLB of Atlanta and is authorized to
apply for advances from the FHLB of Atlanta on the security of that stock and a
floating lien on certain of its real estate secured loans and other assets. Each
credit program has its own interest rate and range of maturities. Depending on
the program, limitations on the amount of advances are based either on a fixed
percentage of an institution's net worth or on the FHLB of Atlanta's assessment
of the institution's creditworthiness. The table below presents the amounts of
borrowed money owed by Community Savings as of the dates indicated, along with
the weighted average interest rates payable on such borrowings and the maturity
dates of the indebtedness. All borrowings were obtained from the FHLB of Atlanta
and all were repayable in full within one year.
<TABLE>
<CAPTION>
At or for the Nine
Months Ended At or for the Year Ended
September 30, December 31,
------------------ ------------------------
1998 1997 1996
---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding (monthly) $5,611 $7,788 $8,333
Maximum amount outstanding at any
month-end during the period $6,700 $8,950 $9,000
Balance outstanding at end of period $5,000 $6,700 $9,000
Weighted average interest rate during the period 6.05% 5.91% 5.51%
Weighted average interest rate at end of period 5.38% 5.94% 5.73%
</TABLE>
92
<PAGE>
SUBSIDIARIES
As a North Carolina-chartered savings bank, Community Savings is able to
invest up to 10% of its total assets in subsidiary service corporations.
However, any investment in service corporations which would cause Community
Savings to exceed an investment of three percent of assets must receive prior
approval of the FDIC. Community Savings has one subsidiary, Community Financial
Services, Inc., which is engaged in discount brokerage sales activities pursuant
to an agreement with UVEST Financial Services Group, Inc. Community Financial
Services, Inc. was organized in 1997 and has one employee. As of September 30,
1998, Community Savings' investment in Community Financial Services, Inc. was
$100,000 or less than one percent of assets.
PROPERTIES
The following table sets forth the location of Community Savings'
offices, as well as certain other information relating to its offices as of
September 30, 1998.
<TABLE>
<CAPTION>
Address Function Type Net Book Value Deposits
- ---------------------------------- -------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
708 South Church Street land $ 75,488
Burlington, North Carolina 27215 Main Branch building $505,873 $82,088,683
166 Huffman Mill Road land $ 48,676
Burlington, North Carolina 27215 Branch building $240,246 $24,260,842
257 South Graham-Hopedale Road land $ 50,279
Burlington, North Carolina 27215 Branch building $184,032 $14,999,561
227 South Main Street land $ 86,848
Graham, North Carolina 27253 Branch building $145,868 $16,674,704
612 South Church Street Credit land $ 89,386
Burlington, North Carolina 27215 Administration building $ 91,568 -
500 South Main Street leasehold
Burlington, North Carolina 27215 Administration improvements $ 4,927 -
</TABLE>
All of the real properties are owned by Community Savings except the
facilities at 500 South Main Street in Burlington, North Carolina. Those
facilities, which house Community Savings' credit administration operations, are
leased pursuant to a lease which expires in March, 2001.
The total net book value of Community Savings' furniture, fixtures and
equipment at September 30, 1998 was $748,000.
LEGAL PROCEEDINGS
From time to time, Community Savings is a party to legal proceedings
which arise in the ordinary course of its business. Most commonly, such
proceedings are commenced by Community Savings to enforce obligations owed to
it. From time to time, claims are asserted against Community Savings directly
or as defenses and counterclaims in actions filed by Community Savings. At this
time, Community Savings is not a party to any legal proceeding which is expected
to have a material effect on its financial condition or results of operations.
COMPETITION
Community Savings faces strong competition both in attracting deposits
and making real estate and other loans. Its most direct competition for
deposits has historically come from other savings institutions, credit unions
93
<PAGE>
and commercial banks located in its primary market area, including large
financial institutions with a statewide and nationwide presence which have
greater financial and marketing resources available to them. As of June 30,
1998, there were 11 depository institutions with 40 offices in Alamance County,
North Carolina. Based upon June, 1997 comparative data, Community Savings had
8.63% of the deposits in Alamance County. Community Savings has also faced
additional significant competition for investors' funds from short-term money
market securities and other corporate and government securities. The ability of
Community Savings to attract and retain savings deposits depends on its ability
to provide a rate of return, liquidity and risk comparable to that offered by
competing investment opportunities.
Community Savings experiences strong competition for real estate loans
from other savings institutions, commercial banks, credit unions and mortgage
banking companies. Community Savings competes for loans primarily through the
interest rates and loan fees it charges and the efficiency and quality of
services it provides borrowers. Competition may increase as a result of the
elimination of restrictions on the interstate operations of financial
institutions.
EMPLOYEES
As of September 30, 1998, Community Savings had 55 full-time employees
and 9 part-time employees. Community Savings provides its employees with basic
and major medical insurance, life insurance, sick leave and vacation benefits.
In addition, Community Savings maintains a 401(k) profit sharing plan which
covers substantially all of its employees. See "Management of Community Savings
- - 401(k) Profit Sharing Plan".
In connection with the Conversion, Community Savings has adopted the
ESOP, which will provide benefits to employees of Community Savings. See
"Management of Community Savings - Employee Stock Ownership Plan." Also, the
Boards of Directors of the Company and Community Savings plan to adopt, and
stockholders of the Company will be asked to approve, the MRP and the Stock
Option Plan at a meeting of stockholders following the Conversion. See
"Management of Community Savings - Proposed Management Recognition Plan" and "-
Proposed Stock Option Plan." The MRP and Stock Option Plans will provide stock-
based benefits to directors and certain employees.
Employees are not represented by any union or collective bargaining
group, and Community Savings considers its employee relations to be good.
TAXATION
FEDERAL INCOME TAXATION
GENERAL. Savings institutions such as Community Savings are subject to the
taxing provisions of the Internal Revenue Code of 1986, as amended (the "Code")
applicable generally to corporations, as modified by certain provisions
specifically applicable to financial or thrift institutions. Income is reported
using the accrual method of accounting. The maximum corporate federal income
tax rate is 35%.
BAD DEBT RESERVES. For fiscal years beginning prior to December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Code were permitted certain favorable provisions regarding
their deductions from taxable income for annual additions to their bad debt
reserve. A reserve could be established for bad debts on qualifying real
property loans (generally loans secured by interests in real property improved
or to be improved) under (i) a method based on a percentage of the institution's
taxable income, as adjusted (the "percentage of taxable income method") or (ii)
a method based on actual loss experience (the "experience method"). The reserve
for nonqualifying loans was computed using the experience method.
94
<PAGE>
The percentage of taxable income method was limited to 8% of taxable
income, subject to certain limitations. In order to qualify for the percentage
of taxable income method, an institution had to have at least 60% of its assets
as "qualifying assets" which generally included cash, obligations of the United
States government or an agency or instrumentality thereof or of a state or
political subdivision, residential real estate-related loans, and loans secured
by savings accounts and property used in the conduct of its business. In
addition, it had to meet certain other supervisory tests and operate principally
for the purpose of acquiring savings and investing in loans. Institutions which
became ineligible to use the percentage of taxable income method had to change
to either the reserve method or the specific charge-off method that applied to
banks.
In August 1996, provisions repealing the thrift bad debt rules were passed
by Congress as part of the "The Small Business Job Protection Act of 1996." The
new rules eliminated the 8% of taxable income method for deducting additions to
the tax bad debt reserves for all thrifts for tax years beginning after December
31, 1995. For taxable years beginning after December 31, 1995, Community
Savings' bad debt deduction are based on the experience method. These rules
also require that all thrift institutions recapture all or a portion of their
bad debt reserves added since the last taxable year beginning before January 1,
1988. The new rules allow an institution to suspend the bad debt reserve
recapture for the 1996 and 1997 tax years if the institution's lending activity
for those years is equal to or greater than the institution's average mortgage
lending activity for the six taxable years preceding 1996 adjusted for
inflation. For this purpose, only home purchase and home improvement loans are
included and the institution can elect to have the tax years with the highest
and lowest lending activity removed from the average calculation. If an
institution is permitted to postpone the reserve recapture, it must begin its
six year recapture no later than the 1998 tax year. Community Savings has
previously recorded a deferred tax liability equal to the bad debt recapture
applicable to the post 1987 additions to its bad debt reserve. As a result,
this recapture requirement applicable to 1987 additions to bad debt reserves
will have no material impact on Community Savings' net income or federal income
tax expense.
TAXABLE DISTRIBUTIONS AND RECAPTURE. Prior to the 1996 legislation, bad
debt reserves created prior to the 1988 tax year were subject to recapture into
taxable income should the thrift institution fail to meet certain thrift asset
and definitional tests. New federal legislation eliminated these thrift-related
recapture rules. Community Savings is not required to provide a deferred tax
liability for the tax effect of additions to the tax bad debt reserve through
1987.
Retained income at December 31, 1997, includes approximately $5.2 million
for which no deferred income tax liability has been recognized. This amount
represents an allocation of income to bad debt deductions for income tax
purposes only. Reductions of the amount so allocated for purposes other than
tax bad debt losses or adjustments arising from carryback of net operating
losses would create income for tax purposes only, which would be subject to the
then current corporate income tax rate.
ALTERNATIVE MINIMUM TAXES. Community Savings may also be subject to the
corporate alternative minimum tax ("AMT"). This tax is applicable only to the
extent it exceeds the regular corporate income tax. The AMT is imposed at the
rate of 20% of the corporation's alternative minimum taxable income ("AMTI")
subject to applicable statutory exemptions. AMTI is calculated by adding
certain tax preference items and making certain adjustments to the corporation's
regular taxable income. Preference items and adjustments generally applicable
to financial institutions include, but are not limited to, the following: (i)
the excess of the bad debt deduction over the amount that would have been
allowable on the basis of actual experience; (ii) interest on certain tax-exempt
bonds issued after August 7, 1986; and (iii) 75% of the excess, if any, of a
corporation's adjusted earnings and profits over its AMTI (as otherwise
determined with certain adjustments). Net operating loss carry-overs, subject
to certain adjustments, may be utilized to offset up to 90% of the AMTI. Credit
for AMT paid may be available in future years to reduce future regular federal
income tax liability. Community Savings has not been subject to the AMT in
recent years.
Community Savings' federal income tax returns have not been audited in the
last six tax years.
95
<PAGE>
STATE AND LOCAL TAXATION
Under North Carolina law, the corporate income tax rate for the 1996 and
1997 tax years is 7.75% and 7.5%, respectively, of federal taxable income as
computed under the Code, subject to certain prescribed adjustments. An annual
state franchise tax is imposed at a rate of 0.15% 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.
Under the current legislation, the North Carolina corporate tax rate will
drop to 7.25% in 1998, 7% in 1999, and 6.9% thereafter.
SUPERVISION AND REGULATION
REGULATION OF THE COMPANY
GENERAL. The Company was organized for the purpose of acquiring and
holding all of the capital stock of Community Savings to be issued in the
Conversion. As a bank holding company subject to the Bank Company Act of 1956,
as amended ("BHCA"), the Company will become subject to certain regulations of
the Federal Reserve. Under the BHCA, the Company's activities and those of its
subsidiaries are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity which the Federal Reserve determines to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
The BHCA prohibits the Company from acquiring direct or indirect control of more
than 5% of the outstanding voting stock or substantially all of the assets of
any bank or savings bank or merging or consolidating with another bank holding
company or savings bank holding company without prior approval of the Federal
Reserve.
Additionally, the BHCA prohibits the Company from engaging in, or acquiring
ownership or control of, more than 5% of the outstanding voting stock of any
company engaged in a nonbanking business unless such business is determined by
the Federal Reserve to be so closely related to banking as to be properly
incident thereto. The BHCA generally does not place territorial restrictions on
the activities of such nonbanking related activities.
Similarly, Federal Reserve approval (or, in certain cases, non-disapproval)
must be obtained prior to any person acquiring control of the Company. Control
is conclusively presumed to exist if, among other things, a person acquires more
than 25% of any class of voting stock of the Company or controls in any manner
the election of a majority of the directors of the Company. Control is presumed
to exist if a person acquires more than 10% of any class of voting stock and the
stock is registered under Section 12 of the Exchange Act or the acquiror will be
the largest shareholder after the acquisition.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default or in default. For example, to avoid
receivership of an insured depository institution subsidiary, a bank holding
company is required to guarantee the compliance of any insured depository
institution subsidiary that may become "undercapitalized" with the terms of any
capital restoration plan filed by such subsidiary with its appropriate federal
banking agency up to the lesser of (i) an amount equal to 5% of the
institution's total assets at the time the institution became undercapitalized
or (ii) the amount which is necessary (or would have been necessary) to bring
the institution into compliance with all acceptable capital standards as of the
time the institution fails to comply with such capital restoration plan. Under
a policy of the Federal Reserve with respect to bank holding company operations,
a bank holding company is required to serve as a source of financial strength to
its subsidiary depository institutions and to commit resources to support such
institutions in
96
<PAGE>
circumstances where it might not do so absent such policy. The Federal Reserve
under the BHCA also has the authority to require a bank holding company to
terminate any activity or to relinquish control of a nonbank subsidiary (other
than a nonbank subsidiary of a bank) upon the Federal Reserve's determination
that such activity or control constitutes a serious risk to the financial
soundness and stability of any bank subsidiary of the bank holding company.
In addition, insured depository institutions under common control are
required to reimburse the FDIC for any loss suffered by either the SAIF or the
Bank Insurance Fund (the "BIF") as a result of the default of a commonly
controlled insured depository institution and for any assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default. The FDIC may decline to enforce the cross-guarantee provisions if it
determines that a waiver is in the best interest of the SAIF or the BIF or both.
The FDIC's claim for damages is superior to claims of stockholders of the
insured depository institution or its holding company but is subordinate to
claims of depositors, secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository institutions.
As a result of the Company's ownership of Community Savings, the Company
will be registered under the savings bank holding company laws of North
Carolina. Accordingly, the Company will also be subject to regulation and
supervision by the Administrator.
CAPITAL ADEQUACY GUIDELINES FOR HOLDING COMPANIES. The Federal Reserve has
adopted capital adequacy guidelines for bank holding companies and banks that
are members of the Federal Reserve system and have consolidated assets of $150
million or more.
Bank holding companies subject to the Federal Reserve's capital adequacy
guidelines are required to comply with the Federal Reserve's risk-based capital
guidelines. Under these regulations, the minimum ratio of total capital to risk-
weighted assets (including certain off-balance sheet activities, such as standby
letters of credit) is 8%. At least half of the total capital is required to be
"Tier I capital," principally consisting of common stockholders' equity,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less certain goodwill items. The remainder ("Tier II
capital") may consist of a limited amount of subordinated debt, certain hybrid
capital instruments and other debt securities, perpetual preferred stock, and a
limited amount of the general loan loss allowance. In addition to the risk-
based capital guidelines, the Federal Reserve has adopted a minimum Tier I
capital (leverage) ratio, under which a bank holding company must maintain a
minimum level of Tier I capital to average total consolidated assets of at least
3% in the case of a bank holding company which has the highest regulatory
examination rating and is not contemplating significant growth or expansion.
All other bank holding companies are expected to maintain a Tier I capital
(leverage) ratio of at least 1% to 2% above the stated minimum.
DIVIDEND AND REPURCHASE LIMITATIONS. In connection with the Conversion,
Community Savings has agreed with the FDIC that, during the first year after
consummation of the Conversion, neither the Company nor Community Savings will
pay any dividend or make any other distribution to its stockholders which
represents, is characterized as, or is treated for federal tax purposes as, a
return of capital. In addition, the Company must obtain Federal Reserve
approval in order to use more than 10% of its net worth to make stock
repurchases during any 12 month period unless the Company (i) both before and
after the redemption satisfies capital requirements for "well capitalized" state
member banks; (ii) received a one or two rating in its last examination; and
(iii) is not the subject of any unresolved supervisory issues. Although the
payment of dividends and repurchase of stock by the Company are subject to the
requirements and limitations of North Carolina corporate law, except as set
forth in this paragraph, neither the Administrator nor the FDIC have promulgated
any regulations specifically limiting the right of the Company to pay dividends
and repurchase shares. However, the ability of the Company to pay dividends or
repurchase shares may be dependent upon the Company's receipt of dividends from
Community Savings. Community Savings' ability to pay dividends is limited. See
" - Regulation of Community Savings - Restrictions on Dividends and Other
Capital Distributions."
97
<PAGE>
CAPITAL MAINTENANCE AGREEMENT. In connection with the Administrator's
approval of the Company's application to acquire control of Community Savings,
the Company was required to execute a capital maintenance agreement whereby it
has agreed to maintain Community Savings' capital in an amount sufficient to
enable Community Savings to satisfy all regulatory capital requirements.
FEDERAL SECURITIES LAW. The Company has filed with the SEC a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act"),
for the registration of the Common Stock to be issued in the Conversion. The
Company intends to register the Common Stock with the SEC pursuant to Section 12
of the Exchange Act. Upon such registration, the proxy and tender offer rules,
insider trading reporting requirements and restrictions, annual and periodic
reporting and other requirements of the Exchange Act will be applicable to the
Company.
REGULATION OF COMMUNITY SAVINGS
GENERAL. Federal and state legislation and regulation significantly affect
the operations of federally-insured savings institutions and other federally
regulated financial institutions. The operations of regulated depository
institutions, including Community Savings, are subject to changes in applicable
statutes and regulations from time to time. Such changes may or may not be
favorable to Community Savings.
Community Savings is a North Carolina-chartered savings bank, is a member
of the FHLB system, and its deposits are insured by the FDIC through the SAIF.
It is subject to examination and regulation by the FDIC and the Administrator
and to regulations governing such matters as capital standards, mergers,
establishment of branch offices, subsidiary investments and activities, and
general investment authority. Generally, North Carolina-chartered savings banks
whose deposits are insured by the SAIF are subject to restrictions with respect
to activities and investments, transactions with affiliates and loans-to-one
borrower similar to those applicable to federally-chartered SAIF-insured savings
associations. Such examination and regulation is intended primarily for the
protection of depositors and the federal deposit insurance funds.
Community Savings is subject to various regulations promulgated by the
Federal Reserve including, without limitation, Regulation B (Equal Credit
Opportunity), Regulation D (Reserves), Regulation E (Electronic Fund Transfers),
Regulation O (Loans to Executive Officers, Directors and Principal
Shareholders), Regulation Z (Truth in Lending), Regulation CC (Availability of
Funds) and Regulation DD (Truth in Savings). As holders of loans secured by real
property and as owners of real property, financial institutions, including
Community Savings, may be subject to potential liability under various statutes
and regulations applicable to property owners generally, including statutes and
regulations relating to the environmental condition of real property.
The FDIC has extensive enforcement authority over North Carolina-chartered
savings banks, including Community Savings. This enforcement authority includes,
among other things, the ability to assess civil money penalties, to issue cease
and desist or removal orders and to initiate injunctive actions. In general,
these enforcement actions may be initiated in response to violations of laws and
regulations and unsafe or unsound practices.
The grounds for appointment of a conservator or receiver for a North
Carolina savings bank on the basis of an institution's financial condition
include: (i) insolvency, in that the assets of the savings bank are less than
its liabilities to depositors and others; (ii) substantial dissipation of assets
or earnings through violations of law or unsafe or unsound practices; (iii)
existence of an unsafe or unsound condition to transact business; (iv)
likelihood that the savings bank will be unable to meet the demands of its
depositors or to pay its obligations in the normal course of business; and (v)
insufficient capital or the incurring or likely incurring of losses that will
deplete substantially all of the institution's capital with no reasonable
prospect of replenishment of capital without federal assistance.
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TRANSACTIONS WITH AFFILIATES. Under current federal law, transactions
between Community Savings and any affiliate are governed by Sections 23A and 23B
of the Federal Reserve Act. An affiliate of Community Savings is any company or
entity that controls, is controlled by or is under common control with the
savings bank. Upon consummation of the Conversion, Community Savings and the
Company will be affiliates of each other. Generally, Sections 23A and 23B (i)
establish certain collateral requirements for loans to affiliates; (ii) limit
the extent to which the savings institution or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10% of such
savings 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 (iii) require that all such transactions be on
terms substantially the same, or at least as favorable, to the savings
institution or the subsidiary as those provided to a nonaffiliate. The term
"covered transaction" includes the making of loans or other extensions of credit
to an affiliate, the purchase of assets from an affiliate, the purchase of, or
an investment in, the securities of an affiliate, the acceptance of securities
of an affiliate as collateral for a loan or extension of credit to any person,
or issuance of a guarantee, acceptance or letter of credit on behalf of an
affiliate.
Further, current federal law has extended to savings banks the restrictions
contained in Section 22(h) of the Federal Reserve Act with respect to loans to
directors, executive officers and principal stockholders. Under Section 22(h),
loans to directors, executive officers and stockholders who, directly or
indirectly, own more than 10% of any class of voting securities of a savings
bank, and certain affiliated entities of any of the foregoing, may not exceed,
together with all other outstanding loans to such person and affiliated
entities, the savings bank's loans-to-one borrower limit as established by
federal law (as discussed below), and all loans to such persons may not exceed
the Savings Bank'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 or stockholders who own more than 10% of
a savings bank, and their respective affiliates, unless such loan is approved in
advance by a majority of the board of directors of the savings bank. Any
"interested" director may not participate in the voting. The Federal Reserve has
prescribed the loan amount (which includes all other outstanding loans to such
person), as to which such prior board of director approval is required, as being
the greater of $25,000 or 5% of unimpaired capital and unimpaired surplus (up to
$500,000). Further, pursuant to Section 22(h), the Federal Reserve requires that
loans to directors, executive officers, and principal stockholders be based on
underwriting standards not less stringent than those applied in comparable
transactions with other persons, and made on terms substantially the same as
offered in comparable transactions to other persons and not involve more than
the normal risk of repayment or present other unfavorable features. Section
22(h) also generally prohibits a depository institution from paying the
overdrafts of any of its executive officers or directors.
INSURANCE OF DEPOSIT ACCOUNTS. The FDIC administers two separate deposit
insurance funds. The SAIF maintains a fund to insure the deposits of most
savings institutions and the BIF maintains a fund to insure the deposits of most
commercial banks. Community Savings is a member of the SAIF of the FDIC.
Community Savings is required to pay assessments to the FDIC based on a
percentage of its insured deposits. 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."
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
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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.
The assessment rate for SAIF members had ranged from 0.23% of deposits for
well capitalized institutions in Subgroup A to 0.31% of deposits for
undercapitalized institutions in Subgroup C while assessments for over 90% of
the BIF members had been the statutory minimum of $2,000. However, recently
enacted legislation provided for a one-time assessment equal to 65.7 basis
points times insured deposits as of March 31, 1995. This assessment fully
capitalized the SAIF. Accordingly, although the special assessment resulted in a
$767,000 one-time charge of Community Savings during its fiscal year ended
December 31, 1996, the recapitalization of the SAIF had the effect of reducing
Community Savings' future deposit insurance premiums to the SAIF. Under the
recently enacted legislation, most BIF members will be assessed approximately
1.3 basis points while the rate for most SAIF members will be 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.
COMMUNITY REINVESTMENT ACT. Community Savings, like other financial
institutions, is subject to the Community Reinvestment Act ("CRA"). A purpose of
the CRA is to encourage financial institutions to help meet the credit needs of
its entire community, including the needs of low- and moderate-income
neighborhoods. Financial institutions' compliance with the CRA is regularly
evaluated by their regulatory agencies.
Under recently adopted regulations, institutions are first evaluated and
rated under three categories: a lending test, an investment test and a service
test. For each of these three tests, the institution is 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 are used to determine
the overall composite CRA rating. The composite ratings are "outstanding,"
"satisfactory," "needs to improve" or "substantial non-compliance."
During Community Savings' last compliance examination, Community Savings
received a "satisfactory" rating with respect to CRA compliance. Community
Savings' rating with respect to CRA compliance would be a factor to be
considered by the Federal Reserve and FDIC in considering applications submitted
by Community Savings 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.
CAPITAL REQUIREMENTS APPLICABLE TO COMMUNITY SAVINGS. The FDIC requires
Community Savings to have a minimum leverage ratio of Tier I capital
(principally consisting of common stockholders' equity, noncumulative perpetual
preferred stock and minority interests in consolidated subsidiaries, less
certain intangible, goodwill items, identified losses and investments in
securities subsidiaries) to total assets of at least 3%; provided, however that
all institutions, other than those (i) receiving the highest rating during the
examination process and (ii) not anticipating or experiencing any significant
growth, are required to maintain a ratio of 1% or 2% above the stated minimum,
with an absolute minimum leverage ratio of not less than 4%. The FDIC also
requires Community Savings to have a ratio of total capital to risk-weighted
assets, including certain off-balance sheet activities, such as standby letters
of credit, of at least 8%. At least half of the total capital is required to be
Tier I capital. The remainder (Tier II capital) may consist of a limited amount
of subordinated debt, certain hybrid capital instruments, other debt securities,
certain types of preferred stock and a limited amount of loan loss allowance.
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An institution which fails to meet minimum capital requirements may be
subject to a capital directive which is enforceable in the same manner and to
the same extent as a final cease and desist order, and must submit a capital
plan within 60 days to the FDIC. If the leverage ratio falls to 2% or less, the
institution may be deemed to be operating in an unsafe or unsound condition,
allowing the FDIC to take various enforcement actions, including possible
termination of insurance or placement of the institution in receivership.
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, Community Savings complied with each of the capital
requirements of the FDIC and the Administrator. For a description of Community
Savings' required and actual capital levels on September 30, 1998, see
"Historical and Pro Forma Capital Compliance."
Each federal banking agency is required to establish risk-based capital
standards to take adequate account of interest rate risk, concentration of
credit risk, and the risk of nontraditional activities, as well as to reflect
the actual performance and expected risk of loss on multi-family mortgages.
On August 2, 1995, the federal banking agencies issued a joint notice of
adoption of final risk-based capital rules to take account of interest rate
risk. The final regulation required an assessment of the need for additional
capital on a case-by-case basis, considering both the level of measured exposure
and qualitative risk factors. The final rule also stated an intent to, in the
future, establish an explicit minimum capital charge for interest rate risk
based on the level of a bank's measured interest rate risk exposure.
Effective June 26, 1996, the federal banking agencies issued a joint policy
statement announcing the agencies' election not to adopt a standardized measure
and explicit capital charge for interest rate risk at that time. Rather, the
policy statement (i) identifies the main elements of sound interest rate risk
management, (ii) describes prudent principles and practices for each of those
elements, and (iii) describes the critical factors affecting the agencies'
evaluation of a bank's interest rate risk when making a determination of capital
adequacy.
LOANS TO ONE BORROWER. Community Savings is subject to the Administrator's
loans-to-one borrower limits. Under these limits, no loans and extensions of
credit to any borrower outstanding at one time and not fully secured by readily
marketable collateral shall exceed 15% of the net worth of the savings bank.
Loans and extensions of credit fully secured by readily marketable collateral
may comprise an additional 10% of net worth. Notwithstanding the limits just
described, savings institutions may make loans to one borrower, for any purpose,
in an amount of up to $500,000. A savings institution also is authorized to
make loans to one borrower to develop domestic residential housing units, not to
exceed the lesser of $30 million, or 30% of the savings institution's net worth,
provided that (i) the purchase price of each single-family dwelling in the
development does not exceed $500,000; (ii) the savings institution is in
compliance with its fully phased-in capital requirements; (iii) the loans comply
with applicable loan-to-value requirements; (iv) the aggregate amount of loans
made under this authority does not exceed 150% of net worth; and (v) the
institution's regulator issues an order permitting the savings institution to
use this higher limit. These limits also authorize a savings bank to make
loans-to-one borrower to finance the sale of real property acquired in
satisfaction of debts in an amount up to 50% of net worth.
As of September 30, 1998, the largest aggregate amount of loans which
Community Savings had to any one borrower was $3.1 million. Community Savings
had no loans outstanding which management believes violate the applicable loans-
to-one borrower limits.
LIMITATIONS ON RATES PAID FOR DEPOSITS. Regulations promulgated by the
FDIC place limitations on the ability of insured depository institutions to
accept, renew or roll over deposits by offering rates of interest which are
significantly higher than the prevailing rates of interest on deposits offered
by other insured depository institutions having the same type of charter in such
depository institution's normal market area. Under these regulations, "well
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capitalized" depository institutions may accept, renew or roll such deposits
over without restriction, "adequately capitalized" depository institutions may
accept, renew or roll such deposits over with a waiver from the FDIC (subject to
certain restrictions on payments of rates) and "undercapitalized" depository
institutions may not accept, renew or roll such deposits over. The definitions
of "well capitalized," "adequately capitalized" and "undercapitalized" are the
same as the definitions adopted by the FDIC to implement the corrective action
provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991.
See "- Prompt Corrective Regulatory Action." As of September 30, 1998,
Community Savings was considered to be "well capitalized" and, thus, was not
subject to the limitations on rates payable on it deposits.
FEDERAL HOME LOAN BANK SYSTEM. The FHLB system provides a central credit
facility for member institutions. As a member of the FHLB of Atlanta, Community
Savings is required to own capital stock in the FHLB of Atlanta in an amount at
least equal to the greater of 1% of the aggregate principal amount of its unpaid
residential mortgage loans, home purchase contracts and similar obligations at
the end of each calendar year, or 5% of its outstanding advances (borrowings)
from the FHLB of Atlanta. On September 30, 1998, Community Savings was in
compliance with this requirement with an investment in FHLB of Atlanta stock of
$1.4 million.
FEDERAL RESERVE SYSTEM. Regulation D, promulgated by the Federal Reserve,
imposes reserve requirements on all depository institutions, including savings
banks and savings institutions, which maintain transaction accounts or non-
personal time deposits. Checking accounts, NOW accounts and certain other types
of accounts that permit payments or transfers to third parties fall within the
definition of transaction accounts and are subject to Regulation D reserve
requirements, as are any non-personal time deposits (including certain money
market deposit accounts) at a savings institution. For 1998, a depository
institution must maintain average daily reserves equal to 3% of the first $47.8
million of net transaction accounts, plus 10% of that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances are exempt from the reserve requirements. These
percentages and threshold limits are subject to adjustment by the Federal
Reserve.
RESTRICTIONS ON ACQUISITIONS. Federal law generally provides that no
"person," acting directly or indirectly or through or in concert with one or
more other persons, may acquire "control," as that term is defined in FDIC
regulations, of an insured institution, such as Community Savings, without
giving at least 60 days' written notice to the FDIC and providing the FDIC an
opportunity to disapprove the proposed acquisition. Pursuant to regulations
governing acquisitions of control, control of an insured institution is
conclusively deemed to have been acquired, among other things, upon the
acquisition of more than 25% of any class of voting stock. In addition, control
is generally presumed to have been acquired, subject to rebuttal, upon the
acquisition of more than 10% of any class of voting stock. Such acquisitions of
control may be disapproved if it is determined, among other things, that (i) the
acquisition would substantially lessen competition; (ii) the financial condition
of the acquiring person might jeopardize the financial stability of the savings
bank or prejudice the interests of its depositors; or (iii) the competency,
experience or integrity of the acquiring person or the proposed management
personnel indicates that it would not be in the interest of the depositors or
the public to permit the acquisition of control by such person.
For three years following completion of the Conversion, North Carolina
conversion regulations require the prior written approval of the Administrator
before any person may directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of
Community Savings. 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 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 (i) any offer with a view toward public resale made
exclusively to Community Savings or its underwriters or the selling group acting
on its behalf or (ii) any offer to acquire or acquisition of beneficial
ownership of more than 10% of the common stock of Community Savings by a
corporation whose ownership is or will be substantially the same as the
ownership of Community Savings, provided that the offer or acquisition is made
more than one year following the consummation of the Conversion. The regulation
provides
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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 (i) the acquisition is necessary to protect the safety and soundness of the
Company and Community Savings or the Boards of Directors of the Company and
Community Savings support the acquisition and (ii) the acquiror is of good
character and integrity and possesses satisfactory managerial skills, the
acquiror will be a source of financial strength to the Company and Community
Savings and the public interests will not be adversely affected.
LIQUIDITY. Community Savings is 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 regulation allows the inclusion of
mortgage-backed securities and investments which, in the judgment of the
Administrator, have a readily marketable value, including investments with
maturities in excess of five years. At September 30, 1998, Community Savings'
liquidity ratio, calculated in accordance with North Carolina regulations, was
approximately 21.0%.
PROMPT CORRECTIVE REGULATORY ACTION. The Federal Deposit Corporation
Improvement Act of 1991 provided the federal banking agencies with broad powers
to take corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." Under the FDIC regulations applicable to Community Savings,
an institution is considered "well capitalized" if it has (i) a total risk-based
capital ratio of 10% or greater, (ii) a Tier I risk-based capital ratio of 6% or
greater, (iii) a leverage ratio of 5% or greater and (iv) is not subject to any
order or written directive to meet and maintain a specific capital level for any
capital measure. An "adequately capitalized" institution is defined as one that
has (i) a total risk-based capital ratio of 8% or greater, (ii) a Tier I risk-
based capital ratio of 4% or greater and (iii) a leverage ratio of 4% or greater
(or 3% or greater in the case of an institution with the highest examination
rating and is not experiencing or anticipating significant growth). An
institution is considered (A) "undercapitalized" if it has (i) a total risk-
based capital ratio of less than 8%, (ii) a Tier I risk-based capital ratio of
less than 4% or (iii) a leverage ratio of less than 4% (or 3% in the case of an
institution with the highest examination rating and is not experiencing or
anticipating significant growth); (B) "significantly undercapitalized" if the
institution has (i) a total risk-based capital ratio of less than 6%, or (ii) a
Tier I risk-based capital ratio of less than 3% or (iii) a leverage ratio of
less than 3% and (C) "critically undercapitalized" if the institution has a
ratio of tangible equity to total assets equal to or less than 2%. Community
Savings is considered to be "well capitalized" under the rules set forth above.
INTERSTATE BANKING. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act"), effective September 29,
1995, permits adequately capitalized bank and savings bank holding companies to
acquire control of banks and savings banks in any state.
Such interstate acquisitions are subject to certain restrictions. States
may require the bank or savings bank being acquired to have been in existence
for a certain length of time but not in excess of five years. In addition, no
bank or saving bank may acquire more than 10% of the insured deposits in the
United States or more than 30% of the insured deposits in any one state, unless
the state has specifically legislated a higher deposit cap. States are free to
legislate stricter deposit caps.
The Interstate Banking Act also provides for interstate branching,
effective June 1, 1997, allowing interstate branching in all states, provided
that a particular state has not specifically denied interstate branching by
legislation prior to such time. Unlike interstate acquisitions, a state could
deny interstate branching if it specifically elected to do so by June 1, 1997.
States could choose to allow interstate branching prior to June 1, 1997 by
opting-in to a group of states that permitted these transactions. These states
generally allow interstate branching via a merger of an out-of-state bank with
an in-state bank, or on a de novo basis. North Carolina enacted legislation
permitting interstate branching transactions prior to June 1, 1997 and did not
adopt legislation electing to deny interstate branching.
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RESTRICTIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. A North
Carolina-chartered stock savings bank may not declare or pay a cash dividend on,
or repurchase any of, its capital stock if the effect of such transaction would
be to reduce the net worth of the institution to an amount which is less than
the minimum amount required by applicable federal and state regulations.
In addition, a North Carolina-chartered stock savings bank, for a period of
five years after its conversion from mutual to stock form, must obtain the
written approval from the Administrator before declaring or paying a cash
dividend on its capital stock in an amount in excess of one-half of the greater
of (i) the institution's net income for the most recent fiscal year end, or (ii)
the average of the institution's net income after dividends for the most recent
fiscal year end and not more than two of the immediately preceding fiscal year
ends, if applicable.
Also, without the prior written approval of the Administrator, a North
Carolina-chartered stock savings bank, for a period of five years after its
conversion from mutual to stock form, may not repurchase any of its capital
stock. The Administrator will give approval to repurchase only upon a showing
that the proposed repurchase will not adversely affect the safety and soundness
of the institution. Under FDIC regulations, stock repurchases may be made by
Community Savings only after receipt of FDIC approval.
In addition, upon its conversion to stock form, Community Savings is not
permitted to declare or pay a cash dividend or repurchase any of its capital
stock if the effect thereof would be to cause its net worth to be reduced below
the amount required for the liquidation account established in connection with
the Conversion.
In connection with the Conversion, Community Savings has agreed with the
FDIC that, during the first year after the Conversion, neither the Company nor
Community Savings will pay any dividend or make any other distribution to
stockholders which represents, is characterized as, or is treated for federal
tax purposes as, a return of capital.
RESTRICTIONS ON BENEFIT PLANS. FDIC regulations provide that for a period
of one year from the date of the Conversion, Community Savings may not implement
or adopt a stock option plan or restricted stock plan, other than a tax-
qualified plan or ESOP, unless: (1) the plans are fully disclosed in the
Conversion proxy solicitation and stock offering material, (2) all such plans
are approved by a majority of the Company's stockholders prior to implementation
and no earlier than six months following the Conversion, (3) for stock option
plans, the exercise price is at least equal to the market price of the stock at
the time of grant, and (4) for restricted stock plans, no stock issued in
connection with the Conversion is used to fund the plan.
The FDIC regulations provide that, in reviewing plans submitted to the
stockholders within one year after the consummation of the Conversion, the FDIC
will presume that excessive compensation will result if stock based benefit
plans fail to satisfy percentage limitations on management stock-based benefit
plans set forth in the regulations of the Office of Thrift Supervision ("OTS").
Those regulations provide that (1) 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, (2) for restricted stock plans, the shares issued may
not exceed 3% of the shares issued in the Conversion (4% for institutions with
tangible capital of 10% or greater after the Conversion), (3) the aggregate
amount of stock purchased by the ESOP shall not exceed 10% (8% for well-
capitalized institutions utilizing a 4% restricted stock plan), (4) no
individual employee may receive more than 25% of the available awards under any
plan, (5) directors who are not employees may not receive more than 5%
individually or 30% in the aggregate of the awards under any plan, and (6) the
stock option and restricted stock plans must provide that benefits will vest in
equal increments over a five year period beginning one year after the plans are
approved by the stockholders and may provide for automatic vesting only in the
event of death or disability. The awards and grants to be made under the MRP
and Stock Option Plan will conform to these requirements if such plans are
submitted for stockholder approval within one year after the Conversion is
consummated.
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ADDITIONAL FEDERAL LIMITATIONS ON ACTIVITIES. Recent FDIC law and
regulations generally provide that Community Savings may not engage as principal
in any type of activity, or in any activity in an amount, not permitted for
national banks, or directly acquire or retain any equity investment of a type or
in an amount not permitted for national banks. The FDIC has authority to grant
exceptions from these prohibitions (other than with respect to non-service
corporation equity investments) if it determines no significant risk to the
insurance fund is posed by the amount of the investment or the activity to be
engaged in and if Community Savings is and continues to be in compliance with
fully phased-in capital standards. National banks are generally not permitted to
hold equity investments other than shares of service corporations and certain
federal agency securities. Moreover, the activities in which service
corporations for savings banks are permitted to engage are limited to those of
service corporations for national banks.
Savings banks are also required to notify the FDIC at least 30 days prior
to the establishment or acquisition of any subsidiary, or at least 30 days prior
to conducting any such new activity. Any such activities must be conducted in
accordance with the regulations and orders of the FDIC and the Administrator.
Savings banks are also generally prohibited from directly or indirectly
acquiring or retaining any corporate debt security that is not of investment
grade (generally referred to as "junk bonds").
OTHER NORTH CAROLINA REGULATION. As a North Carolina-chartered savings
bank, Community Savings derives its authority from, and is regulated by, the
Administrator. The Administrator has the right to promulgate rules and
regulations necessary for the supervision and regulation of North Carolina
savings banks under his jurisdiction and for the protection of the public
investing in such institutions. The regulatory authority of the Administrator
includes, but is not limited to: the establishment of reserve requirements; the
regulation of the payment of dividends; the regulation of stock repurchases, the
regulation of incorporators, stockholders, directors, officers and employees;
the establishment of permitted types of withdrawable accounts and types of
contracts for savings programs, loans and investments; and the regulation of the
conduct and management of savings banks, chartering and branching of
institutions, mergers, conversions and conflicts of interest. North Carolina law
requires that Community Savings maintain federal deposit insurance as a
condition of doing business.
The Administrator conducts regular examinations of North Carolina-chartered
savings banks. The purpose of such examinations is to assure that institutions
are being operated in compliance with applicable North Carolina law and
regulations and in a safe and sound manner. These examinations are usually
conducted on a joint basis with the FDIC. In addition, the Administrator is
required to conduct an examination of any institution when he has good reason to
believe that the standing and responsibility of the institution is of doubtful
character or when he otherwise deems it prudent. The Administrator is empowered
to order the revocation of the license of an institution if he finds that it has
violated or is in violation of any North Carolina law or regulation and that
revocation is necessary in order to preserve the assets of the institution and
protect the interests of its depositors. The Administrator has the power to
issue cease and desist orders if any person or institution is engaging in, or
has engaged in, any unsafe or unsound practice or unfair and discriminatory
practice in the conduct of its business or in violation of any other law, rule
or regulation.
A North Carolina-chartered savings bank must maintain net worth, computed
in accordance with the Administrator's requirements, of 5% of total assets and
liquidity of 10% of total assets, as discussed above. Additionally, a North
Carolina-chartered savings bank is required to maintain general valuation
allowances and specific loss reserves in the same amounts as required by the
FDIC.
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 (i) obligations of the United States,
or those guaranteed by it; (ii) obligations of the State of North Carolina;
(iii)
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bank demand or time deposits; (iv) stock or obligations of the federal deposit
insurance fund or a FHLB; (v) savings accounts of any savings institution as
approved by the board of directors; and (vi) 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.
North Carolina law provides a procedure by which savings institutions may
consolidate or merge, subject to approval of the Administrator. The approval is
conditioned upon findings by the Administrator that, among other things, such
merger or consolidation will promote the best interests of the members or
stockholders of the merging institutions. North Carolina law also provides for
simultaneous mergers and conversions and for supervisory mergers conducted by
the Administrator.
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company currently consists of ten persons.
Each of these persons is also a director of Community Savings, and the name and
biographical information with respect to each is set forth under "Management of
Community Savings - Directors." The Articles of Incorporation and Bylaws of the
Company provide for staggered elections at such times as the number of directors
is at least nine. Therefore, it is expected that at the Company's first annual
meeting of stockholders approximately one-third of the directors will be
initially elected to one, two and three-year terms, respectively, and thereafter
it is expected that all directors will be elected to terms of three years each.
The Bylaws of the Company provide that no director may be elected to office
after he attains the age of 72; however, persons now serving as directors are
not subject to that restriction.
The executive officers of the Company, each of whom is also currently an
executive officer of Community Savings, and each of whom serves at the
discretion of the Board of Directors of the Company, are as follows:
<TABLE>
<CAPTION>
AGE AT POSITION HELD
NAME SEPTEMBER 30, 1998 WITH THE COMPANY
---- ------------------ ----------------
<S> <C> <C>
W. R. Gilliam 61 President and Chief Executive Officer
Larry H. Hall 52 Executive Vice President
Joseph C. Canada 50 Senior Vice President and Secretary
Christopher B. Redcay 46 Treasurer and Chief Financial Officer
</TABLE>
Biographical information with respect to each of these officers is set
forth below under "Management of Community Savings - Executive Officers." There
are no other employees of the Company. No officer, director or employee of the
Company has received remuneration from the Company to date, and it is currently
expected that no compensation will be paid by the Company in the period
immediately after the Conversion. Information concerning the principal
occupations and employment of, and compensation paid by Community Savings to,
the directors and executive officers of the Company is set forth under
"Management of Community Savings." See "Management of Community Savings -
Employment Agreement" and "- Special Termination Agreements" for a description
of certain agreements expected to be entered into with the executive officers of
the Company and Community Savings.
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<PAGE>
MANAGEMENT OF COMMUNITY SAVINGS
DIRECTORS
The direction and control of Community Savings, as a mutual North Carolina-
chartered savings bank, has been vested in its ten-member Board of Directors
elected by the depositor and borrower members of Community Savings. Upon
conversion of Community Savings to capital stock form, each director of
Community Savings immediately prior to the Conversion will continue to serve as
a director of Community Savings as a stock institution. All directors currently
serve for three-year terms.
Upon consummation of the Conversion, the Company will own all of the issued
and outstanding shares of capital stock of Community Savings, and the Company
will elect the directors of Community Savings. The Company now plans to
nominate and re-elect all members of Community Savings' existing board of
directors when their existing terms expire. Their terms are staggered so that
approximately one-third of the directors are up for reelection in 1999, 2000 and
2001. Community Savings' proposed Bylaws, which would become effective after
the Conversion, provide for continued staggered elections of its directors if
and when the number of directors shall equal at least nine. Community Savings'
proposed Bylaws provide that no director may be elected to office after he
attains the age of 72; however, the persons now serving as directors are not
subject to that limitation. The following table sets forth certain information
with respect to the persons who currently serve as members of the Board of
Directors of Community Savings.
<TABLE>
<CAPTION>
AGE ON
SEPTEMBER 30, PRINCIPAL OCCUPATION DIRECTOR
NAME 1998 DURING LAST FIVE YEARS SINCE
- ---- ------------- ---------------------- --------
<S> <C> <C> <C>
Jimmy L. Byrd 53 Partner of Byrd Limited Partnership 1977
W. R. Gilliam, Chairman 61 President of Community Savings Bank, SSB 1986
Julian P. Griffin 66 Retired transportation executive and minister 1985
Edgar L. Hartgrove 73 Retired District Manager of Duke Power Company 1984
William C. Ingold 71 Owner of Burlington Motors, Inc., automobile dealerships 1979
Charles A. LeGrand 71 Retired hosiery executive 1975
James D. Moser, Jr. 60 Certified Public Accountant, Gilliam Coble & Moser LLP 1992
W. Joseph Rich 56 President, Rich & Thompson Funeral Service, Inc. 1977
Alfred J. Spitzner 67 Metallurgical consultant 1979
Herbert N. Wellons 76 Retired President of Community Savings Bank, SSB 1977
A cousin of Jimmy L. Byrd is married to Joseph C. Canada, an executive officer of the Company and Community Savings.
</TABLE>
BOARD MEETINGS AND COMMITTEES
Community Savings' Board of Directors has regular meetings twice each
month, and held 23 regular and special meetings in the fiscal year ended
December 31, 1997. The Board has also established five committees to whom
certain responsibilities have been delegated - a budget committee, an audit
committee, a nominating committee, a personnel committee, and a long range
planning committee. No director attended fewer than 75% of the total number of
Board meetings and meetings of Board committees on which he served during the
year ended December 31, 1997.
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<PAGE>
Community Savings' budget committee is composed of directors LeGrand,
Hartgrove and Byrd. The budget committee reviews the annual budget and makes
budget recommendations to the full Board of Directors. The budget committee met
one time during the year ended December 31, 1997.
Community Savings' audit committee is composed of directors Moser, Rich and
Hartgrove. This committee is responsible for meeting with and retaining
independent auditors, and overseeing the adequacy of internal controls, insuring
compliance with Community Savings' policies and procedures and with generally
accepted accounting principles. The audit committee also reviews examination
reports of regulatory agencies and reviews corrective actions and makes
recommendations to the Board. The audit committee meets on an as needed basis,
and during the fiscal year ended December 31, 1997, met five times.
Community Savings' nominating committee is composed of directors Rich,
Wellons, Ingold and Griffin and meets on an as needed basis to nominate persons
to serve on Community Savings' Board of Directors. During the fiscal year ended
December 31, 1997, the nominating committee met one time.
Community Savings personnel committee is composed of directors Spitzner,
Wellons and Gilliam and reviews proposed compensation structures and personnel
needs of Community Savings and makes recommendations to the full Board of
Directors. The personnel committee met 10 times during the fiscal year ended
December 31, 1997.
Community Savings' long range planning committee is composed of Directors
LeGrand, Spitzner and Griffin and reviews long range plans of Community Savings
and makes recommendations to the full Board of Directors. During the fiscal
year ended December 31, 1997, the long range planning committee met four times.
Community Savings' Chairman of the Board and President also meet with each
of the committees of the Board.
DIRECTORS' FEES
For their service on Community Savings' Board of Directors, all members of
Community Savings' Board of Directors receive $1,000 per month. The Chairman of
the Board receives $1,050 per month. Board fees are subject to adjustment
annually. No additional fees are paid in connection with committee meetings.
Community Savings has entered into deferred compensation agreements with
its directors. Under such arrangements, the directors waived immediate receipt
of their directors' fees for various periods of time in exchange for Community
Savings' agreement to pay to the directors amounts over a specified period of
time beginning at a date set forth in the agreements. Benefits are also payable
to designated beneficiaries upon the director's death. Under some of the
agreements, benefits are also payable in the event of a disability. Benefits
vest under the agreements over a period of time so that benefits are forfeited
or reduced if service to Community Savings is terminated prior to the expiration
of specified vesting periods (other than for reasons of death or, in some cases,
disability.) Such vesting requirements have been satisfied. In order to fund
the deferred compensation benefits, Community Savings has purchased insurance
policies of which it is the beneficiary. Total compensation expense related to
the directors' deferred compensation arrangements was approximately $323,748
during the fiscal year ended December 31, 1997. Beginning in fiscal year 1999,
this expense is expected to be partially offset by increases in the cash
surrender value of the insurance policies purchased in connection with such
deferred compensation arrangements, which represents income to Community
Savings.
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<PAGE>
DIRECTORS' RETIREMENT PLAN
Community Savings has also adopted a Directors' Retirement Plan. This plan
provides that directors of Community Savings will be paid $1,500 per month for
10 years beginning on the later of the director's 65/th/ birthday or October 1,
1996. Alternatively, Community Savings may elect to pay the benefits in a lump
sum payment equal to the present value of the payment stream. Benefits are
payable to designated beneficiaries in the event a director dies prior to
receiving full payment.
Death and disability benefits of $1,500 per month for 10 years are payable
in the event a director dies or becomes disabled prior to reaching his 65/th/
birthday. In certain situations, the death or disability benefits may be paid
by Community Savings in a lump sum payment equal to the present value of the
stream of unpaid payments.
Benefits under the Directors' Retirement Plan vest over a period of time so
that benefits are forfeited or reduced if service to Community Savings is
terminated prior to the expiration of specified vesting periods (other than for
reasons of death or disability and other than a termination after a change in
control). All such vesting requirements are satisfied.
Insurance policies have been purchased to fund the benefits payable under
the retirement plan. Total compensation expense related to the Directors'
Retirement Plan during the fiscal year ended December 31, 1997 was approximately
$99,771. Beginning in the fiscal year 1999, this expense is expected to be
partially offset by increases in the cash surrender value of insurance policies
purchased in connection with the plan.
Existing members of the Board of Directors may also receive additional
benefits following the Conversion. See "- Proposed Management Recognition Plan"
and "- Proposed Stock Option Plan."
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<PAGE>
EXECUTIVE OFFICERS
Community Savings has five executive officers. The following table sets
forth certain information with respect to such executive officers:
<TABLE>
<CAPTION>
AGE ON EMPLOYED BY
SEPTEMBER 30, POSITIONS AND OCCUPATIONS COMMUNITY SAVINGS
NAME 1998 DURING LAST FIVE YEARS SINCE
- ---- ------------- ------------------------- -----------------
<S> <C> <C> <C>
W. R. Gilliam 61 President and Chief Executive Officer 1959
Larry H. Hall 52 Executive Vice President; previously 1996
Senior Vice President; previously Vice
President of Branch Banking and Trust
Company
Joseph C. Canada 50 Senior Vice President and Secretary; 1973
previously Treasurer
Judy L. Pennington 51 Vice President; previously Assistant 1996
Vice President of First South Bank
Christopher B. Redcay 46 Treasurer and Chief Financial Officer; 1998
previously consultant with JBA
Consulting, Inc.; previously Chief
Financial Officer and Secretary -
Treasurer of F&M Financial
Corporation
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth for the twelve month period ended December
31, 1997 certain information as to the cash compensation earned by the chief
executive officer of Community Savings. There was no other executive officer of
Community Savings whose cash compensation exceeded $100,000 for service in all
capacities.
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND COMPENSATION ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS ($)/1/ COMPENSATION/2/
------------------ ---- ------ ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
W. R. Gilliam 1997 $97,500 $16,595 - $158,357
President, Chief Executive Officer, and
Director
</TABLE>
____________________
/1/ Under the "Other Annual Compensation" category, perquisites for the
fiscal year ended December 31, 1997 did not exceed the lesser of $50,000,
or 10% of salary and bonus as reported for Mr. Gilliam.
/2/ Includes (a) $12,000 in directors' fees; (b) $114,355 accrued under
supplemental income agreements established for the benefit of Mr.
Gilliam, (c) $15,150 in payments to Mr. Gilliam which are reimbursements
of expenses incurred by Mr. Gilliam with respect to life insurance
policies purchased by him, including the taxes payable on such amounts,
(d) $9,750 in contributions to Community Savings' retirement plans for
Mr. Gilliam and (e) $7,102 accrued for the benefit of Mr. Gilliam under
the Directors' Retirement Plan. The amounts described in items (b), (d)
and (e) did not represent actual cash payments to Mr. Gilliam.
Community Savings' personnel committee, composed of directors Spitzner,
Wellons, Ingold and Gilliam, makes recommendations to the full Board of
Directors with respect to compensation of its executive officers. Community
Savings' full Board of Directors then determines the compensation of the
executive officers. The
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<PAGE>
salaries of each of the executive officers is determined based upon the
executive officer's contributions to Community Savings' overall profitability,
maintenance of regulatory compliance standards, professional leadership, and
management effectiveness in meeting the needs of day to day operations. The
Board of Directors also compares the compensation of Community Savings'
executive officers with compensation paid to executives of comparable financial
institutions in North Carolina and executives of other businesses in Community
Savings' market area. Mr. Gilliam participates in the deliberations of the
personnel committee and Board of Directors regarding compensation of executive
officers other than himself. He does not participate in the discussion or
decisions regarding his own compensation.
INCENTIVE COMPENSATION
Community Savings has an incentive bonus compensation program. Under
this program, certain employees of Community Savings, including executive
officers, are eligible to receive bonuses equal to a specified percentage of
their salary if the particular employee attains or exceeds certain personal
performance goals. The performance goals for Community Savings are structured
so that bonuses will be greater or lower, depending upon the extent to which the
goals are exceeded. Performance goals for Community Savings and for individual
participants and the proposed bonuses based on such goals are established
annually by Community Savings' Board of Directors. Discretionary bonuses are
also sometimes paid by Community Savings to its employees.
RETIREMENT PLAN
Community Savings has established a contributory savings plan for its
employees, which meets the requirements of section 401(k) of the Code.
Substantially all employees are covered by the plan. Under the plan, Community
Savings contributes $2.00 for each $1.00 contributed by the employee up to an
employee contribution of 5% of his or her salary. The 401(k) retirement plan,
which was adopted during 1997, replaced another retirement plan which provided
similar benefits.
Participants are fully vested in amounts they contribute to the plan.
Participants are fully vested in amounts contributed to the plan on their behalf
by Community Savings as employer matching contributions and as profit sharing
contributions after six years of service as follows: 1 year, 0%; 2 years, 20%; 3
years, 40%; 4 years, 60%; 5 years, 80%; 6 or more years, 100%.
The total amount contributed by Community Savings to the retirement
plan during the twelve months ended December 31, 1997 was approximately $89,000.
The assets of the plan exceeded vested benefits as of December 31, 1997, the
date of the last accounting.
It is expected that Community Savings' contributions to the 401(k)
retirement plan will decrease after the Conversion as a result of the
establishment of the ESOP.
SUPPLEMENTAL INCOME PLANS
Community Savings has entered into two separate supplemental income
agreements with W. R. Gilliam, President and Chief Executive Officer. These
agreements provide that Mr. Gilliam will receive annual payments of $67,324 for
15 years upon termination of his employment with Community Savings. In the
event of Mr. Gilliam's death before all payments have been made, benefits would
be payable to designated beneficiaries. In addition, if Mr. Gilliam's employment
with Community Savings should terminate as a result of his death or disability,
such annual payments would be made for a 15-year period to Mr. Gilliam or to his
designated beneficiaries, as applicable. The benefits payable under the
supplemental income agreements are funded by the purchase of life insurance.
During the twelve months ended December 31, 1997, compensation expense related
to the supplemental income plans was $114,355. As a result of additional
accruals during 1998, the supplemental income plans are fully funded.
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<PAGE>
LIFE INSURANCE BENEFITS
W. R. Gilliam, President and Chief Executive Officer, and Joseph C.
Canada, Senior Vice President and Secretary, are provided with $250,000 and
$150,000 of life insurance coverage by Community Savings. Mr. Gilliam and Mr.
Canada own these policies and pay the premiums on them. Community Savings
reimburses the premium expenses to Mr. Gilliam and Mr. Canada and pays the
employees an additional amount to reimburse them for the tax liability they
incur as a result of such payments. During the twelve months ended December 31,
1997, Community Savings paid approximately $22,000 to Mr. Gilliam and Mr. Canada
in such reimbursement expenses.
OTHER BENEFITS
Community Savings provides its employees with group medical, dental,
life and disability insurance benefits. Employees are also provided with
vacation, holiday and sick leave.
EMPLOYMENT AGREEMENT
In connection with the Conversion, Community Savings will enter into
an employment agreement with W. R. Gilliam, President and Chief Executive
Officer, in order to establish his duties and compensation and to provide for
his continued employment with Community Savings. The agreement will provide for
an initial annual base salary of $120,000. The agreement will provide for a
three year initial term of employment. Commencing on the first anniversary date
and continuing on each anniversary date thereafter, following a performance
evaluation of the employee, the agreement may be extended for an additional year
so that the remaining term shall be three years unless written notice of non-
renewal is given by the Board of Directors. The agreement also provides that
base salary shall be reviewed by the Board of Directors not less often than
annually. In the event of a change in control (as defined below), Mr. Gilliam's
base salary shall be increased by at least 6% annually and the agreement will
automatically be extended so that it will have a three year term after the
change in control. In addition, the employment agreement provides for
participation in all other pension, profit-sharing or retirement plans
maintained by Community Savings or by the Company for employees of Community
Savings, as well as fringe benefits normally associated with Mr. Gilliam's
office. Mr. Gilliam will continue to be eligible to receive bonuses under any
existing bonus compensation plan for executive officers and that Mr. Gilliam
will receive additional discretionary bonuses computed on the same basis as
those paid to other employees. See "- Bonus Compensation." The employment
agreement provides that it may be terminated by Community Savings for cause, as
defined in the agreement, and that it may otherwise be terminated by Community
Savings (subject to vested rights) or by Mr. Gilliam.
The employment agreement provides that the nature of Mr. Gilliam's
compensation, duties or benefits cannot be diminished following a change in
control of Community Savings or the Company. For purposes of the employment
agreement, a change in control generally will occur if (i) after the effective
date of the employment agreement, any "person" (as such term is defined in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act) directly or indirectly,
acquires beneficial ownership of voting stock, or acquires irrevocable proxies
or any combination of voting stock and irrevocable proxies, representing 25% or
more of any class of voting securities of either the Company or Community
Savings, or acquires in any manner control of the election of a majority of the
directors of either the Company or Community Savings, (ii) either the Company or
Community Savings consolidates or merges with or into another corporation,
association or entity, or is otherwise reorganized, where neither the Company
nor Community Savings is the surviving corporation in such transaction, or (iii)
all or substantially all of the assets of either the Company or Community
Savings are sold or otherwise transferred to, or are acquired by, any other
entity or group.
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<PAGE>
The employment agreement could have the effect of making it less
likely that Community Savings or the Company will be acquired by another entity.
See "Anti-takeover Provisions Affecting the Holding Company and Community
Savings -The Company - Anti-Takeover Effect of Employment Agreement, Special
Termination Agreements and Benefit Plans."
SPECIAL TERMINATION AGREEMENTS
In connection with the Conversion, the Company will enter into special
termination agreements with Larry H. Hall, Executive Vice President; Joseph C.
Canada, Senior Vice President and Secretary; Judy L. Pennington, Vice President;
and Christopher B. Redcay, Treasurer and Chief Financial Officer. Such
agreements are intended to ensure that Community Savings will be able to
maintain a stable and competent management base after the Conversion. The
continued success of Community Savings depends, to a significant degree, on the
skill and competence of its officers.
The special termination agreements provide for payment to the covered
officer only in the event of a change in control of the Company or Community
Savings followed by termination of the officer's employment by Community Savings
within 24 months for other than "cause," as such term is defined in the
agreements, or in the event there are certain specified changes in the officer's
employment circumstances within 24 months following a change in control of
Community Savings or the Company and the officer terminates his or her
employment.
In the event of such a termination of employment, the officer is
entitled to payment in an amount equal to two times his or her salary and
bonuses for income tax purposes for the most recent calendar year, payable in a
lump sum or in equal monthly payments. The initial term of each of these
agreements is for a period commencing upon the effective date of the Conversion
and ending two calendar years later. At the end of each anniversary date of the
agreements, they may be extended for another year so that the remaining term
shall be two years unless written notice of non-renewal is given by the
Company's Board of Directors. For purposes of the special termination
agreements, "change in control" has the same meaning as in the employment
agreement to be entered into with Mr. Gilliam. See "- Employment Agreement."
The special termination agreements could have the effect of making it
less likely that Community Savings or the Company will be acquired by another
entity. See "Restrictions on Acquisition of the Company and Community Savings -
The Company - Anti-Takeover Effect of Employment Agreement, Special Termination
Agreements and Benefit Plans."
EMPLOYEE STOCK OWNERSHIP PLAN
Community Savings has established the ESOP for its eligible employees.
The ESOP will become effective upon the Conversion. Employees with one year of
service with Community Savings who have attained age 21 are eligible to
participate. As part of the Conversion, the ESOP intends to borrow funds from
the Company and use the funds to purchase up to 8% of the sum of the number of
shares of Common Stock to be issued in the Conversion and the number of shares
to be contributed to the Foundation, estimated to be between 130,400 and 173,600
shares assuming the issuance of between 1,530,000 and 2,070,000 shares. If,
because of an oversubscription for shares of Common Stock or for any other
reason, the ESOP is unable to purchase in the Conversion 8% of the sum of the
number of shares issued in the Conversion and the number of shares contributed
to the Foundation, then the Board of Directors of the Company intends to approve
the purchase by the ESOP in the open market after the Conversion of such shares
as are necessary for the ESOP to acquire such number of shares. In the future,
additional shares could be purchased by the ESOP in the open market with
distributions made on shares held by the ESOP or with other assets of the ESOP.
Collateral for the Company's loan to the ESOP will be the Common Stock
purchased by the ESOP. It is expected that the loan will be repaid principally
from Community Savings' discretionary contributions to the ESOP
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<PAGE>
within 15 years. Dividends, if any, paid on shares held by the ESOP may also be
used to reduce the loan. It is anticipated that the interest rate for the loan
will be a commercially reasonable rate at the time of loan inception. The loan
will not be guaranteed by Community Savings. Shares purchased by the ESOP and
pledged as security for the loan will be held in a suspense account for
allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense
account in an amount proportional to the repayment of the ESOP loan will be
allocated among ESOP participants on the basis of relative compensation in the
year of allocation. Benefits will vest in full upon five years of service with
credit given for years of service with Community Savings prior to the
Conversion. Benefits are payable upon death or disability. Community Savings'
contributions to the ESOP are not fixed, so benefits payable and corresponding
expenses under the ESOP cannot be determined, although benefits payable and
corresponding expenses have been estimated in preparing the pro forma
computations set forth in this Prospectus. See "Pro Forma Data."
In connection with the establishment of the ESOP, the Company will
establish a committee of the Board of Directors to administer the ESOP.
Trustees for the ESOP will also be appointed prior to the Conversion. The ESOP
committee may instruct the trustees regarding investment of funds contributed to
the ESOP. Participating employees will instruct the trustees as to the voting
of all shares allocated to their respective accounts and held in the ESOP. The
unallocated shares held in the suspense account, and all allocated shares for
which voting instructions are not received, will be voted by the trustees in
their discretion subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended.
The ESOP may be considered an "anti-takeover" device since the ESOP
may become the owner of a sufficient percentage of the total outstanding Common
Stock of the Company that the vote or decision whether to tender shares of the
ESOP may be used as a defense in a contested takeover. See "Anti-takeover
Provisions Affecting the Company and Community Savings - The Company - Anti-
Takeover Effect of Employment Agreements, Special Termination Agreements and
Benefit Plans."
PROPOSED MANAGEMENT RECOGNITION PLAN
The Boards of Directors of the Company and Community Savings intend to
adopt the MRP, subject to approval of the stockholders of the Company at a
meeting to be held no sooner than six months following the Conversion. The MRP
will serve as a means of providing the directors and certain employees of
Community Savings with an ownership interest in the Company in a manner designed
to encourage such persons to continue their service to Community Savings. All
directors and certain employees of Community Savings would receive benefits
under the MRP.
Upon stockholder approval of the MRP, the Company and Community
Savings expect to fund the MRP with a number of shares of Common Stock equal to
4% of the sum of the number of shares issued in the Conversion and the number of
shares contributed to the Foundation. Such shares would be provided by the
issuance of authorized but unissued shares of Common Stock or shares purchased
by the MRP in the open market. Shares issued to recipients under the MRP will
be restricted and subject to forfeiture as described below.
To the extent that the MRP acquires authorized but unissued shares of
Common Stock after the Conversion, the interests of existing shareholders will
be diluted. Recipients would not be required to pay for shares issued to them
under the MRP. Assuming the issuance of 2,070,000 shares in the Conversion and
receipt of stockholder approval up to 86,800 shares could be issued pursuant to
the MRP.
Under applicable regulations, if the proposed MRP is submitted to and
approved by the stockholders of the Company within one year after consummation
of the Conversion, (i) no employee of Community Savings could receive more than
25% of the shares issued under the MRP, or 21,700 shares, assuming the issuance
of 2,070,000 shares in the Conversion, (ii) the nine non-employee directors of
Community Savings could receive restricted stock
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<PAGE>
grants for an aggregate of not more than 30% of the shares issued under the MRP,
or 26,040 shares, assuming the issuance of 2,070,000 shares in the Conversion
and (iii) none of the nine non-employee directors of Community Savings could
receive individually more than 5% of the shares issued under the MRP, or 4,340
shares, assuming the issuance of 2,070,000 shares in the Conversion. If the MRP
is submitted to and approved by the Company's stockholders more than one year
after consummation of the Conversion, the regulatory percentage limitations set
forth above would not apply.
If the MRP is submitted to and approved by the Company's stockholders
within one year after the consummation of the Conversion, the MRP will provide
that 20% of the shares granted will vest and become nonforfeitable on the first
anniversary of the date of the grant under the MRP, and 20% will vest and become
nonforfeitable on each subsequent anniversary date, so that the shares would be
completely vested at the end of five years after the date of grant. Grants of
Common Stock under the MRP will immediately vest upon the disability or death of
a recipient. If the MRP is submitted to the Company's stockholders and approved
by them more than one year after the consummation of the Conversion, the MRP may
provide that grants of Common Stock under the MRP will become vested on a
different schedule and that grants would be automatically vested upon retirement
or upon a change in control of the Company or Community Savings. In such event,
it is expected that "change in control" would have the same meaning as is set
forth in the employment agreement with W. R. Gilliam. See "- Employment
Agreement."
After the grant of shares of Common Stock under the MRP, recipients
will be entitled to vote all vested and unvested shares and receive all
dividends and other distributions with respect thereto. Until shares become
vested, the right to direct the voting of such shares and the right to receive
dividends thereon may not be sold, assigned, transferred, exchanged, pledged or
otherwise encumbered. If the recipient of shares under the MRP terminates his
service to Community Savings prior to the time shares become vested (and such
shares are not automatically vested under the MRP), unvested shares would be
forfeited to the MRP and would be subject to future allocation to others. In
addition, the recipient would forfeit all dividends and other distributions with
respect to shares that did not become vested.
If the MRP is approved by the stockholders, Community Savings expects
to recognize a compensation expense for the MRP awards in the amount of the fair
market value of the Common Stock granted. The expense would be recognized pro
rata over the years during which shares vest. The recipients of stock grants
would be required to recognize ordinary income equal to the fair market value of
the stock. The stock grants would be made in recognition of the recipients'
past service to Community Savings and as an incentive for their continued
performance.
PROPOSED STOCK OPTION PLAN
The Boards of Directors of the Company and Community Savings intend to
adopt the Stock Option Plan, subject to approval of the stockholders of the
Company at a meeting to be held no sooner than six months following the
Conversion.
Upon stockholder approval of the Stock Option Plan, the trustees under
the Stock Option Plan could acquire in the open market a number of shares of
Common Stock equal to 10% of the sum of the number of shares issued in the
Conversion and the number of shares contributed to the Foundation. Such shares
could be acquired prior to the time options vest or are exercised under the
Stock Option Plan, or they could be acquired after the options vest and upon
their exercise. In lieu of purchasing shares in the open market, the Company
could issue authorized but unissued shares of Common Stock to satisfy options.
The Company will reserve for issuance the maximum number of shares of Common
Stock to be issued under the Plan (less any shares acquired by the Stock Option
Plan in the open market). Assuming the issuance of between 1,530,000 and
2,070,000 shares in the Conversion, an aggregate of between 163,000 and 217,000
shares of Common Stock would be reserved for issuance and/or purchased in the
open market to be issued upon the exercise of options granted under the Stock
Option Plan.
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Assuming the Stock Option Plan is approved by the stockholders of the
Company, the Stock Option Plan would be administered by a committee of the
Company's Board of Directors. Options granted under the Stock Option Plan will
have an option exercise price of not less than the fair market value of the
Common Stock on the date the options are granted. Options granted under the
Stock Option Plan will have a term of ten years, will not be transferable except
upon death and will continue to be exercisable upon retirement, death or
disability.
If the Stock Option Plan is submitted to and approved by the Company's
stockholders within one year after consummation of the Conversion, options
granted under the Stock Option Plan will have a vesting schedule which will
provide that 20% of the options granted would vest and become nonforfeitable on
the first anniversary of the date of the option grant and 20% will vest and
become nonforfeitable on each subsequent anniversary date, so that the options
would be completely vested at the end of five years after the date of the option
grant. Options will become 100% vested upon death or disability. If the Stock
Option Plan is submitted to and approved by the Company's stockholders more than
one year after consummation of the Conversion, a different vesting schedule may
be provided and the Stock Option Plan may provide that options will become
automatically vested upon retirement or upon a change in control of the Company
or Community Savings. In such event, it is expected that "change in control"
would have the same meaning as is set forth in the employment agreement with W.
R. Gilliam. See "- Employment Agreement."
Under applicable regulations, if the proposed Stock Option Plan is
submitted to and approved by the stockholders of the Company within one year
after consummation of the Conversion, (i) no employee of Community Savings could
receive more than 25% of the options issued under the Stock Option Plan, or
options to purchase 54,250 shares, assuming the issuance of 2,070,000 shares in
the Conversion, (ii) the nine non-employee directors of Community Savings could
receive not more than 30% of the options issued under the Stock Option Plan, or
options to purchase 65,100 shares, assuming the issuance of 2,070,000 shares in
the Conversion, and (iii) none of the nine non-employee directors of Community
Savings could receive individually more than 5% of the options issued under the
Stock Option Plan, or options to purchase 10,850 shares, assuming the issuance
of 2,070,000 shares in the Conversion. If the Stock Option Plan is submitted to
and approved by the Company's stockholders more than one year after consummation
of the Conversion, the regulatory percentage limitations set forth above would
not apply.
Options granted to employees under the Stock Option Plan may be
"incentive stock options" which are designed to result in beneficial tax
treatment to the employee but no tax deduction to the Company or Community
Savings. The holder of an incentive stock option generally is not taxed for
federal income tax purposes on either the grant or the exercise of the option.
However, the optionee must include in his or her federal alternative minimum tax
income any excess (the "Bargain Element") of the acquired Common Stock's fair
market value at the time of exercise over the exercise price paid by the
optionee. Furthermore, if the optionee sells, exchanges, gives or otherwise
disposes of such Common Stock (other than in certain types of transactions)
either within two years after the option was granted or within one year after
the option was exercised (an "Early Disposition"), the optionee generally must
recognize the Bargain Element as compensation income for regular federal income
tax purposes. Any gain realized on the disposition in excess of the Bargain
Element is subject to recognition under the usual rules applying to dispositions
of property. If a taxable sale or exchange is made after such holding periods
are satisfied, the difference between the exercise price and the amount realized
upon the disposition of the Common Stock generally will constitute a capital
gain or loss for tax purposes. If an optionee exercises an incentive stock
option and delivers shares of Common Stock as payment for part or all of the
exercise price of the stock purchased ("Payment Stock"), no gain or loss
generally will be recognized with respect to the Payment Stock; provided,
however, if the Payment Stock was acquired pursuant to the exercise of an
incentive stock option, the optionee will be subject to recognizing as
compensation income the Bargain Element on the Payment Stock as an Early
Disposition if the exchange for the new shares occurs prior to the expiration of
the holding periods for the Payment
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Stock. The Company generally would not recognize gain or loss or be entitled to
a deduction upon either the grant of an incentive stock option or the optionee's
exercise of an incentive stock option. However, if there is an Early
Disposition, the Company generally would be entitled to deduct the Bargain
Element as compensation paid the optionee.
Options granted to directors under the Stock Option Plan would be
"non-qualified stock options." In general, the holder of a non-qualified stock
option will recognize compensation income equal to the amount by which the fair
market value of the Common Stock received on the date of exercise exceeds the
sum of the exercise price and any amount paid for the non-qualified stock
option. If the optionee elects to pay the exercise price in whole or in part
with Common Stock, the optionee generally will not recognize any gain or loss on
the Common Stock surrendered in payment of the exercise price. The Company would
not recognize any income or be entitled to claim any deduction upon the grant of
a non-qualified stock option. At the time the optionee is required to recognize
compensation income upon the exercise of the non-qualified stock option, the
Company would recognize a compensation expense and be entitled to claim a
deduction in the amount equal to the optionee's compensation income.
In December, 1998, the Financial Accounting Standards Board (the
"FASB") announced that it had reached tentative conclusions on its project
addressing certain long-standing practice issues under Accounting Principles
Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees. The
objective of the project was to issue a narrow FASB interpretation that provides
accounting guidance on certain issues related to implementing and interpreting
APB 25. The tentative conclusions reached by the FASB will cover events that
occur after December 15, 1998. Among the conclusions reached was a
determination that directors were no longer considered to be employees under the
provisions of APB 25. Therefore, any options granted to directors would have to
be accounted for under the provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation. Generally, such provisions would result in a charge
to earnings in the periods that options granted to directors vest, measured by
the excess of the fair market value of the option, determined using a valuation
method such as Black-Scholes, over the exercise price. If the interpretation is
issued as presently drafted, and options are granted to directors, the Company
may have to record an as yet undeterminable amount of compensation expense.
It is expected that the Stock Option Plan will provide that after an
option has been granted, the optionee will be entitled to direct the trustees
(three directors of Community Savings) as to the voting of all shares of Common
Stock held by the trustees to satisfy vested and unvested options which have
been granted to the optionee. In the event a tender offer is made for shares
held by the trustees to satisfy vested and unvested options granted to an
optionee, the optionee will be able to instruct the trustees' response. Any
shares held by the trustees to satisfy options not yet granted shall be voted or
tendered by the trustees in their discretion.
It is expected that the Stock Option Plan will provide that any cash
dividends or other distributions paid or made with respect to shares of Common
Stock held by the trustees in trust under the Stock Option Plan with respect to
forfeited options and options not yet granted, plus earnings on such amounts,
less amounts retained by the trustees to pay the expenses of such trust, will be
paid by the trustees to the Company.
If the Stock Option Plan is approved by the stockholders of the
Company, the options granted to employees and directors pursuant to the Stock
Option Plan would be issued in recognition of the recipients' past service to
Community Savings and as an incentive for their continued performance. No cash
consideration will be paid for the options.
CERTAIN INDEBTEDNESS AND TRANSACTIONS OF MANAGEMENT
Community Savings makes loans to its employees, including its
executive officers and directors, in the ordinary course of its business.
Community Savings has adopted a policy which sets forth the requirements
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applicable to such loans. These loans are made using the same credit and
underwriting standards as are applicable to the general public, and such loans
do not involve more than the normal risk of collectibility or present any other
unfavorable features. Pursuant to its employee loan policy, directors and
employees are eligible for reduced interest rates and reduced loan fees on
certain types of loans.
Set forth is a table describing the loans or series of loans Community
Savings has made to the directors and executive officers and members of their
immediate families since September 30, 1996 which exceed $60,000 in the
aggregate.
<TABLE>
<CAPTION>
ORIGINAL LOAN BALANCE OUTSTANDING AT
-------------
BORROWER TYPE OF LOAN AMOUNT SEPTEMBER 30, 1998 APPLICABLE REDUCTION
-------- ------------ ------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Joseph C. Canada Mortgage $ 200,000 $199,073 Waiver of fee
Joseph C. Canada Home equity credit line $ 50,000/1/ $ 35 Interest rate reduction
Joseph C. Canada Overdraft protection $ 1,000/1/ 0 Interest rate reduction
Joseph C. Canada Overdraft protection $ 1,000/1/ 0 Interest rate reduction
Larry H. Hall Mortgage $ 212,000 $208,325 None
W. Joseph Rich Mortgage $ 100,000 $ 95,791 Fee reduction
John F. Wellons/2/ Mortgage $ 35,000 $ 34,781 None
John F. Wellons/2/ Equity Line $ 50,000 $ 8,520 None
William and
Kathy G. Tucker/2/ Mortgage $ 120,000 $118,751 None
</TABLE>
/1/ Represents the maximum limit of available credit under the line. The
full amount has not been drawn.
/2/ Son of director Herbert N. Wellons.
/3/ Kathy G. Tucker is daughter of director Julian P. Griffin.
DESCRIPTION OF CAPITAL STOCK
THE COMPANY
The Company is authorized to issue 20,000,000 shares of Common Stock
and 5,000,000 shares of preferred stock. Neither the authorized Common Stock nor
the authorized preferred stock has any par value.
COMMON STOCK. THE COMPANY'S COMMON STOCK WILL REPRESENT
NONWITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL
NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL ENTITY. Upon payment of the
purchase price for the Common Stock, all such stock will be duly authorized,
validly issued, fully paid, and nonassessable.
Dividends. The holders of the Company's Common Stock will be entitled to
receive and share ratably in such dividends on Common Stock as may be declared
by the Board of Directors of the Company out of funds legally available
therefor, subject to applicable statutory and regulatory restrictions. See
"Supervision and
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Regulation - Regulation of the Company - Dividend and Repurchase Limitations."
The ability of the Company to pay dividends may be dependent on the receipt of
dividends from Community Savings. See "Dividend Policy," "Supervision and
Regulation - Regulation of Community Savings -Restrictions on Dividends and
Other Capital Distributions," and "Taxation."
Stock Repurchases. The shares of Common Stock do not have any
redemption provisions. Stock repurchases are subject to North Carolina corporate
laws regarding capital distributions and are also subject to regulations of the
Federal Reserve. See "Supervision and Regulation - Regulation of the Company -
Dividend and Repurchase Limitations."
Voting Rights. Upon Conversion, the holders of Common Stock, as the
only class of capital stock of the Company then outstanding, will possess
exclusive voting rights with respect to the Company. Such holders will have the
right to elect the Company's Board of Directors and to act on such other matters
as are required to be presented to stockholders under North Carolina law or as
are otherwise presented to them. Each holder of Common Stock will be entitled to
one vote per share. The holders of Common Stock will have no right to vote their
shares cumulatively in the election of directors. As a result, the holders of a
majority of the shares of Common Stock will have the ability to elect all of the
directors on the Company's Board of Directors.
Liquidation Rights. In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock of the Company would be
entitled to ratably receive, after payment of or making of adequate provisions
for all debts and liabilities of the Company and after the rights, if any, of
preferred stockholders of the Company, all remaining assets of the Company
available for distribution.
Preemptive Rights. Holders of the Common Stock of the Company will
not be entitled to preemptive rights with respect to any shares which may be
issued by the Company.
Shares Owned by Directors and Executive Officers. All shares of
Common Stock issued in the Conversion to directors and executive officers of the
Company and Community Savings will contain a restriction providing that such
shares may not be sold without the written permission of the Administrator for a
period of one year following the date of purchase, except in the event of death
of the director or the executive officer.
PREFERRED STOCK. None of the 5,000,000 shares of the Company's
authorized preferred stock have been issued and none will be issued in the
Conversion. Such stock may be issued in one or more series with such rights,
preferences and designations as the Board of Directors of the Company may from
time to time determine subject to applicable law and regulations. If and when
such shares are issued, holders of such shares may have certain preferences,
powers and rights (including voting rights) senior to the rights of the holders
of the Common Stock. The Board of Directors can (without stockholder approval)
issue preferred stock with voting and conversion rights which could, among other
things, adversely affect the voting power of the holders of the Common Stock and
assist management in impeding an unfriendly takeover or attempted change in
control of the Company that some stockholders may consider to be in their best
interests but to which management is opposed. See "Anti -Takeover Provisions
Affecting the Company and Community Savings -The Company - Restrictions in
Articles of Incorporation and Bylaws." The Company has no current plans to issue
preferred stock.
RESTRICTIONS ON ACQUISITION. Acquisitions of the Company and
acquisitions of the capital stock of the Company are restricted by provisions in
the Articles of Incorporation and Bylaws of the Company and by various federal
and state laws and regulations. See "Anti-takeover Provisions Affecting the
Company and Community Savings - The Company - Restrictions in Articles of
Incorporation and Bylaws" and "- Regulatory Restrictions."
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COMMUNITY SAVINGS
COMMON STOCK. After consummation of the Conversion, Community Savings
will be authorized to issue 100,000 shares of common stock, no par value
("Community Savings Common Stock"). The Community Savings Common Stock will
represent nonwithdrawable capital, will not be an account of an insurable type,
and will not be insured by the FDIC or any other governmental entity.
DIVIDENDS. The payment of dividends by Community Savings is subject
to limitations which are imposed by North Carolina law and regulations. See
"Dividend Policy" and "Supervision and Regulation - Regulation of Community
Savings - Restrictions on Dividends and Other Capital Distributions." In
addition, federal income tax law considerations may affect the ability of
Community Savings to pay dividends and make other capital distributions. See
"Taxation." Upon Conversion, the Company, as the holder of all outstanding
Community Savings Common Stock, will be entitled to receive such dividends on
the Community Savings Common Stock as may be declared by the Board of Directors
of Community Savings out of funds legally available therefor, subject to
applicable statutory and regulatory restrictions.
VOTING RIGHTS. As a mutual North Carolina-chartered savings bank,
Community Savings currently has no stockholders, and voting rights in Community
Savings are currently held by Community Savings' members (depositors and
borrowers). Members elect Community Savings' Board of Directors and vote on such
other matters as are required to be presented to them under North Carolina law.
Upon Conversion, the Company, as sole stockholder of Community
Savings, will possess the exclusive voting rights with respect to the Community
Savings Common Stock, will elect Community Savings' Board of Directors and will
act on such other matters as are required to be presented to stockholders under
North Carolina law or as are otherwise presented to stockholders by Community
Savings' Board of Directors. The holders of Community Savings Common Stock will
have no right to vote their shares cumulatively in the election of directors of
Community Savings.
LIQUIDATION RIGHTS. After the Conversion, in the event of any
liquidation, dissolution or winding up of Community Savings, the Company, as
holder of all of Community Savings' outstanding capital stock, would be entitled
to receive all remaining assets of Community Savings available for distribution,
after payment of or making of adequate provisions for, all debts and liabilities
of Community Savings (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the liquidation account
established in connection with the Conversion to Eligible Account Holders and
Supplemental Eligible Account Holders. See "The Conversion - Effects of
Conversion - Liquidation Rights."
PREEMPTIVE RIGHTS. Holders of the Community Savings Common Stock will
not be entitled to preemptive rights with respect to any shares which may be
issued by Community Savings.
RESTRICTIONS ON ACQUISITION. Acquisitions of Community Savings and
acquisitions of its capital stock are restricted by various federal and state
laws and regulations. See "Anti-takeover Provisions Affecting the Holding
Company and Community Savings - Community Savings."
ANTI-TAKEOVER PROVISIONS AFFECTING THE COMPANY AND COMMUNITY SAVINGS
THE COMPANY
RESTRICTIONS IN ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation and Bylaws of the Company contain certain provisions that are
intended to encourage a potential acquiror to negotiate any proposed acquisition
of the Company directly with the Company's Board of Directors. An unsolicited
non-negotiated
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takeover proposal can seriously disrupt the business and management of a
corporation and cause great expense. Accordingly, the Board of Directors
believes it is in the best interests of the Company and its stockholders to
encourage potential acquirors to negotiate directly with management. The Board
of Directors believes that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the Board of Directors' view
that these provisions should not discourage persons from proposing a merger or
transaction at prices reflective of the true value of the Company and that
otherwise is in the best interests of all stockholders.
However, these provisions may have the effect of discouraging offers to
purchase the Company or its securities which are not approved by the Board of
Directors, but which certain of the Company's stockholders may deem to be in
their best interests or pursuant to which stockholders would receive a
substantial premium for their shares over then current market prices.
Therefore, the existence of such anti-takeover provisions in fact may not always
be in the best interests of all shareholders. Stockholders who might desire to
participate in such a takeover not supported by management may not have an
opportunity to do so. Such provisions will also render the removal of the
current Board of Directors and management more difficult. Nevertheless, the
Boards of Directors of Community Savings and the Company believe these
provisions are in the best interests of the stockholders. The Boards believe
that such provisions will assist the Company's Board of Directors in managing
the affairs of the Company in the manner they believe to be in the best
interests of stockholders generally. The Boards believe that a company's board
of directors is often best able in terms of knowledge regarding the company's
business and prospects, as well as resources, to negotiate the best transaction
for its stockholders as a whole.
The following description of certain of the provisions of the Articles of
Incorporation and Bylaws of the Company is necessarily general and reference
should be made in each instance to such Articles of Incorporation and Bylaws.
See "Additional Information" regarding how to obtain a copy of these documents.
Board of Directors. The Bylaws of the Company provide that the number of
directors shall not be less than five nor more than 15. The initial number of
directors is ten, but such number may be changed by resolution of the Board of
Directors. These provisions have the effect of enabling the Board of Directors
to elect directors friendly to management in the event of a non-negotiated
takeover attempt and may make it more difficult for a person seeking to acquire
control of the Company to gain majority representation on the Board of Directors
in a relatively short period of time. The Company believes these provisions to
be important to continuity in the composition and policies of the Board of
Directors.
The Articles of Incorporation provide that, at all times when the number of
directors is at least nine, there will be staggered elections of directors. As
a result, the directors will each be initially elected to one, two or three-year
terms, and thereafter (so long as the number of directors is nine or more) all
directors will be elected to terms of three years each. This provision also has
the effect of making it more difficult for a person seeking to acquire control
of the Company to gain majority representation on the Board of Directors.
The Articles of Incorporation and Bylaws of the Company provide that
directors may be removed prior to the end of their term only for cause.
Cumulative Voting. The Articles of Incorporation do not provide for
cumulative voting for any purpose. Cumulative voting in election of directors
entitles a stockholder to cast a total number of votes equal to the number of
directors to be elected multiplied by the number of his or her shares and to
distribute that number of votes among such number of nominees as the stockholder
chooses. The absence of cumulative voting for directors limits the ability of a
minority stockholder to elect directors. Because the holder of less than a
majority of the Company's shares cannot be assured representation on the Board
of Directors, the absence of cumulative voting may discourage accumulations of
the Company's shares or proxy contests that would result in changes in the
Company's management.
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The Board of Directors believes that (i) elimination of cumulative voting
will help to assure continuity and stability of management and policies; (ii)
directors should be elected by a majority of the stockholders to represent the
interests of the stockholders as a whole rather than be the special
representatives of particular minority interests; and (iii) efforts to elect
directors representing specific minority interests are potentially divisive and
could impair the operations of the Company.
Special Meetings. The Bylaws of the Company provide that special meetings
of stockholders of the Company may be called by the Chairman of the Board, the
Chief Executive Officer, the President, or by the Board of Directors. If a
special meeting is not called by such persons or entities, stockholder proposals
cannot be presented to the stockholders for action until the next annual
meeting.
Capital Stock. The Articles of Incorporation of the Company authorize the
issuance of 20,000,000 shares of common stock and 5,000,000 shares of preferred
stock. The shares of common stock and preferred stock authorized in addition to
the number of shares of Common Stock to be issued pursuant to the Conversion
were authorized to provide the Company's Board of Directors with flexibility to
issue additional shares, without further stockholder approval, for proper
corporate purposes, including financing, acquisitions, stock dividends, stock
splits, director and employee stock options, grants of restricted stock to
directors and certain employees and other appropriate purposes. However,
issuance of additional authorized shares may also have the effect of impeding or
deterring future attempts to gain control of the Company.
The Board of Directors also has sole authority to determine the terms of
any one or more series of preferred stock, including voting rights, conversion
rates, dividend rights, and liquidation preferences, which could adversely
affect the voting power of the holders of the Common Stock and discourage an
attempt to acquire control of the Company. The Board of Directors does not
intend to issue any preferred stock, except on terms which it deems to be in the
best interests of the Company and its stockholders. However, the Board of
Directors has the power, to the extent consistent with its fiduciary duties, to
issue preferred stock to persons friendly to management or otherwise in order to
impede attempts by third parties to acquire voting control of the Company and to
impede other transactions not favored by management. The Board of Directors
currently has no plans for the issuance of additional shares of Common Stock
(except for such shares as may be necessary to fund the Foundation, the MRP and
the Stock Option Plan) or of shares of preferred stock.
Director Nominations. The Bylaws of the Company require a stockholder who
intends to nominate a candidate for election to the Board of Directors at a
stockholders' meeting to give written notice to the Secretary of the Company at
least 50 days (but not more than 90 days) in advance of the date of the meeting
at which such nominations will be made. The nomination notice is also required
to include specified information concerning the nominee and the proposing
stockholder. The Board of Directors of the Company believes that it is in the
best interests of the Company and its stockholders to provide sufficient time
for the Board of Directors to study all nominations and to determine whether to
recommend to the stockholders that such nominees be considered.
Supermajority Voting Provisions. The Company's Articles of Incorporation
require the affirmative vote of 75% of the outstanding shares entitled to vote
to approve a merger, consolidation, or other business combination, unless the
transaction is approved, prior to consummation, by the vote of at least 75% of
the number of the Continuing Directors (as defined in the Articles of
Incorporation) on the Company's Board of Directors. "Continuing Directors"
generally includes all members of the Board of Directors who are not affiliated
with any individual, partnership, trust or other person or entity (or the
affiliates and associates of such person or entity) which is a beneficial owner
of 10% or more of the voting shares of the Company at the time it makes an offer
with respect to a merger, consolidation or other business combination. This
provision could tend to make the acquisition of the Company more difficult to
accomplish without the cooperation or favorable recommendation of the Company's
Board of Directors.
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ANTI-TAKEOVER EFFECT OF EMPLOYMENT AGREEMENT, SPECIAL TERMINATION
AGREEMENTS AND BENEFIT PLANS. The existence of the ESOP may tend to discourage
takeover attempts because employees participating under the ESOP and the
trustees of the ESOP will effectively control the voting of the large block of
shares held by the ESOP. See "Management of Community Savings - Employee Stock
Ownership Plan." Also, if approved by the stockholders of the Company at a
meeting of stockholders following the Conversion, the MRP and the Stock Option
Plan will provide for the ownership of additional shares of Common Stock by the
employees and the directors of Community Savings and for voting control by
directors and certain employees over shares held by the MRP and Stock Option
Plan which are attributable to grants made to them under such plans even though
the grants are not yet vested. See "Management of Community Savings - Proposed
Management Recognition Plan" and "- Proposed Stock Option Plan." In addition,
the Foundation is expected to own 100,000 shares of the Common Stock. The
affairs of the Foundation, including the exercise of voting rights in the Common
Stock, will be directed by its board of directors. The initial board of
directors of the Foundation will be elected by the Board of Directors of
Community Savings.
If (i) the Stock Option Plan is approved by the stockholders of the Company
within one year after the Conversion and all of the stock options which could be
granted to directors and executive officers under the Stock Option Plan are
granted and exercised and all the shares for such options are acquired by the
Stock Option Plan in the open market, (ii) the MRP is approved by the
stockholders of the Company within one year after the Conversion, all of the MRP
shares which could be granted to directors and executive officers are granted
and issued and all such shares are acquired in the open market, (iii) the ESOP
acquires 8% of the sum of the shares issued in the Conversion and the shares
contributed to the Foundation and none of such shares are allocated and (iv) the
Company did not issue any additional shares of its Common Stock, the shares held
by directors and executive officers and their associates as a group, including
(a) shares purchased outright in the Conversion, (b) shares purchased by the
ESOP, (c) shares purchased pursuant to the Stock Option Plan, (d) shares granted
under the MRP and (e) shares issued to the Foundation, would give such persons
effective control over as much as 41.5% or 36.7%, at the minimum and maximum of
the Valuation Range, respectively, of the Common Stock issued and outstanding.
The existence of the employment agreement and special termination
agreements with employees could make a business combination with Community
Savings more costly and could discourage such transactions. See "Management of
Community Savings - Employment Agreement" and "- Special Termination
Agreements."
REGULATORY RESTRICTIONS. Applicable 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 the Company if, after the acquisition, such
person would be the beneficial owner of more than 10% of such class of stock or
other class of equity security of the Company. 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 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 (i) any offer with a view toward
public resale made exclusively to the Company or its underwriters or the selling
group acting on its behalf or (ii) any offer to acquire or acquisition of
beneficial ownership of more than 10% of the common stock of the Company by a
corporation whose ownership is or will be substantially the same as the
ownership of the Company, 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 (i) the acquisition is necessary to
protect the safety and soundness of the Company and Community
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Savings or the Board of Directors of the Company and Community Savings support
the acquisition and (ii) the acquiror is of good character and integrity and
possesses satisfactory managerial skills, the acquiror will be a source of
financial strength to the Company and Community Savings and the public interests
will not be adversely affected.
The Change in Bank Control Act, together with North Carolina regulations,
require that the consent of the Administrator and Federal Reserve 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. 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 the Company or Community Savings 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 in connection with its
approval of such acquisitions may deter potential acquirors from seeking to
obtain control of the Company. See "Supervision and Regulation - Regulation of
the Company."
COMMUNITY SAVINGS
Upon consummation of the Conversion, Community Savings will become a
wholly-owned subsidiary of the Company, and, consequently, restrictions on the
acquisition of Community Savings would have a more limited effect than if
Community Savings' common stock were held directly by the stockholders
purchasing in the Conversion. However, restrictions on the acquisition of
Community Savings may discourage takeover attempts of the Company in order to
gain immediate control of Community Savings.
REGULATORY RESTRICTIONS. The Administrator and the Federal Reserve have
conditionally approved the Company's acquisition of all of the stock of
Community Savings issued in the Conversion. For three years following
completion of a conversion, North Carolina conversion regulations require the
prior written approval of the Administrator before any person may directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of an equity security of a converting state savings bank such as
Community Savings. 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 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 (i) any offer with a view toward public resale made
exclusively to Community Savings or its underwriters or the selling group acting
on its behalf or (ii) any offer to acquire or acquisition of beneficial
ownership of more than 10% of the common stock of Community Savings by a
corporation whose ownership is or will be substantially the same as the
ownership of Community Savings, provided that the offer or acquisition is made
more than one year following the consummation of the Conversion. Similarly,
Federal Reserve approval is required before any person or entity may acquire
"control" of Community Savings. See "- The Company - Regulatory Restrictions."
BOARD OF DIRECTORS. The amended Certificate of Incorporation of Community
Savings upon consummation of the Conversion will provide that the number of
directors may be no less than five. The initial number of directors will be
ten, but such number may be changed by resolution of the Board of Directors.
This provision has the effect of enabling the Board of Directors to elect
directors friendly to management in the event of a non-negotiated takeover
attempt. Community Savings' Bylaws also provide for staggered elections of
directors when the total number of directors is at least nine. These provisions
are designed to make it more difficult for a person seeking to acquire control
of Community Savings to gain majority representation on the Board of Directors
in a relatively short period of time. Community Savings believes these
provisions to be important to continuity in the composition and policies of its
Board of Directors.
124
<PAGE>
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
AND BYLAWS OF THE COMPANY
LIMITATIONS OF LIABILITY
The Articles of Incorporation of the Company provide that the directors
shall be released from personal liability to the Company or its stockholders for
money damages for breach of any duty as a director to the fullest extent
permitted by North Carolina law. The North Carolina Business Corporation Act
authorizes such provisions, but provides that they are not effective with
respect to (i) acts or omissions of a director that the director knew or
believed at the time were clearly in conflict with the best interests of the
corporation, (ii) transactions from which the director derived an improper
personal benefit, (iii) liability for certain unlawful distributions of
corporation assets, and (iv) acts or omissions that occurred prior to the
effectiveness of the provisions.
INDEMNIFICATION
The Bylaws of the Company provide that any person who serves as a director,
officer, employee or agent of the Company shall have a right to be indemnified
by the Company to the fullest extent allowed by applicable law for liability or
litigation expense arising out of activities in such capacities. Both the
Bylaws and the North Carolina Business Corporation Act provide that there shall
be no indemnification for liability or expense arising out of activities which
were known or believed by such persons at the time of such activities to be
clearly in conflict with the best interests of the Company.
DISCLOSURE OF SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described above, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission ("SEC")
such indemnification is against public policy as expressed in the Securities
Act, and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company 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 Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
125
<PAGE>
LEGAL OPINIONS
The validity of the issuance of the Common Stock in the Conversion has been
passed upon for the Company by its special counsel, Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P., Greensboro, North Carolina, which firm has also
rendered its opinion to Community Savings concerning certain federal and North
Carolina income tax aspects of the Conversion as described herein under "THE
CONVERSION - Income Tax Consequences." Certain legal matters will be passed
upon for Trident Securities by Michael Best & Friedrich LLP, Milwaukee,
Wisconsin.
EXPERTS
The Financial Statements of Community Savings as of December 31, 1997 and
December 31, 1996 and for each of the years in the three-year period ended
December 31, 1997 included herein have been included herein in reliance upon the
report of PricewaterhouseCoopers LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
Ferguson has consented to being named as an expert herein and to the
summary herein of its appraisal report as to the estimated pro forma market
value of Community Savings and the Company and its opinion with respect to the
value of subscription rights.
REGISTRATION REQUIREMENTS
The Company will register its Common Stock with the SEC pursuant to Section
12 of the Exchange Act in connection with the Conversion and will not deregister
the Common Stock for a period of three years following the completion of the
Conversion. Upon such registration, the proxy and tender offer rules, insider
trading reporting requirements and restrictions, annual and periodic reporting
and other requirements of the Exchange Act will be applicable to the Company.
ADDITIONAL INFORMATION
The Company has filed a registration statement with the SEC on Form SB-2
under the Securities Act with respect to the Common Stock offered hereby. As
permitted by the rules and regulations of the SEC, this Prospectus does not
contain all of the information set forth in the registration statement. Such
information can be examined and copied at the public reference facilities of the
SEC located at Room 1024, 450 Fifth Street, N. W., Washington, D.C. 20549, and
at the regional offices of the SEC at 75 Park Place, Fourteenth Floor, New York,
New York 10007 and Room 3190, John C. Kluczynski Building, 230 South Dearborn
Street, Chicago, Illinois 60604. Copies of such material can be obtained by
mail from the SEC at prescribed rates from the Public Reference Section of the
SEC at 450 Fifth Street, N. W., Washington, D.C. 20549. In addition, the SEC
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC, including the Company; the address is (http://www.sec.gov.). The
statements contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the registration statement are, of
necessity, brief descriptions thereof and are not necessarily complete; each
such statement is qualified by reference to such contract or document.
126
<PAGE>
Community Savings has 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 such Application. The Application, which contains a copy of
Ferguson'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 Community
Savings' proposed Amended Certificate of Incorporation and stock Bylaws, and
copies of the Company's Articles of Incorporation and Bylaws are available for
inspection at each office of Community Savings and may be obtained by writing to
Community Savings at Post Office Box 1837, 708 South Church Street, Burlington,
North Carolina 27216-1837; Attention: W. R. Gilliam, President, or by
telephoning Community Savings at (336) 227-3631. A copy of Ferguson's
independent appraisal is also available for inspection at the Stock Information
Center.
127
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS:
Statements of Financial Condition at December 31, 1997 and 1996 F-2
Statements of Operations for the Years Ended December 31, 1997,
1996 and 1995 F-3
Statements of Retained Income for the Years Ended December 31,
1997, 1996 and 1995 F-4
Statements of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995 F-5
Notes to Financial Statements F-7
Condensed Statements of Financial Condition at F-23
September 30, 1998 (unaudited) and December 31, 1997
Condensed Statements of Operations for the Nine
Months Ended September 30, 1998 and 1997 (unaudited) F-24
Condensed Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997 (unaudited) F-25
Notes to Unaudited Financial Statements F-26
</TABLE>
All schedules are omitted because of the absence of the conditions under which
they are required or because the required information is included in the
Financial Statements of Community Savings or related notes. No financial
statements are provided for the Company since it was not in operation for any of
the periods presented.
128
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Community Savings Bank of Burlington, SSB
Burlington, North Carolina
We have audited the accompanying statements of financial condition of Community
Savings Bank of Burlington, SSB as of December 31, 1997 and 1996 and the related
statements of operations, retained income, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Community Savings Bank of
Burlington, SSB at December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
Raleigh, North Carolina
June 5, 1998
F-1
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,064,469 $ 6,127,014
Interest-bearing deposits in financial institutions 2,506,258 100,000
Federal funds sold 300,000 350,000
Investment securities:
Available for sale 9,081,606 6,991,044
Held to maturity (estimated market value of $13,409,400 and $25,384,100 at
December 31, 1997 and 1996, respectively) 13,396,826 25,402,698
Mortgage-backed securities:
Available for sale 9,496,528 12,486,398
Held to maturity (estimated market value of $8,885,600 and $11,593,700 at
December 31, 1997 and 1996, respectively) 8,650,469 11,314,259
Loans receivable, net:
Held for sale 287,046 2,256,262
Held for investment 114,545,660 85,871,102
Premises and equipment, net 1,940,856 1,545,483
Income taxes receivable 103,634 53,796
Deferred income taxes 1,130,258 880,907
Federal Home Loan Bank of Atlanta stock, at cost which approximates market 1,369,000 1,540,900
Accrued interest receivable 1,041,764 1,068,367
Prepaid expenses and other assets 902,668 763,095
------------- -------------
Total assets $ 167,817,042 $ 156,751,325
------------- -------------
LIABILITIES AND RETAINED INCOME
Deposits:
Noninterest-bearing demand $ 715,834 $ 744,132
Interest-bearing demand 14,711,789 13,967,814
Savings 19,069,492 21,050,730
Large denomination certificates of deposit 15,823,433 11,718,072
Other time deposits 84,376,650 75,043,550
------------- -------------
Total deposits 134,697,198 122,524,298
------------- -------------
Borrowed money 6,700,000 9,000,000
Accrued interest payable 97,487 87,851
Advance payments by borrowers for property taxes and insurance 239,841 210,222
Other liabilities 3,245,535 2,761,857
------------- -------------
Total liabilities 144,980,061 134,584,228
------------- -------------
Commitments and contingencies (Notes 7, 9 and 13)
Retained income:
Appropriated 2,735,920 2,735,920
Unappropriated 20,003,103 19,413,419
Unrealized gains on available for sale securities, net 97,958 17,758
------------- -------------
Total retained income 22,836,981 22,167,097
------------- -------------
Total liabilities and retained income $ 167,817,042 $ 156,751,325
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 8,014,788 $ 6,727,796 $ 5,937,974
Interest and dividends on investments 3,568,504 3,892,621 3,844,143
----------- ----------- -----------
Total interest income 11,583,292 10,620,417 9,782,117
----------- ----------- -----------
Interest expense:
Interest on deposits 6,280,159 5,921,312 5,722,005
Interest on borrowings 460,005 459,563 11,902
----------- ----------- -----------
Total interest expense 6,740,164 6,380,875 5,733,907
----------- ----------- -----------
Net interest income before provision for loan losses 4,843,128 4,239,542 4,048,210
Provision for loan losses 360,000 60,000 -
----------- ----------- -----------
Net interest income 4,483,128 4,179,542 4,048,210
----------- ----------- -----------
Other income:
Service charges on deposit accounts 69,300 58,481 57,521
Other fees and service charges 143,049 96,386 91,989
Loan servicing fees 60,915 69,451 73,460
Other 91,808 132,700 345,278
----------- ----------- -----------
Total other income 365,072 357,018 568,248
----------- ----------- -----------
General and administrative expenses:
Compensation and fringe benefits 2,492,858 1,891,704 2,061,316
Occupancy 190,476 204,460 169,156
Advertising 166,627 142,398 130,166
Data processing 120,078 125,363 109,676
Federal insurance premiums 78,727 970,776 274,351
Other 830,260 601,614 452,254
----------- ----------- -----------
Total general and administrative expenses 3,879,026 3,936,315 3,196,919
----------- ----------- -----------
Income before income taxes 969,174 600,245 1,419,539
Income taxes 379,490 201,270 510,822
----------- ----------- -----------
Net income $ 589,684 $ 398,975 $ 908,717
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
COMUNITY SAVINGS BANK OF BURLINGTON, SSB
STATEMENTS OF RETAINED INCOME
YEAR ENDED DEEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
UNREALIZED
GAINS
(LOSSES) ON
AVAILABLE FOR
SALE
APPROPRIATED UNAPPROPRIATED SECURITIES TOTAL
---------------- ------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 2,735,920 $ 18,105,727 $ (211,595) $20,630,052
Change in net unrealized gains (losses),
net of income taxes - - 208,395 208,395
Net income - 908,717 - 908,717
---------------- ------------------- ---------------- ---------------
Balance at December 31, 1995 2,735,920 19,014,444 (3,200) 21,747,164
Change in net unrealized gains (losses),
net of income taxes - - 20,958 20,958
Net income - 398,975 - 398,975
---------------- ------------------- ---------------- ---------------
Balance at December 31, 1996 2,735,920 19,413,419 17,758 22,167,097
Change in net unrealized gains (losses),
net of income taxes - - 80,200 80,200
Net income - 589,684 - 589,684
---------------- ------------------- ---------------- ---------------
Balance at December 31, 1997 $ 2,735,920 $ 20,003,103 $ 97,958 $22,836,981
================ =================== ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Operating activities:
Net income $ 589,684 $ 398,975 $ 908,717
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 360,000 60,000 -
Depreciation 242,575 94,489 92,772
Accretion of discounts on securities (212,345) (282,645) (450,319)
Provision for deferred income taxes (290,668) (165,301) (244,322)
Gain on sale of premises and equipment - (909) -
Loss (gain) on disposal of real estate acquired in
settlement of loans 8,292 (60,454) -
Net loss (gain) on sales of investment and
mortgage-backed securities 2,733 (8,925) 582
Originations of loans held for sale (415,200) (636,603) (61,600)
Proceeds from sale of loans held for sale 2,428,507 587,895 1,262,510
Change in valuation allowance for loans held for sale (48,241) 48,241 (291,105)
Net loss (gain) on sale of loans held for sale 4,150 (1,346) (2,212)
Other operating activities 335,328 161,358 491,043
------------- -------------- -------------
Net cash provided by operating activities 3,004,815 194,775 1,706,066
------------- -------------- -------------
Investing activities:
Purchases of investment securities available for sale (6,008,024) (14,850,615) (9,695,469)
Proceeds from sales of securities and mortgage-backed
securities available for sale 4,663,199 11,457,866 1,510,156
Proceeds from maturities of securities available for sale 1,000,000 - -
Purchases of investment securities held to maturity (924,612) (6,510,741) (5,999,703)
Proceeds from maturities of securities held to maturity 13,177,236 12,649,056 9,449,400
Proceeds from principal repayments of mortgage-backed
securities 3,992,300 6,626,479 4,106,732
Proceeds from redemption of FHLB stock 171,900 - -
Loan originations, net of principal repayments, of loans
held for investment (29,189,064) (10,622,268) (9,834,278)
Proceeds from disposal of real estate acquired in
settlement of loans 146,214 191,345 -
Purchases of premises and equipment (637,948) (573,202) (153,361)
Proceeds from sale of premises and equipment - 12,693 3,176
------------- -------------- -------------
Net cash used in investing activities (13,608,799) (1,619,387) (10,613,347)
------------- --------------- -------------
</TABLE>
(Continued)
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Financing activities:
Net increase (decrease) in deposit accounts 12,172,900 3,616,868 (344,994)
Net change in escrow deposits 24,797 21,524 (12,689)
Proceeds from FHLB borrowings 2,000,000 1,500,000 11,000,000
Repayments of FHLB borrowings (4,300,000) (1,500,000) (2,000,000)
------------- ------------- -------------
Net cash provided by financing activities 9,897,697 3,638,392 8,642,317
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents (706,287) 2,213,780 (264,964)
Cash and cash equivalents, beginning of year 6,577,014 4,363,234 4,628,198
------------- ------------- -------------
Cash and cash equivalents, end of year $ 5,870,727 $ 6,577,014 $ 4,363,234
============= ============= =============
Supplemental disclosures:
Cash paid for interest $ 6,730,526 $ 6,385,624 $ 5,721,405
Cash paid for income taxes $ 720,000 $ 280,000 $ 775,000
Real estate acquired through settlement of loans $ 154,506 $ 27,474 $ 103,417
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Community Savings Bank of Burlington, SSB (the "Bank"), is a North Carolina
chartered savings bank regulated by the Federal Deposit Insurance
Corporation and the North Carolina Savings Institutions Administrator.
