SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to section 13 or 15 (d) of the Securities Exchange
Act of 1934 (Fee required)
For the fiscal year ended June 30, 1996
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required) For the transition period from
to
------------ ------------.
Commission File No. 0-26510
NCF FINANCIAL CORPORATION
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(Name of Small Business Issuer in Its Charter)
Delaware 61-1285330
- --------------------------------------------- ----------
(State or Other Jurisdiction of Incorporation I.R.S. Employer
or Organization) Identification No.
119 E. Stephen Foster Avenue, Bardstown, Kentucky 40004
- ------------------------------------------------- -----
(Address of Principal Executive Offices (Zip Code)
Issuer's Telephone Number, Including Area Code: (502) 348-9278
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Securities registered under to Section 12(b) of the Exchange Act: None
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Securities registered under to Section 12(g) of the Exchange Act:
Common Stock, par value $0.10 per share
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(Title of Class)
Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES X NO .
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $2,546,494
----------
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the average bid and asked price of the registrant's
Common Stock on August 31, 1996 was $8.9 million ($14.50 per share based on
614,658 shares of Common Stock).
As of August 31, 1996, there were issued and outstanding 770,500 shares
of the registrant's Common Stock.
Transition Small Business Disclosure Format (check one):
YES NO X
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year
ended June 30, 1996. (Parts I, II, and IV)
2. Portions of the Proxy Statement for the Annual Meeting of
Stockholders for the Fiscal Year ended June 30, 1996. (Part III)
1
<PAGE>
PART I
Item 1. Business
- -----------------
Business of the Company
NCF Financial Corporation (the "Company") is a Delaware corporation
organized in June of 1995 at the direction of Nelson County Federal Savings Bank
(the "Bank") to acquire all of the capital stock that the Bank issued in its
conversion from the mutual to stock form of ownership (the "Conversion"). On
October 12, 1995, the Bank completed the Conversion and became a wholly owned
subsidiary of the Company. The Company is a unitary savings and loan holding
company which, under existing laws, generally is not restricted in the types of
business activities in which it may engage provided that the Bank retains a
specified amount of its assets in housing-related investments.
Business of the Bank
The Bank is a federally chartered stock savings bank headquartered in
Bardstown, Kentucky and was founded in 1925 under the name of "Nelson County
Building and Loan Bank." In 1995, the Bank became a federal savings bank and in
July 1996 changed its name to "Nelson County Federal Savings Bank." The Bank's
deposits have been federally insured by the Savings Bank Insurance Fund ("SAIF")
and its predecessor, the Federal Savings and Loan Insurance Corporation, since
1973, and the Bank is a member of the Federal Home Loan Bank (the "FHLB")
System. The Bank has one subsidiary, Nelson Service Corporation ("NSC"), which
has no operating activity other than to own stock in a third party service
bureau.
The Bank is primarily engaged in attracting deposits from the general
public and using those funds to originate real estate loans on
one-to-four-family residences and to a lesser extent, residential construction,
multi-family real estate and loans secured by savings deposits. In addition, the
Bank holds interest bearing deposits in other financial institutions and invests
in mortgage-backed securities and investment securities. The Bank offers its
customers adjustable-rate mortgage loans as well as residential construction,
multi-family real estate and loans secured by savings deposits. The Bank does
not typically originate fixed-rate loans of any kind, relying instead on
adjustable-rate loans that annually reprice. For its mortgage loan portfolio,
the Bank originates and retains adjustable-rate loans and does not purchase or
sell mortgage loans.
The Bank is subject to examination and comprehensive regulation by the
Office of Thrift Supervision ("OTS") and its deposits are insured by the Federal
Deposit Insurance Corporation ("FDIC") under the SAIF. The Bank is a member of
and owns capital stock in the FHLB of Cincinnati, which is one of the 12
regional banks in the FHLB System.
The principal sources of funds for the Bank's lending activities are
deposits and the amortization, repayment and maturity of loans, and FHLB
advances. Principal sources of income are interest on loans and principal
expense is interest paid on deposits.
Market Area and Competition
Nelson County, Kentucky is the Bank's primary market area. The local
economy is economically diverse with a significant number of residents employed
by a greeting card company, alcohol distillers, automotive parts factories, and
other manufactures and government offices. Although the surrounding area is
affected by agriculture, the Bank does not make loans secured by farm real
estate or make farm operating loans.
2
<PAGE>
Economic growth in the Bank's market area remains dependent upon the
local economy. In addition, the deposit and loan activity of the Bank is
significantly affected by economic conditions in its market area.
The Bank is one of five financial institutions serving its market area
and must also compete with investment and mortgage bankers. The competition for
deposit products comes from a savings association with a branch in the Bank's
market area, local independent community banks, and credit unions. Deposit
competition also includes a number of insurance products sold by local agents
and investment products such as mutual funds and other securities sold by local
and regional brokers. Loan competition varies depending upon market conditions
and includes a savings association with a branch in the Bank's market area, two
local banks, and mortgage bankers who serve the area with a field sales staff.
Lending Activities
General. The Bank's loan portfolio predominantly consists of
adjustable-rate mortgage loans secured by one-to-four-family residences and, to
a lesser extent, residential construction, multi-family real estate and loans
secured by savings deposits. The Bank does not purchase or sell mortgage loans.
Analysis of Loan Portfolio. Set forth below is selected data relating to
the composition of the Company's loan portfolio by type of loan and type of
security on the dates indicated:
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1996
------------------------ ------------------------
Type of Loan: $ % $ %
- ------------ ----- ----- ----- ---
(Dollars in Thousands)
Real estate loans:
<S> <C> <C> <C> <C>
Construction (1)......................... $ 3,474 13.07% $ 3,314 11.48%
One-to-four-family ..................... 23,609 88.84 25,662 88.92
Multi-family residential................. 153 .58 151 .52
Non-residential.......................... 257 .97 315 1.09
Consumer loans:
Share loans.............................. 75 .28 69 .24
------- ------ ------ ------
Gross loans................................ 27,568 103.74 29,511 102.25
Less:
Loans in process......................... 884 3.32 481 1.67
Net deferred loan origination fees and costs 10 .04 8 .03
Allowance for loan losses................ 100 .38 161 .55
------- -------- ------- --------
Total loans, net........................... $ 26,574 100.00% $ 28,861 100.00%
======= ====== ======= ======
</TABLE>
- ----------------
(1) Consists only of loans secured by one-to-four-
family residences
3
<PAGE>
Average Balances, Interest, Yields and Rates
The following table sets forth certain information relating to the
Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from month-end balances.
Management does not believe that the use of month-end balances instead of daily
average balances has caused any material differences in the information
presented. The table also presents information for the periods and at the date
indicated with respect to the difference between the average yield earned on
interest-earning assets and average rate paid on interest-bearing liabilities,
or "interest rate spread," which savings institutions have traditionally used as
an indicator of profitability. Another indicator of an institution's net
interest income is its "net interest margin," which is its net interest income
divided by the average balance of interest-earning assets. Net interest income
is affected by the interest rate spread and by the relative amounts of
interest-earning assets and interest-bearing liabilities. When interest-earning
assets approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------------
1995 1996
----------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
Interest-earning assets: (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans receivable (1)................................... $26,002 $1,896 7.29% $28,056 $2,245 8.00%
Mortgage-backed securities............................. 223 28 12.58 164 20 12.28
Short-term investments and other interest-earning assets (2) 1,534 83 5.40 4,494 230 5.12
FHLB stock............................................. 372 24 6.35 397 28 6.96
------ ----- ------ ------
Total interest-earning assets.......................... 28,131 $2,031 7.22 33,111 $ 2,523 7.62
===== ======
Non-interest-earning assets.............................. 1,172 1,232
------- -------
Total assets........................................... $29,303 $34,343
====== ======
Interest-bearing liabilities:
Deposits............................................... $23,013 $ 981 4.26 $23,073 $ 1,105 4.79
Borrowings............................................. 492 27 5.43 217 17 8.13
------- ------- ------- --------
Total interest-bearing liabilities....................... 23,505 $ 1,008 4.29 23,290 $ 1,122 4.82
====== ======
Non-interest-bearing liabilities......................... 1,256 1,592
------ ------
Total liabilities...................................... 24,761 24,882
Retained earnings........................................ 4,542 9,461
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Total liabilities and retained earnings................ $29,303 $34,343
====== ======
Net interest income...................................... $1,023 $ 1,401
===== ======
Interest rate spread(3).................................. 2.93 2.80
Net interest margin(4)................................... 3.64 4.23
Average interest-earning assets as a percentage
of average interest-bearing liabilities................ 119.68 142.17
</TABLE>
(Footnotes on following page.)
4
<PAGE>
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(1) Average balances include non-accrual loans.
(2) Includes interest-earning deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
Year Ended June 30, Year Ended June 30,
-------------------------------- ---------------------------------
1994 vs. 1995 1995 vs. 1996
-------------------------------- ---------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
-------------------------------- ---------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ ---
(Dollars in Thousands)
Interest income:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable ............... $ 277 $ (78) $ (14) $ 185 $ 150 $ 185 $ 14 $ 349
Mortgage-backed securities ..... (17) -- 1 (16) (7) (1) -- (8)
Interest-earning assets ........ (72) 91 (55) (36) 160 (4) (9) 147
FHLB stock ..................... 1 5 1 7 2 2 -- 4
----- ----- ----- ----- ----- ----- ----- -----
Total ......................... $ 189 $ 18 $ (67) $ 140 $ 305 $ 182 $ 5 $ 492
===== ===== ===== ===== ===== ===== ===== =====
Interest expense:
Savings accounts ............... $ 4 $ 128 $ 1 $ 133 $ 3 $ 122 $ (1) $ 124
Other borrowings ............... -- -- 27 27 (15) 13 (8) (10)
----- ----- ----- ----- ----- ----- ----- -----
Total ........................ $ 4 $ 128 $ 28 $ 160 $ (12) $ 135 $ (9) $ 114
===== ===== ===== ===== ===== ===== ===== =====
Net change in net interest income $ 185 $(110) $ (95) $ (20) $ 317 $ 47 $ 14 $ 378
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
5
<PAGE>
Asset/Liability Management
The Company monitors its interest rate risk, or sensitivity of its net
interest income to changes in interest rates, since the level of such risk may
affect certain aspects of its operating strategies. Net interest income is
subject to volatility due to a mismatch in the timing of maturity or repricing
of interest-earning assets and interest-bearing liabilities.
During periods of increasing interest rates, the Bank's interest rate
sensitive liabilities would reprice faster than its interest rate sensitive
assets (repricing periods on adjustable-rate loans affect the repricing of
interest rate sensitive assets, with longer repricing periods delaying the
repricing of such assets more than shorter repricing periods would delay the
repricing of such assets), causing a decline in the Bank's interest rate spread
and margin. This would result from an increase in the Bank's cost of funds that
would not be immediately offset by an increase in its yield on funds. An
increase in the cost of funds without a equivalent increase in the yield on
funds would tend to reduce net interest income. However the Company feels it has
implemented a strategy to partially offset the possibility of increasing rates
by establishing a policy that substantially all loans carry a one-year
adjustable rate. This helps to minimize the time period in which the Company is
exposed to short-term interest rate risk. Also, currently the Company maintains
liquidity levels in excess of requirements, which allows for alternative
investments to improve interest rate sensitivity. The Company is planning to
offer non-interest bearing demand deposits to its customers in the future which
the Company believes will be beneficial to its interest spread and interest
margin.
Loan Maturity Tables
The following table sets forth the maturity of the Company's loan
portfolio at June 30, 1996, based on contractual maturities, including schedule
repayments of principal. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one
year or less.
<TABLE>
<CAPTION>
Due after
Due within 1 through Due after
1 year 5 years 5 years Total
----------- ---------- --------- -----
(In Thousands)
Real estate:
<S> <C> <C> <C> <C>
One-to-four family..... $ 637 $ 796 $ 24,229 $ 25,662
Construction........... -- -- 3,314 3,314
Multi-family residential -- -- 151 151
Non-residential........ 25 26 264 315
Consumer................. 69 -- -- 69
------ ------- ------- --------
Total.................. $ 731 $ 822 $ 27,958 $ 29,511
====== ===== ====== ======
</TABLE>
6
<PAGE>
The following table sets forth the dollar amount of all loans due after
June 30, 1997 which have predetermined interest rates and have floating or
adjustable interest rates.
Predetermined Floating or
Rates Adjustable Rates
------------- ----------------
(In Thousands)
Real estate one-to-four-family $ 2,268 $ 22,757
Real estate construction...... -- 3,314
Real estate multi-family...... -- 151
Non-residential............... -- 290
Consumer...................... -- --
----- ------
Total....................... $ 2,268 $ 26,512
===== ======
One-to-Four-Family Residential Loans. The Bank's primary lending
activity consists of the origination of one-to-four-family residential mortgage
loans secured by property located in the Bank's primary market area. The Bank
generally originates one-to-four-family residential mortgage loans in amounts up
to 85% of the lesser of the appraised value or selling price of the mortgaged
property. To a very limited extent, the Bank may originate a mortgage loan in an
amount up to 90% of the lesser of the appraised value or selling price of
mortgaged property without requiring private mortgage insurance for the
borrower. The Bank originates and retains adjustable-rate loans. The Bank ceased
originating long term fixed-rate loans in 1979 although fixed-rate loans remain
in the loan portfolio and the Bank may occasionally originate a shorter term
fixed-rate loan to an existing borrower.
The Bank requires for all adjustable rate mortgage loans that the
borrower qualify at the fully indexed rate. The Bank's adjustable rate loans
provide for periodic interest rate adjustments of 1% to 2% with a maximum
adjustment over the term of the loan between 2% and 5%. Adjustable rate loans
typically reprice every year, and provide for terms of up to 30 years with most
loans having terms of between 20 and 25 years. The Bank does not originate loans
with initial interest rates set below market rates ("teaser rates").
The Bank offers adjustable-rate loans using a national average contract
interest rate index, although other indices have been used in the past. Interest
rates charged on mortgage loans are competitively priced based on market
conditions and the Bank's cost of funds. Generally, the Bank's standard
underwriting guidelines for mortgage loans conform to FHLMC guidelines. It is
the current policy of the Bank to remain a portfolio lender. The Bank doe not
charge origination fees. At June 30, 1996, the Bank did not service loans for
others.
Adjustable-rate mortgage loans decrease the risks associated with
changes in interest rates by more closely reflecting these changes, but involve
other risks because as interest rates increase, the underlying payments by the
borrower increase, thus increasing the potential for default. At the same time,
the marketability of the underlying collateral may be adversely affected by
higher interest rates. Upward adjustment of the contractual interest rate is
also limited by the adjustable-rate mortgage loan documents, thereby potentially
limiting their effectiveness during periods of rising interest rates. These
risks have not had an adverse effect on the Bank.
7
<PAGE>
Residential Construction Loans. Residential construction loans are made
on one-to-four-family residential property to the individuals who will be the
owners and occupants upon completion of construction. These loans are made on a
long term basis and are classified as construction/permanent loans, usually with
no principal payments required during the first six months, after which the
payments are set at an amount that will amortize over the terms of the loan. The
maximum loan to value ratio is 85%. Because residential construction loans are
not rewritten if permanent financing is obtained from the Bank, these loans are
made on terms similar to those of the Bank's single family residential loans and
may be amortized over terms of up to 30 years. At June 30, 1996, $3.3 million,
or 11.48% of the loan portfolio consisted of residential construction loans.
In addition to loans originated for the construction of a residence for
which the ultimate purchaser has been identified, the Bank originates
speculative loans to residential builders who have established business
relationships with the Bank. These speculative loans are typically made for a 12
month period and may not require any interest or principal payments during the
term of the loan. In underwriting such loans, the Bank considers the number of
units that the builder has on a speculative bid basis that remain unsold. The
Bank's experience during the past 23 years has been that most speculative loans
are repaired well within the twelve month period. Speculative loans are
generally originated with a loan to value ratio that does not exceed 85%.
Construction lending is generally considered to involve a higher degree
of credit risk that long-term financing of residential properties. The Bank's
risk of loss on a construction loan is dependent largely upon the accuracy of
the initial estimate of the property's value at completion of construction or
development and the estimated cost of construction. If the estimate of
construction cost and the marketability of the property upon completion of the
project prove to be inaccurate, the Bank may be compelled to advance additional
funds to complete the development. Furthermore, if the estimate of value proves
to be inaccurate, the Bank may be confronted, at or prior to the maturity of the
loan, with a property with a value that is insufficient to assure full
repayment. For speculative loans originated to builders, the ability of the
builder to sell completed dwelling units will depend, among other things, on
demand, pricing the availability of comparable properties, and economic
conditions.
Non-Residential Loans. At June 30, 1996, the non-residential real estate
portfolio consisted of one commercial real estate loan and several loans secured
by unimproved real estate. Loans secured by unimproved real estate are
originated in amounts up to 75% of the appraised value and are originated with
terms of up to five years. Once repaid, single, family residences are often
constructed on the lots securing these loans. The Bank has seldom originated
commercial real estate loans and since the Conversion, it is the Bank's policy
not to originate commercial real estate loans.
Multi-Family Loans. The Bank also makes adjustable-rate multi-family
loans, including loans on apartment complexes. Multi-family loans generally
provide higher interest rates that can be obtained from single-family mortgage
loans. Multi-family lending, however, entails significant additional risks
compared with one-to-four-family residential lending. For example, multi-family
loans typically involve larger loan balances to single borrowers or groups of
related borrowers, the payment experience on such loans typically is dependent
on the successful operation of the real estate project, and these risks can be
significantly impacted by supply and demand conditions in the market for
multi-family residential units and commercial office, retail and warehouse
space.
8
<PAGE>
Consumer Loans. These loans are only made when secured by a savings
account in the Bank (share loans) and generally have rates that adjust with the
rate on the underlying account and are typically between one and two percent
above the rate on the underlying savings account. Share loans are offered
subject to a 90% loan to collateral value limit. Although the Bank also makes
home equity loans, these loans are secured by liens on primary residences and
are categorized as single family residential loans.
