As filed with the Securities and Exchange Commission on March 3, 1997
Registration Nos. 333-21903
333-21903-01
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------------
SUN CAPITAL TRUST
SUN BANCORP, INC.
-----------------
(Exact Name of Registrants as Specified in their Charters)
Delaware Requested
New Jersey 6035 52-1382541
- ----------------- --------------------------- --------------------
(States or Other (Primary Standard Industry (I.R.S. Employer
Jurisdictions of Classification Code Number) Identification Nos.)
of Incorporation
or Organization)
226 Landis Avenue, Vineland, New Jersey 08360
(609) 691-7700
- --------------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrants' Principal Executive Offices)
Mr. Adolph F. Calovi
President
Sun Bancorp, Inc.
226 Landis Avenue, Vineland, New Jersey 08360
(609) 691-7700
- --------------------------------------------------------------------------------
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Please send copies of all communications to:
John J. Spidi, Esq. Steven L. Kaplan, Esq.
Lloyd H. Spencer III, Esq. ARNOLD & PORTER
Felicia C. Battista, Esq. 555 Twelfth Street, N.W.
MALIZIA, SPIDI, SLOANE & FISCH, P.C. Washington, D.C. 20004
1301 K Street, N.W., Suite 700 East,
Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
The prospectus contained in this Registration Statement will be used in
connection with the offering of the following securities: (1)______% Preferred
Securities of Sun Capital Trust; (2)______% Junior Subordinated Debentures of
Sun Bancorp, Inc.; and (3) a Guarantee of Sun Bancorp, Inc. of certain
obligations under the Preferred Securities.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION DATED MARCH 3, 1997
[LOGO]
$25,000,000
Sun Capital Trust
___ % Preferred Securities
(Liquidation Amount $25 per Preferred Security)
fully and unconditionally guaranteed, as described herein, by
Sun Bancorp, Inc.
The Preferred Securities offered hereby represent preferred undivided
beneficial interests in the assets of Sun Capital Trust, a statutory business
trust created under the laws of the State of Delaware (the "Issuer Trust"). Sun
Bancorp, Inc. (the "Company") will initially be the holder of all of the
beneficial interests represented by common securities of the Issuer Trust (the
"Common Securities" and, together with the Preferred
(Continued on next page)
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES.
------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A
BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER INSURER OR GOVERNMENT AGENCY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===============================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC(1) DISCOUNT (2) ISSUER TRUST (3)(4)
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<S> <C> <C> <C>
Per Preferred Security.... $25.00 (4) $25.00
- -----------------------------------------------------------------------------------------------
Total(5).................. $25,000,000 (4) $25,000,000
===============================================================================================
</TABLE>
- --------------
(1) Plus accrued Distributions, if any, from , 1997.
(2) The Company and the Issuer Trust have each agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933.
See "Underwriting."
(3) Before deduction of expenses payable by the Company estimated at $ .
(4) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures, the
Company has agreed to pay to the Underwriters, as compensation for
arranging the investment therein of such proceeds, $1.00 per Preferred
Security (or $1.0 million in the aggregate). See "Underwriting."
(5) The Company has granted the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional
$3,750,000 aggregate liquidation amount of the Preferred Securities on the
same terms as set forth above, solely to cover over-allotments, if any. If
such over-allotment option is exercised in full, the total Price to Public
and Proceeds to Company will be $ and $ , respectively
See "Underwriting."
The Preferred Securities are offered by the Underwriters subject to receipt
and acceptance by them, prior sale and the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the Preferred Securities will be made in
book-entry form through the book-entry facilities of The Depository Trust
Company on or about , 1997 against payment therefor in immediately
available funds.
ADVEST, INC.
The date of this Prospectus is , 1997
<PAGE>
(cover page continued)
Securities, the "Trust Securities"). The Issuer Trust exists for the sole
purpose of issuing the Trust Securities and investing the proceeds thereof in
% Junior Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures," and together with the Trust Securities, the
"Securities") to be issued by the Company. The Junior Subordinated Debentures
will mature on , 2027 (the "Stated Maturity"). The Preferred Securities
will have a preference under certain circumstances over the Common Securities
with respect to cash distributions and amounts payable on liquidation,
redemption or otherwise. See "Description of Preferred Securities --
Subordination of Common Securities."
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company,
as depositary ("DTC"). Beneficial interests in the global securities will be
shown on, and transfer thereof will be effected only through, records maintained
by DTC and its participants. Except as described under "Description of Preferred
Securities," Preferred Securities in definitive form will not be issued and
owners of beneficial interests in the global securities will not be considered
holders of the Preferred Securities. Application will be made to include the
Preferred Securities in Nasdaq's National Market. Settlement for the Preferred
Securities will be made in immediately available funds. The Preferred Securities
will trade in DTC's Same-Day Funds Settlement System, and secondary market
trading activity for the Preferred Securities will therefore settle in
immediately available funds.
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions accumulating from , 1997 and
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year commencing June 30, 1997, at the annual rate of %
of the Liquidation Amount of $25 per Preferred Security ("Distributions"). The
Company has the right to defer payment of interest on the Junior Subordinated
Debentures at any time or from time to time for a period not exceeding 20
consecutive quarterly periods with respect to each deferral period (each, an
"Extension Period"), provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. No interest shall be due
and payable during any Extension Period, except at the end thereof. Upon the
termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Junior Subordinated
Debentures are so deferred, Distributions on the Preferred Securities will also
be deferred and the Company will not be permitted, subject to certain exceptions
described herein, to declare or pay any cash distributions with respect to the
Company's capital stock or with respect to debt securities of the Company that
rank pari passu in all respects with or junior to the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Preferred Securities are entitled will accumulate) at the rate of
% per annum, compounded quarterly, and holders of Preferred Securities will be
required to accrue interest income for United States federal income tax
purposes. See "Description of Junior Subordinated Debentures -- Option to Extend
Interest Payment Period" and "Certain Federal Income Tax Consequences --
Interest Income and Original Issue Discount."
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture (each as defined
herein), taken together, fully, irrevocably and unconditionally guaranteed all
the Issuer Trust's obligations under the Preferred Securities as described
below. See "Relationship Among the Preferred Securities, the Junior Subordinated
Debentures and the Guarantee -- Full and Unconditional Guarantee." The Guarantee
of the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Preferred Securities, but only in each case to
the extent of funds held by the Issuer Trust, as described herein (the
"Guarantee"). See "Description of Guarantee." If the Company does not make
payments on the Junior Subordinated Debentures held by the Issuer Trust, the
Issuer Trust may have insufficient funds to pay Distributions on the Preferred
Securities. The Guarantee does not cover payment of Distributions when the
Issuer Trust does not have sufficient funds to pay such Distributions. In such
event, a holder of Preferred Securities may institute a legal proceeding
directly against the Company to enforce payment of such Distributions to such
holder. See "Description of Junior Subordinated Debentures -- Enforcement of
Certain Rights by Holders of Preferred Securities." The obligations of the
Company under the Guarantee and the Preferred Securities are subordinate and
junior in right of payment to all Senior Indebtedness (as defined in
"Description of Junior Subordinated Debentures -- Subordination") of the
Company.