The Bank's principal business activity is to accept deposits from the
general public and to make conventional first mortgage loans for the
purchase of real estate and general commercial loans, as well as to provide
refinancing for loans secured by real estate. Substantially all of the
Bank's lending activity is with customers located in Alamance and
surrounding counties within North Carolina.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
Investments in certain securities are classified into three categories and
accounted for as follows: (1) debt securities that the entity has the
positive intent and the ability to hold to maturity are classified as held-
to-maturity and reported at amortized cost; (2) debt and equity securities
that are bought and held principally for the purpose of selling them in the
near term are classified as trading securities and reported at fair value,
with unrealized gains and losses included in earnings; (3) debt and equity
securities not classified as either held-to-maturity securities or trading
securities are classified as available-for-sale securities and reported at
fair value, with unrealized gains and losses excluded from earnings and
reported as a separate component of retained income.
Premiums and discounts on debt securities are recognized in interest income
on the level interest yield method over the period to maturity.
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by the issuers of
the securities. Premiums and discounts are amortized using the interest
method over the remaining period to contractual maturity, adjusted for
anticipated prepayments.
Gains and losses on the sale of securities are determined by using the
specific identification method.
LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans receivable held for investment are stated at the amount of unpaid
principal, reduced by an allowance for loan losses and net deferred
origination fees. Interest on loans is accrued based on the principal
amount outstanding and is recognized on a level yield method. The accrual
of interest is discontinued, and accrued but unpaid interest is reversed
when, in management's judgment, it is determined that the collectibility of
interest, but not necessarily principal, is doubtful. Generally, this
occurs when payment is delinquent in excess of ninety days.
Loan origination fees are deferred, as well as certain direct loan
origination costs. Such costs and fees are recognized as an adjustment to
yield over the contractual lives of the related loans utilizing the
interest method.
F-7
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Commitment fees to originate or purchase loans are deferred, and if the
commitment is exercised, recognized over the life of the loan as an
adjustment of yield. If the commitment expires unexercised, commitment fees
are recognized in income upon expiration of the commitment. Fees for
originating loans for other financial institutions are recognized as loan
fee income.
A loan is considered impaired, based on current information and events, if
it is probable that the Bank will be unable to collect the scheduled
payments of principal or interest when due according to the contractual
terms of the loan agreement. Uncollateralized loans are measured for
impairment based on the present value of expected future cash flows
discounted at the historical effective interest rate, while all collateral-
dependent loans are measured for impairment based on the fair value of the
collateral. At December 31, 1997 and 1996, and during the three years ended
December 31, 1997, there were no loans material to the financial statements
which were defined as impaired.
The Bank uses several factors in determining if a loan is impaired. The
internal asset classification procedures include a thorough review of
significant loans and lending relationships and include the accumulation of
related data. This data includes loan payment status, borrowers' financial
data and borrowers' operating factors such as cash flows, operating income
or loss, etc.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions. While
management believes that it has established the allowance in accordance
with generally accepted accounting principles and has taken into account
the views of its regulators and the current economic environment, there can
be no assurance that in the future the Bank's regulators or its economic
environment will not require further increases in the allowance.
LOANS HELD FOR SALE
Loans originated and intended for sale are carried at the lower of cost or
aggregate estimated market value. Net unrealized losses are recognized in
a valuation allowance by charges to income. Gains and losses on sales of
whole or participating interests in real estate loans are recognized at the
time of sale and are determined by the difference between net sales
proceeds and the Bank's basis of the loans sold, adjusted for the
recognition of any servicing assets retained.
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS
Loans, including impaired loans, are generally classified as nonaccrual if
they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well-secured and in the
process of collection. If a loan or a portion of a loan is classified as
doubtful or is partially charged off, the loan is generally classified as
nonaccrual. Loans that are on a current payment status or past due less
than 90 days may also be classified as nonaccrual if repayment in full of
principal and/or interest is in doubt.
F-8
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained
period of repayment performance (generally a minimum of six months) by the
borrower, in accordance with the contractual terms of interest and
principal.
While a loan is classified as nonaccrual and the future collectibility of
the recorded loan balance is doubtful, collections of interest and
principal are generally applied as a reduction to principal outstanding,
except in the case of loans with scheduled amortization where the payment
is generally applied to the oldest payment due. When the future
collectibility of the recorded loan balance is expected, interest income
may be recognized on a cash basis limited to that which would have been
recognized on the recorded loan balance at the contractual interest rate.
Receipts in excess of that amount are recorded as recoveries to the
allowance for loan losses until prior charge-offs have been fully
recovered.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed by straight-line
and accelerated methods based on estimated service lives of assets. Useful
lives range from 10 to 40 years for substantially all premises and from 3
to 20 years for equipment and fixtures.
REAL ESTATE OWNED
Assets acquired through loan foreclosure are recorded as real estate owned
("REO") at the lower of the estimated fair value of the property less
estimated costs to sell at the date of foreclosure or the carrying amount
of the loan plus unpaid accrued interest. The carrying amount is
subsequently reduced by additional allowances which are charged to earnings
if the estimated fair value declines below its initial value plus any
capitalized costs. Costs related to the improvement of the property are
capitalized, whereas costs related to holding the property are expensed.
INVESTMENT IN FEDERAL HOME LOAN BANK STOCK
The Bank is required to invest in Federal Home Loan Bank of Atlanta (FHLB)
stock in the amount of at least 1% of its net home mortgage loans
receivable. At December 31, 1997 and 1996 the Bank owned 13,690 and
15,409 shares, respectively, of the FHLB's $100 par value capital stock.
As no ready market exists for this stock, and it has no quoted market
value, the stock is carried at cost.
INCOME TAXES
Deferred tax asset and liability balances are determined by application to
temporary differences of the tax rate expected to be in effect when taxes
will become payable or receivable. Temporary differences are differences
between the tax basis of assets and liabilities and their reported amounts
in the financial statements that will result in taxable or deductible
amounts in future years. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment
date.
F-9
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand and time deposits (with remaining
maturities of ninety days or less at time of purchase) at other financial
institutions and federal funds sold. Generally, federal funds are
purchased and sold for one-day periods.
NEW ACCOUNTING PRONOUNCEMENTS
The Bank adopted SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" on January 1, 1997.
The impact of adopting this statement was not material to the Bank's
financial statements.
The Bank will adopt SFAS No. 130, "Reporting Comprehensive Income" on
January 1, 1998. SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements.
The Bank will adopt SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information" on January 1, 1998. SFAS No. 131
specifies revised guidelines for determining an entity's operating segments
and the type and level of financial information to be disclosed.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-10
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. INVESTMENT SECURITIES
Investment securities at December 31, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED GROSS UNREALIZED MARKET
---------------------
COST GAINS LOSSES VALUE
----------- ------- -------- ----------
<S> <C> <C> <C> <C>
1997:
Available for sale:
U.S. Treasury securities $ 4,013,097 $16,965 $ - $ 4,030,062
U.S. Government agency securities 4,989,735 47,409 - 5,037,144
Other equity securities 14,400 - - 14,400
----------- ------- -------- -----------
$ 9,017,232 $64,374 $ - $ 9,081,606
=========== ======= ======== ===========
Held to maturity:
U.S. Treasury securities $ 6,346,619 $ 5,792 $ (6,311) $ 6,346,100
U.S. Government agency securities 6,955,257 24,401 (11,758) 6,967,900
Municipal securities 94,950 450 - 95,400
----------- ------- -------- -----------
$13,396,826 $30,643 $(18,069) $13,409,400
=========== ======= ======== ===========
1996:
Available for sale:
U.S. Treasury securities $ 4,982,528 $ 744 $ (8,168) $ 4,975,104
U.S. Government agency securities 1,985,728 15,812 - 2,001,540
Other equity securities 14,400 - - 14,400
----------- ------- -------- -----------
$ 6,982,656 $16,556 $ (8,168) $ 6,991,044
=========== ======= ======== ===========
Held to maturity:
U.S. Treasury securities $15,248,525 $32,123 $(52,248) $15,228,400
U.S. Government agency securities 9,959,334 30,967 (31,001) 9,959,300
Municipal securities 194,839 1,561 - 196,400
----------- ------- -------- -----------
$25,402,698 $64,651 $(83,249) $25,384,100
=========== ======= ======== ===========
</TABLE>
Securities with a carrying value of $7,167,156 were sold during the year
ended December 31, 1997, resulting in gross realized gains of $12,024 and
gross realized losses of $882. Available for sale securities with a
carrying value of $1,548,594, were sold during the year ended December 31,
1996, resulting in gross realized gains of $52,782. Available for sale
securities with a carrying value of $1,510,738 were sold during the year
ended December 31, 1995, resulting in gross realized losses of $582.
Securities with a carrying value of $4,492,102 and $11,462,726 were pledged
as collateral at December 31, 1997 and 1996, respectively, to secure
advances with the FHLB. Securities with a carrying value of $506,296 and
$509,894 were pledged as collateral for treasury, tax and loan deposits at
December 31, 1997 and 1996, respectively.
F-11
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and estimated market value of debt securities at
December 31, 1997, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------------- ---------------
<S> <C> <C>
Available for sale:
Due in one year or less $ 2,998,619 $ 3,004,340
Due after one year through five years 6,004,213 6,062,866
--------------- ---------------
$ 9,002,832 $ 9,067,206
--------------- ---------------
Held to maturity:
Due in one year or less $ 5,441,199 $ 5,433,775
Due after one year through five years 6,992,958 7,010,825
Due after ten years 962,669 964,800
--------------- ---------------
$ 13,396,826 13,409,400
--------------- ---------------
</TABLE>
F-12
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENT
- --------------------------------------------------------------------------------
3. MORTGAGE - BACKED SECURITIES
Mortgage-backed securities at December 31, 1997 and 1996 are summarized
as follows:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED GROSS UNREALIZED MARKET
-------------------------------
COST GAINS LOSSES VALUE
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
1997:
Available for sale:
FHLMC participation certificates $ 54,888 $ - $ (6,068) $ 48,820
REMICs 9,357,592 90,116 - 9,447,708
------------- ------------ ----------- -----------
$ 9,412,480 $ 90,116 $ (6,068) $ 9,496,528
============= ============ =========== ===========
Held to maturity:
GNMA participation certificates $ 2,253,791 $ 144,909 $ - $ 2,398,700
FHLMC participation certificates 4,498,375 93,500 (2,975) 4,588,900
REMICs 1,898,303 4,604 (4,907) 1,898,000
------------- ------------ ----------- -----------
$ 8,650,469 $ 243,013 $ (7,882) $ 8,885,600
============= ============ =========== ===========
1996:
Available for sale:
GNMA participation certificates $ 2,206,172 $ - $ (16,684) $ 2,189,488
FHLMC participation certificates 92,670 - (7,851) 84,819
REMICs 10,169,038 43,053 - 10,212,091
------------- ------------ ----------- -----------
$12,467,880 $ 43,053 $ (24,535) $12,486,398
============= ============ =========== ===========
Held to maturity:
GNMA participation certificates $ 2,569,698 $ 139,402 $ - $ 2,709,100
FHLMC participation certificates 5,434,182 160,518 - 5,594,700
REMICs 3,310,379 6,181 (26,660) 3,289,900
------------- ------------ ----------- -----------
$11,314,259 $ 306,101 $ (26,660) $11,593,700
============= ============ =========== ===========
</TABLE>
Mortgage-backed securities with a carrying value of $1,688,011 were
sold during the year ended December 31, 1997, resulting in gross
realized losses of $13,875. Mortgage-backed and mortgage related
securities with a carrying value of $9,900,347 were sold during the
year ended December 31, 1996, resulting in gross realized losses of
$43,857.
Mortgage-backed securities held as available for sale, with a carrying
value of $5,831,553 and $2,189,488 were pledged as collateral for
advances from the FHLB at December 31, 1997 and 1996, respectively.
F-13
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and estimated market value of mortgage-backed
securities at December 31, 1997, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with
or without call or prepay penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
------------- --------------
<S> <C> <C>
Available for sale:
Due after ten years $ 9,412,480 $ 9,496,528
============= ==============
Held to maturity:
Due after five years through ten years $ 300,638 $ 310,400
Due after ten years 8,349,831 8,575,200
------------- --------------
$ 8,650,469 8,885,600
============= ==============
</TABLE>
4. LOANS RECEIVABLE
Loans receivable at December 31, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Mortgage loans $ 102,358,704 $ 88,783,038
Consumer loans 1,685,644 332,702
Commercial loans 11,990,967 1,458,068
--------------- --------------
Total 116,035,315 90,573,808
Less:
Loans in process (269,837) (3,847,905)
Allowance for loan losses (781,177) (491,658)
Deferred loan fees (438,641) (363,143)
--------------- --------------
Loans receivable, net $ 114,545,660 $ 85,871,102
=============== ==============
</TABLE>
At both December 31, 1997 and 1996, the Bank had entered into a
security agreement with a blanket floating lien pledging its eligible
real estate loans to secure actual or potential borrowings from the
FHLB (See Note 7).
F-14
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Bank originates mortgage loans for portfolio investment or sale in
the secondary market. During the period of origination, mortgage loans
are designated as either held for sale or investment purposes.
Transfers of loans held for sale to the investment portfolio are
recorded at the lower of cost or market value on the transfer date.
Loans receivable held for sale at December 31, 1997 and 1996 are fixed
rate mortgage loans with an estimated market value of approximately
$287,000 and $2,256,000, respectively.
Net losses on sales of loans receivable held for sale amounted to
$4,150 during year ended December 31, 1997. Net gains on sales of loans
receivable held for sale amounted to $1,346 and $2,212 for the years
ended December 31, 1996 and 1995, respectively.
The changes in the allowance for loan losses for the years ended
December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of period $ 491,658 $ 431,295 $ 430,683
Provisions for loan losses 360,000 60,000 -
Loans charged off (71,055) - (530)
Recoveries 574 363 1,142
----------- ------------ -----------
Balance at end of period $ 781,177 $ 491,658 $ 431,295
=========== ============ ===========
</TABLE>
5. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 350,638 $ 350,638
Office buildings 1,969,576 1,390,346
Construction in progress - 238,381
Furniture, fixtures and equipment 1,274,686 991,330
Vehicles 32,730 32,226
------------ -------------
3,627,630 3,002,921
Less accumulated depreciation (1,686,774) (1,457,438)
------------ -------------
Total $ 1,940,856 $ 1,545,483
============ =============
</TABLE>
F-15
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. EMPLOYEE BENEFIT PLANS
The Bank has a retirement plan which covers substantially all of its
employees. The provisions of the plan provide for contributions of 10% of
the employee's salary by the Bank and 5% by the participant, subject to
certain eligibility requirements. The plan provides that the employees
contributions are 100% vested at all times and the Bank's contributions
vest 20% per year beginning with the third year of service, with 100%
vesting after seven years or attaining normal retirement age. Employer
contributions to the retirement plan for the years ended December 31, 1997,
1996 and 1995, were $88,719, $75,028, and $76,813, respectively. The assets
of the plan exceeded the vested benefits at December 31, 1997, the date of
the last accounting. The plan is funded currently by contributions from the
employer and employees, with any forfeitures used to reduce the required
contributions.
Directors participate in deferred compensation plans. These plans generally
provide for fixed payments for a period of ten years once directors reach
age seventy. The estimated amount of future payments to be made are
provided for according to the terms of the various contracts for each
participant. The Bank expensed $537,874, $389,949 and $651,390 related to
these plans during the years ended December 31, 1997, 1996 and 1995,
respectively. Included in other liabilities at December 31, 1997 and 1996
is $3,112,368 and $2,719,031, respectively, related to these plans. The
Bank purchases life insurance contracts on the participants, of which the
Bank is the owner and beneficiary. These contracts had a cash surrender
value, net of policy loans and accrued interest thereon, of $791,620 and
$599,410 at December 31, 1997 and 1996, respectively.
7. BORROWED MONEY
Borrowed money represents advances from the FHLB and totaled $6,700,000 and
$9,000,000 at December 31, 1997 and 1996, respectively. These advances had
a weighed average rate of 6.0% at both December 31, 1997 and 1996. Advances
outstanding at December 31, 1997 mature in September 1998.
At December 31, 1997 and 1996 the Bank had securities with a carrying value
of $10,323,655 and $13,652,214, respectively, and certain loans secured by
one to four family residential mortgages pledged against actual and
potential borrowings from the FHLB.
At December 31, 1997, the Bank had an additional $8,300,000 of credit
available with the FHLB.
F-16
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. DEPOSITS
The scheduled maturities of certificates of deposit of $100,000 or more as
of December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Twelve months or less $ 13,176,406 $5,261,120
Over twelve months 2,647,027 6,456,952
------------- -------------
$ 15,823,433 $ 11,718,072
------------- -------------
</TABLE>
At both December 31, 1997 and 1996, the Bank had cash and due from banks
approximating $1,200,000 pledged with the FHLB to secure certain Individual
Retirement Accounts.
9. INCOME TAXES
The components of income taxes for the years ended December 31, 1997, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current expense $ 670,158 $ 366,571 $ 755,144
Deferred benefit (290,668) (165,301) (244,322)
---------- ---------- ----------
Total $ 379,490 $ 201,270 $ 510,822
---------- ---------- ----------
</TABLE>
Reconciliation of expected income tax at the statutory Federal rate of 34%
with income tax expense for the years ended December 31, 1997, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Expected income tax expense $ 329,484 $ 204,083 $ 482,643
State income taxes net of federal income tax
benefit 7,638 - -
Non-deductible expenses 42,368 (2,813) 28,179
---------- --------- ---------
$ 379,490 $ 201,270 $ 510,822
---------- --------- ---------
</TABLE>
F-17
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The components of the net deferred income tax asset at December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred income tax assets:
Deferred directors' fees $ 1,058,205 $ 924,470
Bad debt reserve 265,600 167,163
Deferred loan fees and costs 149,138 123,469
Depreciation and amortization - 11,622
------------- ------------
1,472,943 1,226,724
------------- ------------
Deferred income tax liabilities:
Depreciation and amortization 10,889 -
Unrealized gains on securities
available-for-sale 50,464 9,147
FHLB stock 221,340 221,340
Other 59,992 115,330
------------- ------------
342,685 345,817
------------- ------------
Net deferred income tax asset $ 1,130,258 $ 880,907
------------- ------------
</TABLE>
Retained income at December 31, 1997, includes approximately $5,232,000 for
which no deferred income tax liability has been recognized. This amount
represents an allocation of income to bad debt deductions for income tax
purposes only. Reductions of the amount so allocated for purposes other
than tax bad debt losses or adjustments arising from carryback of net
operating losses would create income for tax purposes only, which would be
subject to the then current corporate income tax rate.
During 1996, Congress enacted certain tax legislation that exempted thrift
institutions from being taxed on pre-1987 bad debt reserves. However, the
Bank will be recapturing a portion of its post-1987 bad debt reserve
created by using the percentage of taxable income method. The Bank has
previously recorded deferred tax liabilities related to these excess
reserves. Additionally, the Bank is now required to use the experience
method.
10. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal and state banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines. Quantitative
measures established by regulation to ensure capital adequacy require the
Bank to maintain minimum amounts and ratios, as set forth in the table
below. Management believes, as of December 31, 1997, that the Bank meets
all capital adequacy requirements to which it is subject.
F-18
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
As of December 31, 1997, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank
must maintain minimum amounts and ratios, as set forth in the table below.
There are no conditions or events since that notification that management
believes have changed the Bank's category.
The Company's actual capital amounts and ratios as of December 31, 1997 and
1996 are presented in the table below.
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------------- --------------------- -------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- --------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1997:
----
Total Capital (to Risk Weighted
Weighted Assets) $ 23,520,200 28.9% $ 6,505,520 8.0% $ 8,131,900 10.0%
Tier I Capital (to Risk Weighted
Weighted Assets) 22,739,023 27.9% 3,252,760 4.0% 4,879,140 6.0%
Tier I Capital (to Average Assets) 22,739,023 13.7% 6,646,440 4.0% 8,308,050 5.0%
Total Tangible Capital (to Total
tangible Assets) 23,520,200 13.9% 8,429,911 5.0% 8,429,911 5.0%
1996:
----
Total Capital (to Risk Weighted
Weighted Assets) $ 22,569,942 35.6% $ 5,076,000 8.0% $ 6,345,000 10.0%
Tier I Capital (to Risk Weighted
Weighted Assets) 22,149,339 34.9% 2,538,000 4.0% 3,807,000 6.0%
Tier I Capital (to Average Assets) 22,149,339 14.2% 6,248,000 4.0% 7,810,000 5.0%
Total Tangible Capital (to Total
tangible Assets) 22,569,942 14.4% 7,853,596 5.0% 7,853,596 5.0%
</TABLE>
On September 30, 1996, Congress passed into law a recapitalization plan for
the Savings Association Insurance Fund (the "SAIF"), the insurance fund
covering deposits of savings institutions. The approved plan provided for a
special assessment of 0.66% on certain deposits as of March 31, 1996. The
Bank's assessment amounted to approximately $800,000.
F-19
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. MORTGAGE BANKING ACTIVITIES
Mortgage loans serviced for others are not included in the accompanying
statements of financial condition. The unpaid principal balances of
mortgage loans serviced for others was $21,262,067 and $22,122,788 at
December 31, 1997 and 1996, respectively. Servicing loans for others
generally consists of collecting mortgage payments, maintaining escrow
accounts, disbursing payment to investors and foreclosure processing. Loan
servicing income is recorded on the accrual basis and includes servicing
fees from investors and certain charges collected from borrowers, such as
late payment fees.
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND SIGNIFICANT
CONCENTRATIONS OF CREDIT RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit and involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheet.
The Bank exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses
the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. 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. Since
many unused lines of credit expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
A summary of the contractual amounts of the Bank's exposure to off-balance
sheet risk as of December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Commitments to extend credit:
Commitments to originate loans $ 8,024,000 $ 6,540,000
Undrawn balances on lines of credit 4,677,000 4,317,000
------------- -------------
$ 12,701,000 10,857,000
============= =============
</TABLE>
F-20
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS No. 107), requires the
disclosure of estimated fair values for financial instruments. Quoted
market prices, if available, are utilized as an estimate of the fair value
of financial instruments. Because no quoted market prices exist for a
significant part of the Bank's financial instruments, the fair value of
such instruments has been derived based on management's assumptions with
respect to future economic conditions, the amount and timing of future cash
flows and estimated discount rates. Different assumptions could
significantly affect these estimates. Accordingly, the net realizable value
could be materially different from the estimates presented below. In
addition, the estimates are only indicative of individual financial
instruments' values and should not be considered an indication of the fair
value of the Bank taken as a whole.
Fair values have been estimated using data which management considered the
best available, and estimation methodologies deemed suitable for the
pertinent category of financial instrument. The estimation methodologies,
resulting fair values, and recorded carrying amounts at December 31, 1997
and 1996 were as follows:
Cash and cash equivalents are by definition short-term and do not present
any unanticipated credit issues. Therefore, the carrying amount is a
reasonable estimate of fair value. The estimated fair values of investment
securities and mortgage backed securities are provided in Notes 2 and 3 to
the financial statements. These are based on quoted market prices, when
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
The fair value of loans held for sale is estimated using quoted market
prices or market prices for similar instruments.
The fair value of the net loan portfolio has been estimated using the
present value of expected cash flows, discounted at an interest rate
adjusted for servicing costs and giving consideration to estimated
prepayment risk and credit loss factors. The fair value of the Bank's loan
portfolio at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Loans:
Carrying amount $114,545,660 $ 85,871,102
Estimated fair value 114,259,000 85,040,000
</TABLE>
The fair value of deposit liabilities with no stated maturities has been
estimated to equal the carrying amount (the amount payable on demand),
totaling $34,497,115 and $35,762,676 at December 31, 1997 and 1996,
respectively. Under Statement 107, the fair value of deposits with no
stated maturity is equal to the amount payable on demand. Therefore, the
fair value estimates for these products do not reflect the benefits that
the Bank receives from the low-cost, long-term funding they provide. These
benefits are considered significant.
F-21
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The fair value of certificates of deposits and advances from the FHLB is
estimated by discounting the future cash flows using the current rates
offered for similar deposits and advances with the same remaining
maturities. The carrying value and estimated fair values of certificates of
deposit and FHLB advances at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Certificates of deposits:
Carrying amount $ 100,200,083 $ 86,761,622
Estimated fair value 100,381,000 86,996,900
Advances from the FHLB:
Carrying amount $ 6,700,000 $ 9,000,000
Estimated fair value 6,700,000 9,000,000
</TABLE>
There is no material difference between the carrying amount and estimated
fair value of off-balance sheet items totaling $12,701,000 and $10,857,000
at December 31, 1997 and 1996, respectively, which are primarily comprised
of unfunded loan commitments.
The Bank's remaining assets and liabilities are not considered financial
instruments.
F-22
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
CONDENSED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1998 (UNAUDITED) AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,963,865 $ 3,064,469
Interest-bearing deposits in financial institutions and federal
funds sold 1,802,817 2,806,258
Investment securities:
Available for sale 12,196,706 9,081,606
Held to maturity 3,501,309 13,396,826
Mortgage-backed securities:
Available for sale 10,006,460 9,496,528
Held to maturity 5,237,072 8,650,469
Loans receivable, net:
Held for sale - 287,046
Held for investment 127,403,457 114,545,660
Premises and equipment, net 2,271,451 1,940,856
Income taxes receivable 103,634 103,634
Deferred income taxes 1,451,243 1,130,258
Federal Home Loan Bank of Atlanta stock, at cost which
approximates market 1,369,000 1,369,000
Accrued interest receivable 1,044,241 1,041,764
Prepaid expenses and other assets 1,022,261 902,668
------------- -------------
Total assets $ 170,373,516 $ 167,817,042
============= =============
LIABILITIES AND RETAINED INCOME
Deposits:
Noninterest-bearing demand $ 344,848 $ 715,834
Interest-bearing demand 14,847,316 14,711,789
Savings 17,983,301 19,069,492
Time deposits 104,848,325 100,200,083
------------- -------------
Total deposits 138,023,790 134,697,198
------------- -------------
Borrowed money 5,000,000 6,700,000
Accrued interest payable 47,654 97,487
Other liabilities 4,034,788 3,485,376
------------- -------------
Total liabilities 147,106,232 144,980,061
Retained income 23,172,454 22,739,023
Accumulated other comprehensive income 94,830 97,958
------------- -------------
Total retained income 23,267,284 22,836,981
------------- -------------
Total liabilities and retained income $ 170,373,516 $ 167,817,042
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Interest and dividend income:
Loans receivable $7,430,441 $5,682,853
Securities 2,002,963 2,866,703
---------- ----------
Total interest and dividend income 9,433,404 8,549,556
---------- ----------
Interest expense:
Deposits 4,966,402 4,607,383
Borrowings 254,406 356,579
---------- ----------
Total interest expense 5,220,808 4,963,962
---------- ----------
Net interest income 4,212,596 3,585,594
Provision for loan losses 350,000 90,000
---------- ----------
Net interest income after provision for loan losses 3,862,596 3,495,594
Other operating income 376,787 274,058
Other operating expense:
Compensation and employee benefits 2,199,080 1,639,273
Occupancy and equipment 320,474 247,354
Data processing service 215,248 89,764
Other 863,818 463,898
---------- ----------
Total other operating expenses 3,598,620 2,440,289
---------- ----------
Income before income taxes 640,763 1,329,363
Income tax expense 207,332 474,341
---------- ----------
Net income $ 433,431 $ 855,022
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 433,431 $ 855,022
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 146,817 101,067
Provision for loan losses 350,000 90,000
Provision for deferred income taxes (320,424) (84,451)
Originations of loans held for sale - (195,000)
Proceeds from sale of loans held for sale 311,406 197,065
Net gain on sale of loans held for sale (24,360) (2,065)
Changes in operating assets and liabilities:
Accrued interest receivable (2,477) (133,390)
Prepaid expenses and other assets (119,593) (108,342)
Accrued interest payable and other liabilities 497,541 254,786
------------ -------------
Net cash provided by operating activities 1,272,341 974,692
------------ -------------
Cash flows from investing activities:
Purchase of investment securities available for sale (3,626,683) (3,011,043)
Purchase of investment securities held to maturity - (924,957)
Proceeds form sales of investment securities - 3,160,963
Maturities of securities - held to maturity 9,895,517 7,888,000
Maturities of securities - available for sale - 1,000,000
Proceeds from principal repayments of mortgage-backed securities
held to maturity 3,413,397 3,086,195
Purchase of property plant and equipment (477,412) (395,898)
Loan originations, net of principal repayments (13,207,797) (21,605,823)
------------- -------------
Net cash provided by investing activities (4,002,978) (10,802,563)
------------- -------------
Cash flows for financing activities:
Net change in deposits 3,326,592 9,627,169
Net repayments of FHLB borrowings (1,700,000) (2,200,000)
------------- -------------
Net cash provided by financing activities 1,626,592 7,427,169
------------- -------------
Net increase in cash and cash equivalents (1,104,045) (2,400,702)
Cash and cash equivalents, beginning of period 5,870,727 6,577,014
------------- -------------
Cash and cash equivalents, end of period $ 4,766,682 $ 4,176,312
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO (UNAUDITED) FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
only normal recurring accruals, except as described in Note 4) considered
necessary for a fair presentation have been included. Operating results for
the nine month period ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1998. For further information, refer to the financial statements and
notes thereto included herein.
2. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS No. 130"). SFAS No. 130 establishes
requirements for the disclosure of comprehensive income in interim
financial statements. Comprehensive income is defined as net income plus
transactions and other occurrences which are the result of nonowner changes
in equity. For the Bank, nonowner equity changes are comprised of
unrealized gains or losses on debt securities that will be accumulated with
net income in determining comprehensive income.
This statement does not impact the historical financial results of the
Bank's operations and is effective for years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. Adoption of this standard as of
January 1, 1998 did not have an impact on the Bank's results of operations.
Other comprehensive income changes for the nine month periods ended
September 30, 1998 and 1997 were $3,128 and $47,612 respectively.
Comprehensive income for the respective periods was $436,559 and $902,634.
3. RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards (SFAS) No. 132, "Employers' Disclosures
about Pensions and Other Post-retirement Benefits," in February 1998. This
Statement revises the disclosure requirements for pension and other
postretirement benefit plans and is effective for fiscal years beginning
after December 15, 1997. The Bank expects to follow industry standards in
reporting the required information.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement becomes effective for
fiscal years beginning after June 15, 1999 and will not be applied
retroactively. The statement establishes accounting and reporting standards
for derivative instruments and hedging activity. Under the standard, all
derivatives must be measured at fair value and recognized as either assets
or liabilities in the financial statements. This Statement is effective for
fiscal years beginning after June 15, 1999 with
F-26
<PAGE>
COMMUNITY SAVINGS BANK OF BURLINGTON, SSB
NOTES TO (UNAUDITED) FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
initial application in the first quarter of the fiscal year. SFAS No. 133
is not expected to have a material effect on the Bank's financial
statements.
Statement of Financial Accounting Standards No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise," was issued in
October 1998. This Statement amends existing classification and accounting
treatment of mortgage-backed securities, retained after mortgage loans held
for sale are securitized, for entities engaged in mortgage banking
activities. These securities previously were classified and accounted for
as trading and now may be classified as held-to-maturity or available-for-
sale, also. This Statement is effective for the first fiscal quarter
beginning after December 15, 1998. SFAS No. 134 is not expected to have a
material effect on the Bank's financial statements.
4. DIRECTOR AND OFFICER BENEFIT PLANS
During the nine month period ended September 30 ,1998, the Bank amended
various previously implemented deferred compensation and retirement plans
for the purpose of making the plans more comparable to plans offered by
other financial institutions. These amendments resulted in increases to
accrued liabilities and compensation expense of approximately $533,000.
F-27
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL OR ENTITY HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
ANY SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY FIRST COMMUNITY FINANCIAL CORPORATION OR COMMUNITY SAVINGS
BANK, SSB. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY, OR ANY
OTHER SECURITIES, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FIRST COMMUNITY
FINANCIAL CORPORATION OR COMMUNITY SAVINGS BANK, SSB SINCE ANY OF THE DATES AS
OF WHICH INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE HEREOF.
______________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary....................................................................
Selected Financial and Other Data of Community Savings.....................
Risk Factors...............................................................
First Community Financial Corporation......................................
Community Savings Bank, SSB................................................
Use of Proceeds............................................................
Dividend Policy............................................................
Market for Common Stock....................................................
Capitalization.............................................................
Pro Forma Data.............................................................
Historical and Pro Forma Capital Compliance................................
Comparison of Valuation and Pro Forma Information with No Foundation.......
Anticipated Stock Purchases by Directors and Executive Officers............
The Conversion.............................................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................
Business of the Company....................................................
Business of Community Savings..............................................
Taxation...................................................................
Supervision and Regulation.................................................
Management of the Company..................................................
Management of Community Savings............................................
Description of Capital Stock...............................................
Anti-Takeover Provisions Affecting the Company and Community Savings.......
Legal Opinions.............................................................
Experts....................................................................
Registration Requirements..................................................
Additional Information.....................................................
Index to Financial Statements..............................................
</TABLE>
Until ______________, 1999, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
UP TO
2,380,500 SHARES
FIRST COMMUNITY
FINANCIAL CORPORATION
(Proposed Holding Company for
Community Savings Bank, SSB)
COMMON STOCK
PROSPECTUS
TRIDENT SECURITIES, INC.
_______________, 1999
================================================================================
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation provide 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
Registrant or any of its stockholders or otherwise for monetary damages for
breach of any duty as director. The Registrant's By-laws state that any person
who at any time serves or has served as a director, officer, employee or agent
of the Registrant, or any such person who serves or has served at the request of
the Registrant 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 Registrant to the fullest extent permitted by law
against liability and litigation expense arising out of such status or
activities in such capacity. "Liability and litigation expense" shall include
costs and expenses of litigation (including reasonable attorneys' fees),
judgments, fines and amounts paid in settlement which are actually and
reasonably incurred in connection with or as a consequence of any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including appeals.
Sections 55-8-50 through 55-8-58 of the NCBCA contain provisions
prescribing the extent to which directors and officers 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 of conduct is determined by the board of directors, or a
committee or special legal counsel or the shareholders as prescribed in Section
55-8-55.
Sections 55-8-52 and 55-8-26 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 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.
II-1
<PAGE>
The foregoing is only a general summary of certain aspects of North
Carolina law dealing with indemnification of directors and officers and does not
purport to be complete. It is qualified in its entirety by reference to the
relevant statutes, which contain detailed specific provisions regarding the
circumstances under which and the person for whose benefit indemnifications
shall or may be made.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses
(other than fees and commissions payable to the selling agent) to be incurred
in connection with the issuance and distribution of the shares.
<TABLE>
<CAPTION>
<S> <C>
Registration and Filing Fees......................................... $ 40,000
Postage and Printing................................................. 100,000
Accounting Fees and Expenses......................................... 75,000
Fees and Expenses Payable to Appraiser and Business Plan Consultant.. 30,000
Legal Fees........................................................... 155,000
Sales Agent Expenses................................................. 35,000
Conversion Data Processing........................................... 15,000
Stock Transfer Agent Fees and Costs of Stock Certificates............ 10,000
Blue Sky fees and expenses........................................... 15,000
Miscellaneous........................................................ 90,000
--------
$565,000
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In October 1999, Registrant sold one share of common stock, no par value
per share, to William R. Gilliam for an aggregate purchase price of $10.00.
Such sale was exempt from registration under Section 4(2) of Securities Act of
1933.
ITEM 27. EXHIBITS.
The following exhibits and financial statement schedules are filed herewith
or will, as noted, be filed by amendment.
II-2
<PAGE>
(a) Exhibits
Exhibit No.
(Per Exhibit
Tables in
Item 601 of
Regulation S-B) Description
--------------- -----------
1.1 Engagement letter dated September 22, 1998 between
Community Savings Bank, SSB and Trident Securities,
Inc.
1.2 Form of Sales Agency Agreement among First Community
Financial Corporation, Community Savings Bank, SSB and
Trident Securities, Inc. (to be filed subsequently)
2.1 Amended and Restated Plan of Holding Company Conversion
of Community Savings Bank, SSB
3.1 Articles of Incorporation of First Community Financial
Corporation
3.2 Bylaws of First Community Financial Corporation
4.1 Forms of Stock Certificate for First Community
Financial Corporation and Community Savings Bank, SSB
(to be filed subsequently)
5.1 Opinion of Brooks, Pierce, McLendon, Humphrey &
Leonard, L.L.P. as to legality of securities to be
registered hereby
8.1 Opinion of Brooks, Pierce, McLendon, Humphrey &
Leonard, L.L.P. as to federal and state tax
consequences
8.2 Opinion of Ferguson & Company as to the value of
subscription rights
10.1 Letter Agreement dated August 31, 1998 between
Community Savings Bank, SSB and Ferguson & Company for
appraisal services
10.2 Form of Employment Agreement to be entered into between
Community Savings Bank, SSB and William R. Gilliam
10.3 Forms of Special Termination Agreements to be entered
into between First Community Financial Corporation and
Larry H. Hall, Joseph C. Canada, Judy L. Pennington and
Christopher B. Redcay
II-3
<PAGE>
10.4 Forms of Employee Stock Ownership Plan and Trust of
Community Savings Bank, Inc.
10.5 Form of Capital Maintenance Agreement between First
Community Financial Corporation and Community Savings Bank,
Inc.
24.1 Consent of PricewaterhouseCoopers LLP
24.2 Consent of Ferguson & Company
24.3 Consent of Brooks, Pierce, McLendon, Humphrey & Leonard,
L.L.P.
27.1 Financial Data Schedule (to be filed subsequently)
99.1 Appraisal Report of Ferguson & Company
99.2 Form of Stock Order Form (to be filed subsequently)
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
ITEM 28. UNDERTAKINGS.
(a) 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 question 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 .
(b) 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:
II-4
<PAGE>
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any 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;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference 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.
(4) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of Regulation S-X at the start of any delayed
offering or throughout a continuous offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Burlington, State of North Carolina, on the 15 day of January, 1999.
FIRST COMMUNITY FINANCIAL CORPORATION
By: /s/ William R. Gilliam
-------------------------------------------
William R. Gilliam
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: January 15, 1999 By: /s/ William R. Gilliam
-------------------------------------
William R. Gilliam, President
and Director (Chief Executive
Officer)
Date: January 15, 1999 By: /s/ Christopher B. Redcay
-------------------------------------
Christopher B. Redcay, Treasurer
(Principal Accounting Officer and
Principal Financial Officer)
Date: January 15, 1999 By: /s/ Jimmy L. Byrd
-------------------------------------
Jimmy L. Byrd, Director
Date: January 15, 1999 By: /s/ Julian P. Griffin
-------------------------------------
Julian P. Griffin, Director
Date: January 15, 1999 By: /s/ Edgar L. Hartgrove
-------------------------------------
Edgar L. Hartgrove, Director
Date: January 15, 1999 By: /s/ William C. Ingold
-------------------------------------
William C. Ingold, Director
Date: January 15, 1999 By: /s/ Charles A. LeGrand
-------------------------------------
Charles A. LeGrand, Director
Date: January 15, 1999 By: /s/ James D. Moser, Jr.
-------------------------------------
James D. Moser, Jr., Director
Date: January 15, 1999 By: /s/ W. Joseph Rich
-------------------------------------
W. Joseph Rich, Director
Date: January 15, 1999 By: /s/ Alfred J. Spitzner
-------------------------------------
Alfred J. Spitzner, Director
Date: January 15, 1999 By: /s/ Herbert N. Wellons
-------------------------------------
Herbert N. Wellons, Director
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO.
(PER EXHIBIT
TABLES IN
ITEM 601 OF
REGULATION S-B) DESCRIPTION
- --------------- -----------
1.1 Engagement letter dated September 22, 1998 between
Community Savings Bank, SSB and Trident Securities, Inc.
1.2 Form of Sales Agency Agreement among First Community
Financial Corporation, Community Savings Bank, SSB and
Trident Securities, Inc. (to be filed subsequently)
2.1 Amended and Restated Plan of Holding Company Conversion
of Community Savings Bank, SSB
3.1 Articles of Incorporation of First Community Financial
Corporation
3.2 Bylaws of First Community Financial Corporation
4.1 Forms of Stock Certificate for First Community Financial
Corporation and Community Savings Bank, SSB (to be filed
subsequently)
5.1 Opinion of Brooks, Pierce, McLendon, Humphrey & Leonard,
L.L.P. as to legality of securities to be registered hereby
8.1 Opinion of Brooks, Pierce, McLendon, Humphrey & Leonard,
L.L.P. as to federal and state tax consequences
8.2 Opinion of Ferguson & Company as to the value of
subscription rights
10.1 Letter Agreement dated August 31, 1998 between Community
Savings Bank, SSB and Ferguson & Company for appraisal
services
10.2 Form of Employment Agreement to be entered into between
Community Savings Bank, SSB and William R. Gilliam
10.3 Forms of Special Termination Agreements to be entered into
between First Community Financial Corporation and Larry H.
Hall, Joseph C. Canada, Judy L. Pennington and Christopher
B. Redcay
<PAGE>
EXHIBIT NO.
(PER EXHIBIT
TABLES IN
ITEM 601 OF
REGULATION S-B) DESCRIPTION
- --------------- -----------
10.4 Forms of Employee Stock Ownership Plan and Trust of
Community Savings Bank, Inc.
10.5 Form of Capital Maintenance Agreement between First
Community Financial Corporation and Community Savings Bank,
Inc.
24.1 Consent of PricewaterhouseCoopers LLP
24.2 Consent of Ferguson & Company
24.3 Consent of Brooks, Pierce, McLendon, Humphrey & Leonard,
L.L.P.
27.1 Financial Data Schedule (to be filed subsequently)
99.1 Appraisal Report of Ferguson & Company
99.2 Form of Stock Order Form (to be filed subsequently)
<PAGE>
Exhibit 1.1
[LETTERHEAD OF TRIDENT SECURITIES, INC.]
----------------------------------------
September 22, 1998
Board of Directors
Community Savings Bank, SSB
708 South Church Street
Burlington, North Carolina 27216
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, Inc. ("Trident") and Community Savings Bank, SSB, Burlington, North
Carolina (the "Bank") concerning our investment banking services in connection
with the conversion of the Bank from a mutual to a capital stock form of
organization.
Trident is prepared to assist the Bank in connection with the offering of its
shares of common stock during the subscription offering and community offering
as such terms are defined in the Bank's Plan of Conversion. The specific terms
of the services contemplated hereunder shall be set forth in a definitive sales
agency agreement (the "Agreement") between Trident and the Bank to be executed
on the date the offering circular/prospectus is declared effective by the
appropriate regulatory authorities. The price of the shares during the
subscription offering and community offering will be the price established by
the Bank's Board of Directors, based upon an independent appraisal as approved
by the appropriate regulatory authorities, provided such price is mutually
acceptable to Trident and the Bank.
In connection with the subscription offering and community offering, Trident
will act as financial advisor and exercise its best efforts to assist the Bank
in the sale of its common stock during the subscription offering and community
offering. Additionally, Trident may enter into agreements with other National
Association of Securities Dealers, Inc., ("NASD") member firms to act as
selected dealers, assisting in the sale of the common stock. Trident and the
Bank will determine the selected dealers to assist the Bank during the community
offering. At the appropriate time, Trident in conjunction with its counsel,
will conduct an examination of the relevant documents and records of the Bank as
Trident deems necessary and appropriate. The Bank will make all documents,
records and other information deemed necessary by Trident or its counsel
available to them upon request.
For its services hereunder, Trident will receive the following compensation and
reimbursement from the Bank:
<PAGE>
Board of Directors
September 22, 1998
Page 2
1. A commission equal to one and seventy-five one hundredths (1.75%) of
the aggregate dollar amount of capital stock sold in the subscription
and community offerings, excluding any shares of conversion stock sold
to the Bank's directors, executive officers and the employee stock
ownership plan. Additionally, commissions will be excluded on those
shares sold to "associates" of the Bank's directors and executive
officers. The term "associates" as used herein shall have the same
meaning as that found in the Bank's Plan of Conversion .
2. For stock sold by other NASD member firms under selected dealer's
agreements, the commission shall not exceed a fee to be agreed upon
jointly by Trident and the Bank to reflect market requirements at the
time of the stock allocation in a Syndicated Community Offering.
3. The foregoing fees and commissions are to be payable to Trident at
closing as defined in the Agreement to be entered into between the
Bank and Trident.
4. Trident shall be reimbursed for allocable expenses incurred by them,
including legal fees, whether or not the Agreement is consummated.
Trident's legal fees and expenses will not exceed $27,500 and its
other reimbursable expenses will not exceed $7,500.
It further is understood that the Bank will pay all other expenses of the
conversion including but not limited to its attorneys' fees, NASD filing fees,
and filing and registration fees and fees of either Trident's attorneys or the
attorneys relating to any required state securities law filings, telephone
charges, air freight, rental equipment, supplies, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
Trident understands that the Bank's board of directors has not adopted a plan of
conversion as of the date hereof. Accordingly, the board of directors has not
decided at this point whether a conversion will occur and information about the
possibility of a conversion is strictly confidential. The Bank may terminate
this engagement at any time upon written notice to Trident. In such event,
Trident shall be entitled to receive the reasonable value of its services
rendered to the date of such termination.
For purposes of Trident's obligation to file certain documents and to make
certain representations to the NASD in connection with the conversion, the Bank
warrants that: (a) the Bank has not privately placed any securities within the
last 18 months; (b) there have been no material dealings within the last 12
months between the Bank and any NASD member or any person related to or
associated with any such member; (c) none of the officers or directors of the
Bank has any affiliation
<PAGE>
Board of Directors
September 22, 1998
Page 3
with the NASD; (d) except as contemplated by this engagement letter with
Trident, the Bank has no financial or management consulting contracts
outstanding with any other person; (e) the Bank has not granted Trident a right
of first refusal with respect to the underwriting of any future offering of the
Bank stock; and (f) there has been no intermediary between Trident and the Bank
in connection with the public offering of the Bank's shares, and no person is
being compensated in any manner for providing such service.
The Bank agrees to indemnify and hold harmless Trident and each person, if any,
who controls the firm against all losses, claims, damages or liabilities, joint
or several and all legal or other expenses reasonably incurred by them in
connection with the investigation or defense thereof (collectively, "Losses"),
to which they may become subject under the securities laws or under the common
law, that arise out of or are based upon the conversion or the engagement
hereunder of Trident unless it is determined by final judgment of a court having
jurisdiction over the matter that such Losses are primarily a result of
Trident's gross negligence. If the foregoing indemnification is unavailable for
any reason, the Bank agrees to contribute to such Losses in the proportion that
its financial interest in the conversion bears to that of the indemnified
parties. If the Agreement is entered into with respect to the common stock to
be issued in the conversion, the Agreement will provide for indemnification,
which will be in addition to any rights that Trident or any other indemnified
party may have at common law or otherwise. The indemnification provision of
this paragraph will be superseded by the indemnification provisions of the
Agreement entered into by the Bank and Trident.
This letter is merely a statement of intent and is not a binding legal agreement
except as to paragraph (4) above with regard to the obligation to reimburse
Trident for allocable expenses to be incurred prior to the execution of the
Agreement and the indemnity described in the preceding paragraph. While Trident
and the Bank agree in principle to the contents hereof and propose to proceed in
good faith to work out the arrangements with respect to the proposed future
offering, any legal obligations between Trident and the Bank shall be only as
set forth in a duly executed Agreement. Such Agreement shall be in form and
content satisfactory to Trident and the Bank, as well as their counsel, and
Trident's obligations thereunder shall be subject to, among other things, there
being in Trident's opinion no material adverse change in the condition or
obligations of the Bank or no market conditions which might render the sale of
the shares by the Bank hereby contemplated inadvisable.
<PAGE>
Board of Directors
September 22, 1998
Page 4
Please acknowledge your agreement to the foregoing by signing below and
returning to Trident one copy of this letter along with the advance payment of
$2,500. This proposal is open for your acceptance for a period of thirty (30)
days from the date hereof.
Yours very truly,
TRIDENT SECURITIES, INC.
By: /s/ R. Lee Burrows, Jr.
-------------------------------------
R. Lee Burrows, Jr.
Managing Director
Agreed and accepted to this 23rd day
of September, 1998
COMMUNITY SAVINGS BANK, SSB
By:/s/ William R. Gilliam
-----------------------------------------
William R. Gilliam
President
<PAGE>
EXHIBIT 2.1
AMENDED AND RESTATED
PLAN OF HOLDING COMPANY CONVERSION
OF
COMMUNITY SAVINGS BANK, SSB
BURLINGTON, NORTH CAROLINA
FROM MUTUAL TO STOCK ORGANIZATION
I. GENERAL
On October 13, 1998, the Board of Directors of Community Savings Bank, SSB,
Burlington, North Carolina (the "Savings Bank") adopted a Plan of Holding
Company Conversion (the "Plan") pursuant to which the Savings Bank will convert
from a North Carolina-chartered mutual savings bank to a North Carolina-
chartered capital stock savings bank and simultaneously become a wholly-owned
subsidiary of First Community Financial Corporation, a savings bank holding
company organized under North Carolina law. On January 7, 1999, the Board of
Directors of the Savings Bank amended such Plan of Holding Company Conversion
by adopting this Amended and Restated Plan of Holding Company Conversion.
This Amended and Restated Plan of Holding Company Conversion (the "Plan")
amends, supercedes and replaces the Plan of Holding Company Conversion
previously adopted on October 13, 1998.
This Plan is subject to the prior approval of the Administrator, Savings
Institutions Division, North Carolina Department of Commerce, and must be
adopted by the affirmative vote of the members of the Savings Bank holding not
less than a majority of the total outstanding votes eligible to be cast. In
addition, in order to consummate the conversion herein described, this Plan must
be filed with the Federal Deposit Insurance Corporation ("FDIC") and must not
have been objected to by the FDIC in accordance with applicable FDIC
regulations.
II. DEFINITIONS
As used in this Plan, the terms set forth below have the following
meanings:
A. 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, with
respect to the purchase, ownership, voting or sale of Common Stock; or (ii) a
combination or pooling of voting or other interests in the securities of the
Holding Company for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. The
Holding Company and the Savings Bank may presume that certain persons are acting
in concert based upon, among other things, joint account relationships and the
fact that such persons have filed joint Schedules 13D or 13G with the SEC with
respect to other companies.
B. Actual Purchase Price: The actual price per share, determined as
provided in Article VI hereof, at which the shares of common stock of the
Holding Company will be issued and sold by the Holding Company to subscribers.
<PAGE>
C. Administrator: Administrator, Savings Institutions Division, North
Carolina Department of Commerce.
D. Affiliate: The term "affiliate" of, or a person "affiliated with," a
specified person, means a person that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the person specified.
E. Aggregate Valuation Range: The range of value for the aggregate number
of shares of common stock of the Holding Company to be offered in the
Conversion, which range is established pursuant to Article VI hereof and which
shall be from a low of 15 percent below the estimated aggregate pro forma market
value of the Savings Bank and the Holding Company to a high of 15 percent above
the estimated aggregate pro forma market value of the Savings Bank and the
Holding Company, as such range may be amended from time to time by an
independent appraiser.
F. Amended Charter: The Savings Bank's North Carolina stock savings bank
charter in the form permitted by the Administrator.
G. Applications: The Savings Bank's Application to Convert a Mutual
Savings Bank to a Stock Owned Savings Bank and the Holding Company's Acquisition
Application, including amendments thereto, as filed with the Administrator
pursuant to the Regulations.
H. Associate: The term "Associate," when used to indicate a relationship
with any Person, means (i) any corporation or organization (other than the
Savings Bank, the Holding Company or any of their majority-owned subsidiaries)
of which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent 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 for a tax-qualified employee stock benefit plan or a charitable
trust which is exempt from federal taxation pursuant to Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, and (iii) any relative or spouse of
such Person, or any relative of such spouse, who has the same home as such
Person or who is a director or officer of the Savings Bank, the Holding Company,
or any of their parents or subsidiaries.
I. Charter: The North Carolina mutual savings bank charter of Community
Savings Bank, SSB.
J. Community Offering: The offering for sale of shares of Conversion
Stock to the general public, subsequent to termination of the Subscription
Offering, with priority given to natural persons and trusts of natural persons
residing in the Local Community (including Retirement Accounts established for
the benefit of natural persons who are residents of such area).
K. Conversion: The conversion of the Savings Bank to a North Carolina-
chartered stock savings bank, the deposit accounts of which will be insured by
the SAIF of the FDIC, pursuant to, and in accordance with, the Regulations, the
Plan and the Applications.
L. Conversion Stock: The shares of common stock of the Holding Company
to be issued and sold in the Conversion.
2
<PAGE>
M. Converted Savings Bank: Community Savings Bank, Inc., the North
Carolina capital stock savings bank resulting from the Conversion.
N. Directors: The Board of Directors of the Savings Bank, the Converted
Savings Bank or the Holding Company (as applicable).
O. Eligibility Record Date: The close of business on June 30, 1997.
P. Eligible Account Holder: The holder of a Qualifying Deposit on the
Eligibility Record Date, with the beneficial owner of a Retirement Account being
deemed the holder thereof.
Q. ESOP: The Savings Bank's tax-qualified Employee Stock Ownership Plan
adopted by the Board of Directors of the Savings Bank to be effective upon
consummation of the Conversion.
R. Executive Officer: An officer of the Savings Bank, the Converted
Savings Bank or the Holding Company (as applicable) performing a policy-making
function for such entity.
S. FDIC: The Federal Deposit Insurance Corporation.
T. Federal Reserve Board: The Board of Governors of the Federal Reserve
System.
U. First Priority Community Subscribers: Natural persons and trusts of
natural persons residing in the Local Community, including Retirement Accounts
established for the benefit of natural persons residing in the Local Community.
V. Foundation: The North Carolina nonprofit corporation organized by the
Savings Bank pursuant to Article IX of this Plan.
W. Holding Company: The North Carolina corporation under the name of
First Community Financial Corporation which, upon completion of the Conversion,
will become a savings bank holding company owning all of the outstanding capital
stock of the Converted Savings Bank.
X. Liquidation Account: That account established by the Converted
Savings Bank pursuant to Article XI of this Plan.
Y. Local Community: Alamance County in North Carolina.
Z. Market Maker: A dealer (i.e., any person who engages directly or
indirectly as agent, broker or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system; or (ii) furnishes bona fide competitive bid and offer quotations on
request; and (iii) is ready, willing, and able to effect transactions in
reasonable quantities at its quoted prices with other brokers or dealers.
AA. Members: All persons or entities who qualify as members of the
Savings Bank pursuant to its Charter and bylaws prior to the Conversion,
including beneficial owners of Retirement Accounts at the Savings Bank.
3
<PAGE>
BB. Notice: The Savings Bank's Notice of Intent to Convert to Stock Form,
including amendments thereto, as filed with the FDIC pursuant to 12 C.F.R. Part
303.
CC. Order Forms: The order forms to be used to subscribe for Conversion
Stock in the Subscription and Community Offerings pursuant to the Plan.
DD. Other Members: The following as of the Voting Record Date: (1)
holders of Savings Accounts at the Savings Bank (other than Eligible Account
Holders and Supplemental Eligible Account Holders), with the beneficial owners
of Retirement Accounts being deemed the holders of such accounts, and (2) those
Persons or entities (other than Eligible Account Holders and Supplemental
Eligible Account Holders) who are borrowers from the Savings Bank whose
borrowings are still in existence as of the Voting Record Date.
EE. Person: An individual, a corporation, a partnership, an association,
a joint stock company, a trust, an unincorporated organization, or a government
or political subdivision thereof.
FF. Plan: This Plan of Holding Company Conversion and any duly adopted
amendments thereto.
GG. Prospectus: The document containing information about and a
description of the Savings Bank, the Holding Company, this Plan and the process
of issuing the Conversion Stock, which may be combined with proxy statements for
the Members and distributed in the Subscription Offering and which may be
distributed to the general public in the Community Offering and Syndicated
Community Offering.
HH. Proxy Statement: The written information distributed by the Savings
Bank to the Members in its solicitation of their votes in connection with
consideration of the Plan at the Special Meeting, which written information may
be in summary form.
II. Qualifying Deposit: A balance of $50 or more in any Savings Account
in the Savings Bank as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable. Each deposit account which is deemed to
be a separate account for purposes of FDIC insurance shall be deemed to be a
separate account for purposes of determining whether a Qualifying Deposit
exists.
JJ. Regulations: The Rules and Regulations of the Administrator set forth
in North Carolina Administrative Code Title 4, Chapter 16, Subchapter 16G.
KK. Retirement Accounts: Individual retirement accounts, Keogh savings
accounts or similar retirement accounts.
LL. SAIF: The Savings Association Insurance Fund of the FDIC.
MM. Savings Accounts: Withdrawable deposits, certificates or other
savings and deposit accounts of the Savings Bank, including money market deposit
accounts and negotiable order of withdrawal accounts, held by Members. Each
such deposit, certificate or other deposit account which is deemed to be a
separate account for FDIC insurance shall be deemed to be a separate Savings
Account for purposes of the Plan.
4
<PAGE>
NN. Savings Bank: Community Savings Bank, SSB, Burlington, North
Carolina, a North Carolina-chartered mutual savings bank.
OO. SEC: The Securities and Exchange Commission.
PP. Special Meeting: The Special Meeting of Members called for the
purpose of considering approval of the Plan.
QQ. Subscription Offering: The offering of shares of Conversion Stock to
Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders, Other
Members, and Directors, officers and employees of the Savings Bank pursuant to
the Plan.
RR. Subscription Rights: Non-transferable, non-negotiable, personal
rights distributed without payment to Eligible Account Holders, the ESOP,
Supplemental Eligible Account Holders, Other Members, and Directors, officers
and employees of the Savings Bank to subscribe for shares of Conversion Stock in
the Subscription Offering pursuant to the Plan.
SS. Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding the approval of the Applications by the Administrator, if the
establishment of such date is required by the Regulations.
TT. Supplemental Eligible Account Holder: The holder of a Qualifying
Deposit (other than an Executive Officer or Director of the Savings Bank or any
Associate of such Person), on the Supplemental Eligibility Record Date, with the
beneficial owner of a Retirement Account being deemed the holder thereof.
UU. Syndicated Community Offering: The offering for sale of shares of
Conversion Stock to the general public through a syndicate of registered broker-
dealers to be formed and managed by the sales agent in the Subscription Offering
and Community Offering.
VV. Voting Record Date: The date fixed by the Board of Directors of the
Savings Bank for determining Members entitled to vote at the Special Meeting.
III. STEPS PRIOR TO SUBMISSION OF PLAN OF CONVERSION TO THE MEMBERS FOR APPROVAL
Prior to submission of the Plan to the Members of the Savings Bank for
approval, the Savings Bank must receive the Administrator's approval of the
Applications and the FDIC must have issued a notice of non-objection to the
proposed conversion or the time period for FDIC review and objection shall have
expired without objection by the FDIC. The following steps must be taken prior
to such regulatory approvals:
A. The Board of Directors of the Savings Bank shall adopt and approve the
Plan by the affirmative vote of not less than two-thirds of its members.
B. The Savings Bank shall notify its members of the adoption of the Plan
by publishing a statement in a newspaper having a general circulation in the
communities in which the Savings Bank maintains offices or by mailing a letter
to each of its Members.
5
<PAGE>
C. Copies of the Plan shall be made available for inspection at each
office of the Savings Bank.
D. The Holding Company shall submit an application to the Federal Reserve
Board pursuant to Federal law for permission to become a savings bank holding
company in order to enable it to acquire 100% of the capital stock of the
Converted Savings Bank, and such application shall be approved and any required
waiting period shall have expired.
E. The Savings Bank shall submit the requisite number of copies of the
Applications to the Administrator and the requisite number of copies of the
Notice to the FDIC. Upon receipt of advice from the Administrator that the
Applications have been received, are properly executed and not materially
incomplete, the Savings Bank shall publish a "Notice of Filing of an Application
for Holding Company Conversion" in a newspaper of general circulation in each
community in which the Savings Bank maintains an office. The Savings Bank also
shall prominently display a copy of such notice in each of its offices.
F. The Savings Bank shall obtain an opinion of counsel or tax advisor or
a favorable ruling from the Internal Revenue Service to the effect that the
Conversion of the Savings Bank from a North Carolina-chartered mutual savings
bank to a North Carolina-chartered capital stock savings bank, the sale of the
Conversion Stock to subscribers in the Subscription, Community and Syndicated
Community Offerings and the issuance of the shares of common stock of the
Converted Savings Bank to the Holding Company, all in accordance with the terms
of the Plan, should not result in any gain or loss for federal or North Carolina
income tax purposes, to the Savings Bank, the Converted Savings Bank, the
Holding Company or the Members of the Savings Bank. Receipt of a favorable
opinion or ruling is a condition precedent to completion of the Conversion.
G. The Holding Company shall file a registration statement with the SEC
with respect to the Conversion Stock to be offered pursuant to the Plan and such
registration statement shall be declared effective.
IV. MEETING OF MEMBERS
Upon receipt of Administrator approval of the Applications and (i) receipt
from the FDIC of a conditional intention to issue a notice of non-objection or
(ii) expiration of the time period for FDIC review and objection without receipt
of an objection by the FDIC, a Special Meeting of the Members of the Savings
Bank shall be scheduled in accordance with the Savings Bank's bylaws for the
purpose of voting on approval of the Plan. Promptly after receipt of
Administrator approval and at least 20 days, but not more than 45 days, prior to
the Special Meeting, the Savings Bank will distribute proxy solicitation
materials to all Members as of the Voting Record Date. The proxy materials will
include the Proxy Statement and the Prospectus and other documents authorized
for use by the regulatory authorities and may also include a copy of the Plan,
the Amended Charter and other materials as provided in Article VII hereof.
At the Special Meeting, an affirmative vote of not less than a majority of
the total votes entitled to be cast by the Savings Bank's Members will be
required for approval of the Plan. Voting may be in person or by proxy. The
Administrator shall be promptly notified of the results of the vote of the
Members at the Special Meeting.
V. PROCEDURE
6
<PAGE>
The Conversion Stock shall be offered for sale in the Subscription Offering
to Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders,
Other Members, and Directors, officers and employees of the Savings Bank. The
Subscription Offering may commence concurrently with or during the solicitation
of proxies for the Special Meeting. The Community Offering may commence at any
time following commencement of the Subscription Offering. The Syndicated
Community Offering, if any, may commence concurrently with or during the
Community Offering or as promptly thereafter as is practicable. The
Subscription Offering may be closed 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 period for the Subscription Offering shall not be less than 20 days nor
more than 45 days, unless extended by the Savings Bank and the Holding Company.
Any unsubscribed shares of Conversion Stock are to be offered for sale to the
general public in the Community Offering with priority being given to natural
persons and trusts of natural persons residing in the Local Community, including
Retirement Accounts established for the benefit of natural persons who reside in
such area. The Community Offering may commence, subject to the availability of
shares, at any time following commencement of the Subscription Offering. Any
shares of Conversion Stock offered but not subscribed for in the Subscription
and Community Offerings may, in the discretion of the Savings Bank and the
Holding Company, be offered for sale in the Syndicated Community Offering.
Completion of the sale of all shares of Conversion Stock not sold in the
Subscription Offering shall occur within 45 days after termination of the
Subscription Offering, subject to extension of such 45-day period by the Savings
Bank and the Holding Company with the approval of the Administrator. The Boards
of Directors of the Savings Bank and the Holding Company may seek one or more
extensions of such 45-day period if necessary to complete the sale of all shares
of Conversion Stock. In connection with any such extension, subscribers shall be
permitted to increase, decrease or rescind their subscriptions to the extent
required by the Administrator in approving the extensions. As provided in
Article XIV hereof, completion of the sale of all shares of Conversion Stock
must occur in any event within 24 months after the date of the Special Meeting.
VI. STOCK OFFERING
A. Purchase Price and Number of Shares of Conversion Stock
-------------------------------------------------------
The total number of shares and the subscription price per share of the
Conversion Stock being issued and sold by the Holding Company in the Conversion
will be determined by the Holding Company. The aggregate purchase price at which
all shares of the Conversion Stock will be sold in the Conversion will be based
upon the aggregate pro forma market value of the Converted Savings Bank and the
Holding Company after giving effect to the issuance of the Conversion Stock, as
determined by an independent appraisal. The aggregate purchase price will be
within the Aggregate Valuation Range as stated in the approval or amended
approval of the Plan by the Administrator; provided, however, that with the
consent of the Administrator and the FDIC, the aggregate purchase price of the
Conversion Stock sold may be increased to up to 15% above the maximum of the
Aggregate Valuation Range, without any resolicitation of subscribers or any
right to cancel, rescind or change subscription orders, to reflect changes in
market and financial conditions following commencement of the Subscription
Offering. The appraisal will be made by an investment banking or financial
consulting firm selected by the Savings Bank and which is experienced and expert
in the area of savings institution appraisals. Such appraisal will be updated
prior to the commencement of the Subscription Offering, if necessary, and will
be further updated upon completion of the later of the Subscription Offering,
the Community Offering or the Syndicated Community Offering.
7
<PAGE>
In addition, in the event of an improper allocation of shares of Conversion
Stock to subscribers in the Conversion, in order to correct such improper
allocation, the Holding Company may issue, without notice and without any
resolicitation of subscribers, or any right to cancel, rescind or change
subscription orders, up to an additional 3% of the total number of shares of
Conversion Stock issued in the Conversion in exchange for the subscription
purchase price paid in the Conversion.
The Actual Purchase Price per share at which the Conversion Stock will be
offered to subscribers in the Subscription, Community and Syndicated Community
Offerings will be determined by the Holding Company immediately prior to the
commencement of the Subscription Offering. All shares of Conversion Stock sold
in the Conversion will be sold at the same price per share.
B. Method of Offering Shares
-------------------------
On the date Order Forms are mailed, Subscription Rights to purchase shares
will be issued at no cost to Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders (if applicable), Other Members, and Directors, officers
and employees of the Savings Bank pursuant to priorities established by this
Plan and the Regulations. With respect to Eligible Account Holders,
Supplemental Eligible Account Holders and Voting Members who are beneficial
owners of Retirement Accounts, such persons have the right to exercise
Subscription Rights only to the extent Subscription Rights granted with respect
to such Retirement Accounts are not exercised directly by such Retirement
Accounts. Each subscriber shall purchase the number of whole shares indicated
on the Order Form of such subscriber, subject to the purchase limitations set
forth herein, and any excess amounts shall be refunded. To the extent that
shares are available, no subscriber will be allowed to purchase Conversion Stock
having an aggregate purchase price of less than $450.
The priorities established by applicable Regulations for the purchase of
shares are as follows:
1. Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive, without payment, Subscription
Rights to purchase an amount of Conversion Stock equal to the maximum purchase
limitation set forth in Section C.1 of this Article. Subscription Rights of
Eligible Account Holders shall be superior to those of all other subscription
rights granted in the Conversion. In the event of an oversubscription for the
Conversion Stock among Eligible Account Holders, shares shall be allocated among
Eligible Account Holders as follows. The 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 the lesser of (a) the number
of shares for which such Eligible Account Holder subscribed, or (b) 100 shares.
Any shares remaining after that allocation shall be allocated among subscribing
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion that the amount of Qualifying Deposits of each such Eligible Account
Holder bears to the total amount of Qualifying Deposits of all Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so allocated
exceeds the amount subscribed for by any one or more Eligible Account Holders,
the excess shall be reallocated (one or more times as necessary) among those
Eligible Account Holders whose subscriptions are still not fully satisfied on
the same principle described above until all available shares have been
allocated or all subscriptions satisfied. All computations shall be rounded
down to the nearest whole share.
2. Category No. 2: ESOP
8
<PAGE>
The ESOP shall receive, without payment, Subscription Rights to purchase a
number of shares of Conversion Stock equal to eight percent (8%) of the sum of
the total number of shares of Conversion Stock offered and sold in the
Conversion and the total number of shares of Holding Company Common Stock
contributed to the Foundation. Subscription Rights received pursuant to this
Category shall be subordinated to all Subscription Rights received pursuant to
Category No. 1 above. In the event there is an oversubscription of shares of
Conversion Stock and, as a result, the ESOP is unable to purchase in the
Conversion the number of shares necessary to satisfy its above-described
Subscription Rights in full, then the Board of Directors of the Holding Company
intends to, and shall be authorized to, approve the purchase by the ESOP in the
open market after the Conversion, of such shares as are necessary for the ESOP
to purchase a number of shares equal to eight percent (8%) of the sum of the
total number of shares of Conversion Stock issued in the Conversion and the
total number of shares of Holding Company Common Stock contributed to the
Foundation. Any purchases made by the ESOP may be purchased with funds borrowed
by the ESOP from the Holding Company.
3. Category No. 3: Supplemental Eligible Account Holders
In the event that the Eligibility Record Date is more than 15 months prior
to the date of the latest amendment of the Applications filed prior to
Administrator approval, then, and only in that event, each Supplemental Eligible
Account Holder of the Savings Bank shall receive, without payment, Subscription
Rights to purchase an amount of Conversion Stock equal to the maximum purchase
limitation set forth in Section C.1 of this Article. Subscription Rights
received pursuant to this Category shall be subordinated to all Subscription
Rights received pursuant to Category Nos. 1 and 2. Any Subscription Rights
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
account holder pursuant to this Category.
In the event of an oversubscription for the Conversion Stock, shares shall
be allocated among the Supplemental Eligible Account Holders as follows. The
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 the lesser of (including the number of
shares, if any allocated in accordance with Category No. 1) (a) the number of
shares for which such Supplemental Eligible Account Holder subscribed, or (b)
100 shares. Any shares remaining after that allocation shall be allocated among
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposits of each
such Supplemental Eligible Account Holder bears to the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more Supplemental Eligible Account Holders, the
excess shall be reallocated (one or more times as necessary) among those
Supplemental Eligible Account Holders whose subscriptions are still not fully
satisfied on the same principle described above until all available shares have
been allocated or all subscriptions satisfied. All computations shall be
rounded down to the nearest whole share.
4. Category No. 4: Other Members
Each Other Member shall receive, without payment, Subscription Rights to
purchase an amount of Conversion Stock equal to the maximum purchase limitation
set forth in Section C.1 of this Article. Subscription Rights received pursuant
to this Category shall be subordinated to all Subscription Rights received
pursuant to Category Nos. 1-3.
9
<PAGE>
In the event of an oversubscription for shares of Conversion Stock under
this Category, the Conversion Stock available shall be allocated among the
subscribing Other Members whose subscriptions are not satisfied in the
proportion that the number of votes eligible to be cast by each such Other
Member at the Special Meeting bears to the total number of votes eligible to be
cast by all Other Members whose subscriptions remain unsatisfied. If the amount
so allocated exceeds the amount subscribed for by any one or more Other Member,
the excess shall be reallocated (one or more times as necessary) among those
Other Members whose subscriptions are still not satisfied on the same principle
described above until all available shares have been allocated or all
subscriptions satisfied. All computations shall be rounded down to the nearest
whole share.
5. Category No. 5: Directors, Officers and Employees
Each Director and officer of the Savings Bank, and each employee of the
Savings Bank, as of the date of the commencement of the Subscription Offering
shall receive, without payment, Subscription Rights to purchase an amount of
Conversion Stock equal to the maximum purchase limitation set forth in Section
C.1 of this Article. Subscription Rights received pursuant to this Category
shall be subordinated to all Subscription Rights received pursuant to Category
Nos. 1-4. Any Subscription Rights received by a Director, officer or employee
in accordance with Category Nos. 1, 3, or 4 shall reduce, to the extent thereof,
the Subscription Rights to be distributed to such Director, officer or employee
pursuant to this Category.
In the event of an oversubscription for shares of Conversion Stock under
this Category, the shares available shall be allocated among the subscribing
Directors, officers and employees of the Savings Bank whose subscriptions are
not satisfied pro rata on the basis of the amounts of their respective
subscriptions. All computations shall be rounded down to the nearest whole
share.
6. Category No. 6: Community Offering
Any shares of Conversion Stock not purchased through the exercise of
Subscription Rights received pursuant to Category Nos. 1-5 above may be sold to
the general public in a Community Offering. The Community Offering may
commence, subject to the availability of shares, at any time following
commencement of the Subscription Offering and may terminate at any time
thereafter. The Community Offering must be completed within 45 days after the
last day of the Subscription Offering, unless extended by the Savings Bank and
the Holding Company with the approval of the Administrator.
The Savings Bank and the Holding Company may accept or reject, in whole or
in part, orders received in the Community Offering in their sole discretion.
In the event that subscriptions by subscribers in the Community Offering
whose orders would otherwise be accepted exceed the shares available for
purchase in the Community Offering, then
(i) subscriptions of First Priority Community Subscribers will be filled
in full up to applicable purchase limitations (to the extent such
subscriptions are not rejected by the Savings Bank and the Holding
Company),
(ii) then subscriptions of other subscribers in the Community Offering will
be filled up to applicable purchase limitations (to the extent such
subscriptions are not rejected by the Savings Bank and the Holding
Company).
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In the event of an oversubscription by First Priority Community Subscribers
whose orders would otherwise be accepted, shares of Conversion Stock will be
allocated first to each First Priority Community Subscriber whose order is
accepted in full or in part by the Savings Bank and the Holding Company in the
entire amount of such order up to a number of shares no greater than the number
which would have an aggregate purchase price of $225,000, which number shall be
determined by the Board of Directors of the Savings Bank prior to the time the
Conversion is consummated with the intent to provide for a wide distribution of
shares among such subscribers. Any shares remaining after such allocation will
be allocated to each First Priority Community Subscriber whose order is accepted
in full or in part on an equal number of shares basis until all orders are
filled. Such allocation shall also be applied to subscriptions by other
subscribers in the Community Offering, in the event shares are available for
subscribers in such category but there is an oversubscription within such
category. All computations shall be rounded down to the nearest whole share.
The Conversion Stock to be offered in this Category No. 6 will be offered
and sold in a manner that will achieve the widest distribution of such stock.
7. Category No. 7: Syndicated Community Offering
If necessary, all shares of Conversion Stock not purchased in the
Subscription and Community Offerings, if any, may, at the option of the Savings
Bank and Holding Company, be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
as selected dealers to be formed and managed by the sales agent in the
Subscription and Community Offerings. The Holding Company and Savings Bank have
the right to reject orders, in whole or part, in their sole discretion in the
Syndicated Community Offering. During the Syndicated Community Offering, shares
of Conversion Stock will be sold subject to such conditions, terms and
procedures as may be determined by the Holding Company and the Savings Bank.
Shares of Conversion Stock sold in the Syndicated Community Offering will be
sold in a manner calculated to achieve the widest distribution of Conversion
Stock.
The Syndicated Community Offering may close as early as the Community
Offering, or thereafter at the discretion of the Savings Bank and the Holding
Company. The Syndicated Community Offering may run concurrently with the
Community Offering or subsequent to such offering.
C. Additional Limitations Upon Purchases of Shares of Conversion Stock
The following additional limitations and exceptions shall apply to all
purchases of Conversion Stock in the Conversion:
1. The aggregate purchase price of shares of Conversion Stock purchased
by any Person (or Persons exercising Subscription Rights through a single
account), shall not exceed $225,000 (which limit may be decreased or increased
by the Board of Directors of the Savings Bank in accordance with Section C.6 of
this Article) provided, however, that the ESOP may purchase in the aggregate a
number of shares not more than eight percent (8%) of the sum of total number of
shares of Conversion Stock offered and sold in the Conversion and the number of
shares of Holding Company Common Stock contributed to the Foundation. Any
shares held by the ESOP and attributed to a natural person shall not be
aggregated with other shares purchased directly by or otherwise attributable to
that natural person.
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2. In addition to the other limitations set forth in Section C.1 of this
Article and not in lieu thereof, no Person, together with all Associates
thereof, shall purchase shares of Common Stock having an aggregate purchase
price of more than $ 300,000 (which limit may be increased or decreased by the
Board of Directors of the Savings Bank in accordance with Section C.6 of this
Article).
3. In addition to the other limitations set forth in Section C.1 of this
Article and not in lieu thereof, no Persons acting in concert shall purchase
shares of Common Stock having an aggregate purchase price of more than $300,000
(which limit may be increased or decreased by the Board of Directors of the
Savings Bank in accordance with Section C.6 of this Article.)
4. The Boards of Directors of the Savings Bank and Holding Company will
not be deemed to be Associates or a group acting in concert solely as a result
of membership on the Boards of Directors.
5. To the extent that Conversion Stock is available, no subscriber will
be allowed to purchase Conversion Stock having an aggregate purchase price of
less than $450.
6. Either before or subsequent to approval of the Plan by the Members and
prior to consummation of the sale of the Conversion Stock, the Board of
Directors of the Savings Bank may, in its sole discretion, (i) increase the
maximum purchase limitations set forth in Sections C.1, C.2 and C.3 of this
Article to an amount not greater than five percent (5%) of the aggregate
purchase price of shares of Conversion Stock offered and sold in the Conversion
or (ii) reduce such maximum purchase limitations to an amount not less than the
amount permitted by the Administrator and FDIC, each without further approval of
the Members.
7. Each person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the purchase
limitations under the Plan or otherwise imposed by law, rule or regulation.
8. Subscription Rights to purchase the Conversion Stock received by
Executive Officers and Directors of the Savings Bank and their Associates, based
on their increased deposits in the Savings Bank in the one year period preceding
the Eligibility Record Date shall be subordinated to all other subscriptions
involving the exercise of Subscription Rights to purchase the Conversion Stock
pursuant to Category No. 1.
D. Restrictions on and Other Characteristics of Stock Being Sold
1. Transferability. Conversion Stock purchased by Directors or Executive
---------------
Officers of the Converted Savings Bank shall not be sold or otherwise disposed
of for value for a period of not less than one year from the date of purchase
without written permission of the Administrator, except for any disposition of
such shares following the death of the original purchaser.
The Conversion Stock issued by the Holding Company to Directors and
Executive Officers of the Converted Savings Bank shall bear a legend giving
appropriate notice of the one-year holding period restriction. This legend will
state as follows:
The shares of stock evidenced by this Certificate may not be sold,
except in the event of the death of the registered holder, for a
period of one year from the date of this certificate
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without the prior written consent of the Administrator, Savings
Institutions Division, North Carolina Department of Commerce.
In addition, the Holding Company shall give appropriate instructions to the
transfer agent with respect to the applicable restrictions relating to the
transfer of restricted stock. Any shares 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 Directors and
Executive Officers of the Converted Savings Bank as may be then applicable to
such restricted stock.
No Director, Executive Officer or Associate of a Director or Executive
Officer of the Converted Savings Bank shall purchase any outstanding shares of
common stock of the Holding Company for a period of three years following the
Conversion without the prior written approval of the Administrator, except (a)
through a broker or dealer registered with the SEC or the Secretary of State of
North Carolina or (b) in a "negotiated transaction" involving more than one
percent of the then outstanding shares of capital stock of the Holding Company
or (c) through the purchase of common stock made by and held by one or more tax-
qualified or non-tax-qualified employee stock benefit plans of the Converted
Savings Bank or the Holding Company which may be attributable to Executive
Officers or Directors. As used herein, the term "negotiated transaction" means a
transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any Person acting on his or her behalf and the purchaser or his or her
investment representative. The term "investment representative" shall mean a
professional investment advisor acting as agent for the purchaser and
independent of the seller and not acting on behalf of the seller in connection
with the transaction.
2. Repurchase and Dividend Rights. Subject to the Regulations and
regulations of the FDIC, the Converted Savings Bank may not declare or pay a
cash dividend on or repurchase any of its capital stock if the effect thereof
would cause the regulatory capital of the Converted Savings Bank to be reduced
below (a) the amount required for the Liquidation Account or (b) the net worth
requirements of the Administrator or the minimum capital requirements of the
FDIC. As set forth in the Regulations and regulations of the FDIC, there exist
additional limitations on the ability of the Converted Savings Bank to pay
dividends and repurchase stock without the written approval of the Administrator
and the FDIC.
The above limitations shall not preclude payments of dividends or
repurchases of capital stock by the Converted Savings Bank or the Holding
Company in the event applicable federal or state regulatory limitations are
liberalized subsequent to the Conversion.
3. Voting Rights. After the Conversion, holders of Savings Accounts and
obligors on loans will not have voting rights in the Converted Savings Bank.
Exclusive voting rights shall be vested in the Holding Company as the owner of
all of the capital stock of the Converted Savings Bank. Each holder of common
stock of the Holding Company will be entitled to vote on any matter coming
before the stockholders of the Holding Company for consideration and will be
entitled to one vote for each share of common stock of the Holding Company owned
by such stockholder.
4. Preemptive Rights. Holders of common stock of the Holding Company
shall not have preemptive rights to acquire additional or treasury shares of the
Holding Company. Holders of common stock of the Converted Savings Bank shall
not have preemptive rights to acquire additional or treasury shares of the
Savings Bank.
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E. Mailing of Offering Materials and Collation of Subscriptions;
Restrictions on Transfer of Subscription Rights
After (i) approval of the Plan by the Administrator, (ii) receipt of a
notice of non-objection by the FDIC or expiration of the time period for FDIC
review and objection without receipt of an objection from the FDIC and (iii) the
SEC's declaration of the effectiveness of the registration statement containing
the Prospectus, the Holding Company shall distribute the Prospectus and Order
Forms for the purchase of shares to holders of Subscription Rights in accordance
with the terms of the Plan.
As set forth in the Prospectus, each such recipient of an Order Form will
be given a period of not less than 20 days nor more than 45 days from the date
of mailing, unless extended, to properly complete, execute and return the Order
Form to the Savings Bank on behalf of the Holding Company. Self-addressed,
postage-paid return envelopes will accompany these forms when mailed. The
Savings Bank will collate the returned executed forms upon completion of the
subscription period. Failure of any eligible subscriber in the Subscription or
Community Offerings to return a properly completed and executed Order Form with
full payment for all shares subscribed for within the prescribed time limits
shall be deemed a waiver and a release by such person of any rights to purchase
shares hereunder.
The Savings Bank may require a Person to provide evidence satisfactory to
the Savings Bank that such Person qualifies as an Eligible Account Holder,
Supplemental Eligible Account Holder, Other Member, or First Priority Community
Subscriber, as the case may be. All determinations as to whether a Person
qualifies to purchase in a particular category shall be made by the Savings Bank
in its sole discretion and shall be final and conclusive.
Subscription Rights granted under this Plan are not transferable, and may
be exercised only by the person to whom they are issued and only for his or her
own account.
The Savings Bank reserves the right to make an independent investigation of
any facts or circumstances brought to its attention that indicate or tend to
indicate that one or more persons acting independently or as a group acting in
concert may be attempting to violate or circumvent the regulatory prohibition on
transferability of Subscription Rights. The nature and extent of such
investigation will be at the Savings Bank's sole discretion and the Savings Bank
may require a holder of Subscription Rights to provide certified affidavits and
other documentation to satisfy the Savings Bank that its Plan of Conversion and
North Carolina and federal conversion regulations regarding nontransferability
are not being subverted by actions of holders of Subscription Rights. In
extreme cases the Savings Bank reserves the right to seek legal advice from the
General Counsel for the Administrator as to compliance with all regulations
governing the Conversion, including the nontransferability of Subscription
Rights.
If the Board of Directors of the Savings Bank determines that a subscriber
(i) has submitted false or misleading information on an Order Form or otherwise,
(ii) has attempted to purchase shares of Conversion Stock in violation of
provisions of this Plan or applicable law or (iii) has failed to cooperate with
attempts by the Savings Bank, its employees or agents to verify information with
respect to purchase rights, such Board of Directors may reject the order of such
subscriber.
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F. Method of Payment
Payment for all shares of Conversion Stock subscribed for in the
Subscription and Community Offerings may be made in cash, if delivered in
person, by check or money order, or if the subscriber has a Savings Account
(other than a demand deposit or NOW account), by withdrawal authorization from
the Savings Account for the purchase amount. Unless payment is to be made by
withdrawal from a Savings Account, it shall accompany the Order Forms.
Notwithstanding the foregoing, the ESOP shall not be required to make payment
for shares subscribed for until the date set for consummation of the Conversion,
provided that, at the time the ESOP submits its Order Form, it has obtained a
commitment from the Holding Company or an independent third party lender to loan
it the funds necessary to satisfy its order.
If a subscriber authorizes the withdrawal from his or her Savings Account,
the funds may be withdrawn from the subscriber's Savings Account at any time
after receipt of the subscriber's stock order form and will continue to earn
interest at the applicable rate for such Savings Account until the Conversion is
completed or terminated. The withdrawal will be given effect only to the
extent necessary to satisfy the subscription at a price equal to the aggregate
Actual Purchase Price of the Conversion Stock sold to the subscriber. The
Savings 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
statement savings 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.
A subscriber who is the beneficial owner of a Retirement Account may pay
for shares of Conversion Stock subscribed for by authorizing and directing the
Savings Bank on the Order Form to roll over the subscriber's Retirement Account
to a self-directed Retirement Account at an independent trustee, who shall then
be directed to make a withdrawal from such Retirement Account in an amount equal
to the Actual Purchase Price of such shares. Such shares shall then become part
of the Retirement Account estate.
All amounts received for the purchase of Conversion Stock in the
Subscription Offering and the Community Offering (other than by charge against
the Subscriber's account or as provided above) shall be placed in a special
escrow account with the Savings Bank. The Savings Bank shall pay interest to
the subscriber at the statement savings rate on such amounts paid to purchase
Conversion Stock from the date payment is received until the Conversion is
completed or terminated, as the case may be. The Savings Bank shall deliver
all amounts received for the purchase of Conversion Stock in the Subscription
Offering and the Community Offering to the Holding Company on the date the
Conversion is consummated.
G. Undelivered, Defective or Late Order Forms: Insufficient Payment
If an Order Form in the Subscription or Community Offering (a) is not
delivered and is returned by the United States Postal Service (or the Savings
Bank is unable to locate the addressee); (b) is not received by the Savings Bank
or is received by the Savings Bank after the date specified for receipt therein;
(c) is defectively completed or executed; (d) is not accompanied by the total
required payment for the shares of Conversion Stock subscribed for (including
cases in which the subscriber's Savings Account is insufficient to cover the
amount of such required payment pursuant to a withdrawal authorization) in the
form in which such payment is required or (e) is not accompanied by immediately
available funds, the Subscription Rights
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and other rights to purchase of the person to whom such rights have been granted
will be deemed waived and will not be honored. The Savings Bank may, but will
not be required to, waive any irregularity relating to any Order Form or require
the submission of a corrected Order Form or the remittance of full payment for
subscribed shares by such date as the Savings Bank may specify. Subscription
orders, once tendered, cannot be revoked. The Savings Bank's interpretation of
the terms and conditions of this Plan and acceptability of the Order Forms will
be final.
H. 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 of the United States in which Eligible Account
Holders, Supplemental Eligible Account Holders, or Other Members entitled to
subscribe for shares of Conversion Stock reside. However, the Holding Company
shall not elect to offer or sell shares of Conversion Stock or Subscription
Rights under the Plan of Conversion in a foreign country, and may elect not to
offer or sell shares of Conversion Stock or Subscription Rights in a state in
the United States (i) where a small number of persons otherwise eligible to
subscribe for shares under this Plan reside or (ii) if the Holding Company
determines that compliance with the securities laws of such state would be
impracticable for reasons of cost or otherwise, including, but not limited to, a
requirement that the Holding Company, the Savings Bank or any employee or
representative thereof register as a broker, dealer, agent or salesperson or
register or otherwise qualify the Subscription Rights or Conversion Stock for
sale in such state. No payments will be made in lieu of the granting of
Subscription Rights to persons residing in such jurisdictions.
I. Acquisition of Capital Stock of the Converted Savings Bank
One half of the net proceeds from the sale of the Conversion Stock (after
such net proceeds is reduced by the amount of any loan made by the Holding
Company to the ESOP), will be used by the Holding Company to purchase all of the
outstanding capital stock of the Converted Savings Bank.
VII. AMENDED CHARTER AND BYLAWS
As part of the Conversion and this Plan, the Amended Charter and new bylaws
of the Converted Savings Bank will be adopted to authorize the Converted Savings
Bank to operate as a North Carolina capital stock savings bank under the name
Community Savings Bank, Inc. The Amended Charter and bylaws for the Converted
Savings Bank are attached hereto as Annex I and Annex II, respectively. By
approving the Plan, the Members will thereby approve the Amended Charter and
bylaws. Accordingly, the Amended Charter and bylaws may be amended in the same
manner as the Plan pursuant to Article XIV.
VIII. CONSUMMATION OF CONVERSION
After approval of the Plan by the Members, completion of the issuance and
sale of the Conversion Stock, and provided the Amended Charter and new bylaws
have been filed with and approved by the Administrator, the Conversion will
become effective. The effective time of such Conversion will be the date of
completion of such issuance and sale unless a later date is specified by the
Savings Bank. The Conversion shall constitute a change of form of organization
of the Savings Bank and shall not impair or affect any contracts, rights,
liabilities, obligations, interest and relations of whatever kind of the Savings
Bank.
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The Conversion of the Savings Bank from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered capital stock savings bank shall be
deemed to be an extension of the corporate existence of the Savings Bank, and
all property of the Savings Bank including all its rights, title and interest in
and to all property of whatever kind, whether real, personal or mixed, and
things in action, and every right, privilege, interest and asset of any
conceivable value or benefit then existing, belonging or pertaining to it, or
which would inure to it, shall immediately by act of law and without any
conveyance or transfer, and without any further act or deed, be vested in and
become the property of the Converted Savings Bank, which shall have, hold and
enjoy the same in its own right as fully and to the same extent as the same was
possessed, held and enjoyed by the Savings Bank, and the Converted Savings Bank
shall succeed to all the rights, obligations and relations of the Savings Bank.
IX. CHARITABLE FOUNDATION
As part of the Conversion, the Savings Bank and the Holding Company intend
to establish the Foundation. The Foundation will be incorporated as a North
Carolina chartered nonprofit corporation. Immediately after consummation of the
Conversion, the Savings Bank will purchase from the Holding Company newly issued
shares of Common Stock of the Holding Company for an aggregate purchase price of
up to $1,500,000 and will contribute such shares of Common Stock to the
Foundation. The Savings Bank may also contribute or lend to the Foundation cash
for initial start up costs and to cover initial grants by the Foundation.
The purpose of the Foundation will be to provide funds to support
charitable causes and community development in the primary market area of the
Savings Bank. It is anticipated that the Foundation will provide grants for
community development, low cost housing, civic and education programs and other
charitable causes.
The Foundation's Articles of Incorporation will provide that it is
organized exclusively for charitable purposes as defined in Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended. Such Articles of Incorporation
shall provide that no part of the net earnings of the Foundation shall benefit,
or be distributed to, its directors, officers or members. The affairs of the
Foundation will be controlled by its Board of Directors. The initial Board of
Directors of the Foundation will be appointed by the Board of Directors of the
Savings Bank; future directors will be elected by the existing Board of
Directors of the Foundation.
It is expected that, within 15 months after it is organized, the Foundation
will submit an application to the Internal Revenue Service to be recognized as a
tax-exempt organization.
The Foundation shall be required to distribute annually, in grants or
contributions, at least 5% of the average fair market value of its net
investment assets. The Foundation, as a condition of its initial funding from
the Holding Company, will be required to agree that it will not sell stock of
the Holding Company in any one year having an average price in excess of 5% of
the average market value of the Foundation's assets unless the Foundation's
Board of Directors finds that failure to exceed such limit would result in a
long-term reduction of the value of the Foundation's assets and thus jeopardize
the Foundation's ability to carry out its purposes.
X. REGISTRATION AND MARKET MAKING
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Upon completion of the Conversion, the Conversion Stock will be registered
with the SEC pursuant to the Securities Exchange Act of 1934, as amended. In
connection with the registration, the Holding Company hereby undertakes not to
deregister such stock for a period of three years thereafter.
The Holding Company will use its best efforts to encourage and assist a
Market Maker to establish and maintain a market for the shares of the Conversion
Stock. The Holding Company will also use its best efforts to list the
Conversion Stock on a national or regional securities exchange or on the
National Association of Securities Dealers Inc. Automated Quotation System.
XI. STATUS OF SAVINGS ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION
All Savings Accounts will retain the same status after Conversion as these
accounts had prior to Conversion. Each Savings Account holder shall retain,
without payment, a Savings Account or Accounts in the Converted Savings Bank,
equal in amount to the withdrawable value of such account holder's Savings
Account or Accounts in the Savings Bank prior to Conversion. All Savings
Accounts will continue to be insured by the SAIF of the FDIC up to the
applicable limits of insurance coverage. All loans shall retain the same status
after Conversion as such loans had prior to Conversion.
XII. LIQUIDATION ACCOUNT
After the Conversion, holders of Savings Accounts and borrowers will not
have voting rights in the Converted Savings Bank and will not be entitled to
share in the residual assets after liquidation of the Converted Savings Bank.
However, pursuant to the Regulations, the Savings Bank shall, at the time of
Conversion, establish a Liquidation Account on the records of the Converted
Savings Bank in an amount equal to its total regulatory capital as of the date
of the latest statement of financial condition contained in the final Prospectus
used in connection with the Conversion or such other amount as shall be required
by the Regulations. The function of the Liquidation Account is to establish a
priority on liquidation and, except as provided in Article VI.D.2 above, the
existence of the Liquidation Account shall not operate to restrict the use or
applications of any of the net worth, regulatory capital or other accounts of
the Converted Savings Bank.
The Liquidation Account shall be maintained by the Converted Saving Bank
subsequent to Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders (as applicable) who maintain Savings
Accounts in the Converted Savings Bank. Each Eligible Account Holder and
Supplemental Eligible Account Holder shall, with respect to each Savings Account
held, have a related inchoate interest in a portion of the Liquidation Account
balance (the "subaccount balance").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the total opening balance in the Liquidation Account by a fraction,
of which the numerator is the amount of the Qualifying Deposits in the related
Savings Account on the Eligibility Record Date or the Supplemental Eligibility
Record Date (as applicable) and of which the denominator is the total amount of
all Qualifying Deposits of all Eligible Account Holders or Supplemental Eligible
Account Holders (as applicable) on such dates. Each such initial subaccount
balance in the Liquidation Account shall never be increased, but shall be
subject to downward adjustment as provided below.
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If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing date subsequent to the Eligibility Record Date or Supplemental
Eligibility Record Date (as applicable) is less than the lesser of (a) the
deposit balance in such Savings Account at the close of business on any previous
annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, or (b) the amount of the
Qualifying Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, 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. The subaccount balance of a Savings Account holder shall be
maintained for as long as the Savings Account holder maintains an account with
the same social security number with the Converted Savings Bank.
In the event of a complete liquidation of the Converted Savings Bank (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder, as applicable, 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, after the payment
of creditors of the Converted Savings Bank, including deposit account holders,
but before any liquidation distribution may be made to the Converted Savings
Bank's stockholders. No merger, consolidation, purchase of bulk assets with
assumption of deposit accounts and other liabilities, or similar combination or
transaction with or by another FDIC-insured institution shall be considered to
be a complete liquidation for this purpose. In such transactions, the
Liquidation Account shall be assumed by the surviving institution.
XIII. MANAGEMENT
The Savings Bank or the Holding Company have entered or will enter into
contracts of employment with selected executives; the Savings Bank intends to
adopt and approve the ESOP; and, subject to approval of the stockholders of the
Holding Company, the Holding Company and Savings Bank intend to approve and
adopt stock option plans for employees and directors of the Holding Company
and/or the Savings Bank and a management recognition plan providing for the
issuance of restricted stock of the Holding Company to certain employees and
directors of the Holding Company and/or the Savings Bank.
XIV. AMENDMENT OR TERMINATION OF PLAN
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the Board of Directors of the Savings Bank. After submission of the Plan and
proxy materials to the Members, the Plan may be amended by a two-thirds vote of
the Board of Directors of the Savings Bank, but only with the concurrence of the
Administrator.
In the event that mandatory new regulations pertaining to conversions are
adopted by the Administrator or FDIC prior to the completion of the Conversion,
the Plan will be amended as provided above to conform to the new mandatory
regulations without a re-solicitation of proxies or another Special Meeting. In
the event that new conversion regulations adopted by the Administrator or FDIC
prior to completion of the Conversion contain optional provisions, the Plan may
be amended as provided above to utilize such optional provisions without a re-
solicitation of proxies or another Special Meeting.
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The Plan may be terminated by a two-thirds vote of the Board of Directors
of the Savings Bank at any time prior to the Special Meeting, and at any time
following such Special Meeting with the concurrence of the Administrator. The
Plan shall terminate automatically if the sale of all shares of Conversion Stock
required to be sold is not completed within 12 months of the date of the Special
Meeting, unless the Administrator agrees in writing to an extension of up to an
additional 12 months.
By adoption of the Plan, the Members authorize the Board of Directors of
the Savings Bank to amend or terminate the Plan under the circumstances set
forth above.
XV. EXPENSES OF THE CONVERSION
The Savings Bank will use its best efforts to assure that expenses
incurred in connection with the Conversion shall be reasonable.
XVI. PROHIBITION ON EXTENSIONS OF CREDIT
The Savings Bank, the Holding Company or any subsidiary of either of them
may not knowingly loan funds or otherwise extend unsecured credit or credit
secured by the Holding Company's Conversion Stock to any person to purchase
shares of Conversion Stock.
XVII. CONTRIBUTIONS TO TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS
The Savings Bank may make scheduled discretionary contributions to the
ESOP or any other tax-qualified employee stock benefit plan, provided such
contributions do not cause the Savings Bank to fail to meet its net worth
requirements.
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ANNEX I
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
COMMUNITY SAVINGS BANK, INC.
(FORMERLY COMMUNITY SAVINGS BANK, SSB)
ARTICLE I
The name of the corporation is Community Savings Bank, Inc. (the "Savings
Bank").
ARTICLE II
The principal office of the Savings Bank shall be located at 708 South
Church Street, Burlington, Alamance County, North Carolina. The street address
of the registered office of the Savings Bank is 708 South Church Street,
Burlington, North Carolina, the mailing address of the registered office of the
Savings Bank is Post Office Box 1837, Burlington, North Carolina 27216-1837, and
the name of the registered agent at the address is W. R. Gilliam.
ARTICLE III
The period of duration of the Savings Bank is perpetual.
ARTICLE IV
The purposes for which the Savings Bank is organized are to pursue any and
all of the lawful objectives of a stock savings bank chartered under the
provisions of the General Statutes of North Carolina and to exercise all of the
express, implied, and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto, subject to the constitutions and
laws of the State of North Carolina and the United States as they are now in
effect, or as they may hereafter be amended, and subject to all lawful and
applicable rules, regulations and orders of appropriate regulatory authorities.
ARTICLE V
The Savings Bank shall have authority to issue 100,000 shares of stock.
These shares shall be all of one class, designated as common stock with no par
value.
ARTICLE VI
<PAGE>
The minimum amount of consideration to be received for its shares of stock
before the Savings Bank shall commence business as a stock savings bank is $100.
ARTICLE VII
The shareholders of the Savings Bank do not have preemptive rights to
---
acquire additional or treasury shares of the Savings Bank.
ARTICLE VIII
Pursuant to the requirements of the rules and regulations of the
Administrator of the Savings Institutions Division, North Carolina Department of
Commerce, the Savings Bank shall establish and maintain a liquidation account
for the benefit of its "Eligible Account Holders" and "Supplemental Eligible
Account Holders," if applicable, as defined in the Plan of Holding Company
Conversion adopted by the Savings Bank in connection with its conversion to the
stock form of ownership. In the event of a complete liquidation of the Savings
Bank, it shall comply with such rules and regulations with respect to the amount
and the priorities on liquidation of each Eligible Account Holder's or
Supplemental Eligible Account Holder's inchoate interest in the liquidation
account, to the extent it is still in existence; provided, however, that an
Eligible Account Holder's or Supplemental Eligible Account Holder's inchoate
interest in the liquidation account shall not entitle such person or entity to
any voting rights at meetings of the Savings Bank's shareholders.
ARTICLE IX
The business and affairs of the Savings Bank shall be managed by a Board of
Directors. The number of directors shall be fixed by the Savings Bank's Bylaws
but shall not be less than five (5). Terms of directors may be classified as
stated in the Savings Bank's Bylaws.
ARTICLE X
To the fullest extent that the law of North Carolina as it exists on the
effective date of this Article, or as it may thereafter be amended, permits the
elimination of liability of directors, no director of the Savings Bank shall be
personally liable to the Savings Bank or any of its shareholders for monetary
damages for any breach of duty as a director. No amendment to or repeal of this
Article shall apply to or have any effect on the liability or alleged liability
of any director of the Savings Bank for or with respect to any act or failure to
act on the part of such director occurring prior to such amendment or repeal.
The provisions of this Article shall not be deemed to limit or preclude
indemnification of a director by the Savings Bank for any liability of a
director which has not been eliminated by the provisions of this Article.
ARTICLE XI
Any addition, alteration or amendment to this Certificate of Incorporation
shall be made in accordance with the provisions of Chapter 54C of the General
Statutes of North Carolina and any amendments thereto.
<PAGE>
COMMUNITY SAVINGS BANK, INC.
ATTEST:
By:________________________________
W. R. Gilliam, President
By:___________________________
Secretary
STATE OF NORTH CAROLINA
COUNTY OF ____________________
This is to certify on this __________ day of ___________________, 1999,
before me, a Notary Public, personally appeared W. R. GILLIAM and
____________________, each of whom, being by me first duly sworn, declared that
he signed the foregoing instrument in the capacity indicated, that he was
authorized so to sign, and that the statements contained therein are true.
Witness my hand and official seal, this _____ day of ____________________,
1999.
______________________________________________
Notary Public
(OFFICIAL SEAL)
My Commission Expires: _______________________
3
<PAGE>
ANNEX II
BYLAWS
OF
COMMUNITY SAVINGS BANK, INC.
ARTICLE I.
OFFICES
-------
Section 1. Principal Office. The principal office of the Savings Bank
--------- ----------------
shall be located at 708 South Church Street, Burlington, North Carolina 27216.
Section 2. Registered Office. The registered office of the Savings Bank
--------- -----------------
required by law to be maintained in the State of North Carolina may be, but need
not be, identical with the principal office.
ARTICLE II.
MEETING OF SHAREHOLDERS
-----------------------
Section 1. Place of Meetings. All meetings of shareholders shall be held
--------- -----------------
at the principal office of the Savings Bank, or at such other place, either
within or without the State of North Carolina, as shall be designated in the
notice of the meeting or agreed upon by a majority of the shareholders entitled
to vote thereat.