Loan Commitments. The Bank issues verbal commitments to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 30 days of the date of issuance. At June 30, 1996, the Bank
has $300,000 of commitments to cover originations and $481,334 in undisbursed
funds for loans in process. Management believes that virtually all of the Bank's
commitments will be funded.
Loans to One Borrower. Regulations limit loans-to-one borrower in an
amount equal to 15% of unimpaired capital and unimpaired surplus of the Bank.
The Bank is authorized to lend up to an additional 10% of unimpaired capital and
unimpaired surplus if the loan is fully secured by readily marketable
collateral. Savings associations are authorized to make loans to one borrower,
for any purpose, in an amount of up to $500,000. The Bank's maximum loan-to-one
borrower limit was approximately $1,230,000 at June 30, 1996.
At June 30, 1996, the Bank's largest amount of loans to one borrower
were all performing residential real estate loans aggregating $606,777, secured
by single-family residential rental properties located in the Bank's market
area.
Non-Performing and Problem Assets
Loan Delinquencies. Loans are reviewed on a monthly basis and are
generally placed on a non-accrual status when the loans becomes more than 90
days delinquent or when, in the opinion of management, the collection of
additional interest is doubtful. Interest accrued and unpaid at the time a loan
is placed on non-accrual status is charged against interest income. Subsequent
interest payments, if any, are either applied to the outstanding principal
balance or recorded as interest income, depending on the assessment of the
ultimate collectibility of the loan.
9
<PAGE>
Non-Performing Assets. The following table sets forth information
regarding non-accrual loans, real estate owned, and certain other repossessed
assets and loans. As of the dates indicated, the Bank had no loans categorized
as troubled debt restructing within the meaning of SFAS 15.
<TABLE>
<CAPTION>
At June 30,
---------------------
1995 1996
---- ----
Loans accounted for on a non-accrual basis: (1)
<S> <C> <C>
Real Estate:
Construction............................. $ -- $ 704
One-to-four-family....................... 212 646
Non-residential.......................... -- --
------- -------
Total.................................. $ 212 $ 1,350
===== =======
Accruing loans which are contractually past due
90 days or more:
Real estate:
Construction............................. $ -- $ --
One-to-four-family....................... -- --
Non-residential.......................... -- --
------- -------
Total.................................. $ -- $ --
======= =======
Total of nonaccrual and 90 days past due
loans................................ $ 212 $ 1,350
======= =======
Percentage of net loans.................... .80% 4.68%
======= =======
Percentage of total assets................. .74% 3.87%
======= =======
Other non-performing assets(2)............. .00% .00%
======= =======
Loans modified in troubled debt restructing $ -- $ --
======= =======
</TABLE>
(1) Non-accrual status denotes loans on which are contractually past due 90
days or more. It is management's policy to place all loans past due 90
days in non-accrual status.
(2) Other non-performing assets represents property acquired by the Bank
through foreclosure or repossession are accounted for as an in-substance
foreclosure. This property is carried at the lower of its fair market
value or net realizable value. At the dates indicated the Bank held no
such assets.
Interest income that would have been recorded on loans accounted for on
a non-accrual basis under the original terms of such loans were $16,439 for the
year ended June 30, 1996. Amounts included in the Bank's interest income for the
year ended June 30, 1996 was $61,000.
Classified Assets. OTS regulations provide for a classification system
for problem assets of insured institutions which covers all problem assets.
Under this classification system, problem assets of insured institutions are
classified as "substandard," "doubtful," or "loss." An asset is considered
substandard if it is inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include those characterized by the "distinct possibility" that the insured
institution will sustain "some loss" if the deficiencies are not corrected.
Assets classified as doubtful have all of the weaknesses inherent in those
classified substandard, with the added characteristic that the weaknesses
present make "collection or liquidation in full," on the basis of currently
existing facts, conditions, and values, "highly questionable and improbable."
Assets classified as loss are those considered "uncollectible" and of such
little value that their continuance as assets without
10
<PAGE>
the establishment of a specific loss reserve is not warranted. Assets may be
designated "special mention" because of potential weakness that do not currently
warrant classification in one of the aforementioned categories.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. An institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS, which may order the establishment of additional general or specific loss
allowances. A portion of general loss allowances established to cover possible
losses related to assets classified as substandard or doubtful may be included
in determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
At June 30, 1996, the Bank had $0 of assets classified as doubtful or
loss, $704,000 of assets classified as substandard loans and $51,000 of assets
classified as special mention loans.
Foreclosed Real Estate. Real estate acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until it is sold. When property is acquired it is recorded at the fair value at
the date of foreclosure less estimated costs of disposition.
The Bank records loans as in-substance foreclosures if the borrower has
little or no equity in the property based upon its documented current fair
value, the Bank can only expect repayment of the loan to come from the sale of
the property and if the borrower has effectively abandoned control of the
collateral or has continued to retain control of the collateral but because of
the current financial status of the borrower, it is doubtful the borrower will
be able to repay the loan in the foreseeable future. In- substance foreclosures
are accounted for as real estate acquired through foreclosure, however, title to
the collateral has not been acquired by the Bank. There may be significant other
expenses incurred such as legal and other extraordinary servicing costs involved
with in substance foreclosures. The Bank had no foreclosed real estate at June
30, 1996.
Allowances for Loan Losses. It is management's policy to provide for
losses on unidentified loans in its loan portfolio. A provision for loan losses
is charged to operations based on management's evaluation of the potential
losses that may be incurred in the Bank's loan portfolio. Such evaluation, which
includes a review of all loans of which full collectibility of interest and
principal may not be reasonably assured, considers 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, estimated value of any underlying
collateral, and current economic conditions. The Bank has not experienced any
loan losses in the last several years, however, during the year ended June 30,
1996, the Bank provided $61,000 for loan losses as a result of an OTS
recommendation during the regulatory examination process. The Bank was accruing
interest income on delinquent construction loans and was not including these
loans in the classification of loans on a monthly basis. The loan loss allowance
at June 30, 1996 is equal to .55% of loans which the Bank feels is closer to the
allowance maintained by other savings institutions in the Bank's region. At June
30, 1996, 94% of total loans were collateralized by one-to-four family dwellings
on real estate located in the market area.
11
<PAGE>
The following tables sets forth information with respect to the
Company's allowance for loan losses at the dates indicated:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1995 1996
---- ----
(In Thousands)
<S> <C> <C>
Balance at beginning of period................................ $ 80 $ 100
Loans charged off:
Real estate -- one-to-four-family........................... -- --
Real estate -- construction................................. -- --
Non-residential............................................. -- --
Consumer (share loans)...................................... -- --
------ ------
Total charge-offs............................................. -- --
------ ------
Recoveries:
Real estate -- one-to-four-family........................... -- --
Real estate -- construction................................. -- --
Non-residential............................................. -- --
Consumer (share loans)...................................... -- --
------ ------
Total recoveries.............................................. -- --
------ ------
Net loans charged-off......................................... -- --
Provision for loan losses..................................... 20 61
------ ------
Balance at end of period...................................... $ 100 $ 161
====== ======
Net charge-offs as a percentage of average
loans outstanding during the period......................... --% --%
</TABLE>
12
<PAGE>
The following table sets forth the allocation of the Bank's allowance
for loan losses by loan category and the percent of loans in each category to
total loans receivable at the dates indicated. The portion of the loan loss
allowance allocated to each loan category does not represent the total available
for future losses that may occur within the loan category because the total loan
loss allowance is a valuation reserve applicable to the entire loan portfolio.
The distribution of the Bank's allowance on losses at the dates indicated is
summarized as follows:
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------
1995 1996
---------------------------- ----------------------------
% of Loans in % of Loans in
Each Category Each Category
Amount to Total Loans Amount to Total Loans
------ -------------- ------ --------------
Real estate:
<S> <C> <C> <C> <C>
One-to-four-family..................... $ 100 100.00% $ 100 62.11%
Construction........................... -- -- 61 37.89
Multi-family residential............... -- -- -- --
Non-Residential........................ -- -- -- --
Consumer................................. -- -- -- --
----- ------ ----- ------
Total allowance for loan losses.......... $ 100 100.00% $ 161 100.00%
===== ====== ===== ======
</TABLE>
Mortgage-Backed Securities and Investment Activities
General. The Bank is required under federal regulations to maintain a
minimum amount of liquid assets which may be invested in specified short-term
securities and certain other investments. The Bank has generally maintained a
liquidity portfolio well in excess of regulatory requirements. Liquidity levels
may be increased or decreased depending upon the yields on investment
alternatives and upon management's judgment as to the attractiveness of the
yields then available in relation to other opportunities and its expectation of
future yield levels, as well as management's projections as to the short-term
demand for funds to be used in the Bank's loan origination and other activities.
At June 30, 1996, the Bank had an investment portfolio of approximately
$5,523,195, consisting primarily of interest-earning accounts, as permitted by
the OTS regulations.
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities. SFAS No. 115 requires the Bank to
classify all of its investments in debt and equity securities ("securities")
into three categories. Debt securities which management has the positive intent
and ability to hold until maturity are to be classified as held-to-maturity.
Securities that are bought and held principally for the purpose of selling them
in the near term are to be classified as trading securities. All other
securities are to be classified as available-for-sale securities.
Unrealized holding gains and losses for trading securities are to be
included in earnings. Unrealized gains and losses for available-for-sale
securities are to be excluded from earnings and reported net of income tax
effect as a separate component of shareholders' equity until realized.
Investments
13
<PAGE>
classified as held to maturity are to be accounted for at amortized cost. The
Bank adopted SFAS No. 115 effective April 1, 1994, and designated its investment
and mortgage-backed securities portfolio into the required three categories. As
a result of SFAS No. 115, the Bank reviewed and classified its securities as
held for investment.
SFAS No. 115 requires the Bank to account for a portion of its holding
of debt securities at market value (as opposed to amortized cost) and may result
in greater volatility in its earnings and capital position. It also may
discourage investment in longer term debt securities, which tend to have higher
yields than short term debt securities, and hence reduce the earnings of the
Bank. No securities can be moved from a particular category without Board
approval.
The market value of investments and mortgage-backed securities held to
maturity at June 30, 1996, was $5,544,841. The Bank anticipates having the
ability to fund all of its investing activities from funds held on deposit at
FHLB of Cincinnati. The Bank will continue to seek high quality investments with
short to intermediate maturities and duration from one to five years.
The Revenue Reconciliation Act of 1993 added a Section 475 to the
Internal Revenue Code. Section 475 is a mark-to-market tax provision that is
different from SFAS No. 115. The term "securities" in the tax statute includes
not just traditional debt and equity securities, but mortgages as well. Section
475 and the temporary regulations issued thereunder apply to "dealer"
institutions that regularly buy or sell more than a nominal amount of securities
in the ordinary course of a trade or business. Section 475 requires the Bank to
identify securities held for sale within the meaning of the tax code and include
unrealized gains or losses on related security transactions with its fiscal tax
return. The tax reporting of unrealized gains and losses on securities held for
sale as defined by Section 475 and the related regulations, if different from
SFAS No. 115, is a temporary difference as defined under SFAS No. 109 and the
recording of a related deferred tax liability or asset will not affect generally
accepted accounting principles ("GAAP") basis net income. At June 30, 1996, the
Bank did not have any investments subject to Section 475.
Interest-Earning Accounts
At June 30, 1996, the Company held $4,967,748 in interest-earning demand
deposits in other financial institutions, principally the FHLB of Cincinnati.
The Company maintains these accounts in order to maintain liquidity and improve
the interest-rate sensitivity of its assets.
Mortgage-Backed Securities
To supplement lending activities, the Bank invests in residential
mortgage-backed securities. Mortgage-backed securities can serve as collateral
for borrowings (although the Bank has not used them as such) and, through
repayments, as a source of liquidity.
At June 30, 1996, the mortgage-backed securities portfolio had a market
value of $164,993 and an amortized cost of $143,347. Because the entire
portfolio is classified as held to maturity (the Bank had no mortgage-backed
securities classified as available for sale at June 30, 1996), the portfolio is
recorded at amortized cost.
14
<PAGE>
Mortgage-backed securities represent a participation interest in a pool
of single-family mortgages, the principal and interest payments on which are
passed from the mortgage originators, through intermediaries (generally
quasi-governmental agencies) that pool and repackage the participation interests
in the form of securities, to investors such as the Bank. Such
quasi-governmental agencies, which guarantee the payment of principal and
interest to investors, primarily include FHLMC, GNMA, and FNMA.
GNMA is a government agency within HUD which is intended to help finance
government assisted housing programs. GNMA guarantees the timely payment of
principal and interest, and GNMA securities are backed by the full faith and
credit of the United States Government. Because GNMA was established to provide
support for low- and middle-income housing, there are limits to the maximum size
of loans that qualify for this program. GNMA limits its maximum loan size to
$114,000 for VA loans and, on average, $67,500 for FHA loans. To accommodate
larger-sized loans, and loans that, for other reasons, do not conform to the
agency programs, a number of private institutions have established their own
home-loan origination and securitization programs.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate mortgages or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
As a result, the interest rate risk characteristics of the underlying pool of
mortgages, (i.e., fixed rate or adjustable rate) as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages. Mortgage-backed
securities issued by FHLMC, FNMA, and GNMA make up a majority of the
pass-through certificates market.
Investment Portfolio. The following table sets forth the carrying value
of the Bank's short-term investments, FHLB stock, and mortgage-backed securities
at the dates indicated.
At June 30,
---------------------
1995 1996
---- ----
(In Thousands)
Interest-earning deposits................ $ 994 $ 4,968
FHLB stock............................... 385 412
Mortgage-backed securities............... 182 143
---- ----
Total investments.................. $1,561 $5,523
===== =====
The following table sets forth information regarding the scheduled
maturities, amortized costs, market value and weighted average yields for the
Bank's mortgage-backed securities at June 30, 1996. The Bank's mortgage-backed
securities are all issued by GNMA and mature in the year 2013. Expected
maturities will differ from contractual maturities due to schedule repayments
and because borrowers may
15
<PAGE>
have the right to call or prepay obligations with or without prepayment
penalties. The stated yield on mortgage-backed securities at June 30, 1996 was
11.5%. The following table does not take into consideration the effects of
scheduled repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
At June 30, 1996
---------------------------------------------------------------
More than Ten Years Total Investment Portfolio
--------------------- -----------------------------------
Carrying Average Carrying Fair Average
Value Yield Value Value Yield
----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
GNMA.......................... $143 11.5% $143 $165 11.5%
=== ====== === === =====
</TABLE>
Sources of Funds
General. Deposits are the major external source of the Bank's funds for
lending and other investment purposes. The Bank derives funds from amortization
and prepayment of loans and, to a much lesser extent, maturities of investment
securities, borrowings, mortgage-backed securities and operations. Scheduled
loan principal repayments are a relatively stable source of funds, while deposit
inflows and outflows and loan prepayments are significantly influenced by
general interest rates and market conditions. The Bank had $0 in FHLB advances
at June 30, 1996. During 1996, the Board increased its liquidity through its
receipt of proceeds from the stock conversion.
Deposits. Consumer and commercial deposits are attracted principally
from within the Bank's primary market area through the offering of a selection
of deposit instruments including regular savings accounts, money market
accounts, and term certificate accounts. The Bank also offers IRA accounts.
Deposit account terms vary according to the minimum balance required, the time
period the funds must remain on deposit, and the interest rate, among other
factors. As of June 30, 1996, the Bank had no brokered deposits.
Jumbo Certificates of Deposit. The following table indicates the amount
of the Bank's certificates of deposit of $100,000 or more by time remaining
until maturity as of June 30, 1996.
Certificates
Maturity Period of Deposit
- --------------- ----------
(In Thousands)
Within three months................... $ 404
Three through six months.............. 200
Six through twelve months............. 382
Over twelve months.................... 500
-----
Total.............................. $1,486
=====
Borrowings
The Bank may obtain advances from the FHLB of Cincinnati to supplement
its supply of lendable funds. Advances from the FHLB of Cincinnati are typically
secured by a pledge of the Bank's stock in the FHLB of Cincinnati and a portion
of the Bank's first mortgage loans and certain other assets. Each FHLB credit
program has its own interest rate, which may be fixed or variable, and range of
maturities.
16
<PAGE>
The Bank, if the need arises, may also access the Federal Reserve Bank discount
window to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. At June 30, 1996, the Bank had no borrowings from the FHLB of
Cincinnati,
Employees
Substantially all of the activities of the Company are conducted through
the Bank, therefore, at June 30, 1996, the Company did not have any salaried
employees.
As of June 30, 1996, the Bank had six full-time employees and one
part-time employee. None of the Bank's employees are represented by a collective
bargaining group.
Regulation
Set forth below is a brief description of certain laws which related to
the regulation of the Company and the Bank. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Company and its non-savings association subsidiaries, should such subsidiaries
be formed, which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Bank and not for the benefit of stockholders of the Company.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualify as a QTL and were acquired in a supervisory acquisition. See "-
Regulation of the Bank Qualified Thrift Lender Test."
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association, the
Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
17
<PAGE>
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC, or the
Congress could have a material adverse impact on the Company, the Bank, and
their operations.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured member (as defined by law
and regulation).
Insurance of deposits may be terminated by the FDIC upon a finding that
the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the institution's
primary regulator.
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular institution poses to its deposit insurance fund.
Under this system, a bank or thrift pays within a range of 23 cents to 31 cents
per $100 of domestic deposits, depending upon the institution's risk
classification. This risk classification is based on an institution's capital
group and supervisory subgroup assignment. In addition, the FDIC is authorized
to increase such deposit insurance rates, on a semi-annual basis, if it
determines that such action is necessary to cause the balance in the SAIF to
reach the designated reserve ratio of 1.25% of SAIF-insured deposits within a
reasonable period of time. The FDIC also may impose special assessments on SAIF
members to repay amounts borrowed from the U.S.
Treasury or for any other reason deemed necessary by the FDIC.