2
<PAGE>
The Preferred Securities are subject to mandatory redemption (i) in
whole, but not in part, upon repayment of the Junior Subordinated Debentures at
Stated Maturity or, at the option of the Company, their earlier redemption in
whole upon the occurrence of a Tax Event, an Investment Company Event or a
Capital Treatment Event (each as defined herein) and (ii) in whole or in part at
any time on or after , 2002 contemporaneously with the optional
redemption by the Company of the Junior Subordinated Debentures in whole or in
part. The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after , 2002, in whole at any time
or in part from time to time, or (ii) in whole, but not in part, at any time
within 90 days following the occurrence and continuation of a Tax Event,
Investment Company Event or Capital Treatment Event, in each case at a
redemption price set forth herein, which includes the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date fixed for
redemption. The ability of the Company to exercise its rights to redeem the
Junior Subordinated Debentures or to cause the redemption of the Preferred
Securities prior to the Stated Maturity may be subject to prior regulatory
approval by the Board of Governors of the Federal Reserve System (the "Federal
Reserve"), if then required under applicable Federal Reserve capital guidelines
or policies. See "Description of Junior Subordinated Debentures -- Redemption"
and "Description of Preferred Securities -- Liquidation Distribution Upon
Dissolution."
The holders of the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust. The ability
of the Company to dissolve the Issuer Trust may be subject to prior regulatory
approval of the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies. See "Description of Preferred Securities
- -- Liquidation Distribution Upon Dissolution."
In the event of the dissolution of the Issuer Trust, after satisfaction
of liabilities to creditors of the Issuer Trust as provided by applicable law,
the holders of the Preferred Securities will be entitled to receive a
Liquidation Amount of $25 per Preferred Security plus accumulated and unpaid
Distributions thereon to the date of payment, subject to certain exceptions,
which may be in the form of a distribution of such amount in Junior Subordinated
Debentures. See "Description of Preferred Securities -- Liquidation Distribution
Upon Dissolution."
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness of the Company. See "Description of Junior Subordinated
Debentures -- Subordination."
Prospective purchasers must carefully consider the information set forth
in "Certain ERISA Considerations."
THE JUNIOR SUBORDINATED DEBENTURES ARE DIRECT AND UNSECURED OBLIGATIONS
OF THE COMPANY, DO NOT EVIDENCE DEPOSITS AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
3
<PAGE>
MAP
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
PREFERRED SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
4
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus is based on the assumption that the Underwriters (as defined
herein) will not exercise their over-allotment option.
THE COMPANY
The Company, a New Jersey corporation, is a bank holding company
headquartered in Vineland, New Jersey with one subsidiary, Sun National Bank
(the "Bank"), a national banking association. At December 31, 1996, the Company
had total assets of $436.8 million, total deposits of $386.0 million and total
stockholders' equity of $27.4 million. The Bank's deposits are federally insured
by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC"). The Company's principal business is to serve as
a holding company for the Bank.
The Company was incorporated in, and the Bank was chartered in, 1985. In
April 1995, the Company changed its name from Citizens Investments, Inc. to its
present name. It is the Company's strategy to expand its retail market
throughout southern New Jersey. Since 1994, the Company has successfully
completed the acquisition of two commercial banks with a total of $117 million
in assets as well as two purchase and assumption transactions in which the
Company acquired eight branches with $122 million in deposits. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview." In addition, the Company entered into an agreement to acquire four
branches, with $73 million in deposits, from First Union National Bank,
Avondale, Pennsylvania, and three branches with $33 million in deposits, from
Oritani Savings Bank, SLA, Hackensack, New Jersey, (see "First Union and Oritani
Branch Purchases"). The Company also plans to establish two de novo branches
during 1997. Through its acquisition and expansion program, the Company has
significantly increased its asset size as well as the Bank's retail network. At
December 31, 1993, the Company's total consolidated assets were $112.0 million
as compared to $436.8 million at December 31, 1996.
At December 31, 1996, the Bank provided community banking services
through eighteen branches located in southern New Jersey. The Bank offers a wide
variety of consumer and commercial lending and deposit services. The loans
offered by the Bank include commercial and industrial loans, commercial real
estate loans, home equity loans, mortgage loans and installment loans. The Bank
also offers deposit and personal banking services including checking, regular
savings, money market deposits, term certificate accounts and individual
retirement accounts. Through an arrangement with Institutional Marketing
Strategies, L.L.C., the Bank also offers mutual funds, securities brokerage and
investment advisory services. The Bank considers its primary market area to be
the New Jersey counties of Atlantic, Burlington, Cape May, Cumberland, Mercer
and Ocean. The Bank's market area contains a diverse base of customers,
including agricultural, manufacturing, transportation and retail consumer
businesses.
The executive office of the Company is located at 226 Landis Avenue,
Vineland, New Jersey 08360 and its telephone number is (609) 691-7700.
Financial Summary
<TABLE>
<CAPTION>
At or for Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in thousands, except per share amounts and ratios)
<S> <C> <C> <C> <C> <C>
Net income.......................... $ 3,013 $ 2,819 $ 1,840 $ 1,128 $ 813
Net income per share (fully diluted) 1.56 1.52 1.42 0.88 0.73
Total assets........................ 436,795 369,895 217,351 112,015 104,162
Loans receivable (net).............. 295,501 183,634 134,861 83,387 82,080
Shareholders' equity................ 27,415 24,671 20,571 12,306 11,178
Return on average assets............ 0.74% 1.03% 1.09% 1.04% 0.74%
Return on average equity............ 11.99% 12.42% 11.74% 9.61% 7.56%
Net yield on interest-earning assets 4.57% 5.30% 5.39% 5.29% 4.96%
</TABLE>
5
<PAGE>
SUN CAPITAL TRUST
The Issuer Trust is a statutory business trust formed under Delaware law
pursuant to (i) a trust agreement, dated as of February 13, 1997, executed by
the Company, as Depositor, Bankers Trust Company, as Property Trustee and
Bankers Trust (Delaware), as Delaware Trustee, and (ii) the filing of a
Certificate of Trust with the Delaware Secretary of State on February 13, 1997.
Such initial trust agreement will be amended and restated in its entirety (as so
amended and restated, the "Trust Agreement"), as of the date the Preferred
Securities are initially issued. Two individuals will be selected by the holder
of the Common Securities to act as administrators with respect to the Issuer
Trust (the "Administrators"). The Company, while holder of the Common
Securities, intends to select two individuals who are employees or officers of
or affiliated with the Company to serve as Administrators. The Issuer Trust's
business and affairs are conducted by its Property Trustee, Delaware Trustee,
and two Administrators. The Issuer Trust exists for the exclusive purposes of
(i) issuing and selling the Preferred Securities and Common Securities, (ii)
using the proceeds from the sale of Preferred Securities and Common Securities
to acquire the Junior Subordinated Debentures issued by the Company and (iii)
engaging in only those other activities necessary, advisable or incidental
thereto (such as registering the transfer of the Preferred Securities).
Accordingly, the Junior Subordinated Debentures will be the sole assets of the
Issuer Trust and payments under the Junior Subordinated Debentures will be the
sole revenue of the Issuer Trust. All of the Common Securities will be owned by
the Company. The Common Securities will rank pari passu, and payments will be
made thereon pro rata, with the Preferred Securities, except that upon the
occurrence and during the continuance of an Event of Default under the Trust
Agreement resulting from an Event of Default under the Indenture, the rights of
the Company as holder of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Preferred Securities. The
Company will acquire Common Securities representing an aggregate liquidation
amount equal to 3% of the total capital of the Issuer Trust. The Issuer Trust
has a term of 31 years, but may terminate earlier as provided in the Trust
Agreement. The principal executive office of the Issuer Trust is 226 Landis
Avenue, Vineland, New Jersey 08360, and its telephone number is (609) 691-7700.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered............................. The % Preferred Securities represent preferred
undivided beneficial interests in the Issuer Trust's
assets, which will consist solely of the Junior
Subordinated Debentures and payments thereunder.