Section 2. Annual Meetings. The annual meeting of shareholders shall be
--------- ---------------
held during the first five calendar months following the end of the Savings
Bank's fiscal year, or any day (except Saturday, Sunday or a legal holiday)
during that period as shall be determined by the Board of Directors, for the
purpose of electing directors of the Savings Bank, receiving annual reports of
officers, and transacting such other business as may be properly brought before
the meeting.
Section 3. Substitute Annual Meeting. If the annual meeting shall not be
--------- -------------------------
held on the date designated by these Bylaws, a substitute annual meeting may be
called in accordance with the provisions of Section 4 of this Article II. A
meeting so called shall be designated and treated for all purposes as the annual
meeting.
<PAGE>
Section 4. Special Meetings. Special meetings of the shareholders may be
--------- ----------------
called at any time by the President, or a majority of the Board of Directors by
giving notice as hereinafter provided, and, unless the Savings Bank shall at
such time have a class of shares registered under Section 12 of the Securities
Exchange Act of 1934, as amended, shall be called by any of the foregoing
pursuant to the written request of the holders of not less than one-tenth of all
votes entitled to be cast on any issue proposed to be considered at the meeting.
Section 5. Notice of Meetings. Written or printed notice stating the
--------- ------------------
time, place and date of the meeting shall be delivered not less than ten (10)
nor more than fifty (50) days before the date thereof, either in person or by
mail, by or at the direction of the Board of Directors, the President or the
Secretary to each shareholder of record entitled to vote at such meeting unless
applicable law or the Saving Bank's certificate of incorporation require that
such notice shall be given to all shareholders with respect to such meeting. If
mailed, such notice shall be deemed to be effective when deposited in the United
States mail, correctly addressed to the shareholder at the shareholder's address
as it appears on the current record of shareholders of the Savings Bank, with
postage thereon prepaid.
In the case of an annual or substitute annual meeting, the notice of
meeting need not specifically state the business to be transacted thereat unless
such a statement expressly is required by the provisions of the North Carolina
Business Corporation Act. In the case of a special meeting, the notice of
meeting specifically shall state the purpose or purposes for which the meeting
is called.
If any meeting of shareholders is adjourned to a different date, time or
place, notice need not be given of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment and if a new record
date is not fixed for the adjourned meeting. If a new record date for the
adjourned meeting is or must be fixed pursuant to North Carolina law, notice of
the adjourned meeting must be given as provided in this Section to persons who
are shareholders as of the new record date.
Section 6. Waiver of Notice. Any shareholder may waive notice of any
--------- ----------------
meeting before or after the meeting. The waiver must be in writing, signed by
the shareholder, and delivered to the Savings Bank for inclusion in the minutes
or filing with the corporate records. A shareholder's attendance, in person or
by proxy, at a meeting (a) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder or the shareholder's proxy at the
beginning of the meeting objects to holding the meeting or transacting business
thereat, and (b) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder or his proxy objects to considering the matter
before it is voted upon.
Section 7. Voting List. Before each meeting of shareholders, an
--------- -----------
alphabetical list of the shareholders entitled to notice of such meeting shall
be prepared by the Secretary of the Savings Bank. The list shall be arranged by
voting group and within each voting group by class or series of shares and show
the address of and number of shares held by each shareholder. The list shall be
kept on file at the principal office of the Savings Bank for the period
beginning two (2) business days after notice of the meeting is given and
continuing through the meeting, and shall be available for inspection by any
shareholder or the agent or attorney of any shareholder at any time prior to the
meeting during regular business hours and at any time during the meeting or any
adjournment thereof.
2
<PAGE>
Section 8. Voting Group. All shares of one or more classes or series that
--------- ------------
under the Savings Bank's certificate of incorporation or the North Carolina
Business Corporation Act are entitled to vote and be counted together
collectively on a matter at a meeting of shareholders constitute a voting group.
All shares entitled by the Savings Bank's certificate of incorporation or the
North Carolina Business Corporation Act to vote generally on a matter are for
that purpose a single voting group. Classes or series of shares shall not be
entitled to vote separately by voting group unless expressly authorized by the
Savings Bank's certificate of incorporation or specifically required by law.
Section 9. Quorum. Shares entitled to vote generally as a single voting
--------- ------
group or as a separate voting group may take action on a matter at the meeting
of shareholders only if a quorum of those shares is present at the meeting. A
majority of the votes entitled to be cast on the matter by the voting group
shall constitute a quorum of that voting group for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
In the absence of a quorum at the opening of any meeting of shareholders,
such meeting may be adjourned from time to time by a vote of a majority of the
votes cast on the motion to adjourn; and at any adjourned meeting any business
may be transacted which might have been transacted at the original meeting if a
quorum exists with respect to the matter proposed.
Section 10. Proxies. Shares may be voted either in person or by one or
---------- -------
more agents authorized by a written proxy executed by the shareholder or by the
shareholder's duly authorized attorney-in-fact. A proxy shall not designate as
a holder any corporation or partnership including any person acting on behalf of
any corporation or partnership, or any person other than a living natural
person. However, a proxy may designate the holder of a specified title or
office, if a natural person, or a committee composed solely of natural persons,
including a committee composed of the Board of Directors of the Savings Bank.
Section 11. Voting of Shares. Subject to the provisions of the Savings
---------- ----------------
Bank's certificate of incorporation, each outstanding share shall be entitled to
one vote on each matter submitted to a vote at a meeting of shareholders.
Except in the election of directors as provided in Section 3 of Article
III, if a quorum exists, action on a matter by a voting group at a meeting of
shareholders is approved if the votes cast within the voting group favoring the
action exceed the votes cast opposing the action, unless a greater vote is
required by law or the Savings Bank's articles of incorporation or these Bylaws.
Section 12. Informal Action by Shareholders. Any action which may be taken
---------- -------------------------------
at a meeting of shareholders may be taken without a meeting if one or more
written consents, setting forth the action so taken, shall be signed by all of
the persons who would be entitled to vote upon such action at a meeting, and
delivered to the Secretary of the Savings Bank for inclusion in the minutes or
filing with the corporate records.
3
<PAGE>
If the Savings Bank is required by law to give notice to nonvoting
shareholders of action to be taken by unanimous written consent of the voting
shareholders, then the Savings Bank shall give the nonvoting shareholders, if
any, written notice of the proposed action at least ten (10) days before the
action is taken.
ARTICLE III.
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the Savings Bank
--------- --------------
shall be managed by the Board of Directors or by such Executive Committee as the
Board may establish.
Section 2. Number, Term and Qualifications. The number of Directors of
--------- -------------------------------
the Savings Bank shall be no less than five (5) and no more than fifteen (15),
with the exact number to be fixed from time to time by the Board of Directors.
Each Director shall hold office until his death, resignation, retirement,
removal, disqualification, or his successor shall have been elected and
qualified. Each director shall be a depositor in the Savings Bank, whose
deposit account, including deferred compensation accounts, shall equal or exceed
$5,000.00.
Section 3. Election of Directors. Except as provided in Section 5 of this
--------- ---------------------
Article III, the directors shall be elected at the annual meeting of
shareholders, and those persons who receive the highest number of votes at a
meeting at which a quorum is present shall be deemed to have been elected. If
any shareholder so demands, election of directors shall be by ballot. At all
times when the number of directors shall be nine (9) or more, the Board of
Directors shall be divided into three (3) classes, as nearly equal in number as
possible, and each class shall be elected for staggered terms of three (3) years
or until successors are duly elected and qualified.
Section 4. Removal. Any director may be removed at any time with or
--------- -------
without cause by a vote of shareholders holding a majority of the votes entitled
to be cast at an election of the directors. If any directors are so removed, new
directors may be elected at the same meeting.
Section 5. Vacancies. Any vacancy occurring in the Board of Directors,
--------- ---------
including without limitation a vacancy resulting from an increase in the number
of directors or from the failure by the shareholders to elect the full
authorized number of directors, may be filled by the shareholders, a majority of
the remaining directors, though less than a quorum, or by the sole remaining
director. A director elected to fill a vacancy shall be elected to serve the
remaining term of the director replaced, or if a director is not elected to
replace a previously elected director, the new director shall be elected to
serve until the next shareholders' meeting at which directors are elected. The
shareholders may elect a director at any time to fill any vacancy not filled by
the directors.
Section 6. Compensation. The Board of Directors may provide for the
--------- ------------
compensation of directors for their services as such and for the payment or
reimbursement of any or all expenses incurred by them in connection with such
services.
4
<PAGE>
ARTICLE IV.
MEETINGS OF DIRECTORS
---------------------
Section 1. Regular Meetings. A regular meeting of the Board of Directors
--------- ----------------
shall be held immediately after, and at the same place as, the annual meeting of
shareholders. In addition, the Board of Directors may provide, by resolution,
the time and place, either within or without the State of North Carolina, for
the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of Directors
--------- ----------------
may be called by or at the request of the President, Vice President acting in
his absence or incapacity, or any three Directors, upon notice either in person
or by mail. Such meetings shall be held either within or without the State of
North Carolina as fixed by the person or persons calling any such meeting.
Section 3. Notice of Meetings. The applicable provisions of North
--------- ------------------
Carolina law shall govern meetings of the Board of Directors, notice of
meetings, waiver of notice, quorums and actions of the Board of Directors.
Section 4. Quorum. A majority of the number of directors shall constitute
--------- ------
a quorum for the transaction of business at any meeting of the Board of
Directors.
Section 5. Manner of Acting. Except as otherwise provided in these
--------- ----------------
Bylaws, the act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Section 6. Presumption of Assent. A director of the Savings Bank who is
--------- ---------------------
present at a meeting of the Board of Directors at which action on any matter is
taken shall be presumed to have assented to the action unless his contrary vote
is recorded or his dissent is otherwise entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the Secretary of the Savings Bank immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
Section 7. Informal Action by Directors. Action taken by the directors
--------- ----------------------------
without a meeting is nevertheless Board action if written consent to the action
is signed by all the directors and filed with the minutes of the proceedings of
the Board or other corporate records, whether done before or after the actions
are taken.
5
<PAGE>
ARTICLE V.
OFFICERS
--------
Section 1. Officers of the Savings Bank. The officers of the Savings Bank
--------- ----------------------------
shall consist of a President, a Secretary, a Treasurer, and such Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers as
the Board of Directors may from time to time elect. Any two or more offices may
be held by the same person, except the offices of President and Secretary, but
no officer may act in any more than one capacity where action of two or more
officers is required.
Section 2. Election and Term. The officers of the Savings Bank shall be
--------- -----------------
elected by the Board of Directors. Such election may be held at any regular or
special meeting of the Board. Each officer shall hold office until his death,
resignation, retirement, removal, disqualification or his successor is elected
and qualified.
Section 3. Removal. Any officer or agent elected or appointed by the
--------- -------
Board of Directors may be removed by the Board whenever in its judgment the best
interests of the Savings Bank will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 4. President. The President shall be the principal executive
--------- ---------
officer and managing officer of the Savings Bank and, subject to the control of
the Board of Directors, shall supervise and control all of the business and
affairs of the Savings Bank. He or she shall sign, with the Secretary, an
Assistant Secretary, or with any other proper officer authorized by the Board of
Directors and whose signature is required, certificates for shares of the
Savings Bank and any deeds, mortgages, bonds, contracts, or other instruments
which may be lawfully executed on behalf of the Savings Bank, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be delegated by the Board of
Directors or these Bylaws to some other officer or agent of the Savings Bank;
and, in general, he or she shall perform all duties incident to the office of
the President and such other duties as may be prescribed by the Board of
Directors from time to time.
Section 5. Vice Presidents. In the absence of the President or in the
--------- ---------------
event of his death, inability or refusal to act, the Vice Presidents, unless
otherwise determined by the Board of Directors, shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Any Vice President, with any other proper
officer whose signature is required, may sign certificates for shares of the
Savings Bank and shall perform such other duties as from time to time may be
assigned to him or her by the President or Board of Directors.
Section 6. Secretary. The Secretary shall: (a) keep the minutes of the
--------- ---------
meetings of shareholders and of the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the Savings Bank and see that the seal
of the Savings Bank is affixed to all documents the execution of which on behalf
of the Savings Bank under its seal is duly authorized; (d) have general charge
of the stock transfer books of the Savings Bank and shall keep, at the
registered or principal office of the Savings Bank a record of shareholders
showing the
6
<PAGE>
name and address of each shareholder and the number and class of the shares held
by each; (e) be authorized, with any other proper officer, to sign certificates
for shares of the Savings Bank and shall sign such other instruments as may
require the Secretary's signature; and (f) in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him or her by the President or by the Board of Directors.
Section 7. Assistant Secretaries. In the absence of the Secretary or in
--------- ---------------------
the event of his or her death, inability or refusal to act, the Assistant
Secretaries, unless otherwise determined by the Board of Directors, shall
perform the duties of the Secretary, and when so acting shall have all the
powers of and be subject to all the restrictions upon the Secretary. Any
Assistant Secretary, with any other proper officer, may sign certificates for
shares of the Savings Bank. They shall perform such other duties as may be
assigned to them by the Secretary, by the President, or by the Board of
Directors.
Section 8. Treasurer. The Treasurer shall: (a) have charge and custody
--------- ---------
of and be responsible for all funds and securities of the Savings Bank; receive
and give receipts for money due and payable to the Savings Bank from any source
whatsoever, and deposit all such moneys in the name of the Savings Bank in such
depositories as shall be selected by the Board of Directors of the Savings Bank;
(b) have authority, with any other proper officer, to sign certificates for
shares of the Savings Bank; and (c) in general perform all of the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the President or by the Board of Directors, or by
these Bylaws.
Section 9. Assistant Treasurers. In the absence of the Treasurer or in
--------- --------------------
the event of his or her death, inability or refusal to act, the Assistant
Treasurers, unless otherwise determined by the Board of Directors, shall perform
the duties of the Treasurer, and when so acting shall have all the powers of and
be subject to all the restrictions upon the Treasurer. Any Assistant Treasurer,
with any other proper officer, may sign certificates for shares of the Savings
Bank. They shall perform such other duties as may be assigned to them by the
Treasurer, by the President, or by the Board of Directors.
ARTICLE VI.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
Section 1. Contracts. The Board of Directors may authorize any officer or
--------- ---------
officers, agent or agents, to enter into any contract or execute and deliver any
instruments in the name of and on behalf of the Savings Bank, and such authority
may be general or confined to specific instances.
Section 2. Loans. No loan shall be contracted on behalf of the Savings
--------- -----
Bank and no evidences of indebtedness shall be issued in its name unless
authorized by Article VI of these Bylaws or authorized by a resolution of the
Board of Directors. Such authority may be general or confined to specific
instances.
7
<PAGE>
Section 3. Checks and Drafts. All checks, drafts or other orders for the
--------- -----------------
payment of money issued in the name of the Savings Bank shall be signed by such
President or such other officer or officers, agent or agents of the Savings Bank
and in such manner as shall from time to time be determined by resolution of the
Board of Directors.
Section 4. Deposits. All funds of the Savings Bank not otherwise employed
--------- --------
shall be deposited from time to time to the credit of the Savings Bank in such
depositories as the Board of Directors shall direct.
ARTICLE VII.
DEPOSIT ACCOUNTS
----------------
Section 1. Classes of Deposit Accounts. The Savings Bank may issue as
--------- ---------------------------
many classes of deposit accounts as the Board of Directors shall establish,
subject to such regulations and limitations as the Administrator of the Savings
Institutions Division of the North Carolina Department of Commerce and the
Federal Deposit Insurance Corporation may prescribe. Such classes of deposit
accounts may include passbook accounts, certificate accounts, NOW accounts,
trust accounts, demand accounts and such other accounts as are permitted by law.
The minutes of the meetings of the Board of Directors of the Savings Bank shall
define each class of deposit account being offered to the public and shall show
all changes made in the class or classes of deposit accounts available to the
customers of the Savings Bank.
Section 2. Withdrawals. The Savings Bank shall have the right to pay the
--------- -----------
withdrawal value of its deposit accounts at any time upon written application
therefor and to pay the holders thereof the withdrawal value thereof. Upon
receipt of a written application from any holder of a deposit account of all or
any part of the withdrawal value thereof, the Savings Bank shall within thirty
(30) days pay the amount requested. If the Savings Bank is unable to pay all
withdrawals requested at the end of thirty (30) days from the date of such
requests, it shall then pay all withdrawals requested in accordance with the
applicable provisions of the General Statutes of North Carolina, as amended, and
the regulations of the Federal Deposit Insurance Corporation. Holders of
deposit accounts for which application for withdrawal has been made shall remain
holders of deposit accounts until paid and shall not become creditors.
When a certificate or agreement between the Savings Bank and the account
holder specifies a particular period of time for notice of withdrawals,
withdrawals shall be made in accordance with such certificate or agreement.
Section 3. Forced Retirement. If so provided in the deposit account
--------- -----------------
contract, the Savings Bank may redeem all or any part of its deposit accounts
which have not been pledged as security for loans. The Savings Bank shall give
at least thirty (30) days notice of such redemption by certified mail addressed
to the holder of each deposit account at his or her last address as recorded on
the books of the Savings Bank. The Savings Bank may not redeem any of its
deposit accounts when it has any request for withdrawal which has been on file
and unpaid for more than thirty (30) days. Also, the Savings Bank
8
<PAGE>
may not redeem any fixed-term deposit accounts which have not matured. The
redemption price of each deposit account redeemed shall be the full value
thereof, as determined by the Board of Directors, but in no event shall the
redemption price be less than the withdrawal amount of such deposit accounts. If
notice of redemption is duly given and sufficient funds are available for such
redemption, interest shall cease to accrue on the deposit account as of the
redemption date. After the redemption date all rights with respect to the
deposit account shall terminate, except for the right of the deposit account
holder to receive the redemption price thereof without interest.
Section 4. New Account Books. The Savings Bank may issue a new account
--------- -----------------
book or certificate, or other evidence of ownership of a deposit account, in the
name of the holder of record at any time when requested by such holder or his or
her legal representative upon proof satisfactory to the Savings Bank that the
original account book or certificate has been lost or destroyed. Such proof of
loss shall ordinarily include a written verification by the holder or his or her
legal representative that the account book or certificate has been lost or
destroyed and the account has not been pledged or assigned. Such new account
book or certificate shall expressly state that it is issued in lieu of the one
lost or destroyed and that the Savings Bank shall in no way be liable thereafter
on account of the original book or certificate. When issuing such a new account
book or certificate, the Savings Bank may, at its option, require the holder of
record to give to the Savings Bank a bond in such sum as it may direct, or such
other indemnification as it may dictate, in order to indemnify the Savings Bank
against any loss that might result from the issuance of the new account book,
certificate, or other evidence of ownership of a deposit account.
ARTICLE VIII.
LOANS AND INVESTMENTS
---------------------
Section 1. General Lending Authority. Funds of the Savings Bank shall be
--------- -------------------------
loaned in compliance with the General Statutes of North Carolina, the
regulations promulgated by the Administrator of the Savings Institutions
Division of the North Carolina Department of Commerce and applicable federal
statutes and regulations, and in such sums and at such times as the Board of
Directors may determine.
Section 2. Manner of Making Loans. The Board of Directors shall establish
--------- ----------------------
and maintain procedures by which loans are to be considered, approved, and made
by the Savings Bank. Such loan procedures may be amended by resolution of the
Board of Directors.
The Board of Directors may establish a Loan Committee to implement the
Board's loan procedures and to consider and approve loans.
The Board of Directors may designate one or more of the Savings Bank's
officers to serve as Loan Officers. Such Loan Officers shall have authority to
approve loans as determined by the Board and the Loan Committee.
9
<PAGE>
All actions taken on loan applications to the Savings Bank shall be
reported to the Board of Directors at its meeting next following such actions.
Section 3. Appraisals. The Board of Directors shall cause all loans
--------- ----------
secured by real estate to be appraised and approved as provided by law.
ARTICLE IX.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------
Section 1. Certificate For Shares. If the shares of the Savings Bank are
--------- ----------------------
represented by certificates, the certificates shall be in such form as required
by law and as determined by the Board of Directors and shall be signed by the
President or any Vice President and either the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer. All certificates for
shares shall be numbered consecutively or otherwise identified and shall
indicate thereon a reference to any and all restrictive conditions of said
shares. Certificates representing shares of the Savings Bank may be issued to
every shareholder for the fully paid shares owned thereby; the name and address
of the persons to whom they are issued, the number of shares, and the date of
issue shall be entered on the stock transfer books of the Savings Bank. If the
shares are not represented by certificates, then within a reasonable time after
issuance or transfer of such shares, the Savings Bank shall deliver to the
shareholder to whom such shares have been issued or transferred a written
statement of the information required by law to be on certificates.
Section 2. Transfer of Shares. If the shares are represented by
--------- ------------------
certificates, transfer of shares shall be made on the stock transfer books of
the Savings Bank only upon surrender of the certificates for the shares sought
to be transferred by the record holder thereof or by such shareholder's duly
authorized agent, transferee or legal representative. All certificates
surrendered for transfer shall be cancelled before new certificates for the
transferred shares shall be issued. If the shares are not represented by
certificates, transfer of shares shall be made on the stock transfer books of
the Savings Bank only upon the furnishing of proper evidence of authority to
transfer by the holder of record thereof or such shareholder's duly authorized
agent, transferee or legal representative. Transfer of shares may be restricted
by an agreement of the shareholder(s).
Section 3. Fixing Record Date. The Board of Directors of the Savings Bank
--------- ------------------
may fix a date selected by it as the record date for one or more voting groups
in order to determine (a) the shareholders entitled to notice of a meeting of
shareholders, (b) the shareholders entitled to demand a special meeting, if any,
(c) the shareholders entitled to vote, or (d) the shareholders entitled to take
any other action. A record date fixed under this Section may not be more than
seventy (70) days before the meeting or action requiring a determination of
shareholders.
A determination of shareholders entitled to notice of or to vote at a
meeting of shareholders is effective for any adjournment of the meeting unless
the Board of Directors fixes a new record date for the adjourned meeting, which
it must do if the meeting is adjourned to a date more than one hundred twenty
(120) days after the date fixed for the original meeting.
10
<PAGE>
If no record date is fixed by the Board of Directors for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
the close of business on the day before the first notice of the meeting is
delivered to shareholders shall be the record date for such determination of
shareholders.
Section 4. Lost Certificates. The Board of Directors may authorize the
--------- -----------------
issuance of a new share certificate in place of a certificate theretofore issued
by the Savings Bank claimed to have been lost or destroyed, upon receipt of an
affidavit of such fact from the person claiming the loss or destruction. When
authorizing such issuance of a new certificate, the Board shall require the
claimant to give the Savings Bank a bond in such sum as the Board may direct to
indemnify the Savings Bank against loss from any claim with respect to the
certificate claimed to have been lost or destroyed; provided, however, that the
Board, by resolution reciting the circumstances justifying such action, may
authorize the issuance of the new certificate without requiring such a bond.
Section 5. Holder of Record. Except as otherwise required by law, the
--------- ----------------
Savings Bank may treat as the absolute owner of shares and as the person
exclusively entitled to receive notification and distributions, to vote and
otherwise to exercise the rights, powers, and privileges of ownership of such
shares, the person in whose name the shares stand of record on its books.
Section 6. Reacquired Shares. Shares of the Savings Bank that have been
--------- -----------------
issued and thereafter reacquired by the Savings Bank shall constitute authorized
but unissued shares.
ARTICLE X.
GENERAL PROVISIONS
------------------
Section 1. Distributions. The Board of Directors from time to time may
--------- -------------
authorize, and the Savings Bank may pay, distributions and share dividends on
the Savings Bank's outstanding shares in the manner and upon the terms and
conditions provided by law and by the Savings Bank's articles of incorporation.
Section 2. Seal. The corporate seal of the Savings Bank shall consist of
--------- ----
two concentric circles between which is the name of the Savings Bank and in the
center of which is inscribed SEAL; and such seal, as impressed on the margin
hereof, is hereby adopted as the corporate seal of the Savings Bank.
Section 3. Indemnity. In addition to any indemnification required or
--------- ---------
permitted by law, and except as otherwise provided in these Bylaws, any person
who at any time serves or has served as a director, officer, employee, partner,
trustee or agent of the Savings Bank and any such person who serves or has
served at the request of the Savings Bank as a director, officer, 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 Savings Bank to the full extent
allowed by applicable law against liability and litigation expense arising out
of such status or activities in such capacity. "Liability and litigation
expense" shall include costs and expenses of litigation
11
<PAGE>
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement which are actually and reasonably incurred in connection with or as a
consequence of any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, including appeals.
Promptly after the final disposition or termination of any matter which
involves liability or litigation expense as described above or at such earlier
time as it sees fit, the Savings Bank shall determine whether any person
described in this Section 3 is entitled to indemnification thereunder. Such
determination shall be limited to the following issues: (i) whether the
persons to be indemnified are persons described in this Section 3, (ii) whether
the liability or litigation expense incurred arose out of the status or
activities of such persons as described in this Section 3, (iii) whether
liability was actually incurred and litigation expense was actually and
reasonably incurred, and (iv) whether the indemnification requested is not
permitted by applicable law. Such determination shall be made by a majority
vote of directors who were not parties to the action, suit or proceeding (or, in
connection with "threatened" actions, suits or proceedings, who were not
"threatened parties"). If at least two such disinterested directors are not
obtainable, or, even if obtainable, if at least half of the number of
disinterested directors so direct, such determination shall be made by
independent legal counsel in written opinion.
Litigation expense incurred by a person described in this Section 3 in
connection with a matter described in this Section 3 shall be paid by the
Savings Bank in advance of the final disposition or termination of such matter,
if the Savings Bank receives an undertaking, dated, in writing and signed by the
person to be indemnified, to repay all such sums unless such person is
ultimately determined to be entitled to be indemnified by the Savings Bank as
provided in this Section 3. Requests for payments in advance of final
disposition or termination shall be submitted in writing unless this requirement
is waived by the Savings Bank.
Notwithstanding the foregoing, no advance payment shall be made as to any
payment or portion of a payment for which the determination is made that the
person requesting payment will not be entitled to indemnification. Such
determination may be made only by a majority vote of disinterested directors or
by independent legal counsel as next provided. If there are not at least two
disinterested directors, the notice of all requests for advance payment shall be
delivered for review to independent legal counsel for the Savings Bank. Such
counsel shall have the authority to disapprove any advance payment or portion of
a payment for which it plainly appears that the person requesting payment will
not be entitled to indemnification.
The Savings Bank shall not be obligated to indemnify persons described in
this Section 3 for any amounts paid in settlement unless the Savings Bank
consents in writing to the settlement. The Savings Bank shall not unreasonably
withhold its consent to proposed settlements. The Savings Bank's consent to a
proposed settlement shall not constitute an agreement by the Savings Bank that
any person is entitled to indemnification hereunder. The Savings Bank shall
waive the requirement of this section for its written consent as fairness and
equity may require.
A person described in this Section 3 may apply to the Savings Bank in
writing for indemnification or advance expenses. Such applications shall be
addressed to the Secretary or, in the
12
<PAGE>
absence of the Secretary, to any officer of the Savings Bank. The Savings Bank
shall respond in writing to such applications as follows: to a request for
indemnity under this Section 3, within ninety days after receipt of the
application; to a request for advance expenses under this Section 3, within
fifteen days after receipt of the application.
If any action is necessary or appropriate to authorize the Savings Bank to
pay the indemnification required by these Bylaws, the Board of Directors shall
take such action, including (i) making a good faith evaluation of the
indemnification request, (ii) giving notice to, and obtaining approval by, the
shareholders of the Savings Bank, and (iii) taking any other action.
The right to indemnification or advance expenses provided herein shall be
enforceable in any court of competent jurisdiction. A legal action may be
commenced if a claim for indemnity or advance expenses is denied in whole or in
part, or upon the expiration of the time periods provided above. In any such
action, if the claimant establishes the right to indemnification, he or she
shall also have the right to be indemnified against the litigation expense
(including, without limitation, reasonable attorneys' fees) of such action.
As provided by N.C. Gen. Stat. (S)55-8-57, the Savings Bank shall have the
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Savings Bank, or who is or was
serving at the request of the Savings Bank as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee benefit plan,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Savings Bank
has the power to indemnify him against such liability.
The right to indemnification provided herein shall not be deemed exclusive
of any other rights to which any persons seeking indemnity may be entitled apart
from the provisions of this bylaw, except there shall be no right to
indemnification as to any liability or litigation expense for which such person
is entitled to receive payment under any insurance policy other than a
directors' and officers' liability insurance policy maintained by the Savings
Bank. Such right inures to the benefit of the heirs and legal representatives
of any persons entitled to such right. Any person who at any time after the
adoption of this bylaw serves or has served in any status or capacity described
in this Section 3, shall be deemed to be doing or to have done so in reliance
upon, and as consideration for, the right of indemnification provided herein.
Any repeal or modification hereof shall not affect any rights or obligations
then existing. The right provided herein shall not apply as to persons serving
institutions which are hereafter merged into or combined with the Savings Bank,
except after the effective date of such merger or combination and only as to
status and activities after such date.
If this Article or any portion hereof shall be invalidated on any ground by
any court or agency of competent jurisdiction, then the Savings Bank shall
nevertheless indemnify each person described in this Section 3 to the full
extent permitted by the portion of this Article that is not invalidated and also
to the full extent (not exceeding the benefits described herein) permitted or
required by other applicable law.
13
<PAGE>
Section 4. Fiscal Year. The fiscal year of the Savings Bank shall be the
--------- -----------
twelve-month period which ends on December 31.
Section 5. Amendments. Except as otherwise provided herein, or required
--------- ----------
by law, these Bylaws may be amended or repealed and new Bylaws may be adopted by
the affirmative vote of a majority of the Directors then holding office at any
regular or special meeting of the Board of Directors. No bylaw adopted, amended
or repealed by the shareholders shall be readopted, amended or repealed by the
Board of Directors unless the Savings Bank's articles of incorporation or a
bylaw adopted by the shareholders authorizes the Board of Directors to adopt,
amend or repeal that particular bylaw or the Bylaws generally.
The shareholders may amend or repeal these Bylaws even though these Bylaws
also may be amended or repealed by the Board of Directors.
Adopted this _____ day of _____________, 1999.
____________________________________________
Secretary
14
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
FIRST COMMUNITY FINANCIAL CORPORATION
ARTICLE I
The name of the corporation is First Community Financial Corporation (the
"Corporation").
ARTICLE II
SECTION 2.1. TOTAL AUTHORIZED SHARES OF CAPITAL STOCK. The Corporation
----------- ----------------------------------------
shall have authority to issue a total of 25,000,000 shares of capital stock,
none of which shall have any par value, divided into classes as follows:
Class Number of Shares
----- ----------------
Common Stock 20,000,000
Preferred Stock 5,000,000
SECTION 2.2. COMMON STOCK. The shares of Common Stock shall be of one and
----------- ------------
the same class. Subject to the rights of holders of the Preferred Stock as
determined by the Board of Directors pursuant to Section 2.3 hereof and by the
North Carolina Business Corporation Act ("NCBCA") as now constituted or
hereafter amended, the holders of shares of Common Stock shall have one vote per
share on all matters on which holders of shares of Common Stock are entitled to
vote and shall be entitled to participate pro rata after preferential rights of
holders of Preferred Stock in the distribution of the net assets of the
Corporation upon dissolution.
<PAGE>
SECTION 2.3. PREFERRED STOCK. The shares of Preferred Stock may be issued
----------- ---------------
from time to time by the Corporation, and the Board of Directors may create and
divide such shares into series within that class, and such shares and the shares
of each such series shall have such voting powers, full or limited, or no voting
powers, and such designations, preferences, limitations and relative rights (or
qualifications, conditions or restrictions thereon) as the Board of Directors
may and hereby is authorized to determine.
ARTICLE III
The street address and county of the initial registered office of the
Corporation is 708 South Church Street, Burlington, Alamance County, North
Carolina 27216. The mailing address of the initial registered office of the
Corporation is Post Office Box 1837, Burlington, North Carolina 27216-1837. The
name of the initial registered agent is W. R. Gilliam.
ARTICLE IV
The name and address of the incorporator is as follows:
W. R. Gilliam
708 South Church Street
Post Office Box 1837
Burlington, North Carolina 27216-1837.
ARTICLE V
To the fullest extent permitted by the NCBCA as it exists or may hereafter
be amended, no person who is serving or has served as a director of the
Corporation shall be personally liable to the Corporation or any of its
shareholders or otherwise for monetary damages for breach of any duty as a
director. No amendment or repeal of this Article, nor the adoption of any
provision to these Articles of Incorporation inconsistent with this Article,
shall eliminate or reduce the protection granted herein with respect to any
matter that occurred prior to such amendment, repeal, or adoption. The
provisions of this
2
<PAGE>
Article shall not be deemed to limit or preclude indemnification of a director
by the Corporation for any liability of a director which has not been eliminated
by the provisions of this Article.
ARTICLE VI
The provisions of Article 9 and Article 9A of the NCBCA entitled "The North
Carolina Shareholder Protection Act" and "The North Carolina Control Share
Acquisition Act," respectively, shall not be applicable to the Corporation.
ARTICLE VII
SECTION 7.1. DEFINITIONS AND TERMS WITH RESPECT TO ARTICLE VII. For
----------- -------------------------------------------------
purposes of this Article VII, the following definitions shall apply:
(a) The terms "Business Combination" shall mean any transaction in
connection with (i) a combination or merger of the Corporation, (ii) the
acquisition of more than ten percent (10%) of the Corporation's outstanding
Voting Shares, or (iii) a purchase or sale of a substantial portion of the
assets of the Corporation or a Subsidiary thereof (a purchase or sale of 20% or
more of the total assets of the Corporation or a Subsidiary as of the end of the
most recent quarterly period being deemed as "substantial") in each case, as
applicable, which requires the approval of, or notice to and absence of
objection by (i) any federal or state regulatory authority of banks, savings
banks, savings and loan associations or their holding companies, (ii) the
Federal Trade Commission or the Anti-Trust Division of the United States
Department of Justice, or (iii) the shareholders of the Corporation, but
excluding any reorganization, acquisition, merger, purchase or sale of assets,
or combination initiated by the Corporation upon the vote of at least fifty-one
percent (51%) of the Continuing Directors.
(b) The term "Continuing Director" shall mean any member of the Board
of Directors of the Corporation who is not a Related Person and is not
affiliated with the Related Person and was a member of the Board of Directors
prior to the time that the Related Person became a Related
3
<PAGE>
Person, and any successor of a Continuing Director who is unaffiliated with the
Related Person and is recommended to succeed a Continuing Director by a majority
of the Continuing Directors.
(c) The term "Person" shall mean an individual, a corporation, a
limited liability company, a partnership, an association, a joint stock company,
a trust, or an unincorporated organization or similar company, and also includes
a syndicate or any group of any of the foregoing formed or acting together in
concert for the purpose of acquiring, holding or disposing of the equity
securities or assets of the Corporation or any Subsidiary.
(d) The term "Related Person" shall mean any individual, partnership,
corporation, trust or other person or entity (together with its "affiliates" and
"associates," as defined in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "1934 Act")) which as
of the date of its offer with respect to a Business Combination is a "beneficial
owner" (as defined in Rule 13d-3 under the 1934 Act) in the aggregate of ten
percent (10%) or more of the outstanding Voting Shares of the Corporation. A
Related Person shall be deemed to have acquired a share of the Voting Stock of
the Corporation at the time when such Related Person became the beneficial owner
thereof.
(e) The term "Subsidiary" shall mean any corporation or other entity
of which the Person in question owns not less than fifty percent (50%) of any
class of equity securities, directly or indirectly.
(f) The term "Voting Shares" shall mean any shares of the authorized
stock of the Corporation entitled to vote generally in the election of
directors.
(g) The term "Whole Board of Directors" shall mean the total number of
directors which the Corporation would have if there were no vacancies on the
Board.
4
<PAGE>
SECTION 7.2. RIGHTS OF SHAREHOLDERS. The affirmative vote of the holders
----------- ----------------------
of seventy-five percent (75%) or more of the outstanding Voting Shares, voting
separately as a class, shall be required for the approval or authorization of
any Business Combination, provided, however, that the seventy-five percent (75%)
voting requirement shall not be applicable and such Business Combination may be
approved by the shareholder vote required by law and any other provision of
these Articles of Incorporation if the Business Combination is approved by the
Board of Directors of the Corporation by the affirmative vote of (a) at least
seventy-five percent (75%) of the Whole Board of Directors, and (b) if such
Business Combination is proposed by a Related Person, at least seventy-five
percent (75%) of the Continuing Directors, in either case at a duly called or
convened regular or special meeting of the Board of Directors.
SECTION 7.3. FIDUCIARY OBLIGATIONS. Nothing contained in this Article VII
----------- ---------------------
shall be construed to relieve any Related Person from any fiduciary obligation
imposed by law or equity.
SECTION 7.4. STANDARDS OF BOARD OF DIRECTORS' EVALUATION OF AN OFFER. The
----------- -------------------------------------------------------
Board of Directors of the Corporation, when evaluating any offer of another
Person to effect a Business Combination shall, in connection with the exercise
of its judgment in determining what is in the best interests of the Corporation
and its shareholders, give due consideration to all relevant factors, including,
without limitation: (i) the social and economic effects of acceptance of such
offer on its depositors, borrowers, other customers, employees, and creditors of
the Corporation and its Subsidiaries, and on the communities in which the
Corporation and its Subsidiaries operate or are located; (ii) the ability of the
Corporation and its Subsidiaries to fulfill the objectives of a bank and/or
savings bank and/or savings and loan association holding company, as applicable,
and of commercial banking and/or savings bank and/or savings and loan entities,
as applicable, under applicable federal and state statutes and regulations;
(iii) the business and financial condition and prospects and earnings prospects
of the Person
5
<PAGE>
or Persons proposing the Business Combination, including, but not limited to,
debt service and other existing financial obligations, financial obligations to
be incurred in connection with the Business Combination, and other likely
financial obligations of such Person or Persons, and the possible effect of such
conditions and prospects upon the Corporation and its Subsidiaries and the
communities in which the Corporation and its Subsidiaries are located; (iv) the
competence, experience, and integrity of the Person or Persons proposing the
Business Combination and its or their management; and (v) the prospects for
successful conclusion of the proposed Business Combination. The provisions of
this Article VII shall be deemed solely to grant discretionary authority to the
Board of Directors and shall not be deemed to provide any constituency the right
to be considered or to compel the consideration of its interests.
SECTION 7.5. AMENDMENT AND REPEAL OF ARTICLE VII. Notwithstanding any
----------- -----------------------------------
other provision of these Articles of Incorporation or the Bylaws of the
Corporation (and notwithstanding the fact that a lesser percentage may be
specified by law) any amendment, change or repeal of this Article VII, or any
other amendment of these Articles of Incorporation which will have the effect of
modifying or permitting circumvention of this Article VII, shall require the
affirmative vote of the holders of at least seventy-five percent (75%) of the
then outstanding Voting Shares of the Corporation, voting separately as a class;
provided, however, that this restriction shall not apply to, and such seventy
five percent (75%) vote shall not be required for, any such amendment, change or
repeal recommended to shareholders of the Corporation by the affirmative vote of
at least (a) seventy-five percent (75%) of the Whole Board of Directors, and (b)
if at such time there shall be a Related Person, at least seventy-five percent
(75%) of the Continuing Board of Directors, and in either such event such
amendment, change or repeal so recommended shall require only the vote, if any,
required under the applicable provisions of the NCBCA.
6
<PAGE>
ARTICLE VIII
SECTION 8.1. BOARD OF DIRECTORS. The number of directors of the
----------- ------------------
Corporation shall be fixed from time to time as provided in the Corporation's
Bylaws.
In the first election of directors, and in all elections thereafter, that
the total number of directors as fixed pursuant to the Corporation's Bylaws is
nine (9) or more, the directors shall be divided into three (3) classes, as
nearly equal as possible in number as may be, to serve in the first instance for
terms of one, two and three years, respectively, from the date such class of
directors takes office or until their earlier death, resignation, retirement,
removal or disqualification or until their successors shall be elected and shall
qualify, and thereafter the successors in each class of directors shall be
elected for terms of three (3) years or until their earlier death, resignation,
retirement, removal, or disqualification or until their successors shall be
elected and shall qualify. In the event of any increase or decrease in the
number of directors at a time that the directors are so classified, the
additional or eliminated directorships shall be classified or chosen so that all
classes of directors shall remain or become as nearly equal as possible in
number. At all times that the number of directors, as fixed pursuant to the
Corporation's Bylaws, is less than nine (9), each director shall be elected to a
term ending as of the next succeeding annual meeting of shareholders or until
his or her earlier death, resignation, retirement, removal or disqualification
or until his or her successor shall be elected and shall qualify.
Any vacancy occurring in the Board of Directors, including without
limitation a vacancy resulting from an increase in the number of directors or
from the failure by the shareholders to elect the full authorized number of
directors, may be filled by the Board of Directors. If the directors remaining
in office do not constitute a quorum, the directors may fill the vacancy by the
affirmative vote of a majority of the remaining directors or by the sole
remaining director. If the vacant office was held by
7
<PAGE>
a director elected by voting group, only the remaining director or directors
elected by that voting group or the holders of shares of that voting group are
entitled to fill the vacancy.
SECTION 8.2. INITIAL BOARD OF DIRECTORS. The number of directors
----------- --------------------------
constituting the initial Board of Directors of the Corporation shall be ten (10)
and the names and addresses of the persons who are to serve as directors of the
Corporation until the first meeting of shareholders or until their successors
are elected and qualify are:
NAME ADDRESS
---- -------
W. C. Ingold 308 Meadowood Drive
Burlington, NC 27215
W. R. Gilliam 3905 North NC 87
Elon College, NC 27244
J. L. Byrd 3025 Truitt Drive
Burlington, NC 27215
J. P. Griffin Greensboro Highway
P. O. Box 1958
Burlington, NC 27216
E. L. Hartgrove 2810 Bedford Street
Burlington, NC 27215
C. A. LeGrand 310 Engleman Avenue
Burlington, NC 27215
J. D. Moser, Jr. 1772 Bellemont-Alamance Rd.
Burlington, NC 27215
W. J. Rich 2251 W. Front Street
Burlington, NC 27215
A. J. Spitzner 1250 Woodhaven Drive
Mebane, NC 27302
H. N. Wellons 720 Westbrook Drive
Burlington, NC 27215
8
<PAGE>
SECTION 8.3. REMOVAL OF DIRECTORS. The shareholders may remove a director
----------- --------------------
prior to the end of the director's term only for cause.
This the 7th day of October, 1998.
By: /s/ W. R. Gilliam
--------------------
W. R. Gilliam
Incorporator
9
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
FIRST COMMUNITY FINANCIAL CORPORATION
ARTICLE I
OFFICES
-------
Section 1. Principal Office. The principal office of the corporation
----------------
shall be located at such place as the Board of Directors may fix from time to
time.
Section 2. Registered Office. The registered office of the corporation
-----------------
required by law to be maintained in the State of North Carolina may be, but need
not be, identical with the principal office.
Section 3. Other Offices. The corporation may have offices at such other
-------------
places, either within or without the State of North Carolina, as the Board of
Directors may designate or as the affairs of the corporation may require from
time to time.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. Place of Meetings. All meetings of shareholders shall be held
-----------------
at the principal office of the corporation, or at such other place, either
within or without the State of North Carolina, as shall in each case be (i)
fixed by the Chief Executive Officer, the President, the Chairman of the Board
of Directors, or the Board of Directors and designated in the notice of the
meeting or (ii) agreed upon by a majority of the shareholders entitled to vote
at the meeting.
Section 2. Annual Meetings. The annual meeting of shareholders shall be
---------------
held during the first five (5) calendar months following the end of the
corporation's fiscal year, on any day (except Saturday, Sunday, or a legal
holiday) during that period as shall be determined by the Board of Directors,
for the purpose of electing directors of the corporation and for the transaction
of such other business as may be properly brought before the meeting.
Section 3. Substitute Annual Meeting. If the annual meeting shall not be
-------------------------
held within the time designated by these Bylaws, a substitute annual meeting may
be called in accordance with the provisions of Section 4 of this Article II. A
meeting so called shall be designated and treated for all purposes as the annual
meeting.
Section 4. Special Meetings. Special meetings of the shareholders may be
----------------
called at any time by the Chief Executive Officer, the President, the Chairman
of the Board of Directors or the Board of Directors.
Section 5. Notice of Meetings. Written notice stating the date, time, and
------------------
place of the meeting shall be given not less than ten (10) nor more than sixty
(60) days before the date of any shareholders' meeting,
<PAGE>
either by personal delivery, or by mail by or at the direction of the Chief
Executive Officer, the President, the Chairman of the Board of Directors or the
Board of Directors, to each shareholder entitled to vote at such meeting,
provided that such notice must be given to all shareholders with respect to any
meeting at which a merger or share exchange is to be considered and in such
other instances as required by law. If mailed, such notice shall be deemed to be
effective when deposited in the United States mail, correctly addressed to the
shareholder at the shareholder's address as it appears on the current record of
shareholders of the corporation, with postage thereon prepaid.
In the case of a special meeting, the notice of meeting shall include a
description of the purpose or purposes for which the meeting is called; but, in
the case of an annual or substitute annual meeting, the notice of meeting need
not include a description of the purpose or purposes for which the meeting is
called unless such a description is required by the provisions of Chapter 55 of
the North Carolina General Statutes.
When a meeting is adjourned to a different date, time or place, notice need
not be given of the new date, time or place if the new date, time or place is
announced at the meeting before adjournment and if a new record date is not
fixed for the adjourned meeting. If a new record date is fixed for the
adjourned meeting (which must be done if the new date is more than 120 days
after the date of the original meeting), notice of the adjourned meeting must be
given as provided in this Section 5 to persons who are shareholders as of the
new record date.
Section 6. Waiver of Notice. Any shareholder may waive notice of any
----------------
meeting before or after the meeting. The waiver must be in writing, signed by
the shareholder, and delivered to the corporation for inclusion in the minutes
or filing with the corporate records. A shareholder's attendance, in person or
by proxy, at a meeting (i) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder or his proxy at the beginning of
the meeting objects to holding the meeting or transacting business at the
meeting, and (ii) waives objection to consideration of a particular matter at
the meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder or his proxy objects to considering the matter
before it is voted upon.
Section 7. Shareholders' List. Before each meeting of shareholders, the
------------------
Secretary of the corporation shall prepare an alphabetical list of the
shareholders entitled to notice of such meeting. The list shall be arranged by
voting group (and within each voting group by class or series of shares) and
show the address of and number of shares held by each shareholder. The list
shall be kept on file at the principal office of the corporation, or at a place
identified in the meeting notice in the city where the meeting will be held, for
the period beginning two (2) business days after notice of the meeting is given
and continuing through the meeting, and shall be available for inspection by any
shareholder, his agent or attorney, at any time during regular business hours.
The list shall also be available at the meeting and shall be subject to
inspection by any shareholder, his agent or attorney, at any time during the
meeting or any adjournment thereof.
Section 8. Fixing Record Date. The Board of Directors may fix a date
------------------
selected by them as the record date for one (1) or more voting groups in order
to determine the shareholders entitled to notice of a shareholders' meeting, to
vote, or to take any other action. Such record date may not be more than
seventy (70) days before the meeting or action requiring a determination of
shareholders. A determination of shareholders entitled to notice of or to vote
at a shareholders' meeting is effective for any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
which it must do if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.
2
<PAGE>
If no record date is fixed by the Board of Directors for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
the close of business on the day before the first notice of the meeting is
delivered to shareholders shall be the record date for such determination of
shareholders.
Section 9. Voting Groups. All shares of one (1) or more classes or series
-------------
that, under the Articles of Incorporation or the North Carolina Business
Corporation Act, are entitled to vote and be counted together collectively on a
matter at a meeting of shareholders constitute a voting group. All shares
entitled by the Articles of Incorporation or the North Carolina Business
Corporation Act to vote generally on a matter are for that purpose a single
voting group. Classes or series of shares shall not be entitled to vote
separately by voting group unless expressly authorized by the Articles of
Incorporation or specifically required by law.
Section 10. Quorum. Shares entitled to vote as a separate voting group
------
may take action on a matter at the meeting only if a quorum of those shares
exists. A majority of the votes entitled to be cast on the matter by the voting
group constitutes a quorum of that voting group for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
In the absence of a quorum at the opening of any meeting of shareholders,
such meeting may be adjourned from time to time by the vote of a majority of the
votes cast on the motion to adjourn; and, subject to the provisions of Section 5
of this Article II, at any adjourned meeting any business may be transacted that
might have been transacted at the original meeting if a quorum exists with
respect to the matter proposed.
Section 11. Proxies. Shares may be voted either in person or by one (1)
-------
or more proxies authorized by a written appointment of proxy signed by the
shareholder or by his duly authorized attorney in fact. An appointment of proxy
is valid for eleven months from the date of its execution, unless a different
period is expressly provided in the appointment form.
Section 12. Voting of Shares. Subject to the provisions of the Articles
----------------
of Incorporation, each outstanding share shall be entitled to one (1) vote on
each matter voted on at a meeting of shareholders.
Except in the election of directors as governed by the provisions of
Section 4 of Article III, if a quorum exists, action on a matter by a voting
group is approved if the votes cast within the voting group favoring the action
exceed the votes cast opposing the action, unless a greater vote is required by
law or the Articles of Incorporation or these Bylaws.
Absent special circumstances, shares of the corporation are not entitled to
vote if they are owned, directly or indirectly, by a second corporation in which
the corporation owns, directly or indirectly, a majority of the shares entitled
to vote for directors of the second corporation; provided that this provision
does not limit the power of the corporation or such second corporation to vote
shares held by it in a fiduciary capacity.
ARTICLE III
BOARD OF DIRECTORS
------------------
3
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Section 1. General Powers. All corporate powers shall be exercised by or
--------------
under the authority of, and the business and affairs of the corporation shall be
managed under the direction of, the Board of Directors.
Section 2. Number and Qualification. The number of directors of the
------------------------
corporation shall not be less than five (5) nor more than fifteen (15), with the
exact number to be fixed from time to time by the Board of Directors.
Section 3. Nominations. At any meeting of shareholders at which directors
-----------
are to be elected, nominations for election to the Board of Directors may be
made by the Board of Directors or, subject to the conditions described below, by
any holder of shares entitled to be voted at that meeting in the election of
directors. To be eligible for consideration at the meeting of shareholders, all
nominations, other than those made by the Board of Directors, shall be in
writing and must be delivered to Secretary of the corporation not less than
fifty (50) days nor more than ninety (90) days prior to the meeting at which
such nominations will be made; provided, however, that if less than twenty-one
(21) days' notice of the meeting is given to shareholders, such nominations must
be delivered to the Secretary of the corporation not later than the close of
business on the seventh day following the day on which the notice of meeting was
mailed.
Section 4. Election. Except as provided in Section 7 of this Article III,
--------
the directors shall be elected at the annual meeting of shareholders. Those
persons who receive the highest number of votes at a meeting at which a quorum
is present shall be deemed to have been elected.
Section 5. Terms of Directors. Each initial director shall hold office
------------------
until the earliest of the first shareholders' meeting at which directors are
elected, or until such director's death, resignation, or removal.
At all times that the number of directors is less than nine (9), each
director shall be elected to a term ending as of the next succeeding annual
meeting of shareholders or until his or her earlier death, resignation,
retirement, removal or disqualification or until his or her successor shall be
elected and shall qualify.
In the first election of directors that the total number of directors is
nine (9) or more, the directors shall be divided into three (3) classes, as
nearly equal as possible in number as may be, to serve in the first instance for
terms of one (1), two (2) and three (3) years, respectively, from the date such
class of directors takes office or until their earlier death, resignation,
retirement, removal or disqualification or until their successors shall be
elected and shall qualify, and thereafter the successors in each class of
directors shall be elected for terms of three (3) years or until their earlier
death, resignation, retirement, removal, or disqualification or until their
successors shall be elected and shall qualify. In the event of any increase or
decrease in the number of directors at a time that the directors are so
classified, the additional or eliminated directorships shall be classified or
chosen so that all classes of directors shall remain or become as nearly equal
as possible in number.
Notwithstanding the provisions of this Section 5, a decrease in the number
of directors does not shorten an incumbent director's term. Despite the
expiration of a director's term, such director shall continue to serve until a
successor shall be elected and qualified or until there is a decrease in the
number of directors.
Section 6. Removal. Any director may be removed from office at any time
-------
prior to expiration of his term, only for cause, by a vote of the shareholders
if the number of votes cast to remove such director exceeds the number of votes
cast not to remove him. If a director is elected by a voting group of
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shareholders, only the shareholders of that voting group may participate in the
vote to remove him. A director may not be removed by the shareholders at a
meeting unless the notice of that meeting states that the purpose, or one (1) of
the purposes, of the meeting is removal of the director. If any directors are so
removed, new directors may be elected at the same meeting.
Section 7. Vacancies. Any vacancy occurring in the Board of Directors,
---------
including without limitation a vacancy resulting from an increase in the number
of directors or from the failure by the shareholders to elect the full
authorized number of directors, may be filled by the Board of Directors. If the
directors remaining in office do not constitute a quorum, the directors may fill
the vacancy by the affirmative vote of a majority of the remaining directors or
by the sole remaining director. If the vacant office was held by a director
elected by voting group, only the remaining director or directors elected by
that voting group or the holders of shares of that voting group are entitled to
fill the vacancy. A director elected to fill a vacancy shall be elected to
serve the remaining term of the director replaced, or if a director is not
elected to replace a previously elected director, the new director shall be
elected to serve until the next shareholders' meeting at which directors are
elected.
Section 8. Chairman of the Board of Directors. There may be a Chairman of
----------------------------------
the Board of Directors elected by the directors from their number at any meeting
of the Board of Directors. The Chairman shall serve in such position at the
pleasure of the Board of Directors. The Chairman shall preside at all meetings
of the Board of Directors and shareholders, serve as a member of any executive
committee of the Board of Directors, and perform such other duties as may be
directed by the Board of Directors.
Section 9. Compensation. The Board of Directors may provide for the
------------
compensation of directors for their services as such and for the payment or
reimbursement of any or all expenses incurred by them in connection with such
services.
ARTICLE IV
MEETINGS AND COMMITTEES OF DIRECTORS
------------------------------------
Section 1. Regular Meetings. A regular meeting of the Board of
----------------
Directors shall be held immediately after, and at the same place as, the annual
meeting of shareholders. In addition, the Board of Directors may provide, by
resolution, the time and place, either within or without the State of North
Carolina, for the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by or at the request of the Chairman of the Board or the
President if such officer is also a director, or by any three (3) or more
directors. Such a meeting may be held either within or without the State of
North Carolina, as fixed by the person or persons calling the meeting.
Section 3. Notice of Meetings. Regular meetings of the Board of
------------------
Directors may be held without notice. The person or persons calling a special
meeting of the Board of Directors shall, at least two (2) days before the
meeting, give or cause to be given notice thereof by any usual means of
communication. Such notice need not specify the purpose for which the meeting
is called. Any duly convened regular or special meeting may be adjourned by the
directors to a later time without further notice.
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Section 4. Waiver of Notice. Any director may waive notice of any
----------------
meeting before or after the meeting. The waiver must be in writing, signed by
the director entitled to the notice, and be delivered to the corporation for
inclusion in the minutes or for filing with the corporate records. A director's
attendance at or participation in a meeting waives any required notice of such
meeting unless the director at the beginning of the meeting, or promptly upon
arrival, objects to holding the meeting or to transacting business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting.
Section 5. Quorum. Unless the Articles of Incorporation or these
------
Bylaws provide otherwise, a majority of the number of directors fixed by or
pursuant to these Bylaws shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, or if no number is so fixed,
a majority of the number of directors in office immediately before the meeting
begins shall constitute a quorum.
Section 6. Manner of Acting. Except as otherwise provided in the
----------------
Articles of Incorporation or these Bylaws, including Section 9 of this Article
IV, the affirmative vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
Section 7. Presumption of Assent. A director who is present at a
---------------------
meeting of the Board of Directors or a committee of the Board of Directors when
corporate action is taken is deemed to have assented to the action taken unless
(i) he objects at the beginning of the meeting, or promptly upon his arrival, to
holding it or to transacting business at the meeting, or (ii) his dissent or
abstention from the action taken is entered in the minutes of the meeting, or
(iii) he files written notice of his dissent or abstention with the presiding
officer of the meeting before its adjournment or with the corporation
immediately after the adjournment of the meeting. Such right of dissent or
abstention is not available to a director who votes in favor of the action
taken.
Section 8. Action Without Meeting. Action required or permitted to
----------------------
be taken at a meeting of the Board of Directors may be taken without a meeting
if the action is taken by all members of the Board of Directors. The action
must be evidenced by one (1) or more written consents signed by each director
before or after such action, describing the action taken, and included in the
minutes or filed with the corporate records.
Section 9. Committees of the Board of Directors. The Board of
------------------------------------
Directors may create such committees of the Board of Directors as it shall
consider appropriate, including without limitation those committees specifically
provided for in these Bylaws. The creation of a committee of the Board of
Directors and appointment of members to it must by approved by the greater of
(i) a majority of the number of directors in office when the action is taken or
(ii) the number of directors required to take action pursuant to Section 6 of
this Article IV. Each committee of the Board of Directors must have two (2) or
more members and, to the extent authorized by law, shall have such duties and
authority as may be described in these Bylaws or otherwise specified by the
Board of Directors. Each committee member shall serve at the pleasure of the
Board of Directors. The provisions in these Bylaws governing meetings, actions
without meeting and other requirements of the Board of Directors shall also
apply to any committees of the Board of Directors established pursuant to these
Bylaws.
Section 10. Executive Committee. There may be a standing committee
-------------------
of the Board of Directors to be known as the Executive Committee and consisting
of not fewer than three (3) directors, one (1) of whom shall be the Chairman of
the Board of Directors and one (1) of whom shall be the President of the
corporation, if such officer is also a director. Except as limited by Section 9
of this Article IV or otherwise
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<PAGE>
limited by law, the Executive Committee is empowered to act for and on behalf of
the Board of Directors in any and all matters in the interim between meetings of
the Board of Directors. Within the powers conferred upon it, action by the
Executive Committee shall be as binding upon the corporation as if performed by
the full Board of Directors. Such actions shall be reported to the Board of
Directors for review at its next meeting following such action. The committee
shall meet as often as it considers necessary or advisable.
Section 11. Audit Committee. There may be a standing committee of
---------------
the Board of Directors to be known as the Audit Committee and consisting of not
fewer than three (3) directors. The Audit Committee shall supervise examination
of the assets and the liabilities and the internal audit program of the
corporation and its subsidiaries, cause outside audits to be performed on the
financial statements of the corporation, and shall make periodic reports to the
Board of Directors.
ARTICLE V
OFFICERS
--------
Section 1. Officers of the Corporation. The officers of the
---------------------------
corporation shall consist of a President, a Secretary, a Treasurer, and such
Vice Presidents or other officers (including assistant officers) as may from
time to time be appointed by or under the authority of the Board of Directors.
Any two (2) or more offices may be held by the same person, but no officer may
act in more than one (1) capacity where action of two (2) or more officers is
required.
Section 2. Appointment and Term. The officers of the corporation
--------------------
shall be appointed by the Board of Directors or by a duly appointed officer
authorized by the Board of Directors to appoint one (1) or more officers. Each
officer shall hold office until his death, resignation, retirement, removal,
disqualification, or his successor shall have been appointed.
Section 3. Compensation of Officers. The compensation of all
------------------------
officers of the corporation shall be fixed by or under the authority of the
Board of Directors, and no officer shall serve the corporation in any other
capacity and receive compensation therefor unless such additional compensation
shall be duly authorized. The appointment of an officer does not itself create
contract rights.
Section 4. Removal. Any officer may be removed by the Board of
-------
Directors at any time with or without cause; but such removal shall not itself
affect the officer's contract rights, if any, with the corporation except to the
extent, if any, specified in any such contract.
Section 5. Resignation. An officer may resign at any time by
-----------
communicating his resignation to the corporation, orally or in writing. A
resignation is effective when communicated unless it specifies in writing a
later effective date. If a resignation is made effective at a later date that
is accepted by the corporation, the Board of Directors may fill the pending
vacancy before the effective date if the Board of Directors provides that the
successor does not take office until the effective date. An officer's
resignation does not affect the corporation's contract rights, if any, with the
officer except to the extent, if any, specified in any such contract.
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<PAGE>
Section 6. Bonds. The Board of Directors may by resolution require
-----
any officer, agent, or employee of the corporation to give bond to the
corporation, with sufficient sureties, conditioned on the faithful performance
of the duties of his respective office or position, and to comply with such
other conditions as may from time to time be required by the Board of Directors.
Section 7. President. The President shall be the principal executive
---------
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall sign, with the Secretary, an Assistant
Secretary, or any other proper officer of the corporation thereunto authorized
by the Board of Directors, certificates for shares of the corporation, any
deeds, mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed, and in general he shall
perform all duties incident to the office of the President and such other duties
as may be prescribed by the Board of Directors from time to time. The President
shall be entitled to attend all regular and special meetings and meetings of
committees of the Board of Directors. If the President of the corporation is
also a director of the corporation, he shall serve as a member of the Executive
Committee.
Section 8. Vice Presidents. In the absence of the President or in
---------------
the event of his death, inability or refusal to act, the Vice Presidents, unless
otherwise determined by the Board of Directors, shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Any Vice President (or Assistant Vice
President) may sign, with the Secretary, an Assistant Secretary, or any other
proper officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation and any other instruments
which may be signed by the President, and shall perform such other duties as
from time to time may be prescribed by the President or Board of Directors.
Section 9. Secretary. The Secretary shall: (i) keep the minutes of
---------
the meetings of shareholders, of the Board of Directors, and of all committees
of the Board of Directors, in one or more books provided for that purpose; (ii)
see that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (iii) maintain and authenticate the records of the
corporation and be custodian of the seal of the corporation and see that the
seal of the corporation is affixed to all documents the execution of which on
behalf of the corporation under its seal is duly authorized; (iv) sign with the
President or a Vice President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (v) maintain or cause to be maintained, and have general charge of,
the stock transfer books of the corporation; (vi) prepare or cause to be
prepared shareholder lists prior to each meeting of shareholders as required by
law; (vii) attest the signature or certify the incumbency or signature of any
officer of the corporation; and (viii) in general perform all duties incident to
the office of secretary and such other duties as from time to time may be
prescribed by the President or by the Board of Directors.
Section 10. Treasurer. The Treasurer shall be, and may be designated
---------
as such as, the corporation's Chief Financial Officer, and shall: (i) have
charge and custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in such depositories as shall be selected in accordance with
the provisions of Section 4 of Article VI of these Bylaws; (ii) maintain, or
cause to be maintained, appropriate accounting records as required by law; (iii)
prepare, or cause to be prepared, annual financial statements of the corporation
that include a balance sheet as of the end of the fiscal
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<PAGE>
year and income and cash flow statement for that year, which statements, or a
written notice of their availability, shall be mailed to each shareholder within
120 days after the end of such fiscal year; and (iv) in general perform all of
the duties incident to the office of treasurer and such other duties as from
time to time may be prescribed by the President or by the Board of Directors.
Section 11. Assistant Officers. In the absence of a duly appointed
------------------
officer of the corporation, or in the event of his death, inability or refusal
to act, any person appointed by the Board of Directors and designated by title
as an assistant to that officer, unless otherwise determined by the Board of
Directors, may perform the duties of, and when so acting shall have all the
powers of and be subject to all the restrictions upon, that officer. Such
assistant officers shall perform such other duties as from time to time may be
prescribed by the President or by the Board of Directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
--------------------------------------
Section 1. Contracts. The Board of Directors may authorize any
---------
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. Also, the Board
of Directors may limit, condition, restrict or deny such authority to any
officer or officers, or any agent or agents.
Section 2. Loans. No loans shall be contracted on behalf of the
-----
corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
Section 3. Checks and Drafts. All checks, drafts, or other orders
-----------------
for the payment of money, issued in the name of the corporation, shall be signed
by such officer or officers, agent or agents of the corporation and in such
manner as shall from time to time be determined by the Board of Directors.
Section 4. Deposits. All funds of the corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the corporation
in such depositories as may be selected by or under the authority of the Board
of Directors.
ARTICLE VII
SHARES AND THEIR TRANSFER
-------------------------
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Section 1. Certificate For Shares. The Board of Directors may
----------------------
authorize the issuance of some or all of the shares of the corporation's classes
or series without issuing certificates to represent such shares. If shares are
represented by certificates, the certificates shall be in such form as required
by law and as determined by the Board of Directors. Certificates shall be
signed, either manually or in facsimile, by the President or a Vice President,
and by the Secretary or Treasurer or an Assistant Secretary or an Assistant
Treasurer. All certificates for shares shall be consecutively numbered or
otherwise identified and entered into the stock transfer books of the
corporation. When shares are represented by certificates, the corporation shall
issue and deliver, to each shareholder to whom such shares have been issued or
transferred, certificates representing the shares owned by him. When shares are
not represented by certificates, then within a reasonable time after the
issuance or transfer of such shares, the corporation shall send the shareholder
to whom such shares have been issued or transferred a written statement of the
information required by law to be on certificates.
Section 2. Stock Transfer Books. The corporation shall keep or cause
--------------------
to be kept a book or set of books, to be known as the stock transfer books of
the corporation, containing the name of each shareholder of record, together
with such shareholder's address and the number and class or series of shares
held by him. Transfers of shares of the corporation shall be made only on the
stock transfer books of the corporation (i) by the holder of record thereof or
by his legal representative, who shall provide proper evidence of authority to
transfer; (ii) by his attorney authorized to effect such transfer by power of
attorney duly executed and filed with the Secretary; and (iii) on surrender for
cancellation of the certificate for such shares (if the shares are represented
by certificates).
Section 3. Lost Certificates. The Board of Directors may direct a
-----------------
new certificate to be issued in place of any certificate theretofore issued by
the corporation claimed to have been lost or destroyed, upon receipt of an
affidavit of such fact from the person claiming the certificate to have been
lost or destroyed. When authorizing such issue of a new certificate, the Board
of Directors shall require that the owner of such lost or destroyed certificate,
or his legal representative, give the corporation a bond in such sum and with
such surety or other security as the Board of Directors may direct as indemnity
against any claims that may be made against the corporation with respect to the
certificate claimed to have been lost or destroyed, except where the Board of
Directors by resolution finds that in the judgment of the Board of Directors the
circumstances justify omission of a bond.
Section 4. Distribution or Share Dividend Record Date. The Board of
------------------------------------------
Directors may fix a date as the record date for determining shareholders
entitled to a distribution or share dividend. If no record date is fixed by the
Board of Directors for such determination, it is the date the Board of Directors
authorizes the distribution or share dividend.
Section 5. Holder of Record. Except as otherwise required by law,
----------------
the corporation may treat the person in whose name the shares stand of record on
its books as the absolute owner of the shares and the person exclusively
entitled to receive notification and distributions, to vote, and to otherwise
exercise the rights, powers, and privileges of ownership of such shares.
Section 6. Shares Held by Nominees. The corporation shall recognize
-----------------------
the beneficial owner of shares registered in the name of the nominee as the
owner and shareholder of such shares for certain purposes if the nominee in
whose name such shares are registered files with the Secretary a written
certificate in a form prescribed by the corporation, signed by the nominee,
indicating the following: (i) the name, address, and taxpayer identification
number of the nominee; (ii) the name, address, and taxpayer identification
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<PAGE>
number of the beneficial owner; (iii) the number and class or series of shares
registered in the name of the nominee as to which the beneficial owner shall be
recognized as the shareholder; and (iv) the purposes for which the beneficial
owner shall be recognized as the shareholder.
The purposes for which the corporation shall recognize the beneficial
owner as the shareholder may include the following: (i) receiving notice of,
voting at, and otherwise participating in shareholders' meetings; (ii) executing
consents with respect to the shares; (iii) exercising dissenters' rights under
the North Carolina Business Corporation Act; (iv) receiving distributions and
share dividends with respect to the shares; (v) exercising inspection rights;
(vi) receiving reports, financial statements, proxy statements, and other
communications from the corporation; (vii) making any demand upon the
corporation required or permitted by law; and (viii) exercising any other rights
or receiving any other benefits of a shareholder with respect to the shares.
The certificate shall be effective ten (10) business days after its
receipt by the corporation and until it is changed by the nominee, unless the
certificate specifies a later effective time or an earlier termination date.
If the certificate affects less than all of the shares registered in
the name of the nominee, the corporation may require the shares affected by the
certificate to be registered separately on the books of the corporation and be
represented by a share certificate that bears a conspicuous legend stating that
there is a nominee certificate in effect with respect to the shares represented
by that share certificate.
ARTICLE VIII
GENERAL PROVISIONS
------------------
Section 1. Distributions. The Board of Directors may from time to
-------------
time authorize, and the corporation may grant, distributions and share dividends
to its shareholders pursuant to law and subject to any provisions with respect
thereto in its Articles of Incorporation.
Section 2. Seal. The corporate seal of the corporation shall consist
----
of two concentric circles between which is the name of the corporation and in
the center of which is inscribed SEAL; and such seal, as impressed or affixed on
the margin hereof, is hereby adopted as the corporate seal of the corporation.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
-----------
fixed by the Board of Directors.
Section 4. Amendments. Except as otherwise provided in the Articles
----------
of Incorporation or by law, these Bylaws may be amended or repealed and new
Bylaws may be adopted by the Board of Directors.
No Bylaw adopted, amended, or repealed by the shareholders shall be
readopted, amended, or repealed by the Board of Directors, unless the Articles
of Incorporation or a Bylaw adopted by the shareholders authorizes the Board of
Directors to adopt, amend, or repeal that particular Bylaw or the Bylaws
generally.
Section 5. Definitions. Unless the context otherwise requires, terms
-----------
used in these Bylaws shall have the meanings assigned to them in the North
Carolina Business Corporation Act to the extent defined therein.
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ARTICLE IX
INDEMNIFICATION
---------------
In addition to any indemnification required or permitted by law, and
except as otherwise provided in these Bylaws, any person who at any time serves
or has served as a director, officer, employee or agent of the corporation and
any such person who serves or has served at the request of the corporation as a
director, officer, employee, partner, trustee 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 corporation to the full extent allowed by applicable law
against liability and litigation expense arising out of such status or
activities in such capacity. "Liability and litigation expense" shall include
costs and expenses of litigation (including reasonable attorneys' fees),
judgments, fines and amounts paid in settlement which are actually and
reasonably incurred in connection with or as a consequence of any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including appeals.
Promptly after the final disposition or termination of any matter
which involves liability or litigation expense as described above or at such
earlier time as it sees fit, the corporation shall determine whether any person
described in this Article IX is entitled to indemnification thereunder. Such
determination shall be limited to the following issues: (i) whether the persons
to be indemnified are persons described in this Article IX, (ii) whether the
liability or litigation expense incurred arose out of the status or activities
of such persons as described in this Article IX, (iii) whether liability was
actually incurred and/or litigation expense was actually and reasonably
incurred, and (iv) whether the indemnification requested is permitted by
applicable law. Such determination shall be made by a majority vote of directors
who were not parties to the action, suit or proceeding (or, in connection with
"threatened" actions, suits or proceedings, who were not "threatened parties").
If at least two such disinterested directors are not obtainable, or, even if
obtainable, if at least half of the number of disinterested directors so direct,
such determination shall be made by independent legal counsel in written
opinion.
Litigation expense incurred by a person described in this Article IX
in connection with a matter described in this Article IX may be paid by the
corporation in advance of the final disposition or termination of such matter,
if the corporation receives an undertaking, dated, in writing and signed by the
person to be indemnified, to repay all such sums unless such person is
ultimately determined to be entitled to be indemnified by the corporation as
provided in this Article IX. Requests for payments in advance of final
disposition or termination shall be submitted in writing unless this requirement
is waived by the corporation.
Notwithstanding the foregoing, no advance payment shall be made as to
any payment or portion of a payment for which the determination is made that the
person requesting payment will not be entitled to indemnification. Such
determination may be made only by a majority vote of disinterested directors or
by independent legal counsel as next provided. If there are not at least two
disinterested directors, the notice of all requests for advance payment shall be
delivered for review to independent legal counsel for the corporation. Such
counsel shall have the authority to disapprove any advance payment or portion of
a payment for which it appears that the person requesting payment will not be
entitled to indemnification.
The corporation shall not be obligated to indemnify persons described
in this Article IX for any amounts paid in settlement unless the corporation
consents in writing to the settlement. The corporation
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<PAGE>
shall not unreasonably withhold its consent to proposed settlements. The
corporation's consent to a proposed settlement shall not constitute an agreement
by the corporation that any person is entitled to indemnification thereunder.
The corporation may waive the requirement of this section for its written
consent as fairness and equity may require.
A person described in this Article IX may apply to the corporation in
writing for indemnification or advance expenses. Such applications shall be
addressed to the Secretary or, in the absence of the Secretary, to any officer
of the corporation. The corporation shall respond in writing to such
applications as follows: to a request for indemnity under this Article IX,
within ninety days after receipt of the application; to a request for advance
expenses under this Article IX, within fifteen days after receipt of the
application.
If any action is necessary or appropriate to authorize the corporation
to pay the indemnification required by these Bylaws, the Board of Directors
shall take such action, including (i) making a good faith evaluation of the
indemnification request, (ii) giving notice to, and obtaining approval by, the
shareholders of the corporation, and (iii) taking any other action.
The right to indemnification or advance expenses provided herein shall
be enforceable in any court of competent jurisdiction. A legal action may be
commenced if a claim for indemnity or advance expenses is denied in whole or in
part, or upon the expiration of the time periods provided above. In any such
action, if the claimant establishes the right to indemnification, he or she
shall also have the right to be indemnified against the litigation expense
(including, without limitation, reasonable attorneys' fees) of such action.
As provided by N.C. Gen. Stat. (S)55-8-57, the corporation shall have
the power to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation, or who is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee benefit plan,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the corporation
has the power to indemnify him against such liability.
The right to indemnification provided herein shall not be deemed
exclusive of any other rights to which any persons seeking indemnity may be
entitled apart from the provisions of this bylaw, except there shall be no right
to indemnification as to any liability or litigation expense for which such
person is entitled to receive payment under any insurance policy other than a
directors' and officers' liability insurance policy maintained by the
corporation. Such right inures to the benefit of the heirs and legal
representatives of any persons entitled to such right. Any person who at any
time after the adoption of this bylaw serves or has served in any status or
capacity described in this Article IX shall be deemed to be doing or to have
done so in reliance upon, and as consideration for, the right of indemnification
provided herein. Any repeal or modification hereof shall not affect any rights
or obligations then existing. The right provided herein shall not apply as to
persons serving institutions which are hereafter merged into or combined with
the corporation, except after the effective date of such merger or combination
and only as to status and activities after such date.
If this Article or any portion hereof shall be invalidated on any
ground by any court or agency of competent jurisdiction, then the corporation
shall nevertheless indemnify each person described in this
13
<PAGE>
Article IX to the full extent permitted by the portion of this Article that is
not invalidated and also to the full extent (not exceeding the benefits
described herein) permitted or required by other applicable law.
Adopted this the 13th day of October, 1998.
/s/ Joseph C. Canada
------------------------------
Secretary
14
<PAGE>
EXHIBIT 5.1
LETTERHEAD OF
BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P.
January 15, 1999
Board of Directors
First Community Financial Corporation
708 South Church Street
P. O. Box 1837
Burlington, North Carolina 27216-1837
Re: Registration Statement on Form SB-2 under the Securities Act of 1933,
as amended
Gentlemen:
As special counsel to First Community Financial Corporation (the
"Company"), the proposed parent holding company of Community Savings Bank, SSB
("Community Savings"), Burlington, North Carolina, we are rendering this opinion
to you in connection with the acquisition by the Company of Community Savings
upon the conversion of Community Savings from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered capital stock savings bank (the
"Conversion"). As part of the Conversion, the Company will file with the
Securities and Exchange Commission a Registration Statement on Form SB-2 (the
"Registration Statement") under the Securities Act of 1933, as amended, for the
offering and sale by the Company of its no par common stock, having an estimated
aggregate dollar value represented to us as being between $22,950,000 and
$35,707,500 (the "Shares").
In our capacity as special counsel, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Articles of
Incorporation, Bylaws and corporate resolutions of the Company, the Amended and
Restated Plan of Holding Company Conversion, the Registration Statement and all
exhibits thereto and the relevant provisions of Chapters 54C and 55 of the North
Carolina General Statutes and the Securities Act of 1933, as amended, and the
regulations promulgated under all the aforesaid statutes, as we have considered
necessary as a basis for the opinions given herein. In addition, we have made
reasonable inquiries of the officers of Community Savings and the Company as to
all relevant items. In all examinations of documents, we have assumed the
genuineness of all original documents and all signatures and the conformity to
original documents of all copies submitted to us as certified, conformed or
photostatic copies. On the basis of such examination, we are of the opinion
that, when the
<PAGE>
Board of Directors
First Community Financial Corporation
January 15, 1999
Page 2
Company has received full payment for the Shares as described in the
Registration Statement, all requisite corporate action will have been taken with
respect to the issuance and sale of the Shares and the Shares will be validly
authorized and issued, fully-paid and nonassessable shares of common stock of
the Company.
This opinion is furnished by us solely for your benefit and for the benefit
of the purchasers of the Shares of the Company in connection with the
Conversion, and may not be quoted or relied upon by, nor copies be delivered to,
any person or entity, or used for any other purpose, without our prior express
written consent.
We hereby consent to the use of this opinion in connection with the
registration of the offering and sale of the Shares with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, and to the
reference to us in the Registration Statement and the Prospectus included
therein.
Very truly yours,
/s/ Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P.
BROOKS, PIERCE, McLENDON,
HUMPHREY & LEONARD, L.L.P.
<PAGE>
EXHIBIT 8.1
LETTERHEAD OF
BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P.
January 15, 1999
Board of Directors
Community Savings Bank, SSB
708 South Church Street
P. O. Box 1837
Burlington, North Carolina 27216-1837
Re: Conversion of Community Savings Bank, SSB from a North Carolina-
chartered mutual savings bank to a North Carolina-chartered stock
savings bank and its simultaneous acquisition by First Community
Financial Corporation, a North Carolina savings bank holding company
Members of the Board:
You have requested our opinions regarding certain income tax consequences
in connection with the proposed conversion of Community Savings Bank, SSB
("Community Mutual") from a North Carolina-chartered mutual savings bank with
federally insured deposit accounts to Community Savings Bank, Inc., a North
Carolina-chartered stock savings bank with federally insured deposit accounts
("Community"), and the simultaneous acquisition of Community as a wholly-owned
subsidiary by First Community Financial Corporation, a savings bank holding
company organized under North Carolina law ("Holding Company"). This
reorganization and conversion of Community Mutual and acquisition of Community
by the Holding Company shall be referred to as the "Conversion". Terms not
otherwise defined in this letter shall have the meanings assigned to them in the
Amended and Restated Plan of Conversion adopted by the Board of Directors of
Community Mutual on January 7, 1999 (the "Plan").
In connection with our opinions, we have reviewed copies of applications
filed by Community Mutual and the Holding Company with the Administrator, North
Carolina Savings Institutions Division, to effect the Conversion (the
"Applications"), Chapters 54C and 105 of the North Carolina General Statutes,
and applicable federal laws, rules and regulations, including the Internal
Revenue Code of 1986, as amended ("Code"). We have examined the Plan, Community
Mutual's existing Certificate of Incorporation and Bylaws, the Second Amended
Certificate of Incorporation for Community, the Bylaws for Community, the
corporate minutes approving the Conversion and related records of Community
Mutual. We have also examined the Holding Company's Articles of Incorporation,
Bylaws, corporate
<PAGE>
Board of Directors
Community Savings Bank, SSB
January 15, 1999
Page 2
minutes approving the Conversion and related records. In addition, we have
examined certificates of officials of Community Mutual, Community and the
Holding Company, the Registration Statement of the Holding Company on Form SB-2,
which the Holding Company intends to file with the Securities and Exchange
Commission on or about January 15, 1999 (the "Registration Statement")
containing a proposed Prospectus (hereinafter referred to as the "Prospectus")
and such other documents as we have deemed necessary or appropriate for purposes
of giving the opinions set forth in this letter. We have assumed the
authenticity of all documents presented to us as originals, the conformity to
the originals of all documents presented to us as copies, and the genuineness of
all signatures of individuals, and we know of no reason such assumptions are
unwarranted for purposes of the opinions expressed herein. We have assumed that
all statements made in the above-described documents are accurate and complete,
and will be accurate and complete at all times from now through the consummation
of the Conversion. We have not independently verified any factual matter
relating to the Conversion in connection with the preparation of our opinions
herein and, accordingly, such opinions do not take into account any matters not
set forth herein which might have been disclosed by independent verification. We
have further assumed that the Conversion will be consummated pursuant to the
terms of the Plan.
In issuing the opinions set forth below, we have also assumed the accuracy
of the following representations of Community Mutual:
1. The fair market value of the deposit accounts and the interest in the
Liquidation Account received by each Eligible Account Holder and
Supplemental Eligible Account Holder in Community pursuant to the
Conversion will, in each instance, be equal to the fair market value
of the deposit accounts and the proprietary interest of each such
Eligible Account Holder and Supplemental Eligible Account Holder in
Community Mutual surrendered in the Conversion. The aggregate fair
market value of the deposit accounts and interests in the Liquidation
Account held by Eligible Account Holders as of the close of business
on the Eligibility Record Date will equal or exceed 99% of the
aggregate fair market value of all deposit accounts in Community
Mutual (including accounts of less than $50) as of the close of
business on that date. The aggregate fair market value of the deposit
accounts and interests in the Liquidation Account held by Supplemental
Eligible Account Holders, officers and directors of Community Mutual
and their associates as of the close of business on the Supplemental
Eligibility Record Date will equal or exceed 99% of the aggregate fair
market value of all deposit accounts in Community Mutual (including
accounts of less than $50) as of the close of business on that date.
2. The Subscription Rights to purchase Conversion Stock received in the
Conversion by each recipient have no fair market value. This
assumption is based upon your representation and the opinion of
Ferguson & Company that such Subscription Rights have no fair market
value because they will be acquired by recipients without cost, are
<PAGE>
Board of Directors
Community Savings Bank, SSB
January 15, 1999
Page 3
nontransferable and afford the recipients the right only to purchase
Conversion Stock at a price equal to its estimated fair market value
as of the date such rights are issued, which will be the same price
paid by all purchasers in the Conversion.
3. Immediately following the Conversion, the Eligible Account Holders and
Supplemental Eligible Account Holders will own all of the outstanding
interests in the Liquidation Account and will own such interests
solely by reason of their ownership of deposits and proprietary
interests in Community Mutual on the Eligibility Record Date and
Supplemental Eligibility Record Date, respectively. Pursuant to the
Plan, no additional interests in the Liquidation Account shall be
issued following the Conversion.
4. Immediately following the consummation of the Conversion, Community
will possess the same assets and liabilities as Community Mutual held
immediately before the Conversion, plus proceeds from the sale of
Conversion Stock less proceeds retained by the Holding Company, less
assets used to pay expenses incurred in the Conversion. Assets of
Community Mutual used to pay expenses of the Conversion and all
distributions (except for regular, normal interest payments made by
Community Mutual immediately before the Conversion) in the aggregate
will constitute less than 1% of the net assets of Community Mutual.
5. Except for Community Mutual's agreement to sell all of Community's
issued and outstanding common stock to the Holding Company in the
Conversion, at the time of the Conversion, Community Mutual will not
have outstanding any warrants, options, convertible securities, or any
other type of right pursuant to which any person could acquire stock
in Community Mutual.
6. Community has no plan or intention to reacquire any of its common
stock issued to the Holding Company in the Conversion. Community has
no plan or intention to issue additional shares of its common stock
following the Conversion. The common stock of Community issued to the
Holding Company in the Conversion will not be callable or subject to a
put option.
7. Community has no plan or intention to sell or otherwise dispose of any
of the assets of Community Mutual acquired in the Conversion, except
for dispositions made in the ordinary course of business.
8. The liabilities of Community Mutual assumed by Community and the
liabilities, if any, to which the transferred assets are subject were
incurred by Community Mutual in the ordinary course of its business
and are associated with the assets transferred.
<PAGE>
Board of Directors
Community Savings Bank, SSB
January 15, 1999
Page 4
9. Following the Conversion, Community will continue the historic
business of Community Mutual, will use a significant portion of
Community Mutual's historic business assets in Community's business,
and will continue to engage in the same business in substantially the
same manner as engaged in by Community Mutual before the Conversion.
10. Community Mutual and Community (treated as one entity for purposes of
this representation) and the Holding Company will each pay their own
expenses attributable to the Conversion.
11. Community Mutual is not under the jurisdiction of a court as a debtor
under (i) Title 11 of the United States Code, or (ii) a receivership,
foreclosure, or similar proceeding in a federal or state court.
12. None of the compensation received by an employee of Community Mutual
or Community who is also an Eligible Account Holder, Supplemental
Eligible Account Holder or Other Member will be separate consideration
for, or allocable to, his or her status as an Eligible Account Holder,
Supplemental Eligible Account Holder or Other Member. None of the
interests in the Liquidation Account of Community received by an
employee of Community Mutual or Community who is an Eligible Account
Holder or Supplemental Eligible Account Holder will be separate
consideration for, or allocable to, any employment agreement or
arrangement. All compensation paid to Eligible Account Holders and
Supplemental Eligible Account Holders who are also employees of
Community Mutual or Community will be for services actually rendered
and commensurate with amounts paid to third parties bargaining at
arm's-length for similar services. Officers, directors and other
employees may in the future be issued restricted common stock of the
Holding Company and options to purchase shares of the Common Stock of
the Holding Company in exchange for future services pursuant to the
proposed Management Recognition Plan and Stock Option Plan described
in the Prospectus.
13. No Eligible Account Holder or Supplemental Eligible Account Holder
will be excluded from participating in the Liquidation Account.
14. The Holding Company has no plan or intention to redeem or otherwise
acquire any of the Conversion Stock to be issued pursuant to the
Conversion, except as disclosed in the Prospectus regarding possible
purchases to fund the ESOP, MRP and stock option plans. The Holding
Company has no plan or intention to sell or otherwise dispose of the
common stock of Community received by it in the Conversion. The
Conversion Stock issued in the Conversion will not be callable or
subject to a put option.
<PAGE>
Board of Directors
Community Savings Bank, SSB
January 15, 1999
Page 5
15. At the time of Conversion, the fair market value of the assets of
Community Mutual on a going-concern basis will equal or exceed the
amount of its liabilities plus the amount of liabilities to which its
assets are subject. Immediately before the Conversion, Community
Mutual will have a positive net worth.
16. No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders or any other grantee of
Subscription Rights in lieu of (i) Subscription Rights for Conversion
Stock, or (ii) an interest in the Liquidation Account of Community.
17. There is no plan or intention for Community to be liquidated or merged
with another corporation following the Conversion.
18. The Conversion described herein is motivated by valid business
purposes and not by tax avoidance purposes.
19. After the Conversion, Community will continue the corporate existence
and business of Community Mutual with only the following changes:
(i) An amended and restated Certificate of Incorporation to allow for
the issuance of capital stock of Community, and
(ii) New corporate Bylaws.
20. There exists no intercorporate indebtedness between Community Mutual
and Community (treated as one entity for purposes of this
representation) and the Holding Company, that was issued, acquired, or
will be settled at a discount.
21. In the Conversion, the Holding Company will acquire 100% of the issued
and outstanding common stock of Community.
22. Neither Community Mutual and Community (treated as one entity for
purposes of this representation) nor the Holding Company is an
"investment company," as defined in Section 368(a)(2)(F)(iii) and (iv)
of the Code.
Based upon the foregoing assumptions, our opinions with respect to the
federal and North Carolina income tax consequences of the Conversion are as
follows (for purposes of the opinions set forth below, Eligible Account Holders
shall include, if applicable pursuant to the Plan, Supplemental Eligible Account
Holders):
<PAGE>
Board of Directors
Community Savings Bank, SSB
January 15, 1999
Page 6
1. The Conversion of Community Mutual from a North Carolina-chartered
mutual savings bank to a North Carolina-chartered stock savings bank
will qualify as a reorganization within the meaning of Section 368(a)
of the Code, and neither Community Mutual nor Community will recognize
any gain or loss as a result of such reorganization. Revenue Ruling
80-105, 1980-1 C.B. 78. Community Mutual in its form as a North
Carolina-chartered mutual savings bank and Community in its form as a
North Carolina-chartered stock savings bank will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code.
2. Community's basis in each of Community Mutual's assets will be the
same as Community Mutual's basis immediately prior to the Conversion.
Section 362(b) of the Code.
3. No gain or loss will be recognized by the Holding Company upon receipt
of money in exchange for the shares of the Conversion Stock issued
pursuant to the exercise of the Subscription Rights issued therefor.
Section 1032(a) of the Code.
4. No gain or loss will be recognized by Community upon receipt of money
from the Holding Company in exchange for the shares of its common
stock to be issued to the Holding Company in the Conversion. Section
1032(a) of the Code.
5. The holding period of the Community assets after the Conversion will
include the period during which the assets were held by Community
Mutual prior to the Conversion. Section 1223(2) of the Code.
6. Gain or loss, if any, will be realized by an Eligible Account Holder
on the exchange of such person's deposit account and proprietary
interest in Community Mutual for (i) a withdrawable deposit account in
Community in the same dollar amount as such person's deposit account
in Community Mutual immediately prior to the Conversion, (ii) such
person's interest in the Liquidation Account of Community, and (iii)
Subscription Rights to purchase the Conversion Stock. Such gain, if
any, will be recognized by an Eligible Account Holder only to the
extent of the fair market value of such person's interest in the
Subscription Rights received. Section 1001 of the Code. You have
represented to us that the Subscription Rights to purchase Conversion
Stock have no fair market value. Accordingly, gain recognized by an
Eligible Account Holder as a result of the Conversion is limited to an
amount not in excess of the fair market value of such person's
interest in the Subscription Rights received in the Conversion.
Paulsen v. Commissioner, 469 U.S. 131, 139 (1985), quoting Society for
----------------------- -----------
Savings v. Bowers, 349 U.S. 143, 150 (1955).
-----------------
<PAGE>
Board of Directors
Community Savings Bank, SSB
January 15, 1999
Page 7
7. The basis of the deposit account in Community received by an Eligible
Account Holder will be the cost of such deposit account. The cost
basis of such deposit account in Community (i) will be equal to the
fair market value of such deposit account in Community and (ii) will
be equal to such person's basis in his or her deposit account in
Community Mutual exchanged therefor. Section 1012 of the Code.
8. The basis of the interest in the Liquidation Account received by an
Eligible Account Holder will be equal to the cost of such interest.
The cost of the Liquidation Account will be the fair market value of
the proprietary interest in Community Mutual given for the Liquidation
Account. Section 1012 of the Code. An interest in the Liquidation
Account will be deemed to have no value, or nominal, if any, fair
market value. Paulsen v. Commissioner, 469 U.S. 131, 139 (1985)
-----------------------
(quoting Society for Savings v. Bowers, 349 U.S. 143, 150 (1955)).
-----------------------------
9. The basis of Subscription Rights received by an Eligible Account
Holder will be zero, increased by the gain, if any, recognized on
their receipt. Section 1012 of the Code. Gain is recognized only to
the extent of the fair market value of the Subscription Rights. You
have represented to us that the Subscription Rights to purchase
Conversion Stock have no fair market value. Accordingly, the basis of
the Subscription Rights received by an Eligible Account Holder will be
zero.
10. The basis of the Conversion Stock purchased pursuant to the exercise
of Subscription Rights will be the purchase price thereof. Section
1012 of the Code.
11. The holding period of the Conversion Stock acquired through the
exercise of Subscription Rights will commence upon the date of such
exercise. Section 1223(6) of the Code.
12. For purposes of Section 381 of the Code, Community will be treated
just as Community Mutual would have been treated had there been no
reorganization of Community Mutual from a North Carolina-chartered
mutual savings bank to a North Carolina-chartered stock savings bank.
Accordingly, and with regard only to the reorganization of Community
Mutual into Community, the tax attributes of Community Mutual
enumerated in Section 381(c) of the Code shall be taken into account
by Community as if there had been no reorganization. Treasury
Regulation (S)1.381(b)(1)(a)(2).
13. For North Carolina income tax purposes, the Conversion will be treated
in a manner identical to the way the Conversion is treated pursuant to
the Code. Sections 105-130.3, 105-130.5, 105-134.5, and 105-134.6 of
the North Carolina General Statutes.
<PAGE>
Board of Directors
Community Savings Bank, SSB
January 15, 1999
Page 8
No opinion is expressed with regard to the following:
1. The tax treatment of any aspect of the Conversion that is not
specifically set forth and addressed in the foregoing opinions.
2. The status, including without limitation, the tax treatment, of
Community Mutual's and Community's bad-debt reserves before or after
the Conversion.
3. For purposes of Section 381 of the Code, the effect upon Community
Mutual and Community of the acquisition of all of the common stock of
Community by the Holding Company in the Conversion.
The opinions herein expressed represent only our best judgments with
respect to the interpretation of published material and are not binding upon the
Internal Revenue Service or the courts. Our opinions are limited to matters of
North Carolina and federal law.
The opinions contained herein are rendered solely for your benefit and for
the benefit of purchasers of Conversion Stock and may not be used for any other
purpose whatsoever or relied upon by, published or communicated to any other
party without our prior written consent in each instance. We hereby consent to
the inclusion of this letter as an exhibit to the Applications being filed by
Community Mutual with the Administrator and as an exhibit to the Registration
Statement.
Sincerely,
BROOKS, PIERCE, McLENDON
HUMPHREY & LEONARD, L.L.P.
By:/s/ Howard L. Williams
--------------------------------
Howard L. Williams
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF FERGUSON & COMPANY]
DECEMBER 21, 1998
BOARD OF DIRECTORS
COMMUNITY SAVINGS BANK, SSB
708 S. CHURCH STREET
BURLINGTON, NORTH CAROLINA 27215
PLAN OF CONVERSION, SUBSCRIPTION RIGHTS
---------------------------------------
DIRECTORS:
Terms used in this letter not otherwise defined herein have the same
meanings for such terms in the Plan of Holding Company Conversion (the "Plan of
Conversion") adopted by the Board of Directors of Community Savings Bank, SSB,
Burlington, North Carolina ("Community" or "Bank"), under which the Bank will
convert from a mutual savings bank to a stock savings bank and issue all of the
Bank's stock to First Community Financial Corporation (the "Holding Company").
Simultaneously, the Holding Company will issue shares of common stock (the
"Common Stock").
We understand that in accordance with the Plan of Conversion, subscription
rights to purchase shares of Common Stock in the Holding Company are to be
issued to (1) Eligible Account Holders, (2) the Bank's tax qualified employee
stock ownership plan, (3) Supplemental Eligible Account Holders, (4) Other
Members, and (5) employees, officers and directors of Community. Based solely
upon our observation that the subscription rights will be available to such
parties without cost, will be legally non-transferable and of short duration,
and will afford such parties the right only to purchase shares of Common Stock
at the same price to be paid by members of the general public in the Community
Offering, but without undertaking any independent investigation of state or
federal laws or the position of the Internal Revenue Service with respect to
such issue, we are of the opinion that:
(1) the subscription rights will have no ascertainable market value; and
(2) the price at which the subscription rights are exercisable will not be
more or less than the pro forma market value of the shares upon issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates and other external forces (e.g.,
natural disasters or significant global events) occur from time to time and may
materially affect the value of thrift stocks as a whole or the Holding Company's
value. Accordingly, no assurance can be given that persons who subscribe to
shares of Common Stock in the Conversion will thereafter be able to sell such
shares at the same price paid in the Subscription Offering.
Sincerely,
/s/ Robin L. Fussell
Robin L. Fussell
Principal
<PAGE>
EXHIBIT 10.1
[LETTERHEAD OF FERGUSON & COMPANY]
AUGUST 31, 1998
BOARD OF DIRECTORS
COMMUNITY SAVINGS BANK, SSB
708 S. CHURCH STREET
BURLINGTON, NC 27215
DEAR DIRECTORS:
This letter sets forth the agreement between Community Savings Bank, SSB
("Community" or "Bank"), Burlington, North Carolina, and Ferguson & Company
("F&C"), Hurst, Texas, under the terms of which Community has engaged F&C, in
connection with its conversion from mutual to stock form, to (1) determine the
pro forma market value of the shares of common stock to be issued and sold by
Community or its holding company; and (2) assist Community in preparing a
business plan to be filed with the application for approval to convert to stock.
F&C agrees to deliver the written valuation and business plan to Community
at the above address on or before a mutually agreed upon date and to consult
with the Board of Directors of Community with regard to both the written
valuation and the business plan. Further, F&C agrees to perform such other
services as are necessary or required in connection with comments from the
applicable regulatory authorities relating to the business plan and appraisal
and the preparation of appraisal updates as requested by Community or its
counsel. It is understood that the services of F&C under this agreement shall be
limited as herein described.
F&C's fee for the business plan and initial appraisal valuation report and
final appraisal update shall be $25,000 plus $3,500 for each appraisal update in
addition to the original appraisal and final appraisal update. In addition,
Community shall reimburse F&C for all out-of-pocket expenses. Payment under this
agreement shall be made as follows:
1. Upon execution of this engagement letter--$7,500;
2. Upon issuance of the business plan--$7,500;
3. Upon issuance of the appraisal--$10,000;
4. Upon issuance of each additional intermediate appraisal update, if
any--$3,500; and
5. Out-of-pocket expenses are to be paid monthly.
If, during the course of Community's conversion, unforeseen events occur so
as to change materially the nature or the work content of the services described
in this contract, the terms of the contract shall be subject to renegotiation.
Such unforeseen events shall include, but not be limited to, major changes in
the conversion regulations, appraisal guidelines or processing procedures as
they relate to conversion appraisals, major changes in Community's management or
operating policies, execution of a merger agreement with another institution
prior to completion of conversion, and excessive delays or suspension of
processing of conversions by the regulatory authorities such that completion of
Community's conversion requires the preparation by F&C of a new appraisal report
or business plan.
<PAGE>
BOARD OF DIRECTORS
AUGUST 31, 1998
PAGE 2
To induce F&C to provide the services described above, Community hereby
agrees as follows:
1. Community shall supply to F&C such information with respect to its
business and financial condition as F&C reasonably may request in
order to make the aforesaid valuation. Such information made available
to F&C shall include, but not be limited to, annual financial
statements, periodic regulatory filings, material agreements, debt
instruments and corporate books and records.
2. Community hereby represents and warrants, to the best of its
knowledge, that any information provided to F&C does not and will not,
at any time relevant hereto, contain any misstatement or untrue
statement of a material fact or omit any and all material facts
required to be stated therein or necessary to make the statements
therein not false or misleading in light of the circumstances under
which they were made.
3. Community shall indemnify and hold harmless F&C and any employees of
F&C who act for or on behalf of F&C in connection with the services
called for under this agreement, from and against any and all loss,
cost, damage, claim, liability or expense of any kind, including
reasonable attorneys fees and other expenses incurred in
investigating, preparing to defend and defending any claim or claims
(specifically including, but not limited to, claims under federal and
state securities laws) arising out of any misstatement or untrue
statement of a material fact contained in the information supplied by
Community to F&C or by an omission to state a material fact in the
information so provided which is required to be stated therein in
order to make the statement therein not false or misleading.
4. F&C shall not be entitled to indemnification pursuant to Paragraph 3
above with regard to any claim arising where, with regard to the basis
for such claim, F&C had knowledge that a statement of a fact material
to the evaluation and contained in the information supplied by
Community was untrue or had knowledge that a material fact was omitted
from the information so provided and that such material fact was
necessary in order to make the statement made to F&C not false or
misleading.
5. F&C additionally shall not be entitled to indemnification pursuant to
Paragraph 3 above notwithstanding its lack of actual knowledge of an
intentional misstatement or omission of a material fact in the
information provided if F&C is determined to have been negligent or to
have failed to exercise due diligence in the preparation of its
valuation.
Community and F&C are not affiliated, and neither Community nor F&C has an
economic interest in, or held in common with, the other and has not derived a
significant portion of its gross revenue, receipts or net income for any period
from transactions with the other.
<PAGE>
BOARD OF DIRECTORS
AUGUST 31, 1998
PAGE 3
In order for F&C to consider this proposal binding, please acknowledge your
consent to the foregoing by executing the enclosed copies of this letter and
returning one copy to us, together with a check payable to Ferguson & Company in
the amount of $7,500. The extra copy is for your conversion counsel.
Yours very truly,
/s/Robin L. Fussell
Robin L. Fussell
Principal
Agreed to ($7,500 check enclosed):
Community Savings Bank, SSB
Burlington, North Carolina
By: /s/ W. R. Gilliam
------------------------------------
<PAGE>
EXHIBIT 10.2
COMMUNITY SAVINGS BANK, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of _______________,1999, by and between
COMMUNITY SAVINGS BANK, INC. (hereinafter referred to as the "Savings Bank") and
WILLIAM R. GILLIAM (hereinafter referred to as the "Officer") and is joined in
by FIRST COMMUNITY FINANCIAL CORPORATION, the parent holding company of the
Savings Bank (hereinafter referred to as the "Holding Company").
WHEREAS, the Officer has heretofore been employed by the Savings Bank as
its President and Chief Executive Officer; and
WHEREAS, the Savings Bank is a state-chartered stock savings bank and the
wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Savings Bank desires to retain the services of the Officer as
the President and Chief Executive Officer of the Savings Bank upon the terms and
conditions set forth herein; and
WHEREAS, the services of the Officer, his experience and knowledge of the
affairs of the Savings Bank, and his reputation and contacts in the industry and
the local community are extremely valuable to the Savings Bank; and
WHEREAS, the Savings Bank wishes to attract and retain such well-qualified
executives and it is in the best interest of the Savings Bank and of the Officer
to secure the continued services of the Officer notwithstanding any change in
control of the Savings Bank or the Holding Company; and
WHEREAS, the Savings Bank considers the establishment and maintenance of a
sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Holding
Company, the Savings Bank and their stockholders; and
WHEREAS, the parties desire to enter into this Agreement in order to set
forth the terms and conditions of the Officer's employment relationship with the
Savings Bank.
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby do agree as follows:
1. EMPLOYMENT. The Savings Bank hereby agrees to employ the Officer and
----------
the Officer hereby agrees to accept employment, upon the terms and conditions
stated herein, as the President and Chief Executive Officer of the Savings Bank.
The Officer shall render such administrative and management services to the
Savings Bank as are customarily performed by persons situated in a similar
executive capacity. The Officer shall promote the business of the Savings Bank
and perform such other duties as shall, from time to time, be reasonably
prescribed by the Board of Directors of the Savings Bank (the "Board").
2. COMPENSATION. The Savings Bank shall pay the Officer during the term
------------
of this Agreement, as compensation for all service rendered by him to the
Savings Bank, a base salary at the rate of $120,000 per annum, payable in
cash not less frequently than monthly; provided that the rate of such salary
shall be reviewed by the Board prior to January 1, 2000 and not less often than
annually thereafter. Such rate of salary, or increased rate of salary, as the
case may be, may be further increased from time to time in such amounts as the
Board, in its discretion, may decide. In determining salary increases, the
Board shall compensate the Officer for increases in the cost of living and may
also provide for performance or merit increases. Participation in incentive
compensation, deferred compensation, discretionary bonus, profit-sharing,
retirement, stock option, restricted stock and other employee benefit plans that
the Savings Bank or the Holding Company have adopted or may from time to time
adopt, and participation in any fringe benefits, whether applicable only to the
Officer, to executive officers or to employees generally, shall not reduce the
salary payable to the Officer under this Section. The Officer will be entitled
to such customary fringe benefits, vacation and sick leave as are consistent
with the
2
<PAGE>
normal practices and established policies of the Savings Bank. In the event of
a Change of Control (as defined in Section 10), the Officer's rate of salary
shall be increased not less than six percent (6%) annually during the term of
this Agreement.
3. BONUS COMPENSATION. During the term of this Agreement, the Officer
------------------
shall be entitled in an equitable manner with all other key management personnel
of the Savings Bank, to such discretionary bonuses as may be authorized,
declared and paid by the Savings Bank to the Savings Bank's key management
employees. In addition, the Officer shall be entitled to participate in any
other incentive bonus compensation plans adopted by the Directors of the Savings
Bank and applicable to key management personnel. No other compensation provided
for in this Agreement shall be deemed a substitute for the Officer's right to
such discretionary and other bonuses when and as declared by the Directors of
the Savings Bank.
4. PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS; FRINGE
--------------------------------------------------------------
BENEFITS. The Officer shall be entitled to participate in any plan relating to
deferred compensation, stock awards, stock options, stock purchases, pension,
thrift, profit sharing, life insurance, medical and dental coverage, disability
coverage, education, or other retirement or employee benefits that the Savings
Bank or the Holding Company have adopted, or may, from time to time adopt, for
his benefit or for the benefit of their executive employees and for employees
generally, subject to the eligibility rules of such plans.
The Officer shall also be entitled to participate in any other fringe
benefits which are now or may be or become applicable to the Officer or the
Savings Bank's other executive employees. The Savings Bank shall pay all
reasonable expenses incurred by the Officer (including expenses of Officer's
spouse) in attending meetings of the North Carolina Bankers Association and
Americas Community Bankers and their successor organizations and other meetings
in accordance with prior practice of the Savings Bank. In addition, the Officer
shall be entitled to participate in any other benefits which are
3
<PAGE>
commensurate with the duties and responsibilities to be performed by the Officer
under this Agreement. Additionally, the Officer shall be entitled to such
vacation and sick leave as shall be established under uniform employee policies
promulgated by the Directors. The Savings Bank shall reimburse the Officer for
all out-of-pocket reasonable and necessary business expenses which the Officer
may incur in connection with his services on behalf of the Savings Bank.
