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Business Description BUSINESS OF THE MID-TIER HOLDING COMPANY The Mid-Tier Holding Company is a federally chartered mid-tier stock holding company organized in August 1997. The only significant asset of the Mid-Tier Holding Company is its investment in the Association. The Mid-Tier Holding Company is majority owned by the MHC, a federally chartered mutual holding company. Effective September 30, 1997, the Mid-Tier Holding Company acquired all of the issued and outstanding common stock of the Association in connection with the Association's reorganization into the two-tier form of mutual holding company ownership. At that time, each share of Association's Common Stock was converted into one share of Mid-Tier Holding Company Common Stock. As of the date hereof, the MHC owned 2,620,144 shares of Mid-Tier Holding Company Common Stock with the remaining 2,483,816 shares being owned by the Public Shareholders. The Mid-Tier Reorganization was accounted for at historical cost in a manner similar to a pooling of interests. Therefore, all financial information has been presented as if the Mid-Tier Holding Company had been in existence for all periods included in this report. On a consolidated basis, at June 30, 1998, the Mid-Tier Holding Company had total assets of $765.5 million, total loans of $527.4 million, total deposits of $574.4 million, and total shareholders' equity of $83.1 million. The Mid-Tier Holding Company's executive office is located at 660 U.S. Highway One, North Palm Beach, Florida and its telephone number at that address is (561) 881-2212. BUSINESS OF COMMUNITY SAVINGS, F. A. GENERAL. The Association, founded in 1955, is a federally chartered savings and loan association headquartered in North Palm Beach, Florida. The Association's deposits are federally insured by the FDIC through the SAIF. The Association has been a member of the FHLB of Atlanta since 1955. The Association is regulated by the OTS. On October 24, 1994, the Association completed a reorganization into a federally chartered mutual holding company, the MHC. As part of the MHC Reorganization, the Association organized a new federally chartered stock savings association and transferred substantially all of its assets and liabilities to the stock savings association in exchange for a majority of the common stock of the stock savings association. Subsequently, on September 30, 1997, it completed the Mid-Tier Reorganization. The Association is a community-oriented financial institution engaged primarily in the business of attracting deposits from the general public in the Association's market area (as described below) and using such funds, together with other borrowings, to invest in various consumer-based real estate loans, commercial business loans and mortgage-backed and related securities as well as United States government and agency securities, mutual funds, corporate debt securities, interest-earning deposits in the FHLB and FHLB stock. See "Lending Activities," "Mortgage-Backed and Related Securities," and "Securities Portfolio." The Associations principal source of funds are deposits, principal and interest payments on loans and securities, and FHLB advances. The principal source of income is interest received from loans and securities, while principal expenses are interest paid on deposits and borrowings and employee compensation and benefits. See "Sources of Funds." The Association's plan is to operate as a well-capitalized, profitable and independent institution. The Association's profitability is highly dependent on its net interest income. The components that determine net interest income are the amount of interest-earning assets and interest-bearing liabilities, together with the rates earned or paid on such interest rate-sensitive instruments. The Association is sensitive to managing interest rate risk exposure through its efforts to better match asset and liability maturities and rates. This is accomplished while considering the credit risk of certain assets. The Association maintains asset quality by utilizing comprehensive loan underwriting standards and collection efforts as well as by primarily originating or purchasing secured or guaranteed assets. The Association's executive office is located at 660 U.S. Highway One, North Palm Beach, Florida, and its telephone number at that address is (561) 881-4800.