The Bank expects a one-time assessment of approximately 85 basis points
on every $100 of deposits. If the assessment was applied to the Bank's deposits
at June 30, 1996, the Bank would experience a one time cost of approximately
$127,500, on an after-tax basis. If the Bank is required to pay the proposed
special assessment, future deposit insurance premiums are expected to be
reduced. After recapitalization, it is expected that the SAIF and BIF premiums
would initially be equal and therefore provide the Bank with reduced insurance
premiums in the future. In addition, there are certain proposals that call for
the conversion of the thrift charter into a bank charter. Were this to occur,
the tax impact of elimination of the thrift charter could be significant if it
resulted in recapture of existing bad debt reserves for income tax purposes in
excess of those allowed for banks. As of June 30, 1996, bad debt reserves of the
Bank for which no deferred or current tax liability had been accrued totalled
approximately $1,174,000. However, management of the Bank is unable to predict
whether these proposals will be enacted or whether ongoing SAIF premiums will be
reduced to a level equal to that of BIF premiums.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets, (2) a leverage ratio (core capital) equal to at least
3% of total adjusted assets, and (3) a risk-based capital requirement equal to
8.0% of total risk-weighted assets.
18
<PAGE>
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory approval. As of
June 30, 1996, the Bank was a Tier 1 institution. In the event the Bank's
capital fell below its fully phased-in requirement or the OTS notified it that
it was in need of more than normal supervision, the Bank's ability to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
Qualified Thrift Lender Test. Savings institutions must meet a QTL test.
If the Bank maintains an appropriate level of Qualified Thrift Investments
(primarily residential mortgages and related investments, including certain
mortgage-related securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full borrowing privileges from the FHLB of Seattle. The
required percentage of QTIs is 65% of portfolio assets (defined as all assets
minus intangible assets, property used by the institution in conducting its
business and liquid assets equal to 10% of total assets). Certain assets are
subject to a percentage limitation of 20% of portfolio assets. In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as
qualifying QTIs. An association must be in compliance with the QTL test on a
monthly basis in nine out of every 12 months. As of June 30, 1996, the Bank was
in compliance with its QTL requirement with 98.45% of its assets invested in
QTIs.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Cincinnati, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Cincinnati in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW, and Super
NOW checking accounts) and non-personal time deposits. The balances maintained
to meet the reserve requirements imposed by the Federal Reserve Board may be
used to satisfy the liquidity requirements that are imposed by the OTS. At June
30, 1996, the Bank was in compliance with these Federal Reserve Board
requirements.
19
<PAGE>
Item 2. Description of Property
- -------------------------------
(a) Properties.
Currently, the Company does not own real property but utilizes the
offices of the Bank. The Bank operates from its office located at 119 East
Stephen Foster Avenue, Bardstown, Kentucky. The Bank owns this office facility.
On February 1, 1996, the Bank leased land under a twenty year operating lease
agreement. The lease includes options to extend the terms of the lease for an
additional ten years. This land is to be the site of a new Bank location which
is currently in the planning phase. It is estimated that construction will begin
in fiscal year 1997 with construction and furniture and equipment costs of
approximately $500,000.
(b) Investment Policies.
See "Item 1. Business" above for a general description of the Bank's
investment policies and any regulatory or Board of Directors' percentage of
assets limitations regarding certain investments. The Bank's investments are
primarily acquired to produce income, and to a lesser extent, possible capital
gain.
(1) Investments in Real Estate or Interests in Real Estate. See "Item 1.
Business - Lending Activities and - Regulation of the Bank," and "Item 2.
Description of Property."
(2) Investments in Real Estate Mortgages. See "Item 1. Business -
Lending Activities and - Regulation of the Bank."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Business - Lending Activities
and - Regulation of the Bank."
(c) Description of Real Estate and Operating Data.
Not Applicable.
Item 3. Legal Proceedings
- -------------------------
There are various claims and lawsuits in which the Company or the Bank
are periodically involved, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests, claims
involving the making and servicing of real property loans, and other issues
incident to the Bank's business. In the opinion of management, no material loss
is expected from any of such pending claims or lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- -------------------------------------------------------------------------------
The information contained under the section captioned "Market Price of
the Registrant's Common Stock" on page 2 of the Company's Annual Report to
Stockholders for the fiscal year ended June 30, 1996 (the "Annual Report"), is
incorporated herein by reference.
20
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
- -------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 4 to 6 of the Annual Report is incorporated herein by reference.
Item 7. Financial Statements
- ------------------------------
The Registrant's financial statements listed under Item 13 are
incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants On Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure.
---------------------
The Company discontinued the engagement of Crisp Hughes & Co., LLP
("Crisp Hughes"), its independent auditors, and notified Crisp Hughes of its
action on June 4, 1996. The Company's Board of Directors engaged Whelan, Doerr,
Pike & Pawley as the Company's auditors for the year ended June 30, 1996. The
determination to replace Crisp Hughes was approved by the full Board of
Directors of the Company.
The report of Crisp Hughes for the fiscal years ended June 30, 1994 and
1995 contained no adverse opinion or disclaimer of opinion and was not qualified
or modified as to uncertainty, audit scope or accounting principles. During the
fiscal years ended June 30, 1994 and 1995 and during the period from June 30,
1995 to June 4, 1996, there were no disagreements between the Company and Crisp
Hughes concerning accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
PART III
Item 9. Directors Executive Officers, of Promoters and Control Persons:
- --------------------------------------------------------------------------------
Compliance with Section 16(b) of the Exchange Act.
--------------------------------------------------
The information contained under the sections captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" and "I - Information with Respect to
Nominees for Director, Directors Continuing in Office, and Executive Officers -
Election of Directors" and " - Biographical Information" in the "Proxy
Statement".
Item 10. Executive Compensation
- --------------------------------
The information contained in the section captioned "Director and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the first chart in the section captioned "I -
Information with Respect to Nominees for Director, Directors
Continuing in Office, and Executive Officers" in the Proxy
Statement.
21
<PAGE>
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the first chart in the section captioned "I -
Information with Respect to Nominees for Director, Directors
Continuing in Office, and Executive Officers" in the Proxy
Statement.
(c) Management of the Registrant knows of no arrangements, including
any pledge by any person of securities of the Registrant, the
operation of which may at a subsequent date result in a change in
control of the Registrant.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Certain Relationships and Related
Transactions" in the Proxy Statement.
Item 13. Exhibits, Lists, and Reports on Form 8-K
- -------------------------------------------------
(a) The following documents are filed as a part of this report:
1. The following financial statements and the report of
independent accountants of the Registrant included in the Registrant's Annual
Report to Stockholders for the fiscal year ending June 30, 1996 are incorporated
herein by reference and also in Item 8 hereof.
Report of Independent Auditors
Consolidated Statements of Financial Condition as of June 30, 1995 and
1996.
Consolidated Statements of Operations for the Years Ended June 30, 1994,
1995 and 1996.
Consolidated Statements of Retained Earnings for the Years Ended June
30, 1994, 1995 and 1996.
Consolidated Statements of Cash Flows for the Years Ended June 30, 1994,
1995 and 1996.
Notes to Consolidated Financial Statements.
2. Other than as set forth below, Financial Statement Schedules
for which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission ("SEC") are not required under the related
instructions or are inapplicable and therefore have been omitted.
3. The following exhibits are included in this Report or
incorporated herein by reference:
(a) List of Exhibits:
3(i) Certificate of Incorporation of NCF Financial Corporation*
3(ii) Bylaws of NCF Financial Corporation*
22
<PAGE>
10.1 Employment Agreement with A.E. Bowling
10.2 1995 Stock Option Plan **
10.3 Management Stock Bonus Plan and Trust Agreement **
10.4 Supplemental Retirement Plan for A.E. Bowling
10.5 Directors Consultation and Retirement Plan
13 Annual Report to Stockholders for the fiscal year ended
June 30, 1996
21 Subsidiaries of the Registrant
27 Financial Data Schedule
(b) A Form 8-K was filed on June 19, 1996 and amended on July
5, 1996, regarding the Company's change of certified
accountants.
- ---------------------
* Incorporated by reference to the registration statement on Form S-1 (File
No. 33-93614) declared effective by the SEC on August 14, 1995.
** Incorporated by reference to the proxy statement for the special meeting of
stockholders on April 18, 1996 and filed with the SEC on March 5, 1996.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of
September 27, 1996.
NCF FINANCIAL CORPORATION
By:/s/A.E. Bowling
------------------------------------
A.E. Bowling
President, Chairman of the Board and
Director
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of September 27, 1996.
/s/A.E. Bowling /s/Danny R. Biggs
- ---------------------------------- -----------------------------------
A.E. Bowling Danny R. Biggs
President, Chairman of the Board Vice President
and Director (Principal Financial and (Principal Accounting Officer)
Executive Officer)
/s/John S. Tharp
- ---------------------------------- -----------------------------------
John S. Tharp Ben T. Guthrie
Assistant Secretary and Director Director
Robert C. Hurst Paul Barnes
Director Director
/s/Robert C. Hurst /s/Paul Barnes
- ---------------------------------- -----------------------------------
Robert C. Hurst Paul Barnes
Director Director
/s/Guthrie M. Wilson III
- ----------------------------------
Guthrie M. Wilson III
Director
EMPLOYMENT AGREEMENT
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THIS AGREEMENT entered into this 30th day of November, 1995 ("Effective
Date"), by and between Nelson County Federal Savings and Loan Association (the
"Association") and A. E. Bowling (the "Employee").
WHEREAS, the Employee has heretofore been employed by the
Association as President and is experienced in all phases of the
business of the Association; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Association and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the President
of the Association. The Employee shall render such administrative and management
services to the Association and NCF Financial Corporation ("Parent") as are
currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Employee shall promote to the extent permitted
by law the business of the Association and Parent. The Employee's other duties
shall be such as the Board of Directors for the Association (the "Board of
Directors" or "Board") may from time to time reasonably direct, including normal
duties as an officer of the Association.
2. Base Compensation. The Association agrees to pay the Employee during
the term of this Agreement a salary at the rate of $80,292 per annum, payable in
cash not less frequently than monthly; provided, that the rate of such salary
shall be reviewed by the Board of Directors not less often than annually, and
Employee shall be entitled to receive annually an increase at such percentage or
in such an amount as the Board of Directors in its sole discretion may decide at
such time.
3. Discretionary Bonus. The Employee shall be entitled to participate in
an equitable manner with all other senior management employees of the
Association in discretionary bonuses that may be authorized and declared by the
Board of Directors to its senior management employees from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Employee's right to participate in such discretionary bonuses when and
as declared by the Board of Directors.
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4. (a) Participation in Retirement and Medical Plans. The Employee
Employee shall be entitled to participate in any plan of the Association
relating to pension, profit-sharing, or other retirement benefits and medical
coverage or reimbursement plans that the Association may adopt for the benefit
of its employees.
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits which may be or may become applicable to the
Association's senior management employees, including by example, participation
in any stock option or incentive plans adopted by the Board of Directors of
Association or Parent, club memberships, a reasonable expense account, and any
other benefits which are commensurate with the responsibilities and functions to
be performed by the Employee under this Agreement. The Association shall
reimburse Employee for all reasonable out-of-pocket expenses which Employee
shall incur in connection with his service for the Association.
5. Term. The term of employment of Employee under this Agreement shall
be for the period commencing on the Effective Date and ending thirty-six (36)
months thereafter. Additionally, on each annual anniversary date from the
Effective Date, the term of employment under this Agreement shall be extended
for an additional one year period beyond the then effective expiration date upon
a determination and resolution of the Board of Directors that the performance of
the Employee has met the requirements and standards of the Board, and that the
term of such Agreement shall be extended.
6. Loyalty; Noncompetition.
(a) The Employee shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of
Employee's employment under this Agreement, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the
Association or Parent.
(b) Nothing contained in this Paragraph 6 shall be deemed to prevent or
limit the right of Employee to invest in the capital stock or other securities
of any business dissimilar from that of the Association or Parent, or, solely as
a passive or minority investor, in any business.
7. Standards. The Employee shall perform his duties 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 of Directors.
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8. Vacation and Sick Leave. At such reasonable times as the Board of
Directors shall in its discretion permit, the Employee
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement, with all such voluntary
absences to count as vacation time; provided that:
(a) The Employee shall be entitled to annual vacation leave in
accordance with the policies as are periodically established by the Board of
Directors for senior management employees of the Association.
(b) The Employee shall not be entitled to receive any additional
compensation from the Association on account of his failure to take vacation
leave and Employee shall not be entitled to accumulate unused vacation from one
fiscal year to the next, except in either case to the extent authorized by the
Board of Directors for senior management employees of the Association.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Association for such additional periods of time and
for such valid and legitimate reasons as the Board of Directors in its
discretion may determine. Further, the Board of Directors shall be entitled to
grant to the Employee a leave or leaves of absence with or without pay at such
time or times and upon such terms and conditions as the Board of Directors in
its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick leave
benefit as established by the Board of Directors for senior management employees
of the Association. In the event that any sick leave benefit shall not have been
used during any year, such leave shall accrue to subsequent years only to the
extent authorized by the Board of Directors for employees of the Association.
9. Termination and Termination Pay.
The Employee's employment under this Agreement shall be terminated upon
any of the following occurrences:
(a) The death of the Employee during the term of this Agreement, in
which event the Employee's estate shall be entitled to receive the compensation
due the Employee through the last day of the calendar month in which Employee's
death shall have occurred.
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(b) The Board of Directors may terminate the Employee's employment at
any time, but any termination by the Board of Directors other than termination
for Just Cause, shall not prejudice the Employee's right to compensation or
other benefits under the Agreement. The Employee shall have no right to receive
compensation or other benefits for any period after termination for Just Cause.
Termination for "Just Cause" shall include termination because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of the Agreement.
(c) Except in the event that payments are made to the Employee as
provided pursuant to Section 12 herein, in the event Employee's employment under
this Agreement is terminated by the Board of Directors without Just Cause, the
Association shall be obligated to continue to pay the Employee the salary
provided pursuant to Section 2 herein, up to the date of termination of the term
(including any renewal term) of this Agreement and the cost of Employee
obtaining all health, life, disability, and other benefits which the Employee
would be eligible to participate in through such date based upon the benefit
levels substantially equal to those being provided Employee at the date of
termination of employment.
(d) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Association under this
Agreement shall terminate, as of the effective date of the order, but the vested
rights of the parties shall not be affected.
(e) If the Association is in default (as defined in Section 3(x)(1) of
FDIA) 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.
(f) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Association: (i) by the Director of the Office of
Thrift Supervision ("Director of OTS"), or his or her designee, at the time that
the Federal Deposit Insurance Corporation ("FDIC") or the Resolution Trust
Corporation enters into an agreement to provide assistance to or on behalf of
the Association under the authority contained in Section 13(c) of FDIA; or (ii)
by the Director of the OTS, or his or her designee, at the time that the
Director of the OTS, or his or her designee approves a supervisory merger to
resolve problems related to operation of the Association or when the Association
is determined by the Director of the OTS to be in an unsafe or unsound
condition.
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Any rights of the parties that have already vested, however, shall not be
affected by such action.
(g) The voluntary termination by the Employee during the term of this
Agreement with the delivery of no less than 60 days written notice to the Board
of Directors, other than pursuant to Section 12(b), in which case the Employee
shall be entitled to receive only the compensation, vested rights, and all
employee benefits up to the date of such termination.
(h) Notwithstanding anything herein to the contrary, any payments made
to the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
10. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Association's
affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12
U.S.C. 1818(e)(3) and (g)(1)), the Association's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Association may in
its discretion, (i) pay the Employee all or part 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.
11. Disability. If the Employee shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Employee shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 60% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Employee during such period
under the provisions of disability insurance coverage in effect for Association
employees. Thereafter, Employee shall be eligible to receive benefits provided
by the Association under the provisions of disability insurance coverage in
effect for Association employees. Upon returning to active full-time employment,
the Employee's full compensation as set forth in this Agreement shall be
reinstated as of the date of commencement of such activities. In the event that
the Employee returns to active employment on other than a full-time basis, then
his compensation (as set forth in Paragraph 2 of this Agreement) shall be
reduced in proportion to the time spent in said employment, or as shall
otherwise be agreed to by the parties.
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12. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event
of the involuntary termination of Employee's employment during the term of this
Agreement following any change in control of the Association or Parent, or
within twelve months thereafter of such change in control, absent Just Cause,
Employee shall be paid an amount equal to the product of 2.99 times the
Employee's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and regulations promulgated
thereunder. Said sum shall be paid, at the option of Employee, either in one (1)
lump sum within thirty (30) days of such termination discounted to the present
value of such payment using as the discount rate the "prime rate" as published
in the Wall Street Journal Eastern Edition as of the date of such payment less
150 basis points, or in periodic payments over the next 36 months or the
remaining term of this Agreement whichever is less, as if Employee's employment
had not been terminated, and such payments shall be in lieu of any other future
payments which the Employee would be otherwise entitled to receive under Section
9 of this Agreement. Notwithstanding the forgoing, all sums payable hereunder
shall be reduced in such manner and to such extent so that no such payments made
hereunder when aggregated with all other payments to be made to the Employee by
the Association or the Parent shall be deemed an "excess parachute payment" in
accordance with Section 280G of the Code and be subject to the excise tax
provided at Section 4999(a) of the Code. The term "control" shall refer to the
ownership, holding or power to vote more than 25% of the Parent's or
Association's voting stock, the control of the election of a majority of the
Parent's or Association's directors, or the exercise of a controlling influence
over the management or policies of the Parent or Association by any person or by
persons acting as a group within the meaning of Section 13(d) of the Securities
Exchange Act of 1934. The term "person" means an individual other than the
Employee, or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Employee may voluntarily terminate his employment during the term of
this Agreement following a change in control of the Association or Parent, or
within twelve months thereafter of such change in control, and Employee shall
thereupon be entitled to receive the payment described in Section 12(a) of this
Agreement, upon the occurrence, or within ninety (90) days thereafter, of any of
the following events, which have not been consented to in advance by the
Employee in writing: (i) if Employee would be required to move his personal
residence or perform his principal executive functions more than thirty-five
(35) miles from the Employee's primary office as of the signing of this
Agreement; (ii) if in the organizational structure of the Association or its
successor entity, Employee would be required to report to a person
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or persons other than the Board of the Association or its successor entity;
(iii) if the Association or Parent should fail to maintain Employee's base
compensation in effect as of the date of the Change in Control and the existing
employee benefits plans, including material fringe benefit, stock option and
retirement plans, except to the extent that such reduction in benefit programs
is part of an overall adjustment in benefits for all employees of the
Association or Parent and does not disproportionately adversely impact the
Employee; (iv) if Employee would be assigned duties and responsibilities other
than those normally associated with his position as referenced at Section 1,
herein, for a period of more than six months; (v) if Employee would not be
elected or reelected to the Board of Directors of the Association; or (vi) if
Employee's responsibilities or authority have in any way been materially
diminished or reduced for a period of more than six months.
13. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Association or Parent which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Association or Parent.
(b) Since the Association is contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Association.
14. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
15. Applicable Law. This agreement shall be governed in all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of Kentucky, the
extent that Federal law shall be deemed to apply.
16. 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.
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Association,
and judgment upon the award rendered may be entered in any court having
jurisdiction thereof, except to the extend that the parties may otherwise reach
a mutual settlement of such issue. The party initiating the request for
arbitration shall incur the cost of all fees and
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expenses associated with filing a request for arbitration with the AAA and the
costs and administrative fees associated with employing the arbitrator and
related administrative expenses assessed by the AAA. The Association shall
reimburse Employee for all costs and expenses, including reasonable attorneys'
fees, arising from such dispute, proceedings or actions, following the delivery
of the decision of the arbitrator finding in favor of the Employee or in
accordance with a mutual settlement of the matter. Such settlement to be
approved by the Board of the Association or the Parent may include a provision
for the reimbursement by the Association or Parent to the Employee for all costs
and expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, or the Board of the Association or the Parent may
authorize such reimbursement of such costs and expenses by separate action upon
a written action and determination of the Board. Such reimbursement shall be
paid within ten (10) days of Employee furnishing to the Association or Parent
evidence, which may be in the form, among other things, of a canceled check or
receipt, of any costs or expenses incurred by Employee.
18. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and first hereinabove written.
Nelson County Federal Savings
and Loan Association
ATTEST: By:/s/A.E. Bowling
---------------------------------
A.E. Bowling
/s/John S. Tharp
- --------------------------------------
John S. Tharp
Secretary - Assistant
WITNESS:
Guthrie M. Wilson III /s/A.E. Bowling
- -------------------------------------- ------------------------------------
A. E. Bowling, Employee
NELSON COUNTY FEDERAL SAVINGS AND LOAN ASSOCIATION
SUPPLEMENTAL RETIREMENT PLAN
FOR THE BENEFIT OF ALFRED E. BOWLING
WHEREAS, Nelson County Federal Savings and Loan Association
("Association") wishes to reward the years of extensive service provided by the
President and Chief Executive Officer and to retain the best talent available to
serve the Association and its Board of Directors, and
WHEREAS, it is deemed advisable and in the best interests of the
Association to offer such President and Chief Executive Officer with additional
financial incentives in the form of deferred compensation to encourage such
continued participation and service to the Association,
NOW THEREFORE, BE IT RESOLVED that the Nelson County Federal Savings and
Loan Association Supplemental Retirement Plan for Alfred E. Bowling
("Supplemental Plan"), be adopted and implemented effective January 1, 1996, as
follows:
ARTICLE I
DEFINITIONS
The following words and phrases as used herein shall, for the purpose of
this Plan and any subsequent amendment thereof, have the following meanings
unless a different meaning is plainly required by the content:
1.1 "Association" means Nelson County Federal Savings and Loan
Association, Bardstown, Kentucky, or any successor thereto.
1.2 "Beneficiary" shall mean the Participant's surviving spouse, if any,
the Participant's named beneficiary as reflected on the records of the
Association, or the Participant's estate, in descending order of priority.
1.3 "Board" means the Board of Directors of the Association, as
constituted from time to time and successors thereto.
1.4 "Change in Control" means (i) the execution of an agreement for the
sale of all, or a material portion, of the assets of the Association or the
Corporation; (ii) the execution of an agreement for a merger or recapitalization
of the Association or the Corporation or any merger or recapitalization whereby
the Association or the Corporation is not the surviving entity; (iii) a change
of control of the Association or the Corporation, as otherwise defined or
determined by the Office of Thrift Supervision or regulations promulgated by it;
or (iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and
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regulations promulgated thereunder) of twenty-five percent (25%) or more of the
outstanding voting securities of the Association or the Corporation by any
person, trust, entity or group. The term "person" means an individual other than
the Employee, or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.
1.5 "Committee" means the Executive Committee of the Board of the
Association.
1.6 "Corporation" means any parent bank holding company or savings and
loan holding company of the Association, and any successor thereto.
1.7 "Director" means a member of the Board of the Association.
1.8 "Disability" (total and permanent disability) means a mental or
physical disability which prevents the Participant from performing the normal
duties of his or her position with the Association. Such disability must have
prevented the Participant from performing his or her duties for at least six
months, and a physician satisfactory to both the Participant and the Association
must certify that the Participant is disabled from performing his or her normal
duties with the Association.
1.9 "Effective Date" means January 1, 1996.
1.10 "Participant" means Mr. Alfred E. Bowling. Such participation shall
continue as long as such Participant fulfills all requirements for participation
subject to the right of termination, amendment and modification of the Plan
hereinafter set forth.
1.11 "Plan" means the Nelson County Federal Savings and Loan Association
Supplemental Retirement Plan for the benefit of Alfred E. Bowling, as herein set
forth, as amended from time to time.
1.12 "Retirement Date" means the first day of the calendar month
following attainment of age 65 of the Participant or thereafter whereby the
Participant retires as an employee of the Association.
1.13 "Service" means all years of service as an employee of the
Association and all predecessor entities.
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ARTICLE II
BENEFITS
2.1 Retirement. Upon a Participant's termination from service as an
employee of the Association on or after the Retirement Date, the Association
shall pay to the participant a monthly pension in an amount approved by the
Board and set forth herein at Article II, Section 2.4, on the first business day
of each calendar month commencing on or after the Retirement Date. Except as
provided at Article II, Section 2.2, 2.3 and 2.5 herein, upon a Participant's
termination from service as an employee of the Association prior to the
Retirement Date, the Association shall have no financial obligations to the
Participant under the Plan.
2.2 Total and Permanent Disability. In the event of the total and
permanent disability of the Participant, the Participant will be entitled to a
monthly pension equal to 100% of the amount specified at Article II, Section
2.4, payable on the first day of the month following certification of such
disability without regard to any other provisions herein to the contrary.
2.3 Change in Control. All benefits payable, or that would become
payable if the Participant were to retire prior to such Change in Control, shall
remain payable thereafter. Upon termination of service following a Change in
Control, all benefits shall be deemed payable immediately in accordance with
Article II, Section 2.4; provided that if Participant is not yet age 65 as of
such date of termination of service, such Participant shall nevertheless be
deemed to be age 65 as of the date of such termination following a Change of
Control and further that it shall be assumed that benefits payable under the
Pension Plan (as defined at Section 2.4) shall be paid as of the date of
termination of service, or as of the date of such Change of Control (if
greater), in order to calculate benefits payable hereunder.
2.4 Level of Benefit Payments. The Participant shall be eligible to
receive benefit payments under the Plan, as follows:
a. Benefits payable hereunder shall be reduced to the extent of benefits
payable under the defined benefit pension plan sponsored by the Association in
effect as of the Effective Date, as may be amended from time to time ("Pension
Plan"). Benefits payable hereunder shall be calculated in the same manner as
benefits payable under the Pension Plan, except however that the rate of
benefits accrual shall equal 2.0% times such Participant's Average Monthly
Compensation multiplied by the Participant's total number of Plan Years of
Service. All capitalized terms shall have such meaning as defined herein or as
defined under the Pension Plan. Notwithstanding anything herein or in the
Pension Plan to the contrary, Average Monthly Compensation shall not be limited
by the provisions of Section 401(a)(17)(B) of the Internal Revenue Code
("Code").
b. Benefits payable hereunder are exclusive of any benefits received
under Social Security payments or any income tax liabilities of the Participant
or Beneficiary.
2.5 Benefit Payments Following Death. A Participant receiving benefits
in accordance with Article II, Sections 2.1, 2.2 or 2.3 shall, upon death,
continue to have the balance of any such payments due be paid to the
Participant's Beneficiary until payment of 120 monthly payments in the aggregate
have been made. Upon the death of a Participant after attainment of the
Retirement Date but prior to the commencement of benefit payments, benefits
payable in
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accordance with Section 2.4 herein shall be immediately and 100% payable for a
period of 120 months to the Beneficiary without regard to any other provisions
herein.
ARTICLE III
INSURANCE
3.1 Ownership of Insurance. The Association, in its sole discretion, may
elect to purchase one or more life insurance policies on the lives of
Participants in order to provide funds to the Association to pay part or all of
the benefits accrued under this Plan. All rights and incidents of ownership in
any life insurance policy that the Association may purchase insuring the life of
the Participant (including any right to proceeds payable thereunder) shall
belong exclusively to the Association or its designated Trust, and neither the
Participant, nor any beneficiary or other person claiming under or through him
or her shall have any rights, title or interest in or to any such insurance
policy. The Participant shall not have any power to transfer, assign,
hypothecate or otherwise encumber in advance any of the benefits payable
thereunder, nor shall any benefits be subject to seizure for the benefit of any
debts or judgments, or be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. Any life insurance policy purchased
pursuant hereto and any proceeds payable thereunder shall remain subject to the
claims of the Association's general creditors.
3.2 Physical Examination. As a condition of becoming or remaining
covered under this Plan, the Participant, as may be requested by the Association
from time to time shall take a physical examination by a physician approved by
an insurance carrier. The cost of the examination shall not be borne by the
Participant. The report of such examination shall be transmitted directly from
the physician to the insurance carrier designated by the Association to
establish certain costs associated with obtaining insurance coverages as may be
deemed necessary under this Plan. Such examination shall remain confidential
among the Participant, the physician and the insurance carrier and shall not be
made available to the Association in any form or manner.
3.3 Death of Participant. Upon the death of the Participant, the
proceeds derived from any such insurance policy held by the Association or any
related Trust, if any, shall be paid to the Association or its designated Trust.
ARTICLE IV
TRUST
4.1 Trust. Except as may be specifically provided, nothing contained in
this Plan and no action taken pursuant to the provisions of this Plan shall
create or be construed to create a trust of any kind, or a fiduciary
relationship between the Association and the Participant or any other person.
Any funds which may be invested under the provisions of this Plan shall continue
for all purposes to be a part of the general funds of the Association. No person
other than the Association shall by virtue of the provisions of this Plan have
any interest in such funds. The Association shall not be under any obligation to
use such funds solely to provide benefits hereunder, and no representations have
been made to a Participant that such funds can or will be used only to provide
benefits hereunder. To the extent that any person acquires a right to
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receive payments from the Association under the Plan, such rights shall be no
greater than the right of any unsecured general creditor of the Association.
In order to facilitate the accumulation of funds necessary to meet the
costs of the Association under this Plan (including the provision of funds
necessary to pay premiums with respect to any life insurance policies purchase
pursuant to Article III above and to pay benefits to the extent that the cash
value and/or proceeds of any such policies are not adequate to make payments to
a Participant or his or her beneficiary as and when the same are due under the
Plan), the Association may enter into a Trust Agreement. The Association, in its
discretion, may elect to place any life insurance policies purchased pursuant to
Article III above into the Trust. In addition, such sums shall be placed in said
Trust as may from time to time be approved by the Board of Directors, in its
sole discretion. To the extent that the assets of said Trust and/or the proceeds
of any life insurance policy purchased pursuant to Article III are not
sufficient to pay benefits accrued under this Plan, such payments shall be made
from the general assets of the Association.
ARTICLE V
VESTING
5.1 Vesting. All benefits under this Plan are deemed non-vested and
forfeitable prior to the Retirement Date. All benefits payable hereunder shall
be deemed 100% non-forfeitable by the Participant and his or her Beneficiary as
of the Retirement Date. Notwithstanding the foregoing, all benefits payable
hereunder shall be deemed 100% non-forfeitable by the Participant and his or her
Beneficiary upon the death, the total and permanent disability of the
Participant, or upon termination of employment following a Change in Control of
the Association as if the Participant had been employed until the Retirement
Date. No benefits shall be deemed payable hereunder for any time period prior to
termination of employment prior to the Retirement Date, except in the event of
termination of employment following a Change in Control of the Association, in
which case such benefits shall be immediately payable as of such date of
termination of employment.
ARTICLE VI
TERMINATION
6.1 Termination. All rights of the Participant hereunder shall terminate
immediately upon the Participant ceasing to be in the active service of the
Association prior to the time that the benefits payable under the Plan shall be
deemed to be 100% non-forfeitable. A leave of absence approved by the Board
shall not constitute a cessation of service within the meaning of this
paragraph, within the sole discretion of the Committee.
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ARTICLE VII
FORFEITURE OR SUSPENSION OF BENEFITS
7.1 Forfeiture or Suspension of Benefits. Notwithstanding any other
provision of this Plan to the contrary, benefits shall be forfeited or suspended
during any period of paid service with the Association following the
commencement of benefit payments, within the sole discretion of the Committee.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Other Benefits. Nothing in this Plan shall diminish or impair the
Participant's eligibility, participation or benefit entitlement under any other
benefit, insurance or compensation plan or agreement of the Association now or
hereinafter in effect.
8.2 No Effect on Employment. This Plan shall not be deemed to give any
Participant or other person in the employ or service of the Association any
right to be retained in the employment or service of the Association, or to
interfere with the right of the Association to terminate any Participant or such
other person at any time and to treat him or her without regard to the effect
which such treatment mights have upon him or her as a Participant in this Plan.
8.3 Legally Binding. The rights, privileges, benefits and obligations
under this Plan are intended to be legal obligations of the Association and
binding upon the Association, its successors and assigns.
8.4 Modification. The Association, by action of the Board, reserves the
exclusive right to amend, modify, or terminate this Plan. Any such termination,
modification or amendment shall not terminate or diminish any rights or benefits
accrued by any Participant prior thereto. The Association shall give thirty (30)
days' notice in writing to any Participant prior to the effective date of any
such amendment, modification or termination of this Plan. Notwithstanding the
foregoing, in no event shall such benefits payable under the Plan be reduced
below those provided for in Section 2.4 herein.
8.5 Arbitration. Any controversy or claim arising out of or relating to
any contract or the breach thereof shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
with such arbitration hearing to be held at the offices of the American
Arbitration Association ("AAA") unless otherwise mutually agreed to by the
Participant and the Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
8.6 Limitation. No rights of any Participant are assignable by any
Participant, in whole or in part, either by voluntary or involuntary act or by
operation of law. Rights of Participants hereunder are not subject to
anticipation, alienation, sale, transfer, assignment, pledge, hypothecation,
encumbrance or garnishment by creditors of the Participant or a Beneficiary.
Such rights are not subject to the debts, contracts, liabilities, engagements,
or torts of any Participant or his or her Beneficiary. No Participant shall have
any right under this Plan or any Trust referred to in Article IV or against any
assets held or acquired pursuant thereto
6
<PAGE>
other than the rights of a general, unsecured creditor of the Association
pursuant to the unsecured promise of the Association to pay the benefits accrued
hereunder in accordance with the terms of this Plan. The Association has no
obligation under this Plan to fund or otherwise secure its obligations to render
payments hereunder to Participants. No Participant shall have any voice in the
use, disposition, or investment of any asset acquired or set aside by the
Association to provide benefits under this Plan.
8.7 ERISA and IRC Disclaimer. It is intended that the Plan be neither an
"employee welfare benefit plan" nor an "employee pension benefit plan" for
purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Further, it is intended that the Plan will not cause the interest of
a Participant under the Plan to be includable in the gross income of such
Participant or a Beneficiary prior to the actual receipt of a payment under the
Plan for purposes of the Internal Revenue Code of 1986, as amended ("IRC"). No
representation is made to any Participant to the effect that any insurance
policies purchased by the Association or assets of any Trust established
pursuant to this Plan will be used solely to provide benefits under this Plan or
in any way shall constitute security for the payment of such benefits. Benefits
payable under this Plan are not in any way limited to or governed by the
proceeds of any such insurance policies or the assets of any such Trust. No
Participant in the Plan has any preferred claim against the proceeds of any such
insurance policies or the assets of any such Trust.
8.8 Conduct of Participants. Notwithstanding anything contained to the
contrary, no payment of any then unpaid benefits shall be made and all rights
under the Plan payable to a Participant, or any other person, to receive
payments thereof shall be forfeited if the Participant shall engage in any
activity or conduct which in the opinion the Board of the Association is
inimical to the best interests of the Association.
8.9 Incompetency. If the Association shall find that any person to whom
any payment is payable under the Plan is deemed unable to care for his or her
personal affairs because of illness or accident, or is a minor, any payment due
(unless a prior claim therefor shall have been made by a duly appointed
guardian, committee or other legal representative) may be paid to the spouse, a
child, a parent, or a brother or sister, or to any person deemed by the
Association to have incurred expense for such person otherwise entitled to
payment, in such manner and proportions as the Committee, in its sole
discretion, may determine. Any such payments shall constitute a complete
discharge of the liabilities of the Association under the Plan.
8.10 Construction. The Committee shall have full power and authority to
interpret, construe and administer this Plan and the Committee's interpretations
and construction thereof, and actions thereunder, shall be binding and
conclusive on all persons for all purposes. Directors of the Association and
members of the Committee shall not be liable to any person for any action taken
or omitted in connection with the interpretation and administration of this Plan
unless attributable to his or her own willful, gross misconduct or intentional
lack of good faith.
8.11 Plan Administration. The Board of the Association shall administer
the Plan; provided, however, that the Board may appoint an administrative
committee ("Committee") to provide administrative services or perform duties
required by this Plan. The Committee shall have only the authority granted to it
by the Board.
7
<PAGE>
8.12 Governing Law. This Plan shall be construed in accordance with and
governed by the laws of the State of Kentucky, except to the extent that Federal
law shall be deemed to apply. No payments of benefits shall be made hereunder if
the Board of the Association, or counsel retained thereby, shall determine that
such payments shall be in violation of applicable regulations, or likely result
in imposition of regulatory action, by the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation or other appropriate banking regulatory
agencies.