The Officer shall be furnished with an automobile of make, model and age
consistent with prior practice of the Savings Bank, which automobile may be used
by the Officer for business and personal purposes. The Savings Bank shall pay
membership dues, assessments and other expenses associated with the Officer's
membership in clubs and other organizations in accordance with prior practice of
the Saving Bank.
5. TERM. The initial term of employment under this Agreement shall be for
----
the period commencing upon the effective date of this Agreement and ending three
(3) calendar years from the effective date of this Agreement. On each
anniversary of the effective date of this Agreement, the term of this Agreement
shall automatically be extended for an additional one year period beyond the
then effective expiration date unless written notice from the Savings Bank or
the Officer is received 90 days prior to an anniversary date advising the other
party that this Agreement shall not be further extended; provided that the
Directors shall review the Officer's performance annually and make a specific
determination pursuant to such review to renew this Agreement prior to the 90
day notice period.
6. LOYALTY. The Officer shall devote his full efforts and entire business
-------
time to the performance of his duties and responsibilities under this Agreement.
The Officer agrees that he will hold in confidence all knowledge or
information of a confidential nature with respect to the respective businesses
of the Holding Company, the Savings Bank or of their subsidiaries, if any,
received by him during the term of this Agreement and will not disclose or make
4
<PAGE>
use of such information, except in the ordinary course of his duties under this
Agreement, without the prior written consent of the Holding Company or the
Savings Bank.
7. STANDARDS. The Officer shall perform his duties and responsibilities
---------
under this Agreement in accordance with such reasonable standards expected of
employees with comparable positions in comparable organizations and as may be
established from time to time by the Board. The Savings Bank will provide the
Officer with the working facilities and staff customary for similar executives
and necessary for him to perform his duties.
8. TERMINATION AND TERMINATION PAY.
-------------------------------
(a) The Officer's employment under this Agreement shall be terminated upon
the death of the Officer during the term of this Agreement, in which event, the
Officer's estate shall be entitled to receive the compensation due the Officer
through the last day of the calendar month in which his death shall have
occurred and for a period of one month thereafter.
(b) The Officer's employment under this Agreement may be terminated at any
time by the Officer upon sixty (60) days' written notice to the Board of
Directors. Upon such termination, the Officer shall be entitled to receive
compensation through the effective date of such termination.
(c) The Board may terminate the Officer's employment at any time, but any
termination by the Board, other than termination for cause, shall not prejudice
the Officer's right to compensation or other benefits under this Agreement for
the remaining period which would have been covered by this Agreement if such
termination had not occurred. The Officer shall have no right to receive
compensation or other benefits for any period after termination for "cause."
Termination for "cause" shall include termination because of the Officer's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated
5
<PAGE>
duties, willful violation of any law, rule, regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provisions of this Agreement.
9. ADDITIONAL REGULATORY REQUIREMENTS.
----------------------------------
(a) If the Officer is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Savings Bank shall (i) pay the Officer all of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in part)
any of its obligations which were suspended.
(b) If the Officer is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Section 8(e)(4) of Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(c) If the Savings Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act (12 U.S.C. (S) 1818(x)(1)), all obligations under
this Agreement shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(d) All obligations under this Agreement shall be terminated, except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the Savings Bank, (i) by the Federal Deposit Insurance
Corporation (the "Corporation"), at the time the Corporation enters into an
agreement to provide assistance to or on behalf of the Savings Bank under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act (12
U.S.C. (S) 1818(c)); or (ii) by the
6
<PAGE>
Administrator of the Savings Institution Division of the North Carolina
Department of Commerce (the "Administrator"), at the time the Administrator
approves a supervisory merger to resolve problems related to operation of the
Savings Bank or when the Savings Bank is determined by the Administrator to be
in an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
10. CHANGE IN CONTROL.
-----------------
(a) In the event of a "Change in Control" (as defined in Subsection (b)
below), the term of employment under this Agreement shall automatically be
extended for a period of three (3) years beginning on the date of the Change in
Control, and the acquirer shall be bound by the terms of this Agreement and
shall be prohibited, during the remainder of the term of this Agreement, from:
(i) Assigning Officer any duties and/or responsibilities that are
inconsistent with his position, duties, responsibilities or status at
the time of the Change in Control or with his reporting
responsibilities or equivalent titles with the Savings Bank in effect
at such time; or
(ii) Adjusting Officer's annual base salary rate other than in
accordance with the provisions of Section 2 of this Agreement; or
(iii) Reducing in level, scope or coverage or eliminating Officer's
life insurance, medical or hospitalization insurance, disability
insurance, profit sharing plans, stock option plans, stock purchase
plans, deferred compensation plans, bonus compensation plans,
management retention plans, retirement plans or similar plans or
benefits or other benefits being provided by the Savings Bank or the
Holding Company to the Officer as of the effective date of the Change
in Control; or
(iv) Transferring Officer to a location more than forty (40) miles
distant from Officer's primary work station at the time of a Change in
Control, without the Officer's express written consent.
(b) For the purposes of this Agreement, the term "Change in Control" shall
mean any of the following events:
(i) a change in control of a nature that would be required to be
reported by the Holding Company in response to Item 1 of the Current
7
<PAGE>
Report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Exchange Act; or
(ii) such time as any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Holding Company or Savings Bank
representing 25 percent or more of the combined voting power of the
outstanding Common Stock of the Holding Company or Common Stock of the
Savings Bank, as applicable; or
(iii) individuals who constitute the Board or board of directors of
the Holding Company on the date hereof (the "Incumbent Board" and
"Incumbent Holding Company Board," respectively) cease for any reason
to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board or Incumbent Holding Company Board, as
applicable, or whose nomination for election by the Savings Bank's or
Holding Company's shareholders was approved by the Savings Bank's or
Holding Company's Board of Directors or Nominating Committee, as
applicable, shall be considered as though he or she were a member of
the Incumbent Board or Incumbent Holding Company Board, as applicable;
or
(iv) either the Holding Company or the Savings Bank consolidates or
merges with or into another corporation, association or entity or is
otherwise reorganized, where neither the Holding Company nor the
Savings Bank, respectively, is the surviving corporation in such
transaction; or
(v) all or substantially all of the assets of either the Holding
Company or the Savings Bank are sold or otherwise transferred to or
are acquired by any other entity or group.
8
<PAGE>
Notwithstanding the other provisions of this Section 10, a transaction or
event shall not be considered a Change in Control if, prior to the consummation
or occurrence of such transaction or event, Officer and Savings Bank agree in
writing that the same shall not be treated as a Change in Control for purposes
of this Agreement.
(c) In the event any dispute shall arise between the Officer and the
Savings Bank as to the terms or interpretation of this Agreement, including this
Section 10, whether instituted by formal legal proceedings or otherwise,
including any action taken by the Officer to enforce the terms of this Section
10 or in defending against any action taken by the Savings Bank, the Savings
Bank shall reimburse the Officer for all costs and expenses incurred in such
proceedings or actions, including attorney's fees, in the event the Officer
prevails in any such action.
11. SUCCESSORS AND ASSIGNS.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Savings Bank which shall acquire, directly
or indirectly, by conversion, merger, consolidation, purchase or otherwise, all
or substantially all of the assets of the Holding Company or the Savings Bank.
(b) Since the Savings Bank is contracting for the unique and personal
skills of the Officer, the Officer shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Savings Bank.
9
<PAGE>
12. MODIFICATION; WAIVER; AMENDMENTS. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing, signed by the Officer and on behalf of the Savings Bank
by such officer as may be specifically designated by the Directors. No waiver by
either party hereto, at any time, of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No amendments or
additions to this Agreement shall be binding unless in writing and signed by
both parties, except as herein otherwise provided.
13. APPLICABLE LAW. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
14. SEVERABILITY. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
COMMUNITY SAVINGS BANK, INC.
By:___________________________________
Executive Vice President
______________________________________
(SEAL)
William R. Gilliam
The foregoing Agreement is consented and agreed to by First Community
Financial Corporation, the parent holding company of Community Savings Bank,
Inc.
10
<PAGE>
FIRST COMMUNITY FINANCIAL
CORPORATION
By:___________________________
Executive Vice President
11
<PAGE>
EXHIBIT 10.3
SPECIAL TERMINATION AGREEMENT
THIS AGREEMENT entered into as of __________________________, 1999, by and
between FIRST COMMUNITY FINANCIAL CORPORATION, a North Carolina corporation (the
"Holding Company") and LARRY W. HALL (the "Officer").
WHEREAS, the Officer is employed by Community Savings Bank, Inc., a North
Carolina-chartered savings bank (the "Savings Bank") as its Executive Vice
President; and
WHEREAS, the Savings Bank is the wholly-owned subsidiary of the Holding
Company; and
WHEREAS, the services of the Officer, Officer's experience and knowledge of
the affairs of the Savings Bank, and Officer's reputation and contacts in the
industry are extremely valuable to the Savings Bank and the Holding Company; and
WHEREAS, the Holding Company and the Savings Bank wish to attract and
retain such well-qualified executives and it is in the best interests of the
Holding Company and the Savings Bank and of the Officer to secure the continued
services of the Officer notwithstanding any change in control of the Savings
Bank or the Holding Company; and
WHEREAS, the Holding Company considers the establishment and maintenance of
a sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Savings Bank,
the Holding Company and their shareholders; and
WHEREAS, the parties desire to enter into this Agreement to provide the
Officer with security in the event of a change in control of the Savings Bank or
the Holding Company in order to ensure the continued loyalty of the Officer.
NOW, THEREFORE, for and in consideration of the promises and mutual
promises, covenants and conditions hereinafter set forth, and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby to agree as follows:
<PAGE>
1. TERM. The initial term of this Agreement shall be for a period of two (2)
----
years commencing upon the date of execution of this Agreement. On each
anniversary of the effective date of this Agreement, the term of this Agreement
shall automatically be extended for an additional one year period beyond the
then effective expiration date unless written notice from the Holding Company to
the Officer is received 90 days prior to an anniversary date advising the
Officer that this Agreement shall not be further extended; provided that the
Directors of the Holding Company shall review the Officer's performance annually
and make a specific determination pursuant to such review to renew this
Agreement prior to the 90 day notice period. The Officer shall have rights and
benefits pursuant to this Agreement only if a Change in Control occurs during
the term of this Agreement. In such event, the Officer shall have the rights
set forth below with respect to any termination of employment or "Termination
Event" (as defined below) even though the termination or Termination Event shall
occur after the expiration of the terms of this Agreement.
1. Change in Control.
-----------------
(a) In the event of a termination of the Officer's employment in
connection with, or within twenty-four (24) months after, a "Change in
Control" (as defined in Subparagraph (e) below) of the Savings Bank or the
Holding Company, for reasons other than for "cause" (as defined in
Subparagraph (b) below), the Officer shall be entitled to receive the
amount set forth in Subparagraph (d) below. Said sum shall be payable as
provided in Subparagraph (f) below.
(b) For purposes of this Agreement, termination for "cause" shall
include termination because of the Officer's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, or willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order.
2
<PAGE>
(c) The Officer shall have the right to terminate Officer's
employment with the Savings Bank upon the occurrence of any of the
following events (the "Termination Events") within twenty-four (24) months
following a Change in Control of the Holding Company or the Savings Bank:
(i) Officer is assigned any duties and/or
responsibilities that are inconsistent with
Officer's position, duties, responsibilities
or status at the time of the Change in Control
or with his reporting responsibilities or
titles with the Savings Bank in effect at such
time; or
(ii) Officer's annual base salary rate is
reduced below the annual amount in effect as of
the effective date of a Change in Control or as
the same shall have been increased from time to
time following such effective date; or
(iii) Officer's life insurance, medical or
hospitalization insurance, disability insurance,
stock option plans, stock purchase plans,
deferred compensation plans, management
retention plans, retirement plans or similar
plans or benefits or other benefits being
provided by the Savings Bank or the Holding
Company to the Officer as of the effective date
of the Change in Control are reduced in their
level, scope or coverage, or any such insurance,
plans or benefi ts are eliminated, unless such
reduction or elimination applies proportionately
to all salaried employees of the Savings Bank or
the Holding Company who participated in such
benefits prior to such Change in Control; or
(iv) Officer is transferred to a location which
is more than forty (40) miles distant from
Officer's current principal work location, without
the Officer's express written consent.
A Termination Event shall be deemed to have occurred on the date such
action or event is implemented or takes effect.
3
<PAGE>
(d) In the event that the Officer's employment is terminated as set
forth in Paragraphs 2(a) or 2(c), the Holding Company will be obligated to
pay or cause to be paid to Officer an amount equal to two (2.0) times the
Officer's salary and bonuses from the Savings Bank and Holding Company for
the most recently completed calendar year prior to such termination.
(e) For the purposes of this Agreement, the term "Change in Control"
shall mean: (i) a change in control of a nature that would be required to
be reported in response to Item 1 of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange
Act; (ii) such time as any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Holding Company or Savings Bank representing 25 percent
or more of the combined voting power of the outstanding Common Stock of the
Holding Company or outstanding common stock of the Savings Bank, as
applicable; or (iii) individuals who constitute the board of directors of
the Holding Company or board of directors of the Savings Bank on the date
hereof (the "Incumbent Board" and "Incumbent Savings Bank Board,"
respectively) cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-
quarters of the directors comprising the Incumbent Board or Incumbent
Savings Bank Board, as applicable, or whose nomination for election by the
Holding Company's or Savings Bank's shareholders was approved by the
Holding Company's or Savings Bank's board of directors or Nominating
Committee, shall be considered as though he or she were a member of the
Incumbent Board or Incumbent Savings Bank Board, as applicable; or (iv)
either the Holding Company or the Savings Bank consolidates or merges
4
<PAGE>
with or into another corporation, association or entity or is otherwise
reorganized, where neither the Holding Company nor the Savings Bank,
respectively, is the surviving corporation in such transaction or; or (v)
all or substantially all of the assets of either the Holding Company or the
Savings Bank are sold or otherwise transferred to or are acquired by any
other entity or group.
Notwithstanding the other provisions of this Paragraph 2, a
transaction or event shall not be considered a Change in Control if, prior
to the consummation of occurrence of such transaction or event, Officer and
Holding Company agree in writing that the same shall not be treated as a
Change in Control for purposes of this Agreement. In addition, the Holding
Company's acquisition of all of the stock of the Savings Bank and initial
public offering in connection with the conversion of the Savings Bank from
the mutual to the stock form of ownership shall not be considered a change
in control.
(f) Such amounts payable pursuant to this Paragraph 2 shall be paid,
at the irrevocable option of the Officer, as follows:
Participant's Initials
----------------------
(i) ___________________ Payment in a lump-sum.
(ii) ___________________ Payment in monthly installments over a fixed
reasonable period of time. Such payments shall
begin within thirty (30) days following the
calendar month in which the Officer terminates
employment with the Savings Bank.
5
<PAGE>
(g) Following a Termination Event which gives rise to the Officer's
rights hereunder, the Officer shall have twelve (12) months from the date
of occurrence of the Termination Event to terminate Officer's employment
with the Savings Bank pursuant to this Paragraph 2. Any such termination
shall be deemed to have occurred only upon delivery to the Savings Bank (or
to any successor corporation) of written notice of termination which
describes the Change in Control and Termination Event. If the Officer does
not so terminate employment with the Savings Bank within such twelve (12)
month period, Officer shall thereafter have no further rights hereunder
with respect to that Termination Event, but shall retain rights, if any,
hereunder with respect to any other Termination Event as to which such
period has not expired.
(h) It is the intent of the parties hereto that all payments made
pursuant to this Agreement be deductible by the Holding Company for federal
income tax purposes and not result in the imposition of an excise tax on
the Officer. Notwithstanding anything contained in this Agreement to the
contrary, any payments to be made to or for the benefit of the Officer
which are deemed to be "parachute payments" as that term is defined in
Section 280G of the Code, shall be modified or reduced to the extent deemed
to be necessary by the Holding Company's Board of Directors to avoid the
imposition of excise taxes on the Officer under Section 4999 of the Code or
the disallowance of a deduction to the Holding Company under Section
280G(a) of the Code.
(i) In the event any dispute shall arise between the Officer and the
Holding Company as to the terms or interpretation of this Agreement,
including this Paragraph 2, whether instituted by formal legal proceedings
or otherwise, including any action taken by the Officer to enforce the
terms of this Paragraph 2 or in defending against any action taken by the
Holding Company, the Holding Company shall reimburse the Officer for all
costs and expenses
6
<PAGE>
incurred in such proceedings or actions, including attorney's fees, in the
event the Officer prevails in any such action.
2. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon any corporate or other successor of the Holding Company
which shall acquire, directly or indirectly, by conversion, merger,
consolidation, purchase or otherwise, all or substantially all of the assets of
the Holding Company.
3. Modification; Waiver; Amendments. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Officer and the Holding Company,
except as herein otherwise provided. No waiver by either party hereto, at any
time, of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. With the exception of Paragraph
2(f) of this Agreement which may not be amended, no amendments or additions to
this Agreement shall be binding unless in writing and signed by both parties,
except as herein otherwise provided.
4. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
5. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
FIRST COMMUNITY FINANCIAL
CORPORATION
(CORPORATE SEAL)
By: _______________________________
__________ President
ATTEST:
________________________
______Secretary
____________________________________(SEAL)
Larry H. Hall
8
<PAGE>
SPECIAL TERMINATION AGREEMENT
THIS AGREEMENT entered into as of __________________________, 1999, by and
between FIRST COMMUNITY FINANCIAL CORPORATION, a North Carolina corporation (the
"Holding Company") and JOSEPH C. CANADA (the "Officer").
WHEREAS, the Officer is employed by Community Savings Bank, Inc., a North
Carolina-chartered savings bank (the "Savings Bank") as its Senior Vice
President and Secretary; and
WHEREAS, the Savings Bank is the wholly-owned subsidiary of the Holding
Company; and
WHEREAS, the services of the Officer, Officer's experience and knowledge of
the affairs of the Savings Bank, and Officer's reputation and contacts in the
industry are extremely valuable to the Savings Bank and the Holding Company; and
WHEREAS, the Holding Company and the Savings Bank wish to attract and
retain such well-qualified executives and it is in the best interests of the
Holding Company and the Savings Bank and of the Officer to secure the continued
services of the Officer notwithstanding any change in control of the Savings
Bank or the Holding Company; and
WHEREAS, the Holding Company considers the establishment and maintenance of
a sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Savings Bank,
the Holding Company and their shareholders; and
WHEREAS, the parties desire to enter into this Agreement to provide the
Officer with security in the event of a change in control of the Savings Bank or
the Holding Company in order to ensure the continued loyalty of the Officer.
NOW, THEREFORE, for and in consideration of the promises and mutual
promises, covenants and conditions hereinafter set forth, and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby to agree as follows:
<PAGE>
1. TERM. The initial term of this Agreement shall be for a period of two (2)
----
years commencing upon the date of execution of this Agreement. On each
anniversary of the effective date of this Agreement, the term of this Agreement
shall automatically be extended for an additional one year period beyond the
then effective expiration date unless written notice from the Holding Company to
the Officer is received 90 days prior to an anniversary date advising the
Officer that this Agreement shall not be further extended; provided that the
Directors of the Holding Company shall review the Officer's performance annually
and make a specific determination pursuant to such review to renew this
Agreement prior to the 90 day notice period. The Officer shall have rights and
benefits pursuant to this Agreement only if a Change in Control occurs during
the term of this Agreement. In such event, the Officer shall have the rights
set forth below with respect to any termination of employment or "Termination
Event" (as defined below) even though the termination or Termination Event shall
occur after the expiration of the terms of this Agreement.
1. Change in Control.
-----------------
(a) In the event of a termination of the Officer's employment in
connection with, or within twenty-four (24) months after, a "Change in
Control" (as defined in Subparagraph (e) below) of the Savings Bank or the
Holding Company, for reasons other than for "cause" (as defined in
Subparagraph (b) below), the Officer shall be entitled to receive the
amount set forth in Subparagraph (d) below. Said sum shall be payable as
provided in Subparagraph (f) below.
(b) For purposes of this Agreement, termination for "cause" shall
include termination because of the Officer's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, or willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order.
2
<PAGE>
(c) The Officer shall have the right to terminate Officer's
employment with the Savings Bank upon the occurrence of any of the
following events (the "Termination Events") within twenty-four (24) months
following a Change in Control of the Holding Company or the Savings Bank:
(i) Officer is assigned any duties and/or
responsibilities that are inconsistent with
Officer's position, duties, responsibilities
or status at the time of the Change in Control
or with his reporting responsibilities or
titles with the Savings Bank in effect at such
time; or
(ii) Officer's annual base salary rate is
reduced below the annual amount in effect as of
the effective date of a Change in Control or as
the same shall have been increased from time to
time following such effective date; or
(iii) Officer's life insurance, medical or
hospitalization insurance, disability insurance,
stock option plans, stock purchase plans,
deferred compensation plans, management retention
plans, retirement plans or similar plans or
benefits or other benefits being provided by the
Savings Bank or the Holding Company to the Officer
as of the effective date of the Change in Control
are reduced in their level, scope or coverage, or
any such insurance, plans or benefits are
eliminated, unless such reduction or elimination
applies proportionately to all salaried employees
of the Savings Bank or the Holding Company who
participated in such benefits prior to such Change
in Control; or
(iv) Officer is transferred to a location
which is more than forty (40) miles distant from
Officer's current principal work location, without
the Officer's express written consent.
A Termination Event shall be deemed to have occurred on the date such
action or event is implemented or takes effect.
3
<PAGE>
(d) In the event that the Officer's employment is terminated as set
forth in Paragraphs 2(a) or 2(c), the Holding Company will be obligated to
pay or cause to be paid to Officer an amount equal to two (2.0) times the
Officer's salary and bonuses from the Savings Bank and Holding Company for
the most recently completed calendar year prior to such termination.
(e) For the purposes of this Agreement, the term "Change in Control"
shall mean: (i) a change in control of a nature that would be required to
be reported in response to Item 1 of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange
Act; (ii) such time as any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Holding Company or Savings Bank representing 25 percent
or more of the combined voting power of the outstanding Common Stock of the
Holding Company or outstanding common stock of the Savings Bank, as
applicable; or (iii) individuals who constitute the board of directors of
the Holding Company or board of directors of the Savings Bank on the date
hereof (the "Incumbent Board" and "Incumbent Savings Bank Board,"
respectively) cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-
quarters of the directors comprising the Incumbent Board or Incumbent
Savings Bank Board, as applicable, or whose nomination for election by the
Holding Company's or Savings Bank's shareholders was approved by the
Holding Company's or Savings Bank's board of directors or Nominating
Committee, shall be considered as though he or she were a member of the
Incumbent Board or Incumbent Savings Bank Board, as applicable; or (iv)
either the Holding Company or the Savings Bank consolidates or merges
4
<PAGE>
with or into another corporation, association or entity or is otherwise
reorganized, where neither the Holding Company nor the Savings Bank,
respectively, is the surviving corporation in such transaction or; or (v)
all or substantially all of the assets of either the Holding Company or the
Savings Bank are sold or otherwise transferred to or are acquired by any
other entity or group.
Notwithstanding the other provisions of this Paragraph 2, a
transaction or event shall not be considered a Change in Control if, prior
to the consummation of occurrence of such transaction or event, Officer and
Holding Company agree in writing that the same shall not be treated as a
Change in Control for purposes of this Agreement. In addition, the Holding
Company's acquisition of all of the stock of the Savings Bank and initial
public offering in connection with the conversion of the Savings Bank from
the mutual to the stock form of ownership shall not be considered a change
in control.
(f) Such amounts payable pursuant to this Paragraph 2 shall be paid,
at the irrevocable option of the Officer, as follows:
Participant's Initials
----------------------
(i) ___________________ Payment in a lump-sum.
(ii) ___________________ Payment in monthly installments over a fixed
reasonable period of time. Such payments shall
begin within thirty (30) days following the
calendar month in which the Officer terminates
employment with the Savings Bank.
5
<PAGE>
(g) Following a Termination Event which gives rise to the Officer's
rights hereunder, the Officer shall have twelve (12) months from the date
of occurrence of the Termination Event to terminate Officer's employment
with the Savings Bank pursuant to this Paragraph 2. Any such termination
shall be deemed to have occurred only upon delivery to the Savings Bank (or
to any successor corporation) of written notice of termination which
describes the Change in Control and Termination Event. If the Officer does
not so terminate employment with the Savings Bank within such twelve (12)
month period, Officer shall thereafter have no further rights hereunder
with respect to that Termination Event, but shall retain rights, if any,
hereunder with respect to any other Termination Event as to which such
period has not expired.
(h) It is the intent of the parties hereto that all payments made
pursuant to this Agreement be deductible by the Holding Company for federal
income tax purposes and not result in the imposition of an excise tax on
the Officer. Notwithstanding anything contained in this Agreement to the
contrary, any payments to be made to or for the benefit of the Officer
which are deemed to be "parachute payments" as that term is defined in
Section 280G of the Code, shall be modified or reduced to the extent deemed
to be necessary by the Holding Company's Board of Directors to avoid the
imposition of excise taxes on the Officer under Section 4999 of the Code or
the disallowance of a deduction to the Holding Company under Section
280G(a) of the Code.
(i) In the event any dispute shall arise between the Officer and the
Holding Company as to the terms or interpretation of this Agreement,
including this Paragraph 2, whether instituted by formal legal proceedings
or otherwise, including any action taken by the Officer to enforce the
terms of this Paragraph 2 or in defending against any action taken by the
Holding Company, the Holding Company shall reimburse the Officer for all
costs and expenses
6
<PAGE>
incurred in such proceedings or actions, including attorney's fees, in the
event the Officer prevails in any such action.
2. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon any corporate or other successor of the Holding Company
which shall acquire, directly or indirectly, by conversion, merger,
consolidation, purchase or otherwise, all or substantially all of the assets of
the Holding Company.
3. Modification; Waiver; Amendments. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Officer and the Holding Company,
except as herein otherwise provided. No waiver by either party hereto, at any
time, of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. With the exception of Paragraph
2(f) of this Agreement which may not be amended, no amendments or additions to
this Agreement shall be binding unless in writing and signed by both parties,
except as herein otherwise provided.
4. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
5. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
FIRST COMMUNITY FINANCIAL
CORPORATION
(CORPORATE SEAL)
By: ________________________________
__________ President
ATTEST:
________________________
______Secretary
____________________________________(SEAL)
Joseph C. Canada
8
<PAGE>
SPECIAL TERMINATION AGREEMENT
THIS AGREEMENT entered into as of __________________________, 1999, by and
between FIRST COMMUNITY FINANCIAL CORPORATION, a North Carolina corporation (the
"Holding Company") and JUDY L. PENNINGTON (the "Officer").
WHEREAS, the Officer is employed by Community Savings Bank, Inc., a North
Carolina-chartered savings bank (the "Savings Bank") as its Vice President; and
WHEREAS, the Savings Bank is the wholly-owned subsidiary of the Holding
Company; and
WHEREAS, the services of the Officer, Officer's experience and knowledge of
the affairs of the Savings Bank, and Officer's reputation and contacts in the
industry are extremely valuable to the Savings Bank and the Holding Company; and
WHEREAS, the Holding Company and the Savings Bank wish to attract and
retain such well-qualified executives and it is in the best interests of the
Holding Company and the Savings Bank and of the Officer to secure the continued
services of the Officer notwithstanding any change in control of the Savings
Bank or the Holding Company; and
WHEREAS, the Holding Company considers the establishment and maintenance of
a sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Savings Bank,
the Holding Company and their shareholders; and
WHEREAS, the parties desire to enter into this Agreement to provide the
Officer with security in the event of a change in control of the Savings Bank or
the Holding Company in order to ensure the continued loyalty of the Officer.
NOW, THEREFORE, for and in consideration of the promises and mutual
promises, covenants and conditions hereinafter set forth, and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby to agree as follows:
<PAGE>
1. TERM. The initial term of this Agreement shall be for a period of two (2)
----
years commencing upon the date of execution of this Agreement. On each
anniversary of the effective date of this Agreement, the term of this Agreement
shall automatically be extended for an additional one year period beyond the
then effective expiration date unless written notice from the Holding Company to
the Officer is received 90 days prior to an anniversary date advising the
Officer that this Agreement shall not be further extended; provided that the
Directors of the Holding Company shall review the Officer's performance annually
and make a specific determination pursuant to such review to renew this
Agreement prior to the 90 day notice period. The Officer shall have rights and
benefits pursuant to this Agreement only if a Change in Control occurs during
the term of this Agreement. In such event, the Officer shall have the rights
set forth below with respect to any termination of employment or "Termination
Event" (as defined below) even though the termination or Termination Event shall
occur after the expiration of the terms of this Agreement.
1. Change in Control.
-----------------
(a) In the event of a termination of the Officer's employment in
connection with, or within twenty-four (24) months after, a "Change in
Control" (as defined in Subparagraph (e) below) of the Savings Bank or the
Holding Company, for reasons other than for "cause" (as defined in
Subparagraph (b) below), the Officer shall be entitled to receive the
amount set forth in Subparagraph (d) below. Said sum shall be payable as
provided in Subparagraph (f) below.
(b) For purposes of this Agreement, termination for "cause" shall
include termination because of the Officer's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, or willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order.
2
<PAGE>
(c) The Officer shall have the right to terminate Officer's
employment with the Savings Bank upon the occurrence of any of the
following events (the "Termination Events") within twenty-four (24) months
following a Change in Control of the Holding Company or the Savings Bank:
(i) Officer is assigned any duties and/or responsibilities
that are inconsistent with Officer's position, duties,
responsibilities or status at the time of the Change in
Control or with his reporting responsibilities or titles
with the Savings Bank in effect at such time; or
(ii) Officer's annual base salary rate is reduced below the
annual amount in effect as of the effective date of a Change
in Control or as the same shall have been increased from
time to time following such effective date; or
(iii) Officer's life insurance, medical or hospitalization
insurance, disability insurance, stock option plans, stock
purchase plans, deferred compensation plans, management
retention plans, retirement plans or similar plans or
benefits or other benefits being provided by the Savings
Bank or the Holding Company to the Officer as of the
effective date of the Change in Control are reduced in their
level, scope or coverage, or any such insurance, plans or
benefits are eliminated, unless such reduction or
elimination applies proportionately to all salaried
employees of the Savings Bank or the Holding Company who
participated in such benefits prior to such Change in
Control; or
(iv) Officer is transferred to a location which is more
than forty (40) miles distant from Officer's current
principal work location, without the Officer's express
written consent.
A Termination Event shall be deemed to have occurred on the date such
action or event is implemented or takes effect.
3
<PAGE>
(d) In the event that the Officer's employment is terminated as set
forth in Paragraphs 2(a) or 2(c), the Holding Company will be obligated to
pay or cause to be paid to Officer an amount equal to two (2.0) times the
Officer's salary and bonuses from the Savings Bank and Holding Company for
the most recently completed calendar year prior to such termination.
(e) For the purposes of this Agreement, the term "Change in Control"
shall mean: (i) a change in control of a nature that would be required to
be reported in response to Item 1 of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange
Act; (ii) such time as any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Holding Company or Savings Bank representing 25 percent
or more of the combined voting power of the outstanding Common Stock of the
Holding Company or outstanding common stock of the Savings Bank, as
applicable; or (iii) individuals who constitute the board of directors of
the Holding Company or board of directors of the Savings Bank on the date
hereof (the "Incumbent Board" and "Incumbent Savings Bank Board,"
respectively) cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-
quarters of the directors comprising the Incumbent Board or Incumbent
Savings Bank Board, as applicable, or whose nomination for election by the
Holding Company's or Savings Bank's shareholders was approved by the
Holding Company's or Savings Bank's board of directors or Nominating
Committee, shall be considered as though he or she were a member of the
Incumbent Board or Incumbent Savings Bank Board, as applicable; or (iv)
either the Holding Company or the Savings Bank consolidates or merges
4
<PAGE>
with or into another corporation, association or entity or is otherwise
reorganized, where neither the Holding Company nor the Savings Bank,
respectively, is the surviving corporation in such transaction or; or (v)
all or substantially all of the assets of either the Holding Company or the
Savings Bank are sold or otherwise transferred to or are acquired by any
other entity or group.
Notwithstanding the other provisions of this Paragraph 2, a
transaction or event shall not be considered a Change in Control if, prior
to the consummation of occurrence of such transaction or event, Officer and
Holding Company agree in writing that the same shall not be treated as a
Change in Control for purposes of this Agreement. In addition, the Holding
Company's acquisition of all of the stock of the Savings Bank and initial
public offering in connection with the conversion of the Savings Bank from
the mutual to the stock form of ownership shall not be considered a change
in control.
(f) Such amounts payable pursuant to this Paragraph 2 shall be paid,
at the irrevocable option of the Officer, as follows:
Participant's Initials
----------------------
(i) ___________________ Payment in a lump-sum.
(ii) ___________________ Payment in monthly installments over a fixed
reasonable period of time. Such payments shall
begin within thirty (30) days following the
calendar month in which the Officer terminates
employment with the Savings Bank.
5
<PAGE>
(g) Following a Termination Event which gives rise to the Officer's
rights hereunder, the Officer shall have twelve (12) months from the date
of occurrence of the Termination Event to terminate Officer's employment
with the Savings Bank pursuant to this Paragraph 2. Any such termination
shall be deemed to have occurred only upon delivery to the Savings Bank (or
to any successor corporation) of written notice of termination which
describes the Change in Control and Termination Event. If the Officer does
not so terminate employment with the Savings Bank within such twelve (12)
month period, Officer shall thereafter have no further rights hereunder
with respect to that Termination Event, but shall retain rights, if any,
hereunder with respect to any other Termination Event as to which such
period has not expired.
(h) It is the intent of the parties hereto that all payments made
pursuant to this Agreement be deductible by the Holding Company for federal
income tax purposes and not result in the imposition of an excise tax on
the Officer. Notwithstanding anything contained in this Agreement to the
contrary, any payments to be made to or for the benefit of the Officer
which are deemed to be "parachute payments" as that term is defined in
Section 280G of the Code, shall be modified or reduced to the extent deemed
to be necessary by the Holding Company's Board of Directors to avoid the
imposition of excise taxes on the Officer under Section 4999 of the Code or
the disallowance of a deduction to the Holding Company under Section
280G(a) of the Code.
(i) In the event any dispute shall arise between the Officer and the
Holding Company as to the terms or interpretation of this Agreement,
including this Paragraph 2, whether instituted by formal legal proceedings
or otherwise, including any action taken by the Officer to enforce the
terms of this Paragraph 2 or in defending against any action taken by the
Holding Company, the Holding Company shall reimburse the Officer for all
costs and expenses
6
<PAGE>
incurred in such proceedings or actions, including attorney's fees, in the
event the Officer prevails in any such action.
2. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon any corporate or other successor of the Holding Company
which shall acquire, directly or indirectly, by conversion, merger,
consolidation, purchase or otherwise, all or substantially all of the assets of
the Holding Company.
3. Modification; Waiver; Amendments. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Officer and the Holding Company,
except as herein otherwise provided. No waiver by either party hereto, at any
time, of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. With the exception of Paragraph
2(f) of this Agreement which may not be amended, no amendments or additions to
this Agreement shall be binding unless in writing and signed by both parties,
except as herein otherwise provided.
4. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
5. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
FIRST COMMUNITY FINANCIAL
CORPORATION
(CORPORATE SEAL)
By: _______________________________
__________ President
ATTEST:
________________________
______Secretary
____________________________________(SEAL)
Judy L. Pennington
8
<PAGE>
SPECIAL TERMINATION AGREEMENT
THIS AGREEMENT entered into as of __________________________, 1999, by and
between FIRST COMMUNITY FINANCIAL CORPORATION, a North Carolina corporation (the
"Holding Company") and CHRISTOPHER B. REDCAY (the "Officer").
WHEREAS, the Officer is employed by Community Savings Bank, Inc., a North
Carolina-chartered savings bank (the "Savings Bank") as its Treasurer and Chief
Financial Officer; and
WHEREAS, the Savings Bank is the wholly-owned subsidiary of the Holding
Company; and
WHEREAS, the services of the Officer, Officer's experience and knowledge of
the affairs of the Savings Bank, and Officer's reputation and contacts in the
industry are extremely valuable to the Savings Bank and the Holding Company; and
WHEREAS, the Holding Company and the Savings Bank wish to attract and
retain such well-qualified executives and it is in the best interests of the
Holding Company and the Savings Bank and of the Officer to secure the continued
services of the Officer notwithstanding any change in control of the Savings
Bank or the Holding Company; and
WHEREAS, the Holding Company considers the establishment and maintenance of
a sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Savings Bank,
the Holding Company and their shareholders; and
WHEREAS, the parties desire to enter into this Agreement to provide the
Officer with security in the event of a change in control of the Savings Bank or
the Holding Company in order to ensure the continued loyalty of the Officer.
NOW, THEREFORE, for and in consideration of the promises and mutual
promises, covenants and conditions hereinafter set forth, and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby to agree as follows:
<PAGE>
1. TERM. The initial term of this Agreement shall be for a period of two (2)
----
years commencing upon the date of execution of this Agreement. On each
anniversary of the effective date of this Agreement, the term of this Agreement
shall automatically be extended for an additional one year period beyond the
then effective expiration date unless written notice from the Holding Company to
the Officer is received 90 days prior to an anniversary date advising the
Officer that this Agreement shall not be further extended; provided that the
Directors of the Holding Company shall review the Officer's performance annually
and make a specific determination pursuant to such review to renew this
Agreement prior to the 90 day notice period. The Officer shall have rights and
benefits pursuant to this Agreement only if a Change in Control occurs during
the term of this Agreement. In such event, the Officer shall have the rights
set forth below with respect to any termination of employment or "Termination
Event" (as defined below) even though the termination or Termination Event shall
occur after the expiration of the terms of this Agreement.
1. Change in Control.
-----------------
(a) In the event of a termination of the Officer's employment in
connection with, or within twenty-four (24) months after, a "Change in
Control" (as defined in Subparagraph (e) below) of the Savings Bank or the
Holding Company, for reasons other than for "cause" (as defined in
Subparagraph (b) below), the Officer shall be entitled to receive the
amount set forth in Subparagraph (d) below. Said sum shall be payable as
provided in Subparagraph (f) below.
(b) For purposes of this Agreement, termination for "cause" shall
include termination because of the Officer's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, or willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order.
2
<PAGE>
(c) The Officer shall have the right to terminate Officer's
employment with the Savings Bank upon the occurrence of any of the
following events (the "Termination Events") within twenty-four (24) months
following a Change in Control of the Holding Company or the Savings Bank:
(i) Officer is assigned any duties and/or
responsibilities that are inconsistent with Officer's
position, duties, responsibilities or status at the
time of the Change in Control or with his reporting
responsibilities or titles with the Savings Bank in
effect at such time; or
(ii) Officer's annual base salary rate is reduced below
the annual amount in effect as of the effective date of
a Change in Control or as the same shall have been
increased from time to time following such effective
date; or
(iii) Officer's life insurance, medical or
hospitalization insurance, disability insurance, stock
option plans, stock purchase plans, deferred
compensation plans, management retention plans,
retirement plans or similar plans or benefits or other
benefits being provided by the Savings Bank or the
Holding Company to the Officer as of the effective date
of the Change in Control are reduced in their level,
scope or coverage, or any such insurance, plans or
benefits are eliminated, unless such reduction or
elimination applies proportionately to all salaried
employees of the Savings Bank or the Holding Company
who participated in such benefits prior to such Change
in Control; or
(iv) Officer is transferred to a location which is more
than forty (40) miles distant from Officer's current
principal work location, without the Officer's express
written consent.
A Termination Event shall be deemed to have occurred on the date such
action or event is implemented or takes effect.
3
<PAGE>
(d) In the event that the Officer's employment is terminated as set
forth in Paragraphs 2(a) or 2(c), the Holding Company will be obligated to
pay or cause to be paid to Officer an amount equal to two (2.0) times the
Officer's salary and bonuses from the Savings Bank and Holding Company for
the most recently completed calendar year prior to such termination.
(e) For the purposes of this Agreement, the term "Change in Control"
shall mean: (i) a change in control of a nature that would be required to
be reported in response to Item 1 of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange
Act; (ii) such time as any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Holding Company or Savings Bank representing 25 percent
or more of the combined voting power of the outstanding Common Stock of the
Holding Company or outstanding common stock of the Savings Bank, as
applicable; or (iii) individuals who constitute the board of directors of
the Holding Company or board of directors of the Savings Bank on the date
hereof (the "Incumbent Board" and "Incumbent Savings Bank Board,"
respectively) cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-
quarters of the directors comprising the Incumbent Board or Incumbent
Savings Bank Board, as applicable, or whose nomination for election by the
Holding Company's or Savings Bank's shareholders was approved by the
Holding Company's or Savings Bank's board of directors or Nominating
Committee, shall be considered as though he or she were a member of the
Incumbent Board or Incumbent Savings Bank Board, as applicable; or (iv)
either the Holding Company or the Savings Bank consolidates or merges
4
<PAGE>
with or into another corporation, association or entity or is otherwise
reorganized, where neither the Holding Company nor the Savings Bank,
respectively, is the surviving corporation in such transaction or; or (v)
all or substantially all of the assets of either the Holding Company or the
Savings Bank are sold or otherwise transferred to or are acquired by any
other entity or group.
Notwithstanding the other provisions of this Paragraph 2, a
transaction or event shall not be considered a Change in Control if, prior
to the consummation of occurrence of such transaction or event, Officer and
Holding Company agree in writing that the same shall not be treated as a
Change in Control for purposes of this Agreement. In addition, the Holding
Company's acquisition of all of the stock of the Savings Bank and initial
public offering in connection with the conversion of the Savings Bank from
the mutual to the stock form of ownership shall not be considered a change
in control.
(f) Such amounts payable pursuant to this Paragraph 2 shall be paid,
at the irrevocable option of the Officer, as follows:
Participant's Initials
----------------------
(i) ___________________ Payment in a lump-sum.
(ii) ___________________ Payment in monthly installments over a fixed
reasonable period of time. Such payments shall
begin within thirty (30) days following the
calendar month in which the Officer terminates
employment with the Savings Bank.
5
<PAGE>
(g) Following a Termination Event which gives rise to the Officer's
rights hereunder, the Officer shall have twelve (12) months from the date
of occurrence of the Termination Event to terminate Officer's employment
with the Savings Bank pursuant to this Paragraph 2. Any such termination
shall be deemed to have occurred only upon delivery to the Savings Bank (or
to any successor corporation) of written notice of termination which
describes the Change in Control and Termination Event. If the Officer does
not so terminate employment with the Savings Bank within such twelve (12)
month period, Officer shall thereafter have no further rights hereunder
with respect to that Termination Event, but shall retain rights, if any,
hereunder with respect to any other Termination Event as to which such
period has not expired.
(h) It is the intent of the parties hereto that all payments made
pursuant to this Agreement be deductible by the Holding Company for federal
income tax purposes and not result in the imposition of an excise tax on
the Officer. Notwithstanding anything contained in this Agreement to the
contrary, any payments to be made to or for the benefit of the Officer
which are deemed to be "parachute payments" as that term is defined in
Section 280G of the Code, shall be modified or reduced to the extent deemed
to be necessary by the Holding Company's Board of Directors to avoid the
imposition of excise taxes on the Officer under Section 4999 of the Code or
the disallowance of a deduction to the Holding Company under Section
280G(a) of the Code.
(i) In the event any dispute shall arise between the Officer and the
Holding Company as to the terms or interpretation of this Agreement,
including this Paragraph 2, whether instituted by formal legal proceedings
or otherwise, including any action taken by the Officer to enforce the
terms of this Paragraph 2 or in defending against any action taken by the
Holding Company, the Holding Company shall reimburse the Officer for all
costs and expenses
6
<PAGE>
incurred in such proceedings or actions, including attorney's fees, in the
event the Officer prevails in any such action.
2. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon any corporate or other successor of the Holding Company
which shall acquire, directly or indirectly, by conversion, merger,
consolidation, purchase or otherwise, all or substantially all of the assets of
the Holding Company.
3. Modification; Waiver; Amendments. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Officer and the Holding Company,
except as herein otherwise provided. No waiver by either party hereto, at any
time, of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. With the exception of Paragraph
2(f) of this Agreement which may not be amended, no amendments or additions to
this Agreement shall be binding unless in writing and signed by both parties,
except as herein otherwise provided.
4. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
5. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
FIRST COMMUNITY FINANCIAL
CORPORATION
(CORPORATE SEAL)
By: _______________________________
__________ President
ATTEST:
________________________
______Secretary
__________________________________(SEAL)
Christopher B. Redcay
8
<PAGE>
EXHIBIT 10.4
EMPLOYEE STOCK OWNERSHIP PLAN
OF
COMMUNITY SAVINGS BANK, INC.
Prepared By:
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Greensboro and Raleigh, North Carolina
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
DEFINITIONS AND CONSTRUCTION............................................. 2
EMPLOYEE PARTICIPANTS.................................................... 10
EMPLOYER CONTRIBUTIONS................................................... 11
ALLOCATIONS.............................................................. 18
TERMINATION OF SERVICE-PARTICIPANT VESTING............................... 23
TIME AND METHOD OF PAYMENT OF BENEFITS................................... 28
EMPLOYER SECURITIES...................................................... 34
EMPLOYER ADMINISTRATIVE PROVISIONS....................................... 40
ADMINISTRATION COMMITTEE................................................. 41
PARTICIPANT ADMINISTRATIVE PROVISIONS.................................... 45
FIDUCIARIES' DUTIES...................................................... 49
DISCONTINUANCE, AMENDMENT AND TERMINATION................................ 53
THE TRUST................................................................ 56
TOP HEAVY RULES.......................................................... 57
MISCELLANEOUS............................................................ 61
</TABLE>
<PAGE>
NATURE OF PLAN
COMMUNITY SAVINGS BANK, INC.(the "Company"), in order to provide its
eligible employees with an opportunity to share in the growth and prosperity of
the Company and to accumulate capital for their retirement through the
acquisition of a proprietary interest in Innes Street Financial Corporation, of
which the Company is a wholly-owned subsidiary, establishes the Employee Stock
Ownership Plan of Community Savings Bank, Inc..
<PAGE>
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.01 DEFINITIONS. For the purpose of this Plan, the following definitions
-----------
shall apply unless the context requires otherwise:
(a) "Accounts or Account" shall mean the separate accounts maintained
-------------------
by the Administration Committee or Trustee to record the interest of a
Participant under the Plan.
(b) "Accrued Benefit" shall mean the amount standing in a
---------------
Participant's Account(s) as of any date derived from both Employer
contributions and Employee contributions, if any.
(c) "Act" shall mean the Employee Retirement Income Security Act of
---
1974, as amended from time to time.
(d) "Active Participant" shall mean for each Plan Year any Employee
------------------
who satisfies the eligibility requirements of Article II and who completes
at least one thousand (1,000) Hours of Service during such Plan Year.
(e) "Administration Committee" shall mean the Plan Administration
------------------------
Committee as from time to time constituted.
(f) "Anniversary Date" shall mean the last day of the Plan Year.
----------------
(g) "Beneficiary" shall mean any person or fiduciary designated by a
-----------
Participant who is or may become entitled to a benefit under the Plan
following the death of the Participant. A Beneficiary who becomes entitled
to a benefit under the Plan remains a Beneficiary under the Plan until the
Trustee has fully distributed his benefit to him. A Beneficiary's right to
(and the Plan Administrator's, Administration Committee's or Trustee's duty
to provide to the Beneficiary) information or data concerning the Plan does
not arise until he first becomes entitled to receive a benefit under the
Plan.
(h) "Board of Directors" shall mean the Board of Directors of
------------------
COMMUNITY SAVINGS BANK, INC. unless otherwise indicated or the context
otherwise requires.
(i) "Break in Service" shall occur in any Plan Year during which a
----------------
Participant does not complete more than five hundred (500) Hours of
Service, determined as of the end of the Plan Year.
(j) "Code" shall mean the Internal Revenue Code of 1986, as amended
----
from time to time.
2
<PAGE>
(k) "Company" shall mean Community Savings Bank, Inc. or any successor
-------
thereto which shall adopt this Plan.
(l) "Compensation" shall mean, except as specifically provided in the
------------
Plan, the Participant's wages within the meaning of Section 3401(a) of the
Internal Revenue Code for purposes of income tax withholding at the source
but determined without regard to any rules that limit the remuneration
included in wages based on the nature or location of the employment or the
services performed (such as the exception for agricultural labor in Code
Section 3401(a)(2)) for services performed as an Employee of the Employer.
Compensation shall include Elective Contributions, but shall exclude any
special payments such as reimbursement or other expense allowances, fringe
benefits (cash and non-cash), moving expenses, deferred compensation (other
than as described above), and welfare benefits (other than as described
above). "Elective Contributions" are amounts excludible from the
Employee's gross income under Code Sections 125, 402(e)(3), 402(h), 403(b)
or 408(p), and contributed by the Employer, at the Employee's election, to
a Code Section 401(k) arrangement, a Simplified Employee Pension, a SIMPLE
plan, a cafeteria plan or a tax-sheltered annuity.
Any reference in this Plan to Compensation is a reference to the
definition in this Section 1.01, unless the Plan reference specifies a
modification to this definition. The Administration Committee will take
into account only Compensation actually paid for the relevant period.
For any Plan Year, the Administration Committee shall not take into
account more than $150,000 (or such larger or smaller amount as the
Commissioner of Internal Revenue may prescribe) of any Participant's
Compensation.
For purposes of determining whether the Plan discriminates in favor of
Highly Compensated Employees, Compensation means Compensation as defined in
this Section 1.01, except the Employer may elect to include or to exclude
elective contributions. The Employer's election described in the preceding
sentence must be consistent and uniform with respect to all Employees and
all plans of the Employer for any particular Plan Year. The Employer may
elect to exclude from this nondiscrimination definition of Compensation any
items of Compensation excludible under Code (S)414(s) and the applicable
Treasury regulations, provided such adjusted definition conforms to the
nondiscrimination requirements of those regulations.
(m) "Disqualified Person" shall have the same meaning as ascribed to
-------------------
the term under Code (S) 4975(e)(2).
(n) "Effective Date" of this Plan shall be the 1st day of January,
--------------
1999, except as otherwise noted.
3
<PAGE>
(o) "Employee" shall mean any person on the payroll of the Employer
--------
whose wages from the Employer are subject to withholding for purposes of
Federal income taxes and for purposes of the Federal Insurance
Contributions Act. Notwithstanding the foregoing, Employee shall not
include any person on the payroll of the Employer who is included in a unit
of employees covered by an agreement which the Secretary of Labor finds to
be a collective bargaining agreement between employee representatives and
the Employer, if there is evidence that retirement benefits were the
subject of good faith bargaining between such employee representatives and
the Employer. The term "employee representatives" does not include any
organization more than half the members of which are owners, officers or
executives of the Employer.
(p) "Employer" shall mean the Company and any corporation or other
--------
organization that is affiliated (as defined in Section 407(d)(7) of the
Act) with the Company which duly adopts the Plan with the approval of the
Company.
(q) "Employer Securities" shall mean the common stock issued by First
-------------------
Community Financial Corporation which shares constitute "employer
securities" under Code (S) 409(l).
(r) "Employer Securities Account" shall mean a separate account
---------------------------
maintained for each Participant and consisting of his allocable share of
Employer Securities allocated to each Participant under the Plan.
(s) "Employment Commencement Date" shall mean the date on which an
----------------------------
Employee first performs an Hour of Service for the Employer.
(t) "Exempt Loan" shall mean a loan made to this Plan by a
-----------
Disqualified Person, or a loan to this Plan which a Disqualified Person
guarantees, provided the loan satisfies the requirements of Treas. Reg. (S)
54.4975-7(b).
(u) "Fiscal Year" shall mean the Employer's taxable year for federal
-----------
income tax purposes.
(v) "Former Participant" shall mean any individual who has been a
------------------
Participant hereunder and who has not yet received the entire benefit to
which he is entitled under the Plan.
(w) "General Investment Account" shall mean a separate account
--------------------------
maintained for each Participant and consisting of his allocable share of
Employer contributions, forfeitures, earnings of the Trust allocable to
such account, and realized and unrealized gains and losses allocable to
such account, less any amounts distributed to the Participant or his
Beneficiary from such account and which have not been invested in Employer
Securities.
4
<PAGE>
(x) "Highly Compensated Employee" shall mean an Employee who, during the
---------------------------
Plan Year or during the preceding Plan Year, is a more than 5% owner of the
Employer (as defined in section 416(i)(1) of the Code); or who, during the
preceding Plan Year has Compensation in excess of $80,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year pursuant to section
415(d) of the Code, except that the base period shall be the calendar quarter
ending September 30, 1996) and, if the Employer elects, was part of the top-paid
group of Employees for such preceding year. For this purpose, an Employee is in
the top-paid group of Employees for any year if such Employee is in the group
consisting of the top twenty percent (20%) of the Employees when ranked on the
basis of compensation paid during such year.
For purposes of this Section 1.01, "Compensation" means compensation within
the meaning of section 415(c)(3) of the Code. The determination will be made
without regard to sections 125, 402(e)(3), and 402(h)(1)(B) of the Code, and in
the case of Employer contributions made pursuant to a salary reduction
agreement, without regard to section 403(b) of the Code.
For plan years beginning after December 31, 1997, for purposes of this
subsection, the term "Compensation" means compensation within the meaning of
Section 415(c)(3) of the Code.
The Administration Committee must make the determination of who is a Highly
Compensated Employee, including the determinations of the number and identity of
the top paid 20% group, consistent with Code (S)414(q) and regulations issued
under that Code Section. The Employer may make a calendar year data election to
determine the Highly Compensated Employees for the Plan Year, as prescribed by
Treasury regulations or by other guidance published in the Internal Revenue
Bulletin. A calendar year data election must apply to all plans of the Employer
which reference the highly compensated employee definition in Code (S)414(q).
The term "Highly Compensated Employee" also includes any former Employee
who separated from Service (or has a deemed separation from Service, as
determined under Treasury regulations) prior to the Plan Year, performs no
Service for the Employer during the Plan Year, and was a Highly Compensated
Employee either for the separation year or any Plan Year ending on or after his
fifty-fifth (55th) birthday.
(y) "Hour of Service" shall mean:
---------------
(i) Each Hour of Service for which the Employer, either directly
or indirectly, pays an Employee, or for which the Employee is entitled to
payment, for the performance of duties during the Plan Year. The
Administration Committee shall credit Hours of Service under this paragraph
(i) to the Employee for the Plan Year in which the Employee performs the
duties, irrespective of when paid;
(ii) Each Hour of Service for back pay, irrespective of
mitigation of damages, to which the Employer has agreed or for which
the Employee has received an award. The Administration Committee
shall credit Hours of Service under this paragraph (ii)
5
<PAGE>
to the Employee for the Plan Year(s) to which the award or the
agreement pertains rather than for the Plan Year in which the award,
agreement or payment is made; and
(iii) Each Hour of Service for which the Employer, either
directly or indirectly, pays an Employee, or for which the Employee is
entitled to payment (irrespective of whether the employment
relationship is terminated), for reasons other than for the
performance of duties during a Plan Year, such as leave of absence,
vacation, holiday, sick leave, illness, incapacity (including
disability), layoff, jury duty or military duty. The Administration
Committee shall not credit more than five hundred one (501) Hours of
Service under this paragraph (iii) to an Employee on account of any
single continuous period during which the Employee does not perform
any duties (whether or not such period occurs during a single Plan
Year). The Administration Committee shall credit Hours of Service
under this paragraph (iii) in accordance with the rules of paragraphs
(b) and (c) of Labor Reg. (S) 2530.200b-2, which the Plan, by this
reference, specifically incorporates in full within this paragraph
(iii).
The Administration Committee shall not credit an Hour of Service under
more than one (1) of the above paragraphs. Furthermore, if the
Administration Committee is to credit Hours of Service to an Employee for
the twelve (12) month period beginning with the Employee's Employment
Commencement Date or with an anniversary of such date, then the twelve (12)
month period shall be substituted for the term "Plan Year" wherever the
latter term appears in this Section 1.01(y). The Administration Committee
shall resolve any ambiguity with respect to the crediting of an Hour of
Service in favor of the Employee.
The Administration Committee shall credit every Employee with Hours of
Service on the basis of the "actual" method. For purposes of the Plan,
"actual" method means the determination of Hours of Service from records of
hours worked and hours for which the Employer makes payment or for which
payment is due from the Employer. An Employee or Participant for whom
hourly records are not maintained shall be credited with forty-five (45)
Hours of Service, if compensated weekly, ninety-five (95) Hours of Service,
if compensated semimonthly, or one hundred ninety (190) Hours of Service,
if compensated monthly, for each period described above if the Employee
were hourly rated and would have been credited with one Hour of Service
under paragraphs (i), (ii) and (iii) above.
Solely for purposes of determining whether the Employee incurs a Break
in Service under any provision of this Plan, the Administration Committee
shall credit Hours of Service during an Employee's unpaid absence period
due to maternity or paternity leave. The Administration Committee shall
consider an employee on maternity or paternity leave if the Employee's
absence is due to the Employee's pregnancy, the birth of the Employee's
child, the placement with the Employee of an adopted child, or the care of
the Employee's child immediately following the child's birth or placement.
The Administration Committee shall credit Hours of Service under this
paragraph on the basis of the number of Hours of Service
6
<PAGE>
the Employee would receive if he were paid during the absence period or, if
the Administration Committee cannot determine the number of Hours of
Service the Employee would receive, on the basis of eight (8) hours per day
during the absence period. The Administration Committee only shall credit
the number of Hours of Service (up to 501 Hours of Service) necessary to
prevent an Employee's Break in Service. The Administration Committee shall
credit all Hours of Service described in this paragraph to the computation
period in which the absence period begins or, if the Employee does not need
these Hours of Service to prevent a Break in Service in the computation
period in which his absence period begins, the Administration Committee
shall credit these Hours of Service to the immediately following
computation period.
Hour of Service also includes any Service the Plan must credit in
order to satisfy the crediting of Service requirements of Code (S)414(u).
(z) "Leave of Absence" shall mean any period of absence from the
----------------
active employment of the Employer due to jury duty and compulsory service
in the Armed Forces of the United States if the Employee returns to active
Service with the Employer within ninety (90) days after he first becomes
eligible for release from such active duty. A Leave of Absence may be
granted by the Employer for sickness, accident, vacation, disability, or
other similar reasons under rules established by it and uniformly applied
by it to all individuals similarly situated. If the Employee does not
return to active Service with the Employer within thirty (30) days of the
termination of his Leave of Absence, his Service will be deemed to have
ceased on the date his absence first commenced.
(aa) "Loan Suspense Account" shall mean an account established for
---------------------
the crediting and holding of Employer Securities purchased with the
proceeds of an Exempt Loan during the pledge period and repayment of the
Exempt Loan.
(bb) "Nonforfeitable" shall mean a Participant's or Beneficiary's
--------------
unconditional claim, legally enforceable against the Plan, for the
Participant's Accrued Benefit.
(cc) "Participant" shall mean an Employee or former Employee who has
-----------
an account balance under the Plan, or an Employee who has met the
eligibility requirements of the Plan.
(dd) "Plan" shall mean the Employee Stock Ownership Plan of Community
----
Savings Bank, Inc. as established herein and amended from time to time.
(ee) "Plan Administrator" shall mean the Company unless the Employer
------------------
designates another person to hold the position of Plan Administrator. In
addition to his other duties, the Plan Administrator shall have full
responsibility for compliance with the reporting and disclosure rules under
the Act as respects this Agreement.
7
<PAGE>
(ff) "Plan Entry Date" shall mean the first day of the Plan Year and
---------------
the first day of the seventh month of the Plan Year.
(gg) "Plan Year" shall mean the fiscal year of the Plan which shall be
---------
the twelve month period ending on the 31st day of December of each year.
(hh) "Related Group" shall mean the Employers as defined in Section
-------------
1.02.
(ii) "Segregated Account" shall mean the Participant Account which is
------------------
divided or segregated for investment or accounting purposes as required by
the Plan for which a special treatment is required.
(jj) "Service" shall mean any period of time the Employee is in the
-------
employ of the Employer, including any period the Employee is on Leave of
Absence authorized by the Employer under a uniform non-discriminatory
policy applicable to all Employees.
(kk) "Suspense Account" shall mean the Employer contributions and
----------------
forfeitures which can not be allocated pursuant to Article III.
(ll) "Trust" shall mean the separate Trust established to hold,
-----
administer, and invest the contributions made under the Plan.
(mm) "Trust Agreement" shall mean the agreement between the Employer
---------------
and the Trustee or any successor Trustee establishing the Trust and
specifying the duties of the Trustee.
(nn) "Trust Fund" shall mean all property of every kind held or
----------
acquired by the Trustee under the Trust Agreement, other than incidental
benefit insurance contracts.
(oo) "Trustee" shall mean the persons or entities from time to time
-------
appointed as Trustee under the Trust Agreement.
(pp) "Valuation Date" shall mean the Anniversary Date of each Plan
--------------
Year or such other dates as the Administration Committee shall from time to
time require. Unless otherwise specified in the Plan, the Administration
Committee will make all Plan allocations for a particular Plan Year as of
the Valuation Date for that Plan Year.
1.02 CONTROLLED BUSINESSES/LEASED EMPLOYEES. A related group is a
---- --------------------------------------
controlled group of corporations (as defined in Code (S)414(b), trades or
businesses (whether or not incorporated) which are under common control (as
defined in Code (S)414(c)) or an affiliated service group (as defined in Code
(S)414(m) or in Code (S)414(o)). If the Employer is a member of a related
group, the term "Employer" includes the related group members for purposes of
crediting
8
<PAGE>
Hours of Service, determining Years of Service and Breaks in Service under
Articles II and V, applying the Coverage Test of Section 3.07, applying the
limitations on allocations in Article III, applying the top heavy rules and the
minimum allocation requirements of Article III, the definitions of Employee,
Highly Compensated Employee, Compensation and Leased Employee, and for any other
purpose required by the applicable Code section or by a Plan provision. However,
an Employer may contribute to the Plan only by being a signatory to the
Execution Page or to a Participation Agreement to the Employer's Plan. If one or
more of the Employer's related group members become Participating Employers by
executing a Participation Agreement to the Employer's Plan, the term "Employer"
includes the participating related group members for all purposes of the Plan,
and "Plan Administrator" means the Employer that is the signatory to the
Execution Page of the Plan.
The Plan treats a Leased Employee as an Employee of the Employer. A Leased
Employee is an individual (who otherwise is not an Employee of the Employer)
who, pursuant to a leasing agreement between the Employer and any other person,
has performed services for the Employer (or for the Employer and any persons
related to the Employer within the meaning of Code (S)144(a)(3)) on a
substantially full time basis for at least one year and who performs such
services under the primary direction or control of the Employer. If a Leased
Employee is treated as an Employee by reason of this Section 1.02 of the Plan,
"Compensation" includes Compensation from the leasing organization which is
attributable to services performed for the Employer.
Notwithstanding the preceding provisions of this paragraph, the Plan shall
not treat an employee as a Leased Employee if, prior to the application of this
exception, twenty percent (20%) or less of the Employer's Employees (other than
Highly Compensated Employees) are leased employees, and the leasing organization
covers the employee in a money purchase pension plan providing immediate
participation for all employees of the leasing organization (other than
employees who perform substantially all of their services for the leasing
organization or whose compensation from the leasing organization in each Plan
Year during the four-year period ending with the Plan Year is less than $1,000),
full immediate vesting, and a nonintegrated contribution formula equal to at
least ten percent (10%) of the employee's compensation without regard to
employment by the leasing organization on a specified date.
1.03 CHANGE IN NON-PARTICIPATING STATUS. If an Employee does not
----------------------------------
participate in the Plan by reason of employment within an excluded
classification, service with the Employer will be counted for purposes of
determining participation and vesting should the Employee's status change to a
non-excluded classification.
1.04 SERVICE FOR PREDECESSOR EMPLOYER. If the Employer maintains the plan
--------------------------------
of a predecessor employer, the Plan shall treat service of the Employee with the
predecessor employer as service with the Employer. If the Plan the Employer
maintains is not the plan of a predecessor employer, no credit shall be given
unless specifically provided for in this Plan.
9
<PAGE>
1.05 WORD USAGE. Words used in the masculine shall apply to the feminine
----------
where applicable, and wherever the context of the Plan dictates, the plural
shall be read as the singular and the singular as the plural.
1.06 CONSTRUCTION. It is the intention of the Employer that the Plan be
------------
qualified under the provisions of the Code and the Act and all provisions hereof
shall be construed to that result.
10
<PAGE>
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY. Each Employee shall become a Participant in the Plan on
-----------
the Plan Entry Date (if he is employed on that date) coincident with or
immediately following the date on which he completes one (1) year of Service
with the Employer and attains the age of twenty-one (21) years. Employees
otherwise eligible on the Effective Date shall begin participation immediately.
2.02 YEAR OF SERVICE - PARTICIPATION. For purposes of participation under
-------------------------------
Section 2.01, the Plan shall take into account all of an Employee's Years of
Service with the Employer. Year of Service shall mean a twelve (12) consecutive
month period during which the Employee completes not less than one thousand
(1,000) Hours of Service. The initial eligibility computation period is the
first twelve (12) consecutive month period measured from the Employment
Commencement Date. After the initial eligibility computation period, the Plan
measures the eligibility computation period as the twelve (12) consecutive month
period beginning with each anniversary of an Employee's Employment Commencement
Date.
2.03 BREAK IN SERVICE - PARTICIPATION. For purposes of participation in
--------------------------------
the Plan, the Plan shall not apply any Break in Service rules.
2.04 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose employment
--------------------------------
terminates shall re-enter the Plan as a Participant on the date of his re-
employment. An Employee who terminates his employment after satisfying the
eligibility requirements of the Plan but before becoming a Participant shall
enter the Plan as a Participant on the later of the Plan Entry Date on which he
would have entered the Plan had he not terminated employment, or the date of his
re-employment. Any other Employee whose employment terminates and who is
subsequently re-employed shall become a Participant in accordance with the
provisions of Sections 2.01 and 2.02.
2.05 OMISSION OF ELIGIBLE EMPLOYEE. If, in any fiscal year, any Employee
-----------------------------
who should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution by the
Employer for the year has been made and allocated, the Employer shall make a
subsequent contribution with respect to the omitted Employee in the amount which
the Employer would have contributed with respect to him had he not been omitted.
Such contribution shall be made regardless of whether or not it is deductible in
whole or in part in any taxable year under applicable provisions of the Internal
Revenue Code by the Employer.
2.06 INCLUSION OF INELIGIBLE EMPLOYEE. If, in any fiscal year, any person
--------------------------------
who should not have been included as a Participant in the Plan is erroneously
included and discovery of such incorrect inclusion is not made until after a
contribution for the year has been made and allocated, the Employer shall not be
entitled to recover the contribution made with respect to the ineligible person
regardless of whether or not a deduction is allowable with respect to such
11
<PAGE>
contribution. In such event, the amount contributed with respect to the
ineligible person shall constitute a forfeiture for the Plan Year in which the
discovery is made.
ARTICLE III
EMPLOYER CONTRIBUTIONS
3.01 EMPLOYER CONTRIBUTIONS. For each Plan Year that ends with or within
----------------------
the Employer's taxable year, the Employer shall contribute to the Trust such
amount as the Board of Directors may from time to time deem advisable. The
Employer shall make all contributions without regard to current or accumulated
earnings and profits for the taxable year or years ending with or within such
Plan Year. The Employer's contribution shall not exceed the Maximum Permissible
Amount as hereinafter defined.
3.02 DETERMINATION OF CONTRIBUTION. The Employer, from its records, shall
-----------------------------
determine the amount of any contributions to be made by it to the Trust under
the terms of the Plan; provided however, the contribution of the Employer shall
be paid in cash to the extent needed to provide the Trust with cash sufficient
to pay any currently maturing obligations under any Exempt Loan, notwithstanding
the direction of the Board of Directors.
3.03 TIME AND METHOD OF PAYMENT OF CONTRIBUTION. The Employer may pay its
------------------------------------------
contribution for each Plan Year in one (1) or more installments, without
interest. The Employer's contribution for any Plan Year shall be due on the
last day of its taxable year with or within which such Plan Year ends, and,
unless paid before, shall be payable then or as soon thereafter as practicable,
but not later than the time prescribed by law for filing the Employer's federal
income tax return (including extensions thereof) for such taxable year, without
interest. Contributions made after the end of the Plan Year but prior to the
filing of the Employer's federal income tax return shall be deemed a
contribution for the Employer's taxable year to which such tax return relates,
unless the contribution shall be accompanied by the Employer's signed statement
to the Trustee that payment is on account of another taxable year.
Contributions shall be paid in cash or in Employer Securities. All
contributions for each Plan Year shall be deemed to be paid as of the last day
of such Plan Year.
3.04 RETURN OF EMPLOYER CONTRIBUTIONS. Notwithstanding any provision
--------------------------------
herein to the contrary (other than Section 2.06), upon the Employer's request, a
contribution which was made upon a mistake of fact, conditioned upon initial
qualification of the Plan, or disallowed as a deduction under Code (S) 404 shall
be returned to the Employer within one year after payment of the contribution or
denial of the qualification or deduction, as the case may be. The Trustee will
not increase the amount of the Employer contribution returnable under this
Section 3.04 for any earnings attributable to the contribution, but the Trustee
will decrease the Employer contribution returnable for any losses attributable
to it. The Trustee may require the Employer to furnish it whatever evidence the
Trustee deems necessary to enable the Trustee to confirm the amount the Employer
has requested be returned is properly returnable under ERISA.
12
<PAGE>
3.05 LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. The amount of
----------------------------------------------------
Annual Additions which the Administration Committee may allocate under this Plan
on a Participant's behalf for a Limitation Year may not exceed the Maximum
Permissible Amount. If the amount the Employer otherwise would contribute to
the Participant's Account would cause the Annual Additions for the Limitation
Year to exceed the Maximum Permissible Amount, the Employer will reduce the
amount of its contribution so the Annual Additions for the Limitation Year will
equal the Maximum Permissible Amount. If an allocation of Employer
contributions, pursuant to Section 3.04, would result in an Excess Amount (other
than an Excess Amount resulting from the circumstances described in Section
3.05(b)) to the Participant's Account, the Administration Committee will
reallocate the Excess Amount to the remaining Participants who are eligible for
an allocation of Employer contributions for the Plan Year in which the
Limitation Year ends. The Administration Committee will make this reallocation
on the basis of the allocation method under the Plan as if the Participant whose
Account otherwise would receive the Excess Amount is not eligible for an
allocation of Employer Contributions.
(a) Estimation of Compensation. Prior to the determination of the
--------------------------
Participant's actual Compensation for a Limitation Year, the Administration
Committee may determine the Maximum Permissible Amount on the basis of the
Participant's estimated annual Compensation for such Limitation Year. The
Administration Committee must make this determination on a reasonable and
uniform basis for all Participants similarly situated. The Administration
Committee must reduce any Employer contributions (including any allocation
of forfeitures) based on estimated annual Compensation by any Excess
Amounts carried over from prior years. As soon as is administratively
feasible after the end of the Limitation Year, the Administration Committee
will determine the Maximum Permissible Amount for such Limitation Year on
the basis of the Participant's actual Compensation for such Limitation
Year.
(b) Disposition of Excess Amount. If, pursuant to Section 3.05(a),
----------------------------
or because of the allocation of forfeitures, there is an Excess Amount
with respect to a Participant for a Limitation Year, the Administration
Committee will dispose of such Excess Amount as follows:
(1) The Administration Committee will return any nondeductible
voluntary Employee contributions to the Participant to the extent
that the return would reduce the Excess Amount.
(2) If, after the application of paragraph (1), an Excess Amount
still exists, and the Plan covers the Participant at the end of the
Limitation Year, then the Administration Committee will use the
Excess Amount(s) to reduce future Employer contributions (including
any allocation of forfeitures) under the Plan for the next Limitation
Year and for each succeeding Limitation Year, as is necessary, for
the Participant.
13
<PAGE>
(3) If, after the application of paragraph (1), an Excess Amount
still exists, and the Plan does not cover the Participant at the end
of the Limitation Year, then the Administration Committee will hold
the Excess Amount unallocated in a suspense account. The
Administration Committee will apply the suspense account to reduce
Employer contributions (including allocation of forfeitures) for all
remaining Participants in the next Limitation Year, and in each
succeeding Limitation Year if necessary.
(4) The Administration Committee will not distribute any Excess
Amount(s) to Participants or to former Participants.
(c) More Than One Plan. The Employer may contribute under another defined
------------------
contribution plan in addition to its contributions under this Plan. If the
Administration Committee allocated an Excess Amount to a Participant's Account
on an allocation date of this Plan which coincides with an allocation date of
the other defined contribution plan, the Administration Committee will attribute
the total Excess Amount allocated as of such date to the other defined
contribution plan.
(d) Defined Benefit Plan Limitation. If the Participant presently
-------------------------------
participates, or has ever participated under a defined benefit plan
maintained by the Employer, then the sum of the defined benefit plan
fraction and the defined contribution plan fraction for the Participant for
that Limitation Year must not exceed 1.0. To the extent necessary to
satisfy this limitation, the Employer will reduce its contribution or
allocation on behalf of the Participant to the defined contribution plan
under which the Participant participates and then, if necessary, the
Participant's projected annual benefit under the defined benefit plan under
which the Participant participates.
3.06 DEFINITIONS - ARTICLE III. For purposes of this Article III,
-------------------------
the following terms have the following meanings:
(a) "100% Limitation" - If the 100% Limitation applies, the
Administration Committee must determine the denominator of the defined
benefit plan fraction and the denominator of the defined contribution plan
fraction by substituting 100% for 125%. The 100% limitation applies only
if: (i) the Plan's top heavy ratio exceeds 90%; or (ii) the Plan's top
heavy ratio is greater than 60%, and the Employer does not provide extra
minimum benefits which satisfy Code (S) 416(h)(2).
(b) "Annual Addition" - The sum of the following amounts allocated on
behalf of a Participant for a Limitation Year: (i) all Employer
contributions; (ii) all forfeitures; and (iii) all Employee contributions.
Except to the extent provided in Treasury regulations, Annual Additions
include excess contributions described in Code (S) 401(k) and excess
aggregate contributions described in Code (S) 401(m), irrespective of
whether the Plan distributes or forfeits such excess amounts. Excess
deferrals under Code (S) 402(g) are not
14
<PAGE>
Annual Additions unless distributed after the correction period described
in Code (S) 402(g). Annual Additions also include Excess Amounts reapplied
to reduce Employer contributions under Section 3.05. Amounts allocated
after March 31, 1984, to an individual medical account (as defined in Code
(S) 415(l)(2)) included as part of a defined benefit plan maintained by the
Employer are Annual Additions. Furthermore, Annual Additions include
contributions paid or accrued after December 31, 1985, for taxable years
ending after December 31, 1985, attributable to post-retirement medical
benefits allocated to the separate account of a key employee (as defined in
Code (S) 419A(d)(3)) under a welfare benefit fund (as defined in Code (S)
419(e)) maintained by the Employer, but only for purposes of the dollar
limitation applicable to the Maximum Permissible Amount.
(c) "Compensation" - Compensation as determined under the general
definition of Compensation in Section 1.01 except it does not include
elective contributions.
(d) "Defined benefit plan" - A retirement plan which does not provide
for individual accounts for Employer contributions. The Administration
Committee must treat all defined benefit plans (whether or not terminated)
maintained by the Employer as a single plan.
(e) "Defined Benefit Plan Fraction" -
Projected annual benefit of the Participant
under the defined benefit plan(s)
----------------------------------------------------------
The lesser of (i) 125% (subject to the "100% Limitation"
in paragraph (a)) of the dollar limitation
in effect under Code (S) 415(b)(1)(A) for
the Limitation Year, or (ii) 140% of the
Participant's average Compensation for his
high three (3) consecutive Years of Service
To determine the denominator of this fraction, the Administration
Committee will make any adjustment required under Code (S) 415(b) and will
determine a Year of Service as a Plan Year in which the Employee completed
at least 1,000 Hours of Service. The "projected annual benefit" is the
annual retirement benefit (adjusted to an actuarially equivalent straight
life annuity if the plan expresses such benefit in a form other than a
straight life annuity or qualified joint and survivor annuity) of the
Participant under the terms of the defined benefit plan on the assumptions
he continues employment until his normal retirement age (or current age, if
later) as stated in the defined benefit plan, his compensation continues at
the same rate as in effect in the Limitation Year under consideration until
the date of his normal retirement age and all other relevant factors used
to determine benefits under the defined benefit plan remain constant as of
the current Limitation Year for all future Limitation Years.
15
<PAGE>
CURRENT ACCRUED BENEFIT. If the Participant accrued benefits in one
or more defined benefit plans maintained by the Employer which were in
existence on May 5, 1986, the dollar limitation used in the denominator of
this fraction will not be less than the Participant's Current Accrued
Benefit. A Participant's Current Accrued Benefit is the sum of the annual
benefits under such defined benefit plans which the Participant had accrued
as of the end of the 1986 Limitation Year (the last Limitation Year
beginning before January 1, 1987), determined without regard to any change
in the terms or conditions of the Plan made after May 5, 1986, and without
regard to any cost of living adjustment occurring after May 5, 1986. This
Current Accrued Benefit rule applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Code (S)
415 as in effect at the end of the 1986 Limitation Year.
(f) "Defined contribution plan" - A retirement plan which provides for
an individual account for each participant and for benefits based solely on
the amount contributed to the participant's account, and any income,
expenses, gains and losses, and any forfeitures of accounts of other
participants which the plan may allocate to such participant's account.
The Administration Committee must treat all defined contribution plans
(whether or not terminated) maintained by the Employer as a single plan.
Solely for the purposes of the limitations of this Article III, the
Administration Committee will treat employee contributions made to a
defined benefit plan maintained by the Employer as a separate defined
contribution plan. The Administration Committee also will treat as a
defined contribution plan an individual medical account (as defined in Code
(S) 415(l)(2)) included as part of a defined benefit plan maintained by the
Employer and, for taxable years ending after December 31, 1985, a welfare
benefit fund under Code (S) 419(e) maintained by the Employer to the extent
there are post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code (S) 419(d)(3)).
(g) "Defined Contribution Plan Fraction" -
The sum, as of the close of the Limitation Year,
of the Annual Additions to the Participant's
Account under the defined contribution plan(s)
--------------------------------------------------------------------
The sum of the lesser of the following amounts determined
for the Limitation Year and for each prior Year of
Service with the Employer: (i) 125% (subject to the "100%
Limitation" in paragraph (a)) of the dollar limitation
in effect under Code (S) 415(c)(1)(A) for the Limitation
Year (determined without regard to the special dollar
limitations for employee stock ownership plans),
or (ii) 35% of the Participant's
Compensation for the Limitation Year
For purposes of determining the defined contribution plan fraction,
the Administration Committee will not recompute Annual Additions in
Limitation Years beginning prior
16
<PAGE>
to January 1, 1987, to treat all Employee contributions as Annual
Additions. If the Plan satisfied Code (S) 415 for Limitation Years
beginning prior to January 1, 1987, the Administration Committee will
redetermine the defined contribution plan fraction and the defined benefit
plan fraction as of the end of the 1986 Limitation Year, in accordance with
this Section 3.06. If the sum of the redetermined fractions exceeds 1.0,
the Administration Committee will subtract permanently from the numerator
of the defined contribution plan fraction an amount equal to the product of
(1) the excess of the sum of the fractions over 1.0, times (2) the
denominator of the defined contribution plan fraction. In making the
adjustment, the Administration Committee must disregard any accrued benefit
under the defined benefit plan which is in excess of the Current Accrued
Benefit. This Plan continues any transitional rules applicable to the
determination of the defined contribution plan fraction under the
Employer's Plan as of the end of the 1986 Limitation Year.
(h) "Employer" - The Employer that adopts this Plan and any related
employers described in Section 1.02. Solely for purposes of applying the
limitations of this Article III, the Administration Committee will
determine related employers described in Section 1.02 by modifying Code (S)
414(b) and (c) in accordance with Code (S) 415(h).
(i) "Excess Amount" - The excess of the Participant's Annual Additions
for the Limitation Year over the Maximum Permissible Amount.
(j) "Limitation Year" - The Plan Year. If the Employer amends the
Limitation Year to a different 12 consecutive month period, the new
Limitation Year must begin on a date within the Limitation Year for which
the Employer makes the amendment, creating a short Limitation Year.
(k) "Maximum Permissible Amount" - The lesser of (i) $30,000 (or, if
greater, the $30,000 amount as adjusted under Code (S)415(d), or (ii) 25%
of the Participant's Compensation for the Limitation Year. If there is a
short Limitation Year because of a change in Limitation Year, the
Administration Committee will multiply the $30,000 (or adjusted) limitation
by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
3.07 SUSPENSION OF ACCRUAL REQUIREMENTS. The accrual requirements of
----------------------------------
Section 4.08 shall be suspended if the Plan fails to satisfy the Coverage Test
for any Plan Year. A Plan satisfies the Coverage Test if, on the last day of
each quarter of the Plan Year, the number of Nonhighly Compensated Employees who
benefit under the Plan is at least equal to 70% of the total number of
Includible Nonhighly Compensated Employees as of such day. "Includible"
Employees are all Employees other than: (1) those Employees excluded from
participating in the Plan for the entire Plan Year by reason of the collective
bargaining unit exclusion or the nonresident alien exclusion or by reason of the
participation requirements of Section 2.01; and (2) any Employee who
17
<PAGE>
incurs a Separation from Service during the Plan Year and fails to complete at
least 501 Hours of Service for the Plan Year. A "Nonhighly Compensated Employee"
is an Employee who is not a Highly Compensated Employee.
For purposes of the Coverage Test, an Employee is benefiting under the Plan
on a particular date if, under Section 4.08, he is entitled to an allocation for
the Plan Year.
If this Section 3.07 applies for a Plan Year, the Administration Committee
will suspend the accrual requirements for the Includible Employees who are
Participants, beginning first with the Includible Employee(s) employed with the
Employer on the last day of the Plan Year, then the Includible Employee(s) who
have the latest Separation from Service during the Plan Year, and continuing to
suspend in descending order the accrual requirements for each Includible
Employee who incurred an earlier Separation from Service, from the latest to the
earliest Separation from Service date, until the Plan satisfies the Coverage
Test for the Plan Year. If two or more Includible Employees have a Separation
from Service on the same day, the Administration Committee will suspend the
accrual requirements for all such Includible Employees, irrespective of whether
the Plan can satisfy the Coverage Test by accruing benefits for fewer than all
such Includible Employees. If the Plan suspends the accrual requirements for an
Includible Employee, that Employee will share in the allocation of Employer
contributions and Participant forfeitures, if any, without regard to the number
of Hours of Service he has earned for the Plan Year and without regard to
whether he is employed by the Employer on the last day of the Plan Year.
18
<PAGE>
ARTICLE IV
ALLOCATIONS
4.01 PARTICIPANT ACCOUNTS. For each Participant, the Administration
--------------------
Committee shall establish an Employer Securities Account to reflect a
Participant's interest in Employer Securities held by the Trust and shall
establish an account designated as the General Investments Account to reflect
the Participant's interest in the Trust Fund attributable to assets other than
Employer Securities.
If a Participant re-enters the Plan subsequent to his having a Forfeiture
Break in Service, a separate Account for the Participant's pre-Forfeiture Break
in Service Accrued Benefit and a separate Account for his post-Forfeiture Break
in Service Accrued Benefit, unless the Participant's entire Accrued Benefit
under the Plan is one hundred percent (100%) Nonforfeitable, shall be
maintained.
4.02 VALUATION OF ACCOUNTS. The value of each Participant's Accrued
---------------------
Benefit shall consist of that proportion of the net worth (at fair market value)
of the Trust Fund which the net credit balance in his Account bears to the total
net credit balance in the Accounts of all Participants. For purposes of a
distribution under the Plan, the value of a Participant's Accrued Benefit
attributable to his General Investment Account shall be its value as of the
Valuation Date, or other valuation date, immediately preceding the date of the
distribution.
As of the Anniversary Date of each Plan Year, the Administration Committee
first shall reduce the General Investments Accounts (excluding segregated
Accounts) for any forfeitures arising under Section 5.05 and then shall allocate
the net income (or net loss) from the Trust and the increase or decrease in the
fair market value of the assets of the Trust for the Plan Year pro rata to the
General Investments Accounts of the Participants under the Plan as the General
Investments Accounts stood at the beginning of the current Plan Year, but
excluding the amount of any General Investments Account which the Trustee has
fully distributed since the immediately preceding Valuation Date or utilized for
the purchase of Employer Securities. In making its allocations, the
Administration Committee shall exclude Employer Securities allocated to Employer
Securities Accounts, stock dividends on allocated Employer Securities, and
payments by the Trust on an Exempt Loan. The Administration Committee shall
include as income any cash dividends on Employer Securities except cash
dividends which the Administration Committee has directed the Trustee to
distribute in accordance with Section 7.03.
A segregated investment account receives all income it earns and bears all
expense or loss it incurs. As of the Valuation Date, the Administration
Committee must reduce a segregated investment account for any forfeiture arising
under Section 5.05 after the Administration Committee has made all other
allocations, changes or adjustments to such Account for the Plan Year.
19
<PAGE>
In making a forfeiture reduction, the Administration Committee shall
forfeit pro rata from a Participant's General Investments Account and from any
segregated investment account before making a forfeiture from his Employer
Securities Account.
4.03 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. Subject to the limitations of
-------------------------------------
Article III, Code (S) 415, and Section 4.08 of the Plan:
(a) Employer Securities Account. As of the Anniversary Date of each
---------------------------
Plan Year, the Administration Committee first shall reduce the Employer
Securities Accounts for any forfeitures arising under Section 5.05 and then
shall credit the Employer Securities Account maintained for each
Participant with the Participant's allocable share of Employer Securities
(including fractional shares) purchased and paid for by the Trust or
contributed in kind to the Trust, with any forfeitures of Employer
Securities and with any stock dividends on Employer Securities allocated to
his Employer Securities Account. Employer Securities purchased or
contributed in kind shall be allocated as of the Anniversary Date among the
Participants in accordance with the ratio of the Participant's Compensation
to the total Compensation of all Participants. The Administration
Committee shall allocate Employer Securities acquired with an Exempt Loan
in accordance with Section 4.04. Except as otherwise specifically provided
in Section 4.04, the Administration Committee shall base allocations to the
Participants' Accounts on dollar values expressed as shares of Employer
Securities or on the basis of actual shares where there is a single class
of Employer Securities. Employer Securities purchased with the proceeds of
the General Investment Account will be allocated directly to the same
Participant's Employer Securities Account.
(b) General Investments Account. Employer contributions and
---------------------------
forfeitures not allocated under Section 4.03 (a) above shall be allocated
as of the Anniversary Date among the Participants in accordance with the
ratio of the Participant's Compensation to the total Compensation of all
Participants.
(c) Dividends on Employer Securities. The Administration Committee
--------------------------------
will allocate any cash dividends the Employer pays with respect to Employer
Securities to the General Investments Accounts of Participants in the same
ratio, determined on the dividend declaration date, that Employer
Securities allocated to a Participant's Employer Securities Account bear to
the Employer Securities allocated to all Employer Securities Accounts. The
Administration Committee will not allocate to the General Investments
Accounts any cash dividends the Employer directs the Trustee to apply to
the payment of an Exempt Loan nor any cash dividends the Administration
Committee directs the Trustee to distribute in accordance with Section
7.03. If the Employer directs the Trustee to apply cash dividends on
Employer Securities to the payment of an Exempt Loan, the Administration
Committee first will allocate the released Employer Securities to the
Participants' Employer Securities Accounts in the same ratio, determined on
the dividend declaration date, that Employer Securities allocated to a
Participant's Employer Securities Account bear to the Employer Securities
allocated to all Employer Securities Accounts. If the dividends are to
qualify
20
<PAGE>
under Section 404(k) of the Code: (i) First, allocation of released
Employer Securities must equal the greater of the shares of released
Employer Securities equal to the fair market value of the cash dividends
attributable to the allocated Employer Securities, or equal to the number
of shares of all released Employer Securities attributable to the cash
dividends on allocated Employer Securities and (ii) if any released
Employer Securities remain unallocated after the first allocation, the
Administration Committee will allocate these remaining released Employer
Securities under this Section 4.03 as if the Employer has made an Employer
contribution equal to the amount of the cash dividend attributable to the
unallocated Employer Securities.
4.04 EXEMPT LOAN PROCEEDS ALLOCATION LIMITATION. In withdrawing assets
------------------------------------------
from the Loan Suspense Account, the Trustee shall apply the provisions of Treas.
Reg. (S)(S) 54.4975-7(b)(8) and (15) as if all securities in the Loan Suspense
Account were encumbered. Upon the payment of any portion of the loan, the
Trustee shall effect the release of assets in the Loan Suspense Account from
encumbrances. For each Plan Year during the duration of the loan, the number of
Employer Securities released must equal the number of encumbered Employer
Securities held immediately before release for the current Plan Year multiplied
by a fraction. The numerator of the fraction is the amount of principal and
interest paid for the Plan Year. The denominator of the fraction is the sum of
the numerator plus the principal and interest to be paid for all future Plan
Years. The number of future Plan Years under the loan must be definitely
ascertainable and must be determined without taking into account any possible
extension or renewal periods. If the interest rate under the loan is variable,
the interest to be paid in future Plan Years must be computed by using the
interest rate applicable as of the end of the Plan Year. If collateral includes
more than one (1) class of Employer Securities, the number of Employer
Securities of each class to be released for a Plan Year must be determined by
applying the same fraction to each such class. The Administration Committee
shall allocate assets withdrawn from the Loan Suspense Account to the Accounts
of Participants who otherwise share in the allocation of the Employer's
contribution for the Plan Year for which the Trustee has paid the portion of the
loan resulting in the release of the assets. The Administration Committee
consistently shall make this allocation as of each Anniversary Date on the basis
of non-monetary units, taking into account the relative Compensation of all such
Participants for such Plan Year.
The Administration Committee may also elect at the initiation of the Exempt
Loan to have the Employer Securities released from the Loan Suspense Account
solely with reference to principal payments. However, if release is determined
with reference to principal payments only, the following additional rules apply:
(1) the Exempt Loan must provide for annual payments of principal and interest
at a cumulative rate that is not less rapid at any time than level annual
payments of such amounts for 10 years; (2) interest included in any payment is
disregarded only to the extent that it would be determined to be interest under
standard loan amortization tables; and (3) the entire duration of the Exempt
Loan repayment period does not exceed 10 years, even in the event of a renewal,
extension or refinancing of the Exempt Loan.
21
<PAGE>
4.05 EXCESS ALLOCATIONS. The excess amount of any allocations shall be
------------------
distributed or reallocated as provided in Article III.
4.06 EMPLOYER CONTRIBUTIONS CONSIDERED MADE ON LAST DAY OF PLAN YEAR. For
---------------------------------------------------------------
purposes of this Article IV, the Employer's contribution under the Plan which
remains unallocated on the last day of any Plan Year will be considered to have
been made on the last day of that year, regardless of when paid to the Trustee.
4.07 ACCRUAL OF BENEFITS. The Administration Committee shall determine a
-------------------
Participant's Accrued Benefit on the basis of the Limitation Year. In
allocating Employer contributions and forfeitures to a Participant's Accounts,
the Administration Committee shall only take into account the Compensation
earned during that part of the Limitation Year the Employee is actually a
Participant in the Plan.
4.08 PARTICIPANTS TO WHOM EMPLOYER CONTRIBUTIONS AND FORFEITURES WILL BE
-------------------------------------------------------------------
ALLOCATED. The Employer contributions for any Limitation Year, plus any
- ---------
forfeitures which arose under the Plan during that year, will be allocated among
and credited to the Accounts of:
(a) Participants who complete 1,000 Hours of Service during the
Limitation Year and who are in the employ of the Employer on the
Anniversary Date; provided, however, that an Employee who enters or re-
enters the Plan as a Participant on any date other than the first day of
the Limitation Year shall be considered to have completed 1,000 Hours of
Service for purposes of allocation of Employer contributions and
Forfeitures for the Limitation Year in which he enters or re-enters the
Plan as a Participant;
(b) Participants on Leave of Absence on the Anniversary Date who
received Compensation from the Employer during the Limitation Year; and
(c) Participants who died, retired, or became permanently disabled
during the Limitation Year who received Compensation from the Employer
during that year.
(d) Highly Compensated Participants, otherwise qualifying for an
allocation, shall be limited to no more than one-third (1/3) of the
contributions which are deductible under Code (S) 404(a)(9)(B) and
forfeitures of Employer Securities purchased with proceeds of an Exempt
Loan, which limitations shall be applied pro rata to the limited Highly
Compensated Participants.
Notwithstanding the foregoing, in the case of a sale to the Plan in which a
seller elects nonrecognition of gain under Code (S) 1042 of Employer Securities,
no portion of such Employer Securities acquired may be allocated or accrue
(directly or indirectly under any plan of the Employer meeting the requirements
of (S) 401(a) of the Code) during the "nonallocation period" to
22
<PAGE>
(i) any Participant who makes an election under (S) 1042 of the Code,
(ii) any individual who is related to the Participant within the meaning
of (S) 267(b) of the Code (this provision shall not apply to lineal
descendants of the electing Participant if the aggregate amount
allocated to the benefit of all such lienal descendants during the
"nonallocation period" does not exceed more than five percent (5%) of
the Employer Securities (or amounts allocated in lieu thereof) held
by the Plan which are attributable to the sale to the Plan by the
Participant related to such descendants (within the meaning of (S)
267(c) of the Code) or
(iii) any other person who owns (after application of Code (S) 318(a) and
without regard to the employee trust exception of Code (S)
318(a)(2)(B(i)) more than twenty-five percent (25%) of any class of
outstanding stock of the Employer which issued such Employer
Securities or of any corporation which is a member of the same
controlled group of corporations or of the total value of such class
of outstanding stock of any such corporation as defined in (S) 409 of
the Code.
The "nonallocation period" shall mean the period beginning on the date of the
sale of the Employer Securities and ending on the later of the date which is 10
years after the date of sale or the date of the plan allocation attributable to
the final payment of the Exempt Loan.
4.09 EQUITABLE ALLOCATIONS. If the Administration Committee
---------------------
determines in making any valuation, allocation, correction or addition of
interest to any Account under the provisions of the Plan that the strict
application of the provisions of the Plan will not produce an equitable and
nondiscriminatory allocation among the Accounts of the Participants, it may
modify any procedure specified in the Plan for the purpose of achieving an
equitable and nondiscriminatory allocation in accordance with the general
concepts of the Plan; provided, however, that any such modification shall not
reduce any Participant's Accrued Benefit and shall be consistent with the
provisions of (S) 401(a)(4) of the Code. Should the Administration Committee in
good faith deter mine that certain expenses of administration paid by the
Trustee during the Plan Year under consideration are not general, ordinary, and
usual and should not equitably be borne by all Participants, but should be borne
only by one or more Participants, for whom or because of whom such expenses were
incurred, the Administration Committee shall make suitable adjustments by
debiting the particular Account or Accounts of such one or more Participants,
Former Participants, or Beneficiaries; provided, however, that any such
adjustment must be nondiscriminatory and consistent with the provisions of (S)
401(a) of the Code.
4.10 VALUATION OF THE TRUST FUND. The Administration Committee
---------------------------
shall direct the Trustee, as of each Valuation Date, and at such other date or
dates deemed necessary by the Administration Committee, to determine the net
worth of the assets comprising the Trust Fund. In determining such net worth,
the Trustee shall value the assets comprising the Trust Fund at their fair
market value as of the Valuation Date. With respect to activities carried on by
the Plan, an independent appraiser meeting requirements similar to those
prescribed by regulations under Code
23
<PAGE>
(S) 170(a)(1) must perform all valuations of Employer Securities which are not
readily tradeable on an established securities market. The valuation requirement
of the immediately preceding sentence applies to all Employer Securities
acquired by the Plan. Fair market value of Employer Securities means the value
(i) determined as of the date of the exercise of an option if the exercise is by
a Disqualified Person, or (ii) in all other cases, determined as of the most
recent Valuation Date.
4.11 ALLOCATION DOES NOT CREATE RIGHTS. No Participant shall acquire any
---------------------------------
right to or interest in any specific asset of the Trust as a result of the
allocations provided for in the Plan.
24
<PAGE>
ARTICLE V
TERMINATION OF SERVICE-PARTICIPANT VESTING
5.01 NORMAL RETIREMENT. A Participant's Normal Retirement Age
-----------------
(hereinafter so-called) is age sixty-five (65). A Participant who remains in
the employ of the Employer after attaining Normal Retirement Age shall continue
to participate in Employer contributions until the date of his actual
retirement. Upon termination of a Participant's employment for any reason after
attaining Normal Retirement Age, the Administration Committee shall direct the
Trustee to make payment of the full value of the Participant's Accrued Benefit
to him at such times and in such manner as provided in Article VI hereof. The
value of the Participant's Accrued Benefit shall be determined as of the
Anniversary Date which is on or, if not on, immediately follows the date of the
Participant's employment termination. Provided however, the Trustee may, at the
direction of the Administration Committee, value the Participant's Accrued
Benefit as of the Anniversary Date immediately preceding the date of the
Participant's employment termination, for purposes of making an immediate
distribution to the Participant of his Accrued Benefit, and shall make a
subsequent lump sum distribution to the Participant of any additional benefit
accruing subsequent to the date of his termination through and including the
Valuation Date immediately following the date of the Participant's termination
of employment. Immediate distributions may be reduced by the Trustee to take
into account declines in market value.
5.02 EARLY RETIREMENT. A Participant who is at least sixty-two (62) years
----------------
of age and who has completed ten (10) Years of Service may elect to take early
retirement. In the event that a Participant makes such an election, the
Administration Committee shall direct the Trustee to make payment of the full
value of the Participant's Accrued Benefit to him at such times and in such
manner as provided in Article VI hereof. The value of the Participant's Accrued
Benefit shall be determined as of the Anniversary Date which is on or, if not
on, immediately follows the date of the Participant's employment termination.
Provided however, the Trustee may, at the direction of the Administration
Committee, value the Participant's Accrued Benefit as of the Anniversary Date
immediately preceding the date of the Participant's employment termination, for
purposes of making an immediate distribution to the Participant of his Accrued
Benefit, and shall make a subsequent lump sum distribution to the Participant of
any additional benefit accruing subsequent to the date of his termination
through and including the Valuation Date immediately following the date of the
Participant's termination of employment. Immediate distributions may be reduced
by the Trustee to take into account declines in market value.
5.03 DISABILITY. A Participant who becomes permanently disabled shall
----------
have the full value of his Accrued Benefit paid to him at such times and in such
manner as provided in Article VI hereof. The value of a disabled Participant's
Accrued Benefit shall be determined as of the Valuation Date which is on, or if
not on, which immediately follows the date of the Participant's termination of
employment due to disability. Provided however, the Trustee may, at the
direction of the Administration Committee, value the Participant's Accrued
Benefit as of the Valuation Date immediately preceding the date of the
Participant's employment termination, for purposes of making
25
<PAGE>
an immediate distribution to the Participant of his Accrued Benefit, and shall
make a subsequent lump sum distribution to the Participant of any additional
benefit accruing subsequent to the date of his termination through and including
the Valuation Date immediately following the date of the Participant's
termination of employment. A Participant shall be considered "disabled" if he is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. The disability of a Participant shall be
determined by a licensed physician chosen by the Administration Committee.
However, if the condition constitutes total disability under the Federal Social
Security Acts, the Administration Committee may rely upon such determination
that the Participant is totally disabled for purposes of this Plan. The
Administration Committee shall apply the provisions of this Section 5.03 in a
non-discriminatory, consistent and uniform manner.
5.04 DEATH. Upon the death of a Participant, his Beneficiary shall be
-----
entitled to receive the full value of the deceased Participant's Accrued Benefit
determined as of the Valuation Date which is on or, if not on, which immediately
follows the date of such Participant's death, at such times and in such manner
as provided in Article VI hereof. Provided however, the Trustee may, at the
direction of the Administration Committee, value the Participant's Accrued
Benefit as of the Valuation Date immediately preceding the date of the
Participant's death, for purposes of making an immediate distribution to the
Participant's Beneficiary of his Accrued Benefit, and shall make a subsequent
lump sum distribution to said Beneficiary of any additional benefit accruing
subsequent to the date of the Participant's death through and including the
Valuation Date immediately following the date of the Participant's death.
5.05 TERMINATION OF SERVICE PRIOR TO NORMAL RETIREMENT AGE. If a
-----------------------------------------------------
Participant's employment terminates prior to Normal Retirement Age for any
reason other than death or permanent disability, then for each Year of Service
he shall receive a percentage of his Accrued Benefit derived from Employer
contributions and forfeitures allocated to Participant Accounts (the balance
being a forfeiture) equal to the following percentage:
___________________________________________________
Years of Service Percentage of Accrued
With the Employer Benefit Payable
___________________________________________________
Less than 5 years 0%
5 years or more 100%
___________________________________________________
26
<PAGE>
Forfeitures shall be reallocated among the remaining Participants who are
entitled to share in Employer contributions and forfeitures for the Plan Year in
which such forfeiture occurs in accordance with the provisions of Section 4.08.
A Participant shall be 100% vested in his Accounts upon the attainment of Normal
Retirement Age, death or permanent disability.
5.06 YEAR OF SERVICE - VESTING. For purposes of vesting under Section 5.05,
-------------------------
Year of Service means any Plan Year during which an Employee completes not less
than 1,000 Hours of Service.
5.07 BREAK IN SERVICE - VESTING. For purposes of this Article V, a
--------------------------
Participant incurs a "Break in Service" if during any Plan Year he does not
complete more than 500 Hours of Service.
5.08 INCLUDED YEARS OF SERVICE - VESTING. For purposes of determining
-----------------------------------
"Years of Service" under Section 5.06, the Plan takes into account all Years of
Service an Employee completes with the Employer except any Year of Service
before a Break in Service if the number of consecutive Breaks in Service equals
or exceeds the greater of five (5) or the aggregate number of Years of Service
prior to the Break. This exception applies only if the Participant is 0% vested
in his Accrued Benefit derived from Employer contributions at the time he has a
Break in Service. Furthermore, the aggregate number of Years of Service before a
Break in Service does not include Years of Service not required to be taken into
account under this exception by reason of any prior Break in Service.
For the sole purpose of determining a Participant's nonforfeitable
percentage of his Accrued Benefit derived from Employer contributions which
accrued for his benefit prior to a Forfeiture Break in Service, the Plan
disregards any Year of Service after the Participant first incurs a Forfeiture
Break in Service. The Participant incurs a Forfeiture Break in Service when he
incurs five (5) consecutive Breaks in Service.
The Plan does not apply the Break in Service rule under Code (S)
411(a)(6)(B). Therefore, an Employee need not complete a Year of Service after a
Break in Service before the Plan takes into account the Employee's otherwise
includible Years of Service under this Section 5.08.
5.09 FORFEITURE OCCURS. A Participant's forfeiture, if any, of his Accrued
-----------------
Benefit derived from Employer contributions occurs under the Plan on the earlier
of:
(a) The last day of the Plan Year in which the Participant first
incurs a Forfeiture Break in Service; or
(b) The date the Participant receives a cash-out distribution.
The Administration Committee determines the percentage of a Participant's
Accrued Benefit forfeiture, if any, under this Section 5.09 solely by reference
to the vesting schedule of Section 5.05.
27
<PAGE>
A Participant does not forfeit any portion of his Accrued Benefit for any other
reason or cause except as expressly provided by this Section 5.09 or as provided
under the Plan's unclaimed account procedure. Any forfeiture of a Participant's
Accrued Benefit shall be made first from the Participant's General Investment
Account, and after it is exhausted, from the Participant's Employer Securities
Account, in accordance with applicable Treasury regulations.
5.10 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/ RESTORATION
--------------------------------------------------------------------
OF FORFEITED ACCRUED BENEFIT. If, pursuant to Article VI, a partially-vested
- ----------------------------
Participant receives a cash-out distribution before he incurs a Forfeiture Break
in Service (as defined in Section 5.08), the cash-out distribution will result
in an immediate forfeiture of the nonvested portion of the Participant's Accrued
Benefit derived from Employer contributions, as provided in Section 5.09. A
partially-vested Participant is a Participant whose Nonforfeitable percentage
determined under Section 5.05 is less than 100%. A cash-out distribution is a
distribution of the entire present value of the Participant's Nonforfeitable
Accrued Benefit.
(a) Restoration and Conditions upon Restoration. A partially-vested
-------------------------------------------
Participant who is re-employed by the Employer after receiving a cash-out
distribution of the Nonforfeitable percentage of his Accrued Benefit may
repay the Trustee the amount of the cash-out distribution attributable to
Employer contributions, unless the Participant no longer has a right to
restoration under the requirements of this Section 5.10. If a partially-
vested Participant makes the cash-out distribution repayment, the
Administration Committee, subject to the conditions of this Section
5.10(a), must restore his Accrued Benefit attributable to Employer
contributions to the same dollar amount as the dollar amount of his Accrued
Benefit on the Valuation Date, or other valuation date, immediately
preceding the date of the cash-out distribution, unadjusted for any gains
or losses occurring subsequent to that Valuation Date, or other valuation
date. Restoration of the Participant's Accrued Benefit includes restoration
of all Code (S) 411(d)(6) protected benefits with respect to that restored
Accrued Benefit, in accordance with applicable Treasury regulations.
The Administration Committee will not restore a re-employed
Participant's Accrued Benefit under this Section 5.10(a) if:
(1) five (5) years or more have elapsed since the Participant's
first re-employment date with the Employer following the cash-out
distribution; or
(2) the Participant incurred a Forfeiture Break in Service (as
defined in Section 5.08). This condition also applies if the
Participant makes repayment within the Plan Year in which he incurs
the Forfeiture Break in Service and that Forfeiture Break in Service
would result in a complete forfeiture of the amount the Administration
Committee otherwise would restore.