The Trust has granted the Underwriters an option,
exercisable within 30 days after the date of this
Prospectus, to purchase up to an additional 150,000
Preferred Securities at the offering price, solely to
cover over-allotments, if any.
Offering Price................................. $ per Preferred Security (Liquidation
Amount $25), plus accumulated Distributions, if any,
from , 1997.
Distributions.................................. The distributions payable on each Preferred Security
will be fixed at a rate per annum of % of the
stated liquidation amount per Preferred Security, will
be cumulative, will accrue from , 1997, the
date of issuance of the Preferred Securities, and will
be payable quarterly in arrears on March 31, June
30, September 30 and December 31 of each year,
commencing June 30, 1997. See "Description of
Preferred Securities -- Distributions."
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Junior Subordinated Debentures................. The Issuer Trust will invest the proceeds from the
issuance of the Preferred Securities and Common
Securities in an equivalent amount of % Junior
Subordinated Debentures of the Company. The
Junior Subordinated Debentures will mature on ,
2027. The Junior Subordinated Debentures will rank
subordinate and junior in right of payment to all
Senior Indebtedness of the Company. In addition,
the Company's obligations under the Junior
Subordinated Debentures will be structurally
subordinated to all existing and future liabilities and
obligations of its subsidiaries.
Guarantee...................................... Under the terms of the Guarantee, the Company has
guaranteed the payment of Distributions and
payments on liquidation or redemption of the
Preferred Securities, but only in each case to the
extent of funds held by the Issuer Trust described
herein. The Company and the Issuer Trust believe
that the obligations of the Company under the
Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Indenture taken
together, fully, irrevocable and unconditionally
guarantee all of the Issuer Trust's obligations relating
to the Preferred Securities. The obligations of the
Company under the Guarantee and the Preferred
Securities are subordinate and junior in right of
payment to all Senior Indebtedness. See
"Description of Guarantee."
Right to Defer Interest........................ The Company has the right, at any time, to defer
payments of interest on the Junior Subordinated
Debentures for a period not exceeding 20
consecutive quarters; provided that no Extension
Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. As a consequence
of the Company's extension of the interest payment
period, quarterly Distributions on the Preferred
Securities will be deferred (though such Distribution
would continue to accrue with interest thereon
compounded quarterly, since interest will continue to
accrue and compound on the Junior Subordinated
Debentures during any such Extension Period).
During an Extension Period, the Company will be
prohibited, subject to certain exceptions described
herein, from declaring or paying any cash
distributions with respect to its capital stock or debt
securities that rank pari passu with or junior to the
Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment
of all amounts then due, the Company may
commence a new Extension Period, subject to the
foregoing requirements. See "Description of Junior
Subordinated Debentures -- Option to Extend Interest
Payment Period."
Should an Extension Period occur, Preferred
Security holders will continue to include interest
income (and de minimis original issue discount, if
any) for United States income tax purposes. See
"Taxation --Interest and Original Issue Discount."
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Redemption..................................... The Preferred Securities are subject to mandatory
redemption (i) in whole, but not in part, at the Stated
Maturity upon repayment of the Junior Subordinated
Debentures, (ii) in whole, but not in part,
contemporaneously with the optional redemption at
any time by the Company of the Junior Subordinated
Debentures upon the occurrence and continuation of
a Tax Event, Investment Company Event or Capital
Treatment Event and (iii) in whole or in part at any
time on or after , 2002, contemporaneously
with the optional redemption by the Company of the
Junior Subordinated Debentures in whole or in part,
in each case at the applicable Redemption Price. See
"Description of Preferred Securities -- Redemption."
Liquidation of the Issuer Trust................ The Company has the right at any time to dissolve
the Issuer Trust and cause the Junior Subordinated
Debentures to be distributed to holders of Preferred
Securities in liquidation of the Issuer Trust, subject
to the Company having received prior approval of
the Federal Reserve to do so if then required under
applicable capital guidelines or policies of the
Federal Reserve. See "Description of Preferred
Securities -- Liquidation Distribution Upon
Dissolution."
Voting Rights.................................. Generally, the holders of the Preferred Securities
will not have any voting rights. See "Description of
Preferred Securities -- Voting Rights" and "Risk
Factors -- Limited Voting Rights."
The proceeds from the sale of the Preferred
Securities offered hereby will be used by the Issuer
Use of Proceeds................................ Trust to purchase the Junior Subordinated
Debentures issued by the Company. The proceeds
received by the Company from the sale of the Junior
Subordinated Debentures will be used to repay
existing debt of the Company of approximately $6
million and contribute approximately $15 million
through investments in or advances to the Bank.
The remainder of the proceeds will be held by the
Company and may be used to meet debt service
obligations of the Company under the Junior
Subordinated Debentures and make additional
advances to or investments in the Bank. The Bank
intends to use the capital for general corporate
purposes including the First Union and Oritani
branch acquisitions and other branch acquisitions
and/or acquisitions of other financial institutions.
The Trust Securities will qualify as Tier 1 or core
capital of the Company, subject to the 25% Capital
Limitation (as defined herein), under the risk-based
capital guidelines of the Federal Reserve. The
portion of the Trust Securities that exceeds the 25%
Capital Limitation will qualify as Tier 2 or
supplementary capital of the Company. See "Use of
Proceeds."
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ERISA Considerations........................... Prospective purchasers should consider the
information set forth under "Certain ERISA
Considerations."
Nasdaq National Market Symbol.................. Application has been made to have the Preferred
Securities approved for quotation on the Nasdaq
National Market under the symbol "SNBCP".
</TABLE>
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors," beginning on page 11.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following summary information regarding the Company should be read in
conjunction with the consolidated financial statements of the Company and notes
beginning on page F-1.
