MORTON TRILLING Executive Vice President Citizens & Savings FINANCIAL CORPORATION 999 BRICKELL AVENUE, MIAMI, FLORIDA 33131 TELEPHONE: (305) 577-0400 Citizens Savings Financial Corporation ("CSFC") is tentatively proposing to acquire a savings and loan association through a transaction involving the Federal Savings and Loan Insurance Corporation ("FSLIC"). The proposed acquisition would-be accomplished through the merger of the acquired association with CSFC's wholly-owned subsidiary, Citizens Federal Savings and Loan Association ("Citizens"). In connection with this transaction, CSFC will issue to the FSLIC securities designated as Permanent Income Capital Certificates ("PICCs"). The terms and details of the PICCs are described in the enclosed copy of a letter from the firm of Muldoon, Murphy, Bray & Faucette. We believe that these securities meet the qualifications and criteria for equity and we are proposing to classify them as such in our financial statements. We are requesting your review and concurrence with our conclusion. In order to assist you with the review and to provide all the facts surrounding the proposed acquisition, we are enclosing the aforementioned letter from Muldoon, Murphy, Bray & Faucette, a letter from our independent certified public accountants, Deloitte Haskins & Sells, and pro forma financial statements setting forth the proposed transaction. Also enclosed is a subscription offering circular for Columbia First Federal Savings and Loan Association that, while not an SEC reporting entity, has issued PICCs to FSLIC and accounted for the transaction as an addition to capital under generally accepted accounting principles. After you have had a chance to review this information, we would appreciate the opportunity to meet with you to discuss your questions. I plan on calling you on Friday, February 7th to see if such a meeting can be arranged. Pursuant to the letter addressed to you from FSLIC Acting Director Angelo A. Vigna dated January 24, 1986, if you have any questions on this matter to which the FSLIC can be of assistance please contact Mr. Vigna or J. Richard Earle at (202) 377-6330. Yours truly, Illarton filling DEH Morton Trilling and Treasurer Enclosures This letter concerns an inquiry that we understand was submitted to you by Citizens Savings Financial Corporation ("CSFC"), which is a savings and loan association ("Association") insured by the Federal Savings and Loan Insurance Corporation ("FSLIC"). CSFC proposes to merge the Association with its wholly-owned subsidiary, Citizens Federal Savings and Loan Association. Because the Association is in a financially troubled condition, Citizens has requested that the FSLIC will provide assistance in connection with the proposed transaction. It is also requested that the FSLIC will purchase certain capital instruments (permanent-type Income Capital Certificates) in connection with the transaction. CSPC ha indicated that Ifi has requested your concurrence in the opinion of its independent, accountant regarding the proper reporting of the accounting: treatment for those instruments. Your prompt attention to this matter would be appreciated. We would be pleased to provide whatever additional information or assistance you may deem useful. Any questions or comments that you may have may be directed to the undersigned or to J. Richard Earle at (202) 377-6330. very truly yours, Angelo A. Vigna As we discussed by telephone, enclosed is a draft letter to the Securities and Exchange Commission staff concerning the accounting treatment for the Income Capital Certificates that would be issued in connection with the subject transaction. We anticipate that Citizens will submit its inquiry to the SEC in the week of December 16, 1985. We believe an expression of serious interest by the FSLIC would encourage the SEC to consider the matter on a more expedited basis. We believe it is important not only to the subject transaction but to all FSLIC transactions involving the issuance of ICC's by a public company that the SEC agree that a permanent-type ICC is equivalent to non-redeemable preferred stock for reporting purposes. If the SEC staff should decide to discuss the issue with the Bank Board's accounting staff, it will be clearly advantageous to the PSLIC if the staff who are contacted are fully acquainted with the matter and cognizant of the importance of the accounting treatment to the PSLIC. We would be pleased to provide additional information or to participate, with Citizens' accountants, Deloitte, Haskins & Sells, in any discussion with the Bank Board staff in preparation for potential SEC staff inquiries. Please call Doug Faucet-ze or me if you have any questions concerning this matter. Sincerely, JRH/par MULDOON, MURPHY, BRAY & FAUCETTE ohn John R. Hall As we discussed by telephone, this is to advise you of a possible change to the bid submitted by our letter dated October 22, 1985, in connection with the subject proposed acquisition. Based on the accounting advice it has received, Citizens Federal Savings and Loan Association ("Citizens") believes that the purchase of additional Income Capital Certificates ("ICC's") by the Federal Savings and Loan Insurance Corporation ("PSLIC") may be required to achieve the capital position contemplated by the October 22, 1985, bid. The amount of the additional ICC's that may be required has not yet been determined because that determination will be based on an appraisal of the market value of the ICC's that were requested in the bid. We want to emphasize that the additional ICC's that may be requested would provide for the payment of Annual Income Payments ("AIP's") beginning in the first year after issuance of the ICC's. Thus, AIP's would begin to accrue and compound immediately, without the five-year forgiveness period that would be included in the ICC's requested in the bid letter. We believe the additional ICC's, without any forgiveness of AIP's, should not involve any additional cost to the FSLIC. Citizens expects that it will soon submit the accounting matters relevant to the ICC to the Securities and Exchange Commission ("SEC") for its concurrence. The views of the SEC with regard to the proper accounting treatment for reporting purposes will be considered in determining the amount, if any, of additional ICC's that will be requested. We will keep you apprised of developments in connection with these matters. Please feel free to call us at any time if you believe further discussion would be useful. Sincerely, MULDOON, MURPHY, BRAY & FAUCETTE John R. Hall You have requested this letter in connection with the proposed acquisition by Citizens Savings Financial Corporation (CSFC) of a savings and loan association ("Association") insured by the Federal Savings and Loan Insurance Corporation ("FSLIC"). CSFC is a savings and loan holding company whose securities are registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the "1934 Act"). The proposed acquisition would be accomplished by the merger of the Association with and into CSFC's wholly-owned subsidiary, Citizens Federal Savings and Loan Association ("Citizens"). In connection with the acquisition the FSLIC, among other things, would purchase from CSFC certain securities designated as Permanent Income Capital Certificates (PICCs). The form and terms of the PICCS are described below. The purpose of this letter is to facilitate your request for the concurrence of the Securities and Exchange Commission that the PICCS should be treated as stockholders' equity, equivalent to non-redeemable preferred stock, on financial statements included in filings made under the Securities Act of 1933 and the 1934 Act. It is our understanding that because of the significance of the accounting for the PICCS such concurrence will be sought prior to the consummation of the proposed transaction. Description of the PICCS As presently proposed, a Class A PICC and a Class B PICC would be issued by CSFC to the FSLIC pursuant to a |