8.13 Successors and Assigns. The Plan shall be binding upon any
successor or successors of the Association, and unless clearly inapplicable,
reference herein to the Association shall be deemed to include any successor or
successors of the Association.
8.14 Sole Agreement. The Plan expresses, embodies, and supersedes all
previous agreements, understandings, and commitments, whether written or oral,
between the Association and any Participants and Beneficiaries hereto with
respect to the subject matter hereof.
8
* As Adopted February 29, 1996 *
Nelson County Federal Savings and Loan Association
DIRECTORS CONSULTATION AND RETIREMENT PLAN
WHEREAS, Nelson County Federal Savings and Loan Association ("Savings
Association") wishes to reward the years of extensive service provided by the
current members of the Board of Directors and to continue to attract and to
retain the best talent available to serve on its Board of Directors, and
WHEREAS, it is deemed advisable and in the best interests of the Savings
Association to offer such members of the Boards of Directors additional
financial incentives in the form of deferred compensation to encourage such
participation and service to the Savings Association, as directors, and
following retirement as a director to encourage such individuals to continue to
serve the Savings Association as a consulting director for a period of time
thereafter,
WHEREAS, at its meeting held on February 29, 1996, the Board of
Directors of the Savings Association has authorized and adopted the Nelson
County Federal Savings and Loan Association Directors Consultation and
Retirement Plan ("Plan"), effective March 1, 1996,
NOW THEREFORE, BE IT RESOLVED that the Plan shall be implemented
effective March 1, 1996, as follows:
ARTICLE I
DEFINITIONS
The following words and phrases as used herein shall, for the purpose of
this Plan and any subsequent amendment thereof, have the following meanings
unless a different meaning is plainly required by the content:
1.1 "Association" or "Savings Association" means Nelson County Federal
Savings and Loan Association, Bardstown, Kentucky, or any successor thereto.
1.2 "Beneficiary" means the surviving spouse of the Participant (if any)
as of the date of death of such Participant, and shall specifically include the
Participant's estate, should the Participant have no surviving spouse. The term
Beneficiary shall also specifically include the estate of a Participant's
spouse, if such spouse shall survive the Participant.
1.3 "Board" means the Board of Directors of the Savings Association, as
constituted from time to time and successors thereto.
<PAGE>
1.4 "Change in Control" means (i) the execution of an agreement for the
sale of all, or a material portion, of the assets of the Association or the
Corporation; (ii) the execution of an agreement for a merger or recapitalization
of the Association or the Corporation or any merger or recapitalization whereby
the Association or the Corporation is not the surviving entity; (iii) a change
of control of the Association or the Corporation, as otherwise defined or
determined by the Office of Thrift Supervision or regulations promulgated by it;
or (iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Association or the Corporation by any person, trust, entity or
group. The term "person" means an individual other than the Employee, or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
1.5 "Committee" means the Board or the administrative committee as
appointed by the Board pursuant to Section 8.11 herein.
1.6 "Director" means a member of the Board of the Savings Association.
1.7 "Disability" (total and permanent disability) means a mental or
physical disability which prevents the Director from performing the normal
duties of his or her position with the Savings Association. Such disability must
have prevented the Director from performing his or her duties for at least six
months, and a physician satisfactory to both the Director and the Savings
Association must certify that the Director is disabled from performing his or
her normal duties with the Savings Association.
1.8 "Effective Date" means March 1, 1996.
1.9 "Participant" means a Director serving as such on or after the
Effective Date. Such participation shall continue as long as such Participant
fulfills all requirements for participation subject to the right of termination,
amendment and modification of the Plan hereinafter set forth.
1.10 "Plan" means the Nelson County Federal Savings and Loan Association
Directors Consultation and Retirement Plan herein set forth, as amended from
time to time.
1.11 "Retirement Date" means the date of termination of service as a
Director following the participant's completion of not less than 15 years of
Board service and attainment of not less than age 65 while serving as a
Director.
1.12 "Service" means all years of service as a member of the Board and
all predecessor entities.
2
<PAGE>
ARTICLE II
BENEFITS
2.1 Retirement. Upon a Participant's retirement from service as a
Director of the Savings Association on or after the Retirement Date, the Savings
Association shall pay to the participant a monthly pension in an amount approved
by the Board and set forth herein at Article II, Section 2.4, on the first
business day of each calendar month commencing on or after the Retirement Date.
The payments will continue to be paid on the first business day of each
subsequent month until a total of one hundred twenty (120) monthly payments are
made to the Participant or the Beneficiary. Except as provided at Article II,
Sections 2.2, 2.3, and 2.5 herein, upon a Participant's termination from service
as a Director of the Savings Association prior to his or her Retirement Date,
the Savings Association shall have no financial obligations to the Participant
under the Plan.
2.2 Change in Control. All benefits payable, or that would become
payable if a Director were to retire prior to such Change in Control, shall
remain payable thereafter. Upon termination of service following a Change in
Control, all benefits shall be deemed payable in accordance with Article II,
Section 2.4; provided that if Participant has not yet attained the Retirement
Date as of such date of termination of service, such Participant shall
nevertheless be deemed to have served until the Retirement Date as of the date
of such termination following a Change of Control, and in order to calculate
benefits payable hereunder. Notwithstanding anything herein to the contrary, for
purposes of calculation of benefits in accordance with this Section, in the
event that a Participant shall not otherwise have commenced receipt of benefits
as of the date of a Change of Control, it shall be presumed that such
Participant shall have completed not less than fifteen (15) years of service and
attained at least age 65 as of such date of a Change of Control and benefits
shall be immediately payable as of such date of a Change of Control.
2.3 Total and Permanent Disability. In the event of the Disability of
the Participant, the Participant will be entitled to a monthly pension in the
amount specified at Article II, Section 2.4, payable on the first day of the
month following certification of such Disability without regard to the actual
age of such Participant and presuming that the Participant shall have attained
the age of not less than 65 as of the date of such Disability. For purposes of
benefits accrual, such Participant's years of service shall be determined based
upon the date of certification of such Disability; provided that no benefits
shall be payable hereunder if such Participant shall have completed less than
ten years of service as of the date of such Disability.
2.4 Level of Benefit Payments. A Participant who retires as a Director
on or after his or her Retirement Date and who enters into an agreement with the
Savings Association to be a consulting director of the Savings Association (in a
form similar to that contained at Schedule A hereto) shall receive the benefit
payments set forth in Section 2.4(a); however, a Participant who terminates
service as a Director upon death, disability, or a Change in Control
3
<PAGE>
shall not be required to enter into such consulting agreement to be entitled to
receive benefits under the Plan.
a. A retirement and consulting benefit in the form of one hundred
twenty (120) monthly payments equal to the product of: (i) the
Percentage of the Retirement Benefit Amount specified at Section
2.4(b), (ii) the Retirement Benefit Amount specified at Section 2.4(c)
herein, and (iii) the Vested Percentage of the Retirement Benefit
Amount specified at Section 2.4(d).
b. The Percentage of the Retirement Benefit Amount to be paid to a
Participant shall be determined as follows:
Years of Service as of the Retirement Date % of Retirement Benefit Amount
less than 15 years 0%
15 or more 100%
c. The Retirement Benefit Amount shall be equal to 100% of the
monthly meeting fees payable to a Director of the Savings Association
in effect as of the Retirement Date.
d. The Vested Percentage of the Retirement Benefit Amount to be
paid to a Participant shall be as follows:
Retirement Date Vested % of Retirement Benefit Amount
--------------- -------------------------------------
Prior to July 1, 1996 0%
Between July 1, 1996 and June 30, 1997 33.33%
Between July 1, 1997 and June 30, 1998 66.67%
On or after July 1, 1999 100%
Notwithstanding anything herein to the contrary at Section 2.4(d), upon
the death or Disability of a Participant, upon retirement with not less than 30
years of Service, or upon a Change in Control prior to July 1, 1999, the Vested
Percentage of the Retirement Benefit Amount shall equal to 100% for purposes of
calculating benefits under Section 2.4.
2.5 Death of Participant. Upon the death of a Participant who is
receiving benefit payments under the Plan prior to his or her death, the
remaining payments to be made under the Plan (if any) shall be paid to the
Beneficiary after the Participant's death. Upon the death of a Participant who
is not receiving benefit payments under the Plan prior to his or her death, the
Savings Association shall pay to the Beneficiary a benefit in the form of one
hundred twenty (120) monthly payments, as described and in the amount set forth
at Article II, Section 2.4. Payment of such benefits shall begin on the first
business day of the month immediately
4
<PAGE>
following the death of a Participant. The one hundred twenty (120) monthly
payments will continue to be paid on the first business day of each subsequent
month until all payments are made to the Beneficiary. Notwithstanding the
foregoing, upon death, a Participant shall be presumed to have completed not
less than 15 years of service and attained at least age 65 for purposes of
calculating benefits under Section 2.4 of the Plan. If a Beneficiary dies prior
to receiving all one hundred twenty (120) monthly payments, the remaining
monthly payments will continue to be paid to the Beneficiary's estate, and all
obligations of the Savings Association under the Plan shall cease to exist with
respect to such Beneficiary only after all one hundred twenty (120) payments
have been made.
ARTICLE III
INSURANCE
3.1 Ownership of Insurance. The Savings Association, in its sole
discretion, may elect to purchase one or more life insurance policies on the
lives of Participants in order to provide funds to the Savings Association to
pay part or all of the benefits accrued under this Plan. All rights and
incidents of ownership in any life insurance policy that the Savings Association
may purchase insuring the life of the Participant (including any right to
proceeds payable thereunder) shall belong exclusively to the Savings Association
or its designated Trust, and neither the Participant, nor any beneficiary or
other person claiming under or through him or her shall have any rights, title
or interest in or to any such insurance policy. The Participant shall not have
any power to transfer, assign, hypothecate or otherwise encumber in advance any
of the benefits payable thereunder, nor shall any benefits be subject to seizure
for the benefit of any debts or judgments, or be transferable by operation of
law in the event of bankruptcy, insolvency or otherwise. Any life insurance
policy purchased pursuant hereto and any proceeds payable thereunder shall
remain subject to the claims of the Savings Association's general creditors.
3.2 Physical Examination. As a condition of becoming or remaining
covered under this Plan, each Participant, as may be requested by the Committee
from time to time shall take a physical examination by a physician approved by
an insurance carrier. The cost of the examination shall not be borne by the
Participant. The report of such examination shall be transmitted directly from
the physician to the insurance carrier designated by the Committee to establish
certain costs associated with obtaining insurance coverages as may be deemed
necessary under this Plan. Such examination shall remain confidential among the
Participant, the physician and the insurance carrier and shall not be made
available to the Savings Association in any form or manner.
3.3 Death of Participant. Upon the death of a Participant, the proceeds
derived from such insurance policy, if any, shall be paid to the Savings
Association or its designated Trust.
5
<PAGE>
ARTICLE IV
TRUST/NON-FUNDED STATUS OF PLAN
4.1 Trust/Non-Funded Status of Plan. Except as may be specifically
provided, nothing contained in this Plan and no action taken pursuant to the
provisions of this Plan shall create or be construed to create a trust of any
kind, or a fiduciary relationship between the Savings Association and the
Participant or any other person. Any funds which may be invested under the
provisions of this Plan shall continue for all purposes to be a part of the
general funds of the Savings Association. No person other than the Savings
Association shall by virtue of the provisions of this Plan have any interest in
such funds. The Savings Association shall not be under any obligation to use
such funds solely to provide benefits hereunder, and no representations have
been made to any Participant that such funds can or will be used only to provide
benefits hereunder. To the extent that any person acquires a right to receive
payments from the Savings Association under the Plan, such rights shall be no
greater than the right of any unsecured general creditor of the Savings
Association.
In order to facilitate the accumulation of funds necessary to meet the
costs of the Savings Association under this Plan, the Savings Association may
enter into a Trust Agreement. In addition, the Board may (in its sole
discretion) place in said Trust such additional amounts as it deems appropriate
from time to time. To the extent that the assets of said Trust are not
sufficient to pay benefits accrued under this Plan, such payments shall be made
from the general assets of the Savings Association.
ARTICLE V
VESTING
5.1 Vesting. All benefits under this Plan are deemed non-vested and
forfeitable prior to a Participants' Retirement Date. Notwithstanding the
foregoing, all benefits payable hereunder shall be deemed 100% vested and
non-forfeitable by the Participant upon his or her Retirement Date, upon a
Participant's termination of service as a Director following a Change in
Control, upon the Disability of a Participant, or upon the death of the
Participant. Notwithstanding anything herein to the contrary, the Vested
Percentage of the Retirement Benefit Amount shall be limited by the provisions
of Section 2.4(d).
6
<PAGE>
ARTICLE VI
TERMINATION
6.1 Termination. All rights of the Participant hereunder shall terminate
immediately upon the Participant ceasing to be in the active service of the
Savings Association prior to the time that benefits payable under the Plan shall
be deemed to be 100% non-forfeitable. A leave of absence approved by the Board
shall not constitute a cessation of service within the meaning of this Section
within the sole discretion of the Committee.
ARTICLE VII
FORFEITURE OR SUSPENSION OF BENEFITS
7.1 Forfeiture or Suspension of Benefits. Notwithstanding any other
provision of this Plan to the contrary, benefits shall be forfeited or suspended
during any period of paid service with the Savings Association following the
commencement of benefit payments, within the sole discretion of the Committee.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Other Benefits. Nothing in this Plan shall diminish or impair the
Participant's eligibility, participation or benefit entitlement under any other
benefit, insurance or compensation plan or agreement of the Savings Association
now or hereinafter in effect.
8.2 No Effect on Employment. This Plan shall not be deemed to give any
Participant or other person in the employ or service of the Savings Association
any right to be retained in the employment or service of the Savings
Association, or to interfere with the right of the Savings Association to
terminate any Participant or such other person at any time and to treat him or
her without regard to the effect which such treatment might have upon him or her
as a Participant in this Plan.
8.3 Legally Binding. The rights, privileges, benefits and obligations
under this Plan are intended to be legal obligations of the Savings Association
and binding upon the Savings Association, its successors and assigns.
8.4 Modification. The Savings Association, by action of the Board of
Directors, reserves the exclusive right to amend, modify, or terminate this
Plan. Any such termination, modification or amendment shall not terminate or
diminish any rights or benefits accrued by any Participant prior thereto. The
Savings Association shall give thirty (30) days' notice in writing
7
<PAGE>
to any Participant prior to the effective date of any such amendment,
modification or termination of this Plan. Notwithstanding the foregoing, in no
event shall such benefits payable under the Plan be reduced below those provided
for in Section 2.4 herein.
8.5 Arbitration. Any controversy or claim arising out of or relating to
any contract or the breach thereof shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
with such arbitration hearing to be held at the offices of the American
Arbitration Association ("AAA") nearest to the home office of the Savings
Association, unless otherwise mutually agreed to by the Participant and the
Savings Association, and judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof.
8.6 Limitation. No rights of any Participant are assignable by any
Participant, in whole or in part, either by voluntary or involuntary act or by
operation of law. Rights of Participants hereunder are not subject to
anticipation, alienation, sale, transfer, assignment, pledge, hypothecation,
encumbrance or garnishment by creditors of the Participant. Such rights are not
subject to the debts, contracts, liabilities, engagements, or torts of any
Participant. No Participant shall have any right under this Plan or any Trust
referred to in Article IV or against any assets held or acquired pursuant
thereto other than the rights of a general, unsecured creditor of the Savings
Association pursuant to the unsecured promise of the Savings Association to pay
the benefits accrued hereunder in accordance with the terms of this Plan. The
Savings Association has no obligation under this Plan to fund or otherwise
secure its obligations to render payments hereunder to Participants. No
Participant shall have any voice in the use, disposition, or investment of any
asset acquired or set aside by the Savings Association to provide benefits under
this Plan.
8.7 ERISA and IRC Disclaimer. It is intended that the Plan be neither an
"employee welfare benefit plan" nor an "employee pension benefit plan" for
purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Further, it is intended that the Plan will not cause the interest of
a Participant under the Plan to be includable in the gross income of such
Participant prior to the actual receipt of a payment under the Plan for purposes
of the Internal Revenue Code of 1986, as amended ("IRC"). No representation is
made to any Participant to the effect that any insurance policies purchased by
the Savings Association or assets of any Trust established pursuant to this Plan
will be used solely to provide benefits under this Plan or in any way shall
constitute security for the payment of such benefits. Benefits payable under
this Plan are not in any way limited to or governed by the proceeds of any such
insurance policies or the assets of any such Trust. No Participant in the Plan
has any preferred claim against the proceeds of any such insurance policies or
the assets of any such Trust.
8.8 Conduct of Participants. Notwithstanding anything contained herein
to the contrary, no payment of any then unpaid benefits shall be made and all
rights under the Plan payable to a Participant, or any other person, to receive
payments thereof shall be forfeited if the Participant shall engage in any
activity or conduct which in the opinion the Board of the Savings Association is
inimical to the best interests of the Savings Association.
8
<PAGE>
8.9 Incompetency. If the Savings Association shall find that any person
to whom any payment is payable under the Plan is deemed unable to care for his
or her personal affairs because of illness or accident, any payment due (unless
a prior claim therefor shall have been made by a duly appointed guardian,
committee or other legal representative) may be paid to the spouse, a child, a
parent, or a brother or sister, or to any person deemed by the Savings
Association to have incurred expense for such person otherwise entitled to
payment, in such manner and proportions as the Board may determine in its sole
discretion. Any such payments shall constitute a complete discharge of the
liabilities of the Savings Association under the Plan.
8.10 Construction. The Savings Association shall have full power and
authority to interpret, construe and administer this Plan and the Savings
Association's interpretations and construction thereof, and actions thereunder,
shall be binding and conclusive on all persons for all purposes. Directors of
the Savings Association shall not be liable to any person for any action taken
or omitted in connection with the interpretation and administration of this Plan
unless attributable to his own willful, gross misconduct or lack of good faith.