<TABLE>
<CAPTION>
At or for the Years Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in thousands, except per share amounts and ratios)
Selected Results of Operations
<S> <C> <C> <C> <C> <C>
Interest income................... $ 29,270 $ 20,850 $ 12,194 $ 8,164 $ 8,629
Net interest income............... 16,736 13,163 8,256 5,327 4,991
Provision for loan losses......... 900 808 383 2 96
Net interest income after
provision for loan losses...... 15,836 12,355 7,873 5,325 4,895
Non-interest income............... 1,746 1,651 732 472 770
Non-interest expense.............. 13,207 10,047 5,991 4,198 4,354
Net Income........................ 3,013 2,819 1,840 1,128 813
Per Share Data
Net Income
Primary........................ 1.58 1.52 1.42 0.88 0.73
Fully diluted.................. 1.56 1.52 1.42 0.88 0.73
Book value........................ 15.25 14.34 17.14 11.52 10.48
Selected Balance Sheet Data
Assets............................ 436,795 369,895 217,351 112,015 104,162
Cash and investments.............. 117,388 164,251 70,809 24,134 17,670
Loans receivable (net) ........... 295,501 183,634 134,861 83,387 82,080
Deposits.......................... 385,987 335,248 196,019 99,099 91,837
Borrowings and securities
sold under agreements to repurchase 21,253 8,000 -- -- --
Shareholders' equity.............. 27,415 24,671 20,571 12,306 11,178
Performance Ratios
Return on average assets.......... 0.74% 1.03% 1.09% 1.04% 0.74%
Return on average equity.......... 11.99% 12.42% 11.74% 9.61% 7.56%
Net yield on interest-earning assets 4.57% 5.30% 5.39% 5.29% 4.96%
Asset Quality Ratios
Non-performing loans to total loans 0.81% 1.72% 1.82% 1.84% 1.02%
Non-performing assets to total loans and
other real estate owned........ 1.06% 2.19% 2.56% 2.26% 1.19%
Net charge-offs to average total loans 0.16% 0.23% 0.29% 0.02% 0.14%
Total allowance for loan losses to
total non-performing loans...... 107.26% 64.47% 64.74% 69.10% 128.53%
Capital Ratios
Equity to assets.................. 6.28% 6.67% 9.46% 10.99% 10.73%
Tier 1 risk-based capital ratio... 7.44% 8.67% 14.01% 15.59% 12.80%
Total risk-based capital ratio.... 8.28% 9.64% 15.22% 16.84% 14.05%
Leverage ratio.................... 5.43% 5.74% 8.44% 10.74% 9.31%
Ratios of Earnings to Fixed Charges(1)
Including interest on deposits.... 1.35x 1.51x 1.66x 1.62x 1.36x
Excluding interest on deposits.... 1.41x 1.52x 1.70x 1.62x 1.37x
</TABLE>
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(1) The consolidated ratio of earnings to fixed charges has been computed by
dividing income before income taxes, cumulative effect of changes in
accounting principles and fixed charges by fixed charges. Fixed charges
represent all interest expense (ratios are presented both excluding and
including interest on deposits). There were no amortization of notes and
debentures expense nor any portion of net rental expense which was
deemed to be equivalent to interest on debt. Interest expense (other
than on deposits) includes interest on notes, federal funds purchased
and securities sold under agreements to repurchase, and other funds
borrowed.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Preferred Securities offered by this Prospectus. Certain statements in this
Prospectus and documents incorporated herein by reference are forward-looking
and are identified by the use of forward-looking words or phrases such as
"intended," "will be positioned," "expects," is or are "expected,"
"anticipates," and "anticipated." These forward-looking statements are based on
the Company's current expectations. To the extent any of the information
contained in this Prospectus constitutes a "forward-looking statement" as
defined in Section 27A(i)(1) of the Securities Act, the risk factors set forth
below are cautionary statements identifying important factors that could cause
actual results to differ materially from those in the forward-looking statement.
RISK FACTORS RELATING TO THE OFFERING
Ranking of Subordinated Obligations Under the Guarantee and the Junior
Subordinated Debentures
The obligations of the Company under the Guarantee issued by the Company for
the benefit of the holders of Preferred Securities and under the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Indebtedness. At December 31, 1996, the Senior Indebtedness of the
Company aggregated approximately $6.0 million, which indebtedness the Company
intends to repay using proceeds from the sale of the Preferred Securities. None
of the Junior Subordinated Indenture, the Guarantee or the Trust Agreement
places any limitation on the amount of secured or unsecured debt, including
Senior Indebtedness, that may be incurred by the Company. See "Description of
Guarantee -- Status of the Guarantee" and "Description of Junior Subordinated
Debentures -- Subordination."
The ability of the Issuer Trust to pay amounts due on the Preferred
Securities is solely dependent upon the Company's making payments on the Junior
Subordinated Debentures as and when required.
Option to Extend Interest Payment Period; Tax Consequences
So long as no Event of Default (as defined in the Junior Subordinated
Indenture) has occurred and is continuing with respect to the Junior
Subordinated Debentures (a "Debenture Event of Default"), the Company has the
right under the Junior Subordinated Indenture to defer the payment of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. See "Description of Junior
Subordinated Debentures -- Debenture Events of Default." As a consequence of any
such deferral, quarterly Distributions on the Preferred Securities by the Issuer
Trust will be deferred during any such Extension Period. Distributions to which
holders of the Preferred Securities are entitled will accumulate additional
Distributions thereon during any Extension Period at the rate of %
per annum, compounded quarterly from the relevant payment date for such
Distributions, computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. Additional
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by four. The term "Distribution" as used herein
shall include any such additional Distributions. During any such Extension
Period, the Company may not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of the Company's capital stock or (ii) make any payment of principal of or
interest or premium, if any, on or repay,
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<PAGE>
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholder's rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period may
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. Upon the termination of any Extension Period
and the payment of all interest then accrued and unpaid (together with interest
thereon at the annual rate of %, compounded quarterly, to the extent
permitted by applicable law), the Company may elect to begin a new Extension
Period subject to the above conditions. No interest shall be due and payable
during an Extension Period, except at the end thereof. The Company must give the
Issuer Trustees notice of its election to begin an Extension Period at least one
Business Day prior to the earlier of (i) the date the Distributions on the
Preferred Securities would have been payable but for the election to begin such
Extension Period and (ii) the date the Property Trustee is required to give
notice to holders of the Preferred Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business Day
prior to such record date. The Property Trustee will give notice of the
Company's election to begin a new Extension Period to the holders of the
Preferred Securities. Subject to the foregoing, there is no limitation on the
number of times that the Company may elect to begin an Extension Period. See
"Description of Preferred Securities -- Distributions" and "Description of
Junior Subordinated Debentures -- Option to Extend Interest Payment Period."
Should an Extension Period occur, a holder of Preferred Securities will
continue to accrue income (in the form of original issue discount ("OID")) for
United States federal income tax purposes in respect of its pro rata share of
the Junior Subordinated Debentures held by the Issuer Trust, which will include
a holder's pro rata share of both the stated interest and de minimis OID, if
any, on the Junior Subordinated Debentures. As a result, a holder of Preferred
Securities will include such OID in gross income for United States federal
income tax purposes in advance of the receipt of cash, and will not receive the
cash related to such income from the Issuer Trust if the holder disposes of the
Preferred Securities prior to the record date for the payment of Distributions.
See "Certain Federal Income Tax Consequences -- Interest Income and Original
Issue Discount" and "-- Sales of Preferred Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Preferred Securities is likely
12
<PAGE>
to be affected. A holder that disposes of his, her or its Preferred Securities
during an Extension Period, therefore, might not receive the same return on his,
her or its investment as a holder that continues to hold its Preferred
Securities. In addition, as a result of the existence of the Company's right to
defer interest payments, the market price of the Preferred Securities (which
represent preferred undivided beneficial interests in the assets of the Issuer
Trust) may be more volatile than the market prices of other securities on which
original issue discount or interest accrues that are not subject to such
deferrals.
Tax Event, Investment Company Event or Capital Treatment Event Redemption
Upon the occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event, the Company has the right to redeem
the Junior Subordinated Debentures in whole, but not in part, at any time within
90 days following the occurrence of such Tax Event, Investment Company Event or
Capital Treatment Event and thereby cause a mandatory redemption of the
Preferred Securities. Any such redemption shall be at a price equal to the
liquidation amount of the Preferred Securities, together with accumulated
Distributions to but excluding the date fixed for redemption. The ability of the
Company to exercise its rights to redeem the Junior Subordinated Debentures
prior to the stated maturity may be subject to prior regulatory approval by the
Federal Reserve, if then required under applicable Federal Reserve capital
guidelines or policies. See "Description of Junior Subordinated Debentures --
Redemption" and "Description of Preferred Securities -- Liquidation Distribution
Upon Dissolution."
A "Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Preferred Securities, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion will not be, deductible by the Company, in whole
or in part, for United States federal income tax purposes or (iii) the Issuer
Trust is, or will be within 90 days of the delivery of the opinion, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
See "-- Possible Tax Law Changes Affecting the Preferred Securities" for a
discussion of certain legislative proposals that, if adopted, could give rise to
a Tax Event, which may permit the Company to cause a redemption of the Preferred
Securities prior to , 2002.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), which change or prospective change becomes
effective or would become effective, as the case may be, on or after the date of
the issuance of the Preferred Securities.