(b) Time and Method of Restoration. If neither of the two conditions
------------------------------
preventing restoration of the Participant's Accrued Benefit applies, the
Administration Committee will
28
<PAGE>
restore the Participant's Accrued Benefit as of the Plan Year Valuation
Date coincident with or immediately following the repayment. To restore the
Participant's Accrued Benefit, the Administration Committee, to the extent
necessary, will allocate to the Participant's Account:
(1) first, from the amount, if any, of Participant forfeitures
the Administration Committee would otherwise allocate under Section
5.05;
(2) second, from the amount, if any, of the Trust Fund net income
or gain for the Plan Year; and
(3) third, from the Employer contribution for the Plan Year to
the extent made under a discretionary formula.
To the extent the amounts described in clauses (1), (2) and (3) are
insufficient to enable the Administration Committee to make the required
restoration, the Employer must contribute, without regard to any
requirement or condition of Section 3.01, the additional amount necessary
to enable the Administration Committee to make the required restoration.
If, for a particular Plan Year, the Administration Committee must restore
the Accrued Benefit of more than one re-employed Participant, then the
Administration Committee will make the restoration allocations to each such
Participant's Account in the same proportion that a Participant's restored
amount for the Plan Year bears to the restored amount for the Plan Year of
all re-employed Participants. The Administration Committee will not take
into account any allocation under this Section 5.10 in applying the
limitation on allocations under Article III.
(c) 0% Vested Participant. The deemed cash-out rule applies to a 0%
---------------------
vested Participant. A 0% vested Participant is a Participant whose Accrued
Benefit derived from Employer contributions is entirely forfeitable at the
time of his separation from Service. Under the deemed cash-out rule, the
Administration Committee will treat the 0% vested Participant as having
received a cash-out distribution on the date of the Participant's
separation from Service or, if the Participant's Account is entitled to an
allocation of Employer contributions for the Plan Year in which he
separates from Service, on the last day of that Plan Year. For purposes of
applying the restoration provisions of this Section 5.10, the
Administration Committee will treat the 0% vested Participant as repaying
his cash-out "distribution" on the first date of his re-employment with the
Employer.
5.11 SEGREGATED INVESTMENT ACCOUNT FOR REPAID AMOUNT. Until the
-----------------------------------------------
Administration Committee restores the Participant's Accrued Benefit, as
described in Section 5.10, the Trustee will invest the cash-out amount the
Participant has repaid in a segregated investment account maintained solely for
that Participant. The Trustee must invest the amount in the Participant's
segregated investment account in Federally insured interest bearing savings
account(s) or time deposit(s) (or a combination of both), or in other fixed
income investments. Until commingled with the balance of the Trust Fund on the
date the Administration Committee restores
29
<PAGE>
the Participant's Accrued Benefit, the Participant's segregated investment
account remains a part of the Trust, but it alone shares in any income it earns
and it alone bears any expense or loss it incurs. The Administration Committee
will direct the Trustee to repay to the Participant as soon as is
administratively practicable the full amount of the Participant's segregated
investment account if the Administration Committee determines either of the
conditions of Section 5.10(a) prevents restoration as of the applicable
Valuation Date, notwithstanding the Participant's repayment.
ARTICLE VI
TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. Unless the Participant or the
----------------------------------
Beneficiary elects in writing a different time or method of payment, the
Administration Committee will direct the Trustee to commence distribution of a
Participant's Nonforfeitable Accrued Benefit in accordance with this Section
6.01. A Participant must consent, in writing, to any distribution required
under this Section 6.01 if the present value of the Participant's Nonforfeitable
Accrued Benefit, at the time of the distribution to the Participant, exceeds
$3,500 and the Participant has not attained the later of Normal Retirement Age
or age 62. For all purposes of this Article VI, the term "annuity starting
date" means the first day of the first period for which the Plan pays an amount
as an annuity or in any other form but in no event is the "annuity starting
date" earlier than a Participant's Separation from Service with the Employer.
For purposes of the consent requirements under this Article VI, if the present
value of the Participant's Nonforfeitable Accrued Benefit, at the time of any
distribution, exceeds $3,500, the Administration Committee must treat that
present value as exceeding $3,500 for purposes of all subsequent Plan
distributions to the Participant.
(a) Retirement, Disability and Death. If the Participant separates
--------------------------------
from Service by reason of the attainment of Normal Retirement Age, death,
or disability, the Administration Committee will direct the Trustee to
commence distribution of the Accrued Benefit not later than the 60th day
after the close of the Plan Year in which the applicable event occurs or
separation from Service, if later.
(b) Other Separation from Service. If the Participant separates from
-----------------------------
Service for any reason other than by reason of the attainment of Normal
Retirement Age, death or disability, the Administration Committee will
direct the Trustee to commence distribution of the Participant's
Nonforfeitable Accrued Benefit not later than one year after the close of
the fifth Plan Year following the Plan Year in which the Participant
separated from Service. If the Participant resumes employment with the
Employer on or before the last day of the fifth Plan Year following the
Plan Year of his separation from Service, the mandatory distribution
provisions of this paragraph (b) do not apply. For purposes of this
Section 6.01(b), the Accrued Benefit does not include any Employer
Securities acquired with the proceeds of an Exempt Loan until the close of
the Plan Year in which the borrower repays the Exempt Loan in full.
30
<PAGE>
(c) Required Beginning Date.
-----------------------
(1) Timing of Required Distribution. If any distribution
-------------------------------
commencement date described in this Section 6.01, either by Plan
provision or by Participant election (or nonelection), is later than
the Participant's Required Beginning Date, the Administration
Committee instead must direct the Trustee to make distribution on the
Participant's Required Beginning Date. A Participant's Required
Beginning Date is the April 1 following the close of the calendar year
in which the Participant attains age 70 1/2 if the Participant is more
than 5% owner with respect to the Plan Year ending in that calendar
year. For any other Participant, his Required Beginning Date is the
April 1 following the close of the calendar year in which the
Participant separates from Service or, if later, the April 1 following
the close of the calendar year in which the Participant attains age 70
1/2 . A mandatory distribution at the Participant's Required Beginning
Date will be a lump sum unless the Participant, pursuant to the
provisions of this Article VI, makes a valid election to receive an
alternative form of payment.
(2) Participant Election Upon Attaining Age 70 1/2. A
----------------------------------------------
Participant upon attaining age 70 1/2, until he retires, has a
continuing election to receive all or any portion of his Accrued
Benefit. A Participant only may make one withdrawal per Plan Year. The
Trustee, as directed by the Administration Committee, will distribute
the amount(s) withdrawn by a Participant in a single sum.
A Participant must make an election under this Section 6.01(c)(2)
on a form prescribed by the Administration Committee at any time
during the Plan Year for which his election is to be effective. In his
written election, the Participant must specify the percentage or
dollar amount of his Accrued Benefit he wishes the Trustee to
distribute to him. The Participant's election relates solely to the
percentage or dollar amount specified in his election form and his
right to elect to receive an amount, if any, for a particular Plan
Year greater than the percentage or dollar amount specified in his
election form terminates on the Accounting Date of that Plan Year. The
Trustee must make a distribution to a Participant in accordance with
his election under this Section 6.01(c)(2) as soon as administratively
practicable after the Participant files his written election with the
Administration Committee. The Trustee will distribute the balance of
the Participant's Accrued Benefit not distributed pursuant to his
election(s) in accordance with the other distribution provisions of
this Plan.
(d) Distribution in Excess of $5000. No distribution shall be made
-------------------------------
to a Participant without the Participant's consent if the Nonforfeitable
Accrued Benefit shall exceed $5000, unless the Participant shall have
attained Normal Retirement Age.
31
<PAGE>
(e) Death of the Participant. The Administration Committee will
------------------------
direct the Trustee, in accordance with this Section, to distribute to the
Participant's Beneficiary the Participant's Nonforfeitable Accrued Benefit
remaining in the Trust at the time of the Participant's death subject to
the requirements of Code (S) 401(a)(9) and any regulations issued
thereunder.
(1) Deceased Participant's Nonforfeitable Accrued Benefit Does
----------------------------------------------------------
Not Exceed $3,500. The Administration Committee must direct the
-----------------
Trustee to distribute the deceased Participant's Nonforfeitable
Accrued Benefit in lump sum, as soon as administratively practicable
following the Participant's death or, if later, the date on which the
Administration Committee receives notification of or otherwise
confirms the Participant's death. For Plan Years beginning after
December 31, 1997, the $3,500 amount shall be increased to $5,000.
(2) Deceased Participant's Nonforfeitable Accrued Benefit Exceeds
-------------------------------------------------------------
$3,500. The Administration Committee will direct the Trustee to
------
distribute the deceased Participant's Nonforfeitable Accrued Benefit
at the time and in the method elected by the Participant or, if
applicable, by the Beneficiary, as permitted under this Article VI. In
the absence of an election the Administration Committee will direct
the Trustee to distribute the Participant's undistributed
Nonforfeitable Accrued Benefit in lump sum on the first distribution
date following the close of the Plan Year in which the Participant's
death occurs or, if later, the first distribution date following the
date the Administration Committee receives notification of or
otherwise confirms the Participant's death. For Plan Years beginning
after December 31, 1997, the $3,500 amount shall be increased to
$5,000.
If the death benefit is payable in full to the Participant's surviving
spouse, the surviving spouse, in addition to the distribution options
provided in this Section, may elect, if available, distribution at any time
or in any form this Article VI would permit for a Participant.
(f) Distribution Date. A distribution date, unless otherwise
-----------------
specified within the Plan, is the first day of each month of each Plan Year
or as soon as administratively practicable thereafter.
6.02 ELECTION AND MANNER OF PAYMENT. Not earlier than ninety (90) days,
------------------------------
but not later than thirty (30) days, before the Participant's distribution date,
the Administration Committee shall provide a benefit notice to the Participant.
The notice shall explain the options and material features available to the
Participant regarding the benefit distribution and the Participant's right to
defer distribution until attainment of Normal Retirement Age.
The Administration Committee will direct the Trustee to make distribution
of the Accrued Benefit in a lump sum. In the event any part of the Accrued
Benefit is subject to the "put option"
32
<PAGE>
of Section 7.01 and the distribution for all Participants exceeds $50,000, the
Administrative Committee may defer payment of the distribution over a period of
years, not exceeding five (5) years from the date a Participant is entitled to
receive his Accrued Benefit. The Administrative Committee shall make its
decision to defer payment of the distribution over the deferred period based
upon the availability of liquid assets of the Trust and the Company which will
be required in the distributions. If a Participant's Accrued Benefit
attributable to Employer Securities exceeds $500,000, the maximum payment
period, subject to a contrary election by the Participant, is five (5) years
plus one additional year (but no more than five (5) additional years) for each
$100,000 (or fraction of $100,000) by which the Employer Securities Account
exceeds $500,000. The Administration Committee will apply this Section 6.02 by
adjusting the $500,000 and $100,000 limitations by the adjustment factor
prescribed by the Secretary of the Treasury under Code (S) 415(d).
6.03 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The joint
-----------------------------------------------------------
and survivor annuity requirements do not apply to this Plan. The Plan does not
provide any annuity distribution to Participants nor to surviving spouses.
6.04 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained in
---------------------------------------------
this Plan prevents the Trustee, in accordance with the direction of the
Administration Committee, from complying with the provisions of a qualified
domestic relations order (as defined in Code (S) 414(p)). This Plan specifically
permits distribution to an alternate payee under a qualified domestic relations
order at any time, irrespective of whether the Participant has attained his
earliest retirement age (as defined under Code (S) 414(p)) under the Plan. A
distribution to an alternate payee prior to the Participant's attainment of
earliest retirement age is available only if: (1) the order specifies
distribution at that time or permits an agreement between the Plan and the
alternate payee to authorize an earlier distribution; and (2) if the present
value of the alternate payee's benefits under the Plan exceeds $3,500 ($5,000
for Plan Years beginning after December 31, 1997), and the order requires, the
alternate payee consents to any distribution occurring prior to the
Participant's attainment of earliest retirement age. Nothing in this Section
6.05 permits a Participant to receive distribution at a time otherwise not
permitted under the Plan nor does it permit the alternate payee to receive a
form of payment not permitted under the Plan.
The Administration Committee must establish reasonable procedures to
determine the qualified status of a domestic relations order. Upon receiving a
domestic relations order, the Administration Committee promptly will notify the
Participant and any alternate payee named in the order, in writing, of the
receipt of the order and the Plan's procedures for determining the qualified
status of the order. Within a reasonable period of time after receiving the
domestic relations order, the Administration Committee must determine the
qualified status of the order and must notify the Participant and each alternate
payee, in writing, of its determination. The Administration Committee must
provide notice under this paragraph by mailing to the individual's address
specified in the domestic relations order, or in a manner consistent with
applicable regulations.
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Administration Committee is making its
determination of the qualified status of the domestic
33
<PAGE>
relations order, the Administration Committee must make a separate accounting of
the amounts payable. If the Administration Committee determines the order is a
qualified domestic relations order within eighteen (18) months of the date
amounts first are payable following receipt of the order, the Administration
Committee will direct the Trustee to distribute the payable amounts in
accordance with the order. If the Administration Committee does not make its
determination of the qualified status of the order within the 18-month
determination period, the Administration Committee will direct the Trustee to
distribute the payable amounts in the manner the Plan would distribute if the
order did not exist and will apply the order prospectively if the Administration
Committee later determines the order is a qualified domestic relations order.
To the extent it is not inconsistent with the provisions of the qualified
domestic relations order, the Administration Committee may direct the Trustee to
invest any partitioned amount in a segregated subaccount or separate account and
to invest the account in Federally insured, interest-bearing savings account(s)
or time deposit(s) (or a combination of both), or in other fixed income
investments. A segregated subaccount remains a part of the Trust, but it alone
shares in any income it earns, and it alone bears any expense or loss it incurs.
The Trustee will make any payments or distributions required under this Section
6.04 by separate benefit checks or other separate distribution to the alternate
payee(s).
6.05 DISTRIBUTION DEMAND FOR EMPLOYER SECURITIES. Distribution of a
-------------------------------------------
Participant's benefit may be made in cash or Employer Securities or both,
provided, however, that if a Participant or Beneficiary so demands, such benefit
shall be distributed only in the form of Employer Securities. Prior to making a
distribution of benefits, the Administrator shall advise the Participant or his
Beneficiary, in writing, of the right to demand that benefits be distributed
solely in Employer Securities.
If a Participant or Beneficiary demands that benefits be distributed solely
in Employer Securities, distribution of a Participant's benefit will be made
entirely in whole shares or other units of Employer Securities. Any balance in
a Participant's General Investment Account will be applied to acquire for
distribution the maximum number of whole shares or other units of Employer
Securities at the then fair market value. Any fractional unit value unexpended
will be distributed in cash. If Employer Securities are not available for
purchase by the Trustee, then the Trustee shall hold such balance until Employer
Securities are acquired and then make such distribution, subject to this
Article.
If the charter or bylaws of the Company restrict the ownership of
substantially all outstanding shares of Employer Securities to current Employees
and the Trust, the distribution of a Participant's Accrued Benefit may be made
entirely in cash without granting him the right to demand distribution in
Employer Securities. Alternatively, Employer Securities may be distributed
subject to the requirement that they be immediately resold to the Company under
payment terms that comply with Section 7.01.
34
<PAGE>
Any balance in a Participant's segregated investment account is not subject
to the demand right that benefits be distributed in the form of Employer
Securities.
The Trustee will make distribution from the Trust only on instructions from
the Plan Administrator.
6.06 ROLLOVER OF LUMP SUM DISTRIBUTION. This Section applies to all
---------------------------------
distributions other than the distribution of Employer Securities.
Notwithstanding any provision of the Plan to the contrary that would otherwise
limit a distributee's election under this Article, a distributee may elect, at
the time and in the manner prescribed by the Plan Administrator, to have any
portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
For purposes of this Section, the following definitions apply:
(a) "Eligible rollover distribution." An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: (i) any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated beneficiary,
or for a specified period of ten (10) years or more; (ii) any distribution to
the extent such distribution is required under Code (S)401(a)(9); and (iii) the
portion of any distribution that is not includible in gross income (determined
without regard to the exclusion of net unrealized appreciation with respect to
Employer Securities).
(b) "Eligible retirement plan." An eligible retirement plan is an
individual retirement account described in Code (S)408(a), an individual
retirement annuity described in Code (S)408(b), an annuity plan described in
Code (S)403(a), or a qualified trust described in Code (S)401(a), that accepts
the distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual retirement annuity.
(c) "Distributee." A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving spouse and
the Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code (S)414(p),
are distributees with regard to the interest of the spouse or former spouse.
(d) "Direct rollover." A direct rollover is a payment by the Plan to
the eligible retirement plan specified by the distributee.
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ARTICLE VII
EMPLOYER SECURITIES
7.01 PUT OPTION. The Employer will issue a "put option" to each
----------
Participant receiving a distribution of Employer Securities from the Trust if
the Employer Securities are not publicly traded. The put option will permit the
Participant to sell the Employer Securities to the Employer, at any time during
two option periods, at the current fair market value.
The first put option period runs for a period of at least sixty (60) days
commencing on the date of distribution of Employer Securities to the
Participant. The second put option period runs for a period of at least sixty
(60) days commencing after the new determination of the fair market value of
Employer Securities by the Administration Committee and notice to the
Participant of the new fair market value. A Disqualified Person shall be
required to wait for the determination of the next current fair market value
determination as required by Section 4.10.
If a Participant (or his Beneficiary) exercises his put option, the
Employer must purchase the Employer Securities at fair market value upon the
terms provided under this Section 7.01. The Employer may grant the Trust an
option to assume the Employer's rights and obligations at the time a Participant
exercises an option under this Section 7.01.
If the Employer (or the Trustee, at the direction of the Administration
Committee) exercises an option to purchase a Participant's Employer Securities
pursuant to an offer given under this Section 7.01, the purchaser(s) must make
payment in lump sum or, if the distribution to the Participant (or to his
Beneficiary) constitutes a Total Distribution, in substantially equal
installments over a period not exceeding five (5) years, subject to the
Participant's election for a longer payment period than five (5) years. A "Total
Distribution" to a Participant (or to a Beneficiary) is the distribution, within
one taxable year of the recipient, of the entire balance to the Participant's
credit under the Plan.
In the case of a distribution which is not a Total Distribution or which is
a Total Distribution with respect to which the purchaser(s) will make payment in
lump sum, the purchaser(s) must pay the Participant (or Beneficiary) the fair
market value of the Employer Securities repurchased no later than thirty (30)
days after the date the Participant (or Beneficiary) exercises the put option.
In the case of a Total Distribution with respect to which the purchaser(s) will
make installment payments, the purchaser(s) must make the first installment
payment no later than thirty (30) days after the Participant (or Beneficiary)
exercises the put option. For installment amounts not paid within thirty (30)
days of the exercise of the put option, the purchaser(s) must evidence the
balance of the purchase price by executing a promissory note, delivered to the
selling Participant at the Closing. The note delivered at Closing must bear a
reasonable rate of interest, determined as of the Closing Date, and the
purchaser(s) must provide adequate security. The note must provide for equal
annual installments with interest payable with each installment, the first
installment being due and payable one year after the Closing Date. The note
further must provide for acceleration in the event of thirty
36
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(30) days' default of the payment on interest or principal and must grant to the
maker of the note the right to prepay the note in whole or in part at any time
or times without penalty; provided however, the purchaser(s) may not have the
right to make any prepayment during the calendar year or fiscal year of the
Participant (or Beneficiary) in which the Closing Date occurs.
In the case of a purchase from a Disqualified Person, all purchases of
Employer Securities shall be made at prices which, in the judgment of an
Independent Appraiser, do not exceed the fair market value of such shares as of
the date of the transaction.
The requirements of this Section 7.01 shall not apply to the distribution
of any portion of a Participant's Accrued Benefit which has been diversified or
transferred to another plan pursuant to the provisions of Section 7.02 hereof.
Notwithstanding the foregoing, the foregoing shall not be applicable to a
financial institution as defined in Code (S) 581 which is prohibited from
redeeming or purchasing its own securities, if the Participant has been provided
the option to receive its distribution from the Plan in cash.
The protections and rights described in this Section 7.01 are nonterminable
with respect to all Employer Securities acquired with an Exempt Loan. Should
this Plan cease to be an employee stock ownership plan, or should the Exempt
Loan be repaid, Employer Securities acquired with the proceeds of an Exempt Loan
will continue to be subject to the provisions of this Section 7.01 after the
loan is paid.
7.02 DIVERSIFICATION OF INVESTMENTS. Within ninety (90) days after the
------------------------------
close of each Plan Year in the Qualified Election Period, each Participant who
has attained age fifty-five (55) and has completed ten (10) years of
participation under the Plan shall be permitted to direct the Plan as to the
investment of at least twenty-five percent (25%) of the number of shares ever
allocated to the Employer Securities Account, less those shares previously
diversified and or distributed. In the case of the sixth (6th) year of the
Qualified Election Period, the preceding sentence shall be applied by
substituting "fifty percent (50%)" for "twenty-five percent (25%)." The
Participant's direction shall be effective no later than ninety (90) days after
the close of the Plan Year.
For purposes of this Section, Qualified Election Period shall mean the six
(6) Plan Year periods beginning with the Plan Year in which the Participant was
first eligible to make the election.
The Administration Committee shall offer at least three (3) investment
options (not inconsistent with regulations prescribed by Internal Revenue
Service regulations) to each Participant who makes an election under this
Section 7.02 and such funds shall be held in a segregated investment account
under the General Investment Account.
In lieu of offering such investment options, the Administration Committee
may direct that all amounts subject to Participant elections under this Section
7.02 be distributed to Participants.
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All such distributions shall be distributed within ninety (90) days after the
close of the Plan Year and shall be subject to the requirements of Article VI of
this Plan.
In lieu of receiving a cash distribution under this Section 7.02, a
Participant may direct the Plan to transfer his distribution to another
qualified plan of the Company which accepts such transfers, provided that such
plan permits employee-directed investments and does not invest in Employer
Securities to a substantial degree. Such transfer shall be made within ninety
(90) days after the close of the Plan Year.
7.03 CASH DIVIDENDS. Cash dividends, if any, on shares of Employer
--------------
Securities allocated to Participant Accounts may be accumulated in the Trust or
may be paid to Participants currently as determined in the discretion of the
Board of Directors of the Company, exercised in a uniform and nondiscriminatory
manner. Provided that if the Plan is primarily invested in Employer Securities,
it is intended that the Company shall be allowed a deduction with respect to any
dividends paid on shares of Employer Securities of any class held by the Plan on
the record date to the extent such dividends are paid in cash directly to the
Participants, or their Beneficiaries, or are paid to the Plan and are
distributed from the Plan to the Participants or their Beneficiaries not later
than ninety (90) days after the close of the Plan Year in which paid. Provided
further that if the Plan is primarily invested in Employer Securities and the
dividends otherwise qualify as a deductible dividend under Section 404(k) of the
Code, it is also intended that the Company shall be allowed a deduction for any
dividends paid on shares of Employer Securities (whether or not allocated) and
used to make payments on an Exempt Loan, provided that in the case of dividends
paid on allocated shares, Employer Securities having a fair market value equal
to the dividends will be allocated to such Participants for the year in which
such dividends would otherwise have been allocated to such Participants.
7.04 RIGHT OF FIRST REFUSAL. If any Participant (or Beneficiary) who
----------------------
receives Employer Securities which are not publicly traded, under this Plan
desires to dispose of any of his Employer Securities for any reason during his
lifetime (whether by sale, assignment, gift or any other method of transfer), he
first must offer the Employer Securities for sale to the Employer. The
Administration Committee may require a Participant (or Beneficiary) entitled to
a distribution of Employer Securities to execute an appropriate stock transfer
agreement (evidencing the right of first refusal) prior to receiving a
certificate for Employer Securities.
In the case of an offer by a third party, the offer of the Employer is
subject to all the terms and conditions set forth in Section 7.01, based on the
price equal to the fair market value per share and payable in accordance with
the terms of Section 7.01, unless the selling price and terms offered to the
Participant by the third party are more favorable to the Participant than the
selling price and terms of Section 7.01, in which event, the selling price and
terms of the offer of the third party apply. The Employer must give written
notice to the offering Participant of its acceptance of the Participant's offer
within fourteen (14) days after the Participant has given written notice to the
Employer, or the Employer's rights under this Section 7.04 will lapse. The
Employer may grant the
38
<PAGE>
Plan the option to assume the Employer's rights and obligations with respect to
all or any part of the Employer Securities offered to the Employer under this
Section 7.04.
7.05 VOTING EMPLOYER SECURITIES. The Trustee shall vote all Employer
--------------------------
Securities held by it as part of the Plan assets unless provided otherwise
hereinafter:
(a) If any agreement entered into by the Trust provides for voting of
any shares of Employer Securities pledged as security for any obligation of
the Plan, then such shares of Employer Securities shall be voted in
accordance with such agreement. Otherwise, the Trustee shall vote the
Employer Securities pledged.
(b) If the Employer has a registration-type class of securities, each
Participant or Beneficiary shall be entitled to direct the Trustee as to
the manner in which the Employer Securities which are allocated to the
Employer Securities Account of such Participant or Beneficiary is to be
voted.
(c) If the Employer does not have a registration-type class of
securities, each Participant or Beneficiary in the Plan shall be entitled
to direct the Trustee as to the manner in which voting rights on shares of
Employer Securities which are allocated to the Employer Securities Account
of such Participant or Beneficiary are to be exercised with respect to any
corporate matter which involves the voting of such shares with respect to
the approval or disapproval of any corporate merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business, or such similar
transaction as prescribed in applicable regulations.
(d) If the Employer does not have a registration-type class of
securities and the by-laws of the Employer require the Plan to vote an
issue in a manner that reflects a one-man, one-vote philosophy, each
Participant or Beneficiary shall be entitled to cast one vote on an issue
and the Trustee shall vote the shares held by the Plan in proportion to the
results of the votes cast on the issue by the Participants and
Beneficiaries. The Trustee may not vote Employer Securities which a
Participant or Beneficiary, pursuant to this Section, fails to exercise
unless compelled to by Department of Labor rules and regulations.
(e) For purposes of this Section 7.05, the term "registration-type
class of securities" means: (i) a class of securities required to be
registered under Section 12 of the Securities Exchange Act of 1934; and
(ii) a class of securities which would be required to be so registered
except for the exemption from registration provided in subsection (g)(2)(H)
of such Section 12.
7.06 LOANS TO PURCHASE EMPLOYER SECURITIES. The Trustee is specifically
-------------------------------------
authorized to borrow money or to assume indebtedness for the purpose of
acquiring Employer Securities, subject to the following terms and conditions
which shall apply to the Exempt Loan:
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<PAGE>
(a) The Trustee will use the proceeds of the loan within a reasonable
time after receipt only for any or all of the following purposes: (i) to
acquire Employer Securities, (ii) to repay such loan, or (iii) to repay a
prior Exempt Loan. Except as provided in this Section 7.06, no Employer
Security acquired with the proceeds of an Exempt Loan may be subject to a
put, call or other option, or buy-sell or similar arrangement while held by
and when distributed from this Plan, whether or not this Plan is then an
employee stock ownership plan.
(b) The interest rate of the Exempt Loan may not be more than a
reasonable rate of interest.
(c) Any collateral the Trustee pledges to the creditor must consist
only of the assets purchased by the borrowed funds and those assets the
Trust used as collateral on the prior Exempt Loan repaid with the proceeds
of the current Exempt Loan.
(d) The creditor may have no recourse against the Trust under the
Exempt Loan except with respect to such collateral given for the Exempt
Loan, contributions (other than contributions of Employer Securities) that
the Employer makes to the Trust to meet its obligations under the Exempt
Loan, and earnings attributable to such collateral and the investment of
such contributions. The payment made with respect to an Exempt Loan by the
Plan during a Plan Year must not exceed an amount equal to the sum of such
contributions and earnings received during or prior to the year less such
payments in prior years. The Administration Committee and the Trustee must
account separately for such contributions and earnings in the books of
account of the Plan until the Trust repays the Exempt Loan.
(e) In the event of default upon the loan, the value of Plan assets
transferred in satisfaction of the Exempt Loan must not exceed the amount
of the default, and if the lender is a Disqualified Person, the Exempt Loan
must provide for transfer of Plan assets upon default only upon and to the
extent of the failure of the Plan to meet the payment schedule of the
Exempt Loan.
(f) The Trustee must add and maintain all assets acquired with the
proceeds of an Exempt Loan in a Loan Suspense Account. In withdrawing
assets from the Loan Suspense Account, the Trustee will apply the
provisions of Treas. Reg. (S)(S) 54.4975-7(b)(8) and (15) as if all
securities in the Loan Suspense Account were encumbered. Upon the payment
of any portion of the loan, the Trustee will effect the release of assets
in the Loan Suspense Account from encumbrances. For each Plan Year during
the duration of the Exempt Loan, the number of Employer Securities released
must equal the number of encumbered Employer Securities held immediately
before release for the current Plan Year multiplied by a fraction. The
numerator of the fraction is the amount of principal and interest paid for
the Plan Year. The denominator of the fraction is the sum of the numerator
plus the principal and interest to be paid for all future Plan Years. The
number of future Plan Years under the loan must be definitely ascertainable
and must be determined without taking into
40
<PAGE>
account any possible extension or renewal periods. If the interest rate
under the Exempt Loan is variable, the interest to be paid in future Plan
Years must be computed by using the interest rate applicable as of the end
of the Plan Year. If collateral includes more than one class of Employer
Securities, the number of Employer Securities of each class to be released
for a Plan Year must be determined by applying the same fraction to each
such class. The Administration Committee will allocate assets withdrawn
from the Loan Suspense Account to the Accounts of Participants who
otherwise share in the allocation of the Employer's contribution for the
Plan Year for which the Trustee has paid the portion of the Exempt Loan
resulting in the release of the assets. The Administration Committee
consistently will make this allocation as of each Anniversary Date on the
basis of non-monetary units, taking into account the relative Compensation
of all such Participants for such Plan Year.
The Administration Committee may also elect at the initiation of the
Exempt Loan to have the Employer Securities released from the Loan Suspense
Account solely with reference to principal payments. However, if release
is determined with reference to principal payments only, the following
additional rules apply: (1) the Exempt Loan must provide for annual
payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for ten (10)
years; (2) interest included in any payment is disregarded only to the
extent that it would be determined to be interest under standard loan
amortization tables; and (3) the entire duration of the Exempt Loan
repayment period does not exceed ten (10) years, even in the event of a
renewal, extension or refinancing of the Exempt Loan.
(g) The loan must be for a specific term and may not be payable at the
demand of any person except in the case of default.
(h) Notwithstanding the fact this Plan ceases to be an employee stock
ownership plan, Employer Securities acquired with the proceeds of an Exempt
Loan will continue after the Trustee repays the loan to be subject to the
provisions of Section 7.01 and 7.04 (if applicable) as required by Treas.
Reg. (S)(S) 54.4975-7(b)(4), (10), (11) and (12) relating to put, call or
other options and to buy-sell or similar arrangements, and shall not be
subjected to any additional puts, calls, options, buy-sell or similar
arrangements while held by or when distributed from the Plan, except to the
extent provided therein.
7.07 RETURN OF CAPITAL DIVIDENDS. In the event that a dividend or other
---------------------------
distribution is paid with respect to the Employer Securities and such dividend
or distribution is not paid from the earnings and profits that are attributable
to the shares (hereinafter referred to as a "Return of Capital Dividend"), the
portion of the Return of Capital Dividend attributable to the Stock held in the
Suspense Account will be held in the Suspense Account and will be reinvested in
Employer Securities as soon as administratively feasible without materially
affecting the value of the Employer Securities based on applicable market
conditions. The reinvestment of Return of Capital Dividend proceeds (whether
from allocated or unallocated Stock) will be in the open market and such
proceeds will not be used to repay the Exempt Loan. The proceeds reinvested in
Employer
41
<PAGE>
Securities will be held in the Suspense Account and released from the
Suspense Account and allocated to the Participant Accounts as the Exempt
Loan is repaid. Earnings on the Return of Capital Dividend prior to
reinvestment in Employer Securities will be additionally invested in
Employer Securities and treated as a Return of Capital Dividend. If the
Return of Capital Dividend is unable to be reinvested in Employer
Securities within two (2) years of payment, the proceeds will be released
prorata with the release of Employer Securities from the Suspense Account.
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<PAGE>
ARTICLE VIII
EMPLOYER ADMINISTRATIVE PROVISIONS
8.01 INFORMATION. The Employer shall, upon request or as may be
-----------
specifically required hereunder, furnish or cause to be furnished, all of the
information or documentation which is necessary or required by the
Administration Committee and Trustee to perform their respective duties and
functions under the Plan. The Employer's records as to the current information
the Employer furnishes to the Administration Committee and Trustee shall be
conclusive as to all persons.
8.02 NO LIABILITY. The Employer assumes no obligation or responsibility
------------
to any of the Employees, Participants, or Beneficiaries for any act of, or
failure to act, on the part of the Administration Committee (unless the Employer
is the Administration Committee), or the Plan Administrator (unless the Employer
is the Plan Administrator).
8.03 EMPLOYER ACTION. Any action required of the Employer shall be by
---------------
resolution of its Board of Directors or by a person authorized to act by Board
resolution.
8.04 INDEMNITY. The Employer agrees it will indemnify and save harmless
---------
the Board of Directors, individual Trustee(s), and the members of the
Administration Committee, and each of them, from and against any and all loss
resulting from liability to which the Board of Directors, individual Trustee(s),
and the Administration Committee, or the members of the Board of Directors and
Administration Committee, may be subjected by reason of any act or conduct
(except willful or reckless misconduct) in their official capacities in the
administration of this Plan or Trust or both, including all expenses reasonably
incurred in their defense, in case the Employer fails to provide such defense.
The indemnification provisions of this Section 8.04 shall not relieve the Board
of Directors, individual Trustee(s), or any members of the Administration
Committee from any liability each may have under the Act for breach of a
fiduciary duty.
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ARTICLE IX
ADMINISTRATION COMMITTEE
9.01 APPOINTMENT OF COMMITTEE. The Employer shall appoint an
------------------------
Administration Committee to administer the Plan, the members of which may or may
not be Participants in the Plan.
9.02 TERM. Each member of the Administration Committee shall serve until
----
his successor is appointed. Any member of the Administration Committee may be
removed by the Board of Directors, with or without cause, which shall have the
power to fill any vacancy which may occur. An Administration Committee member
may resign upon written notice to the Employer.
9.03 COMPENSATION. The members of the Administration Committee shall
------------
serve without compensation for services as such, but the Employer shall pay all
expenses, including the expenses for any bond required under Act (S) 412. To
the extent such expenses are not paid by the Employer, they shall be paid by the
Trustee from the Trust Fund.
9.04 POWERS OF ADMINISTRATION COMMITTEE. The Administration Committee
----------------------------------
shall have the following powers and duties, which it shall exercise under the
Plan in a uniform and nondiscriminatory manner:
(a) To direct the administration of the Plan in accordance with the
provisions herein set forth;
(b) To adopt rules of procedure and regulations necessary for the
administration of the Plan provided the rules are not inconsistent with the
terms of the Plan;
(c) To determine all questions with regard to rights of Employees,
Participants, and Beneficiaries under the Plan, including but not limited
to rights of eligibility of an Employee to participate in the Plan, the
value of a Participant's Accrued Benefit, and the Accrued Benefit of each
Participant;
(d) To enforce the terms of the Plan and the rules and regulations it
adopts;
(e) To direct the Trustee as respects the crediting and distribution
of the Trust and all other matters within its discretion as provided in the
Trust Agreement;
(f) To review and render decisions respecting a claim for (or denial
of a claim for) a benefit under the Plan;
(g) To furnish the Employer with information which the Employer may
require for tax or other purposes;
44
<PAGE>
(h) To engage the service of counsel (who may, if appropriate, be
counsel for the Employer) and agents whom it may deem advisable to assist
it with the performance of its duties;
(i) To prescribe procedures to be followed by distributees in
obtaining benefits;
(j) To receive from the Employer and from Employees such information
as shall be necessary for the proper administration of the Plan;
(k) To receive and review reports of the financial condition and of
the receipts and disbursements of the Trust Fund from the Trustee;
(l) To establish a nondiscriminatory policy which the Trustee shall
observe in making loans, if any, to Participants;
(m) To maintain, or cause to be maintained, separate Accounts in the
name of each Participant to reflect each Participant's Accrued Benefit
under the Plan;
(n) To select a secretary, who need not be a member of the
Administration Committee;
(o) To interpret and construe the Plan;
(p) To select the issuing company or companies from which insurance
contracts, if any, shall be purchased as provided herein; and to determine
the form, type, and kind of such contract;
(q) To engage the services of an Investment Manager or Managers (as
defined in Act (S) 3(38)), each of whom shall have full power and authority
to manage, acquire or dispose of (or direct the Trustee with respect to
such acquisition or disposition) any plan asset under its control; and
(r) To direct the Trustee in the investment, reinvestment, and
disposition of the Trust Fund as provided in the Trust Agreement.
9.05 MANNER OF ACTION. The decision of a majority of the members of the
----------------
Administration Committee appointed and qualified shall control. In case of a
vacancy in the membership of the Administration Committee, the remaining members
of the Administration Committee may exercise any and all of the powers,
authorities, duties, and discretions conferred upon such Administration
Committee pending the filling of the vacancy. The Administration Committee may,
but need not, call or hold formal meetings. Any decisions made or action taken
pursuant to written approval of a majority of the then members shall be
sufficient. The Administration Committee shall maintain adequate records of its
decisions.
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<PAGE>
9.06 AUTHORIZED REPRESENTATIVE. The Administration Committee may
-------------------------
authorize any one of its members, or its secretary, to sign on its behalf any
notice, directions, applications, certificates, consents, approvals, waivers,
letters, or other documents. The Administration Committee must evidence this
authority by an instrument signed by all its respective members and filed with
the Trustee.
9.07 NONDISCRIMINATION. The Administration Committee shall administer the
-----------------
Plan in a uniform, nondiscriminatory manner for the exclusive benefit of the
Participants and their Beneficiaries.
9.08 INTERESTED MEMBER. No member of the Administration Committee may
-----------------
decide or determine any matter concerning the distribution, nature, or method of
settlement of his own benefits under the Plan unless there is only one person
acting alone in the capacity as the Administration Committee.
9.09 FUNDING POLICY. The Administration Committee shall review, not less
--------------
often than annually, all pertinent Employee information and Plan data in order
to establish the funding policy of the Plan and to determine the appropriate
methods of carrying out the Plan's objectives. The Administration Committee
shall communicate annually to the Trustee and to any Plan Investment Manager the
Plan's short-term and long-term financial needs so investment policy can be
coordinated with Plan financial requirements.
9.10 INDIVIDUAL STATEMENT. As soon as practicable after the Valuation
--------------------
Date of each Plan Year but within the time prescribed by the Act and the
regulations under the Act, the Administration Committee will deliver to each
Participant (and to each Beneficiary) a statement reflecting the condition of
his Accrued Benefit in the Trust as of that date and such other information the
Act requires be furnished the Participant or Beneficiary. No Participant,
except a member of the Administration Committee, shall have the right to inspect
the records reflecting the Account of any other Participant.
9.11 BOOKS AND RECORDS. The Administration Committee shall maintain, or
-----------------
cause to be maintained, records which will adequately disclose at all times the
state of the Trust Fund and of each separate interest therein. The books,
forms, and methods of accounting shall be the responsibility of the
Administration Committee.
9.12 UNCLAIMED ACCOUNT PROCEDURE. Neither the Trustee nor the
---------------------------
Administration Committee shall be obliged to search for, or ascertain the
whereabouts of, any Participant or Beneficiary. The Administration Committee,
by certified or registered mail addressed to his last known address of record
with the Administration Committee or the Employer, shall notify any Participant
or Beneficiary that he is entitled to a distribution under this Plan, and the
notice shall quote the provisions of this Section. If the Participant or
Beneficiary fails to claim his distributive share or make his whereabouts known
in writing to the Administration Committee within six (6) months from the date
of mailing of the notice, or before this Plan is terminated or discontinued,
46
<PAGE>
whichever should first occur, the Administration Committee shall direct the
Trustee to segregate the Participant's unclaimed Accrued Benefit in a segregated
interest bearing Account in the name of the Participant or Beneficiary. The
Administration Committee shall then notify the Social Security Administration of
the Participant's (or Beneficiary's) failure to claim the distribution to which
he is entitled. The Administration Committee shall request the Social Security
Administration to notify the Participant (or Beneficiary) in accord with the
procedures it has established for this purpose. The segregated Account shall be
entitled to all income it earns and shall bear all expense or loss it incurs.
47
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ARTICLE X
PARTICIPANT ADMINISTRATIVE PROVISIONS
10.01 BENEFICIARY DESIGNATION. Any Participant may from time to time
-----------------------
designate, in writing, any person or persons, contingently or successively, to
whom the Trustee shall pay his Accrued Benefit in the event of his death. A
Participant's Beneficiary designation shall not be valid unless the
Participant's spouse consents to the Beneficiary designation. A Participant's
Beneficiary designation does not require spousal consent if the Participant's
spouse is the Participant's designated Beneficiary, or if the Participant and
his spouse were not married throughout the one-year period ending on the date of
the Participant's death. The spousal consent shall be in a manner consistent
with (S) 401(a)(11) and (S) 417(a)(2)(A) of the Code, shall be in writing, shall
acknowledge the effect of the consent, and shall be witnessed by a notary public
or the Plan Administrator (or his representative). The Administration Committee
shall prescribe the form for the written designation of Beneficiary and, upon
the Participant's filing the form with the Administration Committee, it
effectively shall revoke all designations filed prior to that date by the same
Participant.
10.02 NO BENEFICIARY DESIGNATION. If a Participant fails to name a
--------------------------
Beneficiary in accordance with Section 10.01, or if the Beneficiary named by a
Participant predeceases him or dies before complete distribution of the
Participant's Accrued Benefit, then the Trustee shall pay the Participant's
Accrued Benefit in accordance with Article VII hereof in the following order of
priority:
(a) To the Participant's surviving spouse;
(b) To the Participant's surviving children, including adopted
children, in equal shares;
(c) To the Participant's surviving parents, in equal shares; or
(d) To the legal representative of the estate of the last to die of
the Participant and his Beneficiary.
The Administration Committee shall direct the Trustee as to the method and
to whom the Trustee shall make payment under this Section 10.02.
10.03 PERSONAL DATA TO ADMINISTRATION COMMITTEE. Each Participant and
-----------------------------------------
Beneficiary must furnish to the Administration Committee evidence, data, or
information as the Administration Committee considers necessary or desirable for
the purpose of administering the Plan. The provisions of this Plan are
effective for the benefit of each Participant upon the condition precedent that
each Participant will furnish promptly full, true, and complete evidence, data,
and information when requested by the Administration Committee, provided the
Administration Committee shall advise each Participant of the effect of his
failure to comply with its request.
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10.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary of
------------------------
a deceased Participant shall file with the Administration Committee, in writing,
his post office address, and each subsequent change of such post office address.
Any payment or distribution hereunder, and any communication addressed to a
Participant or his Beneficiary, mailed to the last address filed with the
Administration Committee, or if no such address has been filed, then to the last
address indicated on the records of the Employer, shall be deemed to have been
delivered to the Participant or his Beneficiary on the date that such
distribution or communication is deposited in the United States Mail, postage
prepaid.
10.05 ASSIGNMENT OR ALIENATION. Subject to Code (S) 414(p) relating to
------------------------
qualified domestic relations orders, no benefit payable under the Plan shall be
subject in any manner to alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, including any such liability which is for alimony or
other payments for the support of a spouse or former spouse, or for any other
relative of the Participant, prior to actually being received by the person
entitled to the benefit under the terms of the Plan. The Trust Fund shall not
in any manner be liable for, or subject to, the debts, contracts, liabilities,
engagements, or torts of any person entitled to benefits hereunder.
10.06 LITIGATION AGAINST THE TRUST. If any legal action which is filed
----------------------------
against the Trustee, Board of Directors, or the Administration Committee, or
against any member or members of the Administration Committee or Board of
Directors, by or on behalf of any Participant or Beneficiary, results adversely
to the Participant or to the Beneficiary, the Trustee shall reimburse itself,
the Board of Directors, Administration Committee, and any member or members of
the Administration Committee or Board of Directors, all costs and fees expended
by it or them by surcharging all costs and fees against the same payable under
the Plan to the Participant or to the Beneficiary, but only to the extent a
court of competent jurisdiction specifically authorizes and directs any such
surcharges.
10.07 INFORMATION AVAILABLE. Any Participant in the Plan or any
---------------------
Beneficiary may examine copies of the summary plan description, the latest
annual report, any bargaining agreement, this Plan, contracts, or any other
instrument under which the Plan was established or is operated. The
Administration Committee will maintain all of the items listed in this Section
in its office, or in such other place or places as may be designated from time
to time in order to comply with the regulations issued under the Act, for
examination during reasonable business hours. Upon the written request of a
Participant or Beneficiary, the Administration Committee shall furnish him with
a copy of any item listed in this Section. The Administration Committee may
make a reasonable charge to the requesting person for the copy so furnished.
10.08 BENEFICIARY'S RIGHT TO INFORMATION. A Beneficiary's right to (and
----------------------------------
the Administration Committee's duty to provide to the Beneficiary) information
or data concerning the Plan shall not arise until he first becomes entitled to
receive a benefit under the Plan.
49
<PAGE>
10.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Administration
---------------------------------------
Committee shall provide adequate notice in writing to any Participant or to any
Beneficiary ("Claimant") whose claim for benefits under the Plan has been
denied. The Administration Committee's notice to the Claimant shall set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which the
Administration Committee based its denial;
(c) A description of any additional material and information needed
for the Claimant to perfect his claim and an explanation of why the
material or information is needed;
(d) A statement that the Claimant may;
(i) Request a review upon written application to the
Administration Committee;
(ii) Review pertinent Plan documents; and
(iii) Submit issues and comments in writing; and
(e) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Administration Committee within
seventy-five (75) days after receipt of the Administration Committee's
notice of denial of benefits. The Administration Committee's notice must
further advise the Claimant that his failure to appeal the action to the
Administration Committee in writing within the seventy-five (75)-day period
will render the Administration Committee's determination final, binding,
and conclusive.
If the Claimant should appeal to the Administration Committee, he, or his
duly authorized representative, may submit, in writing, whatever issues and
comments he, or his duly authorized representative, feels are pertinent. The
Administration Committee shall re-examine all facts related to the appeal and
make a final determination as to whether the denial of benefits is justified
under the circumstances. The Administration Committee shall advise the Claimant
of its decision within sixty (60) days of the Claimant's written request for
review, unless special circumstances (such as a hearing) would make a rendering
of a decision within the sixty (60) day limit infeasible, but in no event shall
the Administration Committee render a decision respecting a denial for a claim
for benefits later than one hundred twenty (120) days after its receipt of a
request for review. A written statement stating the decision on review, the
specific reasons for the decision, and the specific Plan provisions on which the
decision is based shall be mailed or delivered to the Claimant within such sixty
(60) (or one hundred twenty (120)) day period.
50
<PAGE>
The Administration Committee's notice of denial of benefits shall identify
the name of each member of the Administration Committee and the name and address
of the Administration Committee member to whom the Claimant may forward his
appeal.
10.10 NO RIGHTS IMPLIED. Nothing contained in this Plan, or any
-----------------
modification or amendment to the Plan, or in the creation of any benefit, or the
payment of any benefit, shall give any Employee, Participant, or any Beneficiary
any right to continue employment, or any legal or equitable right against the
Employer or any officer, director, or Employee of the Employer, or its agents or
employees, except as expressly provided by the Plan, or the Act.
10.11 NOTICE OF CHANGE OF TERMS. The Plan Administrator, within the time
-------------------------
prescribed by the Act and the applicable regulations, shall furnish all
Participants and Beneficiaries a summary description of any material amendment
to the Plan or notice of discontinuance of the Plan and all other information
required by the Act to be furnished without charge.
51
<PAGE>
ARTICLE XI
FIDUCIARIES' DUTIES
11.01 NAMED FIDUCIARY. The "Named Fiduciary" of the Plan shall consist of
---------------
the following:
(a) The Employer;
(b) The Administration Committee;
(c) The Trustee; and
(d) Such other person or persons that are designated to carry out
fiduciary responsibilities under the Plan in accordance with Section
11.03(c) hereof.
Any person or group of persons may serve in more than one fiduciary capacity
with respect to the Plan. A Named Fiduciary may employ one or more persons to
render advice with regard to any responsibility such Named Fiduciary has under
the Plan.
11.02 ALLOCATION OF RESPONSIBILITIES. The powers and responsibilities of
------------------------------
the Named Fiduciary are hereby allocated as indicated below:
(a) Employer. The Employer shall be responsible for all functions
--------
assigned or reserved to it under the Plan and Trust Agreement. Any
authority assigned or reserved to the Employer under the Plan and Trust
Agreement shall be exercised by resolution of the Employer's Board of
Directors.
(b) Administration Committee. The Administration Committee shall
------------------------
have the responsibility and authority to control the operation and
administration of the Plan in accordance with the terms of the Plan and
Trust Agreement, except with respect to duties and responsibilities
specifically allocated to other fiduciaries. The Administration Committee
shall have the responsibility and authority to control the investment of
the Trust Fund in accordance with the terms of the Plan and Trust
Agreement, except with respect to duties and responsibilities specifically
allocated to other fiduciaries. The Administration Committee shall have the
authority to issue written directions to the Trustee to the extent provided
in the Trust Agreement. The Trustee shall follow the Administration
Committee's directions unless it is clear that the actions to be taken
under those directions would be violations of applicable fiduciary
standards or would be contrary to the terms of the Plan or Trust Agreement.
(c) Trustee. The Trustee shall have the duties and responsibilities
-------
set out in the Trust Agreement, subject, however, to direction by the
Administration Committee as set out in the Trust Agreement.
52
<PAGE>
(d) Allocation. Powers and responsibilities may be allocated to
----------
other fiduciaries in accordance with Section 11.03 hereof, or as otherwise
provided herein or in the Trust Agreement.
This Article is intended to allocate to each Named Fiduciary the individual
responsibility for the prudent execution of the functions assigned to it, and
none of such responsibilities or any other responsibility shall be shared by two
or more of such Named Fiduciaries unless such sharing shall be provided by a
specified provision of the Plan or Trust Agreement.
11.03 PROCEDURES FOR DELEGATION AND ALLOCATION OF RESPONSIBILITIES.
------------------------------------------------------------
Fiduciary responsibilities may be allocated as follows:
(a) The Administration Committee may specifically allocate
responsibilities to a specified member or members of the Administration
Committee.
(b) The Administration Committee may designate a person or persons
other than a Named Fiduciary to carry out fiduciary responsibilities under
the Plan. This authority shall not cause any person or persons employed to
perform ministerial acts and services for the Plan to be deemed fiduciaries
of the Plan.
(c) The Administration Committee may appoint an Investment Manager
or managers to manage (including the power to acquire and dispose of) the
assets of the Plan (or a portion thereof).
(d) If at any time there be more than one Trustee serving under the
Trust Agreement, such Trustees may allocate specific responsibilities,
obligations, or duties among themselves in such manner as they shall agree.
Any allocation of responsibilities pursuant to this Section shall be made by
filing a written notice thereof with the Administration Committee specifically
designating the person or persons to whom such responsibilities or duties are
allocated and specifically setting out the particular duties and
responsibilities with respect to which the allocation or designation is made.
11.04 GENERAL FIDUCIARY STANDARDS. Subject to Section 11.05 hereof, a
---------------------------
Named Fiduciary shall discharge his duties with respect to the Plan solely in
the interest of the Participants and their Beneficiaries,
(a) for the exclusive purpose of providing benefits to Participants
and their Beneficiaries and defraying reasonable expenses of administering
the Plan; and
(b) with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity
and familiar with such matters would use in the conduct of any enterprise
of a like character and with like aims; and
53
<PAGE>
(c) by diversifying the investments of the Plan, other than the
investment in Employer Securities, so as to minimize the risk of large
losses, unless under the circumstances it is clearly prudent not to do so;
and
(d) in accordance with the documents and instruments governing the
Plan, insofar as such documents and instruments are consistent with the
provisions of Title I of the Act.
11.05 LIABILITY AMONG CO-NAMED FIDUCIARIES.
------------------------------------
(a) General. Except for any liability which he may have under the
-------
Act, a fiduciary shall not be liable for the breach of a fiduciary duty or
responsibility by another fiduciary of the Plan except in the following
circumstances:
(i) He participates knowingly in, or knowingly undertakes to
conceal, an act or omission of such other fiduciary, knowing such act
or omission is a breach;
(ii) By his failure to comply with the general fiduciary
standards set out in Section 11.04 hereof in the administration of his
specific responsibilities which give rise to his status as a fiduciary
to commit a breach; or
(iii) He has knowledge of a breach by such other fiduciary and
he does not undertake reasonable efforts under the circumstances to
remedy the breach.
(b) Co-Trustees. In the event that there are two or more Trustees
-----------
serving under the Trust Agreement, each should use reasonable care to
prevent a Co-Trustee from committing a breach of fiduciary responsibility
and they shall jointly manage and control assets of the Plan, except that
in the event of an allocation of responsibilities, obligations, or duties,
a Trustee to whom such responsibilities, obligations, or duties have not
been allocated shall not be liable to any person by reason of this Section,
either individually or as a Trustee, for any loss resulting to the Plan
arising from the acts or omissions on the part of the Trustee to whom such
responsibilities, obligations, or duties have been allocated.
(c) Liability Where Allocation is in Effect. To the extent that
---------------------------------------
fiduciary responsibilities are specifically allocated by a Named Fiduciary,
or pursuant to the express terms hereof, to any person or persons, then
such Named Fiduciary shall not be liable for any act or omission of such
person in carrying out such responsibility except to the extent that the
Named Fiduciary violated Section 11.04 hereof: (i) with respect to such
allocation or designation, (ii) with respect to the establishment or
implementation of the procedure for making such an allocation or
designation, (iii) in continuing the allocation or designation, or (iv) the
Named Fiduciary would otherwise be liable in accordance with this Section
11.05.
54
<PAGE>
(d) Liability of Trustee Following Administration Committee
-------------------------------------------------------
Directions. No Trustee shall be liable for following instructions of the
Administration Committee given pursuant to Section 11.02(b) and (c) hereof.
(e) No Responsibility for Employer Action. Neither the Trustee nor
-------------------------------------
the Administration Committee shall have any obligation or responsibility
with respect to any action required by the Plan to be taken by the
Employer, any Participant or eligible Employee, or the failure of any of
the above persons to act or make any payment or contribution, or to
otherwise provide any benefit contemplated under this Plan, nor shall the
Trustee or the Administration Committee be required to collect any
contribution required under the Plan, or determine the correctness of the
amount of any Employer contribution.
(f) No Duty to Inquire. Neither the Trustee nor the Administration
------------------
Committee shall have any obligation to inquire into or be responsible for
any action or failure to act on the part of others.
(g) Liability of Trustee Where Investment Manager Appointed. If an
-------------------------------------------------------
Investment Manager has been appointed pursuant to Section 11.03(c) hereof,
then neither the Trustee nor the Administration Committee shall be liable
for the acts or omissions of such Investment Manager, or be under any
obligation to invest or otherwise manage any assets of the Plan which are
subject to the management of such Investment Manager.
(h) Successor Fiduciary. No Named Fiduciary shall be liable with
-------------------
respect to any breach of fiduciary duty if such breach was committed before
he became a Named Fiduciary or after he ceased to be a Named Fiduciary.
55
<PAGE>
ARTICLE XII
DISCONTINUANCE, AMENDMENT AND TERMINATION
12.01 DISCONTINUANCE. The Employer shall have the right, at any time, to
--------------
suspend or discontinue its contribution under the Plan.
12.02 AUTHORITY TO AMEND THE PLAN. The Employer may amend the Plan at any
---------------------------
time. However, it shall be impossible, at any time before the satisfaction of
all liabilities hereunder, for any monies to revert to the Employer or be used
for any purpose other than the exclusive benefit of the Participants and persons
claiming through them.
Provided however, that the amendment of the Plan (including any
Restatement) shall not:
(a) revise the vested Accrued Benefit of a Participant determined as
of the later of the date such amendment is adopted, or the date such
amendment becomes effective, if such revised vested Accrued Benefit is less
than that computed under the Plan without regard to such amendment; or
(b) revise the vesting schedule under the Plan unless each
Participant having at least three (3) years or more of Service is permitted
to elect within a reasonable period after the adoption of such amendment to
have his vested Accrued Benefit computed under the Plan without regard to
such amendment. For Plan Years beginning prior to January 1, 1989, the
election described above applies only to Participants having at least five
(5) Years of Service with the Employer. A reasonable period for purposes of
this Section 12.02(b) shall be a period which begins no later than the date
the Plan amendment is adopted and ends no later than the last to occur of
the following:
(i) sixty (60) days after the day the Plan amendment is
adopted;
(ii) sixty (60) days after the day on which the Plan amendment
becomes effective; or
(iii) sixty (60) days after a Participant is issued written
notice of the Plan amendment.
Provided further, no amendment shall:
(a) Authorize or permit any of the Trust Fund (other than the part
which is required to pay taxes and administration expenses) to be used for
or diverted to purposes other than for the exclusive benefit of the
Participants or their Beneficiaries;
56
<PAGE>
(b) Cause or permit any portion of the Trust Fund to revert to or
become the property of the Employer;
(c) Increase the duties or responsibilities of the Trustee or the
Administration Committee without the written consent of the affected
Trustee or the affected member of the Administration Committee.
The Employer shall make all amendments in writing. Each amendment shall state
the date to which it is either retroactively or prospectively effective.
12.03 TERMINATION. The Employer shall have the right to terminate the
-----------
Plan at any time. The Plan shall terminate upon the first to occur of the
following:
(a) The date terminated by action of the Board of Directors;
(b) The date the Employer shall be judicially declared bankrupt or
insolvent; or
(c) The dissolution, merger, consolidation, or reorganization of
the Employer or the sale by the Employer of all or substantially all of its
assets, unless the successor or purchaser makes provisions to continue the
Plan, in which event the successor or purchaser shall be substituted as the
Employer under this Plan.
12.04 VESTING ON TERMINATION OR SUSPENSION. Notwithstanding any other
------------------------------------
provision of the Plan to the contrary, upon the date of full or partial
termination of the Plan, or, upon complete discontinuance of contributions to
the Plan, an affected Participant's right to his Accrued Benefit shall be one
hundred percent (100%) Nonforfeitable. The Administration Committee shall
interpret and administer this Section 12.04 in accord with the intent and scope
of the regulations issued under Code (S) 411(d)(3).
12.05 PROCEDURE ON TERMINATION. In the event of termination of the Plan
------------------------
or permanent discontinuance of Employer contributions, the Employer shall, in
its sole discretion, authorize any one of the following procedures:
(a) Continue Plan. To continue the Plan in operation in all
-------------
respects until the Trustee has distributed all benefits under the Plan,
except that no further persons shall become Participants, no further
Employee contributions shall be made, all Accounts shall be fully vested,
and no further payments shall be made except in distribution of the Trust
Fund and payment of administration expenses; or
(b) Liquidate Plan. To wind up and liquidate the Plan and Trust and
--------------
distribute the assets thereof after deduction of all expenses to the
Participants, Former Participants, and Beneficiaries in accordance with
their respective Accounts as then constituted. If the
57
<PAGE>
Employer makes no election before termination, then this subsection (b)
will govern distribution of the Trust Fund.
12.06 MERGER. The Trustee shall not consent to, or be a party to, any
------
merger or consolidation with another plan, or to a transfer of assets or
liabilities to another plan, unless immediately after the merger, consolidation,
or transfer, the surviving Plan provides each Participant a benefit equal to or
greater than the benefit each Participant would have received had the Plan
terminated immediately before the merger, consolidation, or transfer.
12.07 NOTICE OF CHANGE OF TERMS. The Administration Committee, within the
-------------------------
time prescribed by the Act and applicable regulations, shall furnish all
Participants and Beneficiaries a summary description of any material amendment
to the Plan or notice of discontinuance of the Plan and all other information
required by the Act to be furnished without charge.
12.08 INITIAL QUALIFICATION. Notwithstanding any other provisions of this
---------------------
Plan, the Employer's adoption of this Plan is subject to the condition precedent
that the Plan initially shall be approved and deemed qualified by the Internal
Revenue Service as satisfying the requirements of (S) 401(a) of the Code and
that the Trust shall be entitled to exemption under the provisions of (S)
501(a). In the event the Employer shall fail to secure such initial
determination, the contributions made by the Employer together with any income
received or accrued thereon less any expenses paid shall be returned to the
Employer and the Plan and Trust shall terminate. No Participant or Beneficiary
shall have any right or claim to the Trust Fund or to any benefit under the Plan
before the Internal Revenue Service initially determines that the Plan and Trust
qualify under the provisions of (S)(S) 401(a) and 501(a) of the Code.
12.09 REVERSION OF EXCESS ACCOUNT. Notwithstanding any provisions
---------------------------
contained herein to the contrary, the Employer reserves the right to recover
upon the termination of the Plan and Trust Fund any amounts held in an excess
account that cannot be allocated to the accounts of Participants and their
Beneficiaries in the year of termination because of the limitations contained in
Article III of the Plan and (S) 415 of the Code after the satisfaction of all
fixed and contingent obligations to Participants and their Beneficiaries under
the Plan.
58
<PAGE>
ARTICLE XIII
THE TRUST
13.01 PURPOSE OF THE TRUST FUND. A Trust Fund has been created and will
-------------------------
be maintained for the purposes of the Plan, and the assets thereof shall be
invested in accordance with the terms of the Trust Agreement. The primary
purpose of the Plan is for the investment in Employer Securities. The Trustee
will apply contributions to pay any outstanding obligations of the Trust
incurred for the purchase of Employer Securities or they may be applied to
purchase additional Employer Securities from current shareholders, treasury
shares, or newly issued shares from the Company. All contributions will be paid
into the Trust Fund, and all benefits under the Plan will be paid from the Trust
Fund.
13.02 APPOINTMENT OF TRUSTEE. Trustee(s) shall be appointed by the Board
----------------------
of Directors to administer the Trust Fund. The Trustee's obligations, duties,
and responsibilities shall be governed solely by the terms of the Trust
Agreement.
13.03 EXCLUSIVE BENEFIT OF PARTICIPANTS. Subject to Sections 3.04 and
---------------------------------
12.08 hereof, the Trust Fund will be used and applied only in accordance with
the provisions of the Plan to provide the benefits thereof, and no part of the
corpus or income of the Trust Fund shall be used for or diverted to purposes
other than for the exclusive benefit of the Participants and their Beneficiaries
and with respect to expenses of administration. Notwithstanding the preceding
sentence, as provided in Section 12.09 hereof, the Employer reserves the right
to recover any amounts held in an excess account at the termination of the Trust
Fund that cannot be allocated to the accounts of Participants and their
Beneficiaries in the year of termination because of the limitations contained in
Article III of the Plan and (S) 415 of the Code.
13.04 BENEFITS SUPPORTED ONLY BY THE TRUST FUND. Any person having any
-----------------------------------------
claim under the Plan will look solely to the assets of the Trust Fund for
satisfaction.
59
<PAGE>
ARTICLE XIV
TOP HEAVY RULES
14.01 MINIMUM EMPLOYER CONTRIBUTION. If this Plan is top heavy in any
-----------------------------
Plan Year, the Plan guarantees a minimum contribution (subject to the provisions
of this Article XIV) of three percent (3%) of Compensation for each Non-Key
Employee who is a Participant employed by the Employer on the Valuation Date of
the Plan Year, without regard to Hours of Service completed by such Participant
during the Plan Year. The Plan satisfies the guaranteed minimum contribution
for the Non-Key Employee if the Non-Key Employee's contribution rate is at least
equal to the minimum contribution. For purposes of this paragraph, a Non-Key
Employee Participant includes any Employee otherwise eligible to participate in
the Plan but who is not a Participant because his Compensation does not exceed a
specified level.
If the contribution rate for the Key Employee with the highest contribution
rate is less than three percent (3%), the guaranteed minimum contribution for
Non-Key Employees shall equal the highest contribution rate received by a Key
Employee. The contribution rate is the sum of Employer contributions (not
including Employer contributions to Social Security) and forfeitures allocated
to the Participant's Account for the Plan Year divided by his Compensation for
the Plan Year. For purposes of determining the minimum contribution, the
Administration Committee shall consider contributions made to any plan pursuant
to a salary reduction agreement or similar arrangement as Employer contributions
with respect to Highly Compensated Employees, but shall not consider such
contributions as Employer contributions with respect to non-Highly Compensated
Employees. To determine the contribution rate, the Administration Committee
shall consider all qualified top heavy defined contribution plans maintained by
the Employer as a single plan.
14.02 ADDITIONAL CONTRIBUTION. If the contribution rate for the Plan Year
-----------------------
with respect to a Non-Key Employee described in Section 14.01 is less then the
minimum contribution, the Employer will increase its contribution for such
Employee to the extent necessary so his contribution rate for the Plan Year will
equal the guaranteed minimum contribution. The Administration Committee shall
allocate the additional contribution to the Account of the Non-Key Employee for
whom the Employer makes the contribution.
14.03 DETERMINATION OF TOP HEAVY STATUS. The Plan is top heavy for a Plan
---------------------------------
Year if the top heavy ratio as of the Determination Date exceeds sixty percent
(60%). The top heavy ratio is a fraction, the numerator of which is the sum of
the present value of Accrued Benefits of all Key Employees as of the
Determination Date, the contributions due as of the Determination Date, and
distributions made within the five (5) Plan Year period ending on the
Determination Date, and the denominator of which is a similar sum determined for
all Employees. The Administration Committee shall calculate the top heavy ratio
by disregarding the Accrued Benefit of any Non-Key Employee who was formerly a
Key Employee. The Administration Committee shall calculate the top heavy ratio
by disregarding the Accrued Benefit (including distributions, if any, of the
Accrued Benefit) of an individual who has not performed any service for the
Employer during the five (5)
60
<PAGE>
Plan Year period ending on the Determination Date. The Administration Committee
shall calculate the top heavy ratio, including the extent to which it must take
into account distributions, rollovers and transfers, in accordance with Code (S)
416 and the regulations under that Code section.
If the Employer maintains other qualified plans (including a simplified
employee pension plan), this Plan is top heavy only if it is a part of the
Required Aggregation Group, and the top heavy ratio for both the Required
Aggregation Group and the Permissive Aggregation Group exceeds sixty percent
(60%). The Administration Committee will calculate the top heavy ratio in the
same manner as required by the first paragraph of this Section 14.03, taking
into account all plans within the Aggregation Group. To the extent the
Administration Committee must take into account distributions to a
Participant, the Administration Committee shall include distributions from a
terminated plan which would have been part of the Required Aggregation Group if
it were in existence on the Determination Date. The Administration Committee
shall calculate the present value of Accrued Benefits and the other amounts the
Administration Committee must take into account under defined benefit plans or
simplified employee pension plans included within the group in accordance with
the terms of those plans, Code (S) 416 and the regulations under that Code
section. If an aggregated plan does not have a valuation date coinciding with
the Determination Date, the Administration Committee shall value the Accrued
Benefits in the aggregated plan as of the most recent valuation date falling
within the twelve-month period ending on the Determination Date. The
Administration Committee shall calculate the top heavy ratio with reference to
the Determination Dates that fall within the same calendar year.
14.04 LIMITATION ON ALLOCATIONS. If, during any Limitation Year, this
-------------------------
Plan is top heavy, the Administration Committee shall apply the limitations of
Article III to a Participant by substituting "100%" for "125%" each place it
appears in Section 3.06. This Section 14.04 shall not apply if:
(a) The contribution rate for a Non-Key Employee who participates
only in the defined contribution plan(s) would satisfy Section 14.01 if the
Administration Committee substituted four percent (4%) for three percent
(3%).
(b) A Non-Key Employee who participates in the top heavy defined
benefit plan(s) receives an extra minimum contribution or benefit which
satisfies Code (S) 416(h)(2); and
(c) The top heavy ratio does not exceed ninety percent (90%).
14.05 DEFINITIONS. For purposes of applying the provisions of this
-----------
Article XIV:
(a) "Key Employee" shall mean, as of any Determination Date, any
Employee or former Employee (or Beneficiary of such Employee) who, at any
time during the Plan Year (which includes the Determination Date) or during
the preceding four (4) Plan Years, is an officer (having annual
Compensation in excess
61
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of 150% of the Code (S) 415(c)(1)(A) limitation in effect for any such Plan
Years) of the Employer, one of the Employees (having annual Compensation in
excess of the Code (S) 415(c)(1)(A) limitation in effect for any such Plan
Years) owning the ten (10) largest interests in the Employer, a more than
five percent (5%) owner of the Employer, or a more than one percent (1%)
owner of the Employer who has annual Compensation of more than $150,000.
The constructive ownership rules of Code (S) 318 (or the principles of that
section, in the case of an unincorporated Employer,) will apply to
determine ownership in the Employer. The Administration Committee will make
the determination of who is a Key Employee in accordance with Code (S)
416(i) and the regulations under that Code section.
(b) "Non-Key Employee" is an Employee who does not meet the
definition of Key Employee.
(c) "Required Aggregation Group" means:
(1) Each qualified plan of the Employer in which at least one
(1) Key Employee participates; and
(2) Any other qualified plan of the Employer which enables a
plan described in (1) to meet the requirements of Code (S) 401(a)(4)
or Code (S) 410.
(d) "Permissive Aggregation Group" is the Required Aggregation Group
plus any other qualified plans maintained by the Employer, but only if such
group would satisfy in the aggregate the requirements of Code (S) 401(a)(4)
and Code (S) 410. The Administration Committee shall determine which plans
to take into account in determining the Permissive Aggregation Group.
(e) "Employer" shall mean all the members of a controlled group of
corporations (as defined in Code (S) 414(b)), of a commonly controlled
group of trades or businesses (whether or not incorporated) (as defined in
Code (S) 414(c)), or an affiliated service group (as defined in Code (S)
414(m)), of which the Employer is a part. However, the Administration
Committee shall not aggregate ownership interests in more than one member
of a related group to determine whether an individual is a Key Employee
because of his ownership interest in the Employer.
(f) "Determination Date" for any Plan Year is the Valuation Date of
the preceding Plan Year or, in the case of the first Plan Year of the Plan,
the Valuation Date of that Plan Year.
14.06 MINIMUM VESTING. For any Plan Year in which this Plan is top heavy,
---------------
the minimum vesting schedule will automatically apply to the Plan, unless the
vesting schedule specified in Section 5.05 of the Plan results in more rapid
vesting for Participants.
62
<PAGE>
If the minimum vesting schedule automatically applies, it shall apply to
all benefits within the meaning of (S) 411(a)(7) of the Code except those
attributable to Employee contributions, including benefits accrued before the
effective date of Code (S) 416 and benefits accrued before the Plan became top
heavy. Further, no reduction in vested benefits may occur in the event the
Plan's status as top heavy changes for any Plan Year. However, this Section
does not apply to the Accrued Benefit of any Employee who does not have an Hour
of Service after the Plan has initially become top heavy, and such Employee's
Accrued Benefit attributable to Employer contributions and forfeitures will be
determined without regard to this Section.
The nonforfeitable interest of each Employee in his or her Accrued Benefit
attributable to Employer Contributions shall be determined on the basis of the
following:
20% vesting after 2 years of service
40% vesting after 3 years of service
60% vesting after 4 years of service
80% vesting after 5 years of service
100% vesting after 6 years of service
Should the Plan cease to be top heavy, the above-stated vesting schedule shall
revert to that stated in Article V subject to the conditions of Article XII and
it shall be deemed that all Participants having three (3) or more years of
Service shall have elected to retain the schedule stated in this Section if it
results in more rapid vesting.
14.07 NONAPPLICATION OF THIS ARTICLE. If the Participant is provided with
------------------------------
the minimum benefit required by (S) 416 of the Code which is subject to the
above-stated vesting schedule in another plan of the Employer, the provisions of
this Article XIV will have no application.
63
<PAGE>
ARTICLE XV
MISCELLANEOUS
15.01 EXECUTION OF RECEIPTS AND RELEASES. Any payment to any Participant,
----------------------------------
or to his legal representative or Beneficiary, in accordance with the provisions
of the Plan, shall to the extent thereof be in full satisfaction of all claims
hereunder against the Plan and Trust. The Administration Committee may require
such a Participant, legal representative, or Beneficiary, as a condition
precedent to such payment, to execute a receipt and release therefor in such
form as it shall determine.
15.02 NO GUARANTEE OF INTERESTS. Neither the Trustee, the Administration
-------------------------
Committee, nor the Employer guarantee the Trust Fund from loss or depreciation.
The Employer does not guarantee the payment of any money which may be due or may
become due to any person from the Trust Fund. The liability of the
Administration Committee and the Trustee to make any payment from the Trust Fund
is limited to the then available assets of the Trust.
15.03 PAYMENT OF EXPENSES. All expenses incident to the administration,
-------------------
termination, protection of the Plan and Trust, including but not limited to
legal, accounting, and Trustee fees, shall be paid by the Employer, except that
in case of failure of the Employer to pay the expenses, they will be paid from
the Trust Fund, and until paid, shall constitute a first and prior claim and
lien against the Trust Fund.
15.04 EMPLOYER RECORDS. Records of the Employer as to an Employee's or
----------------
Participant's period of employment, termination of employment and the reason
therefor, leaves of absence, re-employment, and compensation will be conclusive
on all persons, unless determined to be incorrect.
15.05 INTERPRETATIONS AND ADJUSTMENTS. To the extent permitted by law, an
-------------------------------
interpretation of the Plan and a decision of any matter within the Named
Fiduciary's discretion made in good faith is binding on all persons. A
misstatement or other mistake of fact shall be corrected when it becomes known
and the person responsible shall make such adjustment on account thereof as he
considers equitable and practicable.
15.06 UNIFORM RULES. In the administration of the Plan, uniform rules
-------------
will be applied to all Participants similarly situated.
15.07 EVIDENCE. Evidence required of anyone under the Plan may be by
--------
certificate, affidavit, document, or other information which the person acting
on it considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
15.08 SEVERABILITY. In the event any provision of the Plan shall be held
------------
to be illegal or invalid for any reason, the illegal or invalid provisions of
the Plan shall be fully severable and the
64
<PAGE>
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included herein.
15.09 NOTICE. Any notice required to be given herein by the Trustee, the
------
Employer, or the Administration Committee, shall be deemed delivered, when (a)
personally delivered, or (b) placed in the United States mail, postage prepaid,
in an envelope addressed to the last known address of the person to whom the
notice is given.
15.10 WAIVER OF NOTICE. Any person entitled to notice under the Plan may
----------------
waive the notice.
15.11 SUCCESSORS. The Plan shall be binding upon all persons entitled to
----------
benefits under the Plan, their respective heirs and legal representatives, upon
the Employer, its successors and assigns, and upon the Trustee, the
Administration Committee, and their successors.
15.12 HEADINGS. The titles and headings of Articles and Sections are
--------
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
15.13 GOVERNING LAW. All questions arising with respect to the provisions
-------------
of this Agreement shall be determined by application of the laws of the State of
North Carolina except to the extent North Carolina law is preempted by Federal
statute.
Signed the ____ day of __________________, 1999, effective as of January 1,
1999, providing that the closing of the initial public offering of common stock
of First Community Financial Corporation occurs on or before December 31, 1999.
COMMUNITY SAVINGS BANK, INC.
By: _________________________________________
President
ATTEST:
______________________________
_____________ Secretary
65
<PAGE>
EMPLOYEE STOCK OWNERSHIP TRUST
OF
COMMUNITY SAVINGS BANK, INC.
Prepared By:
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Greensboro and Raleigh, North Carolina
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS................................................................ 1
TITLE AND DESCRIPTIONS.................................................. 2
1.01 TITLE.................................................... 2
-----
1.02 TERMS DEFINED IN PLAN.................................... 2
---------------------
1.03 WORD USAGE............................................... 2
----------
PLAN AND TRUST COMPLEMENTARY............................................ 3
2.01 COMPLEMENTARY............................................ 3
-------------
2.02 INTENT TO QUALIFY........................................ 3
-----------------
CONTRIBUTIONS........................................................... 4
3.01 CONTRIBUTIONS............................................ 4
-------------
3.02 COMMINGLING OF FUNDS..................................... 4
--------------------
PAYMENTS FROM TRUST FUND................................................ 5
4.01 DISTRIBUTIONS............................................ 5
-------------
4.02 DIRECTION BY PLAN ADMINISTRATOR.......................... 5
-------------------------------
4.03 TRUST FUND FOR EXCLUSIVE BENEFIT OF PARTICIPANTS......... 5
------------------------------------------------
4.04 LIABILITY FOR PAYMENTS................................... 5
----------------------
4.05 RETURN OF EMPLOYER CONTRIBUTIONS......................... 5
--------------------------------
4.06 PAYMENT IN THE EVENT OF DISABILITY OR INCAPACITY......... 5
------------------------------------------------
INVESTMENT OF TRUST FUND................................................ 7
5.01 INVESTMENTS.............................................. 7
-----------
5.02 INVESTMENT MANAGER....................................... 7
------------------
5.03 DIRECTION OF INVESTMENTS................................. 8
------------------------
5.04 SEPARATE INVESTMENT ACCOUNTS............................. 9
----------------------------
5.05 INVESTMENT IN POOLED FUND................................ 9
-------------------------
POWERS OF THE TRUSTEE................................................... 10
6.01 INVESTMENT POWERS........................................ 10
-----------------
6.02 ANCILLARY TRUSTEE........................................ 12
-----------------
ADMINISTRATIVE PROVISIONS............................................... 13
7.01 ACCOUNTS AND RECORDS..................................... 13
--------------------
7.02 INTENTION TO QUALIFY..................................... 13
--------------------
7.03 PLAN ADMINISTRATOR ACTION................................ 13
-------------------------
7.04 VALUATION OF TRUST....................................... 13
------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7.05 EMPLOYER ACTION.......................................... 13
---------------
7.06 RELIANCE ON WRITTEN INSTRUMENT........................... 14
------------------------------
7.07 LIABILITY FOR PAYMENT OF FUNDS........................... 14
------------------------------
7.08 LIABILITY OF TRUSTEE..................................... 14
--------------------
7.09 COURT PROCEEDINGS........................................ 14
-----------------
7.10 PARTIES TO LITIGATION.................................... 14
---------------------
7.11 THIRD PARTY.............................................. 14
-----------
7.12 AUTHORIZATION WITH RESPECT TO TAXES...................... 15
-----------------------------------
7.13 CONSULTATION WITH COUNSEL................................ 15
-------------------------
7.14 NO INTEREST IN EMPLOYER.................................. 15
-----------------------
7.15 FEES AND EXPENSES........................................ 15
-----------------
7.16 BONDING OF TRUSTEE....................................... 15
------------------
7.17 RELATIONSHIP OF FIDUCIARIES.............................. 15
---------------------------
7.18 PRUDENT MAN RULE......................................... 16
----------------
7.19 ALIENATION............................................... 16
----------
7.20 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER
-----------------------------------------------
APPOINTED................................................ 16
---------
7.21 INSURANCE COMPANY PROTECTED.............................. 16
---------------------------
TRUSTEE LIABILITY....................................................... 17
8.01 TRUSTEE LIABILITY........................................ 17
-----------------
SUBSTITUTION OF TRUSTEE................................................. 18
9.01 TRUSTEE.................................................. 18
-------
9.02 RESIGNATION.............................................. 18
-----------
9.03 REMOVAL.................................................. 18
-------
9.04 SUCCESSION OF TRUSTEE.................................... 18
---------------------
9.05 MERGER OF CORPORATE TRUSTEE.............................. 18
---------------------------
AMENDMENT AND TERMINATION............................................... 19
10.01 AMENDMENT................................................ 19
---------
10.02 TERMINATION.............................................. 19
-----------
10.03 SUSPENSION OF CONTRIBUTIONS.............................. 19
---------------------------
10.04 MERGER OR CONSOLIDATION.................................. 19
-----------------------
10.05 REVERSION OF SUSPENSE ACCOUNT............................ 19
-----------------------------
OTHER EMPLOYERS; SUCCESSOR EMPLOYERS.................................... 20
11.01 ADOPTION BY OTHER EMPLOYERS.............................. 20
---------------------------
11.02 CONTINUATION BY EMPLOYER'S SUCCESSOR..................... 20
------------------------------------
MISCELLANEOUS PROVISIONS................................................ 21
12.01 CONTRIBUTIONS NOT RECOVERABLE............................ 21
-----------------------------
12.02 LIMITATIONS ON PARTICIPANTS' RIGHTS...................... 21
-----------------------------------
12.03 INDEMNIFICATION OF INDIVIDUAL TRUSTEE.................... 21
-------------------------------------
12.04 RECEIPT OF RELEASE....................................... 21
------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
12.05 ACCEPTANCE............................................... 21
----------
12.06 ACCOUNTING PERIOD........................................ 21
-----------------
12.07 TITLE OF TRUST ASSETS.................................... 21
---------------------
12.08 NOTICE................................................... 21
------
12.09 HEADINGS................................................. 22
--------
12.10 GOVERNING LAW............................................ 22
-------------
12.11 EXECUTIONS AND COUNTERPARTS.............................. 22
---------------------------
</TABLE>
<PAGE>
EMPLOYEE STOCK OWNERSHIP TRUST
OF
COMMUNITY SAVINGS BANK, INC.
This Agreement by and between COMMUNITY SAVINGS BANK, INC., a North
Carolina corporation (the "Employer" and sometimes referred to herein as the
"Company"), and the undersigned Trustee(s) (the "Trustee").
RECITALS
--------
WHEREAS, COMMUNITY SAVINGS BANK, INC. has adopted an Employee Stock
Ownership Plan for the benefit of its employees;
NOW, THEREFORE, the Employee Stock Ownership Trust of Community Savings
Bank, Inc. is hereby adopted in its entirety so that it shall provide as
follows:
1
<PAGE>
ARTICLE I
TITLE AND DESCRIPTIONS
1.01 TITLE. This Trust Agreement shall be known as the Employee Stock
-----
Ownership Trust of Community Savings Bank, Inc..
1.02 TERMS DEFINED IN PLAN. The definitions set forth in the Plan are
---------------------
hereby incorporated by reference.
1.03 WORD USAGE. Words used in the masculine shall apply to the feminine
----------
where applicable, and wherever the context of the Plan dictates, the plural
shall be read as the singular and the singular as the plural.
2
<PAGE>
ARTICLE II
PLAN AND TRUST COMPLEMENTARY
2.01 COMPLEMENTARY. This Trust Agreement is established effective as of
-------------
the 1st day of January, 1999. The Trustee's rights, powers, titles, duties,
responsibilities, discretions, and immunities shall be governed solely by this
Trust Agreement except as specifically referenced in the provisions of the Plan.
2.02 INTENT TO QUALIFY. The Plan and Trust are intended to satisfy the
-----------------
requirements of Sections 401 and 501 of the Code and the requirements of the
Act, and all provisions hereof shall be construed to that result.
3
<PAGE>
ARTICLE III
CONTRIBUTIONS
3.01 CONTRIBUTIONS. The Trustee shall receive all contributions made to
-------------
it in cash or in other property acceptable to it. All contributions so received
together with the income therefrom and any other increment thereon shall be
held, managed, and administered by the Trustee pursuant to the terms of the Plan
and Trust without distinction between principal and income. The Trustee shall
be accountable to the Employer for the funds contributed to it by the Employer,
but shall have no duty to administer the Plan nor to determine that the
contributions received from the Employer comply with the provisions of the Plan
or that the assets of the Trust are adequate to provide any benefit payable
pursuant to the Plan. The Trustee shall not be obligated to collect any
contributions from the Employer, nor be obligated to see that funds deposited
with it are deposited according to the provisions of the Plan.
3.02 COMMINGLING OF FUNDS. Unless otherwise directed by the Plan
--------------------
Administrator, the Trustee shall hold, invest, and administer the Trust assets
as a single fund without identification of any part of the Trust assets to the
Employer or to any Participant or group of Participants or their Beneficiaries.
4
<PAGE>
ARTICLE IV
PAYMENTS FROM TRUST FUND
4.01 DISTRIBUTIONS. Payments shall be made from the Trust Fund by the
-------------
Trustee to such persons, in such manner, at such times, and in such amounts as
the Plan Administrator shall from time to time direct in writing, provided,
however, the Trustee may withhold compliance with the Plan Administrator's
direction to the extent that, and so long as, the Trustee shall deem such
withholding necessary to insure payment of the Trustee's expenses or to protect
the Trustee against liability for taxes or any other liability.
4.02 DIRECTION BY PLAN ADMINISTRATOR. The Trustee shall not be liable
-------------------------------
for any distribution made or acts done by it pursuant to written directions of
the Plan Administrator. The Trustee shall not be obligated to inquire as to
whether any payee or distributee is entitled to any payment or whether the
distribution is proper or within the terms of the Plan, or as to the manner of
making any payment or distribution. The Trustee shall be accountable only to
the Plan Administrator for any payment or distribution made by it on the order
or direction of the Plan Administrator.
4.03 TRUST FUND FOR EXCLUSIVE BENEFIT OF PARTICIPANTS. Subject to
------------------------------------------------
Section 4.05 hereof, it shall be impossible, at any time, for any part of the
Trust Fund, other than such part as is required to pay taxes and administration
expenses, to revert to the Employer, or to be used for, or diverted to, purposes
other than for the exclusive benefit of the Participants, Former Participants,
or their Beneficiaries prior to the satisfaction of all liabilities under the
Plan. The term "liability" as used herein includes both fixed and contingent
obligations owed to the Participants and their Beneficiaries. It shall be
impossible for the Employer to recover any portion of the Trust Fund other than
such amounts, if any, as may remain in the Trust Fund because of erroneous
actuarial calculations, after the satisfaction of all fixed and contingent
obligations to Participants and their Beneficiaries under the Plan.
4.04 LIABILITY FOR PAYMENTS. The liability of the Trustee to make
----------------------
payments from the Trust Fund is limited to the available assets of the Trust.
4.05 RETURN OF EMPLOYER CONTRIBUTIONS. Notwithstanding any provisions
--------------------------------
herein to the contrary, upon the Employer's request, a contribution which was
made upon a mistake of fact, conditioned upon qualification of the Plan, or upon
deductibility of the contribution under Section 404 of the Code, shall be
returned to the Employer within one year after payment of the contribution,
denial of the qualification, or disallowance of the deduction (to the extent
disallowed), as the case may be.
4.06 PAYMENT IN THE EVENT OF DISABILITY OR INCAPACITY. If any person
------------------------------------------------
entitled to benefits hereunder (the "Payee") shall be under a legal disability,
or, in the sole judgment of the Plan Administrator, shall be unable to apply
such payment in furtherance of his own interest
5
<PAGE>
and advantage, payments hereunder may be made in any one or more of the
following ways as directed by the Plan Administrator:
(a) To the Payee directly;
(b) To the guardian of his person or his estate;
(c) To a relative of the Payee, to be expended for his benefit; or
(d) To the custodian of the Payee under any Uniform Gifts (or
Transfers) to Minors Act.
The Trustee shall not be obligated to determine whether any Payee is a minor or
is so incapacitated, but may rely on the Plan Administrator's directions as to
payment of benefits. The Plan Administrator's determination of minority or
incapacity of the Payee shall be final. Any payment made by the Trustee
pursuant to the powers herein conferred shall operate as a complete discharge of
all obligations of the Trustee and the Plan Administrator, to the extent of the
distributions so made.
6
<PAGE>
ARTICLE V
INVESTMENT OF TRUST FUND
5.01 INVESTMENTS. The Trust Fund, except such estimated amounts as in
-----------
the opinion of the Trustee are required by current payments and expenses, shall
be invested and reinvested by the Trustee without distinction between principal
and income in Employer Securities unless specifically provided to the contrary.
It is specifically acknowledged that the purpose of this Trust is to invest in
Employer Securities as provided in the Act. Subject to the provisions of this
Article V and Article VI hereof, the Trustee is authorized to invest and
reinvest the Trust Fund in such bonds, notes, debentures, mortgages, interest-
bearing accounts and certificates (including those maintained by the Trustee, if
the Trustee is a bank), investment trust certificates, preferred or common
stock, real estate, savings and loan accounts, interest in oil, gas and
minerals, Insurance Contracts, with or without cash surrender value, or in such
other property, real, personal or mixed, either within or without the state of
North Carolina, without being limited by any statute or rule of law regarding
investments by trustees. The Trustee may invest in any common collective trust
fund or pooled investment fund (which could constitute a permissible investment
with respect to the Plan) maintained by any bank (including itself, if the
Trustee is a bank) in North Carolina or in any other state of the United States.
The Trustee may hold any portion of the Trust Fund in cash for a reasonable
period pending investment or payment of expenses or benefits. The Trustee shall
have the further right, to the extent permissible under applicable law and the
Plan, to (a) purchase, sell, exchange, and retain preferred or common stocks or
other marketable obligations, consisting of bonds, debentures, notes,
certificates, or other evidences of indebtedness, issued by an Employer or by an
Affiliate and (b) acquire and hold parcels or real property (and related
personal property) which is leased, or is to be leased, to an Employer or to an
Affiliate. For the purposes of this Section, an Affiliate shall mean any
corporation which is an Affiliate (within the meaning of Section 407(d)(7) of
the Act) of any Employer.
5.02 INVESTMENT MANAGER. The Plan Administrator is given the power to
------------------
appoint one or more Investment Managers (herein so called) to exercise full
investment management authority with respect to all or a portion of the assets
of the Trust Fund and to authorize payment of the fees and expenses of such
Investment Manager from the assets of the Trust Fund. In the event the Plan
Administrator exercises this right, the Plan Administrator shall certify to the
Trustee and such Investment Manager the scope of the duties and responsibilities
of the Investment Manager. Such Investment Manager shall be either (a)
registered as an investment adviser under the Investment Advisers Act of 1940,
(b) a bank, as defined in the Investment Advisers Act of 1940, or (c) an
insurance company qualified to manage, acquire or dispose of plan assets under
the laws of more than one state. Upon its appointment, the Investment Manager
shall certify and acknowledge in writing to the Plan Administrator and the
Trustee that he is a fiduciary with respect to the Plan and Trust, and that he
has assumed the duties and responsibilities conferred upon him by the Plan
Administrator. The duties, responsibilities, and authority of any such
Investment Manager may be revoked or modified by the Plan Administrator at any
time by written notice to such Investment Manager and to the Trustee. Any
Investment Manager duly appointed and authorized by the Plan
7
<PAGE>
Administrator, shall, during the period of his appointment, possess fully and
absolutely those powers, rights, and duties of the Trustee (to the extent
delegated by the Plan Administrator and to the extent permissible under the
terms of this Trust Agreement) with respect to the investment or reinvestment of
that portion of the plan assets over which such Investment Manager has
investment management authority. During any period of time when such Investment
Manager is so appointed and serving, and with respect to those assets of the
Trust Fund over which such Investment Manager exercises investment management
authority, the Trustee's responsibility shall be limited to holding such assets
as a custodian, providing accounting services, disbursing benefits as
authorized, and executing such investment instructions only as directed by such
Investment Manager. The Trustee shall not be responsible for any acts or
omissions of such Investment Manager. Any certificates or other instrument duly
signed by such Investment Manager (or the authorized representative of such
Investment Manager), purporting to evidence any instruction, direction or order
of such Investment Manager with respect to the investment of those assets of the
Plan over which the Investment Manager has investment management authority shall
be accepted by the Trustee as conclusive proof thereof. The Trustee shall also
be fully protected in acting in good faith upon any notice, instruction,
direction, order, certification, opinion, letter, telegram, or other document
believed by the Trustee to be genuine and to be by such Investment Manager (or
the authorized representative of such Investment Manager). The Trustee shall not
be liable for any action taken or omitted by such Investment Manager or for any
mistakes of judgment or other action made, taken or omitted by the Trustee in
good faith upon direction of such Investment Manager.
5.03 DIRECTION OF INVESTMENTS. Notwithstanding any provision contained
------------------------
herein to the contrary, the Plan Administrator shall have the right and power at
any time and from time to time (but shall not be obliged) to direct the Trustee
in writing to purchase, sell, lease, retain, or otherwise act for the Trustee in
regard to any property, real, personal, or mixed, tangible or intangible and the
Trustee shall comply with and carry out such directions without being liable or
responsible in any way for any losses or unfavorable results resulting from its
compliance with such directions; provided that:
(a) So long as, and to the extent that, the Plan Administrator fails
to deliver directions to the Trustee under this Section, the Trustee shall
manage, control, invest, and reinvest the Trust Fund under the powers
granted in Article VI hereof with the same force and effect as if this
Section were not a part of this Agreement.
(b) No person dealing with the Trustee shall be required to determine
whether any sale or purchase by the Trustee has been authorized or directed
by the Plan Administrator, but each person shall be fully protected in
dealing with the Trustee in the same manner as if this Section were not a
part of this Agreement; and
(c) The Plan Administrator shall not direct the Trustee to invest in
the stocks, bonds, notes, debentures, or other obligations of an Employer
or any of its subsidiaries, whether domestic or foreign, nor direct the
purchase of any such investment or any other property from, or sell to, an
Employer or any of its subsidiaries without first obtaining a prior
8
<PAGE>
ruling from the Internal Revenue Service that such purchase or sale would
not adversely affect the qualified status of this Trust under Section
401(a) of the Code. The Trustee, in its sole discretion, may refuse to
comply with any direction of the Plan Administrator which the Trustee deems
to be improper or contrary to the provisions of the Plan or any applicable
Federal or state statutes.
5.04 SEPARATE INVESTMENT ACCOUNTS. The Plan Administrator may direct the
----------------------------
Trustee to maintain separate Investment Accounts (herein so called) for each
Participant and Beneficiary. The Administration Committee may direct the
Trustee as to the investment of each separate Investment Account and the Trustee
shall be fully protected with respect to any investment so made. If separate
Investment Accounts are established, as of the Valuation Date for each
Limitation Year, the Trustee shall allocate and credit the net income (or net
loss) of each Participant's segregated Investment Account solely to such
Investment Account.
5.05 INVESTMENT IN POOLED FUND. If a bank is acting as Trustee, the Plan
-------------------------
Administrator may specifically authorize the Trustee to invest all or any
portion of the assets comprising the Trust Fund in any collective investment
trust which at the time of the investment provides for the pooling of the assets
of plans described in Section 401(a) of the Code. This authorization applies
solely to a collective investment trust the Trustee maintains and only if the
Trustee has received a determination letter from the Internal Revenue Service to
the effect the collective investment trust is exempt from Federal income tax.
The provisions of the collective investment trust agreement, as amended by the
Trustee from time to time, are by this reference incorporated within the Plan
and this Trust. The provisions of the collective investment trust shall govern
any investment of Plan assets in that trust.
9
<PAGE>
ARTICLE VI
POWERS OF THE TRUSTEE
6.01 INVESTMENT POWERS. Subject to the provisions of Article VIII, the
-----------------
Trustee is authorized and empowered, but not by way of limitation, with the
following powers, rights, and duties:
(a) Property Transactions. To sell, exchange, convey, transfer, or
---------------------
dispose of and also to grant options with respect to any property, whether
real or personal, at any time held by it, and any sale may be made by
private contract or by public auction, and no person dealing with the
Trustee shall be bound to see to the application of the purchase money or
to inquire into the validity, expediency, or propriety of any such sale or
other disposition.
(b) Operation and Lease. To retain, manage, operate, repair, and
-------------------
improve and to mortgage or lease for any period and on such terms as the
Trustee shall deem proper any real estate or personal property held by the
Trustee, including power to demolish any buildings or other improvements in
whole or in part; to erect buildings or other improvements; to make leases
that may extend beyond the term of the Trust; and to foreclose, extend,
renew, assign, release or partially release and discharge mortgages or
other liens.
(c) Vote. To vote in person or by proxy, with or without power of
----
substitution, any stocks, bonds, or other securities held in Trust.
(d) Stock Rights. To exercise any options appurtenant to any stocks,
------------
bonds, or other securities for the conversion thereof into other stocks,
bonds or securities, or to exercise any rights to subscribe for additional
stocks, bonds, or other securities and to make any and all necessary
payments thereof; to join in, dissent from, or oppose the reorganization,
recapitalization, consolidation, sale, or merger of corporations or
properties in which it may be interested as Trustee, upon such terms and
conditions as it may deem wise and to accept any securities which may be
issued upon any such reorganization, recapitalization, consolidation, sale,
or merger and thereafter to hold the same.
(e) Bank Trustee: Transaction by Trustee with Itself. If the Trustee
-------------------------------------------------
is a bank, to contract or otherwise enter into transactions between itself
as Trustee and as a bank, between itself as Trustee and the Employer, its
subsidiaries and affiliates or any of them, or between itself as Trustee
and any other institution for which it then, theretofore, or thereafter may
be acting as Trustee, subject to the provisions of the Act.
(f) Borrow. To borrow money from any source in such amounts and upon
------
such terms and for such purposes as the Trustee may determine and in
connection therewith to execute promissory notes, mortgages, or other
obligations and to pledge or mortgage any Trust assets as security.
10
<PAGE>
(g) Cash. To retain in cash so much of the Trust Fund as it may deem
----
advisable to satisfy liquidity needs of the Plan and to deposit any cash
held in the Trust Fund in a bank account without liability for the highest
rate of interest available, including, if a bank is acting as Trustee,
specified authority to invest in deposits of the Trustee.
(h) Investments. To invest and reinvest all or any part of the Trust
-----------
Fund in bonds, debentures, mortgages, notes, common or preferred stocks,
with or without par value, real estate, and such other property as the
Trustee deems proper.
(i) Mineral Investments. To purchase, convey, lease, and otherwise
-------------------
deal with oil, gas and other minerals, mineral rights, and royalties; to
operate and develop oil, gas, and other mineral properties and interest,
including, but not limited to, the power to make and release oil, gas, and
mineral leases and subleases; to make mineral deeds and royalty transfers;
to create, reserve and dispose of overriding royalties, oil payments, gas
payments, and any other interests; to execute division orders and transfer
orders; to enter into development and drilling contracts, operating
agreements and utilization agreements; and to make agreements for present
or future pooling of any and all interests in oil, gas and other minerals.
(j) Agents. To employ and compensate accountants, attorneys, brokers,
------
attorneys-in-fact, attorneys-at-law, tax specialists, appraisers, and other
advisers and agents deemed by the Trustee necessary or appropriate for the
proper administration of the Trust created hereunder.
(k) Nominee. To hold securities or other property in the name of the
-------
Trustee or its nominee, or in another form as it may deem best, with or
without disclosing the trust relationship.
(l) Documents. To make, execute and deliver any and all contracts,
---------
deeds, leases, waivers, releases, guaranties, pledges, conveyances, powers
of attorney, or other instruments necessary or proper for the
accomplishment of any of the powers herein granted.
(m) Litigation. To begin, maintain, or defend any litigation
----------
necessary in connection with the administration of the Plan, except that
the Trustee shall not be obliged or required to do so unless indemnified to
its satisfaction.
(n) Compromise Claims. To compromise, arbitrate, contest, or abandon
-----------------
any claims or demands.
(o) Taxes. To file all tax returns required of the Trustee and pay
-----
any estate, inheritance, income, or other tax, charge or assessment
attributable to any benefit payable under the Plan required of the Trustee;
to defer making payment of any tax, charge, or
11
<PAGE>
assessment if it is indemnified to its satisfaction in the premises; and to
require before making any payment a release or other document from any
lawful taxing authority.
(p) Retention of Funds. To retain any funds or property subject to
------------------
any dispute, and to decline to make payment or delivery of the funds or
property until final adjudication is made by a court of competent
jurisdiction.
(q) Common Funds. To invest in undivided interests, in common with
------------
any other trust, or trusts, however created, or any other individual, or
individuals, including investments in so-called "common funds", or in
partnerships or joint ventures, operated or created by any person, trust,
or corporation.
(r) Loans. To invest in loans to a Participant in accord with the
-----
loan policy established by the Plan Administrator, provided any loan is
adequately secured, bears a reasonable rate of interest, provides for
repayment within a specified time, and otherwise conforms to the
Participant loan exemption provided by the Code.
(s) General Authorization. To exercise all the further rights,
---------------------
powers, options, and privileges granted, provided for, or vested in
trustees generally under applicable Federal and North Carolina laws, as
amended from time to time, it being intended that, except as herein
otherwise provided, the powers conferred upon the Trustee herein shall not
be construed as being in limitation of any authority conferred by law, but
shall be construed as in addition thereto.
Notwithstanding anything in the Plan or Trust to the contrary, the Trustee shall
not be required by any fiduciary to engage in any action, nor make any
investment which constitutes a prohibited transaction or is otherwise contrary
to the provisions of Sections 406, 407, 408, and 2003 of the Act, or which is
otherwise contrary to law or the terms of the Plan or Trust.
6.02 ANCILLARY TRUSTEE. Whenever and as often as the Trustee deems such
-----------------
action desirable, it may by written instrument appoint any person or corporation
in any State of the United States to act as "Ancillary Trustee" with respect to
any portion of the Trust Fund then held or about to be acquired on behalf of the
Trust. Each such Ancillary Trustee shall have such rights, powers, duties, and
discretions as are delegated to it by the Trustee, but shall exercise the same
subject to limitations or further directions of the Trustee as shall be
specified in the instrument evidencing its appointment.
The Ancillary Trustee may resign or may be removed by the Trustee as to all
or any portion of the assets so held at any time or from time to time by written
instrument delivered one to the other, and the Trustee may thereupon appoint
another Ancillary Trustee as successor to whom such assets shall be transferred,
or may itself receive such assets in termination of the Ancillary Trusteeship to
that extent. Each Ancillary Trustee shall be accountable solely to the Trustee.
The
12
<PAGE>
Trustee may pay the Ancillary Trustee reasonable compensation and may
absolve it from any requirement that it post bond or other security.
13
<PAGE>
ARTICLE VII
ADMINISTRATIVE PROVISIONS
7.01 ACCOUNTS AND RECORDS. The Trustee shall maintain accurate records
--------------------
and accounts of all transactions hereunder, which shall be available at all
reasonable times for inspection or audit by any person or persons designated by
the Plan Administrator. If the Plan Administrator so directs, the Trustee shall
submit to the Plan Administrator such interim valuations, reports, or other
information as the Plan Administrator may reasonably require. Within ninety
(90) days following (a) the close of each Plan Year or (b) the effective date of
the removal or resignation of the Trustee, the Trustee shall file with the Plan
Administrator a written account setting forth all transactions effected by it
subsequent to the end of the period for the last previous report and account, in
such form and detail as the Plan Administrator may request. The approval of any
such report and account by the Plan Administrator shall be a full acquittance
and discharge by the Plan Administrator of the Trustee with respect to the
matters therein set forth. Nothing herein contained, however, shall be deemed
to preclude the Trustee from its right to have its accounts judicially settled
by a court of competent jurisdiction, in which event only the Trustee and the
Employer shall be necessary parties.
7.02 INTENTION TO QUALIFY. It is intended that this Trust and Plan
--------------------
constitute a qualified trust under Section 401(a) of the Code and that this
Trust constitutes a tax-exempt trust under Section 501 of the Code, and until
advised to the contrary in writing, the Trustee may assume that the Trust is so
qualified and is entitled to the exemption from Federal income taxes provided
for in said sections. In the event the Trustee at any time believes such
exemption to be uncertain, the Trustee may take such steps and withhold such
payments as it deems necessary to protect itself.
7.03 PLAN ADMINISTRATOR ACTION. The Employer shall promptly notify the
-------------------------
Trustee of the name of the Plan Administrator as of the date of this Agreement
and of any subsequent changes in the Plan Administrator. In the absence of any
notification of changes, the Trustee may assume that the Plan Administrator is
the same as last reported by the Employer to the Trustee. The Plan
Administrator shall furnish the Trustee with all the necessary factual
information required by it to perform its duties as Trustee hereunder, including
a specimen signature of the Plan Administrator. The Trustee shall not be
required to verify the facts so furnished by the Plan Administrator. The
Trustee, in following the directions of the Plan Administrator, is authorized to
act upon the written instructions of the Plan Administrator and shall not be
liable for its acts with respect to payments from the Trust Fund when following
such instructions or directions, or for failure to act in the absence of such
instructions or directions.
7.04 VALUATION OF TRUST. The Trustee shall value the Trust Fund as of
------------------
the end of the Plan Year to determine the fair market value of its assets. The
Trustee shall value the Trust Fund on such other date(s) as may be necessary for
the purpose of the Plan and Trust.
14
<PAGE>
7.05 EMPLOYER ACTION. Any action by an Employer hereunder, pursuant to
---------------
the Plan, shall be evidenced by a certified copy of a resolution of its Board of
Directors, or by written instrument executed by any person authorized by the
Board of Directors to take such action, and the Trustee shall be fully protected
in acting in accordance with such written instrument or resolution delivered to
it.
7.06 RELIANCE ON WRITTEN INSTRUMENT. The Trustee shall be fully
------------------------------
protected in acting upon any instrument, certificate, resolution, instruction,
direction, order, opinion, letter, telegram, or other document believed by it to
be genuine, and to be signed or presented by the proper person or persons, and
the Trustee shall be under no duty to make any investigation or inquiry as to
any statement contained in any such writing but may accept the same as
conclusive evidence of the truth and accuracy of the statements therein
contained.
7.07 LIABILITY FOR PAYMENT OF FUNDS. The Trustee shall not be liable for
------------------------------
its action in making payment or delivery of any cash or other property to any
person at the direction of the Plan Administrator and, in the event of
litigation, the Trustee shall not be liable for declining to make delivery
thereof until final adjudication shall be made in a court of competent
jurisdiction by agreement of the parties. The Trustee, at its discretion, may
bring any action in the nature of an interpleader, but shall not be obligated to
do so.
7.08 LIABILITY OF TRUSTEE. The Trustee shall not be liable for any
--------------------
action taken or omitted upon direction of the Plan Administrator or the
Employer. If at any given time the Plan Administrator or the Employer should
fail to give directions or instructions to the Trustee as provided in this
Agreement, the Trustee shall act or refrain from acting without such directions
or instructions and may exercise its own discretion and judgment as seems
appropriate and advisable under the circumstances in carrying out the purposes
of this Agreement, without liability to the Plan Administrator or the Employer
therefor.