8.11 Plan Administration. The Board of Directors of the Savings
Association shall administer the Plan; provided, however, that the Board may
appoint an administrative committee ("Committee") to provide administrative
services or perform duties required by this Plan. The Committee shall have only
the authority granted to it by the Board.
8.12 Governing Law. This Plan shall be construed in accordance with and
governed by the laws of the State of Kentucky, except to the extent that Federal
law shall be deemed to apply. No payments of benefits shall be made hereunder if
the Board of the Savings Association, or counsel retained thereby, shall
determine that such payments shall be in violation of applicable regulations, or
likely result in imposition of regulatory action, by the Office of Thrift
Supervision, Federal Deposit Insurance Corporation or other appropriate banking
regulatory agencies.
8.13 Successors and Assigns. The Plan shall be binding upon any
successor or successors of the Savings Association, and unless clearly
inapplicable, reference herein to the Savings Association shall be deemed to
include any successor or successors of the Savings Association.
8.14 Sole Agreement. The Plan expresses, embodies, and supersedes all
previous agreements, understandings, and commitments, whether written or oral,
between the Savings Association and any Participants hereto with respect to the
subject matter hereof.
9
[PICTURE OF NELSON COUNTY FEDERAL SAVINGS BANK]
1996
NCF FINANCIAL CORPORATION
================================================================================
A N N U A L R E P O R T
<PAGE>
Letter to Stockholders
NCF Financial Corporation and Subsidiaries
Bardstown, Kentucky
Dear Fellow Shareholders:
It has now been nearly a year since NCF Financial Corporation was formed,
and Nelson County Federal Savings and Loan Association was converted to a wholly
owned subsidiary of the new holding company. We are pleased to report that net
after tax income for the 12-month period ended June 30, 1996 was $397,790. This
represents a 25% increase over the 12-month period ended June 30, 1995, which
was $316,553.
As we present this annual report to you, a number of legislative proposals
have been discussed which could greatly change the banking industry. Congress is
considering legislation which would recapitalize the Savings Association
Insurance Fund (SAIF) of the FDIC by imposing a one time special assessment on
all SAIF insured institutions equal to .65% - .85% of deposits. This assessment
could cost our bank from $148,000 to $193,000. However, commercial banks have
been paying significantly lower FDIC insurance premiums, .04% compared to .23%
of deposits for thrifts, and this disparity would be removed. This would result
in the bank saving over $43,000 per year. The ultimate goal of this proposal
would be the merger of the Savings and Bank Insurance Funds within FDIC and all
institutions would be required to adopt national or state bank charters. Long
term we feel these actions would be positive for our holding company and the
banking industry.
We have many new projects underway, with the most important being the
construction of our new main office facility. We will be offering new products
and services at this new location, and we will be counting on our shareholders
to actively promote the bank. We have received permission to change our name to
"Nelson County Federal Savings Bank", which will more accurately describe our
changing image.
As always, if you should have any questions about your bank, please do not
hesitate to call us at (502) 348-9278, or visit our office at 119 E.
Stephen Foster Avenue, Bardstown, Kentucky 40004.
Sincerely,
NCF Financial Corporation
A.E. Bowling, Chairman & President
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
BUSINESS OF THE COMPANY
- -----------------------
NCF Financial Corporation (the Corporation) is a Delaware corporation
organized in June of 1995 at the direction of Nelson County Federal Savings Bank
(the Bank) to acquire all of the capital stock that the Bank issued in its
conversion from the mutual to stock form of ownership (the Conversion). On
October 12, 1995, the Bank completed the Conversion and became a wholly owned
subsidiary of the Corporation. The Corporation is a unitary savings and loan
holding company which, under existing laws, generally is not restricted in the
types of business activities in which it may engage provided that the Bank
retains a specified amount of its assets in housing-related investments.
BUSINESS OF THE BANK
- --------------------
The Bank is a federally chartered stock savings bank headquartered in
Bardstown, Kentucky and was founded in 1925 under the name of "Nelson County
Building and Loan Association." In 1995, the Bank became a federal stock savings
and loan association and in July 1996 changed its name to "Nelson County Federal
Savings Bank." The Bank's deposits have been federally insured by the Savings
Association Insurance Fund (SAIF) and its predecessor, the Federal Savings and
Loan Insurance Corporation, since 1973, and the Bank is a member of the Federal
Home Loan Bank (the FHLB) System. The Bank has one subsidiary, Nelson Service
Corporation (NSC), which has no operating activity other than to own stock in a
third party service bureau.
The Bank is primarily engaged in attracting deposits from the general
public and using those funds to originate real estate loans on
one-to-four-family residences and to a lesser extent, residential construction,
multi-family real estate and loans secured by savings deposits. In addition, the
Bank holds interest earning deposits in other financial institutions and invests
in mortgage-backed securities and investment securities. The Bank does not
typically originate fixed-rate loans of any kind, relying instead on
adjustable-rate loans that annually reprice. For its mortgage loan portfolio,
the Bank originates and retains adjustable-rate loans and does not purchase or
sell mortgage loans.
The Bank is subject to examination and comprehensive regulation by the
Office of Thrift Supervision (OTS) and its deposits are insured by the Federal
Deposit Insurance Corporation (FDIC) under the SAIF. The Bank is a member of and
owns capital stock in the FHLB of Cincinnati, which is one of the 12 regional
banks in the FHLB System.
The principal sources of funds for the Bank's lending activities are
deposits and the amortization, repayment and maturity of loans, and FHLB
advances. Principal sources of income are interest on loans and principal
expense is interest paid on deposits.
MARKET PRICE OF THE REGISTRANT'S COMMON STOCK
- ---------------------------------------------
The Corporation's stock is traded under the symbol "NCFD" on the
over-the-counter market and trades may be quoted on the "Pink Sheets". The most
recent trade of which management of the Corporation is aware occurred at $14.50
per share in August, 1996, which is the high sales price since the stock
issuance on October 12, 1995 at $10.00 per share. A regular semi-annual dividend
of .15 per share was paid to shareholders on May 15, 1996. The Corporation
intends to continue to pay a regular semi-annual dividend at a rate to be
determined. Payment of dividends is subject to the restrictions described in
Note 8 of the Notes to Consolidated Financial Statements.
Quarterly Stock Prices
- ----------------------
Quarter Ended High Low
------------- ---- ---
12/31/95 $14.50 $11.25
03/31/96 $13.50 $12.00
06/30/96 $13.75 $13.00
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
----------------------------------------------
Financial Condition Data:
The following table sets forth certain information concerning the financial
position of the Corporation at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Total amount of: (Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Assets .......................................... $34,905 $28,722 $27,555 $26,638 $27,834
Loans receivable, net ........................... 28,861 26,574 22,582 23,241 21,816
Cash and interest-bearing deposits .............. 5,163 1,201 4,160 2,457 4,817
Mortgage-backed securities ...................... 143 182 274 434 579
Savings deposits ................................ 22,741 23,172 23,080 22,475 24,001
FHLB advances ................................... - 700 - - -
Net worth - substantially restricted ............ 11,803 (1) 4,636 4,320 3,996 3,644
Number of:
Real estate loans outstanding ................... 849 846 824 861 811
Savings deposit accounts ........................ 2,352 2,473 2,341 2,429 2,666
Full service offices ............................ 1 1 1 1 1
</TABLE>
(1) Includes net proceeds from stock issuance on October 12, 1995 of $6,835,737
Operating Data:
The following table summarizes the Corporation's results of operations for
each of the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest income ................................... $ 2,523 $ 2,030 $ 1,891 $ 1,981 $ 2,324
Interest expense .................................. 1,122 1,007 848 985 1,413
------- ------- ------- ------- -------
Net interest income before provision
for loan losses .................................. 1,401 1,023 1,043 996 911
Provision for loan losses ......................... 61 20 50 19 6
------- ------- ------- ------- -------
Net interest income after provision
for loan losses .................................. 1,340 1,003 993 977 905
Other income ...................................... 23 18 24 21 39
Other expense ..................................... 762 533 482 464 453
------- ------- ------- ------- -------
Income before federal income tax and
cumulative effect adjustment ..................... 601 488 535 534 491
Federal income tax expense ........................ 203 171 184 181 166
------- ------- ------- ------- -------
Net income before cumulative effect adjustment .... 398 317 351 353 325
Cumulative effect of accounting change ............ - - 27 (2) - -
------- ------- ------- ------- -------
Net income ........................................ $ 398 $ 317 $ 324 $ 353 $ 325
======= ======= ======= ======= =======
</TABLE>
(2) Accounting change under Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes."
Other Data:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Dividends per share ............................... $ .15 n/a n/a n/a n/a
Dividend payout ratio ............................. 41.67% n/a n/a n/a n/a
Return on assets (net income divided by
average total assets) ............................ 1.16% 1.08% 1.18% 1.29% 1.18%
Return on equity (net income divided by
average equity) .................................. 4.20% 6.97% 7.71% 9.23% 9.34%
Equity to assets (average equity divided
by average total assets) ......................... 27.55% 15.50% 15.37% 14.03% 12.59%
Book value per share .............................. $ 15.32 n/a n/a n/a n/a
</TABLE>
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL INFORMATION
- -----------------------------------------------------
The management of NCF Financial Corporation is responsible for the
preparation of the financial statements and all other information in the Annual
Report. The financial statements were prepared in accordance with generally
accepted accounting principles appropriate in our circumstances.
The accounting system and internal accounting controls in use are designed
to provide reasonable assurance that the financial records are reliable for
preparing financial statements and maintaining accounting for assets, and that
assets are safeguarded against loss from unauthorized use or disposition.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------------
OPERATIONS
- -----------
Comparisons of operating results for the years ended June 30, 1996 and
1995.
General - NCF Financial Corporation (the Corporation) is the parent to its
wholly-owned subsidiary, Nelson County Federal Savings Bank (the Bank). The
Corporation generates interest income from interest-earning deposits, however,
it's primary source of net income is that which is generated by the Bank.
Stock Issuance - On October 12, 1995, the Bank successfully completed a
conversion from a mutual to stock form of ownership. In this process, the
Corporation issued 770,500 shares of common stock in exchange for net proceeds
of $7,335,737 after conversion costs of $369,263.
Results of Operations - Net income for the year ended June 30, 1996 was
$397,790 as compared to $316,553 for the year ended June 30, 1995. This increase
of $81,237 or 25.7% is largely attributable to the interest earnings on the
funds received from the stock issuance, however, the following discussion
outlines the factors contributing to the increase in net income for 1996.
Net Interest Income - Net interest income increased by $377,943 during
fiscal 1996 to $1,400,524 as compared to $1,022,581 in fiscal 1995. This
increase was primarily due to the increase in volume of interest-earning assets
resulting from the stock issuance. Interest-earning deposits increased by $3.97
million and net loans increased by $2.29 million.
Provision for loan losses - Management periodically evaluates the adequacy
of the allowance for loan losses based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may effect
the borrower's ability to repay and other factors. The Bank has not experienced
any loan losses in the last several years, however, during the year ended June
30, 1996, the Bank provided $61,000 for loan losses as a result of
recommendations during the regulatory examination process. The allowance for
loan loss at June 30, 1996 is equal to .55% of loans which the Bank feels is
closer to the coverage ratio of other Banks in its region. At June 30, 1996, 94%
of total loans were collateralized by one-to-four-family dwellings on real
estate located in the market area.
Other Income - Other income increased from $18,311 to $23,341 during the
year primarily due to an increase in customer charges for late payments on
loans.
Other Expenses - Other expenses increased $228,976 or 42.9% during fiscal
1996 from $533,341 to $762,317. Included in this increase was a $145,308
increase in compensation and employee benefits due to accruals for the newly
adopted Supplemental Executive Retirement Plan, Directors Consultation and
Retirement Plan and the Employee Stock Ownership Plan. The Bank experienced a
decline of $13,528 in annual salaries and benefits that were also in place in
1995. (See Note 9 of the Notes to Consolidated Financial Statements). An
additional reason for the change in other expenses was the result of an increase
in legal and accounting fees of $65,068 due to additional regulatory filings
after the stock issuance.
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Bank is required to maintain levels of liquid assets as defined by the
Office of Thrift Supervision regulations. This requirement is based on a
percentage of deposits and short-term borrowings and is currently 5%. The Bank's
liquidity ratio was 10.41% at June 30, 1996. Bank management believes that the
excess liquidity is necessary in order to meet capital expansion plans and to
meet the needs of customers as the Bank begins to implement new products and
services.
The Bank's primary source of funds for meeting its liquidity needs are
customer deposits, principal and interest payments from loans and
mortgage-backed securities and earnings from operations retained by the
Corporation. During 1996, the Bank increased its liquidity through the stock
conversion.
The Office of Thrift Supervision's capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard;
a 3% leverage (core capital) ratio; and an 8% risk-based capital standard. As of
June 30, 1996, the Bank's actual capital percentages for tangible capital of
25.78%, core capital of 25.78%, and current risk-based capital of 39.89%,
significantly exceed the regulatory requirement for each category.
IMPACT OF INFLATION AND CHANGING PRICES
- ---------------------------------------
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation.
The Bank has an asset and liability structure that is essentially monetary
in nature. As a result, interest rates have a more significant impact on the
Bank's performance than the effects of general levels of inflation. Periods of
high inflation are often accompanied by relatively higher interest rates and
periods of low inflation are accompanied by relatively lower interest rates. As
market interest rates rise or fall in relation to the rates earned on the Bank's
loans and investments, the value of these assets decreases or increases
respectively.
REGULATORY MATTERS
- ------------------
The Bank currently insures its customers' deposits through the Savings
Association Insurance Fund (SAIF) at a premium of 23 basis points per $100. The
Bank Insurance Fund (BIF), which insures institutions chartered as commercial
banks, recently reduced its premiums to as low as 4 basis points per $100 for
certain commercial banks determined to be financially sound by the FDIC.
Congress is discussing a resolution to the disparity in BIF and SAIF premiums. A
proposal under consideration is to charge institutions insured by the SAIF a
one-time assessment of 85 basis points per $100 of customer deposits to
recapitalize the SAIF, which would result in an after-tax cost to the
Corporation of approximately $127,500. Also under consideration is a subsequent
reduction in the annual premium rate to as low as 4 basis points per $100 of
customer deposits, which would result in an insurance premium savings of
approximately $28,500 after taxes. Other proposals to resolve the BIF/SAIF
disparity, which are less financially impacting, are also under consideration;
the actual resolution is uncertain at this time.
The disparity in insurance premiums between those required for the Bank and
BIF members could allow BIF members to attract and retain deposits at higher
interest rates and at a lower effective cost than the Bank. This could put
competitive pressure on the Bank to raise its interest rates paid on deposits,
thus increasing its cost of funds and possibly reducing net interest income.
Although the Bank has other sources of funds, these other sources may have
higher costs than those of deposits.
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------------
OPERATIONS
- ----------
Comparisons of Operating Results for the years ended June 30, 1995 and
1994.
Results of Operations - Net income for the year ended June 30, 1995 was
substantially the same as the year ended June 30, 1994. Net income for fiscal
1995 was $316,553 and $323,302 for fiscal 1994. The following discussion
outlines the factors contributing to the changes in net income for 1995.
Net Interest Income - Although the Bank experienced a $140,339 increase in
total interest income, it also incurred an increase of $159,359 in total
interest expense for a decline in net interest income of $19,020. The Bank
experienced significant growth in loans of $3,992,922 or 17.7% during 1995,
however, during this growth, interest-earning assets declined by $3,047,518 and
the Bank borrowed $700,000 through FHLB advances. Also, the weighted average
cost of deposits increased from 3.7% to 4.94% during the year. This additional
interest burden exceeded the impact of loan growth during fiscal 1995.
Provision for Loan Losses - The Bank provides $20,000 for loan losses
during fiscal 1995 compared to $49,600 for fiscal 1994. The Bank experienced no
charged-off loans during the two years.
Other Income - The Bank experienced a decline in other income of $5,561,
from $23,872 to $18,311 primarily due to fewer charges for late payments on
customers loans.
Other Expense - Other expenses increased by $51,308 or 10.6% from $482,033
to $533,341. The majority of the increase came from a $32,996 (11.25%) increase
in compensation and employee benefits. This resulted from increases to directors
and officers compensation due to their additional time spent on preparation for
the stock conversion. The remaining increase in other expense was the result of
ordinary and necessary operating expenses attributable to growth in customer
activity.
<PAGE>
[WHELAN, DOERR, PIKE & PAWLEY, PSC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
NCF Financial Corporation and Subsidiaries
Bardstown, Kentucky
We have audited the accompanying consolidated balance sheet of NCF Financial
Corporation and Subsidiaries as of June 30, 1996, and the related consolidated
statements of income, retained earnings, and cash flows for the year ended June
30, 1996. These consolidated financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. The financial statements
of the Company as of June 30, 1995 and 1994 were audited by other auditors whose
report dated August 17, 1995, expressed an unqualified opinion on those
statements.
We conducted our audit 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 consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NCF Financial
Corporation and Subsidiaries as of June 30, 1996, and the results of their
operations and their cash flows the year ended June 30, 1996, in conformity with
generally accepted accounting principles.