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<PAGE>
A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the
Preferred Securities, there is more than an insubstantial risk that the Company
will not be entitled to treat an amount equal to the Liquidation Amount of the
Preferred Securities as "Tier 1 Capital" (or the then equivalent thereof) except
as otherwise restricted under the 25% Capital Limitation (as defined herein),
for purposes of the risk-based capital adequacy guidelines of the Federal
Reserve, as then in effect and applicable to the Company.
Exchange of Preferred Securities for Junior Subordinated Debentures
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust. The ability
of the Company, as holder of the Common Securities, to dissolve the Issuer Trust
may be subject to prior regulatory approval of the Federal Reserve, if then
required under applicable Federal Reserve capital guidelines or policies. See
"Description of Preferred Securities -- Liquidation Distribution Upon
Dissolution."
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust will not be a taxable event to holders of the
Preferred Securities. However, if a Tax Event were to occur that would cause the
Issuer Trust to be subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, a distribution
of the Junior Subordinated Debentures by the Issuer Trust would be a taxable
event to the Issuer Trust and the holders of the Preferred Securities. See
"Certain Federal Income Tax Consequences -- Distribution of Junior Subordinated
Debentures to Securityholders."
Rights Under the Guarantee
Bankers Trust Company will act as the trustee under the Guarantee and will
hold the Guarantee for the benefit of the holders of the Preferred Securities.
Bankers Trust Company will also act as Debenture Trustee for the Junior
Subordinated Debentures and as Property Trustee under the Trust Agreement.
Bankers Trust (Delaware) will act as Delaware Trustee under the Trust Agreement.
The Guarantee guarantees to the holders of the Preferred Securities the
following payments, to the extent not paid by or on behalf of the Issuer Trust:
(i) any accumulated and unpaid Distributions required to be paid on the
Preferred Securities, to the extent that the Issuer Trust has funds on hand
available therefor at the payment date, (ii) the Redemption Price with respect
to any Preferred Securities called for redemption, to the extent that the Issuer
Trust has funds on hand available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding up or liquidation of the Issuer
Trust (unless the Junior Subordinated Debentures are distributed to holders of
the Preferred Securities), the lesser of (a) the aggregate of the Liquidation
Amount and all accumulated and unpaid Distributions to the date of payment, to
the extent that the Issuer Trust has funds on hand available therefor at such
time, and (b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Preferred Securities on liquidation of the Issuer
Trust. The Guarantee is subordinated as described under "-- Ranking of
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<PAGE>
Subordinated Obligations Under the Guarantee and the Junior Subordinated
Debentures" and "Description of Guarantee -- Status of the Guarantee." The
holders of not less than a majority in aggregate Liquidation Amount of the
outstanding Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Guarantee or to direct the exercise of any trust power
conferred upon the Guarantee Trustee under the Guarantee. Any holder of the
Preferred Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Issuer Trust, the Guarantee Trustee or any other
person or entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Issuer Trust may lack funds for
the payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, if a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of any amounts payable in respect of such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). In connection with such Direct Action, the Company will have a right
of set-off under the Junior Subordinated Indenture to the extent of any payment
made by the Company to such holder of Preferred Securities in the Direct Action.
Except as described herein, holders of Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Junior
Subordinated Debentures or assert directly any other rights in respect of the
Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Preferred Securities,"
"-- Debenture Events of Default" and "Description of Guarantee." The Trust
Agreement provides that each holder of Preferred Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Junior Subordinated
Indenture.
Limited Voting Rights
Holders of Preferred Securities will have limited voting rights relating
generally to the modification of the Preferred Securities and the Guarantee and
the exercise of the Issuer Trust's rights as holder of Junior Subordinated
Debentures. Holders of Preferred Securities will not be entitled to appoint,
remove or replace the Property Trustee or the Delaware Trustee except upon the
occurrence of certain events specified in the Trust Agreement. The Property
Trustee and the holders of all the Common Securities may, subject to certain
conditions, amend the Trust Agreement without the consent of holders of
Preferred Securities to cure any ambiguity or make other provisions not
inconsistent with the Trust Agreement or to ensure that the Issuer Trust (i)
will not be taxable as a corporation for United States federal income tax
purposes, or (ii) will not be required to register as an "investment company"
under the Investment Company Act. See "Description of Preferred Securities --
Voting Rights; Amendment of Trust Agreement" and "-- Removal of Issuer Trustees;
Appointment of Successors."
Absence of Market
The Preferred Securities are a new issue of securities with no established
trading market. Application has been made to list the Preferred Securities in
the Nasdaq National Market, but one of the requirements for listing and
continued listing is the presence of two market makers for the Preferred
Securities. The
15
<PAGE>
Company and the Issuer Trust have been advised by Advest, Inc. that it intends
to make a market in the Preferred Securities. However, Advest, Inc. is not
obligated to do so and such market making may be interrupted or discontinued at
any time without notice at the sole discretion of Advest, Inc. Moreover, there
can be no assurance of a second market maker for the Preferred Securities.
Accordingly, no assurance can be given as to the development or liquidity of any
market for the Preferred Securities.
Market Prices
There can be no assurance as to the market prices for Preferred Securities,
or the market prices for Junior Subordinated Debentures that may be distributed
in exchange for Preferred Securities if a liquidation of the Issuer Trust
occurs. Accordingly, the Preferred Securities or the Junior Subordinated
Debentures that a holder of Preferred Securities may receive on liquidation of
the Issuer Trust may trade at a discount to the price that the investor paid to
purchase the Preferred Securities offered hereby. Because holders of Preferred
Securities may receive Junior Subordinated Debentures on termination of the
Issuer Trust, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Junior Subordinated Debentures and should
carefully review all the information regarding the Junior Subordinated
Debentures contained herein. See "Description of Junior Subordinated
Debentures."
Possible Tax Law Changes Affecting the Preferred Securities
On February 6, 1997, President Clinton released his budget proposals for
fiscal year 1998. One of the revenue provisions of those proposals would
generally deny interest deductions for interest on an instrument issued by a
corporation that has a maximum term of more than 15 years and that is not shown
as indebtedness on the separate balance sheet of the issuer or, where the
instrument is issued to a related party (other than a corporation), where the
holder or some other related party issues a related instrument that is not shown
as indebtedness on the issuer's consolidated balance sheet. If enacted as
proposed by the President, this provision would be effective for instruments
issued on or after the date of first action by a Congressional committee with
respect to the proposal. It is not clear from the President's proposals as to
what constitutes Congressional "committee action" with respect to this proposal.
If the provision were to apply to the Junior Subordinated Debentures, the
Company would be unable to deduct interest on the Junior Subordinated
Debentures. There can be no assurance, however, that future legislative
proposals or final legislation will not affect the ability of the Company to
deduct interest on the Junior Subordinated Debentures. Such a change could give
rise to a Tax Event, which may permit the Company to cause a redemption of the
Preferred Securities before , 2002. See "Description of Junior
Subordinated Debentures -- Redemption" and "Description of Preferred Securities
- -- Redemption." Seenior also "Certain Federal Income Tax Consequences --
Possible Tax Law Changes." Under current law, the Company will be able to deduct
interest on the Junior Subordinated Debentures.
RISK FACTORS RELATING TO THE COMPANY
Status of the Company as a Bank Holding Company
The Company is a legal entity separate and distinct from the Bank, although
the principal source of the Company's cash revenues is dividends from the Bank.