7.09 COURT PROCEEDINGS. The Trustee may institute, maintain, or defend
-----------------
any litigation necessary in connection with the administration of the Trust
Fund, provided, the Trustee shall be under no duty or obligation to do so unless
it shall have been indemnified to its satisfaction against all expenses and
liabilities which it may sustain or reasonably anticipate by reason thereof.
All costs and expenses of litigation for which the Trustee would be liable shall
be paid by the Employer, or if not paid by the Employer, from the Trust Fund.
7.10 PARTIES TO LITIGATION. Except as otherwise provided by the Act,
---------------------
only the Employer, the Plan Administrator, and the Trustee shall be necessary
parties to any court proceeding involving the Trustee or the Trust Fund. No
Participant or Beneficiary shall be entitled to any notice of process unless
required by the Act. Any final judgment entered in any proceeding shall be
binding upon the Employer, the Plan Administrator, the Trustee, Participants,
and Beneficiaries.
7.11 THIRD PARTY. No person dealing with the Trustee shall be obligated
-----------
to see to the proper application of any money paid or property delivered to the
Trustee, or to inquire whether the
15
<PAGE>
Trustee has acted pursuant to any of the terms of the Plan. Each person dealing
with the Trustee may act upon any notice, request, or representation in writing
by the Trustee, or by the Trustee's duly authorized agent, and shall not be
liable to any person whomever in so doing. The certificate of the Trustee that
it is acting in accordance with the Plan shall be conclusive in favor of the
person relying on the certificate.
7.12 AUTHORIZATION WITH RESPECT TO TAXES. The Trustee may pay out of the
-----------------------------------
Trust Fund all real and personal property taxes, income taxes, and other taxes
of any and all kinds levied or assessed under existing or future laws against
the Trust Fund, or against the Trustee by reason of its office. The Trustee is
further authorized, but not required, to withhold from distributions to any
payee such sum as the Trustee may reasonably estimate as necessary to cover
Federal and states taxes for which the Trustee may be liable, which are, or may
be, assessed with regard to the amount distributable to such payee. Prior to
making any payment or distribution hereunder, the Trustee may require such
releases or other documents from any lawful taxing authority and may require
such indemnity from any payee or distributee as the Trustee shall reasonably
deem necessary for its protection.
7.13 CONSULTATION WITH COUNSEL. Trustee may consult with legal counsel,
-------------------------
who may be counsel for the Employer, if appropriate, with respect to any of its
rights, duties, or obligations hereunder.
7.14 NO INTEREST IN EMPLOYER. Neither the creation of this Trust nor
-----------------------
anything contained in this Agreement shall be construed as giving any person
entitled to benefits hereunder or other employee of the Employer any equity or
other interest in the assets, business, or affairs of the Employer.
7.15 FEES AND EXPENSES. The Trustee shall be reimbursed for all of its
-----------------
expenses and shall be paid such reasonable fees as may be agreed upon from time
to time by the Employer and the Trustee. Such fees and compensation shall be
paid from the Trust Fund if not paid by the Employer; provided, however, that
any person who already receives full-time pay from the Employer shall not
receive any fees for his services as Trustee.
7.16 BONDING OF TRUSTEE. The Trustee shall not be required to furnish
------------------
any bond or security for the performance of its powers and duties hereunder,
unless, irrespective of this provision, the Trustee is required to do so by
state or Federal statute or regulation.
7.17 RELATIONSHIP OF FIDUCIARIES. It is the intent of all fiduciaries
---------------------------
under the Plan and Trust that each fiduciary shall be solely responsible for its
own acts or omissions. Except to the extent imposed by the Act or the Code, no
fiduciary shall have the duty to question whether any other fiduciary is
fulfilling all of the responsibilities imposed upon such other fiduciary by the
Act or by any regulations or rulings issued thereunder. No fiduciary shall have
any liability for a breach of fiduciary responsibility of another fiduciary with
respect to the Plan and this Trust unless he participates knowingly in such
breach, knowingly undertakes to conceal such breach, has actual knowledge of
such breach and fails to take reasonable remedial action to remedy said breach
or,
16
<PAGE>
through his negligence in performing his own specific fiduciary responsibilities
which give rise to his status as a fiduciary, has enabled such other fiduciary
to commit a breach of the latter's fiduciary responsibilities.
7.18 PRUDENT MAN RULE. The Trustee, the Plan Administrator, and all
----------------
other Fiduciaries with respect to the Plan and Trust are required to discharge
their duties solely in the interests of Participants and Beneficiaries and for
the exclusive purpose of providing benefits to Participants and Beneficiaries
and defraying reasonable expenses of administration with the care, skill,
prudence, and diligence, under the circumstances then prevailing, that a prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of like character and with like aims by diversifying
the investments so as to minimize the risks of large losses unless under the
circumstances it is clearly prudent not to do so, and in accordance with the
Plan, this Trust Agreement, the rules and directions of the Plan Administrator
and the provisions of the Act.
7.19 ALIENATION. Except as otherwise provided in the Plan, the benefits,
----------
proceeds, payments, or claims of any Participant or Beneficiary payable from the
Trust assets shall not be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution,
or levy of any kind, either voluntary or involuntary, including any such
liability which is for alimony or other payments for support of a spouse or
former spouse. Any attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, garnish, levy, or otherwise dispose of or execute upon any
right or benefit payable hereunder shall be void. The Trust assets shall not in
any manner be liable for or subject to the debts, contracts, liabilities,
engagements, or torts of any Participant entitled to benefits hereunder and such
benefits shall not be considered an asset of the Participant in the event of his
insolvency or bankruptcy.
7.20 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER APPOINTED. The
---------------------------------------------------------
Trustee shall not be liable for the acts or omissions of any Investment Manager
or Managers the Plan Administrator may appoint, nor shall the Trustee be under
any obligation to invest or otherwise manage any assets of the Plan which is
subject to the management of a properly appointed Investment Manager.
7.21 INSURANCE COMPANY PROTECTED. No insurance company shall be under
---------------------------
any duty to inquire into the terms of this Trust Agreement or see to the
application of any proceeds of insurance paid to the Trustee pursuant to any
policy of insurance payable to this Trust. The receipt of the Trustee for any
such payment shall be a full and complete acquittance to the insurance company
making payment.
17
<PAGE>
ARTICLE VIII
TRUSTEE LIABILITY
8.01 TRUSTEE LIABILITY. Notwithstanding any provision in this Trust
-----------------
Agreement to the contrary, the Trustee shall be subject to the standards of
conduct, and shall have the powers and immunities set out in Article VI of the
Plan.
18
<PAGE>
ARTICLE IX
SUBSTITUTION OF TRUSTEE
9.01 TRUSTEE. There shall be one or more individual Trustees or one
-------
corporate Trustee, or any combination thereof, as determined from time to time
by the Company. Each Trustee shall serve until a successor Trustee shall be
named by the Company or until such Trustee's resignation, death, incapacity, or
removal, in which event the Company shall name a successor Trustee. The word
"Trustee" as used herein, shall include the original and any successor Trustee
or Trustees, whether corporate or individual.
9.02 RESIGNATION. Any Trustee may resign at any time upon giving sixty
-----------
(60) days' written notice in advance to the Company and to the Plan
Administrator unless such notice shall be waived.
9.03 REMOVAL. The Company, by giving thirty (30) days' written notice in
-------
advance to the Trustee, may remove any Trustee with or without cause.
9.04 SUCCESSION OF TRUSTEE. Each successor Trustee shall succeed to the
---------------------
title to the Trust vested in his predecessor by accepting in writing his
appointment as successor Trustee and filing the acceptance with the former
Trustee and the Plan Administrator without the signing or filing of any further
statement. The resigning or removed Trustee, upon receipt of acceptance in
writing of the Trust by the successor Trustee, shall execute all documents and
do all acts necessary to vest the title of record in any successor Trustee.
Each successor Trustee shall have and enjoy all of the powers, both
discretionary and ministerial, conferred under this Agreement upon his
predecessor. No successor Trustee shall be personally liable for any act or
failure to act of any predecessor Trustee.
9.05 MERGER OF CORPORATE TRUSTEE. If any corporate Trustee should,
---------------------------
before or after qualification, change its name, become consolidated or merged
with another corporation or otherwise should reorganize, any resulting
corporation which succeeds to the fiduciary business of such corporate Trustee
shall become a Trustee hereunder in lieu of such corporate Trustee.
19
<PAGE>
ARTICLE X
AMENDMENT AND TERMINATION
10.01 AMENDMENT. The Company shall have the right at any time by an
---------
instrument in writing to amend the Trust in any manner provided no amendment
shall:
(a) Authorize or permit any of the Trust Fund (other than the part
which is required to pay taxes and administration expenses) to be used for
or diverted to purposes other than for the exclusive benefit of the
Participants or their Beneficiaries.
(b) Cause or permit any portion of the Trust Fund to revert to or
become the property of the Employer.
(c) Increase the duties or responsibilities of the Trustee without
the written consent of the affected Trustee.
10.02 TERMINATION. This Trust may be terminated at any time by the
-----------
Company by delivery to the Trustee of a copy of the resolution of the Board of
Directors specifying such termination. In the event of termination of the
Trust, the Trustee shall distribute all property then constituting the Trust
Fund, less any amounts constituting charges against the Trust Fund, in such
manner and at such times as may be directed by the Plan Administrator. This
Trust shall automatically terminate when no cash or other property remains in
the Trust.
10.03 SUSPENSION OF CONTRIBUTIONS. Nothing in this Agreement shall be
---------------------------
construed to prevent the Employer from suspending contributions to the Trust for
any period whatsoever or permanently. Such a suspension, whether temporary or
permanent, shall not, of itself, terminate the Trust.
10.04 MERGER OR CONSOLIDATION. The Plan and this Trust shall not be
-----------------------
merged or consolidated with, nor shall its assets or liabilities be transferred
to, any other plan unless each Participant in the Plan (if the Plan then
terminated) would receive a benefit immediately after the merger, consolidation
or transfer which is equal to or greater than the benefit such Participants,
respectively, would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had been terminated). Where the
foregoing requirements are satisfied the Plan and this Trust may be merged or
consolidated with another qualified plan and trust.
10.05 REVERSION OF SUSPENSE ACCOUNT. Notwithstanding any provisions
-----------------------------
contained herein to the contrary, the Employer reserves the right upon
termination of the Plan and trust to recover any amounts held in a Suspense
Account that cannot be allocated to the accounts of Participants and their
Beneficiaries in the year of termination because of the limitations contained in
Article III of the Plan and Section 415 of the Code after the satisfaction of
all fixed and contingent obligations to Participants and their Beneficiaries
under the Plan.
20
<PAGE>
ARTICLE XI
OTHER EMPLOYERS; SUCCESSOR EMPLOYERS
11.01 ADOPTION BY OTHER EMPLOYERS. Pursuant to the Plan, any business
---------------------------
entity, which is eligible to and does in fact adopt the Plan, may pursuant to
resolutions of its board of directors, adopt this Trust by written instrument,
duly executed, acknowledged, and delivered to the Trustee, the Plan
Administrator, and the Board of Directors of the Company.
11.02 CONTINUATION BY EMPLOYER'S SUCCESSOR. Any corporation succeeding to
------------------------------------
the interest of an Employer by sale, transfer, consolidation, merger, or
bankruptcy, may elect to continue this Trust by adopting this Trust Agreement
and assuming the duties and responsibilities of the Plan and Trust, or such
corporation may establish a separate plan and trust for the continuation of
benefits for its employees in which event the Trust Fund, held on behalf of the
Employees or the prior Employer, shall (subject to Section 10.04 hereof) be
transferred to the trustee of the new trust.
21
<PAGE>
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.01 CONTRIBUTIONS NOT RECOVERABLE. Except where contributions are
-----------------------------
required to be returned to the Employer by the provisions of the Plan as
permitted or required by the Act or by the Code, no part of the principal or
income of this Trust shall be used for, or diverted to, purposes other than the
exclusive benefit of Participants or Beneficiaries.
12.02 LIMITATIONS ON PARTICIPANTS' RIGHTS. Participation in this Trust
-----------------------------------
shall not give the Employee the right to be retained as an Employee of the
Employer or any right or interest in this Trust other than as herein provided.
The Employer reserves the right to dismiss any Employee without any liability
for any claim either against this Trust, except to the extent provided herein,
or against the Employer. All benefits payable hereunder shall be provided solely
from the assets of the Trust.
12.03 INDEMNIFICATION OF INDIVIDUAL TRUSTEE. The Employer hereby agrees to
-------------------------------------
indemnify and hold harmless any individual Trustee for any claim, suit,
judgment, or liability arising from the performance of the Trustee hereunder and
as otherwise required by the Plan, so long as such claim, suit, judgment, or
liability does not result from the willful or reckless misconduct of the
individual Trustee. The Trustee assumes no obligation or responsibility with
respect to any action required by this Trust Agreement or by the Plan on the
part of the Employer.
12.04 RECEIPT OF RELEASE. Any payment to any Participant or Beneficiary in
------------------
accordance with the provisions of this Trust shall, to the extent thereof, be in
full satisfaction of all claims against the Trustee, the Plan Administrator, and
the Employer and the Trustee may require such Participant or Beneficiary, as a
condition precedent to such payment, to execute a receipt and release to such
effect.
12.05 ACCEPTANCE. The Trustee accepts the Trust created under the Plan and
----------
agrees to perform the obligations imposed therein.
12.06 ACCOUNTING PERIOD. This Trust shall adopt for accounting purposes
-----------------
the fiscal year beginning January 1 of each year and ending on the last day of
December.
12.07 TITLE OF TRUST ASSETS. The legal and equitable title and ownership
---------------------
of all assets at any time constituting a part of the Trust Fund shall be and
remain with the Trustee and neither the Employer nor any Participant shall ever
have legal or equitable estate therein, save and except that a Participant shall
be entitled to receive distributions as and when lawfully made under the terms
of the Plan and this Trust.
22
<PAGE>
12.08 NOTICE. Any notices required to be given herein by the Trustee shall
------
be deemed delivered when placed in the United States mails, postage prepaid, in
an envelope addressed to the last known address of the person to whom the notice
is given.
12.09 HEADINGS. The titles and headings of Articles and Sections are
--------
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
12.10 GOVERNING LAW. All questions arising with respect to the provisions
-------------
of this Agreement shall be determined by application of the laws of the State of
North Carolina except to the extent North Carolina law is superseded by Federal
statute.
12.11 EXECUTIONS AND COUNTERPARTS. This Agreement may be executed in a
---------------------------
number of counterparts, each of which shall be deemed an original.
IT WITNESS WHEREOF, this Agreement has been executed this the _____ day of
___________________, 1999, effective as of January 1, 1999, providing
that the closing of the initial public offering of common stock of First
Community Financial Corporation occurs on or before December 31, 1999.
A S E M P L O Y E R
--------------------
COMMUNITY SAVINGS BANK, INC.
By: _____________________________________
President
ATTEST:
_____________________________
____________ Secretary
(Corporate Seal)
A S T R U S T E E
------------------
______________________________(SEAL)
______________________________(SEAL)
______________________________(SEAL)
23
<PAGE>
EXHIBIT 10.5
STATE OF NORTH CAROLINA
COUNTY OF ALAMANCE CAPITAL MAINTENANCE AGREEMENT
This Capital Maintenance Agreement (the "Agreement"), dated as of
______________, 1999, by and between First Community Financial Corporation,
Burlington, North Carolina, a North Carolina-chartered bank holding company (the
"Holding Company") and Community Savings Bank, Inc., a North Carolina-chartered
stock savings bank (the "Savings Bank").
WHEREAS, the Savings Bank has applied to the Administrator, Savings
Institutions Division, North Carolina Department of Commerce ("Administrator")
for permission to convert from a North Carolina mutual savings bank to a North
Carolina stock owned savings bank (the "Conversion"); and
WHEREAS, as a part of the Conversion, the Holding Company has applied to
the Administrator for permission to acquire all of the capital stock issued by
the Savings Bank in the Conversion (the "Acquisition") and to sell shares of the
Holding Company's common stock to certain persons in a subscription and, if
necessary, a community offering and a syndicated community offering; and
WHEREAS, the Administrator, the Holding Company and the Savings Bank wish
to protect the interests of the depositors of the Savings Bank and the Savings
Association Insurance Fund; and
WHEREAS, by letter dated ______________, 1999, the Administrator has
approved the Conversion and the Acquisition conditional upon, among other
things, the Holding Company and the Savings Bank entering this Agreement (the
"Approval").
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties agree that, following the
Conversion and Acquisition, the Holding Company and the Savings Bank will
maintain the capital of the Savings Bank at all times in compliance with the
applicable capital requirements of all federal and state regulatory agencies
having supervisory authority over the Savings Bank, including the capital
requirements of the Administrator and the Federal Deposit Insurance Corporation.
IN WITNESS WHEREOF, this Agreement has been executed by each director of
the Holding Company and the Savings Bank.
DIRECTORS OF FIRST COMMUNITY
FINANCIAL CORPORATION:
_______________________________ ____________________________________
Jimmy L. Byrd Edgar L. Hartgrove
_______________________________ ____________________________________
William R. Gilliam William C. Ingold
_______________________________ ____________________________________
Julian P. Griffin Charles A. LeGrand
_______________________________ ____________________________________
W. Joseph Rich James D. Moser, Jr.
_______________________________ ____________________________________
Alfred J. Spitzner Herbert N. Wellons
2
<PAGE>
DIRECTORS OF COMMUNITY SAVINGS BANK, INC.:
_______________________________ ____________________________________
Jimmy L. Byrd Edgar L. Hartgrove
_______________________________ ____________________________________
William R. Gilliam William C. Ingold
_______________________________ ____________________________________
Julian P. Griffin Charles A. LeGrand
_______________________________ ____________________________________
W. Joseph Rich James D. Moser, Jr.
_______________________________ ____________________________________
Alfred J. Spitzner Herbert N. Wellons
3
<PAGE>
EXHIBIT 24.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of our report dated June 5, 1998 on our audits
of the financial statements of Community Savings Bank, SSB as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 in each of the Application to Convert a Mutual Savings Bank to a Stock
Owned Savings Bank of Community Savings Bank, SSB and the Registration Statement
(Form SB-2) and the related Prospectus of First Community Financial Corporation
for the registration of shares of its common stock and to the reference to our
firm under the caption "Experts".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Raleigh, North Carolina
January 20, 1999
<PAGE>
EXHIBIT 24.2
[LETTERHEAD OF FERGUSON & COMPANY]
JANUARY 21, 1999
BOARD OF DIRECTORS
COMMUNITY SAVINGS BANK, SSB
708 S. CHURCH STREET
BURLINGTON, NORTH CAROLINA 27215
DIRECTORS:
We hereby consent to the use of our firm's name in the applications for
conversion of Community Savings Bank, SSB, 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 SB-2
Registration Statement and any amendments thereto, and in the Acquisition
Application and the Holding Company Application for First Community Financial
Corporation 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 First Community Financial
Corporation and the Proxy Statement of Community Savings Bank, SSB.
Sincerely,
/s/ Robin L. Fussell
Robin L. Fussell
Principal
<PAGE>
EXHIBIT 24.3
LETTERHEAD OF BROOKS, PIERCE,
McLENDON, HUMPHREY & LEONARD, L.L.P.
January 15, 1999
Board of Directors
First Community Financial Corporation
708 South Church Street
P. O. Box 1837
Burlington, North Carolina 27216-1837
Gentlemen:
We hereby consent to reference to our firm in the "Legal Opinions" section
of the Prospectus included in the Registration Statement of First Community
Financial Corporation on Form SB-2, as amended (the "Registration Statement")
and included in the Application to Convert a Stock Owned Savings Bank of
Community Savings Bank, SSB and to the reference to the opinions rendered by our
firm which are described in such section of the Prospectus.
Very truly yours,
BROOKS, PIERCE, MCLENDON,
HUMPHREY & LEONARD, L.L.P.
By: /s/ Randall A. Underwood
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Randall A. Underwood
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CONVERSION VALUATION REPORT
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Valued as of December 9, 1998
COMMUNITY SAVINGS BANK, SSB
Burlington, North Carolina
Prepared By:
Ferguson & Company
Suite 305
860 West Airport Freeway
Hurst, Texas 76054
817/577-9558
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STATEMENT OF APPRAISER'S INDEPENDENCE
Community Savings Bank, SSB
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Burlington, North Carolina
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We are the appraiser for Community Savings Bank, SSB ("Community" 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.
Community 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
December 21, 1998
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DECEMBER 21, 1998
BOARD OF DIRECTORS
COMMUNITY SAVINGS BANK, SSB
708 S. CHURCH STREET
BURLINGTON, NORTH CAROLINA 27215
DEAR DIRECTORS:
We have completed and hereby provide, as of December 9, 1998, an
independent appraisal of the estimated pro forma market value of Community
Savings Bank, SSB, Burlington, North Carolina ("Community" or "Bank"), in
connection with the conversion of Community 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 Community'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 Community'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 Community that
included discussions with PriceWaterhouseCoopers LLP, the Bank's independent
auditors, and with Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., 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 Community'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 Community'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 Community and its auditors, nor did we independently
value the assets or liabilities of the Bank. The valuation considers Community
only as a going concern and should not be considered an indication of its
liquidation value.
It is our opinion that, as of December 9, 1998, the estimated pro forma
market value of Community was $27,000,000, or 1,800,000 shares as $15.00 per
share. The resultant valuation range was $22,950,000 at the minimum (1,530,000
shares at $15.00 per share) to $31,050,000 at the maximum (2,070,000 shares at
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BOARD OF DIRECTORS
DECEMBER 21, 1998
PAGE 2
$15.00 per share), based on a range of 15 percent below and above the midpoint
valuation. The supermaximum was $35,707,500 (2,380,500 shares at $15.00 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
Community, 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 Community'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
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FERGUSON & COMPANY
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TABLE OF CONTENTS
COMMUNITY SAVINGS BANK, SSB
BURLINGTON, NORTH CAROLINA
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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 4
INVESTMENTS 4
SAVINGS DEPOSITS 4
BORROWINGS 4
SUBSIDIARIES 4
LEGAL PROCEEDINGS 4
EARNINGS CAPACITY OF THE INSTITUTION 4
ASSET-SIZE-EFFICIENCY OF ASSET UTILIZATION 5
INTANGIBLE VALUES 5
EFFECT OF GOVERNMENT REGULATIONS 5
OFFICE FACILITIES 5
FOUNDATION CONTRIBUTION 5
FORWARD 5
SECTION II - MARKET AREA 1
DEMOGRAPHICS 1
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TABLE OF CONTENTS - CONTINUED
COMMUNITY SAVINGS BANK, SSB
BURLINGTON, NORTH CAROLINA
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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 6
VALUATION CONCLUSION 6
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TABLE OF CONTENTS - CONTINUED
COMMUNITY SAVINGS BANK, SSB
BURLINGTON, NORTH CAROLINA
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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 16
11 Loan Delinquencies at September 30, 1998 17
12 Non-Performing Assets 18
13 Analysis of Allowance for Loan Losses 19
14 Allocation of Allowance for Loan Losses 20
15 Investments at September 30, 1998 21
16 Investment Securities 22
17 Deposit Portfolio 23
18 Savings Deposits Detail 24
19 Certificates of Deposit Maturities 25
20 Large CD Maturities 26
21 Savings Flows 27
22 Banking Offices 28
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
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FERGUSON & COMPANY
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TABLE OF CONTENTS - CONTINUED
COMMUNITY SAVINGS BANK, SSB
BURLINGTON, NORTH CAROLINA
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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
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FIGURE
NUMBER LIST OF FIGURES
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SECTION IV - CORRELATION OF MARKET VALUE
1 SNL Index 13
2 Interest Rates 14
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EXHIBIT TITLE
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Exhibit I - Ferguson & Company Qualifications
Exhibit II - Selected Region, State, and Comparatives Information
Exhibit III - Community Savings Bank, SSB 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
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SECTION I
FINANCIAL CHARACTERISTICS
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FERGUSON & COMPANY SECTION I
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INTRODUCTION
Community Savings Bank, SSB ("Community" or "Bank") is a state chartered,
federally insured mutual savings bank located in Burlington, North Carolina. It
was chartered in 1934 as a mutual savings and loan association. Its name was
changed to Community Savings Bank, SSB in 1994. In October 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 chartered stock savings bank.
At September 30, 1998, Community had total assets of $170.4 million, loans
held for investment of $127.4 million, loans held for sale of $4.8 million,
investment securities held to maturity of $3.5 million, investment securities
available for sale of $12.2 million, mortgage-backed securities held to maturity
of $5.2 million, mortgage-backed securities available for sale of $10.0 million,
cash and cash equivalents of $4.8 million, deposits of $138.0 million,
borrowings of $5.0 million, and equity of $23.3 million, or 13.7% of assets.
The Bank has four banking offices, which are located in Alamance County in
north central North Carolina. North Carolina is in the southeastern portion of
the United States. Community's main office is located in Burlington, which is
approximately 20 miles east of Greensboro on interstate highway 85.
Community is a thrift in transition to a commercial bank. Its current loan
and deposit composition could be described as traditional thrift portfolios.
However, Management has made the commitment and the Bank's business plan calls
for it to concentrate its activities along the commercial bank lines. In
preparation for this metamorphosis, the Bank has added quality commercial
bankers to its executive staff. It has experienced constant growth in recent
years. It is developing a loan servicing portfolio, with approximately $20
million in servicing at September 30, 1998. This enables the Bank to provide
for housing needs through the origination of home loans, avoid the attendant
interest rate risk associated with such loans, and build a stream of noninterest
income.
Community 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, (3) mortgage-backed
securities, and (4) 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 and consumer lending has grown. At
September 30, 1998, mortgage loans (principally loans on 1-4 family dwellings)
made up 72.8% of the gross loan portfolio (down from 91.2% at December 31,
1996), commercial loans made up 11.4% of the gross loan portfolio, construction
loans made up 9.0% of the gross loan portfolio, and consumer loans (including
equity lines of credit) made up 6.7% of the gross loan portfolio. Net loans
held for investment made up 74.8% of total assets. Cash, investment securities,
and mortgage-backed securities made up 21.0% of Community's assets at September
30, 1998.
It is important to note the increase in lending's significance to the Bank.
At September 30, 1998, net loans were 74.8% of assets, versus 56.2% at December
31, 1996, only twenty-one months earlier.
Community had $218 thousand in non-performing assets at September 30, 1998
(0.13% of total assets), as compared to $241 thousand at December 31, 1997
(0.14% of total assets), and $218 thousand at December 31, 1996 (0.14% of total
assets).
Savings deposits increased $15.5 million during the period from December
31, 1996, to September 30, 1998, a compound annual growth rate of 7.0%. Savings
increased $12.2 million (9.9%) in 1997 and increased $3.3 million (2.5%, or 3.3%
annualized) for the nine months ended September 30, 1998. Community's reliance
on borrowings decreased at September 30, 1998 to $5.0 million from a balance of
$9.0 million at December 31, 1996.
The Bank's capital to assets ratio has declined slightly, as the growth
rate in asset size has exceeded the growth rate of capital. Equity capital, as
a percentage of assets, has gone from 14.14% at December 31, 1996, to 13.66% at
September 30, 1998. Community's assets increased $13.6 million during the
twenty-one months ended September 30, 1998, an annual compound growth rate of
4.9%.
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Community's profitability, as measured by return on average assets
("ROAA"), was as follows: Year ending December 31 1996--0.26%, year ending
December 31 1997--0.36%, and nine months ending September 30, 1998--0.34%. In
return on equity for the same periods, Community earned 1.82%, 2.60%, and 2.48%,
respectively. Income for 1996 was reduced by the SAIF assessment, which was
$767,000 before taxes. Reported earnings for 1997 and the 1998 period have been
affected by some non-recurring operating expenses and abnormal loan loss
provisions. FOR MORE INFORMATION, SEE SECTION IV, PAGE 2, TABLE IV.1 -
APPRAISAL EARNINGS ADJUSTMENTS.
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, again on October 15,
1998, and once more on November 17, 1998. Consequently, the yield curve is
almost flat. The spread between the one year treasury bill and the thirty year
treasury bond was only 50 basis points at December 11, 1998. Community's spread
was 2.20% for the year ended December 31, 1996. It increased to 2.54% for the
year ended December 31, 1997, and then increased to 2.89% for the period of nine
months 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. Community 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, Community experienced a moderate increase in assets
during the period of twenty-one months ending September 30, 1998. Assets
increased $13.6 million, or 4.9% compounded annually, during the period. Loans
held for investment increased $41.5 million (25.0% annual compound growth rate).
Savings deposits increased by $15.5 million, or 7.0% compound annual growth.
Equity increased $1.1 million, or 2.8% 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 repricing and loan maturities at September 30, 1998. Table I.4
shows the gap analysis of Community's interest earning assets and interest
bearing liabilities at September 30, 1998. It shows that, within one year of
September 30, 1998, Community has a negative gap to interest bearing liabilities
of 23.1% and a negative gap to total assets of 17.0%. Community has a positive
cumulative gap to assets of 8.8% 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.
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Community's basic approach to interest rate risk management has been to
emphasize adjustable mortgage loans, shorten fixed rate mortgage terms, and
increase consumer and commercial loans. Community currently is not utilizing
synthetic hedge instruments but has used borrowings in recent years.
Community's business plan calls for emphasizing short to intermediate term and
adjustable loans.
INCOME AND EXPENSE TRENDS
Community was profitable for each of the periods in the two years and nine
months ended September 30, 1998. Fluctuations in income over the period have
resulted from increasing net interest income resulting from growth, and from
non-recurring operating expenses and abnormal loss provisions. In 1996, the
SAIF resolution assessment increased noninterest expense by $767,000.
REGULATORY CAPITAL REQUIREMENTS
As Table I.6 demonstrates, Community 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 December 31, 1996, through
September 30, 1998, Community's loan composition has been dominated by mortgage
loans (which includes mostly 1-4 residential loans), but the loan mix is
currently emphasizing other types of loans.
Table I.8 provides information with respect to loan originations,
purchases, and sales. It indicates healthy growth trends in originations.
Table I.9 provides rates, yields, and average balances for the nine month
periods ended September 30, 1998 and 1997 and for the years ended December 31,
1997 and 1996. Interest rates earned on interest-earning assets increased from
7.19% in 1996 to 7.51% in 1997 and to 7.82% in 1998. Interest rates paid on
interest-bearing liabilities decreased from 4.99% in 1996 to 4.97% in 1997 and
then decreased to 4.94% in the September 1998 period. Community's spread
increased from 2.20% in 1996 to 2.54% in 1997 and then increased to 2.89% for
the nine months ended 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 December 31, 1995 versus 1996, the years ended
December 31, 1996 versus 1997, and the periods of nine months ended September
30, 1997 versus 1998. It demonstrates that increases in volume were more
significant (than increases in rates) to the change in net interest income
during 1996. However, rate and volume changes were similar in their effect on
changes in net interest income for the year ended December 31, 1997, and for the
nine months ended September 30, 1998.
NON-PERFORMING ASSETS
As shown in Table I.11, Community had $631 thousand in delinquent loans
between 30 and 90 days delinquent, $218 thousand in accruing loans more than 90
days delinquent, and it had no nonaccrual loans at September 30, 1998. As shown
in Table I.12, Community's total nonperforming assets as of September 30, 1998,
were $218,000, or 0.13% 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
Community had $1.4 million in classified assets at September 30, 1998. The
classified assets consisted of $1.4 million classified as substandard, none
classified doubtful, and none classified loss. The Bank had a loan loss
allowance of $1.131 million, or approximately 80% of classified assets at
September 30, 1998. The Bank had no loans classified as special mention or
watch.
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LOAN LOSS ALLOWANCE
Table I.13 provides an analysis of Community's loan loss allowance. Table
I.14 shows the allocation of the loan loss allowance among the loan categories
as of December 31, 1996 and 1997, and September 30, 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 December 31, 1996 and 1997, and
September 30, 1998.
SAVINGS DEPOSITS
At September 30, 1998, Community's deposit portfolio was composed as
follows: Passbook accounts--$17.983 million or 13.0%; Transaction accounts--
$15.192 million or 11.0%; and certificate accounts--$104.848 million or 76.0%
(see Table I.17). Table I.18 shows the deposit composition at December 31, 1996
and 1997, and September 30, 1998. Table I.19 shows the totals of time deposits
and the maturities by year at September 30, 1998. At September 30, 1998, 83.78%
of Community's certificates matured within one year and 97.83% matured within
two years.
Community is not overly dependent on large certificates of deposit. At
September 30, 1998, the Bank had $16.981 million in certificates that were
issued for $100 thousand or more, or 12.30% of its total deposits (see Table
I.20).
Table I.21 presents information on deposit flows for the years ending
December 31, 1996 and 1997, and the nine months ended September 30, 1998.
BORROWINGS
Community had $5.0 million in Federal Home Loan Bank borrowings at
September 30, 1998, with an interest rate of 5.38% and a short-term maturity.
SUBSIDIARIES
Community owns a subsidiary which is involved in securities products.
LEGAL PROCEEDINGS
From time to time, Community 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 Community's financial
position, results of operations, or liquidity.
EARNINGS CAPACITY OF THE INSTITUTION
As in any interest sensitive industry, the future earnings capacity of
Community 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.
Community 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 Community 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 Community 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
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FERGUSON & COMPANY SECTION I
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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, Community is a
moderately efficient operation. With total assets of approximately $170.4
million, Community has 60 full time equivalent employees. Recognizing that the
Bank is servicing approximately $20 million in loans for others, and it has in
place the beginning infrastructure of a commercial bank, its employees to assets
ratio is higher than the typical thrift.
INTANGIBLE VALUES
Community's greatest intangible value lies in its loyal deposit base.
Community has a 64 year history of sound operations, controlled growth, and
consistent earnings. The Bank currently has 8.62% of the deposit market in its
area, and it has the ability to increase market share.
Community 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, Community 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
Community'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 Community's banking offices.
FOUNDATION CONTRIBUTION
Community's conversion includes a contribution of $1.5 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 June 1999 quarter) by the $1.5 million, less the
related tax benefit. The projected expense net of tax is $990 thousand.
FORWARD
Management is committed to converting the Bank from a traditional thrift to
a community bank. The change began in 1996 with the addition of executives with
solid commercial bank experience. Prior to the beginning of the metamorphosis,
Management recognized that commercial banks are inherently more profitable than
traditional thrifts. The major shortcoming with respect to thrifts is the thin
margins available on home loans. In addition, Community's loans to passive
investments ratio was too high, but it has been reduced significantly.
At this point, Community's income ratios, spreads, and other measures of
profitability are low. Management has recognized this and is in the process of
retooling the Bank. The business plan calls for a continuing emphasis in loan
growth in commercial and consumer lending. Currently, Management has no plans
to convert to a commercial bank charter. In the future, if the Bank reaches a
point where the savings bank charter becomes an impediment, it will switch to a
commercial bank charter.
5
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TABLE I.1 - SELECTED FINANCIAL AND OTHER DATA
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Compound
September 30, December 31, Growth
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1998 1997 1996 Rate
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SELECTED FINANCIAL CONDITION DATA:
- ----------------------------------
Total assets 170,374 167,817 156,751 4.9%
Loans receivable:
Available for sale - 287 2,256 NA
Held for investment 127,403 114,546 85,871 25.0%
Cash and cash equivalents 4,767 5,871 6,577 -17.0%
Investment securities:
Available for sale 12,197 9,082 6,991 36.8%
Held to maturity 3,501 13,397 25,403 -70.7%
Mortgage-backed securities:
Available for sale 10,006 9,497 12,486 -12.0%
Held to maturity 5,237 8,650 11,314 -36.4%
Deposits 138,024 134,697 122,524 7.0%
Borrowings 5,000 6,700 9,000 -29.0%
Equity 23,267 22,837 22,167 2.8%
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
---------------------------- ---------------------------------
1998 1997 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SELECTED OPERATIONS DATA:
- -------------------------
Interest income 9,434 8,550 11,583 10,620
Interest expense 5,221 4,964 6,740 6,380
----------------------------------------------------------------
NET INTEREST INCOME 4,213 3,586 4,843 4,240
Provision for loan losses 350 90 360 60
----------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,863 3,496 4,483 4,180
----------------------------------------------------------------
Noninterest income 377 274 365 357
----------------------------------------------------------------
SUB-TOTAL 4,240 3,770 4,848 4,537
----------------------------------------------------------------
Noninterest expense:
Compensation and benefits 2,199 1,639 2,493 1,892
Other (1) 1,400 801 1,386 2,045
----------------------------------------------------------------
Total noninterest expense 3,599 2,440 3,879 3,937
----------------------------------------------------------------
INCOME BEFORE TAXES 641 1,330 969 600
Income tax expense 208 475 379 201
----------------------------------------------------------------
NET INCOME 433 855 590 399
================================================================
</TABLE>
(1) Other expense in 1996 includes the
SAIF assessment of $767,000.
SOURCE: OFFERING CIRCULAR, F&C CALCULATIONS 6
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
TABLE I.2 - SELECTED FINANCIAL RATIOS AND OTHER DATA
<TABLE>
<CAPTION>
At or for the
Nine Months Ended
September 30, At or for the Year ended December 31,
----------------- -------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
PERFORMANCE RATIOS:
- -------------------
Return on assets (ratio of net earnings
to average total assets) 0.34% 0.36% 0.26%
Return on equity (ratio of net earnings
to average equity) 2.48% 2.60% 1.82%
Ratio of average interest-earning assets to
average interest-bearing liabilities 114.07% 113.79% 115.48%
Net interest rate spread 2.89% 2.54% 2.20%
Net yield on average interest-earning assets 3.49% 3.14% 2.87%
Ratio of other expense to average assets 2.81% 2.38% 2.55%
QUALITY RATIOS:
- ---------------
Non-performing loans to total loans
at end of period 0.17% 0.21% 0.24%
Non-performing assets to total assets
at end of period 0.13% 0.14% 0.14%
Allowance for loan losses to non-performing
loans at end of period 518.81% 324.07% 226.73%
Allowance for loan losses to total loans, net 0.89% 0.68% 0.56%
Provision for loan losses to average loans 0.38% 0.35% 0.07%
CAPITAL RATIOS:
- ---------------
Equity to total assets at end of period 13.66% 13.61% 14.14%
Average equity to average assets 13.64% 13.94% 14.26%
OTHER DATA:
- -----------
Number of full service offices 4 4 4
</TABLE>
SOURCE: OFFERING CIRCULAR 7
<PAGE>
FERGUSON & COMPANY Section I
- ------------------ ---------
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 Over
One Year Three Years Five Years Ten years Ten Years Total
-------- ----------- ---------- --------- --------- -----------------
($000,s)
<S> <C> <C> <C> <C> <C> <C>
Mortgage 47,595 19,383 25,902 1,133 378 94,391
Home equity 4,835 - - - - 4,835
Construction 11,736 - - - - 11,736
Commercial 14,839 - - - - 14,839
Consumer 1,419 1,286 720 445 - 3,870
Other 46 - - - - 46
------ ------ ------ ----- --- -------
Total 80,470 20,669 26,622 1,578 378 129,717
====== ====== ====== ===== === =======
</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>
Mortgage 4,347 42,449 46,796
Consumer 2,451 - 2,451
----------------- ----------------- -----------------
Total 6,798 42,449 49,247
================= ================= =================
</TABLE>
SOURCE: OFFERING CIRCULAR 8
<PAGE>
FERGUSON & COMPANY Section I
- ------------------ ---------
TABLE I.4 - INTEREST RATE SENSITIVITY ANALYSIS
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Three Three Over One
Months Months to to Five Over Five
or Less One Year Years Years Total
-----------------------------------------------------------
INTEREST-EARNING ASSETS:
- ------------------------
<S> <C> <C> <C> <C> <C>
Loans 45,925 34,617 47,294 1,881 129,717
Investments 8,721 5,305 13,928 3,119 31,073
Other interest-earning assets 1,803 - - - 1,803
-----------------------------------------------------------
Total interest-earning assets 56,449 39,922 61,222 5,000 162,593
===========================================================
INTEREST-BEARING LIABILITIES:
- -----------------------------
Transaction accounts 14,847 - - - 14,847
Passbook savings accounts 17,983 - - - 17,983
Certificates of deposit 21,154 66,354 17,338 2 104,848
Borrowings 5,000 - - - 5,000
-----------------------------------------------------------
$58,984 $ 66,354 $17,338 $ 2 $142,678
===========================================================
Interest-earning assets less
interest-bearing liabilities $(2,535) $(26,432) $43,884 $ 4,998 $ 19,915
===========================================================
Cumulative interest-rate sensitivity gap $(2,535) $(28,967) $14,917 $19,915
===============================================
Cumulative interest-rate sensitivity gap
as a percentage of interest-earning assets -1.6% -17.8% 9.2% 12.2%
===============================================
Cumulative ratio of interest earning
assets to interest-bearing liabilities 95.7% 76.9% 110.5% 114.0%
===============================================
Cumulative interest rate sensitivity gap
as a percent of total assets -1.5% -17.0% 8.8% 11.7%
===============================================
SOURCE: OFFERING CIRCULAR
</TABLE>
SOURCE: OFFERING CIRCULAR 9
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
TABLE I.5 - INTEREST RATE SHOCK
<TABLE>
<CAPTION>
Percent Percent
Change in Change in
Change Net Portfolio Net Interest
in Rates Value Income
- -------------------------- ------------- ------------
<S> <C> <C>
+400 bp -30% -17%
+300 bp -22% -10%
+200 bp -13% -13%
+100 bp -7% -1%
0 bp - -
- --100 bp 6% 2%
- --200 bp 12% -1%
- --300 bp 18% -3%
- --400 bp 24% -4%
</TABLE>
SOURCE: OFFERING CIRCULAR 10
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
TABLE I.6 - REGULATORY CAPITAL COMPLIANCE
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Amount %
-------- -------
($000's)
<S> <C> <C>
GAAP capital $23,267 13.7%
======= =======
Tier 1 leverage capital $23,172 13.5%
Required 6,870 4.0%
------- -------
Excess $16,302 9.5%
======= =======
Tier 1 risk adjusted capital $23,172 23.8%
Required 3,892 4.0%
------- -------
Excess $19,280 19.8%
======= =======
Risk-based Capital $24,304 25.0%
Required 7,785 8.0%
------- -------
$16,519 17.0%
Excess ======= =======
North Carolina Savings Bank Capital $24,304 14.3%
Required 8,519 5.0%
------- -------
Excess $15,785 9.3%
======= =======
</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.
SOURCE: OFFERING CIRCULAR 11
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
TABLE I.7 - LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
September 30, December 31,
------------------------------------------------------
1998 1997 1996
------------------------ ---------------------------- -----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
($000'S)
<S> <C> <C> <C> <C> <C> <C>
Mortgage 94,391 72.8% 97,581 83.9% 84,652 91.2%
Home equity line of credit 4,835 3.7% 4,778 4.1% 4,131 4.5%
Construction 11,736 9.0% 5,871 5.0% 1,058 1.1%
Commercial 14,839 11.4% 6,120 5.3% 400 0.4%
Consumer 3,916 3.0% 1,686 1.4% 333 0.4%
Held for sale - 0.0% 287 0.2% 2,256 2.4%
---------------------- -------------------------- ---------------------
TOTAL LOANS 129,717 100.0% 116,323 100.0% 92,830 100.0%
====================== ========================== =====================
Less:
Unearned fees and discounts 456 439 363 0.41%
Loans in process 727 270 3,848 4.37%
Allowance for losses 1,131 781 492 0.56%
-------- --------- ---------------------
LOAN PORTFOLIO, NET 127,403 114,833 88,127 100.00%
======== ========= =====================
</TABLE>
SOURCE: OFFERING CIRCULAR 12
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
TABLE I.8 - LOAN ORIGINATION, PURCHASE, AND SALES ACTIVITY
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------
1997 1996
--------------- --------------
($000'S)
<S> <C> <C>
LOANS RECEIVABLE, NET, BEGINNING OF PERIOD 88,128 77,591
Loan originations, net of principal repayments:
Held for investment 29,189 10,622
Held for sale 415 637
-------------- -------------
SUB-TOTAL 29,604 11,259
-------------- -------------
Loan sales (2,429) (588)
Changes in loss allowance (470) (134)
-------------- -------------
LOANS RECEIVABLE, NET, END OF PERIOD 114,833 88,128
============== =============
</TABLE>
SOURCE: OFFERING CIRCULAR 13
<PAGE>
FERGUSSON & COMPANY
- -------------------
TABLE I.9 - AVERAGE BALANCES, RATES, AND YIELDS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------
1997 1996
------------------------------------------- ----------------------------------------
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:
- ------------------------
Interest earning deposits 4,340 258 5.94% 4,201 236 5.61%
Federal funds sold 304 17 5.44% 500 26 5.21%
Investment and MB securities 47,759 3,294 6.90% 60,560 3,631 6.00%
Loans receivable, net 101,826 8,015 7.87% 82,450 6,728 8.16%
------------------------------------------- ----------------------------------------
Total interest-earning assets 154,230 11,583 7.51% 147,712 10,620 7.19%
======================== =======================
Non-interest earning assets 8,693 6,415
----------------- -------------
Total assets 162,923 154,127
================= =============
INTEREST-BEARING LIABILITIES:
- -----------------------------
Certificates of deposit 93,643 5,248 5.60% 85,210 4,839 5.68%
Savings accounts 20,010 605 3.03% 20,774 628 3.02%
NOW accounts 14,102 427 3.03% 13,593 455 3.34%
Borrowings 7,788 460 5.91% 8,333 460 5.51%
------------------------------------------- ----------------------------------------
Total interest-bearing liabilities 135,543 6,740 4.97% 127,911 6,381 4.99%
========================= =======================
Non-interest bearing liabilities 4,672 4,234
----------------- -------------
Total liabilities 140,215 132,144
----------------- -------------
Equity 22,708 21,983
----------------- -------------
Total liabilities and equity 162,923 154,127
================= ==================
Net interest income 4,843 4,240
=========== ==========
Net interest rate spread (1) 2.54% 2.20%
=========== ============
Net interest earnings assets 18,686 19,801
================= =============
Net interest margin (2) 3.14% 2.87%
============= ============
Average interest-earning assets to
average interest-bearing liabilities 113.79% 115.48%
=========== ===========
</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.
SOURCE: OFFERING CIRCULAR 14
<PAGE>
FERGUSON & COMPANY Section I
- ------------------ ---------
TABLE I.9 - AVERAGE BALANCES, RATES, AND YIELDS - CONTINUED
<TABLE>
<CAPTION>
Nine Months 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:
- ------------------------
Interest earning deposits 6,251 273 5.82% 4,208 203 6.44%
Federal funds sold 200 8 5.59% 306 13 5.67%
Investment and MB securities 34,066 1,722 6.74% 49,557 2,651 7.13%
Loans receivable, net 120,224 7,430 8.24% 98,534 5,683 7.69%
----------------------------------------- -------------------------------------
Total interest-earning assets 160,741 9,433 7.82% 152,604 8,550 7.47%
==================== =====================
Non-interest earning assets 9,860 8,483
----------------- ------------
Total assets 170,602 161,087
================= ============
INTEREST-BEARING LIABILITIES:
- ----------------------------
Certificates of deposit 101,957 4,293 5.61% 91,927 3,829 5.55%
Savings accounts 18,460 404 2.92% 20,290 460 3.02%
NOW accounts 14,889 269 2.41% 13,908 318 3.05%
Borrowings 5,611 254 6.05% 7,906 357 6.01%
----------------------------------------- -------------------------------------
Total interest-bearing liabilities 140,917 5,221 4.94% 134,031 4,964 4.94%
===================== ======================
Non-interest bearing liabilities 6,373 4,468
----------------- ------------
Total liabilities 147,290 138,500
----------------- ------------
Equity 23,312 22,587
----------------- ------------
Total liabilities and equity 170,602 161,087
================= ============
Net interest income 4,213 3,586
======== ========
Net interest rate spread (1) 2.89% 2.53%
========= =======
Net interest earnings assets 19,824 18,572
================= ============
Net interest margin (2) 3.49% 3.13%
========= ========
Average interest-earning assets to
average interest-bearing liabilities 114.07% 113.86%
======== ========
</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.
SOURCE: OFFERING CIRCULAR 15
<PAGE>
FERGUSON & COMPANY Section I
- ------------------ ---------
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), and (ii) changes in rate
(changes in rate multiplied by prior volume). Changes in rate/volume (changes in
volume multiplied by changes in rates), have been allocated proportionately.
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
------------------------------ -------------------------------------------------------------
1998 versus 1997 1997 versus 1996 1996 versus 1995
---------------- ---------------- --------------------
Increase Increase Increase
(Decrease) Total (Decrease) Total (Decrease)
Due to Increase Due to Increase Due to
Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate
------ ---- -------- ------ ---- -------- ------ ----
($000'S)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest earning deposits 90 (20) 70 8 15 23 86 (7)
Federal funds sold (5) - (5) (11) 1 (10) (13) (9)
Investment and MB securities (791) (138) (929) (835) 498 (337) 32 (41)
Loans receivable 1,319 428 1,747 1,532 (245) 1,287 713 77
-----------------------------------------------------------------------------------------------
- -
Total interest-earning assets 613 270 883 694 269 963 818 20
-----------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Certificates of deposit 423 41 464 467 (64) 403 213 171
Savings accounts (41) (15) (56) (23) - (23) (58) (72)
NOW and money markets 22 (71) (49) 15 (44) (29) 3 (58)
Borrowings (105) 2 (103) (33) 32 (1) 360 88
-----------------------------------------------------------------------------------------------
- -
Total interest-bearing liabilities 299 (43) 256 426 (76) 350 518 129
-----------------------------------------------------------------------------------------------
Increase (decrease) in
net interest income 314 313 627 268 345 613 300 (109)
===============================================================================================
<CAPTION>
Total
Increase
(Decrease)
--------
<S> <C>
INTEREST-EARNING ASSETS:
Interest earning deposits 79
Federal funds sold (22)
Investment and MB securities (9)
Loans receivable 790
----------
Total interest-earning assets 838
----------
INTEREST-BEARING LIABILITIES:
Certificates of deposit 384
Savings accounts (130)
NOW and money markets (55)
Borrowings 448
----------
Total interest-bearing liabilities 647
----------
Increase (decrease) in
net interest income 191
==========
</TABLE>
SOURCE: OFFERING CIRCULAR 16
<PAGE>
FERGUSON & COMPANY Section I
- ------------------ ---------
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>
Mortgage 469 0.36% 207 0.16% - 0.00%
Home equity LOC - 0.00% - 0.00% - 0.00%
Construction - 0.00% - 0.00% - 0.00%
Commercial 59 0.05% - 0.00% - 0.00%
Consumer 103 0.08% 11 0.01% - 0.00%
Held for sale - 0.00% - 0.00% - 0.00%
------------------ ------------------- -----------------
Total 631 0.49% 218 0.17% - 0.00%
================== =================== =================
</TABLE>
SOURCE: OFFERING CIRCULAR 17
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
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, DECEMBER 31,
--------------------------------------------------
1998 1997 1996
---- ---- ----
($000's)
<S> <C> <C> <C>
Loans accounted for an a nonaccrual basis - - -
==================================================
Accruing loans which are contractually past
due 90 days or more 218 241 217
==================================================
Total nonperforming loans 218 241 217
==================================================
Gross loans 129,717 116,323 92,830
==================================================
Nonperforming loans as a percentage
of gross loans 0.17% 0.21% 0.23%
==================================================
Other nonperforming assets - - 1
==================================================
Total nonperforming assets 218 241 218
==================================================
Total assets 170,374 167,817 156,751
==================================================
Nonperforming assets as a percentage
of total assets 0.13% 0.14% 0.14%
==================================================
</TABLE>
SOURCE: OFFERING CIRCULAR F&C CALCULATIONS 18
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
TABLE I.13 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
--------------- ----------------------------
1998 1997 1996
---- ---- ----
($000'S)
<S> <C> <C> <C>
Balance at beginning of period 781 492 431
------------- ------------- ------------
Charge-offs - 71 -
Recoveries - - 1
------------- ------------- ------------
Net charge-offs - 71 (1)
------------- ------------- ------------
Additions charged to operations 350 360 60
------------- ------------- ------------
Balance at end of period 1,131 781 492
============= ============= ============
Allowance for loan losses to total
non-performing loans at end of period 518.81% 324.07% 226.73%
============= ============= ============
Allowance for loan losses to net
loans at end of period 0.89% 0.68% 0.56%
============= ============= ============
</TABLE>
SOURCE: OFFERING CIRCULAR 19
<PAGE>
FERGUSON & COMPANY Section I
- ------------------ ---------
TABLE I.14 - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
September 30, December 31,
----------------------------------------------
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>
Mortgage 451 72.8% 578 83.9% 363 91.20%
Home equity line of credit 136 3.7% 39 4.1% 25 4.50%
Construction 170 9.1% 62 5.0% 15 1.10%
Commercial 283 11.4% 78 5.3% 49 0.40%
Consumer 91 3.0% 20 1.4% 25 0.40%
Held for sale - 0.0% 4 0.3% 15 2.40%
--------------------- -------------------- --------------------
1,131 100.0% 781 100.0% 492 100.00%
===================== ==================== ====================
</TABLE>
SOURCE: OFFERING CIRCULAR 20
<PAGE>
FERGUSON & COMPANY Section I
- ------------------ ---------
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 Totals
-------------------- -------------------- ------------------ --------------------
Weighted
Average
Amount Yield Amount Yield Amount Yield Amount Yield
------- ------ -------- ----- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. government - 0.00% 1,029 6.19% - 0.00% 1,029 6.19%
U.S. government agency - 0.00% 7,998 6.05% 2,265 6.87% 10,263 6.40%
FNMA MBS - 0.00% - 0.00% 1,255 6.30% 1,255 6.30%
REMIC's - 0.00% - 0.00% 8,750 6.42% 8,750 6.42%
Municipal securities - 0.00% - 0.00% 889 6.89% 889 6.89%
--------- ------- -------- ------- ------- ------- -------- --------
SUB-TOTALS - 0.00% 9,027 6.07% 13,159 6.52% 22,186 6.41%
========= ======= ======== ====== ======= ======= ======== ========
HELD TO MATURITY:
U.S. government 504 6.32% - 0.00% - 0.00% 504 6.22%
U.S. government agency 1,998 5.78% 999 6.67% - 0.00% 2,997 6.08%
GNMA - 0.00% - 0.00% 1,375 8.98% 1,375 8.98%
FHLMC - 0.00% - 0.00% 3,173 9.56% 3,173 9.56%
REMIC's - 0.00% - 0.00% 689 6.50% 689 6.50%
--------- ------- -------- ------- ------- ------- -------- --------
SUB-TOTALS 2,502 5.89% 999 6.67% 5,237 9.01% 8,738 7.84%
========= ======= ======== ======= ======= ======= ======== ========
GRAND TOTALS 2,502 5.89% 10,026 6.13% 18,396 7.23% 30,924 6.82%
========= ======= ======== ======= ======= ======= ======== ========
</TABLE>
SOURCE: OFFERING CIRCULAR & F&C CALCULATIONS 21
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
TABLE I.16 - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
September 30, December 31,
-----------------------------------
1998 1997 1996
----------------- -------------- -------------
($000'S))
<S> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
- -----------------------------
U.S. government 1,029 4,030 4,975
U.S. agency securities 10,263 5,037 2,002
Municipals 889 - -
Other equity securities 14 14 14
GNMA - - 2,189
FNMA 1,255 - -
FHLMC - 49 85
REMIC's 8,750 9,448 10,212
---------------- -------------- --------------
TOTAL 22,200 18,578 19,477
================ ============== ==============
SECURITIES HELD TO MATURITY:
- ---------------------------
U.S. government 504 6,347 15,249
U.S. agency securities 2,998 6,955 9,959
Municipals - 95 195
GNMA 1,377 2,254 2,570
FHLMC 3,173 4,498 5,434
REMIC's 689 1,898 3,310
---------------- -------------- --------------
TOTAL 8,741 22,047 36,717
================ ============== ==============
COMBINED TOTALS 30,941 40,625 56,194
================ ============== ==============
APPROXIMATE MARKET VALUE 31,200
================
</TABLE>
SOURCE: OFFERING CIRCULAR 22
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
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% 345 0.25%
NOW and money market accounts None 2.35% 14,847 10.76%
Statement/passbook None 2.76% 17,983 13.03%
--------------- -------------
33,175 24.04%
--------------- -------------
CERTIFICATES OF DEPOSIT
- ------------------------------------
Fixed term, fixed rate 3 months 239 0.17%
Fixed term, fixed rate 6 months 11,281 8.17%
Fixed term, fixed rate 7 months 7,202 5.22%
Fixed term, fixed rate 9 months 24,914 18.05%
Fixed term, fixed rate 12 months 21,390 15.50%
Floating rate IRA 18 months 15,588 11.29%
Fixed term, fixed rate 18 months 11,796 8.55%
Fixed term, fixed rate 24 months 4,347 3.15%
Fixed term, fixed rate 30 months 3,108 2.25%
Fixed term, fixed rate 36 months 2,347 1.70%
Fixed term, fixed rate 48 months 577 0.42%
Fixed term, fixed rate 60 months 2,059 1.49%
----------- --------------- ------------
TOTAL CERTIFICATES OF DEPOSIT 5.50% 104,848 75.96%
----------- --------------- ------------
TOTAL SAVINGS DEPOSITS 4.79% 138,023 100.00%
=========== =============== ============
</TABLE>
SOURCE: OFFERING CIRCULAR 23
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
TABLE I.18 - SAVINGS DEPOSITS DETAIL
<TABLE>
<CAPTION>
September 30, December 31,
------------------------------------------------------------------------
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 345 0.25% 716 0.53% 744 0.61%
NOW and money market accounts 14,847 10.76% 14,712 10.92% 13,968 11.40%
Statement/passbook 17,983 13.03% 19,069 14.16% 21,051 17.18%
------------------------ -------------------- --------------------
Total transaction accounts 33,175 24.04% 34,497 25.61% 35,763 29.19%
------------------------ -------------------- --------------------
Certificates:
- -------------
Total certificates 104,848 75.96% 100,200 74.39% 86,761 70.81%
------------------------ -------------------- --------------------
Total deposits 138,023 100.00% 134,697 100.00% 122,524 100.00%
======================== ==================== ====================
</TABLE>
SOURCE: OFFERING CIRCULAR 24
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
TABLE I.19 - CERTIFICATES OF DEPOSIT MATURITIES
The table below provides CD maturities at September 30, 1998, by year and
average rates.
<TABLE>
<CAPTION>
Under 1 to 2 2 to 3 Over 3
- 1 Year Years Years Years Total
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Total 87,842 14,728 969 1,309 104,848
=============== =============== =============== =============== ===============
Percent of total 83.78% 14.05% 0.92% 1.25% 100.00%
=============== =============== =============== =============== ===============
Average Rate 5.53% 5.31% 5.40% 5.80% 5.50%
=============== =============== =============== =============== ===============
</TABLE>
SOURCE: OFFERING CIRCULAR 25
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
TABLE I.20 - LARGE CD MATURITIES
<TABLE>
<CAPTION>
LARGE CERTIFICATES OF DEPOSIT
MATURING IN PERIOD ENDING: Amount
- ------------------------------------- --------------
($000'S)
<S> <C>
Within three months 3,352
Three through twelve months 11,338
After September 30, 1998 2,291
--------------
Total 16,981
==============
</TABLE>
SOURCE: OFFERING CIRCULAR 26
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
TABLE I.21 - SAVINGS FLOWS
The following table sets forth the savings flows for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year ended December 31,
----------------- ---------------------------------
1998 1997 1996
---- ---- ----
($000'S)
<S> <C> <C> <C>
Opening balance 134,697 122,524 118,907
Net increase (decrease)
before interest credited 106 8,225 156
Interest credited 3,221 3,948 3,461
----------------- ------------- --------------
Ending Balance 138,024 134,697 122,524
================= ============= ==============
Net increase (decrease) 3,327 12,173 3,617
================= ============= ==============
Percent increase (decrease) 2.47% 9.94% 3.04%
================= ============= ==============
</TABLE>
SOURCE: OFFERING CIRCULAR 27
<PAGE>
FERGUSON & COMPANY SECTION I
- ------------------ ---------
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:
- ------------
708 S. Church Street $ 581 1960 Owned NA 5,905
Burlington, NC 27215
BRANCH OFFICES:
- --------------
257 S. Graham-Hopedale Road 234 1975 Owned NA 2,180
Burlington, NC 27215
166 Huffman Mill Road 289 1968 Owned NA 2,180
Burlington, NC 27215
227 S. Main Street 233 1983 Owned NA 2,180
Graham, NC 27253
ADMINISTRATIVE OFFICES:
612 S. Church Street 181 1982 Owned NA 4,300
Burlington, NC 27215
500 S. Main Street 5 1996 Leased March 2001 4,345
Burlington, NC 27215
</TABLE>
(1) Cost less accumulated depreciation and amortization.
SOURCE: OFFERING CIRCULAR 28
<PAGE>
SECTION II
MARKET AREA
<PAGE>
FERGUSSON & COMPANY SECTION II
- ------------------- ----------
II. MARKET AREA
DEMOGRAPHICS
Community Savings Bank ("Community" or "Bank") conducts its operations
through four banking 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.
Community 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 Community's 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 Community
had 8.62% of the deposit market, up slightly from 8.50% of the market at June
30, 1996, but down from 8.73% of the market at June 30, 1995. The Bank's recent
deposit growth rate has been positive, with total deposits of $138.0 million at
September 30, 1998. Community's competition
1
<PAGE>
FERGUSSON & COMPANY SECTION II
- ------------------- ----------
consists of 27 commercial bank offices, 1 credit union office, and 7 other
thrift offices. Table II.3 shows that from June 30, 1995 to 1997, Community's
deposits increased by $9.678 million (8.09%), 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 Community's market area,
considered in tandem with building permit information, indicates adequate
lending opportunities within the market.
Growth opportunities for Community 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>
FERGUSON & COMPANY SECTION II
- ------------------ ----------
TABLE II.1 - KEY ECONOMIC INDICATORS
United States, North Carolina, and Alamance County
<TABLE>
<CAPTION>
====================================================================================================
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>
SOURCE: SCAN/US, INC.
3
<PAGE>
FERGUSON & COMPANY SECTION II
- ------------------ ----------
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
SOURCE: U. S. DEPARTMENT OF COMMERCE, NC EMPLOYMENT SECURITY COMMISSION
</TABLE>
4
<PAGE>
FERGUSON & COMPANY SECTION II
- ------------------ ----------
TABLE II.3 - MARKET AREA DEPOSITS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------
ALAMANCE COUNTY (in Thousands)
--------------------------------------------------
<S> <C> <C> <C>
COMMUNITY SAVINGS BANK -TOTAL $ 129,310 $ 121,828 $ 119,632
---------------------------------------------------
Number of offices 4 4 4
OTHER SAVINGS ASSOCIATIONS $ 263,060 $ 243,133 $ 232,536
---------------------------------------------------
Number of offices 7 6 6
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
===================================================
COMMUNITY SAVINGS BANK - MARKET SHARE
To Total Market Area Deposits 8.62% 8.50% 8.73%
===================================================
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: BRANCHSOURCE, A PRODUCT OF SHESHUNOFF INFORMATION SERVICES, INC.
5
<PAGE>
FERGUSON & COMPANY SECTION II
- ------------------ ----------
<TABLE>
<CAPTION>
TABLE II.4 - SUMMARY OF BUILDING PERMITS
- --------------------------------------------------------------------------------------------------------------
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>
SOURCE: ALAMANCE COUNTY CHAMBER OF COMMERCE
6
<PAGE>
SECTION III
COMPARISON WITH PUBLICLY
TRADED THRIFTS
<PAGE>
FERGUSON & COMPANY SECTION III
- ------------------ -----------
III. COMPARISON WITH PUBLICLY TRADED THRIFTS
COMPARATIVE DISCUSSION
This section presents an analysis of Community relative to a group of
eleven 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 Community'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 Community to the comparative group. Exhibits III and IV contain
selected financial information on Community 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 $125 million and $275 million. The Southeast Region, which
includes North Carolina, had 17 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 11 and
eliminated 81 for the following reasons: (a) Ten were mutual holding companies;
(b) Eighteen had less than one full year reporting as a stock; (c) Three had no
meaningful earnings data and seven had price-earnings ratios in excess of 35;
(d) Fifty-five had equity under 14% of assets; (e) Four had agreed to be
acquired: (f) Twelve had non-performing assets in excess of 1.0% of total
assets; (g) Twenty-five had less than 60% of their assets in loans; and (h)
Eleven had loans serviced in excess of 30% of assets. After eliminating the
thrifts described above, there were eleven left.
The principal source of data was SNL Securities, Charlottesville,
Virginia. There are approximately 362 publicly traded thrifts listed on NYSE,
AMEX, or Nasdaq. In developing statistics for the entire country, we eliminated
certain institutions that skewed the results, in order to make the data more
meaningful:
. We eliminated companies with losses,
. We eliminated indicated acquisition targets,
. We eliminated companies with price/earnings ratios in excess of 35,
and
. We eliminated companies that had not reported as a stock
institution for one complete year.
The resulting group of 255 publicly traded thrifts is included in Exhibit V.
The selected group of comparatives has sufficient trading volume to
provide meaningful price data. Four of the comparative group members are located
in the Southeast (three in North Carolina) and the others are located in the
Midwest (6), and Southwest (1) Regions. With total assets of approximately
$170.4 million, Community is in line with the group selected, which has average
assets of $169.0 million
1
<PAGE>
FERGUSON & COMPANY SECTION III
- ------------------ -----------
and median assets of $156.2 million. However, Community's assets after
conversion should exceed the comparative group. Pro forma assets at the midpoint
are $193.0 million.
PROFITABILITY
Using the comparison of profitability components as a percentage of
average assets, Community was below the comparative group in return on assets,
0.52% to 1.04%; net interest income, 3.24% to 3.61%; loss provisions, 0.37% to
0.06%; other operating income, 0.28% to 0.36%; operating expense, 2.58% to
2.20%; and core income, 0.52% to 1.13%. Community's operating expense minus
other income was 2.30% versus 1.84% for the comparative group. After conversion,
deployment of the proceeds will provide additional income, and Community will
compare more favorably with the comparative group in terms of return on average
assets, with a return of 0.68% at the midpoint of the appraisal range. Pro forma
return on average equity is 2.79% at the midpoint, versus a mean of 6.57% and
median of 6.75% for the comparative group.
BALANCE SHEET CHARACTERISTICS
The general asset composition of Community is similar to that of the
comparative group. Community has a higher level of passive investments with
21.77% of its assets invested in cash, investments, and mortgage-backed
securities, versus 17.21% for the comparative group. Community has a lower
percentage of its assets in loans, at 74.78% versus 80.28% for the comparative
group. Community's percentage of earning assets to interest costing liabilities
is lower than that of the group. Community has 113.96% and the comparative group
averages 120.27%. After conversion, Community's ratio will be above that of the
group of comparatives (approximately 130% at the midpoint).
The liability side differs mainly in that Community has a lower
percentage of borrowings and equity and a higher percentage of deposits.
Community has borrowings equal to 2.93% of assets versus 7.66% for the
comparative group and Community has deposits equal to 81.10% of assets versus
73.76% for the comparative group. Community's equity to assets ratio is 13.66%
versus 17.26% for the group. Community's pro forma equity to assets ratio at the
midpoint is 24.0%.
RISK FACTORS
Both Community and the comparative group have low levels of
nonperforming assets, with Community's being slightly lower than the comparative
group. Community's loan loss allowance is 0.87% of net loans, which compares
favorably with the comparative group. Community's one year gap to assets is
negative 17.00% versus negative 11.94% for the comparative group.
SUMMARY OF FINANCIAL COMPARISON
Based on the above discussion of operational, balance sheet, and risk
characteristics of Community compared with the group, we believe that
Community's performance is slightly below that of the comparative group. While
Community's capital level is below the comparative group, the conversion
proceeds will increase its capital well above the comparatives.
FUTURE PLANS
Community'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
community 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 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.
2
<PAGE>
FERGUSON & COMPANY SECTION III
- ------------------ -----------
Community has always adhered to a controlled growth policy, and in
recent years, it has continued to experience consistent 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.
Community 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>
FERGUSON & COMPANY SECTION III
- ------------------ -----------
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>
CLAS Classic Bancshares Inc. Ashland KY Trad. 5 143,450 12/29/95 14.750 19.17
CMRN Cameron Financial Corp Cameron MO Trad. 4 220,784 04/03/95 16.000 38.94
FBSI First Bancshares Inc. Mountain Grove MO Trad. 8 173,174 12/22/93 12.625 27.30
FKKY Frankfort First Bancorp Inc. Frankfort KY Trad. 3 134,734 07/10/95 15.000 23.76
FTF Texarkana First Financial Corp Texarkana AR Trad. 5 189,451 07/07/95 24.125 40.43
GSFC Green Street Financial Corp. Fayetteville NC Trad. 3 172,705 04/04/96 14.375 58.70
GTPS Great American Bancorp Champaign IL Trad. 3 149,114 06/30/95 16.000 21.75
HBS Haywood Bancshares Inc. Waynesville NC Trad. 4 149,542 12/18/87 16.750 20.94
JXVL Jacksonville Bancorp Inc. Jacksonville TX Trad. 7 242,673 04/01/96 16.125 39.05
PDB Piedmont Bancorp Inc. Hillsborough NC Trad. 1 127,607 12/08/95 9.375 25.20
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO Trad. 8 156,193 04/13/94 15.500 20.79
Maximum 8 242,673 35,159 24.125 58.70
Minimum 1 127,607 32,129 9.375 19.17
Average 5 169,039 34,614 15.511 30.55
Median 4 156,193 34,887 15.500 25.20
</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.
SOURCE: SNL & F&C CALCULATIONS 4
<PAGE>
FERGUSON & COMPANY SECTION III
- ------------------ -----------
TABLE III.2 - KEY FINANCIAL INDICATORS
<TABLE>
<CAPTION>
COMMUNITY COMPARATIVE
SAVINGS BANK GROUP
--------------- -------------
<S> <C> <C>
PROFITABILITY
(% of average assets)
Net income (1) 0.52 1.04
Net interest income 3.24 3.61
Loss (recovery) provisions 0.37 0.06
Other operating income 0.28 0.36
Operating expense (2) 2.58 2.20
Efficiency ratio (2) 73.25 54.91
Core income (excluding gains
and losses on asset sales) (1) 0.52 1.13
BALANCE SHEET FACTORS
(% of assets)
Cash and investments 12.82 14.63
Mortgage-backed and related securities 8.95 2.58
Loans 74.78 80.28
Savings deposits 81.10 73.76
Borrowings 2.93 7.66
Equity 13.66 17.26
Tangible equity 13.66 17.02
RISK FACTORS
(%)
Earning assets/costing liabilities 113.96 120.27
Non-performing assets/assets 0.13 0.35
Loss allowance/non performing assets 518.81 223.01
Loss allowance/loans 0.87 0.63
One year gap/assets (2) (17.00) (11.94)
</TABLE>
(1) Used appraisal earnings.
(2) Factored out $688,000 in non-recurring operating expenses.
(3) Only 6 of the 11 in the group reported one year gap.
SOURCE: SNL, F&C CALCULATIONS & OFFERING CIRCULAR 5
<PAGE>
FERGUSON & COMPANY TABLE III.3 - PRO FORMA COMPARISONS SECTION III
- ------------------ -----------
AS OF DECEMBER 9, 1998
<TABLE>
<CAPTION>
Ticker Name Price Mk Value PE P/Book P/TBook P/Assets Div Yld
($) ($Mil) (X) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMUNITY SAVINGS BANK
----------------------
Before Conversion N/A N/A N/A N/A N/A N/A N/A
Pro Forma Supermaximum 15.000 35.71 25.9 69.0 69.0 18.6 2.00
Pro Forma Maximum 15.000 31.05 23.9 65.2 65.2 16.6 2.00
Pro Forma Midpoint 15.000 27.00 22.0 61.4 61.4 14.8 2.00
Pro Forma Minimum 15.000 22.95 19.9 57.0 57.0 12.9 2.00
COMPARATIVE GROUP
-----------------
Averages 15.511 30.55 17.1 105.8 107.9 18.0 3.16
Medians 15.500 25.20 16.0 98.0 106.5 16.1 3.10
NORTH CAROLINA THRIFTS
----------------------
Averages 14.227 36.10 16.8 106.8 107.2 20.1 3.46
Medians 14.344 25.17 16.6 100.1 101.7 19.5 3.58
SOUTHEAST REGION THRIFTS
------------------------
Averages 16.222 68.23 19.2 136.6 141.0 16.8 2.68
Medians 15.000 42.00 17.9 117.8 122.9 15.9 2.70
ALL PUBLIC THRIFTS
------------------
Averages 17.667 270.71 18.0 133.8 141.8 14.7 2.23
Medians 15.563 43.56 17.2 121.9 127.4 14.1 2.22
COMPARATIVE GROUP
-----------------
CLAS ClassicBcshs-KY 14.750 19.17 20.5 92.5 107.3 13.4 2.17
CMRN CameronFinlCorp-MO 16.000 38.94 16.0 88.8 88.8 17.6 1.75
FBSI FirstBcshs-MO 12.625 27.30 15.4 112.9 117.8 15.8 0.95
FKKY FranfortFirst-KY 15.000 23.76 15.5 106.5 106.5 17.6 5.87
FTF TexarkanaFirst-AR 24.125 40.43 13.0 147.5 147.5 21.3 2.65
GSFC GreenStreetFin-NC 14.375 58.70 20.8 97.3 97.3 34.0 3.34
GTPS GreatAmrcnBncp-IL 16.000 21.75 24.2 94.3 94.3 14.7 2.75
HBS HaywoodBcshs-NC 16.750 20.94 12.2 98.0 101.3 14.0 3.82
JXVL Jacksonville-TX 16.125 39.05 12.8 111.4 111.4 16.1 3.10
PDB PiedmontBancorp-NC 9.375 25.20 16.5 118.7 118.7 19.8 5.12
SMBC SthrnMissouBncp-MO 15.500 20.79 21.2 95.9 95.9 14.0 3.23
</TABLE>
6
<PAGE>
FERGUSON & COMPANY TABLE III.3 - PRO FORMA COMPARISONS SECTION III
- ------------------ -----------
AS OF DECEMBER 9, 1998
<TABLE>
<CAPTION>
Ticker Name Assets Eq/A TEq/A EPS ROAA ROAE
($000) (%) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
COMMUNITY SAVINGS BANK
----------------------
Before Conversion 170,374 13.7 13.7 N/A 0.52 3.82
Pro Forma Supermaximum 200,537 26.9 26.9 0.58 0.72 2.67
Pro Forma Maximum 196,513 25.4 25.4 0.63 0.70 2.73
Pro Forma Midpoint 193,014 24.0 24.0 0.68 0.68 2.79
Pro Forma Minimum 189,516 22.6 22.6 0.75 0.65 2.87
COMPARATIVE GROUP
-----------------
Averages 169,039 17.3 17.0 0.97 1.13 6.57
Medians 156,193 14.6 14.6 0.82 1.12 6.75
NORTH CAROLINA THRIFTS
----------------------
Averages 182,793 19.4 19.4 0.87 1.21 6.13
Medians 138,575 18.6 18.6 0.77 1.16 6.17
SOUTHEAST REGION THRIFTS
------------------------
Averages 520,109 13.6 13.4 0.90 0.97 7.69
Medians 188,473 12.8 12.8 0.85 0.94 7.24
ALL PUBLIC THRIFTS
------------------
Averages 1,796,724 11.8 11.5 1.08 0.91 8.50
Medians 359,857 10.2 9.8 0.96 0.86 7.65
COMPARATIVE GROUP
-----------------
CLAS ClassicBcshs-KY 143,450 14.4 12.7 0.72 0.65 4.34
CMRN CameronFinlCorp-MO 220,784 19.9 19.9 1.00 1.12 5.36
FBSI FirstBcshs-MO 173,174 14.0 13.5 0.82 1.07 7.71
FKKY FranfortFirst-KY 134,734 16.6 16.6 0.97 1.20 6.75
FTF TexarkanaFirst-AR 189,451 14.5 14.5 1.86 1.69 11.23
GSFC GreenStreetFin-NC 172,705 34.9 34.9 0.69 1.60 4.55
GTPS GreatAmrcnBncp-IL 149,114 15.6 15.6 0.66 0.71 3.81
HBS HaywoodBcshs-NC 149,542 14.3 13.9 1.37 1.12 7.70
JXVL Jacksonville-TX 242,673 14.5 14.5 1.26 1.33 9.13
PDB PiedmontBancorp-NC 127,607 16.7 16.7 0.57 1.20 7.31
SMBC SthrnMissouBncp-MO 156,193 14.6 14.6 0.73 0.71 4.43
Note: Stock prices are closing prices or last trade.
Pro forma calculations for Community are based on sales
at $15 a share with a minimum of $22,950,000, midpoint
of $27,000,000, maximum of $31,050,000, and supermaximum
of $35,707,500. SOURCES:COMMUNITY'S AUDITED AND UNAUDITED
FINANCIAL STATEMENTS, SNL SECURITIES, AND F&C CALCULATIONS.
</TABLE>
7
<PAGE>
SECTION IV
CORRELATION OF MARKET
VALUE
<PAGE>
FERGUSON & COMPANY SECTION IV
- ------------------ ----------
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 Community'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 Community'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, Community is
below its comparative group in most categories. Community's net income is 0.52%
of assets versus 1.04% for the Comparatives; its net interest income as a
percent of assets is 3.24% versus 3.61% for the Comparatives; its loan loss
provision as a percent of assets is 0.37% versus 0.06% for the Comparatives; its
noninterest income is 0.28% versus 0.36% for the Comparatives; Community's
operating expenses as a percent of assets is 2.58% versus 2.20% for the
Comparatives; its efficiency ratio is 73.25% versus 54.91% for the Comparatives;
and its core income as a percent of assets is 0.52% versus 1.13% for the
Comparatives.
The net interest income difference is attributable to the loan mix (i.e.,
Community has more in home loans, which have lower yields), and Community's
higher ratio of assets in passive investments, at 21.77% versus 17.21% for the
comparatives, also reduces net interest income as a percentage of assets as
contrasted with the comparatives.
Community's loan loss provisions are well above its comparative group, with
loss provisions of 0.37% of assets versus 0.06% of assets for the comparative
group. This results from Community aggressively recording loan losses in recent
years to achieve desired loss allowance levels. Community's other operating
income is 0.28% of average assets, versus 0.36% for the comparative group.
Community's lower ratio results from its loan and deposit mix, which are less
commercial bank oriented, and give rise to less fee income.
After Community completes its stock conversion, its core income as a
percentage of average assets will increase. Table III.3 projects that
Community's return on assets will be 0.68% at the midpoint, versus a mean of
1.13% and median of 1.12% for the comparative group.
Community's pro forma equity to assets ratio at the midpoint is 24.0%,
versus a mean of 17.3% and median of 14.6% for the comparative group, making it
difficult for Community to achieve a reasonable return on equity. Community's
pro forma return on equity is below the comparative group--2.79% at the midpoint
versus a mean of 6.57% and median of 6.75% for the comparative group.
Community's recorded earnings have been adjusted for appraisal purposes.
The Bank recorded higher than normal loan loss provisions and non-recurring
operating expenses.
1
<PAGE>
FERGUSON & COMPANY SECTION IV
- ------------------ ----------
TABLE IV.1 - APPRAISAL EARNINGS ADJUSTMENTS
<TABLE>
<S> <C>
Net income, year ended September 30, 1998 $ 168,000
Plus non-recurring expenses for Directors' benefit plans 331,000
Plus chargeoffs of fixed assets and software 212,000
Plus 75% of calendar year 1997 bonuses which were all recorded during the 145,000
December 1997 quarter
Plus loan loss provisions in excess of normal amount--620,000 - 188,000 432,000
Less applicable taxes on above adjustments at 36.0% -403,000
======================
Appraisal earnings, year ended September 30, 1998 $ 885,000
======================
</TABLE>
Community's asset composition is similar but more passive, than the
comparative group. Community 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, Community is similar to the comparative group. Community has
a slightly lower level of non performing assets. Community's loan loss
allowance is 0.87% of net loans, comparing favorably with the comparative group,
which is 0.63%. Its ratio of interest earning assets to interest bearing
liabilities (113.96%) is below the comparative group (120.27%). Community's
ratio will be above the comparative group after conversion, with 124% at the
midpoint. From an interest rate risk factor, Community has no more interest
rate risk than the comparative group.
We believe that a minor DOWNWARD ADJUSTMENT is necessary relative to
-------------------
financial aspects of Community.
MARKET AREA
Section II describes Community's market area.
We believe that NO ADJUSTMENT is required for Community's market area.
-------------
MANAGEMENT
The President, who functions as CEO, has been with Community 39 years,
serving as CEO since 1990. The Executive Vice President joined Community in
1996 with approximately 24 years experience in the banking industry. The Senior
Vice President and Secretary has been with Community 25 years and previously
served as chief financial officer. The Vice President of Finance and CFO, a
certified management accountant, joined Community in 1998 with 17 years banking
experience. The rest of the officers have either served Community for many
years or other financial institutions performing the duties they perform for
Community. To facilitate the Bank's conversion from thrift to community bank,
the Bank's management staff includes a wealth of commercial bank experience with
quality, major banks. Community has a management succession plan.
We believe that no ADJUSTMENT is required for Community'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 3.16% and a median of 3.10%, while
2
<PAGE>
FERGUSON & COMPANY SECTION IV
- ------------------ ----------
all public thrifts are paying a mean of 2.23% and median of 2.22%. Community
intends to pay a dividend at an initial annual rate of 2.00%.
We believe that NO ADJUSTMENT is required relative to Community's intention
-------------
to pay dividends.
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 $19.17 million to $58.70 million, with a mean
value of $30.55 million and a median value of $25.20 million. The midpoint of
Community's valuation range is $28.5 million at $15 a share, or 1,900,000 shares
(including the 100,000 shares that will be contributed to the charitable
foundation).
We believe NO ADJUSTMENT is required relative to the liquidity of
-------------
Community'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 December 9, 1998--
decreased 16.3% to 681.7. 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 December 9, 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 21.6% from March
31, 1998 to December 9, 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
3
<PAGE>
FERGUSON & COMPANY SECTION IV
- ------------------ ----------
five have been announced in 1998. Currently, there are 12 publicly held thrifts
in the State of North Carolina. There are 52 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 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. Community, 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, again on October 15, 1998, and again on November 17, 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 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. Recent announcements of major
layoffs among large companies will have some effect on our unemployment and
economic situation.
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 0.50% 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
4
<PAGE>
FERGUSON & COMPANY SECTION IV
- ------------------ ----------
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 June 26, 1998.
At that time, the yield curve was relatively flat, with only a 24 BP difference
between the one year treasury bill rate and the 30 year treasury. Since that
time, the yield curve has become slightly more sloped, with a 50 BP spread
between the one year treasury bill rate and the 30 year treasury rate at
December 11, 1998.
At June 26, 1998, the spread between the 1 year T-Bill and the 5 year T-
Note was 9 BP, and the spread between the 5 year T-Note and the 30 year bond was
15 BP. At December 11, 1998, the spreads were negative 11 BP and positive 61
BP, respectively.
From June 26, 1998, to December 11, 1998, the Fed Funds rate decreased 74
BP and the Prime Rate decreased 75 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.
Community, 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 15 conversions completed since May 31, 1998. The
average change in price since conversion is a loss of 2.0% and the median change
is a loss of 2.5%. Within that group, 10 have decreased in value and 5 have
increased in value. The worst performer decreased 24.4% in value and the best
performer increased 30.0% in value. The average increase in value at one day,
one week, and one month after conversion has been 8.9%, 9.3%, and 7.3%,
respectively. The median increase in value at one day, one week, and one month
after conversion has been 3.1%, 0.0%, and 0.6%, respectively.
We believe a DOWNWARD ADJUSTMENT is required for the new issue discount.
-------------------
ADJUSTMENTS CONCLUSION
ADJUSTMENTS SUMMARY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
NO CHANGE UPWARD DOWN
<S> <C> <C> <C>
Financial Aspects X
Market Area X
Management X
Dividends X
Liquidity X
Thrift Equity Market Conditions X
- --------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
FERGUSON & COMPANY SECTION IV
- ------------------ ----------
VALUATION APPROACH
Typically, investors rely on the price/earnings ratio as the most
appropriate indicator of value. We consider price/earnings to be one of the
important pricing methods in valuing a thrift stock. Price/book is a well
recognized yardstick for measuring the value of financial institution stocks in
general. Another method of viewing thrift values is price/assets, which is more
meaningful in situations where the subject is thinly capitalized. Given the
healthy condition of the thrift industry today, more emphasis is placed on
price/earnings and price/book. Generally, price/earnings and price/book should
be considered in tandem.
Table III.3 presents Community's pro forma ratios and compares them to the
ratios of its comparative group and the publicly held thrift industry as a
whole. Community's earnings for the twelve months ended September 30, 1998, were
approximately $168,000, with adjustments of $717,000 required to determine
appraisal earnings of $885,000. 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 17.1 times earnings at
December 9, 1998, and at 105.8% of book value. The comparative group traded at
a median of 16.0 times earnings and a median of 98.0% of book value. At the
midpoint of the valuation range, Community is priced at 22.0 times earnings and
61.4% of book value. At the maximum end of the range, Community is priced at
23.9 times earnings and 65.2% of book value. At the supermaximum, Community is
priced at 25.9 times earnings and 69.0% of book value.
The midpoint valuation of $27,000,000 represents a discount of 42.0% from
the average and a discount of 37.3% from the median of the comparative group on
a price/book basis. The price/earnings ratio for Community at the midpoint
represents a premium of 28.7% over the comparative group's mean and a premium of
37.5% over the median price/earnings ratio.
The maximum valuation of $31,050,000 represents a discount of 38.4% from
the average and 33.5% from the median of the comparative group on a price/book
basis. The price/earnings ratio for Community at the maximum represents a
premium of 39.8% over the average and a premium of 49.4% over the median of the
comparative group.
As shown in Table IV.3, conversions closing since May 31, 1998 (excluding
mutual holding companies), have closed at an average price to book ratio of
70.5% and median of 71.7%. Community's pro forma price to book ratio is 61.4%
at the midpoint, 65.2% at the maximum, and 69.0% at the supermaximum of the
range. At the midpoint, Community is 12.9% below the average and 14.4% below
the median. At the maximum of the range, Community is 7.5% below the average
and 9.1% below the median. At the supermaximum of the range, Community's pro
forma price to book ratio is 2.1% below the average and 3.8% below the median.
However, it should be noted that the last four standard conversions that closed
prior to December 9, 1998, closed at price to book ratios of 71.7%, 69.9%,
62.7%, and 52.6%, respectively.
VALUATION CONCLUSION
We believe that as of December 9, 1998, the estimated pro forma market
value of Community was $27,000,000. The resulting valuation range was
$22,950,000 at the minimum to $31,050,000 at the maximum, based on a range of
15% below and 15% above the midpoint valuation. The supermaximum is
$35,707,500, based on 1.15 times the maximum. Pro forma comparisons with the
comparative group are presented in Table III.3 based on calculations shown in
Exhibit VII.