/s/Whelan, Doerr, Pike & Pauley, PSC
Certified Public Accountants
July 30, 1996
P.O. Box 668 - 1002 N. Mulberry - Elizabethtown, KY
42702-0668 - (502) 765-4188 - FAX (502) 737-0988
4602 Southern Parkway - Louisville, KY 40214 - (502) 361-4630
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
June 30,
---------------------------
1996 1995
---- ----
ASSETS
------
<S> <C> <C>
Cash and due from banks $ 195,210 $ 206,419
Interest-earning deposits 4,967,748 994,083
Loans receivable, net (Notes 1 and 2) 28,861,111 26,574,204
Mortgage-backed securities (market value - 1996 -
$164,993, and 1995 - $208,265 (Notes 1 and 3) 143,347 181,949
Premises and equipment, net (Notes 1 and 4) 50,823 64,631
Investment in Federal Home Loan Bank stock 412,100 384,600
Interest receivable 219,856 118,806
Deferred tax asset 3,922 -
Other assets 50,628 197,617
----------- -----------
TOTAL ASSETS $34,904,745 $28,722,309
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
LIABILITIES:
- ------------
<S> <C> <C>
Savings deposits (Notes 1 and 5) $22,741,108 $23,172,428
Advances from Federal Home Loan Bank (Note 6) - 700,000
Accrued expenses and other liabilities 246,856 160,660
Income taxes payable (Notes 1 and 7):
Current 113,680 3,000
Deferred - 50,000
----------- -----------
TOTAL LIABILITIES 23,101,644 24,086,088
COMMITMENTS (Note 2) - -
STOCKHOLDERS' EQUITY (Note 8):
- ------------------------------
Serial preferred stock, $.01 par value per
share; 100,000 shares authorized and unissued - -
Common stock, $.10 par value per share;
authorized 1,400,000 shares; issued and
outstanding, 770,500 shares in 1996 and
-0- shares in 1995 77,050 -
Additional paid-in capital 7,269,787 -
Retained earnings-substantially restricted 4,918,436 4,636,221
Unearned employee stock ownership plan (462,172) -
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 11,803,101 4,636,221
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $34,904,745 $28,722,309
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------
1996 1995 1994
---- ---- ----
INTEREST INCOME:
- ----------------
<S> <C> <C> <C>
Loans $2,245,497 $1,895,727 $1,710,593
Mortgage-backed securities 20,115 28,056 43,726
Interest-earning deposits 257,541 106,416 135,541
---------- ---------- ----------
TOTAL INTEREST INCOME 2,523,153 2,030,199 1,889,860
INTEREST EXPENSE:
- -----------------
Deposit accounts 1,105,006 980,945 848,259
Federal Home Loan Bank advances 17,623 26,673 -
---------- ---------- ----------
TOTAL INTEREST EXPENSE 1,122,629 1,007,618 848,259
---------- ---------- ----------
NET INTEREST INCOME 1,400,524 1,022,581 1,041,601
Provision for loan losses (Notes 1 and 2) 61,000 20,000 49,600
---------- ---------- ----------
Net interest income after provision for loan losses 1,339,524 1,002,581 992,001
OTHER INCOME:
- -------------
Loan fees and service charges 23,341 15,975 17,795
Other - 2,336 6,077
---------- ---------- ----------
TOTAL OTHER INCOME 23,341 18,311 23,872
OTHER EXPENSES:
- ---------------
Compensation and employee benefits 471,462 326,154 293,158
Net occupancy expense 26,388 23,617 21,267
Deposit insurance premiums 57,374 52,540 51,776
Data processing 34,203 34,029 32,493
State franchise and other taxes 27,565 26,256 25,455
Professional fees 77,543 12,475 11,768
Other operating expenses 67,782 58,270 46,116
---------- ---------- ----------
TOTAL OTHER EXPENSES 762,317 533,341 482,033
---------- ---------- ----------
Income before income taxes and cumulative
effect adjustment 600,548 487,551 533,840
Income taxes (Notes 1 and 7) 202,758 170,998 184,022
---------- ---------- ----------
Income before cumulative effect adjustment 397,790 316,553 349,818
Cumulative effect on prior years for accounting change - - (26,516)
---------- ---------- ----------
NET INCOME $ 397,790 $ 316,553 $ 323,302
========== ========== ==========
NET INCOME PER SHARE OF COMMON STOCK (Note 8) $ .34
==========
PROFORMA NET INCOME PER SHARE OF COMMON STOCK (Note 8) $ .66
==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
Unearned
Employee
Stock
Common Additional Ownership
Stock Common Paid-in Retained Plan
Shares Stock Capital Earnings Shares Total
------ ----- ------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1993 - $ - $ - $3,996,366 $ - $ 3,996,366
Net income - - - 323,302 - 323,302
------- ------- ---------- ---------- --------- -----------
Balance, June 30, 1994 - - - 4,319,668 - 4,319,668
Net income - - - 316,553 - 316,553
------- ------- ---------- ---------- --------- -----------
Balance, June 30, 1995 - - - 4,636,221 - 4,636,221
Net income - - - 397,790 - 397,790
Net proceeds from sale
of common stock 770,500 77,050 7,258,687 - (500,000) 6,835,737
Fair value of shares committed
to be released from ESOP plan - - 11,100 - 37,828 48,928
Cash dividend paid - - - (115,575) - (115,575)
------- ------- ---------- ---------- --------- -----------
Balance, June 30, 1996 770,500 $77,050 $7,269,787 $4,918,436 $(462,172) $11,803,101
======= ======= ========== ========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------
1996 1995 1994
---- ---- ----
OPERATING ACTIVITIES:
- ---------------------
<S> <C> <C> <C>
Net income $ 397,790 $ 316,553 $ 323,302
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 16,808 14,378 11,415
Provision for loan losses 61,000 20,000 49,600
Deferred income taxes (benefit) (53,922) - (8,000)
Cumulative effect adjustment - - 26,516
FHLB dividends received in stock (27,500) (23,400) (17,000)
Amortization of deferred loan origination fees, net (1,815) (1,255) (1,670)
Accretion of discounts on mortgage-backed securities (884) (1,868) (2,877)
Increase (decrease) in allowance for uncollectible
interest 15,735 (586) (3,795)
Increase in interest receivable (116,785) (28,754) (1,277)
Decrease (increase) in other assets 11,913 (14,918) (11,884)
Increase (decrease) in accrued expenses and other liabilities 86,196 55,358 (27,381)
Increase (decrease) in current income taxes payable 110,680 3,000 (2,476)
ESOP plan expense 48,928 - -
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 548,144 338,508 334,473
INVESTING ACTIVITIES:
- ---------------------
Principal payments on mortgage-backed securities 39,486 94,250 162,287
Net (increase) decrease in loans originated (2,346,092) (4,011,667) 611,514
Acquisition of premises and equipment (3,000) (38,163) (10,238)
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (2,309,606) (3,955,580) 763,563
FINANCING ACTIVITIES:
- ---------------------
Net (decrease) increase in deposits (431,320) 92,775 604,173
Advances (repayments) from FHLB (700,000) 700,000 -
Stock conversion cost (234,187) (135,076) -
Initial stock offering 7,705,000 - -
Dividends paid (115,575) - -
ESOP loan (500,000) - -
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,723,918 657,699 604,173
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,962,456 (2,959,373) 1,702,209
CASH AND CASH EQUIVALENTS, beginning of year 1,200,502 4,159,875 2,457,666
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 5,162,958 $ 1,200,502 $ 4,159,875
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The following is a description of the more significant accounting policies
which NCF Financial Corporation follows in preparing and presenting its
consolidated financial statements:
1. Principles of Consolidation - The consolidated financial statements
include the accounts of NCF Financial Corporation (the Corporation)
and its wholly-owned subsidiary, Nelson County Federal Savings Bank
(the Bank) and its wholly-owned subsidiary, Nelson Service
Corporation. Intercompany balances and transactions have been
eliminated. The impact of Nelson Service Corporation (NSC) on the
consolidated financial statements is insignificant. NSC has no
operating activity other than to own stock in a third-party service
bureau.
2. Loans Receivable - Loans receivable are carried at their unpaid
principal balance less net deferred loan fees and allowances for
losses.
The Bank maintains allowances for losses on loans when a significant
and probable decline in value occurs and for losses on real estate
acquired in settlement of loans. Loan loss provisions are charged to
income when, in the opinion of management, such losses for which no
provision has been made are expected to be incurred. Interest on loans
that are contractually past due more than 90 days is charged to an
allowance and recognized as a reduction in interest income.
The allowance for loan losses is based upon an evaluation of the loan
portfolio. The evaluation considers such factors as the delinquency
status of loans, current economic conditions, the net realizable value
of the underlying security and prior loan loss experience.
Recovery of the carrying value of loans is dependent to some extent on
future economic, operating and other conditions that may be beyond the
Bank's control. Unanticipated future adverse changes in such
conditions could result in material adjustments to allowances and
therefore, the future results of operations.
The Financial Accounting Standards Board (FASB) issued Statement No.
114, "Accounting by Creditors for Impairment of a Loan". It requires
that impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or,
as a practical matter, at the loan's observable market value or fair
value of the collateral if the loan is collateral dependent. The
Statement applies to financial statements for fiscal years beginning
after December 15, 1994. Implementation of the Statement did not have
a material impact on financial condition or results of operations.
Loan fees resulted from the origination of certain mortgage loans.
Such fees are deferred ("deferred loan fees") and reflected as a
reduction of the carrying value of mortgage loans. The deferred fees
are amortized using the interest method over the contractual lives of
the loans.
The Bank does not charge any loan fees in connection with the
origination of current mortgage loan production. Also, loan
origination costs such as attorney and appraisal fees are paid
directly by the borrower. The only cost incurred by the Bank is the
time required to process the loan application and minimal supplies.
Management has determined that capitalization of these costs is
immaterial with respect to the Bank's yield on mortgage loans. The
Bank continues to have deferred loan origination fees for loans prior
to July 1, 1988 and some loans originated in 1992 which are being
amortized to income on the interest level yield method.
6
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
------------------------------------------------------------
The Bank's primary lending area is Nelson County, Kentucky. The
economy within this market area is economically diverse, including a
variety of manufacturing industries. The Bank's primary lending
activity is the origination of residential real estate loans secured
by first mortgage for the purpose of acquisition or construction of
one-to-four family residential properties.
3. Securities - On July 1, 1994, the Corporation adopted Statement of
Financial Accounting Standards No. 115 (SFAS No. 115) "Accounting for
Certain Investments in Debt and Equity Securities", which requires the
classification of securities into three categories: held-to-maturity,
available-for-sale, or trading. Based upon a periodic review of the
investment portfolio, debt securities in which the Corporation has a
positive intent and ability to hold are classified as held-to-maturity
and are carried at cost adjusted for the amortization of premiums and
discounts using the interest method over the terms of the securities.
Debt and equity securities which do not fall into this category, nor
held for the purpose of selling in the near term are classified as
available-for-sale. Unrealized holding gains and losses, net of income
tax, on available-for-sale securities are reported as a net amount in
a separate component of stockholders' equity until realized. No
securities have been classified as trading securities or
available-for-sale.
4. Real Estate Owned - Real estate properties acquired through
foreclosure and in settlement of loans are stated at the lower of cost
or fair value less estimated selling costs at the date of foreclosure.
The excess of cost over fair value less the estimated costs to sell at
the time of foreclosure is charged to the allowance for loan losses.
Costs relating to development and improvement of property are
capitalized, whereas costs relating to holding property are not
capitalized and are charged against operations in the current period.
5. Premises and Equipment - Premises and equipment are carried at cost
less accumulated depreciation. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets.
6. Federal Home Loan Bank Stock - Investment in stock of a Federal Home
Loan Bank is required by law of every federally insured savings and
loan or savings bank. The investment is carried at cost. No ready
market exists for the stock, and it has no quoted market value.
7. Income Taxes - Deferred income taxes have been provided on income and
expenses reported for financial statement purposes in periods which
differ from those in which they are reported for income tax purposes.
8. Estimates and Assumptions - The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
9. Cash Flows - For purposes of the statement of cash flows, the Bank
considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents. Cash and cash
equivalents include cash on hand and amounts due from banks.
10. Reclassifications - Certain amounts for 1995 and 1994 have been
reclassified to conform to the presentation for 1996.
7
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
2. LOANS RECEIVABLE
----------------
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------
1996 1995
---- ----
Real estate first mortgage loans:
<S> <C> <C>
One-to-four family $25,661,820 $23,609,165
Construction 3,314,295 3,473,621
Multi-family residential 150,982 152,485
Non-residential 314,843 257,188
----------- -----------
Total real estate loans 29,441,940 27,492,459
Consumer loans:
Loans secured by deposit accounts 69,466 75,363
----------- -----------
Total loans 29,511,406 27,567,822
Less:
Undisbursed portion of loans in process 481,334 883,842
Net deferred loan origination fees 7,753 9,568
Allowance for loan losses 161,208 100,208
----------- -----------
650,295 993,618
$28,861,111 $26,574,204
=========== ===========
</TABLE>
Management of the Bank believes that its allowances for losses on its loan
portfolio are adequate. However, the estimates used by management in determining
the adequacy of such allowances are susceptible to significant changes due
primarily to changes in economic and market conditions. In addition, various
regulatory agencies periodically review the Bank's allowance for losses as an
integral part of their examination processes. Such agencies may require the Bank
to recognize additions to the allowances based on their judgments of information
available to them at the time of their examinations.
The changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------
1996 1995
---- ----
<S> <C> <C>
Beginning balance $100,208 $ 80,208
Provision for loan losses 61,000 20,000
Net charge-offs - -
-------- --------
Ending balance $161,208 $100,208
======== ========
</TABLE>
The Bank had outstanding commitments for mortgage loans of approximately
$300,000 and $660,000 at June 30, 1996 and 1995, respectively. The commitments
to originate loans at June 30, 1996 and 1995, were entirely composed of variable
rate loans.
The Bank did not participate in the servicing of loans for others on any of the
dates presented in these financial statements.
8
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
2. LOANS RECEIVABLE - (Continued)
------------------------------
Non-performing loans were $755,000 and $73,000 at June 30, 1996 and 1995,
respectively. Interest income in the amount of $16,439 and $704 for 1996
and 1995, respectively, would have been recorded on non-performing loans if
they had been performing in accordance with their contractual terms.
3. MORTGAGE-BACKED SECURITIES
--------------------------
The amortized cost basis and fair values of mortgage-backed securities are
summarized as follows:
<TABLE>
<CAPTION>
Amortized Gross Gross
Cost Unrealized Unrealized Fair
Basis Gains Losses Value
----- ----- ------ -----
Securities held-to-maturity:
June 30, 1996:
<S> <C> <C> <C> <C>
GNMA Certificates $143,347 $21,646 $ - $164,993
======== ======= === ========
June 30, 1995:
GNMA Certificates $181,949 $26,316 $ - $208,265
======== ======= === ========
</TABLE>
There were no sales during the years ended June 30, 1996 and 1995.
4. PREMISES AND EQUIPMENT
----------------------
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
---------------------
1996 1995
---- ----
<S> <C> <C>
Land and improvements $ 9,750 $ 9,750
Office buildings and improvements 85,770 85,770
Furniture, fixtures and equipment 122,460 119,460
Automobiles 28,864 28,864
------- -------
246,844 243,844
Less accumulated depreciation 196,021 179,213
------- -------
$ 50,823 $ 64,631
======== ========
</TABLE>
On February 1, 1996, the Bank leased land under a twenty year operating
lease agreement. The lease includes options to extend the terms of the
lease for an additional ten years. Rental expense was $4,000 for the year
ended June 30, 1996. Future minimum commitments under this non-cancelable
lease are:
Year Ended
June 30,
--------
1997 $ 9,600
1998 9,600
1999 9,600
2000 9,600
2001 10,600
Thereafter 223,720
-------
Total $272,720
========
The above-mentioned land is to be the site of a new bank location which is
currently in the planning phase. It is estimated that construction will
begin in fiscal year 1997 with construction and furniture and equipment
costs of approximately $500,000.
9
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. SAVINGS DEPOSITS
----------------
Deposits at June 30 are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average Rate 1996 1995
------------ ------------------------ -----------------------
1996 1995 Amount Percent Amount Percent
---- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Demand & NOW Accounts 2.90% 3.00% $ 1,123,564 4.94% $ 859,035 3.71%
Money Market 2.90 2.91 1,466,484 6.45 1,564,595 6.75
Passbook Savings 3.06 2.99 2,960,115 13.02 2,983,027 12.87
----------- ------ ----------- ------
5,550,163 24.41 5,406,657 23.33
Certificates of Deposit
3.01% - 4.00% 58,695 .26 1,574,606 6.80
4.01% - 5.00% 6,200,845 27.27 4,965,464 21.43
5.01% - 6.00% 9,563,514 42.05 7,205,788 31.10
6.01% - 7.00% 1,367,891 6.01 4,014,600 17.32
7.01% - 8.00% - - 5,313 .02
----------- ------ ---------- ------
17,190,945 75.59 17,765,771 76.67
----------- ------ ----------- ------
$22,741,108 100.00% $23,172,428 100.00%
=========== ====== =========== ======
</TABLE>
At June 30, 1996, scheduled maturities certificates of deposit are as
follows:
Amount Average Rate Percent
------ ------------ -------
1997 $12,031,652 5.28% 69.99%
1998 4,184,954 5.83 24.34
1999 794,517 5.70 4.62
2000 160,822 5.95 .94
2001 6,000 6.50 .03
Thereafter 13,000 5.56 .08
----------- ---- -----
$17,190,945 100.00%
=========== ======
The average interest rate on the savings deposit portfolio, computed
without effect of compounding daily interest, at June 30, 1996 and 1995 is
4.83% and 4.94%, respectively.
The Bank had certificates of deposit with balances of $100,000 or more of
$1,485,562 and $1,564,063 at June 30, 1996 and 1995, respectively.
A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Passbook Savings $ 85,817 $105,576 $116,878
Money Market & NOW Accounts 75,748 91,917 96,147
Certificates of Deposit 943,441 783,452 635,234
---------- -------- --------
$1,105,006 $980,945 $848,259
========== ======== ========
</TABLE>
10
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
6. FEDERAL HOME LOAN BANK ADVANCES
The Bank had obtained approval of a line of credit of up to $2,000,000 from
the FHLB and had borrowed $700,000 at June 30, 1995. This commitment
expired September 27, 1995. Advances carry variable rates, with a rate of
6.7% at June 30, 1995. The Bank had pledged their loan portfolio as
collateral for the advances. Currently, the Bank has no advances or pledges
towards advances at June 30, 1996.