The ability of the Company to pay the interest on, and principal of, the Junior
Subordinated Debentures will be significantly dependent on the ability of the
Bank to pay dividends to the Company in amounts sufficient to service the
Company's debt
16
<PAGE>
obligations. Payment of dividends by the Bank is restricted by various legal and
regulatory limitations. Two different calculations are performed to measure the
amount of dividends that may be paid: a recent earnings test and an undivided
profits test. Under the recent earnings test, a dividend may not be paid if the
total of all dividends declared by a national bank in any calendar year is in
excess of the current year's net profits combined with the retained net profits
of the two preceding years unless the bank obtains the approval of the OCC.
Under the undivided profits test, dividends may not be paid in excess of a
bank's undivided profits then on hand, after deducting bad debts in excess of
the reserve for loan losses. At December 31, 1996, under the retained earnings
test, which is presently the more restrictive of the available methods of
calculating the dividend limitations of a national bank, approximately $7.7
million was available for payment of dividends to the Company from the Bank
without prior regulatory approval.
The right of the Company to participate in the assets of any subsidiary upon
the latter's liquidation, reorganization or otherwise (and thus the ability of
the holders of Preferred Securities to benefit indirectly from any such
distribution) will be subject to the claims of the subsidiaries' creditors,
which will take priority except to the extent that the Company may itself be a
creditor with a recognized claim. As of December 31, 1996, the Company's
subsidiaries had indebtedness and other liabilities of approximately $403.4
million.
The Bank is also subject to restrictions under federal law which limit the
transfer of funds by the Bank to the Company, whether in the form of loans,
extensions of credit, investments, asset purchases or otherwise. Such transfers
by the Bank to the Company are limited in amount to 10% of the Bank's capital
and surplus. Furthermore, such loans and extensions of credit are required to be
secured in specified amounts.
Rapid Growth
During the last three years, the Bank has experienced rapid and significant
growth. The total assets of the Bank have increased from $112.0 million at
December 31, 1993 to $436.8 million at December 31, 1996. Although the Bank
believes that it has adequately managed its growth in the past, there can be no
assurance that the Bank will continue to experience such rapid growth, or any
growth, in the future and, to the extent that it does experience continued
growth, that the Bank will be able to adequately and profitably manage such
growth. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The continued growth has led the Company to undertake the present offering
of Preferred Securities. The capital to be raised from the sale of the Preferred
Securities offered hereby, is necessary to provide sufficient capital to support
the growth of assets. No assurance can be given that this rapid growth will
continue, but, if it does, there is no assurance that the earnings of the
Company and the Bank can adequately provide the necessary capital for the Bank
and the Company to maintain required regulatory capital levels commensurate with
continued rapid growth. After giving effect to the sale of the Preferred
Securities and the First Union and Oritani branch purchases, the Company and the
Bank will be adequately capitalized. The level of future earnings of the Company
also will depend on the ability of the Company and the Bank to profitably deploy
and manage the increased assets. The rapid growth of the Bank in asset size and
the rapid increase in its volume of total loans during the past three years have
increased the possible risks inherent in an investment in the Company.
Although the Bank has experienced moderate loan losses to date, the rapid
growth of its loan portfolio
17
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from $83.4 million at December 31, 1993 to $295.5 million at December 31, 1996,
may result in an increase to its loan loss experience. Due to the high volume of
recent loans, many of the loans of the Bank are unseasoned, thereby increasing
the potential for additional loan losses even if the Bank continues to adhere to
the same underwriting criteria and monitoring procedures that have resulted in
the Bank's moderate loan loss experience. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Lending
Activities." The OCC has previously stated that banks experiencing rapid growth
may be subject to greater risks.
Loan Portfolio Considerations
During the past three years, the Company has experienced significant growth
in its loan portfolio. Net loans increased to $295.5 million at December 31,
1996, from $183.6 million at December 31, 1995, and from $134.9 million at
December 31, 1994. While many components of the loan portfolio have contributed
to this increase over the past three years, much of this loan growth has
occurred in the portfolio of commercial and industrial loans. Commercial and
industrial loans increased by 87.7% or $104.2 million during 1996 as compared to
1995 and comprised 75.5% of total loans as of December 31, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations- -Analysis of Loan Portfolio." As a result of this recent growth, a
significant portion of the Company's total loan portfolio may be considered
unseasoned and, therefore, specific payment and loss experience for this portion
of the portfolio has not yet been fully established. In addition, the nature of
commercial and industrial loans is such that they may present more credit risk
to the Company than other types of loans such as home equity or residential real
estate loans. Further, these loans are concentrated in Cumberland, Burlington,
Atlantic, Ocean and Cape May Counties, in southern New Jersey. As a result, a
decline in the general economic conditions of southern New Jersey could have a
material adverse effect on the Company's financial condition and results of
operations taken as a whole. See "Business of the Company--Lending
Activities--Commercial and Industrial Loans."
Competition
The banking business is highly competitive. In its primary market area, the
Bank competes with other commercial banks, savings and loan associations, credit
unions, finance companies, mutual funds, insurance companies, and brokerage and
investment banking firms operating locally and elsewhere. The Bank's primary
competitors have substantially greater resources and lending limits than the
Bank and may offer certain services, such as trust services, that the Bank does
not provide at this time. The profitability of the Company depends upon the
Bank's ability to compete in its primary market area. See "Business - -
Competition."
Supervision and Regulation
Bank holding companies and banks operate in a highly regulated environment
and are subject to the supervision and examination by several federal and state
regulatory agencies. The Company is subject to the BHCA and to regulation and
supervision by the Federal Reserve, and the Bank is subject to regulation and
supervision by the OCC and the FDIC. The Bank is also a member of the Federal
Home Loan Bank of New York (the "FHLB") and is subject to regulation thereby.
Federal and state banking laws and regulations govern matters ranging from the
regulation of certain debt obligations, changes in the control of bank holding
companies, and the maintenance of adequate capital to the general business
operations and financial condition of the Bank, including permissible types,
amounts and terms of loans and investments, the amount of reserves against
deposits, restrictions on dividends, establishment of
18
<PAGE>
branch offices, and the maximum rate of interest that may be charged by law. The
Federal Reserve, the FDIC, and the OCC also possess cease and desist powers over
bank holding companies and banks, to prevent or remedy unsafe or unsound
practices or violations of law. These and other restrictions limit the manner in
which the Company and the Bank may conduct their business and obtain financing.
Furthermore, the commercial banking business is affected not only by general
economic conditions, but also by the monetary policies of the Federal Reserve.
These monetary policies have had and are expected to continue to have
significant effects on the operating results of commercial banks. Changes in
monetary or legislative policies may affect the ability of the Bank to attract
deposits and make loans. See "Supervision and Regulation."