6
<PAGE>
FERGUSON & COMPANY TABLE IV.2 - NORTH CAROLINA ACQUISITIONS SECTION IV
- ------------------ ----------
(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>
SOURCE: SNL & F&C CALCULATIONS 7
<PAGE>
FERGUSON & COMPANY TABLE IV.2 - NORTH CAROLINA ACQUISITIONS SECTION IV
- ------------------ ----------
(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>
SOURCE: SNL & F&C CALCULATIONS 8
<PAGE>
FERGUSON & COMPANY TABLE IV.3 - RECENT CONVERSIONS SECTION IV
- ------------------ ----------
(COMPLETED SINCE MAY 31, 1998)
<TABLE>
<CAPTION>
Conversion Gross Offering
Assets Proceeds Price
Ticker Short Name State IPO Date ($000) ($000) ($)
<S> <C> <C> <C> <C> <C> <C>
PULBD Pulaski Financial Corp. MO 12/03/98 NA NA 10.000
SCFS Seacoast Financial Services MA 11/20/98 1,106,590 140,000 10.000
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 1,106,590 334,656 10.000
Minimum 72,497 15,539 10.000
Average 453,405 90,369 10.000
Median 254,749 22,995 10.000
Excluding Mutual Holding Companies
----------------------------------
W/O MHC
- -------
Maximum 1,106,590 334,656 10.000
Minimum 72,497 15,539 10.000
Average 566,359 130,304 10.000
Median 664,996 140,000 10.000
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 9
<PAGE>
FERGUSON & COMPANY TABLE IV.3 - RECENT CONVERSIONS SECTION IV
- ------------------ ----------
(COMPLETED SINCE MAY 31, 1998)
<TABLE>
<CAPTION>
CONVERSION PRICING RATIOS
-------------------------------------------------------
Price/ Price/ Price/ Price/ Current Current Current
Pro-Forma Pro-Forma Pro-Forma Adjusted Stock Price/ Price/ T
Book V Tang. BV Earnings Assets Price Book V Book V
Ticker (%) (%) (x) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
PULBD 100.0 NA NA NA 9.750 NA NA
SCFS 52.6 52.6 2.9 11.2 10.250 NA NA
FNFI 62.7 62.7 23.9 19.5 10.375 NA NA
SFFS 100.0 100.0 15.6 8.3 9.625 NA NA
CNYF 69.9 69.9 47.2 18.3 9.500 NA NA
WEBK 95.4 95.4 40.2 5.6 9.750 NA NA
CITZ 71.7 NA 18.2 19.3 9.750 86.5 NA
HSTD 100.0 NA NA NA 8.250 76.5 76.5
PSBI 100.0 NA NA NA 7.563 77.7 77.7
THTL 100.0 NA NA NA 9.438 84.1 84.1
UCFC 77.8 77.8 14.1 24.3 13.000 90.2 90.2
BCSB 142.3 142.3 26.1 8.3 8.875 NA NA
HRBT 80.1 NA 22.3 20.7 11.500 83.6 83.7
LIBB 121.6 121.6 20.4 7.8 8.750 99.9 99.9
FKAN 78.5 78.5 14.0 14.0 10.563 77.4 78.4
Maximum 142.3 142.3 47.2 24.3 13.000 99.9 99.9
Minimum 52.6 52.6 2.9 5.6 7.563 76.5 76.5
Average 90.2 89.0 22.3 14.3 9.796 84.5 84.3
Median 95.4 78.5 20.4 14.0 9.750 83.9 83.7
W/O MHC
- ---------
Maximum 80.1 78.5 47.2 24.3 13.000 90.2 90.2
Minimum 52.6 52.6 2.9 11.2 9.500 77.4 78.4
Average 70.5 68.3 20.4 18.2 10.705 84.4 84.1
Median 71.7 69.9 18.2 19.3 10.375 85.0 83.7
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 10
<PAGE>
FERGUSON & COMPANY TABLE IV.3 - RECENT CONVERSIONS SECTION IV
- ------------------ (COMPLETED SINCE MAY 31, 1998) ----------
<TABLE>
<CAPTION>
Price One Price One Price One POST CONVERSION PRICE CHANGES
----------------------------------------------------------
Day After Week After Month After One One One To From Day 1
Conversion Conversion Conversion Day Week Month Date To Current
Ticker ($) ($) ($) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PULBD 9.813 9.750 NA (1.9) (2.5) NA (2.5) (0.6)
SCFS 10.313 10.000 NA 3.1 - NA 2.5 (0.6)
FNFI 11.500 10.750 11.375 15.0 7.5 13.8 3.8 (9.8)
SFFS 8.500 8.938 10.000 (15.0) (10.6) - (3.8) 13.2
CNYF 9.500 9.500 9.500 (5.0) (5.0) (5.0) (5.0) -
WEBK 10.000 9.938 10.063 - (0.6) 0.6 (2.5) (2.5)
CITZ 11.438 10.938 9.750 14.4 9.4 (2.5) (2.5) (14.8)
HSTD 9.313 9.250 8.500 (6.9) (7.5) (15.0) (17.5) (11.4)
PSBI 9.188 9.125 7.813 (8.1) (8.8) (21.9) (24.4) (17.7)
THTL 9.938 9.813 9.000 (0.6) (1.9) (10.0) (5.6) (5.0)
UCFC 15.000 16.000 15.750 50.0 60.0 57.5 30.0 (13.3)
BCSB 12.563 12.625 11.625 25.6 26.3 16.3 (11.3) (29.4)
HRBT 12.563 13.500 13.375 25.6 35.0 33.8 15.0 (8.5)
LIBB 11.438 11.625 11.250 14.4 16.3 12.5 (12.5) (23.5)
FKAN 12.313 12.250 11.500 23.1 22.5 15.0 5.6 (14.2)
Maximum 15.000 16.000 15.750 50.0 60.0 57.5 30.0 13.2
Minimum 8.500 8.938 7.813 (15.0) (10.6) (21.9) (24.4) (29.4)
Average 10.892 10.933 10.731 8.9 9.3 7.3 (2.0) (9.2)
Median 10.313 10.000 10.063 3.1 - 0.6 (2.5) (9.8)
W/O MHC
- --------
Maximum 15.000 16.000 15.750 50.0 60.0 57.5 30.0 -
Minimum 9.500 9.500 9.500 (5.0) (5.0) (5.0) (5.0) (14.8)
Average 11.804 11.848 11.875 18.0 18.5 18.8 7.1 (8.7)
Median 11.500 10.938 11.438 15.0 9.4 14.4 3.8 (9.8)
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 11
<PAGE>
FERGUSON & COMPANY TABLE IV.4 SECTION IV
- ------------------
COMPARSION OF PRICING RATIOS
<TABLE>
<CAPTION>
Community Group Percent Premium
Savings Compared to (Discount) Versus
--------------------------- --------------------------
Bank Average Median Average Median
----------- --------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
COMPARISON OF PE RATIO AT
MIDPOINT TO:
- ---------------------------------------
Comparative group 22.0 17.1 16.0 28.7 37.5
North Carolina thrifts 22.0 16.8 16.6 31.0 32.5
Southeast Region thrifts 22.0 19.2 17.9 14.6 22.9
All public thrifts 22.0 18.0 17.2 22.2 27.9
Recent conversions 22.0 20.4 18.2 7.8 20.9
COMPARISON OF PE RATIO AT
MAXIMUM TO:
- ---------------------------------------
Comparative group 23.9 17.1 16.0 39.8 49.4
North Carolina thrifts 23.9 16.8 16.6 42.3 44.0
Southeast Region thrifts 23.9 19.2 17.9 24.5 33.5
All public thrifts 23.9 18.0 17.2 32.8 39.0
Recent conversions 23.9 20.4 18.2 17.2 31.3
COMPARISON OF PE RATIO AT
SUPERMAXIMUM TO:
- ---------------------------------------
Comparative group 25.9 17.1 16.0 51.5 61.9
North Carolina thrifts 25.9 16.8 16.6 54.2 56.0
Southeast Region thrifts 25.9 19.2 17.9 34.9 44.7
All public thrifts 25.9 18.0 17.2 43.9 50.6
Recent conversions 25.9 20.4 18.2 27.0 42.3
COMPARISON OF PB RATIO AT
MIDPOINT TO:
- ---------------------------------------
Comparative group 61.4 105.8 98.0 (42.0) (37.3)
North Carolina thrifts 61.4 106.8 107.2 (42.5) (42.7)
Southeast Region thrifts 61.4 136.6 117.8 (55.1) (47.9)
All public thrifts 61.4 133.8 121.9 (54.1) (49.6)
Recent conversions 61.4 70.5 71.7 (12.9) (14.4)
COMPARISON OF PB RATIO AT
MAXIMUM TO:
- ---------------------------------------
Comparative group 65.2 105.8 98.0 (38.4) (33.5)
North Carolina thrifts 65.2 106.8 107.2 (39.0) (39.2)
Southeast Region thrifts 65.2 136.6 117.8 (52.3) (44.7)
All public thrifts 65.2 133.8 121.9 (51.3) (46.5)
Recent conversions 65.2 70.5 71.7 (7.5) (9.1)
COMPARISON OF PB RATIO AT
SUPERMAXIMUM TO:
- ---------------------------------------
Comparative group 69.0 105.8 98.0 (34.8) (29.6)
North Carolina thrifts 69.0 106.8 107.2 (35.4) (35.6)
Southeast Region thrifts 69.0 136.6 117.8 (49.5) (41.4)
All public thrifts 69.0 133.8 121.9 (48.4) (43.4)
Recent conversions 69.0 70.5 71.7 (2.1) (3.8)
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 12
<PAGE>
FERGUSON & COMPANY FIGURE IV.1 - SNL INDEX SECTION IV
- ------------------ ----------
<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%
9/30/98 651.3 -20.0% -20.0%
10/31/98 676.3 3.8% -16.9%
11/30/98 710.6 5.1% -12.7%
12/9/98 681.7 -4.1% -16.3%
</TABLE>
[GRAPH APPEARS HERE]
SOURCE: SNL & F&C CALCULATIONS 13
<PAGE>
FERGUSON & COMPANY FIGURE IV.2 - INTEREST RATES SECTION IV
- ------------------ ----------
<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>
26-Jun-98 5.42 5.41 5.50 5.46 5.65 0.24
------------
10-Jul-98 5.47 5.34 5.41 5.41 5.61
- ---------------------------------------------------------------
24-Jul-98 5.50 5.35 5.47 5.46 5.68 0.33
------------
7-Aug-98 5.61 5.31 5.43 5.43 5.66
- ---------------------------------------------------------------
21-Aug-98 5.59 5.23 5.32 5.39 5.53 0.30
------------
4-Sep-98 5.61 4.91 4.92 5.05 5.32
- ---------------------------------------------------------------
18-Sep-98 5.54 4.71 4.62 4.83 5.21 0.50
------------
2-Oct-98 5.58 4.41 4.24 4.46 5.00
- ---------------------------------------------------------------
16-Oct-98 5.14 4.12 4.22 4.58 5.02 0.90
------------
30-Oct-98 4.95 4.09 4.22 4.63 5.12
- ---------------------------------------------------------------
13-Nov-98 4.80 4.54 4.51 4.82 5.27 0.73
- --------------------------------------------------------------- ------------
27-Nov-98 4.54 4.58 4.62 4.83 5.21
11-Dec-98 4.68 4.50 4.39 4.60 5.00 0.50
- --------------------------------------------------------------- ------------
</TABLE>
RATES JUNE 26, 1998 THROUGH DECEMBER 11, 1998
[GRAPH 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>
11-Dec-98 4.68 4.50 4.39 4.60 5.00 0.50
- --------------------------------------------------------------- ------------
</TABLE>
CURRENT YIELD CURVE
[GRAPH APPEARS HERE]
SOURCE: FINANCIAL DATA, FEDERAL RESERVE BANK OF ST. LOUIS, MO. 14
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT I
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBIT I - FIRM QUALIFICATIONS
Ferguson & Company (F&C), is a financial, economic, and regulatory
consulting firm providing services to financial institutions. It is located in
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>
FERGUSON & COMPANY EXHIBIT II.1 - SELECTED PUBLICLY HELD SOUTHEAST REGION
- ------------------ 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 13.500 13.91 20.2
BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/94 11.750 27.00 13.8
BKUNA BankUnited Financial Corp. Coral Gables FL SE SAIF NASDAQ 12/11/85 7.313 132.72 33.2
CENB Century Bancorp Inc. Thomasville NC SE SAIF NASDAQ 12/23/96 14.000 17.58 15.2
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90 20.063 125.67 24.5
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 11.750 30.22 18.1
CFNC Carolina Fincorp Inc. Rockingham NC SE SAIF NASDAQ 11/25/96 8.375 15.96 14.4
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 15.000 65.97 25.9
CMSV Community Savings Bnkshrs(MHC) North Palm Beach FL SE SAIF NASDAQ 10/24/94 22.500 114.84 23.9
CNIT CENIT Bancorp Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 18.375 89.07 15.7
COOP Cooperative Bankshares Inc. Wilmington NC SE SAIF NASDAQ 08/21/91 14.313 43.56 21.1
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 18.250 104.42 12.1
FFBH First Federal Bancshares of AR Harrison AR SE SAIF NASDAQ 05/03/96 20.250 92.65 16.5
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 19.750 269.76 17.2
FFDB FirstFed Bancorp Inc. Bessemer AL SE SAIF NASDAQ 11/19/91 10.000 24.45 15.9
FFFL Fidelity Bankshares Inc. (MHC) West Palm Beach FL SE SAIF NASDAQ 01/07/94 23.000 156.46 24.7
FFLC FFLC Bancorp Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 16.500 60.84 15.0
FGHC First Georgia Holding Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 8.250 39.59 21.7
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86 11.625 60.23 20.4
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 22.125 299.84 22.8
FSPT FirstSpartan Financial Corp. Spartanburg SC SE SAIF NASDAQ 07/09/97 31.500 119.32 18.9
FSTC First Citizens Corp. Newnan GA SE SAIF NASDAQ 03/01/86 26.500 73.26 17.7
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 24.125 40.43 13.0
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 14.375 58.70 20.8
HBS Haywood Bancshares Inc. Waynesville NC SE SAIF AMSE 12/18/87 16.750 20.94 12.2
PDB Piedmont Bancorp Inc. Hillsborough NC SE SAIF AMSE 12/08/95 9.375 25.20 16.5
SCBS Southern Community Bancshares Cullman AL SE SAIF NASDAQ 12/23/96 15.000 17.06 16.5
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 13.500 7.82 18.8
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 22.000 81.71 16.8
SRN Southern Banc Co. Gadsden AL SE SAIF AMSE 10/05/95 12.500 15.38 25.0
SSM Stone Street Bancorp Inc. Mocksville NC SE SAIF AMSE 04/01/96 14.625 25.13 17.4
SZB SouthFirst Bancshares Inc. Sylacauga AL SE SAIF AMSE 02/14/95 16.125 14.75 34.3
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 15.000 18.28 18.5
UFBS Union Financial Bcshs Inc. Union SC SE SAIF NASDAQ NA 13.500 17.22 14.5
Maximum 31.500 299.84 34.3
Minimum 7.313 7.82 12.1
Average 16.222 68.23 19.2
Median 15.000 42.00 17.9
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 1
<PAGE>
FERGUSON & COMPANY EXHIBIT II.1 - SELECTED PUBLICLY HELD SOUTHEAST REGION
- ------------------ THRIFTS
<TABLE>
<CAPTION>
Tangible
Current Current Current Total Equity/ Equity/ Core Core Core NPAs/ Price/
Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA ROAE Merger Current Assets Core
Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing (%) EPS
Ticker (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date MRQ (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AFBC 92.3 92.3 11.9 2.37 116,928 12.9 12.9 0.67 0.59 4.18 N 12/09/98 0.34 26.0
BFSB 127.0 127.0 17.0 2.72 158,711 13.4 13.4 0.85 1.32 9.67 N 12/09/98 0.34 10.9
BKUNA 69.7 83.8 3.6 - 3,738,383 5.3 4.5 0.22 0.14 2.75 N 12/09/98 0.54 45.7
CENB 93.8 93.8 19.3 4.86 92,320 20.5 20.5 0.92 1.05 4.49 N 12/09/98 0.30 15.9
CFCP 332.2 332.2 19.5 1.40 643,560 5.9 5.9 0.82 0.93 15.46 N 12/09/98 0.36 25.1
CFFC 115.8 116.2 16.1 2.72 187,495 13.9 13.9 0.65 0.95 6.88 N 12/09/98 0.25 24.5
CFNC 102.1 102.1 14.4 2.87 110,960 14.1 14.1 0.58 0.94 4.89 N 12/09/98 0.12 16.1
CFTP 101.0 101.0 25.1 2.13 263,246 22.3 22.3 0.58 1.07 4.27 N 12/09/98 0.28 25.0
CMSV 133.1 133.1 14.5 4.00 791,291 10.7 10.7 0.94 0.64 5.86 N 12/09/98 0.30 23.4
CNIT 170.6 184.3 14.4 2.40 623,547 8.1 7.5 1.17 0.84 11.20 N 12/09/98 0.15 15.8
COOP 139.9 139.9 11.2 - 389,409 8.0 8.0 0.68 0.58 7.40 N 12/09/98 - 22.4
EBSI 136.4 136.4 8.5 3.51 1,242,640 6.2 6.2 1.51 0.88 12.09 N 12/09/98 1.06 11.7
FFBH 114.9 114.9 15.7 1.38 599,945 13.7 13.7 1.23 1.01 6.84 N 12/09/98 0.90 14.9
FFCH 215.6 215.6 14.7 2.43 1,839,708 6.8 6.8 1.15 0.90 13.70 N 12/09/98 0.71 15.4
FFDB 134.8 145.6 13.5 2.80 181,434 10.0 9.3 0.63 0.86 8.77 N 12/09/98 0.60 16.7
FFFL 171.4 176.1 10.4 4.35 1,498,442 6.1 5.9 0.93 0.48 7.16 N 12/09/98 0.26 26.1
FFLC 115.4 115.4 14.4 2.18 422,228 12.5 12.5 1.10 1.03 7.99 N 12/09/98 0.19 13.8
FGHC 268.7 287.5 21.9 - 180,806 8.2 7.7 0.38 1.16 14.15 N 12/09/98 1.65 20.6
FLAG 152.0 152.0 13.3 2.07 453,648 8.8 8.8 0.57 0.76 8.65 N 12/09/98 1.57 26.4
FLFC 245.3 269.5 20.0 1.72 1,501,368 8.1 7.5 0.97 0.89 11.36 N 12/09/98 0.84 21.3
FSPT 110.3 110.3 25.0 2.54 530,412 22.7 22.7 1.67 1.34 5.26 N 12/09/98 0.31 21.3
FSTC 187.5 227.1 19.0 1.36 385,582 10.1 8.5 1.50 1.23 12.23 N 12/09/98 1.18 17.9
FTF 147.5 147.5 21.3 2.65 189,451 14.5 14.5 1.86 1.69 11.23 N 12/09/98 0.03 11.6
GSFC 97.3 97.3 34.0 3.34 172,705 34.9 34.9 0.69 1.60 4.55 N 12/09/98 0.13 18.9
HBS 98.0 101.3 14.0 3.82 149,542 14.3 13.9 1.37 1.12 7.70 N 12/09/98 0.51 15.5
PDB 118.7 118.7 19.8 5.12 127,607 16.7 16.7 0.57 1.20 7.31 N 12/09/98 0.68 16.7
SCBS 144.8 144.8 25.1 2.00 67,920 17.3 17.3 0.91 1.22 6.49 N 12/09/98 0.18 12.9
SCCB 81.6 81.6 17.2 4.74 45,572 21.1 21.1 0.72 0.89 4.20 N 12/09/98 2.21 15.3
SOPN 116.8 116.8 27.6 4.55 295,703 23.7 23.7 1.31 1.76 7.65 N 12/09/98 0.09 17.2
SRN 81.6 82.1 14.5 2.80 106,027 17.8 17.7 0.50 0.53 3.02 N 12/09/98 - 22.3
SSM 87.7 87.7 20.3 3.15 124,096 23.1 23.1 0.84 1.39 5.02 N 12/09/98 - 15.2
SZB 94.1 96.6 9.3 3.72 158,518 9.9 9.7 0.47 0.35 3.02 N 12/09/98 NA NM
TWIN 129.3 129.3 16.4 2.67 111,436 12.7 12.7 0.81 0.90 7.03 N 12/09/98 0.35 13.4
UFBS 116.8 134.3 9.4 2.76 183,066 8.1 7.1 0.93 0.70 8.86 N 12/09/98 0.67 14.7
Maximum 332.2 332.2 34.0 5.12 3,738,383 34.9 34.9 1.86 1.76 15.46 2.21 45.7
Minimum 69.7 81.6 3.6 - 45,572 5.3 4.5 0.22 0.14 2.75 - 10.9
Average 136.6 141.0 16.8 2.68 520,109 13.6 13.4 0.90 0.97 7.69 0.52 19.1
Median 117.8 122.9 15.9 2.70 188,473 12.8 12.8 0.85 0.94 7.24 0.34 16.7
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 2
<PAGE>
FERGUSON & COMPANY EXHIBIT II.1 - SELECTED PUBLICITY HELD SOUTHEAST REGION
- ------------------
THRIFTS
<TABLE>
<CAPTION>
Core Core Core
EPS ROAA ROAE
($) (%) (%)
Ticker MRQ MRQ MRQ
<S> <C> <C> <C>
AFBC 0.13 0.39 3.04
BFSB 0.27 1.57 11.76
BKUNA 0.04 0.11 2.03
CENB 0.22 1.05 5.14
CFCP 0.20 0.84 14.24
CFFC 0.12 0.71 5.06
CFNC 0.13 0.84 6.06
CFTP 0.15 1.01 4.51
CMSV 0.24 0.63 5.91
CNIT 0.29 0.90 10.96
COOP 0.16 0.53 6.61
EBSI 0.39 0.80 12.23
FFBH 0.34 1.04 7.35
FFCH 0.32 0.99 14.88
FFDB 0.15 0.81 8.15
FFFL 0.22 0.42 6.80
FFLC 0.30 1.08 8.55
FGHC 0.10 1.15 14.40
FLAG 0.11 0.53 6.11
FLFC 0.26 0.93 11.75
FSPT 0.37 1.13 4.79
FSTC 0.37 1.15 11.41
FTF 0.52 1.81 12.40
GSFC 0.19 1.68 4.80
HBS 0.27 0.89 6.16
PDB 0.14 1.19 7.17
SCBS 0.29 1.57 9.46
SCCB 0.22 1.03 5.09
SOPN 0.32 1.73 7.42
SRN 0.14 0.59 3.36
SSM 0.24 1.44 5.74
SZB - - -
TWIN 0.28 1.20 9.43
UFBS 0.23 0.68 8.70
Maximum 0.52 1.81 14.88
Minimum - - -
Average 0.23 0.95 7.69
Median 0.23 0.96 6.99
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 3
<PAGE>
FERGUSON & COMPANY EXHIBIT II.2 - SELECTED PUBLICITY HELD NORTH CAROLINA
- ------------------
THRIFTS
<TABLE>
<CAPTION>
Deposit Current Current Price/
Insurance Stock Market LTM
Agency Price Value Core EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CENB Century Bancorp Inc. Thomasville NC SE SAIF NASDAQ 12/23/96 14.000 17.58 15.2
CFNC Carolina Fincorp Inc. Rockingham NC SE SAIF NASDAQ 11/25/96 8.375 15.96 14.4
COOP Cooperative Bankshares Inc. Wilmington NC SE SAIF NASDAQ 08/21/91 14.313 43.56 21.1
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 14.375 58.70 20.8
HBS Haywood Bancshares Inc. Waynesville NC SE SAIF AMSE 12/18/87 16.750 20.94 12.2
PDB Piedmont Bancorp Inc. Hillsborough NC SE SAIF AMSE 12/08/95 9.375 25.20 16.5
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 22.000 81.71 16.8
SSM Stone Street Bancorp Inc. Mocksville NC SE SAIF AMSE 04/01/96 14.625 25.13 17.4
Maximum 22.000 81.71 21.1
Minimum 8.375 15.96 12.2
Average 14.227 36.10 16.8
Median 14.344 25.17 16.6
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 4
<PAGE>
FERGUSON & COMPANY EXHIBIT II.2 - SELECTED PUBLICLY HELD NORTH CAROLINA THRIFTS
- ------------------
<TABLE>
<CAPTION>
Tangible
Current Current Current Total Equity/ Equity/ Core Core Core NPAs/
Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA 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>
CENB 93.8 93.8 19.3 4.86 92,320 20.5 20.5 0.92 1.05 4.49 N 12/09/98 0.30
CFNC 102.1 102.1 14.4 2.87 110,960 14.1 14.1 0.58 0.94 4.89 N 12/09/98 0.12
COOP 139.9 139.9 11.2 - 389,409 8.0 8.0 0.68 0.58 7.40 N 12/09/98 -
GSFC 97.3 97.3 34.0 3.34 172,705 34.9 34.9 0.69 1.60 4.55 N 12/09/98 0.13
HBS 98.0 101.3 14.0 3.82 149,542 14.3 13.9 1.37 1.12 7.70 N 12/09/98 0.51
PDB 118.7 118.7 19.8 5.12 127,607 16.7 16.7 0.57 1.20 7.31 N 12/09/98 0.68
SOPN 116.8 116.8 27.6 4.55 295,703 23.7 23.7 1.31 1.76 7.65 N 12/09/98 0.09
SSM 87.7 87.7 20.3 3.15 124,096 23.1 23.1 0.84 1.39 5.02 N 12/09/98 -
Maximum 139.9 139.9 34.0 5.12 389,409 34.9 34.9 1.37 1.76 7.70 0.68
Minimum 87.7 87.7 11.2 - 92,320 8.0 8.0 0.57 0.58 4.49 -
Average 106.8 107.2 20.1 3.46 182,793 19.4 19.4 0.87 1.21 6.13 0.23
Median 100.1 101.7 19.5 3.58 138,575 18.6 18.6 0.77 1.16 6.17 0.13
<CAPTION>
Price/
Core
EPS
Ticker (x)
<S> <C>
CENB 15.9
CFNC 16.1
COOP 22.4
GSFC 18.9
HBS 15.5
PDB 16.7
SOPN 17.2
SSM 15.2
Maximum 22.4
Minimum 15.2
Average 17.2
Median 16.4
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 5
<PAGE>
FERGUSON & COMPANY EXHIBIT II.2 - SELECTED PUBLICLY HELD NORTH CAROLINA THRIFS
- ------------------
<TABLE>
<CAPTION>
Core Core
EPS ROAA ROAE
($) (%) (%)
Ticker MRQ MRQ MRQ
<S> <C> <C> <C>
CENB 0.22 1.05 5.14
CFNC 0.13 0.84 6.06
COOP 0.16 0.53 6.61
GSFC 0.19 1.68 4.80
HBS 0.27 0.89 6.16
PDB 0.14 1.19 7.17
SOPN 0.32 1.73 7.42
SSM 0.24 1.44 5.74
Maximum 0.32 1.73 7.42
Minimum 0.13 0.53 4.80
Average 0.21 1.17 6.14
Median 0.21 1.12 6.11
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 6
<PAGE>
FERGUSON & COMPANY EXHIBIT II.3 - COMPARATIVES
- ------------------
GENERAL CHARACTERISTICS
<TABLE>
<CAPTION>
Total Current Current
Number Assets Stock Market
of ($000) Price Value
Ticker Short Name City State Offices Mst RctQ IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLAS Classic Bancshares Inc. Ashland KY 5 143,450 12/29/95 14.750 19.17
CMRN Cameron Financial Corp Cameron MO 4 220,784 04/03/95 16.000 38.94
FBSI First Bancshares Inc. Mountain Grove MO 8 173,174 12/22/93 12.625 27.30
FKKY Frankfort First Bancorp Inc. Frankfort KY 3 134,734 07/10/95 15.000 23.76
FTF Texarkana First Financial Corp Texarkana AR 5 189,451 07/07/95 24.125 40.43
GSFC Green Street Financial Corp. Fayetteville NC 3 172,705 04/04/96 14.375 58.70
GTPS Great American Bancorp Champaign IL 3 149,114 06/30/95 16.000 21.75
HBS Haywood Bancshares Inc. Waynesville NC 4 149,542 12/18/87 16.750 20.94
JXVL Jacksonville Bancorp Inc. Jacksonville TX 7 242,673 04/01/96 16.125 39.05
PDB Piedmont Bancorp Inc. Hillsborough NC 1 127,607 12/08/95 9.375 25.20
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO 8 156,193 04/13/94 15.500 20.79
Maximum 8 242,673 24.125 58.70
Minimum 1 127,607 9.375 19.17
Average 5 169,039 15.511 30.55
Median 4 156,193 15.500 25.20
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 7
<PAGE>
FERGUSON & COMPANY EXHIBIT II.4 - COMPARATIVES BALANCE SHEET CHARACTERISTICS
- ------------------
<TABLE>
<CAPTION>
Total Mortgage- Investment & Loan
Total Cash and Backed Net Foreclosed Servicing Total
Assets Investments Securities Loans Real Estate Rights Intangibles
($000) ($000) ($000) ($000) ($000) ($000) ($000)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C>
Classic Bancshares Inc. 143,450 37,407 NA 96,042 273 - 2,841
Cameron Financial Corp 220,784 29,576 7 180,277 - - -
First Bancshares Inc. 173,174 16,734 664 150,193 - - 986
Frankfort First Bancorp Inc. 134,734 4,885 - 127,821 - - -
Texarkana First Financial Corp 189,451 30,320 8,749 154,778 56 179 -
Green Street Financial Corp. 172,705 39,607 - 131,698 35 - -
Great American Bancorp 149,114 13,974 - 125,164 - - -
Haywood Bancshares Inc. 149,542 33,715 NA 110,811 7 751 688
Jacksonville Bancorp Inc. 242,673 49,385 18,167 185,805 498 508 -
Piedmont Bancorp Inc. 127,607 21,346 5,200 99,084 - 246 -
Southern Missouri Bancorp Inc. 156,193 36,671 10,426 116,181 274 - -
Maximum 242,673 49,385 18,167 185,805 498 751 2,841
Minimum 127,607 4,885 - 96,042 - - -
Average 169,039 28,511 4,801 134,350 104 153 410
Median 156,193 30,320 664 127,821 7 - -
<CAPTION>
Other Total
Assets Deposits
($000) ($000)
Short Name MRQ MRQ
<S> <C> <C>
Classic Bancshares Inc. 6,887 117,186
Cameron Financial Corp 10,931 133,560
First Bancshares Inc. 5,261 142,202
Frankfort First Bancorp Inc. 2,028 83,602
Texarkana First Financial Corp 4,118 151,955
Green Street Financial Corp. 1,365 110,460
Great American Bancorp 9,976 119,878
Haywood Bancshares Inc. 3,570 115,345
Jacksonville Bancorp Inc. 6,477 198,904
Piedmont Bancorp Inc. 3,214 89,111
Southern Missouri Bancorp Inc. 3,067 111,790
Maximum 10,931 198,904
Minimum 1,365 83,602
Average 5,172 124,908
Median 4,118 117,186
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 8
<PAGE>
FERGUSON & COMPANY EXHIBIT II.4 - COMPARATIVES BALANCE SHEET CHARACTERISTICS
- ------------------
<TABLE>
<CAPTION>
Regulatory
Total Subordinated Other Total Preferred Common Total Tangible
Borrowings Debt Liabilities Liabilities Equity Equity Equity Capital
($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Classic Bancshares Inc. 3,863 - 1,684 122,733 - 20,717 20,717 NA
Cameron Financial Corp 40,250 - 3,118 176,928 - 43,856 43,856 35,345
First Bancshares Inc. 5,700 - 1,095 148,997 - 24,177 24,177 19,353
Frankfort First Bancorp Inc. 27,030 - 1,804 112,436 - 22,298 22,298 22,460
Texarkana First Financial Corp 6,600 - 3,480 162,035 - 27,416 27,416 27,289
Green Street Financial Corp. - - 1,912 112,372 - 60,333 60,333 60,333
Great American Bancorp 4,000 - 1,972 125,850 - 23,264 23,264 NA
Haywood Bancshares Inc. 10,500 - 2,325 128,170 - 21,372 21,372 NA
Jacksonville Bancorp Inc. 4,051 - 4,639 207,594 - 35,079 35,079 33,425
Piedmont Bancorp Inc. 15,929 - 1,320 106,360 - 21,247 21,247 NA
Southern Missouri Bancorp Inc. 19,800 - 1,778 133,368 - 22,825 22,825 20,942
Maximum 40,250 - 4,639 207,594 - 60,333 60,333 60,333
Minimum - - 1,095 106,360 - 20,717 21,247 19,353
Average 12,520 - 2,284 139,713 - 29,326 30,187 31,307
Median 6,600 - 1,912 128,170 - 23,264 23,721 27,289
<CAPTION>
Regulatory
Core
Capital
($000)
Short Name MRQ
<S> <C>
Classic Bancshares Inc. NA
Cameron Financial Corp 35,345
First Bancshares Inc. 19,353
Frankfort First Bancorp Inc. 22,460
Texarkana First Financial Corp 27,289
Green Street Financial Corp. 60,333
Great American Bancorp NA
Haywood Bancshares Inc. NA
Jacksonville Bancorp Inc. 33,425
Piedmont Bancorp Inc. 19,534
Southern Missouri Bancorp Inc. 20,942
Maximum 60,333
Minimum 19,353
Average 29,835
Median 24,875
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 9
<PAGE>
FERGUSON & COMPANY EXHIBIT II.4 - COMPARATIVES BALANCE SHEET CHARACTERISTICS
- ------------------
<TABLE>
<CAPTION>
Regulatory Loan Loss Publicly
Total Tangible Core Risk-Based NPAs/ Reserves/ Reserves/ Reported
Capital Capital/ Capital/ Capital/ Assets Assets NPLs Book Value
($000) Tangible Adj Tangible Risk-Weightd (%) (%) (%) ($)
Short Name MRQ Assets (%) Assets (%) Assets (%) MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Classic Bancshares Inc. 8,255 NA NA NA 0.35 0.59 376.89 15.94
Cameron Financial Corp 36,925 18.9 18.9 28.3 0.40 0.72 184.62 18.02
First Bancshares Inc. 19,572 12.5 12.5 19.5 0.03 0.31 947.37 11.18
Frankfort First Bancorp Inc. 22,560 22.9 22.9 46.2 - 0.07 NM 14.08
Texarkana First Financial Corp 27,925 16.6 16.6 28.5 0.03 0.53 NM 16.36
Green Street Financial Corp. 60,587 28.1 28.1 59.2 0.13 0.15 130.77 14.78
Great American Bancorp NA 21.3 21.3 35.4 - 0.40 NM 16.97
Haywood Bancshares Inc. NA NA NA NA 0.51 0.50 100.27 17.09
Jacksonville Bancorp Inc. 34,596 13.1 13.1 26.7 0.62 0.48 116.75 14.48
Piedmont Bancorp Inc. 20,539 NA NA NA 0.68 0.79 116.45 7.90
Southern Missouri Bancorp Inc. 22,048 12.6 12.6 25.8 1.06 0.85 96.58 16.17
Maximum 60,587 28.1 28.1 59.2 1.06 0.85 947.37 18.02
Minimum 8,255 12.5 12.5 19.5 - 0.07 96.58 7.90
Average 28,112 18.2 18.2 33.7 0.35 0.49 258.71 14.82
Median 22,560 17.7 17.7 28.4 0.35 0.50 123.76 15.94
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 10
<PAGE>
FERGUSON & COMPANY EXHIBIT II.4 - COMPARATIVES BALANCE SHEET CHARACTERISTICS
- ------------------
<TABLE>
<CAPTION>
Tangible Earn Assets/ Full-Time Loans Cash & Invest
Publicly Rep Int Bearing Equivalent Serviced (w/o MBS)/ MBS/
Book Value Liabilities Employees For Others Assets Assets
($) (%) (Actual) ($000) (%) (%)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C>
Classic Bancshares Inc. 13.75 111.04 NA - 26.08 NA
Cameron Financial Corp 18.02 121.55 60 - 13.39 0.00
First Bancshares Inc. 10.72 114.50 78 11 9.28 0.38
Frankfort First Bancorp Inc. 14.08 119.71 25 - 3.63 -
Texarkana First Financial Corp 16.36 117.80 39 32,535 11.39 4.62
Green Street Financial Corp. 14.78 155.00 31 - 22.93 -
Great American Bancorp 16.97 114.66 NA NA 9.37 -
Haywood Bancshares Inc. 16.54 115.24 NA NA 22.55 NA
Jacksonville Bancorp Inc. 14.48 116.36 86 74,532 12.86 7.49
Piedmont Bancorp Inc. 7.90 122.05 34 22,493 12.65 4.08
Southern Missouri Bancorp Inc. 16.17 115.01 59 - 16.80 6.68
Maximum 18.02 155.00 86 74,532 26.08 7.49
Minimum 7.90 111.04 25 - 3.63 -
Average 14.52 120.27 52 14,397 14.63 2.58
Median 14.78 116.36 49 - 12.86 0.38
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 11
<PAGE>
FERGUSON & COMPANY EXHIBIT II.5 - COMPARATIVES OPERATIONS CHARACTERISTICS
- ------------------
<TABLE>
<CAPTION>
Net Income ROAA ROAE Loan
Average Before Before Core Return on Before Core Loss
Assets Net Income Extra Items ROAA Extra ROAA Avg Equity Extra ROAE Provision
($000) ($000) ($000) (%) (%) (%) (%) (%) (%) ($000)
Short Name LTM LTM LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Classic Bancshares Inc. 134,929 916 916 0.68 0.68 0.65 4.52 4.52 4.34 95
Cameron Financial Corp 214,925 2,460 2,460 1.14 1.14 1.12 5.45 5.45 5.36 (94)
First Bancshares Inc. 169,315 1,769 1,769 1.04 1.04 1.07 7.49 7.49 7.71 68
Frankfort First Bancorp Inc. 135,040 1,622 1,622 1.20 1.20 1.20 6.75 6.75 6.75 -
Texarkana First Financial Corp 185,955 3,306 3,306 1.78 1.78 1.69 11.85 11.85 11.23 (100)
Green Street Financial Corp. 175,333 2,807 2,807 1.60 1.60 1.60 4.55 4.55 4.55 -
Great American Bancorp 146,126 1,040 1,040 0.71 0.71 0.71 3.82 3.82 3.81 156
Haywood Bancshares Inc. 152,092 116 116 0.08 0.08 1.12 0.53 0.53 7.70 20
Jacksonville Bancorp Inc. 235,220 3,138 3,138 1.33 1.33 1.33 9.13 9.13 9.13 20
Piedmont Bancorp Inc. 130,621 1,643 1,643 1.26 1.26 1.20 7.67 7.67 7.31 96
Southern Missouri Bancorp Inc. 158,640 1,064 1,064 0.67 0.67 0.71 4.17 4.17 4.43 771
Maximum 235,220 3,306 3,306 1.78 1.78 1.69 11.85 11.85 11.23 771
Minimum 130,621 116 116 0.08 0.08 0.65 0.53 0.53 3.81 (100)
Average 167,109 1,807 1,807 1.04 1.04 1.13 5.99 5.99 6.57 94
Median 158,640 1,643 1,643 1.14 1.14 1.12 5.45 5.45 6.75 20
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 12
<PAGE>
FERGUSSON & COMPANY EXHIBIT II.5 - COMPARATIVES OPERATIONS CHARACTERISTICS
- -------------------
<TABLE>
<CAPTION>
Total Total Net Loan Common Dividend Interest Interest
Noninterest Noninterest Chargeoffs/ LTM EPS Dividends Payout Income/ Expense/
Income Expense Avg Loans After Extra Per Share Ratio Avg Assets Avg Assets
($000) ($000) (%) ($) ($) (%) (%) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Classic Bancshares Inc. 574 3,966 0.09 0.74 0.29 39.19 7.12 3.64
Cameron Financial Corp 248 4,205 0.01 1.01 0.28 27.72 7.93 4.32
First Bancshares Inc. 677 3,844 0.02 0.80 0.12 14.38 7.60 4.10
Frankfort First Bancorp Inc. 58 1,713 - 0.97 0.80 82.47 7.25 4.21
Texarkana First Financial Corp 882 2,927 0.01 1.96 0.58 29.59 7.89 4.25
Green Street Financial Corp. 132 3,127 - 0.69 0.61 88.41 7.47 3.20
Great American Bancorp 1,189 5,058 0.03 0.66 0.42 63.64 7.44 3.41
Haywood Bancshares Inc. 452 2,585 - 0.10 0.60 600.00 7.38 4.11
Jacksonville Bancorp Inc. 1,352 5,426 0.02 1.26 0.50 39.68 7.63 3.99
Piedmont Bancorp Inc. 389 2,961 (0.05) 0.59 0.44 74.58 7.93 4.02
Southern Missouri Bancorp Inc. 777 3,567 0.16 0.69 0.50 72.46 7.18 3.87
Maximum 1,352 5,426 0.16 1.96 0.80 600.00 7.93 4.32
Minimum 58 1,713 (0.05) 0.10 0.12 14.38 7.12 3.20
Average 612 3,580 0.03 0.86 0.47 102.92 7.53 3.92
Median 574 3,567 0.01 0.74 0.50 63.64 7.47 4.02
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 13
<PAGE>
FERGUSON & COMPANY EXHIBIT II.5 - COMPARATIVES OPERATIONS CHARACTERISTICS
- ------------------
<TABLE>
<CAPTION>
Net Interest Gain on Real Noninterest G&A Noninterest Net Oper
Income/ Sale/ Estate Income/ Expense/ Expense/ Expenses/
Avg Assets Avg Assets Expense Avg Assets Avg Assets Avg Assets Avg Assets
(%) (%) ($000) (%) (%) (%) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C>
Classic Bancshares Inc. 3.47 0.01 (19) 0.43 2.86 2.94 2.44
Cameron Financial Corp 3.61 0.03 9 0.12 1.95 1.96 1.84
First Bancshares Inc. 3.50 (0.02) (85) 0.40 2.30 2.27 1.90
Frankfort First Bancorp Inc. 3.04 - - 0.04 1.27 1.27 1.23
Texarkana First Financial Corp 3.64 0.14 (6) 0.47 1.58 1.57 1.10
Green Street Financial Corp. 4.27 - 6 0.08 1.78 1.78 1.70
Great American Bancorp 4.03 - (21) 0.81 3.48 3.46 2.66
Haywood Bancshares Inc. 3.27 (0.08) (451) 0.30 1.96 1.70 1.66
Jacksonville Bancorp Inc. 3.64 - (158) 0.57 2.37 2.31 1.80
Piedmont Bancorp Inc. 3.92 0.09 (114) 0.30 2.35 2.27 2.06
Southern Missouri Bancorp Inc. 3.31 0.03 (40) 0.49 2.27 2.25 1.78
Maximum 4.27 0.14 9 0.81 3.48 3.46 2.66
Minimum 3.04 (0.08) (451) 0.04 1.27 1.27 1.10
Average 3.61 0.02 (80) 0.36 2.20 2.16 1.83
Median 3.61 - (21) 0.40 2.27 2.25 1.80
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 14
<PAGE>
FERGUSON & COMPANY EXHIBIT II.5 - COMPARATIVES OPERATIONS CHARACTERISTICS
- ------------------
<TABLE>
<CAPTION>
Total Amortization Extra and Yield on Cost of
Nonrecurring of Tax After Tax Efficiency Preferred Int Earning Int Bearing
Expense Intangibles Provision Items Ratio Dividends Assets Liabilities
($000) ($000) ($000) ($000) (%) ($000) (%) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Classic Bancshares Inc. - 124 337 - 73.43 - 7.61 4.35
Cameron Financial Corp - - 1,503 - 52.41 - 8.32 5.58
First Bancshares Inc. 46 34 846 - 58.98 - 8.02 4.94
Frankfort First Bancorp Inc. - - 833 - 41.10 - 7.43 5.18
Texarkana First Financial Corp - - 1,785 - 38.31 - 8.10 5.15
Green Street Financial Corp. - - 1,689 - 40.94 - 7.59 5.03
Great American Bancorp - - 827 - 71.74 - 7.96 4.28
Haywood Bancshares Inc. 2,313 53 264 - 55.01 - 7.65 4.89
Jacksonville Bancorp Inc. - - 1,325 - 56.35 - 7.82 4.78
Piedmont Bancorp Inc. - - 926 - 55.83 - 8.13 4.93
Southern Missouri Bancorp Inc. 150 - 522 - 59.86 - 7.40 4.71
Maximum 2,313 124 1,785 - 73.43 - 8.32 5.58
Minimum - - 264 - 38.31 - 7.40 4.28
Average 228 19 987 - 54.91 - 7.82 4.89
Median - - 846 - 55.83 - 7.82 4.93
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 15
<PAGE>
FERGUSON & COMPANY EXHIBIT II.5 - COMPARATIVES OPERATIONS CHARACTERISTICS
- ------------------
<TABLE>
<CAPTION>
Interest Loan Loss
Effective Yield Provision/
Tax Rate Spread Avg Assets
(%) (%) (%)
Short Name LTM LTM LTM
<S> <C> <C> <C>
Classic Bancshares Inc. 26.90 3.26 0.07
Cameron Financial Corp 37.93 2.74 (0.04)
First Bancshares Inc. 32.35 3.08 0.04
Frankfort First Bancorp Inc. 33.93 2.25 -
Texarkana First Financial Corp 35.06 2.95 (0.05)
Green Street Financial Corp. 37.57 2.56 -
Great American Bancorp 44.30 3.68 0.11
Haywood Bancshares Inc. 69.47 2.76 0.01
Jacksonville Bancorp Inc. 29.69 3.04 0.01
Piedmont Bancorp Inc. 36.05 3.20 0.07
Southern Missouri Bancorp Inc. 32.91 2.69 0.49
Maximum 69.47 3.68 0.49
Minimum 26.90 2.25 (0.05)
Average 37.83 2.93 0.06
Median 35.06 2.95 0.01
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 16
<PAGE>
FERGUSON & COMPANY EXHIBIT II.6 - COMPARATIVES PRICING CHARACTERISTICS
- ------------------
<TABLE>
<CAPTION>
Current Current Price Current Current
Stock Market LTM Price/ Price/ T Price/
Abbreviated Price Value Core EPS Book V Book V Assets
Ticker Name City State ($) ($M) (x) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLAS ClassicBcshs-KY Ashland KY 14.750 19.17 20.5 92.5 107.3 13.4
CMRN CameronFinlCorp-MO Cameron MO 16.000 38.94 16.0 88.8 88.8 17.6
FBSI FirstBcshs-MO Mountain Grove MO 12.625 27.30 15.4 112.9 117.8 15.8
FKKY FranfortFirst-KY Frankfort KY 15.000 23.76 15.5 106.5 106.5 17.6
FTF TexarkanaFirst-AR Texarkana AR 24.125 40.43 13.0 147.5 147.5 21.3
GSFC GreenStreetFin-NC Fayetteville NC 14.375 58.70 20.8 97.3 97.3 34.0
GTPS GreatAmrcnBncp-IL Champaign IL 16.000 21.75 24.2 94.3 94.3 14.7
HBS HaywoodBcshs-NC Waynesville NC 16.750 20.94 12.2 98.0 101.3 14.0
JXVL Jacksonville-TX Jacksonville TX 16.125 39.05 12.8 111.4 111.4 16.1
PDB PiedmontBancorp-NC Hillsborough NC 9.375 25.20 16.5 118.7 118.7 19.8
SMBC SthrnMissouBncp-MO Poplar Bluff MO 15.500 20.79 21.2 95.9 95.9 14.0
Maximum 24.125 58.70 24.2 147.5 147.5 34.0
Minimum 9.375 19.17 12.2 88.8 88.8 13.4
Average 15.511 30.55 17.1 105.8 107.9 18.0
Median 15.500 25.20 16.0 98.0 106.5 16.1
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 17
<PAGE>
FERGUSON & COMPANY EXHIBIT 11.6 - COMPARATIVES PRICING CHARACTERISTICS
- ------------------
<TABLE>
<CAPTION>
Tangible ROACE
Current Total Equity/ Equity/ Core Core Core Before
Dividend Assets Assets T Assets EPS ROAA ROAE Extra Merger Current
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>
CLAS 2.17 143,450 14.4 12.7 0.72 0.65 4.34 4.52 N 12/09/98
CMRN 1.75 220,784 19.9 19.9 1.00 1.12 5.36 5.45 N 12/09/98
FBSI 0.95 173,174 14.0 13.5 0.82 1.07 7.71 7.49 N 12/09/98
FKKY 5.87 134,734 16.6 16.6 0.97 1.20 6.75 6.75 N 12/09/98
FTF 2.65 189,451 14.5 14.5 1.86 1.69 11.23 11.85 N 12/09/98
GSFC 3.34 172,705 34.9 34.9 0.69 1.60 4.55 4.55 N 12/09/98
GTPS 2.75 149,114 15.6 15.6 0.66 0.71 3.81 3.82 N 12/09/98
HBS 3.82 149,542 14.3 13.9 1.37 1.12 7.70 0.53 N 12/09/98
JXVL 3.10 242,673 14.5 14.5 1.26 1.33 9.13 9.13 N 12/09/98
PDB 5.12 127,607 16.7 16.7 0.57 1.20 7.31 7.67 N 12/09/98
SMBC 3.23 156,193 14.6 14.6 0.73 0.71 4.43 4.17 N 12/09/98
Maximum 5.87 242,673 34.9 34.9 1.86 1.69 11.23 11.85
Minimum 0.95 127,607 14.0 12.7 0.57 0.65 3.81 0.53
Average 3.16 169,039 17.3 17.0 0.97 1.13 6.57 5.99
Median 3.10 156,193 14.6 14.6 0.82 1.12 6.75 5.45
</TABLE>
SOURCE: SNL & F& C CALCULATIONS 18
<PAGE>
FERGUSON & COMPANY 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>
CLAS 0.35 21.7 0.17 0.59 4.04
CMRN 0.40 14.3 0.28 1.19 5.88
FBSI 0.03 15.8 0.20 1.04 7.42
FKKY - 15.0 0.25 1.23 7.10
FTF 0.03 11.6 0.52 1.81 12.40
GSFC 0.13 18.9 0.19 1.68 4.80
GTPS - 22.2 0.18 0.69 3.99
HBS 0.51 15.5 0.27 0.89 6.16
JXVL 0.62 13.0 0.31 1.26 8.64
PDB 0.68 16.7 0.14 1.19 7.17
SMBC 1.06 15.5 0.25 0.92 6.10
Maximum 1.06 22.2 0.52 1.81 12.40
Minimum - 11.6 0.14 0.59 3.99
Average 0.35 16.4 0.25 1.14 6.70
Median 0.35 15.5 0.25 1.19 6.16
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 19
<PAGE>
FERGUSON & COMPANY 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>
Classic Bancshares Inc. 0.35 0.56 2.40 0.88 170.28 0.10
Cameron Financial Corp 0.40 1.06 1.99 0.87 181.24 0.04
First Bancshares Inc. 0.03 1.81 0.24 0.36 947.37 0.03
Frankfort First Bancorp Inc. - 0.15 - 0.08 NM -
Texarkana First Financial Corp 0.03 0.18 0.20 0.64 NM 0.01
Green Street Financial Corp. 0.13 0.13 0.38 0.19 110.87 -
Great American Bancorp - 0.12 - 0.47 NM 0.08
Haywood Bancshares Inc. 0.51 0.51 3.55 0.68 99.34 -
Jacksonville Bancorp Inc. 0.62 0.62 4.28 0.63 78.01 -
Piedmont Bancorp Inc. 0.68 0.68 4.06 0.97 116.45 (0.11)
Southern Missouri Bancorp Inc. 1.06 1.06 7.22 1.13 80.52 (0.07)
Maximum 1.06 1.81 7.22 1.13 947.37 0.10
Minimum - 0.12 - 0.08 78.01 (0.11)
Average 0.35 0.63 2.21 0.63 223.01 0.01
Median 0.35 0.56 1.99 0.64 113.66 -
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 20
<PAGE>
FERGUSON & COMPANY
- ------------------
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>
Classic Bancshares Inc. 67.54 13.71 NA 96,042 111.04
Cameron Financial Corp 82.37 - (1.90) 180,277 121.55
First Bancshares Inc. 87.04 4.08 NA 150,193 114.50
Frankfort First Bancorp Inc. 94.94 - NA 127,821 119.71
Texarkana First Financial Corp 82.23 - (21.53) 154,778 117.80
Green Street Financial Corp. 76.40 - (6.30) 131,698 155.00
Great American Bancorp 84.33 - (30.10) 125,164 114.66
Haywood Bancshares Inc. 74.60 3.22 (4.86) 110,811 115.24
Jacksonville Bancorp Inc. 77.05 - NA 185,805 116.36
Piedmont Bancorp Inc. 81.35 - (6.92) 99,084 122.05
Southern Missouri Bancorp Inc. 75.23 - NA 116,181 115.01
Maximum 94.94 13.71 (1.90) 185,805 155.00
Minimum 67.54 - (30.10) 96,042 111.04
Average 80.28 1.91 (11.94) 134,350 120.27
Median 81.35 - (6.61) 127,821 116.36
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 21
<PAGE>
EXHIBIT III
<PAGE>
FERGUSON & COMPANY EXHIBIT III - BANKSEARCH REPORT
- ------------------
<TABLE>
<CAPTION>
BK Financial Highlights
Community Savings Bank, SSB 708 South Church Street
ID Number: 29062 Burlington, NC 27215
Jun-98 Dec-97 Dec-96 Dec-95 Dec-94
(YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 171,793 168,612 156,809 152,315 141,870
Securities 33,773 41,995 57,700 66,751 65,334
Held-to-Maturity Secs(AmortCost) 13,190 22,048 36,684 45,695 53,261
Avail for Sale Secs (Fair Value) 20,583 19,947 21,016 21,056 12,073
Total Loans & Leases(C) 120,794 113,519 88,396 77,800 69,128
Total Deposits 138,899 135,663 122,737 119,106 119,449
Total Loans/Total Deposits 86.97 83.68 72.02 65.32 57.87
Provision for Credit Loss 200 360 60 - 30
CAPITAL:
Total Equity Capital 23,455 22,837 22,167 21,747 20,630
Total Capital (Tier 1+2+3) 24,318 23,618 22,570 22,110 21,202
Tangible Equity Ratio 13.73 13.74 14.18 15.11 14.39
Risk-Adjusted Capital Ratio 27.39 29.04 35.57 32.32 32.87
Core Capital/Risk Weighted Assets 26.29 28.08 34.91 31.79 32.31
Core Capital/Adjusted Total Assets 13.73 13.74 14.18 15.11 14.39
Dividend Payout - - - - -
PROFITABILITY:
Net Income (Loss) 600 590 399 909 919
Return on Average Assets 0.71 0.36 0.26 0.62 0.65
Return on Average Equity 5.18 2.61 1.82 4.29 4.45
Net Interest Spread/AEA 3.52 3.14 2.86 2.86 3.49
Net Interest Margin/AA 3.28 2.99 2.76 2.77 3.39
ASSET QUALITY:
Nonperf Ln&Debt Sec/CoreCap&LnLsRsrv 1.97 1.02 0.96 0.56 1.05
Loan Loss Reserve/Nonperf Loans 410.46 324.07 194.01 290.32 161.43
Adjusted Nonperf Assets/TA 0.28 0.14 0.14 0.15 0.16
PastDue 90 Days:Loans & Leases/GL 0.20 0.21 0.25 0.16 0.32
Loan Loss Reserve/TL 0.81 0.69 0.48 0.46 0.52
Net Charge-Offs(YTD)/Average Loans - - (0.00) - (0.00)
Real Estate Loans/GDL 97.36 98.47 99.62 99.70 99.66
LIQUIDITY:
Brokered Deposits/TD - - - - -
Avg Int-Bear Asset/Avg Int-Bear Liab 113.42 114.53 115.79 116.20 116.37
Pledged Securities/Total Securities 26.25 25.80 20.75 - -
Tot Secs:Fair Val to Amrtzd Cost 101.28 100.95 100.40 99.16 96.49
</TABLE>
SOURCE: SHESHUNOFF INFORMATION SERVICES 1
<PAGE>
FERGISON & COMPANY EXHIBIT III - BANKSEARCH REPORT
- ------------------
<TABLE>
<CAPTION>
BK Financial Highlights
Community Savings Bank, SSB 708 South Church Street
ID Number: 29062 Burlington, NC 27215
Jun-98 Mar-98 Dec-97 Sep-97 Jun-97 Jun-98
(QTR) (QTR) (QTR) (QTR) (QTR) (LTM)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 171,793 169,079 168,612 166,862 162,137 171,793
Securities 33,773 36,578 41,995 46,530 49,650 33,773
Held-to-Maturity Secs(AmortCost) 13,190 18,289 22,048 24,410 26,292 13,190
Avail for Sale Secs (Fair Value) 20,583 18,289 19,947 22,120 23,358 20,583
Total Loans & Leases(C) 120,794 116,680 113,519 107,932 99,818 120,794
Total Deposits 138,899 136,575 135,663 133,753 129,310 138,899
Total Loans/Total Deposits 86.97 85.43 83.68 80.70 77.19 87
Provision for Credit Loss 100 100 270 30 30 500
CAPITAL:
Total Equity Capital 23,455 23,157 22,837 23,070 22,739 23,455
Total Capital (Tier 1+2+3) 24,318 24,038 23,618 23,581 23,220 24,318
Tangible Equity Ratio 13.73 13.59 13.74 14.08 14.09 13.73
Risk-Adjusted Capital Ratio 27.39 27.56 29.04 30.72 32.16 27.39
Core Capital/Risk Weighted Assets 26.29 26.55 28.08 30.06 31.49 26.29
Core Capital/Adjusted Total Assets 13.73 13.59 13.74 14.08 14.09 13.73
Dividend Payout - - N/A - - -
PROFITABILITY:
Net Income (Loss) 250 350 (265) 262 369 597
Return on Average Assets 0.59 0.83 (0.63) 0.64 0.92 0.36
Return on Average Equity 4.29 6.09 (4.62) 4.58 6.56 2.59
Net Interest Spread/AEA 3.54 3.54 3.19 3.09 3.16 3.34
Net Interest Margin/AA 3.27 3.30 3.01 2.93 3.03 3.13
ASSET QUALITY:
Nonperf Ln&Debt Sec/CoreCap&LnLsRsrv 1.97 1.14 1.02 1.46 1.31 1.97
Loan Loss Reserve/Nonperf Loans 410.46 320.36 324.07 148.55 157.70 410.46
Adjusted Nonperf Assets/TA 0.28 0.16 0.14 0.21 0.19 0.28
PastDue 90 Days:Loans & Leases/GL 0.20 0.24 0.21 0.32 0.31 0.20
Loan Loss Reserve/TL 0.81 0.76 0.69 0.47 0.48 0.81
Net Charge-Offs(YTD)/Average Loans - - - - - -
Real Estate Loans/GDL 97.36 98.09 98.47 98.66 99.13 97.36
LIQUIDITY:
Brokered Deposits/TD - - - - - -
Avg Int-Bear Asset/Avg Int-Bear Liab 113.26 113.16 113.61 114.13 115.01 113.70
Pledged Securities/Total Securities 26.25 24.00 25.80 23.23 21.72 26.25
Tot Secs:Fair Val to Amrtzd Cost 101.28 100.94 100.95 100.42 100.39 101.28
</TABLE>
SOURCE: SHESHUNOFF INFORMATION SERVICES 2
<PAGE>
EXHIBIT IV
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - COMPARATIVES BANKSEARCH REPORTS
- ------------------
FINANCIAL HIGHLIGHTS
Classic Bank 344 17th Street
Docket Number: 4259 Ashland, KY 41105
TICKER: CLAS
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 68,336 66,993 61,097 62,486 60,891 58,716
%CH:Total Assets 3.81 9.65 (2.22) 2.62 3.70 9.82
Total Loans $(000) 54,465 52,606 44,848 42,904 35,373 33,108
Total Deposits 52,639 46,025 45,793 47,923 48,549 51,668
Deps:Broker Originated - - - 3,462 - -
CAPITAL:
Consol:Equity Capital 8,162 7,912 7,532 13,158 7,470 6,982
Total Equity Capital 8,162 7,912 7,532 13,158 7,470 6,982
Tier 1 (Core) Capital 7,987 7,747 7,386 12,905 7,470 6,982
Total Risk-based Capital 8,323 8,073 7,701 13,171 7,470 6,982
Total Equity Capital/TA 11.94 11.81 12.33 21.06 12.27 11.89
Tier 1 Risk-Based Capital Ratio 20.98 22.52 25.03 47.59 32.14 30.67
Tier 1 Leverage Capital Ratio 11.72 11.59 12.12 20.78 12.27 11.89
Tangible Capital/Tang Assets 11.72 11.59 12.12 20.78 12.27 11.89
Total Risk-Based Capital Ratio 21.87 23.46 26.10 48.57 32.14 30.67
PROFITABILITY
Net Income (Loss) 100 250 132 324 417 558
Return on Average Assets 0.29 0.39 0.21 0.53 0.70 0.99
Return on Average Equity 2.48 3.24 1.22 3.76 5.77 8.30
Net Interest Margin/AA 2.61 2.56 2.85 2.29 2.55 2.68
Total Noninterest Income/AA 0.46 0.39 0.23 0.24 0.11 0.09
Total Overhead Expense/AA 2.71 2.47 2.79 1.74 1.56 1.54
Yield on Average Earning Assets 7.43 7.38 7.23 7.12 6.53 6.94
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 111.96 111.97 119.47 114.27 112.14 112.33
Brokered Deposits/TD - - - 7.22 - -
ASSET QUALITY:
Nonaccruing Loans/GL 0.02 0.37 1.07 0.79 - -
Nonperf Lns/Loan Loss Reserve 5.06 85.63 152.70 129.32 142.09 230.09
Repossessed Assets (incl OREO)/TA 0.07 0.03 0.02 - 0.29 0.04
Net Charge-Offs(YTD)/Average Loans 0.03 0.06 0.05 0.52 0.59 (0.31)
</TABLE>
SOURCE: SHESHUNOFF INFORMATION SERVICES 1
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - COMPARATIVE BANKSEARCH REPORTS
- ------------------
FINANCIAL HIGHLIGHTS
The First National Bank of Paintsville 240 Main Street
Certificate Number: 2717 Paintsville, KY 41240
TICKER: CLAS
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 71,165 69,660 69,094 58,649 67,672 67,975
Securities 21,582 20,086 20,234 26,809 38,251 32,820
Held-to-Maturity Secs(AmortCost) - - - - 38,083 -
Avail for Sale Secs (Fair Value) 21,582 20,086 20,234 26,809 168 -
Total Loans & Leases(C) 39,067 37,598 35,892 27,012 23,768 25,425
Total Deposits 55,395 53,638 52,607 51,663 61,013 61,664
Total Loans/Total Deposits 70.52 70.10 68.23 52.29 38.96 41.23
Provision for Credit Loss 27 123 23 169 - 105
CAPITAL:
Total Equity Capital 11,552 11,200 10,413 6,330 5,974 5,522
Total Capital (Tier 1+2+3) 9,066 8,658 7,789 6,677 6,275 5,796
Tangible Equity Ratio 12.46 12.22 10.95 10.59 8.72 7.89
Risk-Adjusted Capital Ratio 23.10 23.16 22.92 23.76 22.60 20.44
Core Capital/Risk Weighted Assets 21.84 21.91 21.67 22.51 21.51 19.47
Core Capital/Adjusted Total Assets 12.46 12.22 10.95 10.59 8.72 7.89
Dividend Payout 23.64 27.12 - 53.64 20.00 93.75
PROFITABILITY:
Net Income (Loss) 423 944 212 755 565 336
Return on Average Assets 1.19 1.36 0.33 1.20 0.83 0.51
Return on Average Equity 7.42 8.83 2.53 12.27 9.83 6.10
Net Interest Spread/AEA 4.63 4.96 1.23 4.55 3.56 3.33
Net Interest Margin/AA 4.14 4.42 1.11 4.22 3.35 3.13
ASSET QUALITY:
Nonperf Ln&Debt Sec/CoreCap&LnLsRsrv 1.19 0.55 3.85 9.45 3.11 9.33
Loan Loss Reserve/Nonperf Loans 481.48 1,043.75 161.26 69.84 154.36 50.65
Adjusted Nonperf Assets/TA 0.45 0.37 0.99 1.64 0.80 0.93
PastDue 90 Days:Loans & Leases/GL 0.26 0.06 0.41 1.49 0.10 1.54
Loan Loss Reserve/TL 1.33 1.33 1.36 1.65 1.27 1.08
Net Charge-Offs(YTD)/Average Loans - 0.30 0.19 0.09 (0.11) 0.35
Real Estate Loans/GDL 73.61 77.37 72.26 57.63 62.24 65.62
LIQUIDITY:
Brokered Deposits/TD - - - - - -
Avg Int-Bear Asset/Avg Int-Bear Liab 124.31 122.88 120.67 121.16 118.76 116.08
Pledged Securities/Total Securities 34.58 40.96 50.60 27.05 23.78 24.45
Tot Secs:Fair Val to Amrtzd Cost 100.75 100.59 99.40 100.03 98.07 100.30
</TABLE>
SOURCE: SHESHUNOFF INFORMATION SERVICES 2
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - COMPARATIVES BANKSEARCH REPORTS
- ------------------ FINANCIAL HIGHLIGHTS
Cameron Savings and Loan Association, F.A. 123 East Third Street
Docket Number: 2025 Cameron, MO 64429
TICKER: CMRN
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 214,817 202,872 179,770 163,500 144,685 142,462
%CH:Total Assets 8.01 12.85 9.95 13.00 1.56 2.76
Total Loans $(000) 183,185 181,922 161,939 136,838 119,692 112,552
Total Deposits 134,403 132,094 124,104 125,119 123,108 123,010
Deps:Broker Originated - - - - - -
CAPITAL:
Consol:Equity Capital 35,345 34,272 33,577 32,817 19,674 18,231
Total Equity Capital 35,345 34,272 33,577 32,817 19,674 18,231
Tier 1 (Core) Capital 35,345 34,272 33,577 32,817 19,657 17,921
Total Risk-based Capital 36,925 35,953 34,357 33,837 20,519 18,495
Total Equity Capital/TA 16.45 16.89 18.68 20.07 13.60 12.80
Tier 1 Risk-Based Capital Ratio 24.33 24.36 27.71 32.76 23.57 23.48
Tier 1 Leverage Capital Ratio 16.45 16.89 18.68 20.11 13.62 12.62
Tangible Capital/Tang Assets 16.45 16.89 18.68 20.11 13.62 12.62
Total Risk-Based Capital Ratio 25.41 25.56 28.36 33.78 24.60 24.23
PROFITABILITY
Net Income (Loss) 1,114 2,099 1,616 2,130 1,561 2,197
Return on Average Assets 1.06 1.08 0.96 1.35 1.09 1.36
Return on Average Equity 6.42 6.18 4.89 7.06 8.24 11.14
Net Interest Margin/AA 3.40 3.52 3.80 3.56 3.39 3.39
Total Noninterest Income/AA 0.22 0.19 0.24 0.30 0.20 0.20
Total Overhead Expense/AA 1.99 1.88 2.21 1.62 1.83 1.37
Yield on Average Earning Assets 8.31 8.38 8.22 7.95 7.54 7.80
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 116.22 117.84 123.34 123.92 113.87 113.01
Brokered Deposits/TD - - - - - -
ASSET QUALITY:
Nonaccruing Loans/GL 0.47 0.34 0.12 0.33 0.21 -
Nonperf Lns/Loan Loss Reserve 62.22 44.91 20.01 57.97 37.83 121.63
Repossessed Assets (incl OREO)/TA 0.01 0.11 0.03 0.00 0.04 0.11
Net Charge-Offs(YTD)/Average Loans 0.00 0.01 0.01 0.00 0.01 0.02
</TABLE>
SOURCE: SHESHUNOFF INFORMATION SERVICES 3
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - COMPARATIVES BANKSEARCH REPORTS
- ------------------
FINANCIAL HIGHLIGHTS
First Home Savings Bank 142 East First Street
Docket Number: 5233 Mountain Grove, MO 65711
TICKER: FBSI
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 170,665 159,787 155,249 136,507 123,435 111,099
%CH:Total Assets 5.19 2.92 13.73 10.59 11.10 20.42
Total Loans $(000) 147,287 138,794 126,579 112,952 94,320 80,851
Total Deposits 142,897 122,289 114,305 102,900 104,571 82,857
Deps:Broker Originated - - - - - -
CAPITAL:
Consol:Equity Capital 20,393 19,210 18,375 18,468 16,980 17,642
Total Equity Capital 20,393 19,210 18,375 18,468 16,980 17,642
Tier 1 (Core) Capital 18,862 18,664 17,901 17,982 16,413 17,269
Total Risk-based Capital 19,070 18,849 18,064 18,120 16,062 16,950
Total Equity Capital/TA 11.95 12.02 11.84 13.53 13.76 15.88
Tier 1 Risk-Based Capital Ratio 16.13 17.45 17.97 20.54 22.08 25.76
Tier 1 Leverage Capital Ratio 11.15 11.72 11.56 13.21 13.37 15.64
Tangible Capital/Tang Assets 11.15 11.72 11.56 13.21 13.37 15.64
Total Risk-Based Capital Ratio 16.31 17.62 18.13 20.70 21.61 25.29
PROFITABILITY
Net Income (Loss) 810 1,799 1,010 820 961 953
Return on Average Assets 0.96 1.13 0.70 0.65 0.82 0.94
Return on Average Equity 8.19 9.51 5.36 4.62 5.55 6.67
Net Interest Margin/AA 3.43 3.32 3.27 2.97 2.95 3.18
Total Noninterest Income/AA 0.40 0.41 0.31 0.16 0.12 0.21
Total Overhead Expense/AA 2.35 1.92 2.41 2.08 1.89 1.91
Yield on Average Earning Assets 8.07 8.08 7.83 7.50 6.63 7.02
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 111.67 111.87 113.54 113.70 116.97 114.90
Brokered Deposits/TD - - - - - -
ASSET QUALITY:
Nonaccruing Loans/GL 0.04 0.04 0.04 0.04 0.06 0.08
Nonperf Lns/Loan Loss Reserve 933.06 308.18 171.30 96.15 85.13 105.33
Repossessed Assets (incl OREO)/TA - - - - 0.04 0.04
Net Charge-Offs(YTD)/Average Loans 0.00 0.04 0.12 0.01 0.04 0.00
</TABLE>
SOURCE: SHESHUNOFF INFORMATION SERVICES 4
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - COMAPRATIVES BANKSEARCH REPORTS FINANCIAL
- ------------------
HIGHLIGHTS
First Federal Savings Bank 216 W. Main Street
Docket Number: 4381 Frankfort, KY 40602
TICKER: FKKY
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 134,413 132,761 129,936 138,602 110,008 107,682
%CH:Total Assets 1.84 2.17 (6.25) 25.99 2.16 3.42
Total Loans $(000) 126,770 124,601 115,783 104,175 102,796 96,308
Total Deposits 82,249 83,716 89,596 84,004 86,990 87,331
Deps:Broker Originated - - - - - -
CAPITAL:
Consol:Equity Capital 23,441 25,003 29,674 36,170 18,155 17,105
Total Equity Capital 23,441 25,003 29,674 36,170 18,155 17,105
Tier 1 (Core) Capital 23,441 25,003 29,674 36,170 18,155 17,105
Total Risk-based Capital 23,541 25,103 29,774 36,259 18,232 17,170
Total Equity Capital/TA 17.44 18.83 22.84 26.10 16.50 15.88
Tier 1 Risk-Based Capital Ratio 33.74 36.41 46.16 57.17 31.77 31.40
Tier 1 Leverage Capital Ratio 17.44 18.83 22.84 26.10 16.50 15.88
Tangible Capital/Tang Assets 17.44 18.83 22.84 26.10 16.50 15.88
Total Risk-Based Capital Ratio 33.89 36.55 46.32 57.31 31.91 31.52
PROFITABILITY
Net Income (Loss) 963 1,852 843 1,320 1,050 1,310
Return on Average Assets 1.44 1.41 0.63 1.03 0.96 1.24
Return on Average Equity 8.04 6.44 2.57 5.19 5.96 7.96
Net Interest Margin/AA 3.07 3.29 3.18 3.13 3.33 3.61
Total Noninterest Income/AA 0.23 0.19 0.10 0.10 0.10 0.10
Total Overhead Expense/AA 1.21 1.42 2.29 1.72 1.88 1.84
Yield on Average Earning Assets 7.43 7.36 7.17 7.07 7.02 7.39
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 119.42 126.35 130.77 131.09 116.76 115.94
Brokered Deposits/TD - - - - - -
ASSET QUALITY:
Nonaccruing Loans/GL - - - - - -
Nonperf Lns/Loan Loss Reserve 270.00 164.00 202.00 164.04 57.14 184.62
Repossessed Assets (incl OREO)/TA - - - - - -
Net Charge-Offs(YTD)/Average Loans - - - - - -
</TABLE>
SOURCE: SHESHUNOFF INFORMATION SERVICES 5
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - COMPARATIVES BANKSEARCH REPORTS
- ------------------ FINANCIAL HIGHLIGHTS
First Federal Savings and Loan Association 216 East Third Street
Docket Number: 29 Texarkana, AR 71854
TICKER: FTF
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 188,176 179,907 163,365 153,496 142,343 136,594
%CH:Total Assets 9.97 10.13 6.43 7.84 4.21 (0.64)
Total Loans $(000) 152,005 149,165 137,999 126,509 121,806 114,124
Total Deposits 151,442 143,832 135,268 126,042 127,179 123,288
Deps:Broker Originated - - - - - -
CAPITAL:
Consol:Equity Capital 27,172 27,273 26,305 25,354 13,329 11,371
Total Equity Capital 27,172 27,273 26,305 25,354 13,329 11,371
Tier 1 (Core) Capital 27,109 27,181 26,259 25,250 13,329 11,371
Total Risk-based Capital 27,747 27,939 27,033 26,029 13,879 11,837
Total Equity Capital/TA 14.44 15.16 16.10 16.52 9.36 8.32
Tier 1 Risk-Based Capital Ratio 24.26 24.96 26.91 28.70 16.15 15.05
Tier 1 Leverage Capital Ratio 14.41 15.12 16.08 16.46 9.36 8.32
Tangible Capital/Tang Assets 14.41 15.12 16.08 16.46 9.36 8.32
Total Risk-Based Capital Ratio 24.83 25.65 27.71 29.58 16.81 15.67
PROFITABILITY
Net Income (Loss) 1,789 3,284 2,395 2,283 1,950 2,316
Return on Average Assets 1.95 1.91 1.51 1.50 1.40 1.58
Return on Average Equity 13.15 12.26 9.11 12.54 15.79 21.18
Net Interest Margin/AA 3.65 3.78 3.72 3.48 3.18 3.21
Total Noninterest Income/AA 0.80 0.65 0.65 0.53 0.66 0.75
Total Overhead Expense/AA 1.46 1.38 2.04 1.53 1.37 1.33
Yield on Average Earning Assets 8.13 8.17 8.05 7.86 7.00 7.29
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 117.16 118.51 120.00 113.38 109.28 107.68
Brokered Deposits/TD - - - - - -
ASSET QUALITY:
Nonaccruing Loans/GL - - 0.05 0.03 0.04 -
Nonperf Lns/Loan Loss Reserve 23.57 15.33 21.40 18.45 6.95 -
Repossessed Assets (incl OREO)/TA - 0.09 0.04 0.21 0.34 0.64
Net Charge-Offs(YTD)/Average Loans 0.01 0.01 0.00 - 0.12 0.07
</TABLE>
SOURCE: SHESHUNOFF INFORMATION 6
SERVICES
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - COMPARATIVES BANKSEARCH REPORTS
- ------------------ FINANCIAL HIGHLIGHTS
Home Federal Savings and Loan Association 241 Green Street
Docket Number: 554 Fayetteville, NC 28302
TICKER: GSFC
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 157,378 160,685 157,745 151,325 145,879 160,008
%CH:Total Assets 1.17 1.86 4.24 3.73 (8.83) (1.27)
Total Loans $(000) 131,290 130,418 123,769 118,465 108,540 106,498
Total Deposits 110,167 114,316 111,852 127,593 124,107 140,166
Deps:Broker Originated - - - - - -
CAPITAL:
Consol:Equity Capital 45,067 44,860 44,574 22,658 20,885 19,047
Total Equity Capital 45,067 44,860 44,574 22,658 20,885 19,047
Tier 1 (Core) Capital 45,067 44,860 44,574 22,658 20,885 19,047
Total Risk-based Capital 45,322 45,115 44,809 22,883 21,110 19,253
Total Equity Capital/TA 28.64 27.92 28.26 14.97 14.32 11.90
Tier 1 Risk-Based Capital Ratio 56.90 56.23 58.21 30.44 29.47 25.91
Tier 1 Leverage Capital Ratio 28.64 27.92 28.26 14.97 14.32 11.90
Tangible Capital/Tang Assets 28.64 27.92 28.26 14.97 14.32 11.90
Total Risk-Based Capital Ratio 57.22 56.55 58.52 30.74 29.79 26.19
PROFITABILITY
Net Income (Loss) 1,047 2,109 1,775 1,773 1,838 1,784
Return on Average Assets 1.32 1.34 1.06 1.20 1.20 1.11
Return on Average Equity 4.66 4.72 4.95 8.13 9.21 9.74
Net Interest Margin/AA 4.17 4.19 3.75 3.33 3.25 2.99
Total Noninterest Income/AA 0.15 0.11 0.11 0.12 0.13 0.09
Total Overhead Expense/AA 2.16 2.09 2.19 1.60 1.48 1.31
Yield on Average Earning Assets 7.75 7.76 7.35 7.84 6.86 6.98
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 138.71 139.11 134.68 116.20 113.85 111.31
Brokered Deposits/TD - - - - - -
ASSET QUALITY:
Nonaccruing Loans/GL - - - - - -
Nonperf Lns/Loan Loss Reserve 32.55 50.59 77.02 131.11 166.22 176.70
Repossessed Assets (incl OREO)/TA 0.02 - - - 0.03 0.05
Net Charge-Offs(YTD)/Average Loans - - - - - -
</TABLE>
SOURCE: SHESHUNOFF INFORMATION 7
SERVICES
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - COMPARATIVES BANKSEARCH REPORTS
- ------------------ FINANCIAL HIGHLIGHTS
First Federal Savings Bank 1311 S. Neil Street
Docket Number: 1611 Champaign, IL 61820
TICKER: GTPS
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 136,853 133,615 129,055 111,337 105,832 109,420
%CH:Total Assets 4.40 3.53 15.91 5.20 (3.28) (3.10)
Total Loans $(000) 113,552 105,584 90,102 78,478 77,349 70,151
Total Deposits 117,371 112,254 101,062 83,974 87,022 91,196
Deps:Broker Originated 2,022 2,093 1,625 - - -
CAPITAL:
Consol:Equity Capital 11,653 18,947 25,051 24,860 15,780 15,155
Total Equity Capital 11,653 18,947 25,051 24,860 15,780 15,155
Tier 1 (Core) Capital 10,624 18,366 24,743 24,235 15,071 14,747
Total Risk-based Capital 11,201 18,863 25,112 24,475 15,290 14,965
Total Equity Capital/TA 8.52 14.18 19.41 22.33 14.91 13.85
Tier 1 Risk-Based Capital Ratio 12.63 22.93 33.62 35.88 23.72 24.23
Tier 1 Leverage Capital Ratio 7.85 13.83 19.22 22.02 14.42 13.60
Tangible Capital/Tang Assets 7.85 13.83 19.22 22.02 14.42 13.60
Total Risk-Based Capital Ratio 13.32 23.55 34.12 36.23 24.07 24.59
PROFITABILITY
Net Income (Loss) 437 917 399 673 762 966
Return on Average Assets 0.64 0.69 0.34 0.61 0.71 0.87
Return on Average Equity 5.59 4.16 1.58 3.19 4.93 6.58
Net Interest Margin/AA 3.63 3.78 4.16 4.25 3.89 3.73
Total Noninterest Income/AA 1.02 0.68 0.50 0.48 0.49 0.78
Total Overhead Expense/AA 3.37 3.14 3.79 3.57 3.13 3.16
Yield on Average Earning Assets 8.13 8.04 7.91 7.93 7.22 7.15
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab 110.57 115.22 120.46 116.92 107.47 107.13
Brokered Deposits/TD 1.72 1.86 1.61 - - -
ASSET QUALITY:
Nonaccruing Loans/GL 0.02 0.02 - 0.05 0.01 -
Nonperf Lns/Loan Loss Reserve 19.41 79.07 47.33 111.24 67.89 143.16
Repossessed Assets (incl OREO)/TA - - - - - 0.03
Net Charge-Offs(YTD)/Average Loans (0.00) 0.03 0.21 0.16 0.12 0.02
</TABLE>
SOURCE: SHESHUNOFF INFORMATION SERVICES
8
<PAGE>
FERGUSON & COMPANY Exhibit IV - Comparatives BankSearch Reports
- ------------------ Financial Highlights
Haywood Savings Bank, SSB 505 North Main Street
Certificate Number: 30327 Waynesville, NC 28786
TICKER: HBS
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 153,141 153,591 131,232 132,328 132,672 140,520
Securities 28,944 28,476 13,390 20,031 25,510 20,932
Held-to-Maturity Secs(AmortCost) 10,743 11,243 11,963 18,519 23,998 -
Avail for Sale Secs (Fair Value) 18,201 17,233 1,427 1,512 1,512 -
Total Loans & Leases(C) 114,507 114,896 110,070 104,726 100,567 100,592
Total Deposits 117,048 118,753 107,671 109,074 110,511 119,569
Total Loans/Total Deposits 97.83 96.75 102.23 96.01 91.00 84.13
Provision for Credit Loss 10 20 15 20 60 60
CAPITAL:
Total Equity Capital 22,911 21,994 20,526 21,351 20,371 19,624
Total Capital (Tier 1+2+3) 22,605 21,717 20,465 21,222 20,170 19,310
Tangible Equity Ratio 14.43 13.74 15.15 15.53 14.62 13.31
Risk-Adjusted Capital Ratio 28.82 27.17 27.47 29.94 28.88 27.09
Core Capital/Risk Weighted Assets 27.87 26.25 26.50 28.95 27.90 26.21
Core Capital/Adjusted Total Assets 14.43 13.74 15.15 15.53 14.62 13.31
Dividend Payout 36.48 36.40 59.32 45.60 34.09 29.09
PROFITABILITY:
Net Income (Loss) 1,028 1,959 1,094 1,353 1,675 1,968
Return on Average Assets 1.34 1.33 0.83 1.02 1.23 1.32
Return on Average Equity 9.14 9.27 5.22 6.49 8.38 9.67
Net Interest Spread/AEA 3.45 3.35 3.85 3.80 4.09 4.20
Net Interest Margin/AA 3.28 3.17 3.64 3.62 3.88 3.97
ASSET QUALITY:
Nonperf Ln&Debt Sec/CoreCap&LnLsRsrv 4.19 2.85 4.16 6.47 8.04 10.37
Loan Loss Reserve/Nonperf Loans 79.09 119.42 84.39 51.27 42.17 31.15
Adjusted Nonperf Assets/TA 0.62 0.56 2.01 2.42 2.53 2.68
PastDue 90 Days:Loans & Leases/GL - - - 1.31 1.61 1.98
Loan Loss Reserve/TL 0.65 0.64 0.65 0.67 0.68 0.62
Net Charge-Offs(YTD)/Average Loans - - - - - 0.01
Real Estate Loans/GDL 99.36 99.50 99.37 99.42 99.24 99.34
LIQUIDITY:
Brokered Deposits/TD - - - - - -
Avg Int-Bear Asset/Avg Int-Bear Liab 113.89 112.54 114.77 115.11 112.79 110.76
Pledged Securities/Total Securities 1.04 - 2.24 1.50 - -
Tot Secs:Fair Val to Amrtzd Cost 100.64 100.07 97.66 108.38 93.63 101.69
</TABLE>
SOURCE: SHESHUNOFF INFORMATION SERVICES 9
<PAGE>
FERGUSON & COMPANY Exhibit IV - Comparatives BankSearch Reports
- ------------------
FINANCIAL HIGHLIGHTS
Jacksonville Savings Bank, SSB Commerce and Neches Streets
Certificate Number: 28066 Jacksonville, TX 28066
TICKER: JXVL
<TABLE>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 242,445 235,523 - - - -
Securities 42,752 49,525 - - - -
Held-to-Maturity Secs(AmortCost) 27,946 31,090 - - - -
Avail for Sale Secs (Fair Value) 14,806 18,435 - - - -
Total Loans & Leases(C) 186,795 175,972 - - - -
Total Deposits 202,359 198,315 - - - -
Total Loans/Total Deposits 92.31 88.73 N/A N/A N/A N/A
Provision for Credit Loss 20 105 - - - -
CAPITAL:
Total Equity Capital 33,473 32,451 - - - -
Total Capital (Tier 1+2+3) 34,596 33,548 - - - -
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 - - - -
Return on Average Assets 1.20 1.41 N/A N/A N/A N/A
Return on Average Equity 8.70 10.29 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>
SOURCE: SHESHUNOFF INFORMATION SERVICES 10
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - COMPARATIVES BANKSEARCH REPORTS
- ------------------
FINANCIAL HIGHLIGHTS
Jacksonville Savings and Loan Association Commerce and Neches Streets
Certificate Number: 28066 Jacksonville, TX 28066
TICKER: JXVL
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C>
BALANCE SHEET: <C> <C> <C>
Total Assets - - 215,849 196,690 185,928 185,825
%CH:Total Assets (100.00) (100.00) 9.74 5.79 0.06 (2.85)
Total Loans $(000) - - 159,882 141,242 126,175 123,752
Total Deposits - - 178,339 173,743 157,478 172,864
Deps:Broker Originated - - - - - -
CAPITAL:
Consol:Equity Capital - - 29,240 20,741 19,374 11,621
Total Equity Capital - - 29,240 20,741 19,374 11,621
Tier 1 (Core) Capital - - 29,281 20,747 19,595 11,621
Total Risk-based Capital - - 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) - - 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 0.00 0.07 (0.11) 0.16
</TABLE>
SOURCE: SHESHUNOFF INFORMATION SERVICES 11
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - COMPARATIVES BANKSEARCH REPORTS
- ------------------
FINANCIAL HIGHLIGHTS
Hillsborough Savings Bank, SSB 260 South Churton Street
Certificate Number: 30384 Hillsborough, NC 27278
TICKER: PDB
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 132,068 131,490 126,193 121,109 100,389 98,055
Securities 18,188 16,552 16,853 24,671 12,501 10,446
Held-to-Maturity Secs(AmortCost) 3,250 3,322 3,510 3,488 1,321 -
Avail for Sale Secs (Fair Value) 14,938 13,230 13,343 21,183 11,180 -
Total Loans & Leases(C) 107,561 108,243 96,796 87,780 82,717 82,915
Total Deposits 92,103 88,405 82,224 82,899 76,413 74,352
Total Loans/Total Deposits 116.78 122.44 117.72 105.89 108.25 111.52
Provision for Credit Loss 48 88 660 114 108 78
CAPITAL:
Total Equity Capital 20,026 19,493 25,594 23,094 12,659 11,877
Total Capital (Tier 1+2+3) 20,868 20,320 26,400 23,535 13,451 12,232
Tangible Equity Ratio 14.87 15.03 20.22 18.84 13.07 12.02
Risk-Adjusted Capital Ratio 28.38 28.18 39.51 36.20 23.04 21.28
Core Capital/Risk Weighted Assets 27.13 26.96 38.44 35.32 22.25 20.66
Core Capital/Adjusted Total Assets 14.87 15.03 20.22 18.84 13.07 12.02
Dividend Payout 71.26 587.83 N/A - - -
PROFITABILITY:
Net Income (Loss) 849 1,463 (666) 1,313 1,112 956
Return on Average Assets 1.28 1.16 (0.54) 1.19 1.12 1.00
Return on Average Equity 8.59 7.19 (2.74) 7.34 9.06 8.39
Net Interest Spread/AEA 4.06 3.87 3.95 4.05 4.05 3.75
Net Interest Margin/AA 3.96 3.77 3.85 3.93 3.93 3.64
ASSET QUALITY:
Nonperf Ln&Debt Sec/CoreCap&LnLsRsrv 4.16 3.16 3.96 1.92 1.67 1.81
Loan Loss Reserve/Nonperf Loans 109.31 136.70 68.42 126.39 206.25 160.63
Adjusted Nonperf Assets/TA 0.70 0.93 0.83 0.37 0.22 0.34
PastDue 90 Days:Loans & Leases/GL 0.00 0.20 0.28 0.41 0.17 0.12
Loan Loss Reserve/TL 0.88 0.81 0.74 0.65 0.56 0.43
Net Charge-Offs(YTD)/Average Loans (0.02) (0.07) 0.56 0.01 0.00 -
Real Estate Loans/GDL 99.14 99.07 98.61 97.95 98.12 98.15
LIQUIDITY:
Brokered Deposits/TD - - - 0.12 0.65 0.93
Avg Int-Bear Asset/Avg Int-Bear Liab 120.36 121.16 125.83 119.69 113.83 112.93
Pledged Securities/Total Securities 46.18 52.11 22.92 8.38 15.63 11.38
Tot Secs:Fair Val to Amrtzd Cost 101.15 101.04 99.25 100.91 95.30 101.23
</TABLE>
SOURCE: SHESHUNOFF INFORMATION SERVICES 12
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - COMPARATIVES BANKSEARCH REPORTS
- ------------------ FINANCIAL HIGHLIGHTS
Southern Missouri Bank & Trust Co. 531 Vine Street
Certificate Number: 28332 Poplar Bluff, MO 63901
TICKER: SMBC
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 153,688 - - - - -
Securities 27,118 - - - - -
Held-to-Maturity Secs(AmortCost) 4,645 - - - - -
Avail for Sale Secs (Fair Value) 22,473 - - - - -
Total Loans & Leases(C) 120,309 - - - - -
Total Deposits 109,932 - - - - -
Total Loans/Total Deposits 109.44 N/A N/A N/A N/A N/A
Provision for Credit Loss 647 - - - - -
CAPITAL:
Total Equity Capital 21,159 - - - - -
Total Capital (Tier 1+2+3) 22,303 - - - - -
Tangible Equity Ratio 13.69 N/A N/A N/A N/A N/A
Risk-Adjusted Capital Ratio 25.60 N/A N/A N/A N/A N/A
Core Capital/Risk Weighted Assets 24.35 N/A N/A N/A N/A N/A
Core Capital/Adjusted Total Assets 13.69 N/A N/A N/A N/A N/A
Dividend Payout 298.51 N/A N/A N/A N/A N/A
PROFITABILITY:
Net Income (Loss) 402 - - - - -
Return on Average Assets 0.52 N/A N/A N/A N/A N/A
Return on Average Equity 3.74 N/A N/A N/A N/A N/A
Net Interest Spread/AEA 3.57 N/A N/A N/A N/A N/A
Net Interest Margin/AA 3.45 N/A N/A N/A N/A N/A
ASSET QUALITY:
Nonperf Ln&Debt Sec/CoreCap&LnLsRsrv 6.00 N/A N/A N/A N/A N/A
Loan Loss Reserve/Nonperf Loans 95.85 N/A N/A N/A N/A N/A
Adjusted Nonperf Assets/TA 1.02 N/A N/A N/A N/A N/A
PastDue 90 Days:Loans & Leases/GL 0.68 N/A N/A N/A N/A N/A
Loan Loss Reserve/TL 1.08 N/A N/A N/A N/A N/A
Net Charge-Offs(YTD)/Average Loans 0.10 N/A N/A N/A N/A N/A
Real Estate Loans/GDL 90.53 N/A N/A N/A N/A N/A
LIQUIDITY:
Brokered Deposits/TD - N/A N/A N/A N/A N/A
Avg Int-Bear Asset/Avg Int-Bear Liab 115.57 N/A N/A N/A N/A N/A
Pledged Securities/Total Securities 39.32 N/A N/A N/A N/A N/A
Tot Secs:Fair Val to Amrtzd Cost 100.27 N/A N/A N/A N/A N/A
</TABLE>
SOURCE: SHESHUNOFF INFORMATION SERVICES 13
<PAGE>
FERGUSON & COMPANY EXHIBIT IV - COMPARATIVES BANKSEARCH REPORTS
- ------------------ FINANCIAL HIGHLIGHTS
Southern Missouri Savings Bank 531 Vine Street
Certificate Number: 28332 Poplar Bluff, MO 63901
TICKER: SMBC
<TABLE>
<CAPTION>
Jun 1998 Dec 1997 Dec 1996 Dec 1995 Dec 1994 Dec 1993
(YTD) (YTD) (YTD) (YTD) (YTD) (YTD)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets - 156,017 155,310 154,146 136,918 130,752
%CH:Total Assets (100.00) 0.46 0.76 12.58 4.72 (4.41)
Total Loans $(000) - 118,127 103,374 88,942 80,118 74,379
Total Deposits - 111,238 118,749 120,054 114,848 119,116
Deps:Broker Originated - - - - - -
CAPITAL:
Consol:Equity Capital - 21,633 20,340 19,528 18,002 10,225
Total Equity Capital - 21,633 20,340 19,528 18,002 10,225
Tier 1 (Core) Capital - 21,419 20,089 18,896 17,350 9,967
Total Risk-based Capital - 22,088 20,581 19,496 17,829 10,380
Total Equity Capital/TA N/A 13.87 13.10 12.67 13.15 7.82
Tier 1 Risk-Based Capital Ratio N/A 24.05 25.41 25.35 27.02 16.12
Tier 1 Leverage Capital Ratio N/A 13.75 12.96 12.31 12.72 7.63
Tangible Capital/Tang Assets N/A 13.75 12.96 12.31 12.72 7.63
Total Risk-Based Capital Ratio N/A 24.80 26.03 26.15 27.77 16.79
PROFITABILITY
Net Income (Loss) - 1,262 998 871 1,320 (469)
Return on Average Assets N/A 0.80 0.64 0.61 0.99 (0.56)
Return on Average Equity N/A 6.00 5.05 4.67 9.35 (7.15)
Net Interest Margin/AA N/A 2.95 2.93 2.62 3.16 3.43
Total Noninterest Income/AA N/A 0.65 0.57 0.39 0.36 0.50
Total Overhead Expense/AA N/A 2.16 2.53 2.16 2.11 3.73
Yield on Average Earning Assets N/A 7.30 7.32 7.07 7.05 7.51
LIQUIDITY:
Avg Int-Bear Asset/Avg Int-Bear Liab N/A 114.10 112.91 112.42 108.78 104.46
Brokered Deposits/TD N/A - - - - -
ASSET QUALITY:
Nonaccruing Loans/GL N/A 1.07 0.80 0.72 0.58 1.16
Nonperf Lns/Loan Loss Reserve N/A 162.56 123.90 106.33 95.85 206.71
Repossessed Assets (incl OREO)/TA N/A 0.09 0.17 0.62 0.93 0.78
Net Charge-Offs(YTD)/Average Loans N/A 0.20 0.01 0.02 0.01 0.08
</TABLE>
SOURCE: SHESHUNOFF INFORMATION SERVICES 14
<PAGE>
EXHIBIT V
<PAGE>
FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ABBK Abington Bancorp Inc. Abington MA NE BIF NASDAQ 06/10/86 14.500
ABCL Alliance Bancorp Hinsdale IL MW SAIF NASDAQ 07/07/92 19.750
ABCW Anchor BanCorp Wisconsin Madison WI MW SAIF NASDAQ 07/16/92 19.563
AFBC Advance Financial Bancorp Wellsburg WV SE SAIF NASDAQ 01/02/97 13.500
AHCI Ambanc Holding Co. Amsterdam NY MA BIF NASDAQ 12/27/95 16.000
ALBC Albion Banc Corp. Albion NY MA SAIF NASDAQ 07/26/93 9.000
ALLB Alliance Bank (MHC) Broomall PA MA SAIF NASDAQ 03/03/95 12.750
AMFC AMB Financial Corp. Munster IN MW SAIF NASDAQ 04/01/96 12.188
ANA Acadiana Bancshares Inc. Lafayette LA SW SAIF AMSE 07/16/96 17.500
ANDB Andover Bancorp Inc. Andover MA NE BIF NASDAQ 05/08/86 32.438
ANE Alliance Bncp of New England Vernon CT NE BIF AMSE 12/19/86 11.500
ASBI Ameriana Bancorp New Castle IN MW SAIF NASDAQ 03/02/87 19.125
ASBP ASB Financial Corp. Portsmouth OH MW SAIF NASDAQ 05/11/95 11.500
ASFC Astoria Financial Corp. Lake Success NY MA SAIF NASDAQ 11/18/93 46.750
BDJI First Federal Bancorp. Bemidji MN MW SAIF NASDAQ 04/04/95 14.500
BFD BostonFed Bancorp Inc. Burlington MA NE SAIF AMSE 10/24/95 18.750
BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/94 11.750
BKC American Bank of Connecticut Waterbury CT NE BIF AMSE 12/01/81 20.625
BKCT Bancorp Connecticut Inc. Southington CT NE BIF NASDAQ 07/03/86 16.000
BKUNA BankUnited Financial Corp. Coral Gables FL SE SAIF NASDAQ 12/11/85 7.313
BNKU Bank United Corp. Houston TX SW SAIF NASDAQ 08/09/96 44.125
BVCC Bay View Capital Corp. San Mateo CA WE SAIF NASDAQ 05/09/86 20.000
CAFI Camco Financial Corp. Cambridge OH MW SAIF NASDAQ NA 15.250
CASB Cascade Financial Corp. Everett WA WE SAIF NASDAQ 09/16/92 13.125
CASH First Midwest Financial Inc. Storm Lake IA MW SAIF NASDAQ 09/20/93 16.875
CATB Catskill Financial Corp. Catskill NY MA BIF NASDAQ 04/18/96 13.625
CBES CBES Bancorp Inc. Excelsior Springs MO MW SAIF NASDAQ 09/30/96 16.750
CBSA Coastal Bancorp Inc. Houston TX SW SAIF NASDAQ NA 18.000
CEBK Central Co-operative Bank Somerville MA NE BIF NASDAQ 10/24/86 17.500
CENB Century Bancorp Inc. Thomasville NC SE SAIF NASDAQ 12/23/96 14.000
CFB Commercial Federal Corp. Omaha NE MW SAIF NYSE 12/31/84 22.875
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90 20.063
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 11.750
CFNC Carolina Fincorp Inc. Rockingham NC SE SAIF NASDAQ 11/25/96 8.375
CFSB CFSB Bancorp Inc. Lansing MI MW SAIF NASDAQ 06/22/90 22.375
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 15.000
CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 12.125
CKFB CKF Bancorp Inc. Danville KY MW SAIF NASDAQ 01/04/95 15.625
CLAS Classic Bancshares Inc. Ashland KY MW SAIF NASDAQ 12/29/95 14.750
CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/95 16.000
CMSB Commonwealth Bancorp Inc. Norristown PA MA SAIF NASDAQ 06/17/96 15.125
CMSV Community Savings Bnkshrs(MHC) North Palm Beach FL SE SAIF NASDAQ 10/24/94 22.500
CNIT CENIT Bancorp Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 18.375
CNSB CNS Bancorp Inc. Jefferson City MO MW SAIF NASDAQ 06/12/96 13.500
CNY Carver Bancorp Inc. New York NY MA SAIF AMSE 10/25/94 8.375
COFI Charter One Financial Cleveland OH MW SAIF NASDAQ 01/22/88 28.375
COOP Cooperative Bankshares Inc. Wilmington NC SE SAIF NASDAQ 08/21/91 14.313
CRSB Crusader Holding Corp. Philadelphia PA MA SAIF NASDAQ NA 11.938
CRZY Crazy Woman Creek Bancorp Buffalo WY WE SAIF NASDAQ 03/29/96 13.000
CSBF CSB Financial Group Inc. Centralia IL MW SAIF NASDAQ 10/09/95 9.875
CVAL Chester Valley Bancorp Inc. Downingtown PA MA SAIF NASDAQ 03/27/87 28.000
DCBI Delphos Citizens Bancorp Inc. Delphos OH MW SAIF NASDAQ 11/21/96 18.000
DCOM Dime Community Bancshares Inc. Brooklyn NY MA BIF NASDAQ 06/26/96 25.188
DME Dime Bancorp Inc. New York NY MA BIF NYSE 08/19/86 25.250
DSL Downey Financial Corp. Newport Beach CA WE SAIF NYSE 01/01/71 24.875
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 18.250
EFBC Empire Federal Bancorp Inc. Livingston MT WE SAIF NASDAQ 01/27/97 13.000
EMLD Emerald Financial Corp. Strongsville OH MW SAIF NASDAQ 10/05/93 10.875
EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ 09/10/93 21.000
ESBF ESB Financial Corp. Ellwood City PA MA SAIF NASDAQ 06/13/90 16.250
ESBK Elmira Savings Bank (The) Elmira NY MA BIF NASDAQ 03/01/85 23.750
FAB FIRSTFED AMERICA BANCORP INC. Swansea MA NE SAIF AMSE 01/15/97 13.125
FBBC First Bell Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/29/95 15.750
<CAPTION>
Current
Market
Value
Ticker ($M)
<S> <C>
ABBK 48.53
ABCL 226.28
ABCW 334.70
AFBC 13.91
AHCI 65.52
ALBC 6.77
ALLB 41.75
AMFC 10.60
ANA 39.71
ANDB 210.90
ANE 26.36
ASBI 60.97
ASBP 19.03
ASFC 1,243.25
BDJI 14.40
BFD 97.73
BFSB 27.00
BKC 96.99
BKCT 81.96
BKUNA 132.72
BNKU 1,393.60
BVCC 387.05
CAFI 83.52
CASB 56.55
CASH 43.09
CATB 59.38
CBES 16.24
CBSA 127.93
CEBK 34.39
CENB 17.58
CFB 1,384.55
CFCP 125.67
CFFC 30.22
CFNC 15.96
CFSB 182.71
CFTP 65.97
CIBI 14.93
CKFB 13.19
CLAS 19.17
CMRN 38.94
CMSB 222.64
CMSV 114.84
CNIT 89.07
CNSB 20.14
CNY 19.38
COFI 3,822.77
COOP 43.56
CRSB 45.75
CRZY 11.54
CSBF 8.11
CVAL 68.58
DCBI 31.61
DCOM 292.09
DME 2,824.54
DSL 699.78
EBSI 104.42
EFBC 30.41
EMLD 111.97
EQSB 25.79
ESBF 87.51
ESBK 17.26
FAB 103.14
FBBC 98.10
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 1
<PAGE>
FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FBNW FirstBank Corp. Lewiston ID WE SAIF NASDAQ 07/02/97 14.750 28.97
FBSI First Bancshares Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 12.625 27.30
FCB Falmouth Bancorp Inc. Falmouth MA NE BIF AMSE 03/28/96 17.000 23.83
FCBF FCB Financial Corp. Oshkosh WI MW SAIF NASDAQ 09/24/93 29.250 112.15
FCME First Coastal Corp. Westbrook ME NE BIF NASDAQ NA 10.188 13.86
FDEF First Defiance Financial Defiance OH MW SAIF NASDAQ 10/02/95 14.313 116.92
FED FirstFed Financial Corp. Santa Monica CA WE SAIF NYSE 12/16/83 17.438 368.42
FESX First Essex Bancorp Inc. Andover MA NE BIF NASDAQ 08/04/87 18.250 138.04
FFBH First Federal Bancshares of AR Harrison AR SE SAIF NASDAQ 05/03/96 20.250 92.65
FFBZ First Federal Bancorp Inc. Zanesville OH MW SAIF NASDAQ 07/13/92 10.625 33.47
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 19.750 269.76
FFDB FirstFed Bancorp Inc. Bessemer AL SE SAIF NASDAQ 11/19/91 10.000 24.45
FFDF FFD Financial Corp. Dover OH MW SAIF NASDAQ 04/03/96 13.625 19.69
FFES First Federal of East Hartford East Hartford CT NE SAIF NASDAQ 06/23/87 27.375 75.24
FFFD North Central Bancshares Inc. Fort Dodge IA MW SAIF NASDAQ 03/21/96 17.125 53.16
FFFL Fidelity Bankshares Inc. (MHC) West Palm Beach FL SE SAIF NASDAQ 01/07/94 23.000 156.46
FFHH FSF Financial Corp. Hutchinson MN MW SAIF NASDAQ 10/07/94 15.375 44.55
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 15.313 172.03
FFKY First Federal Financial Corp. Elizabethtown KY MW SAIF NASDAQ 07/15/87 27.750 114.60
FFLC FFLC Bancorp Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 16.500 60.84
FFSL First Independence Corp. Independence KS MW SAIF NASDAQ 10/08/93 11.000 10.55
FFSX First Fed SB of Siouxland(MHC) Sioux City IA MW SAIF NASDAQ 07/13/92 24.063 68.46
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 15.750 22.71
FFWD Wood Bancorp Inc. Bowling Green OH MW SAIF NASDAQ 08/31/93 14.250 38.34
FFYF FFY Financial Corp. Youngstown OH MW SAIF NASDAQ 06/28/93 33.000 129.66
FGHC First Georgia Holding Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 8.250 39.59
FISB First Indiana Corp. Indianapolis IN MW SAIF NASDAQ 08/02/83 20.250 257.36
FKFS First Keystone Financial Media PA MA SAIF NASDAQ 01/26/95 15.000 34.94
FKKY Frankfort First Bancorp Inc. Frankfort KY MW SAIF NASDAQ 07/10/95 15.000 23.76
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86 11.625 60.23
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 22.125 299.84
FLGS Flagstar Bancorp Inc. Bloomfield Hills MI MW SAIF NASDAQ NA 29.000 396.43
FLKY First Lancaster Bancshares Lancaster KY MW SAIF NASDAQ 07/01/96 12.875 11.94
FMCO FMS Financial Corp. Burlington NJ MA SAIF NASDAQ 12/14/88 9.750 70.51
FMSB First Mutual Savings Bank Bellevue WA WE BIF NASDAQ 12/17/85 14.875 63.15
FNGB First Northern Capital Corp. Green Bay WI MW SAIF NASDAQ 12/29/83 12.500 109.81
FSBI Fidelity Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/24/88 17.750 35.04
FSPT FirstSpartan Financial Corp. Spartanburg SC SE SAIF NASDAQ 07/09/97 31.500 119.32
FSTC First Citizens Corp. Newnan GA SE SAIF NASDAQ 03/01/86 26.500 73.26
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 24.125 40.43
FTFC First Federal Capital Corp. La Crosse WI MW SAIF NASDAQ 11/02/89 15.875 293.38
FTNB Fulton Bancorp Inc. Fulton MO MW SAIF NASDAQ 10/18/96 16.188 27.55
FTSB Fort Thomas Financial Corp. Fort Thomas KY MW SAIF NASDAQ 06/28/95 13.500 19.90
FWWB First Washington Bancorp Inc. Walla Walla WA WE SAIF NASDAQ 11/01/95 20.313 232.15
GAF GA Financial Inc. Pittsburgh PA MA SAIF AMSE 03/26/96 15.250 108.78
GDW Golden West Financial Oakland CA WE SAIF NYSE 05/29/59 89.500 5,094.42
GOSB GSB Financial Corp. Goshen NY MA BIF NASDAQ 07/09/97 13.875 30.69
GPT GreenPoint Financial Corp. New York NY MA BIF NYSE 01/28/94 36.188 3,423.91
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 14.375 58.70
GSLA GS Financial Corp. Metairie LA SW SAIF NASDAQ 04/01/97 12.875 37.95
GTPS Great American Bancorp Champaign IL MW SAIF NASDAQ 06/30/95 16.000 21.75
GUPB GFSB Bancorp Inc. Gallup NM SW SAIF NASDAQ 06/30/95 14.000 14.73
HALL Hallmark Capital Corp. West Allis WI MW SAIF NASDAQ 01/03/94 12.625 37.10
HARL Harleysville Savings Bank Harleysville PA MA SAIF NASDAQ 08/04/87 24.250 40.66
HAVN Haven Bancorp Inc. Westbury NY MA SAIF NASDAQ 09/23/93 16.375 144.93
HBFW Home Bancorp Fort Wayne IN MW SAIF NASDAQ 03/30/95 27.625 64.95
HBNK Highland Bancorp Inc. Burbank CA WE SAIF NASDAQ NA 33.250 72.52
HBS Haywood Bancshares Inc. Waynesville NC SE SAIF AMSE 12/18/87 16.750 20.94
HCFC Home City Financial Corp. Springfield OH MW SAIF NASDAQ 12/30/96 14.500 13.12
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 19.375 15.82
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 2
<PAGE>
FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<TABLE>
<CAPTION> Deposit Current Current
Insurance Stock Mark
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>
SHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/94 15.000 13.19
HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/88 16.875 33.15
HMLK Hemlock Federal Financial Corp Oak Forest IL MW SAIF NASDAQ 04/02/97 14.250 25.32
HMNF HMN Financial Inc. Spring Valley MN MW SAIF NASDAQ 06/30/94 13.250 71.38
HOMF Home Federal Bancorp Seymour IN MW SAIF NASDAQ 01/23/88 25.750 132.53
HPBC Home Port Bancorp Inc. Nantucket MA NE BIF NASDAQ 08/25/88 23.000 42.36
HRBF Harbor Federal Bancorp Inc. Baltimore MD MA SAIF NASDAQ 08/12/94 21.250 39.58
HRZB Horizon Financial Corp. Bellingham WA WE BIF NASDAQ 08/01/86 13.250 99.17
HTHR Hawthorne Financial Corp. El Segundo CA WE SAIF NASDAQ NA 16.625 86.37
HWEN Home Financial Bancorp Spencer IN MW SAIF NASDAQ 07/02/96 7.125 6.38
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94 12.875 11.33
IFSB Independence Federal Svgs Bank Washington DC MA SAIF NASDAQ 06/06/85 12.375 15.85
INBI Industrial Bancorp Inc. Bellevue OH MW SAIF NASDAQ 08/01/95 19.125 93.60
IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/93 10.000 23.92
ITLA ITLA Capital Corp. La Jolla CA WE BIF NASDAQ 10/24/95 17.125 126.36
IWBK InterWest Bancorp Inc. Oak Harbor WA WE SAIF NASDAQ NA 23.125 361.94
JSB JSB Financial Inc. Lynbrook NY MA BIF NYSE 06/27/90 51.500 493.15
JSBA Jefferson Savings Bancorp Inc. Ballwin MO MW SAIF NASDAQ 04/08/93 13.625 136.77
JXVL Jacksonville Bancorp Inc. Jacksonville TX SW SAIF NASDAQ 04/01/96 16.125 39.05
KFBI Klamath First Bancorp Klamath Falls OR WE SAIF NASDAQ 10/05/95 18.500 183.46
KNK Kankakee Bancorp Inc. Kankakee IL MW SAIF AMSE 01/06/93 26.250 35.88
KSBK KSB Bancorp Inc. Kingfield ME NE BIF NASDAQ 06/24/93 18.375 23.18
KYF Kentucky First Bancorp Inc. Cynthiana KY MW SAIF AMSE 08/29/95 13.125 15.71
LARK Landmark Bancshares Inc. Dodge City KS MW SAIF NASDAQ 03/28/94 23.875 31.49
LARL Laurel Capital Group Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 19.000 41.60
LFBI Little Falls Bancorp Inc. Little Falls NJ MA SAIF NASDAQ 01/05/96 18.000 44.60
LFCO Life Financial Corp. Riverside CA WE SAIF NASDAQ NA 5.500 36.09
LFED Leeds Federal Bankshares (MHC) Baltimore MD MA SAIF NASDAQ 05/02/94 13.875 72.09
LOGN Logansport Financial Corp. Logansport IN MW SAIF NASDAQ 06/14/95 15.000 17.98
LSBI LSB Financial Corp. Lafayette IN MW BIF NASDAQ 02/03/95 28.500 26.59
LSBX Lawrence Savings Bank North Andover MA NE BIF NASDAQ 05/02/86 12.750 55.23
LVSB Lakeview Financial Corp. Paterson NJ MA SAIF NASDAQ 12/22/93 22.250 107.21
LXMO Lexington B&L Financial Corp. Lexington MO MW SAIF NASDAQ 06/06/96 12.000 12.10