7. INCOME TAXES
The Corporation and its subsidiaries file a consolidated federal income tax
return and income tax is apportioned among all companies based on their
taxable income or loss. Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current $256,680 $170,998 $192,022
Deferred benefit (53,922) - (8,000)
------- ------- ------
Total $202,758 $170,998 $184,022
======== ======== ========
</TABLE>
The effective tax rate differs from the federal statutory rate of 34% due
to the following:
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate 34.0% 34.00% 34.0%
Increase (decrease) resulting from:
Other - net (.2) 1.07 .5
--- ---- --
Effective tax rate 33.8% 35.07% 34.5%
==== ===== ====
</TABLE>
Temporary differences between the financial statements carrying amounts and
tax bases of assets and liabilities that give rise to significant portions
of deferred income taxes, relate to the following:
<TABLE>
<CAPTION>
June 30,
--------------------
1996 1995
---- ----
Deferred tax assets:
<S> <C> <C>
Deferred loan origination fees $ 2,636 $ 3,253
Bad debt reserves 28,327 8,862
Reserve for uncollectible interest 5,589 239
Post-retirement benefits 39,919 -
------ -------
76,471 12,354
Deferred tax liabilities:
Basis difference in FHLB stock 69,224 59,874
Depreciation differences 3,325 2,480
------ ------
72,549 62,354
------ ------
Net deferred tax asset (liability) $ 3,922 $(50,000)
======= ========
</TABLE>
11
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
7. INCOME TAXES - (Continued)
-------------------------
The Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 109 at July 1, 1993, thus recognizing a deferred tax
liability of $26,516. Prior year financial statements were not restated and
the cumulative effect of the change was shown as a one-time charge to
income in the 1994 consolidated statements of income.
The Bank's annual addition to its reserve for bad debts allowed under the
Internal Revenue Code may differ significantly from the bad debt experience
used for financial statement purposes. Such bad debt deductions for income
tax purposes are included in taxable income of later years only if the bad
debt reserves are used for purposes other than to absorb bad debt losses.
Since the Bank does not intend to use the reserve for purposes other than
to absorb losses, no deferred income taxes have been provided on the amount
of bad debt reserves for tax purposes that arose in tax years beginning
before December 31, 1987, in accordance with SFAS No. 109. Therefore,
retained earnings at June 30, 1996 and 1995 includes approximately
$1,174,000, representing such bad debt deductions for which no deferred
income taxes have been provided.
8. STOCKHOLDERS' EQUITY
--------------------
1. Stock Conversion - Effective October 12, 1995, the Bank converted from
a federally-chartered mutual savings and loan association to a
federally-chartered capital stock savings and loan association. In
connection with the conversion, 770,500 shares of common stock were
sold at $10.00 per share. Net proceeds from the sale of stock were
$7,335,737 after conversion costs of $369,263.
2. Net Worth/Dividend Restrictions - For the purpose of granting to
eligible savings account holders a priority in the event of future
liquidation, the Savings Bank established a special account in an
amount equal to its total retained income of $4,636,221 at June 30,
1995. In the event of future liquidation (and only in such an event),
an eligible account holder who continues to maintain a savings account
will be entitled to receive a distribution from the special account.
The total amount of the special account decreases in an amount
proportionately corresponding to decreases in the savings account
balances of eligible account holders on each subsequent annual
determination date.
The Savings Bank may not declare or pay a cash dividend on any of its
capital stock if the effect thereof would cause the net worth of the
Savings Bank to be reduced below the amount required for the
liquidation account.
Additionally, federal regulations limit dividend and capital
distributions during a calendar year to the greater of: 100 percent of
the Bank's current net income plus the amount that would reduce by
one-half its surplus capital ratio at the beginning of the calendar
year; or 75 percent of its net income over the most recent
four-quarter period.
3. Earnings Per Share - Net income per share of common stock from the
date of conversion, October 12, 1995 to June 30, 1996, is computed by
dividing net income for the period by 770,500, the number of shares of
common stock issued and outstanding for the period. Common stock
equivalents have not been used in computing net income per share
because their effect is not material.
A proforma net income of $.66 per share of common stock for the year
ended June 30, 1996 has been calculated as if the 770,500 common
shares were issued on July 1, 1995. Adjustments were made to net
income by assuming that the net proceeds were available for investment
by the Savings Bank at the weighted average interest rate on all
interest-earning assets from July 1, 1995 through October 12, 1995.
12
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
8. STOCKHOLDERS' EQUITY - (Continued)
---------------------------------
3. Regulatory Capital Requirements - The Bank is subject to various
regulatory capital requirements administered by the OTS. Currently,
the minimum required regulatory capital levels are tangible capital of
1.5% of tangible assets, core capital of 3.0% of adjusted tangible
assets, and risk-based capital of 8.0% of risk-weighted assets. At
June 30, 1996, the Bank met all regulatory capital requirements. At
June 30, 1996, the Bank's regulatory tangible capital was 25.78
percent of total assets, core capital was 25.78 percent of adjusted
tangible assets and risk-based capital was 39.89 percent of total
risk-weighted assets.
9. EMPLOYEE BENEFIT PLANS AND POST-RETIREMENT BENEFITS
---------------------------------------------------
1. Pension Plan - The Savings Bank is a participant in the Financial
Institutions Retirement Fund (FIRF), a multi-employer defined benefit
pension plan covering substantially all employees. Employees are 100%
vested at the completion of five years of participation in the plan.
The Savings Bank's policy is to contribute annually the minimum
funding amounts. Employer contributions charged to operations for 1996
were $3,264. The plan was fully funded for 1995 and 1994, thus
requiring no contributions.
2. Employee Stock Ownership Plan - Savings Bank - Effective October 13,
1995, the Board of Directors of the Bank formally adopted the Nelson
County Federal Employee Stock Ownership Plan (ESOP). Employees are
eligible to participate in the ESOP upon completion of one year of
service. Employees are vested in accordance with a schedule which
provides for 100% vesting upon completion of five years of service.
In October, 1995, the plan borrowed $500,000 from the Corporation to
purchase 50,000 shares of the Corporation's common stock. The loan
matures in October, 2005 and interest is payable annually at a rate of
6.0%. The obligation of the ESOP to repay the debt is guaranteed by
the Savings Bank; therefore, the unpaid balance of the borrowings has
been eliminated under principles of consolidation in the accompanying
consolidated balance sheet.
The Bank makes annual contributions to the ESOP equal to the ESOP's
debt service. In addition, all dividends received by the ESOP are used
to pay debt service. The ESOP shares initially were pledged as
collateral for its debt. As the debt is repaid, shares are released
from collateral and allocated to active employees, based on a
principal plus interest formula. The Bank accounts for its ESOP in
accordance with Statement of Position 93-6. Accordingly, the shares
pledged as collateral are reported as unearned ESOP shares in the
statement of financial position as a deduction from stockholders'
equity. As shares are released from collateral, the Bank reports
compensation expense equal to the current market price of the shares.
Only shares released for allocation are treated as outstanding for
earnings-per-share computations. Only dividends that are paid on
shares released for allocation are recorded as a reduction to retained
earnings. The dividends on unreleased shares used to pay debt service
are reported as a reduction to debt service expense. ESOP compensation
expense was $41,428 for the year ended June 30, 1996. The ESOP shares
as of June 30, 1996 were as follows:
Allocated shares 1,467
Shares released for allocation 2,316
Unreleased shares 46,217
------
Total ESOP shares 50,000
======
Fair value of unreleased shares $621,041
========
13
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
9. EMPLOYEE BENEFIT PLANS AND POST-RETIREMENT BENEFITS - (Continued)
----------------------------------------------------------------
3. Stock Option Plan - Under the 1995 Stock Option Plan, the Corporation
may grant either incentive or non-incentive stock options to officers,
directors and key employees for an aggregate of 77,050 shares of the
Corporation's common stock at not less than fair market value at the
date such options are granted. The option to purchase shares expires
ten years after the date of grant. At June 30, 1996, 19,260 shares
have been granted, however, none are exercisable at that date. The
plan has not obtained OTS non-objection.
4. Management Stock Bonus Plan - The Corporation will contribute
sufficient funds to the Management Stock Bonus Plan (MSBP) to purchase
up to 30,820 shares of the Corporation to be awarded to directors,
officers and key employees as an encouragement to remain in the
employment or service of the Bank. Upon granting of a MSBP award, 20%
shall be earned on the one-year anniversary of the award and an
additional 20% annually thereafter. Compensation expense will be
recognized pro rata over the period during which the shares are
earned. At June 30, 1996, if the plan were to be fully funded, the
fair value of all shares under this plan would be $414,144. None of
the awards have been earned for the recognition of compensation
expense. The plan has not obtained OTS non-objection.
5. Post-Retirement Benefits -
1. Supplemental Executive Retirement Plan (SERP) - Effective January
1, 1996, the Bank approved the SERP for the President and Chief
Executive Officer. Upon retirement, the Bank will pay a monthly
retirement benefit in excess of the FIRF plan, not exceeding 2%
times such participant's average monthly compensation multiplied
by total years of service. Under Statement of Financial
Accounting Standards No. 106 (FASB 106), "Employers Accounting
for Post-Retirement Benefits Other Than Pensions", the Bank has
recorded plan expense of $95,895 during the year ended June 30,
1996 as the present value of the expected post-retirement benefit
obligation. The plan is currently not funded. This plan has not
obtained OTS non-objection.
2. Directors Consultation and Retirement Plan (Directors Plan) -
Effective March 1, 1996, the Bank approved the Directors Plan to
provide each director with 15 years of service and a retirement
age of 65, a monthly benefit equal to the directors fees in
effect prior to retirement. Benefits do not vest fully until
three years following plan implementation. Under FASB 106, the
Bank has recorded plan expense of $21,513 during the year ended
June 30, 1996 as the present value of the expected
post-retirement benefit obligation. The plan is currently not
funded. This plan has not obtained OTS non-objection.
10. CASH FLOW ACTIVITIES
--------------------
The following information is presented as supplemental disclosures to the
statement of cash flows, as required by Statement of Financial Accounting
Standards No. 95.
Cash paid during the year ended June 30 for:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest expense $1,145,780 $958,072 $867,424
========== ======== ========
Income taxes $ 131,600 $170,388 $206,508
========== ======== ========
</TABLE>
14
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
11. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
----------------------------------------------------
The following condensed statements summarize the financial position,
operating results and cash flows of NCF Financial Corporation (Parent
Company only).
Condensed Statements of Financial Condition
<TABLE>
<CAPTION>
June 30,
--------
1996
----
Assets
<S> <C>
Cash and interest earning deposits $ 3,077,144
Investment in subsidiary 8,677,019
Other assets 526,368
----------
$12,280,531
===========
Liabilities and Stockholders' Equity
Other liabilities $ 15,258
Stockholders' equity 12,265,273
----------
$12,280,531
===========
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended
June 30,
--------
1996
----
<S> <C>
Cash dividends from subsidiary $ -
Interest income 121,425
----------
121,425
Other expenses (72,577)
----------
Net income before income tax expense 48,848
Income tax expense (15,258)
----------
Income before equity in undistributed net
income of subsidiaries 33,590
Equity in undistributed net income of subsidiaries 229,205
-----------
Net income $ 262,795
===========
</TABLE>
15
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
11. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) - (Continued)
-------------------------------------------------------------------
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended
June 30,
--------
1996
----
Operating Activities:
<S> <C>
Net income $ 262,795
Adjustments to reconcile net income to
cash provided by operating activities:
Earnings from investment in subsidiary (229,205)
Increase in other assets (26,368)
Increase in other liabilities 15,258
-----------
Net cash provided by operating activities 22,480
Investing Activities:
Investment in subsidiary (3,665,498)
ESOP loan (500,000)
-----------
Net cash used in investing activities (4,165,498)
Financing Activities:
Proceeds from stock issuance, net 7,335,737
Dividends paid (115,575)
-----------
Net cash provided by financing activities 7,220,162
-----------
Net increase in cash 3,077,144
Cash, beginning of year -
-----------
Cash, end of year $ 3,077,144
===========
</TABLE>
16
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases could not be realized in immediate
settlement of the instrument. Accordingly, the aggregate fair value amounts
presented are not intended to represent the underlying value of the
Corporation.
The methods and assumptions used by the Corporation in estimating its fair
value disclosures for financial instruments are presented below:
1. Cash and Interest Earning Deposits - The carrying amounts for cash
and interest earning deposits approximates their fair values.
2. Mortgage-Backed Securities - Fair values for investment securities are
based upon quoted market prices, where available. If quoted market
prices are not available, fair values are based on quoted market
prices of comparable instruments.
3. Loans, net - For variable rate loans that reprice frequently and with
no significant change in credit risk, fair values are based on
carrying amounts. The fair values of other types of loans are
estimated by discounting the future cash flows using current interest
rates at which similar loans would be made to borrowers with similar
credit quality and for the same remaining maturities.
4. Deposits - The fair values for demand deposits, savings accounts and
certain money market deposits are the amounts payable on demand at the
reporting date. The carrying amounts for variable-rate, money market
accounts and certificates of deposit approximate their fair values at
the reporting date. Fair values for fixed-rate certificates of deposit
are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule
of aggregated expected monthly maturities on time deposits.
5. Advances from Federal Home Loan Bank - The fair values for long-term
debt are estimated using discounted cash flow analyses, based on the
Corporation's current incremental borrowing rates for similar types of
borrowing arrangements.
6. Commitments to Extend Credit and Standby Letters of Credit - The fair
values of commitments to extend credit is estimated using fees
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present
creditworthiness of the customer. For fixed-rate loan commitments,
fair value also considers the difference between current levels of
interest rates and the committed rates. The fair values of standby
letters of credit are based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counter parties at the reporting date.
The value of these financial instruments was not material at June 30,
1996.
17
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. FAIR VALUES OF FINANCIAL INSTRUMENTS - (Continued)
--------------------------------------------------
The estimated fair values of the Corporation's financial instruments are as
follows:
<TABLE>
<CAPTION>
June 30, 1996
---------------------------
Carrying Fair
Value Value
----- -----
Financial assets:
<S> <C> <C>
Cash and interest bearing deposits $ 5,162,958 $ 5,162,958
Mortgage-backed securities $ 143,347 $ 164,993
Loans, net $28,861,111 $29,237,496
Financial liabilities:
Deposits $22,741,108 $22,737,575
Advances from Federal Home Loan Bank $ - $ -
</TABLE>
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
-------------------------------------------------
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit. Those
instruments involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amount recognized in the balance sheet.
The contract or notional amounts of those instruments reflect the extent of
the Bank's involvement in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional 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. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Bank evaluates
each customer's credit worthiness. The amount of collateral obtained, if it
is deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterpart.
The Bank's only financial instruments with off-balance-sheet risk at June
30, 1996 and 1995 are outlined in Note 2.
18
<PAGE>
[CRISP CH HUGHES & CO., L.L.P. Letterhead]
Independent Auditors' Report
----------------------------
Board of Directors
Nelson County Federal Savings and Loan Association
Bardstown, Kentucky
We have audited the accompanying consolidated balance sheets of Nelson County
Federal Savings and Loan Association (Association) and Subsidiary as of June 30,
1995, and the related consolidated statements of income, retained earnings, and
cash flows for the years ending June 30, 1995 and 1994. These financial
statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Association and
Subsidiary as of June 30, 1995, and the results of their operations and their
cash flows for the years ending June 30, 1995 and 1994, in conformity with
generally accepted accounting principles.
/s/Crisp Hughes & Co., L.L.P.
Asheville, North Carolina
August 17, 1995
32 Orange Street - P.O. Box 3049 - Asheville, North Carolina 28802
(704) 254-2254 - FAX (704) 254-6859
Other Offices: Boone, Burnsville, Sylva, NC and Greenville, SC
Member of: The American Institute of Certified Public Accountants.
The Continental Association of CPA Firsm, Inc.,
The Intercontinental Accounting Associates
and The North Carolina and South Carolina Associates of CPAs
<PAGE>
NCF FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------
CORPORATE INFORMATION
---------------------
SUBSIDIARIES: Nelson County Federal Savings Bank
Nelson Service Corporation
MAIN OFFICE: 119 East Stephen Foster Avenue
Bardstown, KY 40004-1589
DIRECTORS: A.E. Bowling
President, Chairman of the Board
Dan Biggs
Vice-President
John S. Tharp
Assistant Secretary
Retired; Insurance and Real Estate
Paul Barnes, DMD
Dentist
Ben T. Guthrie
Retired
Robert C. Hurst
Pharmacist, Hurst Discount Drug, Inc.
Guthrie M. Wilson, III
Auto Dealer, Wilson Brothers, Inc.
OFFICERS: A.E. Bowling
President
Dan Biggs
Vice-President
Patricia Thomas
Secretary and Treasurer
AUDITORS: Whelan, Doerr, Pike & Pawley, PSC
Elizabethtown, KY
LEGAL COUNSEL: Malizia, Spidi, Sloane & Fisch, P.C.
Washington, DC
ANNUAL MEETING: The annual meeting of stockholders will be held at 10:00 a.m.
on October 31, at Hampton Inn, 985 Chambers Blvd., Bardstown,
Kentucky.
<PAGE>
NCF FINANCIAL CORPORATION
================================================================================
SERVING NELSON COUNTY SINCE 1925
119 East Stephen Foster
Bardstown, Kentucky 40004-1589
EXHIBIT 21
Subsidiaries of the Company
Percentage Jurisdiction of
---------- ---------------
Subsidiaries Owned Incorporation
Nelson County Federal Savings Bank 100% United States
Nelson Service Corporation 100% Kentucky
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 195
<INT-BEARING-DEPOSITS> 4,968
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 143
<INVESTMENTS-MARKET> 165
<LOANS> 29,022
<ALLOWANCE> 161
<TOTAL-ASSETS> 34,095
<DEPOSITS> 22,741
<SHORT-TERM> 0
<LIABILITIES-OTHER> 361
<LONG-TERM> 0
0
0
<COMMON> 77
<OTHER-SE> 11,726
<TOTAL-LIABILITIES-AND-EQUITY> 34,905
<INTEREST-LOAN> 2,246
<INTEREST-INVEST> 20
<INTEREST-OTHER> 257
<INTEREST-TOTAL> 2,523
<INTEREST-DEPOSIT> 1,105
<INTEREST-EXPENSE> 1,122
<INTEREST-INCOME-NET> 1,401
<LOAN-LOSSES> 61
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 762
<INCOME-PRETAX> 601
<INCOME-PRE-EXTRAORDINARY> 398
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 398
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
<YIELD-ACTUAL> 2.80
<LOANS-NON> 1,350
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 755
<ALLOWANCE-OPEN> 100
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 161
<ALLOWANCE-DOMESTIC> 161
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