Potential Impact of Changes in Interest Rates
The Company's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets and its interest expense on interest-bearing
liabilities. The Company, like most financial institutions, is affected by
changes in general interest rate levels and by other economic factors beyond its
control. Interest rate risk arises from mismatches (i.e., the interest
sensitivity gap) between the dollar amount of repricing or maturing assets and
liabilities, and is measured in terms of the ratio of the interest rate
sensitivity gap to total assets. More assets repricing or maturing than
liabilities over a given time period is considered asset-sensitive and is
reflected as a positive gap, and more liabilities repricing or maturing than
assets over a given time period is considered liability-sensitive and is
reflected as negative gap. An asset-sensitive position (i.e., a positive gap)
will generally enhance earnings in a rising interest rate environment and will
negatively impact earnings in a falling interest rate environment, while a
liability-sensitive position (i.e., a negative gap) will generally enhance
earnings in a falling interest rate environment and negatively impact earnings
in a rising interest rate environment. Fluctuations in interest rates are not
predictable or controllable. The Company has attempted to structure its asset
and liability management strategies to mitigate the impact on net interest
income of changes in market interest rates. However, there can be no assurance
that the Company will be able to manage interest rate risk so as to avoid
significant adverse effects in net interest income. At December 31, 1996, the
Company had a one year cumulative negative gap of 8.73%. This negative one year
gap position may, as noted above, have a negative impact on earnings in a rising
interest rate environment. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition -- Gap Analysis."
SUN CAPITAL TRUST
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to the filing of a certificate of trust with the Delaware Secretary of
State on February 13, 1997. The Issuer Trust will be governed by an Amended and
Restated Trust Agreement among the Company, as Depositor, Bankers Trust
(Delaware), as Delaware Trustee, and Bankers Trust Company, as Property Trustee
(together with the Delaware Trustee, the "Issuer Trustees"). Two individuals
will be selected by the holder of the Common Securities to act as administrators
with respect to the Issuer Trust (the "Administrators"). The Company, while
holder of the Common Securities, intends to select two individuals who are
employees or officers of or affiliated with the Company to serve as the
Administrators. See "Description of Preferred Securities -- Miscellaneous." The
Issuer Trust exists for the exclusive purposes of (i) issuing and selling the
Trust Securities, (ii) using the proceeds from the sale of the Trust Securities
to acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Issuer Trust, and
payments under the Junior
19
<PAGE>
Subordinated Debentures will be the sole source of revenue of the Issuer Trust.
All the Common Securities will initially be owned by the Company. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Preferred Securities, except that upon the occurrence and during the
continuation of a Debenture Event of Default arising as a result of any failure
by the Company to pay any amounts in respect of the Junior Subordinated
Debentures when due, the rights of the holder of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. See "Description of Preferred Securities -- Subordination of Common
Securities." The Company will acquire Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of the Issuer Trust. The
Issuer Trust has a term of 31 years, but may terminate earlier as provided in
the Trust Agreement. The address of the Delaware Trustee is Bankers Trust
(Delaware), 1001 Jefferson Street, Wilmington, Delaware 19801, telephone number
(302) 576-3301. The address of the Property Trustee, the Guarantee Trustee and
the Debenture Trustee is Bankers Trust Company, Four Albany Street, 4th Floor,
New York, New York 10006, telephone number (212) 250-2500.
USE OF PROCEEDS
All the proceeds to the Issuer Trust from the sale of the Preferred
Securities will be invested by the Issuer Trust in the Junior Subordinated
Debentures. The proceeds from the sale of the Preferred Securities are expected
to qualify as Tier 1 or core capital with respect to the Company under the
guidelines established by the Federal Reserve, however capital received from the
proceeds of the sale of the Preferred Securities cannot constitute more than 25%
of the total Tier 1 capital of the Company (the "25% Capital Limitation").
Amounts in excess of the 25% Capital Limitation will constitute Tier 2 or
supplementary capital of the Company. The net proceeds to be received by the
Company from the sale of the Junior Subordinated Debentures will be used to
repay existing debt of the Company of approximately $6 million (which is
collateralized by a pledge of the Bank's stock) and make a $15 million capital
contribution through investments in or advances to the Bank. The remainder of
the proceeds will be retained by the Company and may be used to meet debt
service obligations of the Company pursuant to the Junior Subordinated
Debentures and make additional advances to or investments in the Bank. Pending
such use, the net proceeds may be temporarily invested in short-term
obligations. The precise amounts and timing of the application of proceeds will
depend upon the funding requirements of the Company and its subsidiaries and the
availability of other funds. The Bank intends to use the capital in connection
with the First Union and Oritani branch acquisitions and other branch
acquisitions and/or acquisitions of other financial institutions.
FIRST UNION AND ORITANI BRANCH PURCHASES
On December 19, 1996, the Bank entered into a Purchase and Assumption
Agreement to acquire approximately $73 million in deposit liabilities and $2.5
million of loans and four branch offices (the "First Union branch purchase")
located in the southern New Jersey counties of Salem and Burlington from First
Union National Bank, Avondale, Pennsylvania ("First Union"). The Bank has agreed
to pay First Union a premium of approximately $5.9 million (8.03%) for the
assumption of the deposit liabilities and will receive approximately $62.0
million in net proceeds. The investment and lending activities of the First
Union branch purchase will not transfer to the Bank. The First Union branch
purchase will be accounted for using the purchase method of accounting and is
expected to close during the second quarter of 1997, subject to regulatory
approval. See "-- Pro Forma Consolidated Balance Sheet."
20
<PAGE>
On February 25, 1997, the Bank entered into a Purchase and Assumption
Agreement to acquire approximately $33 million in deposit liabilities in three
branch offices (the "Oritani branch purchase") located in the Camden County, New
Jersey communities of Clementon, Lindenwold and Merchantville, from Oritani
Savings Bank, SLA, Hackensack, New Jersey ("Oritani"). The Bank has agreed to
pay Oritani a premium of $2,151,000 for the assumption of the deposit
liabilities. The Bank will purchase two branches now owned by Oritani at their
fair market value and assume the lease on the third branch location. The Bank
expects to receive approximately $30 million in net proceeds from the
transaction. The investment and lending activities of the Oritani branch
purchase will not transfer to the Bank. The Oritani branch purchase will be
accounted for using the purchase method of accounting and is expected to close
during the third quarter of 1997, subject to regulatory approval. There can be
no assurance that any regulatory approval, if required, could be obtained, would
not delay consummation of the First Union and Oritani branch purchases, or
either of them, and would not be conditioned in a manner that would cause the
Bank to abandon the transactions.
As of December 31, 1996, the cost of funds related to the deposits to be
assumed from the First Union branch purchase and the Oritani branch purchase was
approximately 2.65% and 4.84%, respectively. Management does not believe there
will be a material deposit outflow after the branch purchases. The Bank has
historically priced its deposit products to be competitive in the markets
served. For the year ended December 31, 1996, the Bank's average cost of
deposits was 4.00%. It is anticipated that this practice, combined with the
level of personal service provided, will allow the Bank to retain a significant
portion of the deposits acquired. In this regard, First Union has agreed not to
directly solicit the deposit customers affected by the branch purchases, or
establish a branch or loan production office within a three mile radius of the
branch offices for a period of three years. Oritani has agreed not to directly
solicit the deposit customers affected by the branch purchases, nor establish a
branch or ATM facility within Camden County, New Jersey for a period of one
year.
While management does not believe the First Union or Oritani branch
purchases will have a significant, long-term, adverse impact on its operations,
it is expected that they will have a short-term impact on its performance and
financial position ratios, such as its return on average assets and its loan to
deposit ratio, as net cash received in the branch purchases is gradually
invested in investment securities and loans.