MAFB MAF Bancorp Inc. Clarendon Hills IL MW SAIF NASDAQ 01/12/90 24.625 542.77
MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/93 22.000 34.27
MASB MASSBANK Corp. Reading MA NE BIF NASDAQ 05/28/86 39.875 140.94
MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/93 17.625 21.98
MCBN Mid-Coast Bancorp Inc. Waldoboro ME NE SAIF NASDAQ 11/02/89 8.750 6.25
MDBK Medford Bancorp Inc. Medford MA NE BIF NASDAQ 03/18/86 18.000 156.91
MECH MECH Financial Inc. Hartford CT NE BIF NASDAQ 06/26/96 28.750 152.24
METF Metropolitan Financial Corp. Mayfield Heights OH MW SAIF NASDAQ NA 11.875 83.73
MFBC MFB Corp. Mishawaka IN MW SAIF NASDAQ 03/25/94 22.250 32.80
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 14.000 31.32
MFLR Mayflower Co-operative Bank Middleboro MA NE BIF NASDAQ 12/23/87 23.438 21.08
MONT Montgomery Financial Corp. Crawfordsville IN MW SAIF NASDAQ 07/01/97 10.250 16.62
MRKF Market Financial Corp. Mount Healthy OH MW SAIF NASDAQ 03/27/97 11.750 15.69
MSBF MSB Financial Inc. Marshall MI MW SAIF NASDAQ 02/06/95 11.500 15.33
MWBI Midwest Bancshares Inc. Burlington IA MW SAIF NASDAQ 11/12/92 13.000 13.93
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 9.250 24.22
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 17.375 29.07
NHTB New Hampshire Thrift Bncshrs Newport NH NE SAIF NASDAQ 05/22/86 15.750 33.12
NMSB NewMil Bancorp Inc. New Milford CT NE BIF NASDAQ 02/01/86 11.500 44.13
NSLB NS&L Bancorp Inc. Neosho MO MW SAIF NASDAQ 06/08/95 12.625 8.19
NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 22.750 18.78
NWSB Northwest Bancorp Inc. (MHC) Warren PA MA SAIF NASDAQ 11/07/94 10.000 473.40
OCFC Ocean Financial Corp. Toms River NJ MA SAIF NASDAQ 07/03/96 15.000 221.36
OFCP Ottawa Financial Corp. Holland MI MW SAIF NASDAQ 08/19/94 21.500 119.07
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 14.000 34.94
PBCI Pamrapo Bancorp Inc. Bayonne NJ MA SAIF NASDAQ 11/14/89 24.375 69.30
PBCT People's Bank (MHC) Bridgeport CT NE BIF NASDAQ 07/06/88 28.938 1,855.89
PBHC Pathfinder Bancorp Inc. (MHC) Oswego NY MA BIF NASDAQ 11/16/95 11.000 30.10
PBKB People's Bancshares Inc. New Bedford MA NE BIF NASDAQ 10/30/86 20.875 69.25
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 3
<PAGE>
FERGUSON & COMPANY 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>
PBOC PBOC Holdings Inc. Los Angeles CA WE SAIF NASDAQ NA 9.750 210.42
PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/95 20.234 16.75
PDB Piedmont Bancorp Inc. Hillsborough NC SE SAIF AMSE 12/08/95 9.375 25.20
PEEK Peekskill Financial Corp. Peekskill NY MA SAIF NASDAQ 12/29/95 14.000 39.79
PERM Permanent Bancorp Inc. Evansville IN MW SAIF NASDAQ 04/04/94 13.813 54.97
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 19.750 64.79
PFED Park Bancorp Inc. Chicago IL MW SAIF NASDAQ 08/12/96 13.625 29.80
PFFB PFF Bancorp Inc. Pomona CA WE SAIF NASDAQ 03/29/96 15.563 240.30
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 14.250 75.00
PFSB PennFed Financial Services Inc West Orange NJ MA SAIF NASDAQ 07/15/94 13.625 125.55
PHBK Peoples Heritage Finl Group Portland ME NE BIF NASDAQ 12/04/86 19.563 1,717.35
PHFC Pittsburgh Home Financial Corp Pittsburgh PA MA SAIF NASDAQ 04/01/96 14.625 27.37
PHSED PHS Bancorp Inc. (MHC) Beaver Falls PA MA SAIF NASDAQ 07/10/97 14.250 39.33
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 12.750 12.11
PSFC Peoples-Sidney Financial Corp. Sidney OH MW SAIF NASDAQ 04/28/97 16.500 28.72
PSFI PS Financial Inc. Chicago IL MW SAIF NASDAQ 11/27/96 10.500 19.43
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 15.375 14.42
PVFC PVF Capital Corp. Bedford Heights OH MW SAIF NASDAQ 12/30/92 13.250 52.88
PVSA Parkvale Financial Corp. Monroeville PA MA SAIF NASDAQ 07/16/87 21.000 133.20
PWBK Pennwood Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 07/15/96 10.875 7.15
QCBC Quaker City Bancorp Inc. Whittier CA WE SAIF NASDAQ 12/30/93 16.875 97.51
QCFB QCF Bancorp Inc. Virginia MN MW SAIF NASDAQ 04/03/95 25.250 29.09
QCSB Queens County Bancorp Inc. Flushing NY MA BIF NASDAQ 11/23/93 29.500 627.62
RELY Reliance Bancorp Inc. Garden City NY MA SAIF NASDAQ 03/31/94 29.000 251.92
RIVR River Valley Bancorp Madison IN MW SAIF NASDAQ 12/20/96 15.500 18.47
RSLN Roslyn Bancorp Inc. Roslyn NY MA BIF NASDAQ 01/13/97 18.563 768.51
SCBS Southern Community Bancshares Cullman AL SE SAIF NASDAQ 12/23/96 15.000 17.06
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 13.500 7.82
SFED SFS Bancorp Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 20.875 25.23
SFFC StateFed Financial Corp. Des Moines IA MW SAIF NASDAQ 01/05/94 10.750 16.60
SFIN Statewide Financial Corp. Jersey City NJ MA SAIF NASDAQ 10/02/95 17.000 72.04
SGVB SGV Bancorp Inc. West Covina CA WE SAIF NASDAQ 06/29/95 12.625 28.01
SKAN Skaneateles Bancorp Inc. Skaneateles NY MA BIF NASDAQ 06/02/86 13.063 18.94
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO MW SAIF NASDAQ 04/13/94 15.500 20.79
SOBI Sobieski Bancorp Inc. South Bend IN MW SAIF NASDAQ 03/31/95 15.125 11.52
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 22.000 81.71
SPBC St. Paul Bancorp Inc. Chicago IL MW SAIF NASDAQ 05/18/87 23.375 972.31
SRN Southern Banc Co. Gadsden AL SE SAIF AMSE 10/05/95 12.500 15.38
SSM Stone Street Bancorp Inc. Mocksville NC SE SAIF AMSE 04/01/96 14.625 25.13
STFR St. Francis Capital Corp. Brookfield WI MW SAIF NASDAQ 06/21/93 41.813 200.19
STSA Sterling Financial Corp. Spokane WA WE SAIF NASDAQ NA 17.750 135.00
SVRN Sovereign Bancorp Inc. Wyomissing PA MA SAIF NASDAQ 08/12/86 13.000 2,072.18
SZB SouthFirst Bancshares Inc. Sylacauga AL SE SAIF AMSE 02/14/95 16.125 14.75
THR Three Rivers Financial Corp. Three Rivers MI MW SAIF AMSE 08/24/95 14.000 10.09
THRD TF Financial Corp. Newtown PA MA SAIF NASDAQ 07/13/94 18.875 60.24
TRIC Tri-County Bancorp Inc. Torrington WY WE SAIF NASDAQ 09/30/93 12.375 14.45
TSH Teche Holding Co. Franklin LA SW SAIF AMSE 04/19/95 15.063 46.62
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 15.000 18.28
UFBS Union Financial Bcshs Inc. Union SC SE SAIF NASDAQ NA 13.500 17.22
WAYN Wayne Savings Bancshares (MHC) Wooster OH MW SAIF NASDAQ 06/25/93 20.000 49.78
WBST Webster Financial Corp. Waterbury CT NE SAIF NASDAQ 12/12/86 27.000 1,022.68
WCFB Webster City Federal SB (MHC) Webster City IA MW SAIF NASDAQ 08/15/94 15.750 33.30
WEFC Wells Financial Corp. Wells MN MW SAIF NASDAQ 04/11/95 16.000 26.43
WFI Winton Financial Corp. Cincinnati OH MW SAIF AMSE 08/04/88 13.500 54.19
WFSL Washington Federal Inc. Seattle WA WE SAIF NASDAQ 11/17/82 25.000 1,286.15
WHGB WHG Bancshares Corp. Lutherville MD MA SAIF NASDAQ 04/01/96 10.750 14.93
WM Washington Mutual Inc. Seattle WA WE BIF NYSE 03/11/83 34.938 20,727.07
WRNB Warren Bancorp Inc. Peabody MA NE BIF NASDAQ 07/09/86 9.000 71.24
WSB Washington Savings Bank, FSB Bowie MD MA SAIF AMSE NA 4.625 20.46
WSFS WSFS Financial Corp. Wilmington DE MA BIF NASDAQ 11/26/86 17.125 202.98
WSTR WesterFed Financial Corp. Missoula MT WE SAIF NASDAQ 01/10/94 19.500 108.98
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 4
<PAGE>
FERGUSON & COMPANY 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>
WVFC WVS Financial Corp. Pittsburgh PA MA SAIF NASDAQ 11/29/93 15.125 53.83
YFCB Yonkers Financial Corp. Yonkers NY MA SAIF NASDAQ 04/18/96 13.750 37.49
YFED York Financial Corp. York PA MA SAIF NASDAQ 02/01/84 15.750 150.68
Maximum 89.500 20,727.07
Minimum 4.625 6.25
Average 17.667 270.71
Median 15.563 43.56
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 5
<PAGE>
FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<TABLE>
<CAPTION>
Price/ Current Current Current Total Equity/ Equity/ Core Core
LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA
Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%)
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ABBK 17.7 141.6 155.1 8.7 1.38 559,778 6.1 5.6 0.82 0.58
ABCL 14.7 121.9 122.8 10.8 2.23 2,099,559 8.8 8.8 1.34 0.81
ABCW 18.8 256.7 260.5 15.8 1.02 2,113,909 6.2 6.1 1.04 0.98
AFBC 20.2 92.3 92.3 11.9 2.37 116,928 12.9 12.9 0.67 0.59
AHCI 26.2 109.3 109.3 11.9 1.75 554,254 10.8 10.8 0.61 0.42
ALBC 18.8 106.3 106.3 9.3 1.33 73,027 8.7 8.7 0.48 0.49
ALLB 20.9 138.0 138.0 14.9 2.82 279,849 10.8 10.8 0.61 0.73
AMFC 18.5 79.9 79.9 8.9 2.63 118,668 11.2 11.2 0.66 0.54
ANA 15.1 101.0 101.0 13.8 2.51 289,187 13.7 13.7 1.16 0.94
ANDB 13.0 177.9 177.9 15.4 2.22 1,366,375 8.7 8.7 2.50 1.25
ANE 20.5 151.5 155.0 10.5 1.74 252,004 6.9 6.8 0.56 0.57
ASBI 19.7 135.5 141.9 15.4 3.45 398,667 11.4 10.9 0.97 0.82
ASBP 17.2 129.8 129.8 16.2 3.48 117,218 12.5 12.5 0.67 0.92
ASFC 15.4 136.5 187.6 9.8 1.71 12,713,056 7.6 5.7 3.04 0.76
BDJI 14.8 110.1 110.1 11.5 - 125,251 10.4 10.4 0.98 0.69
BFD 17.9 113.5 117.4 9.2 2.13 1,096,441 7.7 7.4 1.05 0.56
BFSB 13.8 127.0 127.0 17.0 2.72 158,711 13.4 13.4 0.85 1.32
BKC 10.9 157.7 162.0 15.0 3.88 648,245 9.5 9.3 1.89 1.41
BKCT 15.7 166.7 166.7 15.9 3.38 514,269 9.6 9.6 1.02 1.19
BKUNA 33.2 69.7 83.8 3.6 - 3,738,383 5.3 4.5 0.22 0.14
BNKU 13.6 203.6 223.1 10.2 1.45 13,664,992 5.0 4.6 3.25 0.82
BVCC 14.5 102.8 159.7 7.1 2.00 5,522,374 6.9 4.6 1.38 0.53
CAFI 19.1 141.2 150.0 13.9 2.82 601,676 9.8 9.3 0.80 0.78
CASB 19.3 173.4 173.4 12.3 - 460,469 7.1 7.1 0.68 0.73
CASH 18.2 102.9 115.2 10.5 3.08 421,258 10.2 9.2 0.93 0.64
CATB 15.0 87.6 87.6 18.9 2.72 314,752 21.6 21.6 0.91 1.27
CBES 23.0 91.9 91.9 10.7 2.87 146,884 11.7 11.7 0.73 0.56
CBSA 8.3 116.4 160.0 4.2 1.78 3,126,286 3.7 2.7 2.17 0.57
CEBK 14.5 91.6 100.3 9.1 1.83 377,775 9.9 9.2 1.21 0.63
CENB 15.2 93.8 93.8 19.3 4.86 92,320 20.5 20.5 0.92 1.05
CFB 12.8 151.3 189.5 12.5 1.14 11,083,412 8.2 6.7 1.79 0.93
CFCP 24.5 332.2 332.2 19.5 1.40 643,560 5.9 5.9 0.82 0.93
CFFC 18.1 115.8 116.2 16.1 2.72 187,495 13.9 13.9 0.65 0.95
CFNC 14.4 102.1 102.1 14.4 2.87 110,960 14.1 14.1 0.58 0.94
CFSB 18.3 269.3 269.3 21.1 2.32 867,387 7.8 7.8 1.22 1.23
CFTP 25.9 101.0 101.0 25.1 2.13 263,246 22.3 22.3 0.58 1.07
CIBI 17.6 148.1 148.1 13.2 1.98 113,953 8.9 8.9 0.69 0.87
CKFB 17.6 91.0 91.0 21.0 3.46 62,853 21.4 21.4 0.89 1.16
CLAS 20.5 92.5 107.3 13.4 2.17 143,450 14.4 12.7 0.72 0.65
CMRN 16.0 88.8 88.8 17.6 1.75 220,784 19.9 19.9 1.00 1.12
CMSB 29.7 117.0 149.2 9.8 2.12 2,277,725 8.4 6.7 0.51 0.34
CMSV 23.9 133.1 133.1 14.5 4.00 791,291 10.7 10.7 0.94 0.64
CNIT 15.7 170.6 184.3 14.4 2.40 623,547 8.1 7.5 1.17 0.84
CNSB 31.4 91.7 91.7 21.0 2.22 95,949 22.9 22.9 0.43 0.71
CNY 19.5 53.6 55.3 4.5 - 430,175 8.4 8.2 0.43 0.23
COFI 15.7 250.2 265.2 19.0 1.97 19,841,639 7.6 7.2 1.81 1.21
COOP 21.1 139.9 139.9 11.2 - 389,409 8.0 8.0 0.68 0.58
CRSB 10.0 187.1 196.7 19.8 - 231,287 10.6 10.1 1.20 2.11
CRZY 17.6 82.2 82.2 18.6 3.08 62,132 22.6 22.6 0.74 1.14
CSBF 28.2 74.0 78.4 17.2 - 47,218 23.2 22.2 0.35 0.60
CVAL 20.9 207.9 207.9 18.0 1.57 381,128 8.7 8.7 1.34 0.92
DCBI 19.0 121.4 121.4 27.3 1.33 115,901 22.5 22.5 0.95 1.48
DCOM 21.9 163.9 188.4 16.9 1.91 1,743,657 10.3 9.1 1.15 0.88
DME 33.7 211.1 255.6 13.3 0.79 21,242,833 6.3 5.3 0.75 0.41
DSL 14.0 148.6 150.1 11.8 1.29 5,910,579 8.0 7.9 1.78 0.86
EBSI 12.1 136.4 136.4 8.5 3.51 1,242,640 6.2 6.2 1.51 0.88
EFBC 18.3 81.3 81.3 28.9 2.62 105,199 35.6 35.6 0.71 1.43
EMLD 18.1 208.3 210.8 17.4 1.47 642,991 8.4 8.3 0.60 1.05
EQSB 14.7 132.7 132.7 7.2 - 359,857 5.4 5.4 1.43 0.56
ESBF 15.9 141.4 159.5 9.1 2.22 966,220 6.4 5.7 1.02 0.63
ESBK 16.6 113.4 113.4 7.4 2.70 232,499 6.4 6.4 1.43 0.44
FAB 18.2 83.4 83.4 8.0 1.52 1,292,730 8.6 8.6 0.72 0.45
FBBC 12.1 132.4 132.4 13.1 2.54 750,365 9.9 9.9 1.30 1.08
<CAPTION>
Core
ROAE Merger Current
(%) Target? Pricing
Ticker LTM (Y/N) Date
<S> <C> <C> <C>
ABBK 8.95 N 12/09/98
ABCL 8.90 N 12/09/98
ABCW 15.01 N 12/09/98
AFBC 4.18 N 12/09/98
AHCI 3.74 N 12/09/98
ALBC 5.75 N 12/09/98
ALLB 6.72 N 12/09/98
AMFC 4.02 N 12/09/98
ANA 6.13 N 12/09/98
ANDB 15.56 N 12/09/98
ANE 7.88 N 12/09/98
ASBI 7.07 N 12/09/98
ASBP 6.46 N 12/09/98
ASFC 9.24 N 12/09/98
BDJI 6.51 N 12/09/98
BFD 6.80 N 12/09/98
BFSB 9.67 N 12/09/98
BKC 16.66 N 12/09/98
BKCT 11.80 N 12/09/98
BKUNA 2.75 N 12/09/98
BNKU 16.31 N 12/09/98
BVCC 8.04 N 12/09/98
CAFI 7.99 N 12/09/98
CASB 10.40 N 12/09/98
CASH 5.95 N 12/09/98
CATB 5.47 N 12/09/98
CBES 3.93 N 12/09/98
CBSA 15.48 N 12/09/98
CEBK 6.42 N 12/09/98
CENB 4.49 N 12/09/98
CFB 12.59 N 12/09/98
CFCP 15.46 N 12/09/98
CFFC 6.88 N 12/09/98
CFNC 4.89 N 12/09/98
CFSB 15.73 N 12/09/98
CFTP 4.27 N 12/09/98
CIBI 8.12 N 12/09/98
CKFB 5.32 N 12/09/98
CLAS 4.34 N 12/09/98
CMRN 5.36 N 12/09/98
CMSB 3.74 N 12/09/98
CMSV 5.86 N 12/09/98
CNIT 11.20 N 12/09/98
CNSB 2.91 N 12/09/98
CNY 2.69 N 12/09/98
COFI 16.56 N 12/09/98
COOP 7.40 N 12/09/98
CRSB 24.20 N 12/09/98
CRZY 4.86 N 12/09/98
CSBF 2.55 N 12/09/98
CVAL 10.63 N 12/09/98
DCBI 6.03 N 12/09/98
DCOM 7.38 N 12/09/98
DME 6.78 N 12/09/98
DSL 11.35 N 12/09/98
EBSI 12.09 N 12/09/98
EFBC 3.92 N 12/09/98
EMLD 12.68 N 12/09/98
EQSB 10.60 N 12/09/98
ESBF 8.55 N 12/09/98
ESBK 7.05 N 12/09/98
FAB 4.52 N 12/09/98
FBBC 10.25 N 12/09/98
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 6
<PAGE>
FERGUSON & COMPANY 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>
FBNW 26.8 90.8 90.8 14.3 2.44 202,370 14.3 14.3 0.55 0.55 3.59 N 12/09/98
FBSI 15.4 112.9 117.8 15.8 0.95 173,174 14.0 13.5 0.82 1.07 7.71 N 12/09/98
FCB 27.9 107.1 107.1 21.1 1.65 112,793 19.7 19.7 0.61 0.82 3.71 N 12/09/98
FCBF 18.6 147.9 147.9 21.0 3.01 534,928 14.2 14.2 1.57 1.15 8.01 N 12/09/98
FCME 9.5 85.3 85.3 7.8 - 178,189 9.1 9.1 1.07 0.94 9.72 N 12/09/98
FDEF 28.1 111.5 124.7 15.0 2.52 781,778 13.4 12.2 0.51 0.64 3.83 N 12/09/98
FED 12.6 147.9 148.8 9.7 - 3,826,779 6.5 6.5 1.39 0.74 12.92 N 12/09/98
FESX 15.5 143.9 195.0 11.1 3.07 1,241,432 7.7 5.8 1.18 0.74 9.94 N 12/09/98
FFBH 16.5 114.9 114.9 15.7 1.38 599,945 13.7 13.7 1.23 1.01 6.84 N 12/09/98
FFBZ 30.4 202.8 202.8 15.7 1.51 213,502 7.7 7.7 0.35 0.59 7.59 N 12/09/98
FFCH 17.2 215.6 215.6 14.7 2.43 1,839,708 6.8 6.8 1.15 0.90 13.70 N 12/09/98
FFDB 15.9 134.8 145.6 13.5 2.80 181,434 10.0 9.3 0.63 0.86 8.77 N 12/09/98
FFDF 32.4 124.0 124.0 19.9 2.20 98,856 16.1 16.1 0.42 0.61 2.92 N 12/09/98
FFES 12.3 101.8 101.8 7.6 2.48 992,703 7.5 7.5 2.23 0.64 9.10 N 12/09/98
FFFD 13.0 106.9 123.0 15.9 1.87 334,718 14.9 13.2 1.32 1.38 8.34 N 12/09/98
FFFL 24.7 171.4 176.1 10.4 4.35 1,498,442 6.1 5.9 0.93 0.48 7.16 N 12/09/98
FFHH 15.9 94.6 96.3 10.7 3.25 416,326 10.2 10.1 0.97 0.69 6.40 N 12/09/98
FFHS 15.2 110.3 110.8 9.9 2.22 231,879 9.0 9.0 0.89 0.68 7.39 N 12/09/98
FFIC 16.0 126.6 131.4 15.2 1.57 1,143,182 12.0 11.6 0.96 0.95 7.49 N 12/09/98
FFKY 19.0 206.8 260.8 24.5 2.16 467,341 11.9 9.6 1.46 1.46 11.20 N 12/09/98
FFLC 15.0 115.4 115.4 14.4 2.18 422,228 12.5 12.5 1.10 1.03 7.99 N 12/09/98
FFSL 12.0 87.2 87.2 8.5 2.73 124,337 9.7 9.7 0.92 0.75 7.72 N 12/09/98
FFSX 21.7 158.6 195.2 12.0 2.00 569,612 7.6 6.3 1.11 0.64 7.76 N 12/09/98
FFWC 13.5 115.6 125.0 10.7 2.67 212,830 9.3 8.6 1.17 0.84 8.84 N 12/09/98
FFWD 20.7 165.7 165.7 23.0 2.53 166,839 13.9 13.9 0.69 1.13 8.60 N 12/09/98
FFYF 16.8 155.4 155.4 19.8 2.73 658,591 12.8 12.8 1.96 1.19 9.01 N 12/09/98
FGHC 21.7 268.7 287.5 21.9 - 180,806 8.2 7.7 0.38 1.16 14.15 N 12/09/98
FISB 21.8 157.8 159.5 14.8 2.37 1,738,652 9.4 9.3 0.93 0.74 7.90 N 12/09/98
FKFS 14.2 131.0 131.0 8.4 1.60 415,863 6.4 6.4 1.06 0.63 9.63 N 12/09/98
FKKY 15.5 106.5 106.5 17.6 5.87 134,734 16.6 16.6 0.97 1.20 6.75 N 12/09/98
FLAG 20.4 152.0 152.0 13.3 2.07 453,648 8.8 8.8 0.57 0.76 8.65 N 12/09/98
FLFC 22.8 245.3 269.5 20.0 1.72 1,501,368 8.1 7.5 0.97 0.89 11.36 N 12/09/98
FLGS 11.9 260.6 266.8 12.8 1.10 3,092,515 4.9 4.8 2.44 1.37 25.26 N 12/09/98
FLKY 21.1 87.7 87.7 21.6 4.66 55,212 24.7 24.7 0.61 1.05 3.89 N 12/09/98
FMCO 13.7 165.8 166.7 10.6 1.23 667,423 6.4 6.3 0.71 0.81 13.16 N 12/09/98
FMSB 15.5 179.0 179.0 13.3 1.35 474,092 7.4 7.4 0.96 0.89 12.73 N 12/09/98
FNGB 17.9 145.9 145.9 15.5 2.88 710,428 10.6 10.6 0.70 0.91 8.32 N 12/09/98
FSBI 12.8 124.7 124.7 8.8 2.03 396,180 7.1 7.1 1.39 0.72 10.49 N 12/09/98
FSPT 18.9 110.3 110.3 25.0 2.54 530,412 22.7 22.7 1.67 1.34 5.26 N 12/09/98
FSTC 17.7 187.5 227.1 19.0 1.36 385,582 10.1 8.5 1.50 1.23 12.23 N 12/09/98
FTF 13.0 147.5 147.5 21.3 2.65 189,451 14.5 14.5 1.86 1.69 11.23 N 12/09/98
FTFC 30.5 239.4 250.8 16.9 1.76 1,736,593 7.1 6.8 0.52 0.64 8.96 N 12/09/98
FTNB 28.4 105.2 105.2 23.7 1.85 117,584 22.5 22.5 0.57 0.87 3.68 N 12/09/98
FTSB 16.7 122.2 122.2 19.6 1.85 101,352 16.1 16.1 0.81 1.18 7.39 N 12/09/98
FWWB 17.1 126.4 152.2 16.2 1.77 1,436,718 12.0 10.2 1.19 1.03 7.90 N 12/09/98
GAF 14.0 98.7 99.5 13.3 3.67 818,893 13.5 13.4 1.09 0.93 6.76 N 12/09/98
GDW 12.7 171.4 171.4 13.0 0.63 9,383,006 7.6 7.6 7.04 1.04 14.58 N 12/09/98
GOSB 34.7 97.4 97.4 23.3 0.87 131,935 23.9 23.9 0.40 0.67 2.59 N 12/09/98
GPT 17.5 169.1 394.6 25.3 1.77 3,612,611 13.2 6.1 2.07 1.20 11.66 N 12/09/98
GSFC 20.8 97.3 97.3 34.0 3.34 172,705 34.9 34.9 0.69 1.60 4.55 N 12/09/98
GSLA 29.9 78.9 78.9 26.3 2.18 144,304 33.3 33.3 0.43 0.91 2.25 N 12/09/98
GTPS 24.2 94.3 94.3 14.7 2.75 149,114 15.6 15.6 0.66 0.71 3.81 N 12/09/98
GUPB 17.5 114.9 114.9 11.8 2.14 128,769 10.3 10.3 0.80 0.75 6.32 N 12/09/98
HALL 14.5 102.2 102.2 8.0 - 461,715 7.5 7.5 0.87 0.60 7.86 N 12/09/98
HARL 12.3 155.8 155.8 9.7 1.98 417,533 6.3 6.3 1.98 0.91 13.97 N 12/09/98
HAVN 18.0 118.3 123.6 6.2 1.83 2,322,466 5.3 5.1 0.91 0.40 7.18 N 12/09/98
HBFW 22.1 151.2 151.2 18.0 1.16 360,286 11.9 11.9 1.25 0.83 6.68 N 12/09/98
HBNK 11.4 174.0 174.0 12.2 - 594,672 7.0 7.0 2.92 1.28 16.49 N 12/09/98
HBS 12.2 98.0 101.3 14.0 3.82 149,542 14.3 13.9 1.37 1.12 7.70 N 12/09/98
HCFC 14.5 119.0 119.0 16.2 2.76 80,766 13.7 13.7 1.00 1.26 7.40 N 12/09/98
HFFB 17.9 89.6 89.6 25.7 2.76 109,033 26.5 26.5 0.81 1.35 5.06 N 12/09/98
HFFC 12.3 108.9 108.9 10.7 2.57 560,648 9.8 9.8 1.14 0.92 9.46 N 12/09/98
HFSA 21.3 115.5 115.5 11.9 3.10 132,997 10.3 10.3 0.91 0.58 5.40 N 12/09/98
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 7
<PAGE>
FERGUSON & COMPANY 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>
HHFC 26.3 128.2 128.2 13.7 2.93 96,085 10.7 10.7 0.57 0.56 4.98 N 12/09/98
HIFS 12.1 141.7 141.7 13.4 2.37 246,844 9.5 9.5 1.40 1.23 12.72 N 12/09/98
HMLK 16.6 95.6 95.6 13.5 2.25 197,580 14.2 14.2 0.86 0.85 5.24 N 12/09/98
HMNF 23.3 104.6 114.1 10.1 1.81 706,269 9.6 8.9 0.57 0.47 4.03 N 12/09/98
HOMF 17.6 190.6 195.4 18.3 1.71 722,614 9.6 9.4 1.46 1.13 12.46 N 12/09/98
HPBC 11.5 181.0 181.0 16.1 3.48 263,830 8.9 8.9 2.00 1.56 16.61 N 12/09/98
HRBF 21.5 133.7 133.7 17.1 2.45 231,693 12.8 12.8 0.99 0.77 6.03 N 12/09/98
HRZB 11.8 113.9 113.9 17.4 3.32 568,984 15.3 15.3 1.12 1.57 10.03 N 12/09/98
HTHR 9.3 109.3 109.3 6.2 - 1,395,064 5.7 5.7 1.78 1.10 21.56 N 12/09/98
HWEN 20.4 88.8 88.8 15.2 1.68 42,453 17.1 17.1 0.35 0.67 3.82 N 12/09/98
HZFS 15.2 132.7 132.7 13.1 1.40 86,558 9.9 9.9 0.85 0.81 8.38 N 12/09/98
IFSB 15.9 72.1 78.4 6.4 2.02 249,194 8.8 8.2 0.78 0.37 4.94 N 12/09/98
INBI 16.5 153.7 153.7 24.6 3.14 388,649 16.0 16.0 1.16 1.50 9.16 N 12/09/98
IPSW 9.5 174.2 174.2 9.6 1.60 249,459 5.5 5.5 1.05 1.13 21.09 N 12/09/98
ITLA 9.6 120.0 120.3 12.9 - 1,007,042 10.8 10.8 1.79 1.45 13.90 N 12/09/98
IWBK 19.8 210.2 229.6 14.8 2.42 2,448,386 7.0 6.5 1.17 0.79 11.34 N 12/09/98
JSB 12.2 131.8 131.8 32.4 3.11 1,552,436 24.6 24.6 4.23 2.77 11.65 N 12/09/98
JSBA 19.8 104.1 127.3 10.4 2.06 1,317,195 9.4 7.8 0.69 0.55 5.76 N 12/09/98
JXVL 12.8 111.4 111.4 16.1 3.10 242,673 14.5 14.5 1.26 1.33 9.13 N 12/09/98
KFBI 19.1 113.5 123.2 17.8 1.95 1,031,302 14.1 13.1 0.97 0.93 6.33 N 12/09/98
KNK 15.1 90.4 105.4 8.9 1.83 405,163 9.8 8.6 1.74 0.67 6.63 N 12/09/98
KSBK 13.1 177.2 199.5 14.2 - 162,885 8.0 7.2 1.40 1.14 14.72 N 12/09/98
KYF 18.5 113.2 113.2 20.0 3.81 78,573 17.7 17.7 0.71 1.05 6.08 N 12/09/98
LARK 20.6 127.4 127.4 14.1 2.51 225,428 11.0 11.0 1.16 0.84 6.25 N 12/09/98
LARL 14.0 170.7 170.7 18.9 3.16 221,369 11.1 11.1 1.36 1.46 13.90 N 12/09/98
LFBI 22.2 120.0 128.9 13.1 1.33 340,701 10.9 10.2 0.81 0.56 5.07 N 12/09/98
LFCO 3.1 58.6 58.6 9.5 - 380,343 16.2 16.2 1.79 2.79 21.42 N 12/09/98
LFED 21.0 145.3 145.3 23.8 4.04 303,471 16.4 16.4 0.66 1.13 6.89 N 12/09/98
LOGN 14.7 111.0 111.0 19.4 2.93 92,494 17.5 17.5 1.02 1.47 7.84 N 12/09/98
LSBI 17.5 137.4 137.4 11.7 1.40 227,044 8.0 8.0 1.63 0.70 8.38 N 12/09/98
LSBX 5.8 124.2 124.2 16.3 - 339,832 13.1 13.1 2.21 2.85 25.82 N 12/09/98
LVSB 29.7 191.8 286.0 18.3 1.12 593,856 9.5 6.6 0.75 0.57 5.67 N 12/09/98
LXMO 19.4 79.1 84.8 12.7 2.50 95,301 16.1 15.1 0.62 0.77 3.80 N 12/09/98
MAFB 15.9 196.1 219.1 15.3 1.14 3,605,904 7.8 7.0 1.55 1.04 13.38 N 12/09/98
MARN 17.7 100.0 102.2 18.1 4.00 196,714 18.1 17.8 1.24 1.14 5.64 N 12/09/98
MASB 15.7 128.4 130.1 15.2 2.71 934,458 11.8 11.7 2.54 1.01 8.82 N 12/09/98
MBLF 12.6 77.4 77.4 10.5 3.40 208,720 13.6 13.6 1.40 0.85 6.44 N 12/09/98
MCBN 22.4 117.8 117.8 8.8 2.29 70,947 7.5 7.5 0.39 0.44 5.40 N 12/09/98
MDBK 15.0 152.2 160.0 13.8 2.22 1,134,102 9.1 8.7 1.20 1.02 11.22 N 12/09/98
MECH 16.4 161.3 162.6 15.9 2.09 960,017 9.8 9.8 1.75 1.01 10.26 N 12/09/98
METF 16.1 204.7 219.9 7.2 - 1,171,422 3.5 3.3 0.74 0.53 13.67 N 12/09/98
MFBC 17.8 106.2 106.2 10.6 1.53 310,030 10.0 10.0 1.25 0.71 6.24 N 12/09/98
MFFC 24.6 110.9 110.9 13.3 4.29 235,275 11.2 11.2 0.57 0.54 4.67 N 12/09/98
MONT 17.6 159.8 162.1 14.8 3.41 142,965 9.2 9.1 1.33 0.93 9.67 N 12/09/98
MRKF 26.1 104.1 104.1 28.7 2.38 54,608 27.6 27.6 0.45 1.00 3.16 N 12/09/98
MSBF 13.5 113.5 113.5 18.7 2.61 81,806 16.5 16.5 0.85 1.29 7.77 N 12/09/98
MWBI 12.2 117.9 117.9 8.7 2.77 160,583 7.4 7.4 1.07 0.76 10.74 N 12/09/98
MWBX 12.1 189.8 189.8 14.1 3.02 669,111 7.4 7.4 0.55 1.23 16.51 N 12/09/98
NBN 9.5 98.0 106.0 7.4 2.29 328,661 7.8 7.3 0.97 0.87 11.05 N 12/09/98
NEIB 12.7 119.0 119.0 14.0 2.07 209,262 11.8 11.8 1.37 1.15 8.67 N 12/09/98
NHTB 11.3 121.0 137.4 10.0 3.81 329,835 8.3 7.4 1.39 0.92 11.48 N 12/09/98
NMSB 19.8 127.6 127.6 11.9 3.13 369,777 9.4 9.4 0.58 0.67 7.13 N 12/09/98
NSLB 19.4 74.8 75.3 13.8 3.96 62,648 18.5 18.4 0.65 0.67 3.48 N 12/09/98
NWEQ 16.7 156.5 156.5 18.9 2.99 99,113 12.1 12.1 1.36 1.15 9.80 N 12/09/98
NWSB 22.7 211.4 237.5 17.6 1.60 2,667,257 8.3 7.5 0.44 0.86 9.76 N 12/09/98
OCFC 15.5 112.6 113.2 14.3 3.20 1,544,344 12.7 12.7 0.97 0.89 6.41 N 12/09/98
OFCP 18.4 162.3 198.3 12.8 2.05 930,244 7.9 6.6 1.17 0.79 9.44 N 12/09/98
OHSL 18.2 125.9 125.9 13.8 3.57 252,396 10.8 10.8 0.77 0.78 7.16 N 12/09/98
PBCI 15.8 140.1 140.7 17.5 4.60 397,216 12.5 12.4 1.54 1.15 8.95 N 12/09/98
PBCT 27.8 216.6 258.4 19.3 3.18 9,619,500 8.9 7.6 1.04 0.76 8.26 N 12/09/98
PBHC 33.3 132.2 155.6 15.7 1.82 191,611 11.7 10.1 0.33 0.48 4.24 N 12/09/98
PBKB 26.1 211.5 215.0 7.8 3.64 891,758 3.7 3.6 0.80 0.33 8.34 N 12/09/98
</TABLE>
8
<PAGE>
<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>
PBOC 12.8 120.1 120.1 6.6 - 3,210,974 5.5 5.5 0.76 0.37 8.80 N 12/09/98
PCBC 19.6 99.2 99.2 17.3 2.47 96,807 17.4 17.4 1.03 0.89 4.88 N 12/09/98
PDB 16.5 118.7 118.7 19.8 5.12 127,607 16.7 16.7 0.57 1.20 7.31 N 12/09/98
PEEK 20.3 93.2 93.2 20.0 2.57 199,898 21.5 21.5 0.69 0.96 4.13 N 12/09/98
PERM 24.2 133.0 176.0 10.9 1.74 502,829 8.0 6.1 0.57 0.55 5.87 N 12/09/98
PFDC 15.8 145.0 145.0 21.3 2.43 304,937 14.7 14.7 1.25 1.41 9.46 N 12/09/98
PFED 16.2 80.0 80.0 15.0 - 198,307 18.8 18.8 0.84 0.97 4.69 N 12/09/98
PFFB 15.1 104.0 105.2 7.9 - 3,044,586 7.6 7.5 1.03 0.58 6.53 N 12/09/98
PFFC 31.4 98.9 98.9 17.2 5.46 86,296 17.4 17.4 0.35 0.57 3.10 N 12/09/98
PFNC 19.3 175.9 196.6 12.0 1.12 618,049 6.8 6.1 0.74 0.74 12.03 N 12/09/98
PFSB 12.2 112.4 128.3 8.0 1.17 1,566,418 6.7 5.9 1.12 0.72 10.38 N 12/09/98
PHBK 14.6 228.8 272.1 17.4 2.25 9,882,729 7.6 6.5 1.34 1.22 16.45 N 12/09/98
PHFC 13.8 110.4 111.6 7.3 1.64 374,998 6.6 6.6 1.06 0.57 7.38 N 12/09/98
PHSED 25.9 134.2 134.2 16.6 1.97 236,916 12.4 12.4 0.55 0.66 5.14 N 12/09/98
PLSK 21.5 100.7 100.7 11.9 2.98 191,316 11.8 11.8 0.50 0.54 4.56 N 12/09/98
PRBC 18.2 83.6 83.6 7.5 1.57 169,983 9.0 9.0 0.70 0.44 4.30 N 12/09/98
PSFC 27.1 138.9 138.9 27.1 1.70 107,078 17.9 17.9 0.61 0.95 4.25 N 12/09/98
PSFI 15.2 91.5 91.5 20.4 4.95 100,177 22.3 22.3 0.69 1.61 5.83 N 12/09/98
PTRS 16.7 129.2 129.2 10.9 1.82 132,130 8.5 8.5 0.92 0.71 8.00 N 12/09/98
PVFC 12.2 162.8 162.8 12.4 - 427,589 7.6 7.6 1.09 1.11 15.24 N 12/09/98
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 12/09/98
PWBK 31.1 87.0 87.0 14.3 2.58 50,409 15.1 15.1 0.35 0.47 2.66 N 12/09/98
QCBC 13.8 123.5 123.5 11.0 - 893,511 8.9 8.9 1.22 0.81 9.27 N 12/09/98
QCFB 11.1 132.7 132.7 19.5 - 148,878 14.7 14.7 2.28 1.65 9.65 N 12/09/98
QCSB 24.2 369.2 369.2 37.0 2.71 1,706,583 8.7 8.7 1.22 1.54 15.43 N 12/09/98
RELY 15.1 140.4 203.9 10.5 2.48 2,493,186 7.4 5.3 1.92 0.81 9.73 N 12/09/98
RIVR 15.8 100.5 101.8 13.6 1.42 136,315 13.5 13.3 0.98 0.81 6.04 N 12/09/98
RSLN 16.3 129.8 130.4 20.7 2.37 3,719,166 15.9 15.9 1.14 1.19 7.30 N 12/09/98
SCBS 16.5 144.8 144.8 25.1 2.00 67,920 17.3 17.3 0.91 1.22 6.49 N 12/09/98
SCCB 18.8 81.6 81.6 17.2 4.74 45,572 21.1 21.1 0.72 0.89 4.20 N 12/09/98
SFED 22.2 114.0 114.0 14.3 1.53 176,244 12.6 12.6 0.94 0.61 5.00 N 12/09/98
SFFC 16.3 103.6 103.6 18.6 1.86 89,369 18.0 18.0 0.66 1.14 6.44 N 12/09/98
SFIN 21.5 119.1 119.2 11.2 3.06 652,628 9.4 9.4 0.79 0.50 5.26 N 12/09/98
SGVB 18.6 90.6 91.7 6.2 - 452,977 6.8 6.8 0.68 0.41 5.34 N 12/09/98
SKAN 13.3 100.8 103.0 7.0 2.14 271,527 6.9 6.8 0.98 0.56 8.11 N 12/09/98
SMBC 21.2 95.9 95.9 14.0 3.23 156,193 14.6 14.6 0.73 0.71 4.43 N 12/09/98
SOBI 19.6 83.4 83.4 11.3 2.12 102,095 12.7 12.7 0.77 0.62 4.40 N 12/09/98
SOPN 16.8 116.8 116.8 27.6 4.55 295,703 23.7 23.7 1.31 1.76 7.65 N 12/09/98
SPBC 18.4 189.3 NA 16.0 2.57 5,948,226 8.4 NA 1.27 0.93 10.11 N 12/09/98
SRN 25.0 81.6 82.1 14.5 2.80 106,027 17.8 17.7 0.50 0.53 3.02 N 12/09/98
SSM 17.4 87.7 87.7 20.3 3.15 124,096 23.1 23.1 0.84 1.39 5.02 N 12/09/98
STFR 19.8 163.8 184.4 10.7 1.53 1,864,176 6.5 5.8 2.11 0.64 8.35 N 12/09/98
STSA 13.5 120.5 273.5 6.5 - 2,082,182 5.4 2.4 1.32 0.52 9.64 N 12/09/98
SVRN 14.8 180.3 294.1 9.9 0.62 21,496,822 5.3 3.3 0.88 0.74 13.04 N 12/09/98
SZB 34.3 94.1 96.6 9.3 3.72 158,518 9.9 9.7 0.47 0.35 3.02 N 12/09/98
THR 17.5 86.3 86.6 11.0 3.29 99,724 12.7 12.7 0.80 0.67 5.02 N 12/09/98
THRD 17.6 104.3 121.9 8.7 2.54 696,155 7.6 6.5 1.07 0.54 6.91 N 12/09/98
TRIC 17.7 99.6 99.6 16.7 3.56 86,714 16.7 16.7 0.70 1.00 6.28 N 12/09/98
TSH 13.2 88.8 88.8 11.4 3.32 408,823 12.9 12.9 1.14 0.92 6.97 N 12/09/98
TWIN 18.5 129.3 129.3 16.4 2.67 111,436 12.7 12.7 0.81 0.90 7.03 N 12/09/98
UFBS 14.5 116.8 134.3 9.4 2.76 183,066 8.1 7.1 0.93 0.70 8.86 N 12/09/98
WAYN 32.8 200.4 200.4 19.1 3.10 259,981 9.5 9.5 0.61 0.61 6.41 N 12/09/98
WBST 14.6 181.1 211.4 11.2 1.63 9,163,686 6.2 5.3 1.85 0.75 13.35 N 12/09/98
WCFB 24.6 145.3 145.3 36.2 5.08 92,109 24.9 24.9 0.64 1.41 5.95 N 12/09/98
WEFC 13.7 104.9 104.9 14.2 3.75 185,891 13.6 13.6 1.17 1.11 7.65 N 12/09/98
WFI 18.8 201.5 204.6 15.3 1.85 354,193 7.6 7.5 0.72 0.90 12.12 N 12/09/98
WFSL 12.2 167.7 180.3 22.8 3.68 5,637,011 13.6 12.8 2.05 1.94 14.43 N 12/09/98
WHGB 21.9 74.0 74.0 11.3 3.35 131,967 15.3 15.3 0.49 0.59 3.21 N 12/09/98
WM 13.1 226.3 239.3 12.5 2.52 108,359,066 5.4 5.1 2.67 1.00 18.35 N 12/09/98
WRNB 12.9 175.1 175.1 18.6 4.00 383,814 10.6 10.6 0.70 1.51 14.05 N 12/09/98
WSB 17.1 85.2 85.2 7.5 2.16 274,293 8.8 8.8 0.27 0.47 5.45 N 12/09/98
WSFS 12.8 220.4 221.3 13.1 0.70 1,595,692 6.0 5.9 1.34 1.10 18.19 N 12/09/98
WSTR 15.6 97.8 119.1 10.9 2.77 999,595 11.2 9.3 1.25 0.69 6.46 N 12/09/98
</TABLE>
9
<PAGE>
FERGUSON & COMPANY 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>
WVFC 14.1 165.7 165.7 17.6 3.97 311,509 10.6 10.6 1.07 1.29 11.44 N 12/09/98
YFCB 14.3 89.7 89.7 9.8 2.33 383,024 10.9 10.9 0.96 0.73 5.98 N 12/09/98
YFED 20.2 133.9 133.9 12.2 3.14 1,235,118 9.1 9.1 0.78 0.64 7.18 N 12/09/98
Maximum 34.7 369.2 394.6 37.0 5.87 108,359,066 35.6 35.6 7.04 2.85 25.82
Minimum 3.1 53.6 55.3 3.6 - 42,453 3.5 2.4 0.22 0.14 2.25
Average 18.0 133.8 141.8 14.7 2.23 1,796,724 11.8 11.5 1.08 0.91 8.50
Median 17.2 121.9 127.4 14.1 2.22 359,857 10.2 9.8 0.96 0.86 7.65
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 10
<PAGE>
FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<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>
ABBK 0.11 18.1 0.20 0.54 8.63
ABCL 0.17 15.4 0.32 0.75 8.42
ABCW 0.48 17.5 0.28 1.00 16.07
AFBC 0.34 26.0 0.13 0.39 3.04
AHCI 0.45 22.2 0.18 0.46 4.39
ALBC 0.47 18.8 0.12 0.51 5.87
ALLB 0.82 19.9 0.16 0.76 7.03
AMFC 0.28 13.3 0.23 0.67 5.61
ANA 0.24 15.6 0.28 0.81 5.78
ANDB 0.31 12.5 0.65 1.28 15.43
ANE 0.44 13.1 0.22 0.85 12.96
ASBI 0.49 19.1 0.25 0.85 7.27
ASBP 0.09 19.2 0.15 0.83 6.67
ASFC 0.35 13.9 0.84 0.77 9.80
BDJI N/A 15.1 0.24 0.65 6.18
BFD 0.13 17.4 0.27 0.54 6.84
BFSB 0.34 10.9 0.27 1.57 11.76
BKC 1.43 6.9 0.75 2.17 25.36
BKCT 0.51 15.4 0.26 1.11 11.45
BKUNA 0.54 45.7 0.04 0.11 2.03
BNKU 0.62 18.1 0.61 0.59 11.56
BVCC 0.34 15.6 0.32 0.46 7.60
CAFI 0.28 21.2 0.18 0.69 6.99
CASB 0.48 20.5 0.16 0.64 9.19
CASH 1.24 13.6 0.31 0.81 7.82
CATB 0.20 14.2 0.24 1.21 5.65
CBES 0.87 19.9 0.21 0.56 4.43
CBSA 0.56 9.4 0.48 0.49 12.98
CEBK 0.40 15.6 0.28 0.58 5.89
CENB 0.30 15.9 0.22 1.05 5.14
CFB 0.73 15.1 0.38 0.84 10.48
CFCP 0.36 25.1 0.20 0.84 14.24
CFFC 0.25 24.5 0.12 0.71 5.06
CFNC 0.12 16.1 0.13 0.84 6.06
CFSB 0.19 18.0 0.31 1.23 15.65
CFTP 0.28 25.0 0.15 1.01 4.51
CIBI 0.74 16.0 0.19 0.86 9.09
CKFB 0.18 26.0 0.15 0.78 3.64
CLAS 0.35 21.7 0.17 0.59 4.04
CMRN 0.40 14.3 0.28 1.19 5.88
CMSB 0.46 42.0 0.09 0.21 2.53
CMSV 0.30 23.4 0.24 0.63 5.91
CNIT 0.15 15.8 0.29 0.90 10.96
CNSB 0.23 37.5 0.09 0.59 2.46
CNY 0.82 13.1 0.16 0.34 3.91
COFI 0.29 14.8 0.48 1.31 17.44
COOP - 22.4 0.16 0.53 6.61
CRSB 0.79 10.0 0.30 2.10 19.08
CRZY 0.40 17.1 0.19 1.04 4.59
CSBF 1.13 20.6 0.12 0.77 3.34
CVAL 0.31 18.4 0.38 1.00 11.70
DCBI NA 18.8 0.24 1.54 6.63
DCOM 0.33 18.5 0.34 0.94 8.52
DME 0.97 42.1 0.15 0.34 5.21
DSL 0.75 15.2 0.41 0.79 10.05
EBSI 1.06 11.7 0.39 0.80 12.23
EFBC - 15.5 0.21 1.43 3.99
EMLD 0.21 18.1 0.15 1.02 11.97
EQSB 0.22 25.0 0.21 0.31 5.86
ESBF 0.55 16.9 0.24 0.56 8.08
ESBK 0.75 13.5 0.44 0.54 8.53
FAB 0.27 16.4 0.20 0.44 5.14
FBBC 0.08 11.6 0.34 1.03 10.67
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 11
<PAGE>
FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<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>
FBNW 0.26 28.4 0.13 0.48 3.24
FBSI 0.03 15.8 0.20 1.04 7.42
FCB - 30.4 0.14 0.70 3.48
FCBF 0.24 18.8 0.39 1.14 7.89
FCME 0.21 5.5 0.46 1.47 16.21
FDEF 1.28 119.3 0.03 0.12 0.91
FED 0.73 11.5 0.38 0.83 13.26
FESX 0.53 14.3 0.32 0.78 10.33
FFBH 0.90 14.9 0.34 1.04 7.35
FFBZ 0.53 88.5 0.03 0.22 2.76
FFCH 0.71 15.4 0.32 0.99 14.88
FFDB 0.60 16.7 0.15 0.81 8.15
FFDF 0.10 42.6 0.08 0.44 2.65
FFES 0.26 13.7 0.50 0.58 7.94
FFFD 0.19 12.2 0.35 1.29 8.69
FFFL 0.26 26.1 0.22 0.42 6.80
FFHH 0.19 16.7 0.23 0.61 5.87
FFHS 0.37 17.8 0.19 0.56 6.16
FFIC 0.22 14.7 0.26 0.95 7.75
FFKY 0.02 19.3 0.36 1.27 10.71
FFLC 0.19 13.8 0.30 1.08 8.55
FFSL 0.33 10.6 0.26 0.83 8.62
FFSX 0.36 26.2 0.23 0.47 6.18
FFWC 0.51 12.3 0.32 0.89 9.65
FFWD 0.02 19.8 0.18 1.17 8.49
FFYF 0.58 16.8 0.49 1.13 8.90
FGHC 1.65 20.6 0.10 1.15 14.40
FISB 1.11 24.1 0.21 0.63 6.83
FKFS 1.30 13.9 0.27 0.61 9.55
FKKY - 15.0 0.25 1.23 7.10
FLAG 1.57 26.4 0.11 0.53 6.11
FLFC 0.84 21.3 0.26 0.93 11.75
FLGS 1.90 9.9 0.73 1.41 28.15
FLKY 0.93 20.1 0.16 1.07 4.21
FMCO 0.74 12.8 0.19 0.82 13.31
FMSB 0.05 14.9 0.25 0.90 12.29
FNGB 0.08 16.5 0.19 0.94 8.74
FSBI 0.17 13.1 0.34 0.70 10.04
FSPT 0.31 21.3 0.37 1.13 4.79
FSTC 1.18 17.9 0.37 1.15 11.41
FTF 0.03 11.6 0.52 1.81 12.40
FTFC 0.19 30.5 0.13 0.63 8.30
FTNB 0.40 19.3 0.21 1.21 5.31
FTSB 1.93 16.9 0.20 1.16 7.30
FWWB 0.31 15.9 0.32 1.01 8.20
GAF 0.23 12.3 0.31 0.98 7.75
GDW 0.85 12.6 1.78 1.06 14.05
GOSB 0.07 43.4 0.08 0.59 2.41
GPT 2.27 16.8 0.54 1.31 10.78
GSFC 0.13 18.9 0.19 1.68 4.80
GSLA 0.20 18.9 0.17 1.24 3.19
GTPS - 22.2 0.18 0.69 3.99
GUPB 0.52 18.4 0.19 0.64 5.91
HALL 0.37 15.8 0.20 0.53 6.85
HARL - 13.2 0.46 0.78 12.43
HAVN 0.40 25.6 0.16 0.25 4.90
HBFW - 20.9 0.33 0.84 6.99
HBNK 1.65 11.4 0.73 1.21 15.82
HBS 0.51 15.5 0.27 0.89 6.16
HCFC 0.30 13.4 0.27 1.26 9.15
HFFB - 17.3 0.21 1.38 5.22
HFFC 0.69 13.5 0.26 0.84 8.50
HFSA 0.15 23.1 0.21 0.51 4.95
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 12
<PAGE>
FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<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>
HHFC 0.09 26.8 0.14 0.56 5.13
HIFS 0.20 12.1 0.35 1.19 12.26
HMLK 0.01 16.2 0.22 0.76 5.21
HMNF 0.06 25.5 0.13 0.34 3.53
HOMF 0.72 16.5 0.39 1.17 12.45
HPBC - 10.5 0.55 1.49 17.57
HRBF 0.69 19.7 0.27 0.82 6.47
HRZB - 11.8 0.28 1.54 10.01
HTHR 4.78 9.2 0.45 1.09 17.84
HWEN 0.99 35.6 0.05 0.39 2.22
HZFS 1.33 13.4 0.24 0.92 9.59
IFSB NA 16.3 0.19 0.38 4.49
INBI 0.14 15.4 0.31 1.51 9.50
IPSW 0.71 10.4 0.24 1.00 18.17
ITLA 0.78 9.1 0.47 1.47 13.85
IWBK 0.64 19.3 0.30 0.79 11.39
JSB 0.16 12.0 1.07 2.76 11.34
JSBA 0.67 24.3 0.14 0.41 4.30
JXVL 0.62 13.0 0.31 1.26 8.64
KFBI 0.05 16.5 0.28 0.99 7.07
KNK 0.56 18.8 0.35 0.51 5.21
KSBK 1.41 12.1 0.38 1.27 15.89
KYF NA 17.3 0.19 1.12 6.36
LARK 0.22 20.6 0.29 0.80 6.67
LARL 0.27 14.0 0.34 1.43 13.26
LFBI 0.39 22.5 0.20 0.53 4.99
LFCO 2.27 5.1 0.27 1.34 11.95
LFED 0.90 19.3 0.18 1.23 7.52
LOGN 0.24 15.6 0.24 1.36 7.47
LSBI 1.11 17.8 0.40 0.67 8.12
LSBX 0.27 5.7 0.56 2.96 23.91
LVSB 0.56 42.8 0.13 0.36 3.71
LXMO 0.47 20.0 0.15 0.66 3.88
MAFB 0.51 15.0 0.41 1.07 13.64
MARN 0.82 17.7 0.31 1.06 5.64
MASB 0.16 15.3 0.65 1.04 8.79
MBLF 0.42 12.2 0.36 0.89 6.50
MCBN 0.39 72.9 0.03 0.12 1.59
MDBK 0.17 15.5 0.29 0.95 10.65
MECH 0.51 14.4 0.50 1.11 11.38
METF 1.27 21.2 0.14 0.37 9.67
MFBC - 20.6 0.27 0.54 5.10
MFFC 0.17 23.3 0.15 0.53 4.80
MFLR 0.59 21.7 0.27 0.74 7.83
MONT NA 15.1 0.17 0.88 5.09
MRKF - 32.6 0.09 0.85 2.99
MSBF 0.40 13.7 0.21 1.16 7.00
MWBI 0.54 11.2 0.29 0.80 11.04
MWBX 0.37 11.0 0.15 1.23 16.59
NBN 0.58 10.1 0.23 0.77 9.83
NEIB 0.28 11.7 0.37 1.14 9.17
NHTB 0.94 13.1 0.30 0.77 9.35
NMSB 0.38 16.0 0.18 0.77 8.37
NSLB 0.01 15.0 0.21 0.87 4.68
NWEQ 1.70 17.2 0.33 1.11 9.23
NWSB 0.52 22.7 0.11 0.77 9.25
OCFC 0.41 15.0 0.25 0.86 6.55
OFCP 0.47 17.3 0.31 0.78 9.61
OHSL 0.04 18.4 0.19 0.77 7.06
PBCI 1.34 16.0 0.38 1.12 8.95
PBCT 0.59 21.9 0.33 0.92 9.94
PBHC 1.40 34.4 0.08 0.48 4.67
PBKB 0.23 18.0 0.29 0.45 11.60
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 13
<PAGE>
FERGUSON & COMPANY EXHIBIT V- SELECTED PUBLICLY HELD THRIFTS
- ------------------
<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>
PBOC 0.63 13.5 0.18 0.48 8.98
PCBC - 20.2 0.25 0.83 4.64
PDB 0.68 16.7 0.14 1.19 7.17
PEEK 0.60 19.4 0.18 0.91 4.23
PERM 0.22 24.7 0.14 0.48 5.77
PFDC NA 15.4 0.32 1.39 9.36
PFED 0.11 13.1 0.26 1.13 5.77
PFFB 1.02 13.4 0.29 0.57 7.25
PFFC 0.13 25.0 0.11 0.65 3.73
PFNC 0.46 17.0 0.21 0.81 11.68
PFSB 0.46 12.2 0.28 0.65 9.96
PHBK 0.66 13.6 0.36 1.30 17.54
PHFC 1.20 14.1 0.26 0.49 7.30
PHSED 0.16 29.7 0.12 0.56 4.42
PLSK 0.62 19.2 0.14 0.56 4.79
PRBC 0.40 14.5 0.22 0.50 5.35
PSFC 0.51 58.9 0.07 0.44 2.41
PSFI 0.72 13.1 0.20 1.56 6.48
PTRS 0.17 13.3 0.29 0.88 10.13
PVFC 0.91 11.8 0.28 1.10 14.81
PVSA 0.43 12.5 0.42 1.01 13.87
PWBK 0.78 17.0 0.16 0.81 5.11
QCBC 0.83 12.1 0.35 0.92 10.32
QCFB 0.41 10.9 0.58 1.55 9.60
QCSB 0.38 21.7 0.34 1.65 17.86
RELY 0.39 14.8 0.49 0.76 9.78
RIVR 1.02 17.6 0.22 0.74 5.49
RSLN 0.16 16.6 0.28 1.09 7.13
SCBS 0.18 12.9 0.29 1.57 9.46
SCCB 2.21 15.3 0.22 1.03 5.09
SFED 0.81 23.7 0.22 0.57 4.66
SFFC 1.47 17.9 0.15 1.00 5.60
SFIN 0.44 NM (0.09) (0.21) (2.25)
SGVB 0.79 13.7 0.23 0.52 6.92
SKAN 1.58 14.2 0.23 0.51 7.42
SMBC 1.06 15.5 0.25 0.92 6.10
SOBI 0.10 18.0 0.21 0.62 4.71
SOPN 0.09 17.2 0.32 1.73 7.42
SPBC 0.24 24.4 0.24 0.70 7.58
SRN - 22.3 0.14 0.59 3.36
SSM - 15.2 0.24 1.44 5.74
STFR 0.16 17.7 0.59 0.65 9.20
STSA 0.57 14.8 0.30 0.44 8.68
SVRN 0.55 14.8 0.22 0.69 12.45
SZB NA NM - - -
THR 0.74 20.6 0.17 0.49 3.81
THRD 0.30 17.5 0.27 0.50 6.67
TRIC 0.03 18.2 0.17 1.00 6.05
TSH NA 14.0 0.27 0.85 6.34
TWIN 0.35 13.4 0.28 1.20 9.43
UFBS 0.67 14.7 0.23 0.68 8.70
WAYN 0.50 35.7 0.14 0.57 5.98
WBST 0.39 13.5 0.50 0.84 14.02
WCFB 0.02 24.6 0.16 1.44 5.90
WEFC 0.08 13.3 0.30 1.11 7.65
WFI NA 21.1 0.16 0.77 10.31
WFSL 0.52 12.0 0.52 1.97 14.19
WHGB 0.59 17.9 0.15 0.63 3.93
WM 0.69 12.1 0.72 1.04 18.90
WRNB 0.74 14.1 0.16 1.40 13.16
WSB 0.96 16.5 0.07 0.45 5.22
WSFS 0.95 11.6 0.37 1.15 18.80
WSTR 0.41 17.4 0.28 0.63 5.72
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 14
<PAGE>
FERGUSON & COMPANY EXHIBIT V - SELECTED PUBLICLY HELD THRIFTS
- ------------------
<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>
WVYFC 0.22 14.5 0.26 1.25 11.52
YFCB 0.28 13.8 0.25 0.65 6.19
FYED 0.94 21.9 0.18 0.58 6.43
Maximum 4.78 119.3 1.78 2.96 28.15
Minimum - 5.1 (0.09) (0.21) (2.25)
Average 0.53 18.8 0.27 0.89 8.34
Median 0.40 16.5 0.24 0.83 7.42
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 15
<PAGE>
EXHIBIT VI
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBIT VI - COMPARATIVE GROUP SELECTION
To search for a comparative group for Community, we selected all thrifts from
the entire U.S. with assets between $125 million and $275 million that have
sufficient trading volume to produce meaningful market information. All of these
thrifts are listed on either AMEX, NYSE, or Nasdaq.
We found 92 thrifts in the asset size described above. We eliminated 81 and
retained a group of 11. Normally, we consider 10 to 12 to be the desired sample
size.
We eliminated thrifts for the following reasons: 1) Mutual holding company; 2)
No PE for the last fiscal year or PE ratio for the last year 35; 3) Equity
**14% of assets; 4) Merger agreement has been executed; 5) Non-performing
assets *1.0% of assets; 6) Loans **60% of assets; and 7) Loans serviced *30% of
assets.
The group of 92 from which the comparative group was selected is listed on
Exhibit VI.1 and the selected comparative group is listed on Exhibit VI.2. On
Exhibit VI.1, we have blocked the cells that indicate which ones were not
selected and why. Set forth below is a legend for the column summarizing reasons
individual thrifts were not selected.
A Mutual holding company.
B No PE ratio for most recent year or PE ratio over 35.
C Equity **14% of assets.
D Merger agreement has been executed.
E Non-performing assets *1.0% of total assets.
F Loans **60% of assets.
G Loans serviced exceeds 30% of assets.
* greater than
** less than
1
<PAGE>
FERGUSON & COMPANY EXHIBIT VI.1 - COMPARATIVE GROUP SELECTIONS
- ------------------
<TABLE>
<CAPTION>
A
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------
AFED AFSALA Bancorp Inc. Amsterdam NY MA SAIF NASDAQ 10/01/96 14.000
- -----------
ANE Alliance Bncp of New England Vernon CT NE BIF AMSE 12/19/86 10.125
- -----------
BFFC Big Foot Financial Corp. Long Grove IL MW SAIF NASDAQ 12/20/96 14.750
- -----------
BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/94 11.000
- -----------
BWFC Bank West Financial Corp. Grand Rapids MI MW SAIF NASDAQ 03/30/95 10.063
- -----------
BYFC Broadway Financial Corp. Los Angeles CA WE SAIF NASDAQ 01/09/96 8.750
- -----------
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 12.500
- -----------
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 14.625
- -----------
CLAS Classic Bancshares Inc. Ashland KY MW SAIF NASDAQ 12/29/95 14.250
CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/95 16.750
- -----------
CRSB Crusader Holding Corp. Philadelphia PA MA SAIF NASDAQ NA 11.875
- -----------
EBI Equality Bancorp Inc. St. Louis MO MW SAIF AMSE 12/02/97 12.875
- -----------
EGLB Eagle BancGroup Inc. Bloomington IL MW SAIF NASDAQ 07/01/96 14.500
- -----------
ESBK Elmira Savings Bank (The) Elmira NY MA BIF NASDAQ 03/01/85 24.500
- -----------
ESX Essex Bancorp Inc. Norfolk VA SE SAIF AMSE NA 2.188
- -----------
FBCV 1ST Bancorp Vincennes IN MW SAIF NASDAQ 04/07/87 42.000
- -----------
FBNW FirstBank Corp. Lewiston ID WE SAIF NASDAQ 07/02/97 17.750
- -----------
FBSI First Bancshares Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 12.625
- -----------
FCME First Coastal Corp. Westbrook ME NE BIF NASDAQ NA 10.000
- -----------
FDTR Federal Trust Corp. Winter Park FL SE SAIF NASDAQ NA 2.813
- -----------
FFBZ First Federal Bancorp Inc. Zanesville OH MW SAIF NASDAQ 07/13/92 11.250
- -----------
FFDB FirstFed Bancorp Inc. Bessemer AL SE SAIF NASDAQ 11/19/91 11.000
- -----------
FFED Fidelity Federal Bancorp Evansville IN MW SAIF NASDAQ 08/31/87 4.875
- -----------
FFHS First Franklin Corp. Cincinnati OH MW SAIF NASDAQ 01/26/88 15.875
- -----------
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 15.625
- -----------
FFWD Wood Bancorp Inc. Bowling Green OH MW SAIF NASDAQ 08/31/93 16.000
- -----------
FGHC First Georgia Holding Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 10.500
- -----------
FKKY Frankfort First Bancorp Inc. Frankfort KY MW SAIF NASDAQ 07/10/95 14.250
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 22.375
- -----------------------------------------------
GBNK Gaston Federal Bancorp (MHC) Gastonia NC SE SAIF NASDAQ 04/13/98 11.000
- -----------------------------------------------
GFED Guaranty Federal Bcshs Inc. Springfield MO MW SAIF NASDAQ 12/31/97 11.000
- -----------
GOSB GSB Financial Corp. Goshen NY MA BIF NASDAQ 07/09/97 12.438
- -----------
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 12.750
- -----------
GSLA GS Financial Corp. Metairie LA SW SAIF NASDAQ 04/01/97 13.250
- -----------
GTPS Great American Bancorp Champaign IL MW SAIF NASDAQ 06/30/95 17.875
HBS Haywood Bancshares Inc. Waynesville NC SE SAIF AMSE 12/18/87 17.750
- -----------
HCBB HCB Bancshares Inc. Camden AR SE SAIF NASDAQ 05/07/97 11.125
- -----------
HFBC HopFed Bancorp Inc. Hopkinsville KY MW SAIF NASDAQ 02/09/98 16.250
- -----------
HFSA Hardin Bancorp Inc. Hardin MO MW SAIF NASDAQ 09/29/95 16.375
- -----------
HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/88 25.000
- -----------
HMLK Hemlock Federal Financial Corp Oak Forest IL MW SAIF NASDAQ 04/02/97 14.125
- -----------
HPBC Home Port Bancorp Inc. Nantucket MA NE BIF NASDAQ 08/25/88 20.500
- -----------
HRBF Harbor Federal Bancorp Inc. Baltimore MD MA SAIF NASDAQ 08/12/94 21.125
- -----------
IFSB Independence Federal Svgs Bank Washington DC MA SAIF NASDAQ 06/06/85 15.000
- -----------
IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/93 13.000
- -----------------------------------------------
JXSB Jacksonville Savings Bk (MHC) Jacksonville IL MW SAIF NASDAQ 04/21/95 14.500
- -----------------------------------------------
JXVL Jacksonville Bancorp Inc. Jacksonville TX SW SAIF NASDAQ 04/01/96 15.625
- -----------
KSBK KSB Bancorp Inc. Kingfield ME NE BIF NASDAQ 06/24/93 16.000
- -----------
LARK Landmark Bancshares Inc. Dodge City KS MW SAIF NASDAQ 03/28/94 22.250
- -----------
LARL Laurel Capital Group Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 18.000
- -----------------------------------------------
LIBB Liberty Bancorp Inc. (MHC) Avenel NJ MA SAIF NASDAQ 07/01/98 9.375
- -----------------------------------------------
</TABLE>
SOURCES: SNL & F&C CALCATION 2
<PAGE>
FERGUSON & COMPANY EXHIBIT VI.1 - COMPARATIVES GROUP SELECTION
- ------------------
<TABLE>
<CAPTION>
A
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------
LSBI LSB Financial Corp. Lafayette IN MW BIF NASDAQ 02/03/95 29.750
- ----------
MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/93 23.500
- ----------
MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/93 18.375
- ----------
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 12.750
- ----------
MFLR Mayflower Co-operative Bank Middleboro MA NE BIF NASDAQ 12/23/87 18.000
- ----------
MIFC Mid-Iowa Financial Corp. Newton IA MW SAIF NASDAQ 10/14/92 13.750
- ----------
MWBI Midwest Bancshares Inc. Burlington IA MW SAIF NASDAQ 11/12/92 11.750
- ----------
MYST Mystic Financial Inc. Medford MA NE BIF NASDAQ 01/09/98 11.375
- ----------
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 17.000
- ----------
NTBK Net.B@nk Inc. Alpharetta GA SE SAIF NASDAQ NA 19.125
- ----------
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 14.000
- ----------
OTFC Oregon Trail Financial Corp. Baker City OR WE SAIF NASDAQ 10/06/97 13.000
- ----------------------------------------------
PBHC Pathfinder Bancorp Inc. (MHC) Oswego NY MA BIF NASDAQ 11/16/95 13.250
- ----------------------------------------------
PDB Piedmont Bancorp Inc. Hillsborough NC SE SAIF AMSE 12/08/95 9.688
- ----------
PEEK Peekskill Financial Corp. Peekskill NY MA SAIF NASDAQ 12/29/95 14.250
- ----------
PFED Park Bancorp Inc. Chicago IL MW SAIF NASDAQ 08/12/96 15.500
- ----------------------------------------------
PHSB Peoples Home Savings Bk (MHC) Beaver Falls PA MA SAIF NASDAQ 07/10/97 15.000
- ----------------------------------------------
PLSK Pulaski Savings Bank (MHC) Springfield NJ MA SAIF NASDAQ 04/03/97 10.875
- ----------------------------------------------
PRBC Prestige Bancorp Inc. Pleasant Hills PA MA SAIF NASDAQ 06/27/96 14.000
- ----------
PSBI PSB Bancorp Inc. Philadelphia PA MA BIF NASDAQ 07/17/98 7.875
- ----------
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 13.875
- ----------------------------------------------
PULB Pulaski Bank, FSB (MHC) St. Louis MO MW SAIF NASDAQ 05/11/94 21.500
- ----------------------------------------------
QCFB QCF Bancorp Inc. Virginia MN MW SAIF NASDAQ 04/03/95 27.500
- ----------
RIVR River Valley Bancorp Madison IN MW SAIF NASDAQ 12/20/96 14.500
- ----------
RVSB Riverview Bancorp Inc. Camas WA WE SAIF NASDAQ 10/01/97 14.000
- ----------------------------------------------
SBFL Finger Lakes Financial (MHC) Geneva NY MA SAIF NASDAQ 11/11/94 11.000
- ----------------------------------------------
SFED SFS Bancorp Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 27.250
- ----------
SKAN Skaneateles Bancorp Inc. Skaneateles NY MA BIF NASDAQ 06/02/86 13.250
- ----------------------------------------------
SKBO First Carnegie Deposit (MHC) Carnegie PA MA SAIF NASDAQ 04/04/97 11.125
- ----------------------------------------------
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO MW SAIF NASDAQ 04/13/94 16.250
- ----------
SSFC South Street Financial Corp. Albemarle NC SE SAIF NASDAQ 10/03/96 8.375
- ----------
SZB SouthFirst Bancshares Inc. Sylacauga AL SE SAIF AMSE 02/14/95 16.500
- ----------
TSBK Timberland Bancorp Inc. Hoquiam WA WE SAIF NASDAQ 01/13/98 13.125
- ----------
UBMT United Financial Corp. Great Falls MT WE SAIF NASDAQ NA 23.750
- ----------
UFBS Union Financial Bcshs Inc. Union SC SE SAIF NASDAQ NA 14.000
- ----------
USAB USABancshares Inc. Philadelphia PA MA BIF NASDAQ NA 8.500
- ----------------------------------------------
WAYN Wayne Savings Bancshares (MHC) Wooster OH MW SAIF NASDAQ 06/25/93 19.000
- ----------------------------------------------
WEFC Wells Financial Corp. Wells MN MW SAIF NASDAQ 04/11/95 17.000
- ----------
WEHO Westwood Homestead Fin. Corp. Cincinnati OH MW SAIF NASDAQ 09/30/96 10.375
- ----------
WHGB WHG Bancshares Corp. Lutherville MD MA SAIF NASDAQ 04/01/96 11.625
- ----------
WSB Washington Savings Bank, FSB Bowie MD MA SAIF AMSE NA 4.375
- ----------
Maximum 42.000
Minimum 2.188
Average 14.823
Median 14.000
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 3
<PAGE>
FERGUSON & COMPANY EXHIBIT VI.1 - COMPARATIVES GROUP SELECTION
- ------------------
<TABLE>
<CAPTION>
B
Current Price/ Current Current Current Total
Market Price/ Core Price/ Price/ Tang Price/ Dividend Assets
Value LTM Core EPS EPS Book Value Book Value Assets Yield ($000)
Ticker ($M) (x) (x) (%) (%) (%) (%) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------
AFED 18.47 16.5 23.3 86.3 86.3 11.0 2.00 167,301
- ----------
ANE 23.21 23.0 19.5 128.2 131.0 10.0 1.98 252,287
- ---------- -----------------
BFFC 37.06 41.0 61.5 97.3 97.3 16.8 - 220,604
- ---------- -----------------
BFSB 25.28 14.5 12.5 122.0 122.0 16.2 2.91 156,308
- ----------
BWFC 26.40 29.6 31.5 113.5 113.5 14.6 - 181,469
- ---------- -----------------
BYFC 8.16 39.8 24.3 62.4 62.4 5.9 2.29 137,642
- ---------- -----------------
CFFC 32.13 18.9 19.5 124.4 124.9 17.5 - 183,230
- ----------
CFTP 64.32 25.2 24.4 98.5 98.5 24.4 2.19 263,246
- ----------
CLAS 18.52 23.4 22.3 90.3 104.9 13.4 2.25 137,984
CMRN 40.77 16.8 15.0 93.0 93.0 18.5 1.67 220,784
- ----------
CRSB 45.51 10.2 9.9 196.0 206.9 22.5 - 202,034
- ---------- -----------------
EBI 32.44 NA NM 123.8 123.8 11.9 1.86 273,361
- ---------- -----------------
EGLB 16.21 76.3 90.6 81.4 81.4 9.8 - 174,085
- ---------- -----------------
ESBK 17.80 19.9 14.2 120.4 120.4 7.7 2.61 231,725
- ---------- -----------------
ESX 2.32 NM NM NM 31.4 1.1 - 214,391
- ---------- -----------------
FBCV 45.85 34.4 55.3 192.2 196.0 17.6 0.64 260,149
- ---------- -----------------
FBNW 33.45 NA 49.3 107.4 107.4 18.1 1.80 194,432
- ---------- -----------------
FBSI 27.95 15.0 16.6 114.7 119.6 16.2 0.95 172,173
- ----------
FCME 13.61 12.5 13.2 88.5 88.5 7.9 - 171,719
- ---------- -----------------
FDTR 13.90 NA 35.2 108.2 108.2 9.2 - 151,934
- ---------- -----------------
FFBZ 35.44 23.9 21.6 215.1 215.1 17.1 1.42 207,381
- ----------
FFDB 26.78 16.7 18.3 150.5 163.0 14.9 2.55 179,893
- ---------- -----------------
FFED 15.25 NM 10.2 203.1 203.1 7.7 - 197,046
- ---------- -----------------
FFHS 28.31 17.6 17.3 130.6 131.1 11.9 1.89 237,679
- ----------
FFWC 22.78 13.6 21.7 119.1 129.5 11.2 2.69 203,311
- ----------
FFWD 42.70 22.9 25.0 189.4 189.4 25.7 2.25 166,150
- ----------
FGHC 50.39 27.6 26.3 342.0 365.9 27.9 - 180,806
- ----------
FKKY 22.75 14.8 14.8 101.6 101.6 17.2 5.61 134,485
FTF 38.88 12.8 11.9 137.9 137.9 20.5 2.86 189,557
- ---------- -----------------
GBNK 49.46 NA NA 120.4 120.4 24.4 1.82 202,615
- ---------- -----------------
GFED 65.08 NA 18.3 91.6 91.6 26.4 2.91 260,043
- ---------- -----------------
GOSB 27.96 NA 38.9 87.0 87.0 21.7 0.97 129,087
- ---------- -----------------
GSFC 52.06 18.8 18.8 86.1 86.1 30.1 3.77 173,265
- ----------
GSLA 43.28 30.8 55.2 82.8 82.8 29.8 2.11 145,151
- ----------
GTPS 26.97 29.3 24.8 104.7 104.7 19.1 2.46 148,342
HBS 22.19 10.0 13.5 100.4 103.7 14.6 3.38 151,718
- ---------- -----------------
HCBB 29.43 NA 34.8 77.0 77.9 13.3 2.16 221,631
- ---------- -----------------
HFBC 65.55 NA 19.4 112.4 112.4 30.1 1.85 217,837
- ---------- -----------------
HFSA 13.37 18.0 19.5 99.2 99.2 10.0 3.66 133,326
- ----------
HIFS 32.74 12.0 11.8 144.6 144.6 13.6 2.24 239,148
- ----------
HMLK 27.76 16.4 16.8 95.4 95.4 14.4 2.27 192,271
- ----------
HPBC 37.76 10.8 9.7 166.4 166.4 14.5 3.90 260,456
- ----------
HRBF 39.35 22.2 19.6 132.5 132.5 16.7 2.46 235,733
- ----------
IFSB 19.22 22.7 8.7 90.8 99.4 7.2 1.67 265,940
- ----------
IPSW 31.07 12.5 13.5 238.1 238.1 13.3 1.23 233,662
- ---------- -----------------
JXSB 27.67 43.9 40.3 154.6 154.6 16.3 2.07 169,745
- ---------- -----------------
JXVL 37.84 12.4 12.6 107.9 107.9 15.6 3.20 242,673
- ----------
KSBK 20.14 11.6 11.8 160.5 182.7 12.8 - 157,745
- ----------
LARK 33.21 18.7 21.4 115.1 115.1 15.0 - 229,337
- ----------
LARL 39.44 13.3 11.8 167.8 167.8 17.9 3.33 220,986
- ---------- -----------------
LIBB 36.58 NA NA NA NA NA - 255,357
- ---------- -----------------
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 4
<PAGE>
FERGUSON & COMPANY EXHIBIT VI.1 - COMPARATIVES GROUP SELECTION
- ------------------
<TABLE>
<CAPTION>
B
Current Price/ Current Current Current Total
Market Price/ Core Price/ Price/ Tang Price/ Dividend Assets
Value LTM Core EPS EPS Book Value Book Value Assets Yield ($000)
Ticker ($M) (x) (x) (%) (%) (%) (%) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------
LSBI 28.29 18.3 19.1 145.4 145.4 13.0 1.35 218,633
- ----------
MARN 40.05 18.5 16.3 106.4 108.7 20.7 3.75 193,963
- ----------
MBLF 22.91 12.9 15.3 82.3 82.3 11.3 3.27 203,228
- ----------
MFFC 28.52 22.4 22.8 101.4 101.4 12.1 4.71 235,105
- ----------
MFLR 16.19 13.5 16.7 122.7 124.5 11.3 4.44 142,965
- ----------
MIFC 23.85 18.1 18.1 177.9 178.1 17.7 0.58 135,040
- ----------
MWBI 12.35 11.2 11.3 108.3 108.3 7.7 2.72 159,460
- ---------- -----------------
MYST 29.27 NA 16.7 85.3 85.3 15.5 1.76 199,049
- ---------- -----------------
NEIB 27.59 12.0 11.2 105.8 105.8 13.8 2.00 203,263
- ---------- -----------------
NTBK 117.57 NM 9.4 315.1 318.2 47.7 - 246,714
- ---------- -----------------
OHSL 34.95 17.7 17.5 127.0 127.0 14.1 3.57 247,853
- ---------- -----------------
OTFC 61.03 NA 18.1 81.8 81.8 23.8 1.54 256,460
- ---------- -----------------
PBHC 37.52 33.1 30.1 156.4 183.3 18.9 1.51 198,091
- ----------
PDB 26.65 16.4 18.6 123.4 123.4 20.4 4.96 130,541
- ----------
PEEK 40.72 21.3 21.0 95.5 95.5 20.6 2.53 200,341
- ----------
PFED 33.14 19.9 16.2 93.7 93.7 19.0 - 196,813
- ---------- -----------------
PHSB 41.40 NA 28.9 144.2 144.2 18.3 1.87 226,742
- ---------- -----------------
PLSK 22.93 20.9 22.7 103.3 103.3 12.2 2.76 187,776
- ----------
PRBC 13.99 20.3 18.4 92.5 92.5 8.9 - 164,656
- ---------- -----------------
PSBI 24.42 NA NA NA NA NA - 148,841
- ---------- -----------------
PTRS 12.83 15.8 15.8 120.8 120.8 10.3 - 128,149
- ----------
PULB 45.28 28.7 31.6 181.1 181.1 24.2 5.12 186,917
- ----------
QCFB 36.33 12.3 12.3 138.0 138.0 24.1 - 150,486
- ----------
RIVR 17.26 14.2 13.9 93.4 94.5 12.7 1.52 135,683
- ---------- -----------------
RVSB 86.60 NA 17.5 132.0 136.2 32.2 1.71 268,608
- ---------- -----------------
SBFL 39.27 50.0 45.8 179.7 179.7 15.2 - 258,394
- ---------- -----------------
SFED 32.93 28.1 26.2 150.3 150.3 18.5 1.17 178,093
- ----------
SKAN 19.14 12.7 12.3 104.3 106.9 7.2 2.11 266,730
- ---------- -----------------
SKBO 25.59 37.1 69.5 104.7 104.7 17.6 2.70 145,590
- ---------- -----------------
SMBC 22.94 23.2 18.5 100.1 100.1 15.5 - 155,924
- ---------- -----------------
SSFC 39.16 NA 34.9 98.5 98.5 19.2 4.78 203,673
- ---------- -----------------
SZB 15.96 25.0 58.9 98.5 101.0 9.8 3.64 162,975
- ---------- -----------------
TSBK 82.45 NA 14.3 101.9 101.9 33.0 1.83 263,112
- ---------- -----------------
UBMT 40.33 NA 18.0 133.2 137.8 19.6 4.21 205,345
- ---------- -----------------
UFBS 17.86 15.1 15.2 121.1 NA 9.8 2.66 183,066
- ---------- -----------------
USAB 17.02 38.6 9.7 136.9 137.8 12.6 - 134,688
- ---------- -----------------
WAYN 47.25 29.2 27.9 191.2 191.2 18.2 3.26 259,402
- ----------
WEFC 31.21 14.7 14.7 110.2 110.2 16.9 3.53 188,677
- ---------- -----------------
WEHO 26.55 NA 25.9 102.1 102.1 21.0 3.86 126,339
- ---------- -----------------
WHGB 16.15 23.7 19.4 80.1 80.1 12.2 - 131,967
- ----------
WSB 19.34 14.6 13.7 84.0 84.0 7.1 2.29 273,549
- ----------
Maximum 117.57 76.3 90.6 342.0 365.9 47.7 5.61 273,549
Minimum 2.32 10.0 8.7 62.4 31.4 1.1 - 126,339
Average 32.39 21.5 22.9 125.9 126.8 16.5 1.93 196,219
Median 28.42 18.5 18.4 112.4 110.2 15.5 1.99 195,623
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 5
<PAGE>
FERGUSON & COMPANY EXHIBIT VI.1 - COMPARATIVES GROUP SELECTION
- ------------------
<TABLE>
<CAPTION>
C D E
Tangible Return on ROACE
Equity/ Equity/ Core Avg Assets Before NPAs/
Assets Tang Assets EPS Before Extra Extra Merger Current Assets
(%) (%) ($) (%) (%) Target? Pricing (%)
Ticker Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Date Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------ ------------
AFED 11.4 11.4 0.85 0.63 5.01 Y 09/30/98 0.33
- ------------------------ ------------
ANE 7.8 7.7 0.44 0.95 12.84 N 09/30/98 0.47
- ------------------------
BFFC 17.3 17.3 0.36 0.53 3.10 N 09/30/98 NA
- ------------------------
BFSB 13.3 13.3 0.76 1.23 8.85 N 09/30/98 0.21
- ------------------------
BWFC 12.8 12.8 0.34 0.49 3.57 N 09/30/98 0.57
- ------------------------ ----------
BYFC 9.9 9.9 0.22 0.46 4.24 N 09/30/98 1.15
- ------------------------ ----------
CFFC 14.1 14.0 0.66 1.00 7.30 N 09/30/98 1.30
- ------------ ----------
CFTP 22.3 22.3 0.58 1.23 4.91 N 09/30/98 0.28
- ------------
CLAS 14.9 13.1 0.61 0.74 4.90 N 09/30/98 0.28
CMRN 19.9 19.9 1.00 1.14 5.45 N 09/30/98 0.40
- ------------------------
CRSB 11.5 11.0 1.16 2.24 36.72 N 09/30/98 0.64
- ------------------------
EBI 9.6 9.6 NA 0.59 NA N 09/30/98 0.36
- ------------------------
EGLB 12.1 12.1 0.19 0.35 3.00 N 09/30/98 0.73
- ------------------------
ESBK 6.3 6.3 1.23 0.47 7.43 N 09/30/98 0.83
- ------------------------ ----------
ESX 7.0 7.0 (2.06) (0.24) NM N 09/30/98 1.26
- ------------------------ ------------ ----------
FBCV 9.2 9.0 1.22 0.73 8.30 Y 09/30/98 1.70
- ------------------------ ------------- ----------
FBNW 15.6 15.6 NA 1.12 7.62 N 09/30/98 0.39
- ------------
FBSI 14.2 13.7 0.84 1.08 7.83 N 09/30/98 0.03
- ------------------------
FCME 9.0 9.0 0.80 0.80 8.23 N 09/30/98 0.21
- ------------------------ ----------
FDTR 8.5 8.5 NA NA NA N 09/30/98 1.80
- ------------------------ ----------
FFBZ 8.0 8.0 0.47 0.82 10.73 N 09/30/98 0.54
- ------------------------
FFDB 9.9 9.2 0.66 0.89 9.22 N 09/30/98 0.89
- ------------------------
FFED 3.8 3.8 (0.35) (3.12) (50.68) N 09/30/98 NA
- ------------------------
FFHS 9.1 9.1 0.90 0.81 8.87 N 09/30/98 0.34
- ------------------------
FFWC 9.4 8.7 1.15 0.99 10.33 N 09/30/98 0.43
- ------------------------
FFWD 13.6 13.6 0.70 1.43 11.12 N 09/30/98 0.02
- ------------------------ ----------
FGHC 8.2 7.7 0.38 1.16 14.15 N 09/30/98 1.65
- ------------------------ ----------
FKKY 16.9 16.9 0.96 1.18 6.58 N 09/30/98 -
FTF 14.9 14.9 1.75 1.74 11.41 N 09/30/98 -
- ------------
GBNK 20.3 20.3 NA NA NA N 09/30/98 0.50
- ------------
GFED 27.2 27.2 NA 1.25 5.81 N 09/30/98 0.50
- ------------
GOSB 24.9 24.9 NA 0.75 3.06 N 09/30/98 0.09
- ------------
GSFC 34.9 34.9 0.68 1.58 4.46 N 09/30/98 0.07
- ------------
GSLA 36.0 36.0 0.43 1.16 2.78 N 09/30/98 0.12
- ------------
GTPS 18.3 18.3 0.61 0.70 3.60 N 09/30/98 0.01
HBS 14.6 14.2 1.77 0.92 6.34 N 09/30/98 0.60
- ------------
HCBB 17.2 17.1 NA 0.33 1.86 N 09/30/98 0.44
- ------------
HFBC 26.8 26.8 NA 1.11 8.63 N 09/30/98 -
- ------------------------
HFSA 10.1 10.1 0.91 0.70 6.18 N 09/30/98 0.14
- ------------------------
HIFS 9.4 9.4 2.08 1.26 13.06 N 09/30/98 0.17
- ------------------------
HMLK 15.1 15.1 0.86 0.93 5.36 N 09/30/98 0.16
- ------------------------
HPBC 8.7 8.7 1.90 1.45 14.53 N 09/30/98 -
- ------------------------
HRBF 12.6 12.6 0.95 0.78 6.09 N 09/30/98 0.32
- ------------------------
IFSB 8.0 7.3 0.66 1.24 17.15 N 09/30/98 NA
- ------------------------
IPSW 5.6 5.6 1.04 1.19 21.98 N 09/30/98 0.80
- ------------------------
JXSB 10.5 10.5 0.33 0.60 5.71 N 09/30/98 0.68
- ------------------------
JXVL 14.5 14.5 1.26 1.33 9.13 N 09/30/98 NA
- ------------------------ ----------
KSBK 8.0 7.1 1.38 1.13 14.97 N 09/30/98 1.74
- ------------------------ ----------
LARK 13.1 13.1 1.19 1.06 7.64 N 09/30/98 0.06
- ------------------------
LARL 10.6 10.6 1.35 1.43 13.58 N 09/30/98 0.32
- ------------------------
LIBB 13.1 13.1 NA 0.62 7.96 N 09/30/98 0.35
- ------------------------
</TABLE>
SOURCE: SNL & F&B CALULATION 6
<PAGE>
FERGUSON & COMPANY EXHIBIT VI.1 - COMPARATIVES GROUP SELECTION
- ------------------
<TABLE>
<CAPTION>
C D E
Tangible Return on ROACE
Equity/ Equity/ Core Avg Assets Before NPAs/
Assets Tang Assets EPS Before Extra Extra Merger Current Assets
(%) (%) ($) (%) (%) Target? Pricing (%)
Ticker Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Date Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------ -----------
LSBI 8.4 8.4 1.63 0.84 9.90 N 09/30/98 1.20
- ------------------ -----------
MARN 19.4 19.1 1.27 1.25 5.94 N 09/30/98 1.02
- ------------------ -----------
MBLF 13.7 13.7 1.42 0.86 6.65 N 09/30/98 0.45
- ------------------
MFFC 11.1 11.1 0.57 0.69 5.80 N 09/30/98 0.16
- ------------------
MFLR 9.2 9.1 1.33 1.13 11.78 N 09/30/98 0.59
- ------------------ ---------
MIFC 9.9 9.9 0.76 1.02 10.95 Y 09/30/98 0.14
- ------------------ ---------
MWBI 7.2 7.2 1.05 0.95 13.56 N 09/30/98 0.66
- ------------------
MYST 18.2 18.2 NA 0.90 6.70 N 09/30/98 0.08
- ------------------
NEIB 13.0 13.0 1.42 1.18 8.55 N 09/30/98 0.41
- ------------------
NTBK 15.1 15.0 0.03 0.66 2.52 N 09/30/98 -
- ------------------
OHSL 10.8 10.8 0.79 0.86 7.94 N 09/30/98 0.04
- ------------------
OTFC 26.5 26.5 NA 1.09 4.76 N 09/30/98 0.18
- ------------------ -----------
PBHC 11.9 10.3 0.40 0.75 6.38 N 09/30/98 1.30
- ------------------ -----------
PDB 16.6 16.6 0.59 1.27 7.75 N 09/30/98 0.71
- ----------
PEEK 21.6 21.6 0.67 0.98 4.02 N 09/30/98 0.61
- ----------
PFED 20.3 20.3 0.78 0.92 4.28 N 09/30/98 0.07
- ------------------
PHSB 12.7 12.7 NA 0.81 6.20 N 09/30/98 0.28
- ------------------
PLSK 11.8 11.8 0.52 0.54 4.60 N 09/30/98 0.63
- ------------------
PRBC 9.7 9.7 0.69 0.47 4.44 N 09/30/98 0.35
- ------------------
PSBI 10.4 10.4 NA 0.55 4.82 N 09/30/98 NA
- ------------------
PTRS 8.5 8.5 0.88 0.77 8.58 N 09/30/98 0.32
- ------------------
PULB 13.4 13.4 0.75 1.08 8.12 N 09/30/98 NA
- ------------------
QCFB 17.5 17.5 2.24 1.72 9.82 N 09/30/98 NA
- ------------------
RIVR 13.6 13.5 1.02 0.93 7.11 N 09/30/98 0.55
- ------------------
RVSB 23.1 22.5 NA 1.71 8.52 N 09/30/98 0.28
- ------------------
SBFL 8.5 8.5 0.22 0.41 4.62 N 09/30/98 0.32
- ------------------
SFED 12.3 12.3 0.97 0.66 5.40 Y 09/30/98 0.74
- ------------------ ---------
SKAN 6.9 6.7 1.04 0.62 8.95 N 09/30/98 1.74
- ------------------
SKBO 16.8 16.8 0.30 0.56 3.36 N 09/30/98 NA
- ----------
SMBC 15.5 15.5 0.70 0.67 4.06 N 09/30/98 0.97
- ----------
SSFC 16.9 16.9 NA 0.55 2.71 N 09/30/98 0.23
- ------------------
SZB 9.9 9.7 0.66 0.46 4.19 N 09/30/98 0.05
- ------------------
----------
TSBK 32.4 32.4 NA 1.84 NA N 09/30/98 3.01
- ---------- -----------
UBMT 14.7 14.3 NA 1.10 7.96 N 09/30/98 0.25
- ------------------
UFBS 8.1 NA 0.93 0.88 11.07 N 09/30/98 NA
- ------------------
USAB 9.7 9.7 0.22 0.60 6.39 N 09/30/98 0.13
- ------------------
WAYN 9.5 9.5 0.65 0.72 7.53 N 09/30/98 0.48
- ------------------
WEFC 15.4 15.4 1.16 1.19 8.19 N 09/30/98 0.14
- ----------
WEHO 20.6 20.6 NA 0.68 2.72 N 09/30/98 0.08
- ----------
WHBG 15.3 15.3 0.49 0.58 3.16 N 09/30/98 0.59
- ------------------
WSB 8.4 8.4 0.30 0.74 8.67 N 09/30/98 NA
- ------------------
Maximum 36.0 36.0 2.24 2.24 36.72 3.01
Minimum 3.8 3.8 (2.06) (3.12) (50.68) -
Average 13.8 13.8 0.81 0.88 7.12 0.52
Median 12.8 12.8 0.77 0.89 7.11 0.36
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 7
<PAGE>
FERGUSON & COMPANY EXHIBIT VI.1 - COMPARATIVES GROUP SELECTION
- ------------------
<TABLE>
<CAPTION>
F G
Loans Loans
Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/
Deposits Assets Assets Assets For Others Assets
(%) (%) (%) (%) ($000) (%) Reasons not
Ticker Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctY Mst RctY Selected
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------- ----------
AFED 56.12 48.49 86.40 0.96 - - C, D, F
- -------------- ----------
ANE 73.12 65.44 89.50 2.25 7,248 2.87 C
- -------------- ----------
BFFC 93.49 52.48 56.13 24.02 NA NA B, F
- -------------- ----------
BFSB 120.62 80.77 66.96 19.19 2,903 1.86 C
- --------------
BWFC 106.15 70.18 66.12 20.39 33,201 18.30 C
- --------------
BYFC 95.77 81.65 85.26 4.00 8,200 5.96 B, C, E
- --------------
CFFC 119.22 89.24 74.86 9.82 8,792 4.80 E
- -------------- ----------
CFTP 98.59 53.59 54.36 20.74 1,519 0.58 F
- -------------- ---------- ------------
CLAS 85.97 67.54 78.56 5.33 - - Selected
------------
CMRN 136.16 82.37 60.49 18.23 - - Selected
- -------------- ------------
CRSB 143.25 84.26 58.82 28.43 - - C
- -------------- ---------- ----------
EBI 86.17 37.41 43.41 46.29 254,415 93.07 B, C, F, G
- -------------- ---------- ----------
EGLB 88.68 67.25 75.84 11.49 38,370 22.04 B, C
- --------------
ESBK 85.87 78.64 91.57 1.41 34,250 14.78 C
- -------------- ----------
ESX 112.47 86.99 77.34 14.59 355,675 165.90 B, C, E, G
- -------------- ----------
FBCV 160.67 72.73 45.27 44.35 120,811 46.44 C, D, E, G
- -------------- ----------
FBNW 131.63 81.21 61.70 21.71 135,800 69.84 B, G
- -------------- ---------- ------------
FBSI 104.16 85.34 81.93 3.31 12 0.01 Selected
- -------------- ------------
FCME 76.80 62.17 80.95 10.00 42,525 24.76 C
- --------------
FDTR 122.25 88.56 72.45 17.15 12,461 8.20 C, E
- --------------
FFBZ 127.10 85.71 67.44 24.11 14,730 7.10 C
- --------------
FFDB 73.64 66.04 89.68 - 722 0.40 C
- --------------
FFED 107.25 81.06 75.59 16.25 NA NA B, C
- --------------
FFHS 74.66 64.56 86.46 3.87 57,842 24.34 C
- --------------
FFWC 112.07 69.04 61.61 27.79 25,862 12.72 C
- -------------- ----------
FFWD 104.75 82.02 78.29 7.32 60,082 36.16 C
- -------------- ----------
FGHC 102.71 86.35 84.07 6.14 - - C, E
- -------------- ------------
FKKY 154.39 94.01 60.89 21.01 - - Selected
------------
FTF 99.72 79.67 79.90 3.75 23,362 12.32 Selected
- -------------- ------------
GBNK 100.46 69.31 68.99 9.13 - - A, B
- --------------
GFED 147.84 80.14 54.21 17.34 15,971 6.14 B
- -------------- ----------
GOSB 88.65 58.58 66.08 7.75 6,800 5.27 B, F
- -------------- ---------- ------------
GSFC 119.17 75.79 63.60 - - - Selected
- -------------- ---------- ------------
GSLA 108.85 42.93 39.44 22.85 - - F
- -------------- ---------- ------------
GTPS 105.30 83.27 79.08 1.35 10,730 7.23 Selected
------------
HBS 97.40 75.09 77.09 6.92 283 0.19 Selected
- -------------- ---------- ------------
HCBB 76.44 48.63 63.62 18.21 - - B, F
- -------------- ----------
HFBC 67.14 48.25 71.86 - - - B, F
- -------------- ----------
HFSA 83.26 49.34 59.26 29.63 9,759 7.32 C, F
- -------------- ----------
HIFS 107.52 76.60 71.25 18.47 5,615 2.35 C
- -------------- ----------
HMLK 67.49 47.74 70.74 12.48 1,527 0.79 F
- -------------- ----------
HPBC 128.67 85.01 66.07 24.48 65,055 24.98 C
- --------------
HRBF 84.98 64.18 75.52 9.89 13,718 5.82 C
- -------------- ----------
IFSB 79.99 60.18 75.23 15.18 144,708 54.41 C, G
- -------------- ----------
IPSW 105.69 79.51 75.23 17.79 45,358 19.41 C
- -------------- ----------
JXSB 85.86 74.85 87.18 0.10 85,364 50.29 A, B, C, G
- -------------- ---------- ------------
JXVL NA NA 81.96 1.67 62,078 25.58 Selected
- -------------- ---------- ------------
KSBK 104.16 80.90 77.66 12.79 75,111 47.62 C, E, G
- -------------- ----------
LARK 116.11 74.99 64.59 20.58 55,767 24.32 C
- --------------
LARL 88.15 69.96 79.37 7.71 1,118 0.51 C
- --------------
LIBB 80.10 65.52 81.80 - 337 0.13 A, B, C
- --------------
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 8
<PAGE>
FERGUSON & COMPANY Exhibit VI-I - Comparatives Group Selection
- ------------------
<TABLE>
<CAPTION>
F G
Loans Loans
Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/
Deposits Assets Assets Assets For Others Assets
(%) (%) (%) (%) ($000) (%) Reasons not
Ticker Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctY Mst RctY Selected
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------
LSBI 129.22 87.15 67.44 23.63 51,681 23.64 C, E
- --------------
MARN 123.92 85.87 69.30 7.05 32,849 16.94 E
- --------------
MBLF 119.08 67.58 56.75 28.85 - - C
- --------------
MFFC 105.10 68.39 65.07 23.11 9,843 4.19 C
- -------------- ------------
MFLR 68.47 53.00 77.40 12.59 34,664 24.25 C, F
- -------------- ------------
MIFC 84.80 52.77 62.23 26.66 2,402 1.78 C, D, F
- -------------- ------------
MWBI 90.04 59.74 66.35 25.71 - - C, F
- -------------- ------------
MYST 95.21 69.24 72.73 8.29 16,879 8.48 B
- --------------
NEIB 146.84 88.16 60.04 26.62 2,406 1.18 C
- --------------
NTBK 102.68 77.76 75.73 8.31 - - B
- --------------
OHSL 90.92 68.42 75.26 13.21 26,042 10.51 C
- --------------
OTFC 88.06 63.24 71.82 - - - B
- --------------
PBHC 83.11 66.04 79.46 7.57 - - A, C, E
- -------------- ------------
PDB 119.60 82.31 68.82 13.79 18,256 13.98 Selected
- -------------- ------------ ------------
PEEK 34.54 24.12 69.81 6.49 - - F
- -------------- ------------
PFED 54.08 38.04 70.33 8.15 - - F
- -------------- ------------
PHSB 54.99 42.96 78.11 8.32 - - A, B, C, F
- -------------- ------------
PLSK 61.43 53.56 87.18 0.29 - - A, C, F
- -------------- ------------
PRBC 112.13 66.47 59.28 29.75 - - C
- -------------- ------------
PSBI 58.87 50.73 86.16 1.83 - - B, C, F, G
- -------------- ------------
PTRS 92.33 73.14 79.22 11.36 437 0.34 C
- --------------
PULB 92.01 77.01 83.69 1.02 28,972 15.50 A, C
- -------------- ------------
QCFB 62.96 44.17 70.15 10.69 2,039 1.35 F
- -------------- ------------
RIVR 104.48 85.05 81.41 3.69 NA NA C
- -------------- -------------
RVSB 89.96 61.55 68.42 7.28 87,400 32.54 B, G
- -------------- ------------ -------------
SBFL 71.64 51.99 72.57 17.91 8,796 3.40 A, B, C, F
- -------------- ------------
SFED 92.93 79.78 85.84 - 3,525 1.98 C, D
- --------------
SKAN 95.69 81.08 84.73 6.52 23,279 8.73 C, E
- -------------- ------------
SKBO 90.11 47.42 52.63 28.22 48 0.03 A, B, F
- -------------- ------------ ------------
SMBC 110.14 77.20 70.10 13.51 - - Selected
- -------------- ------------ ------------
SSFC 72.61 52.85 72.79 8.84 460 0.23 B, F
- -------------- ------------
SZB 81.25 61.91 76.20 11.32 - - C
- --------------
TSBK 115.11 72.26 62.77 4.43 54,353 20.66 B, E
- --------------
UBMT 90.05 63.93 70.99 13.25 19,114 9.31 B
- -------------- -------------
UFBS 115.01 81.67 71.01 20.23 64,730 35.36 C, G
- -------------- ------------ -------------
USAB 89.25 59.68 66.87 22.69 - - B, C, F
- -------------- ------------
WAYN 95.33 79.90 83.81 6.17 37,765 14.56 A, C
- -------------- -------------
WEFC 111.69 90.24 80.80 2.65 72,192 38.26 G
- -------------- -------------
WEHO 132.76 88.18 66.42 12.47 3,054 2.42 B
- -------------- ------------
WHGB 85.56 58.25 68.08 15.16 8,601 6.52 F
- -------------- ------------
WSB 48.64 43.25 88.93 1.96 10,156 3.71 C, F
- -------------- ------------
Maximum 160.67 94.01 91.57 46.29 355,675 165.90
Minimum 34.54 24.12 39.44 - - -
Average 97.35 68.70 71.94 12.91 27,618 12.97
Median 95.33 69.31 72.16 11.34 8,200 3.71
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 9
<PAGE>
FERGUSON & COMPANY EXHIBIT VI.2 - COMPARATIVES GROUP SELECTED
- ------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLAS Classic Bancshares Inc. Ashland KY MW SAIF NASDAQ 12/29/95 14.250
CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/95 16.750
FBSI First Bancshares Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 12.625
FKKY Frankfort First Bancorp Inc. Frankfort KY MW SAIF NASDAQ 07/10/95 14.250
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 22.375
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 12.750
GTPS Great American Bancorp Champaign IL MW SAIF NASDAQ 06/30/95 17.875
HBS Haywood Bancshares Inc. Waynesville NC SE SAIF AMSE 12/18/87 17.750
JXVL Jacksonville Bancorp Inc. Jacksonville TX SW SAIF NASDAQ 04/01/96 15.625
PDB Piedmont Bancorp Inc. Hillsborough NC SE SAIF AMSE 12/08/95 9.688
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO MW SAIF NASDAQ 04/13/94 16.250
Maximum 22.375
Minimum 9.688
Average 15.472
Median 15.625
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 10
<PAGE>
FERGUSON & COMPANY EXHIBIT VI.2 - COMPARATIVES GROUP SELECTED
- ------------------
<TABLE>
<CAPTION>
Current Price/ Current Current Current Total
Market Price/ Core Price/ Price/ Tang Price/ Dividend Assets
Value LTM Core EPS EPS Book Value Book Value Assets Yield ($000)
Ticker ($M) (x) (x) (%) (%) (%) (%) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLAS 18.52 23.4 22.3 90.3 104.9 13.4 2.25 137,984
CMRN 40.77 16.8 15.0 93.0 93.0 18.5 1.67 220,784
FBSI 27.95 15.0 16.6 114.7 119.6 16.2 0.95 172,173
FKKY 22.75 14.8 14.8 101.6 101.6 17.2 5.61 134,485
FTF 38.88 12.8 11.9 137.9 137.9 20.5 2.86 189,557
GSFC 52.06 18.8 18.8 86.1 86.1 30.1 3.77 173,265
GTPS 26.97 29.3 24.8 104.7 104.7 19.1 2.46 148,342
HBS 22.19 10.0 13.5 100.4 103.7 14.6 3.38 151,718
JXVL 37.84 12.4 12.6 107.9 107.9 15.6 3.20 242,673
PDB 26.65 16.4 18.6 123.4 123.4 20.4 4.96 130,541
SMBC 22.94 23.2 18.5 100.1 100.1 15.5 - 155,924
Maximum 52.06 29.3 24.8 137.9 137.9 30.1 5.61 242,673
Minimum 18.52 10.0 11.9 86.1 86.1 13.4 - 130,541
Average 30.68 17.5 17.0 105.5 107.5 18.3 2.83 168,859
Median 26.97 16.4 16.6 101.6 104.7 17.2 2.86 155,924
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 11
<PAGE>
FERGUSON & COMPANY EXHIBIT VI.2 - COMPARATIVES GROUP SELECTED
- ------------------
<TABLE>
<CAPTION>
Tangible Return on ROACE
Equity/ Equity/ Core Avg Assets Before
Assets Tang Assets EPS Before Extra Extra Merger Current
(%) (%) ($) (%) (%) Target? Pricing
Ticker Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C>
CLAS 14.9 13.1 0.61 0.74 4.90 N 09/30/98
CMRN 19.9 19.9 1.00 1.14 5.45 N 09/30/98
FBSI 14.2 13.7 0.84 1.08 7.83 N 09/30/98
FKKY 16.9 16.9 0.96 1.18 6.58 N 09/30/98
FTF 14.9 14.9 1.75 1.74 11.41 N 09/30/98
GSFC 34.9 34.9 0.68 1.58 4.46 N 09/30/98
GTPS 18.3 18.3 0.61 0.70 3.60 N 09/30/98
HBS 14.6 14.2 1.77 0.92 6.34 N 09/30/98
JXVL 14.5 14.5 1.26 1.33 9.13 N 09/30/98
PDB 16.6 16.6 0.59 1.27 7.75 N 09/30/98
SMBC 15.5 15.5 0.70 0.67 4.06 N 09/30/98
Maximum 34.9 34.9 1.77 1.74 11.41
Minimum 14.2 13.1 0.59 0.67 3.60
Average 17.7 17.5 0.98 1.12 6.50
Median 15.5 15.5 0.84 1.14 6.34
<CAPTION>
NPAs/
Assets
(%)
Ticker Mst RctQ
<S> <C>
CLAS 0.28
CMRN 0.40
FBSI 0.03
FKKY -
FTF -
GSFC 0.07
GTPS 0.01
HBS 0.60
JXVL NA
PDB 0.71
SMBC 0.97
Maximum 0.97
Minimum -
Average 0.31
Median 0.18
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 12
<PAGE>
FERGUSON & COMPANY EXHIBIT VI.2 - COMPARATIVES GROUP SELECTED
- ------------------
<TABLE>
<CAPTION>
Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/
Deposits Assets Assets Assets For Others Assets
(%) (%) (%) (%) ($000) (%)
Ticker Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctY Mst RctY
<S> <C> <C> <C> <C> <C> <C>
CLAS 85.97 67.54 78.56 5.33 - -
CMRN 136.16 82.37 60.49 18.23 - -
FBSI 104.16 85.34 81.93 3.31 12 0.01
FKKY 154.39 94.01 60.89 21.01 - -
FTF 99.72 79.67 79.90 3.75 23,362 12.32
GSFC 119.17 75.79 63.60 - - -
GTPS 105.30 83.27 79.08 1.35 10,730 7.23
HBS 97.40 75.09 77.09 6.92 283 0.19
JXVL NA NA 81.96 1.67 62,078 25.58
PDB 119.60 82.31 68.82 13.79 18,256 13.98
SMBC 110.14 77.20 70.10 13.51 - -
Maximum 154.39 94.01 81.96 21.01 62,078 25.58
Minimum 85.97 67.54 60.49 - - -
Average 113.20 80.26 72.95 8.08 10,429 5.39
Median 107.72 80.99 77.09 5.33 12 0.01
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 13
<PAGE>
EXHIBIT VII
<PAGE>
FERGUSON & COMPANY 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
September 30, 1998. This rate was selected because it is considered more
representative of the rate the Bank is likely to earn.
2. Community'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 1/15 annually of the initial purchase.
3. Community's RP will acquire 4% of the stock through open market purchases at
$15 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 $1,500,000
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 1/15 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 $.81, $.74, $.68, and $.63, and price
to earnings ratios of 18.4, 20.4, 22.1, and 24.0, at the minimum, midpoint,
maximum, and supermaximum of the range, respectively.
1
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBIT VII
PRO FORMA EFFECT OF CONVERSION PROCEEDS
AT THE MINIMUM OF THE CONVERSION VALUATION RANGE
VALUATION DATE AS OF DECEMBER 9, 1998
COMMUNITY SAVINGS BANK, BURLINGTON, NC
- ----------------------------------------------------------------
<TABLE>
<S> <C>
1. Conversion Proceeds
Pro Forma Market Value $ 22,950,000
Less: Estimated Expenses (874,000)
-------------
Net Conversion Proceeds $ 22,076,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 22,076,000
Less: ESOP Contributions (1,956,000)
RP Contributions (978,000)
-------------
Net Conversion Proceeds after ESOP & RP $ 19,142,000
Estimated Incremental Rate of Return(1) 2.88%
-------------
Estimated Additional Income $ 551,290
Less: ESOP Expense (83,456)
RP Expense (125,184)
-------------
$ 342,650
=============
</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 $ 885,000 $ 342,650 $ 1,227,650
b. Pro Forma Net Worth
September 30, 1998 $ 23,267,000 $ 19,652,000 $ 42,919,00
c. Pro Forma Net Assets
September 30, 1998 $ 170,374,000 $ 19,142,000 $ 189,516,000
</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 $510,000 increase related to
contribution to charitable foundation.
2
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBIT VII
PRO FORMA EFFECT OF CONVERSION PROCEEDS
AT THE MIDPOINT OF THE CONVERSION VALUATION RANGE
VALUATION DATE AS OF DECEMBER 9, 1998
COMMUNITY SAVINGS BANK, BURLINGTON, NC
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 27,000,000
Less: Estimated Expenses (940,000)
--------------
Net Conversion Proceeds $ 26,060,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 26,060,000
Less: ESOP Contributions (2,280,000)
RP Contributions (1,140,000)
--------------
Net Conversion Proceeds after ESOP & RP $ 22,640,000
Estimated Incremental Rate of Return(1) 2.88%
--------------
Estimated Additional Income $ 652,032
Less: ESOP Expense (97,280)
RP Expense (145,920)
--------------
$ 408,832
==============
</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 $ 885,000 $ 408,832 $ 1,293,832
b. Pro Forma Net Worth
September 30, 1998 $ 23,267,000 $ 23,150,000 $ 46,417,000
c. Pro Forma Net Assets
September 30, 1998 $ 170,374,000 $ 22,640,000 $ 193,014,000
</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 $510,000 increase related to
contribution to charitable foundation.
3
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBIT VII
PRO FORMA EFFECT OF CONVERSION PROCEEDS
AT THE MAXIMUM OF THE CONVERSION VALUATION RANGE
VALUATION DATE AS OF DECEMBER 9, 1998
COMMUNITY SAVINGS BANK, BURLINGTON, NC
- -------------------------------------------------------------------
<TABLE>
<S> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 31,050,000
Less: Estimated Expenses (1,005,000)
-------------
Net Conversion Proceeds $ 30,045,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 30,045,000
Less: ESOP Contributions (2,604,000)
RP Contributions (1,302,000)
-------------
Net Conversion Proceeds after ESOP & RP $ 26,139,000
Estimated Incremental Rate of Return(1) 2.88%
-------------
Estimated Additional Income $ 752,803
Less: ESOP Expense (111,104)
RP Expense (166,656)
-------------
$ 475,043
=============
</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 $ 885,000 $ 475,043 $ 1,360,043
b. Pro Forma Net Worth
September 30, 1998 $ 23,267,000 $ 26,649,000 $ 49,916,000
c. Pro Forma Net Assets
September 30, 1998 $ 170,374,000 $ 26,139,000 $ 196,513,000
</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 $510,000 increase related to
contribution to charitable foundation.
4
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBIT VII
PRO FORMA EFFECT OF CONVERSION PROCEEDS
AT THE SUPERMAX OF THE CONVERSION VALUATION RANGE
VALUATION DATE AS OF DECEMBER 9, 1998
COMMUNITY SAVINGS BANK, BURLINGTON, NC
- --------------------------------------------------------------
1. Conversion Proceeds
Pro Forma Market Valuation $ 35,707,500
Less: Estimated Expenses $ (1,080,000)
------------
Net Conversion Proceeds $ 34,627,500
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 34,627,500
Less: ESOP Contributions $ (2,976,600)
RP Contributions $ (1,488,300)
Net Conversion Proceeds after ESOP & RP $ 30,162,600
Estimated Incremental Rate of Return(1) 2.88%
------------
Estimated Additional Income $ 868,683
Less: ESOP Expense $ (127,002)
RP Expense $ (190,502)
------------
$ 551,179
============
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 $ 885,000 $ 551,179 $ 1,436,179
b. Pro Forma Net Worth
September 30, 1998 $ 23,267,000 $ 30,672,600 $ 53,939,600
c. Pro Forma Net Assets
September 30, 1998 $ 170,374,000 $ 30,162,600 $ 200,536,600
</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 $510,000 increase related
to contribution to charitable foundation.
5
<PAGE>
FERGUSON & COMPANY
- ------------------
EXHIBIT VII
PRO FORMA ANALYSIS SHEET
<TABLE>
<CAPTION>
Name of Association: COMMUNITY SAVINGS BANK, BURLINGTON, NC
Date of Market Prices: December 9, 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>
Price-Earnings Ratio P/E
- --------------------
Last Twelve Months N/A
At Minimum of Range 19.9
------------------------------------------------------------------------------------------
At Midpoint of Range 22.0 17.1 16.0 16.8 16.6 18.0 17.2
------------------------------------------------------------------------------------------
At Maximum of Range 23.9
At Supermax of Range 25.9
Price-Book Ratio P/B
- ----------------
At Minimum of Range 57.0%
------------------------------------------------------------------------------------------
At Midpoint of Range 61.4% 105.8 98.0 106.8 100.1 133.8 121.9
------------------------------------------------------------------------------------------
At Maximum of Range 65.2%
At Supermax of Range 69.0%
Price-Asset Ratio P/A
- -----------------
At Minimum of Range 12.9%
------------------------------------------------------------------------------------------
At Midpoint of Range 14.8% 18.0 16.1 20.1 19.5 14.7 14.1
------------------------------------------------------------------------------------------
At Maximum of Range 16.6%
At Supermax of Range 18.6%
Twelve Mo. Earnings Base Y $ 885,000
Period Ended September 30, 1998
Book Value B $ 23,267,000
As of September 30, 1998
Total Assets A $170,374,000
As of September 30, 1998
Return on Money (1) R 2.88%
Conversion Expense X $ 940,000
Underwriting Commission C 0.00%
Percentage Underwritten S 0.00%
Estimated Dividend
Dollar Amount DA $ 570,000
Yield DY 2.00%
ESOP Contributions P $ 2,280,000
RP Contributions I $ 1,140,000
ESOP Annual Expense E $ 97,280
RP Annual Contributions M $ 145,920
Cost of ESOP Borrowings F 0.00%
Charity Contribution CC $ 1,500,000
Tax Effect of Contribution TEC $ 510,000
After Tax Effect of Contri. ATEC $ 990,000
</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 $510,000 increase related to
contribution to charitable foundation.
6
<PAGE>
FERGUSON & COMPANY
- ------------------
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) $ 28,500,000
-------------------------
1-P/A(1-(CxS))
2. V= P/B(B-X-P-I-ATEC) $ 28,500,000
-------------------------
1-P/B(1-(CxX))
3. V= P/E(Y-R(X+P+I+CC)-(E+M)) $ 28,500,000
----------------------------
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>
$27,000,000 $15.00 1,800,000 December 9, 1998
</TABLE>
Range of Value
$27.0 million x 1.15 = $31.05 million or 2,070,000 shares at $15.00 per share
$27.0 million x 0.85 = $22.95 million or 1,530,000 shares at $15.00 per share
7