21
<PAGE>
Pro Forma Consolidated Statement of Financial Condition
December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
First Union Branch Oritani Branch Pro Forma
Purchase Purchase Consolidated
Company Dr. (Cr.) Dr. (Cr.) Company
------- --------- --------- -------
(In thousands)
Assets
<S> <C> <C> <C> <C>
Cash and amounts due from banks..... $17,007 $ 1,234 (1) 500 (1) $ 18,741
Federal funds sold.................. 4,800 68,528 (1) 32,100 (1)
(5,870) (2) (2,151) (3) 97,407
Investment securities available for
sale.............................. 95,581 95,581
Loans receivable (net).............. 295,501 2,573 (1) 298,074
Bank properties and equipment....... 12,222 760 (1) 400 (1)
750 (2) 14,132
Real estate owned................... 756 756
Accrued interest receivable......... 2,850 2,850
Excess of cost over fair value
of net assets acquired............ 5,365 5,120 (2) 2,151 (3) 12,636
Deferred taxes...................... 1,071 1,071
Other assets........................ 1,642 1,642
------- --------- --------- --------
Total $436,795 $73,095 $33,000 $542,890
======= ====== ====== =======
Liabilities and Shareholders' Equity
Liabilities:
Deposits............................ $385,986 73,095 (1) 33,000 (1) $492,081
Advances from the Federal Home
Loan Bank......................... 10,000 10,000
Loans payable....................... 6,000 6,000
Securities sold under agreements
to repurchase..................... 5,253 5,253
Other liabilities................... 2,141 2,141
------- -------- -------- -------
Total liabilities 409,380 73,095 33,000 515,475
------- ------ ------ -------
Commitments and Contingent Liabilities
Shareholders' Equity:
Preferred stock..................... -- --
Common stock........................ 1,849 1,849
Surplus............................. 18,124 18,124
Retained earnings................... 8,420 8,420
Unrealized (loss) on securities, net
of income taxes (978) -- -- (978)
------- ------- -------- -------
Total shareholders' equity.......... 27,415 -- -- 27,415
------- ------- -------- -------
Total............................... $436,795 $73,095 $33,000 $542,890
======= ====== ====== =======
</TABLE>
- ------------------
(1) To record branch purchase.
(2) To record 8.03% premium paid on the assumption of First Union deposit
liabilities ($5.9 million) and to record the market value of real estate
($750,000). The excess of cost over fair value of net assets acquired of
approximately $5.1 million will be amortized over a seven year period.
(3) To record premium paid on the assumption of the Oritani deposit liabilities
($2.2 million). The excess of cost over fair value of net assets acquired
will be amortized over a seven year period.
22
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Company at December 31, 1996, (ii) the consolidated capitalization of the
Company giving effect to the issuance of the Preferred Securities hereby offered
by Sun Capital Trust and application by the Company of the net proceeds from the
corresponding sale of the Junior Subordinated Debentures to Sun Capital Trust as
if the sale of the Preferred Securities had been consummated on December 31,
1996, and assuming the Underwriters' over-allotment was not exercised, (iii) the
pro forma effect of the First Union and Oritani branch purchases and (iv) the
actual and pro forma capital ratios of the Company and the Bank.
<TABLE>
<CAPTION>
(Unaudited)
As Adjusted
---------------------------------------------
Sale of Preferred
Securities and First
Sale of Union and Oritani
Actual Preferred Securities branch purchases
------ -------------------- ----------------
(dollars in thousands)
<S> <C> <C> <C>
Loan Payable .................................. $ 6,000 $ -- $ --
-------- -------- --------
Guaranteed preferred beneficial interests in the
Company's subordinated debt (1) ............... -- 25,000 25,000
SHAREHOLDERS' EQUITY:
Preferred Stock $1 par value, 1,000,000 shares
authorized, none issued ....................... -- -- --
Common Stock $1 par value - 10,000,000 shares
authorized; 1,848,929 outstanding ............. 1,849 1,849 1,849
Surplus ......................................... 18,125 18,125 18,125
Unrealized loss on securities available for sale,
net of income taxes ........................... (978) (978) (978)
Retained Earnings ............................... 8,419 8,419 8,419
-------- -------- --------
Total Shareholders' equity .................. 27,415 27,415 27,415
-------- -------- --------
Total Capitalization ............................ $ 33,415 $ 52,415 $ 52,415
======== ======== ========
COMPANY CAPITAL RATIOS(2):
Equity to total assets........................... 6.28% 6.01% 5.57%
Tier 1 risk-based capital ratio(3)............... 7.44 10.50 8.03
Total risk-based capital ratio................... 8.28 16.35 12.87
Leverage ratio (4)............................... 5.43 7.33 4.65
BANK CAPITAL RATIOS(2):
Equity to total assets........................... 7.62 10.69 8.66
Tier 1 risk-based capital ratio.................. 9.34 14.07 11.67
Total risk-based capital ratio................... 10.18 14.90 12.50
Leverage ratio(4)................................ 6.81 9.99 6.81
</TABLE>
- ------------------
(1) Preferred Securities representing beneficial interests in an aggregate
principal amount of $25,000,000 of the % Junior Subordinated
Debentures of the Company. The Junior Subordinated Debentures will
mature on , 2027.
(2) The capital ratios, as adjusted, are computed including the total
estimated net proceeds from the sale of the Preferred Securities, in a
manner consistent with Federal Reserve guidelines.
(3) Federal Reserve guidelines for calculation of Tier 1 capital limit the
amount of cumulative preferred stock which can be included in Tier 1
capital to 25% of total Tier 1 capital.
(4) The leverage ratio is Tier 1 capital divided by the average total assets
less intangibles.
23
<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Preferred Securities will be included in the consolidated balance sheets of the
Company and appropriate disclosures about the Preferred Securities, the
Guarantee and the Junior Subordinated Debentures will be included in the notes
to the consolidated financial statements of the Company. For financial reporting
purposes, Distributions on the Preferred Securities will be recorded in the
consolidated statements of income of the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The primary activity of the Company is the oversight of the Bank.
Through the Bank, the Company engages in community banking activities by
accepting deposit accounts from the general public and investing such funds in a
variety of loans. These community banking activities primarily include providing
home equity loans, mortgage loans, a variety of commercial business and
commercial real estate loans and, to a much lesser extent, installment loans.
The Company also maintains an investment securities portfolio. The Company's
lending and investing activities are funded by retail deposits. The largest
component of the Company's net income is net interest income. Consequently, the
Company's earnings are primarily dependent on its net interest income, which is
determined by (i) the difference between rates of interest earned on
interest-earning assets and rates paid on interest-bearing liabilities (interest
rate spread), and (ii) the relative amounts of interest-earning assets and
interest-bearing liabilities. The Company's net income is also affected by its
provision for loan losses, as well as the amount of non-interest income and
non-interest expenses, such as salaries and employee benefits, professional fees
and services, deposit insurance premiums, occupancy and equipment costs and
income taxes.
Overview
Beginning in 1993, the Company embarked upon a strategy to expand its
operations and retail market throughout southern New Jersey through internal
growth and mergers and acquisitions. The Board and management perceived
opportunities to expand the Company as a result of a lack of competitive
commercial banking services being provided to local businesses and the need for
a locally based and managed community bank. Continued consolidation of the
banking industry and a regionalization of decision authority by larger banking
institutions left many businesses and individuals in the Bank's market area
underserved.
In mid-1994, the Company acquired the First National Bank of Tuckahoe
("Tuckahoe") which operated three branch offices in Cape May County, and
Southern Ocean State Bank ("Ocean"), which operated four branches in Ocean
County. The two transactions, combined, resulted in the acquisition of $49
million of loans and $105 million of deposits and an increase in assets of $117
million. These banks and their operations were merged into the Bank in 1994.
In 1995, as the result of further consolidation of banks and their
restructuring of operations in New Jersey, the Bank acquired $52 million of
deposits and four branches located in the southern New Jersey counties of
Cumberland, Atlantic and Ocean from NatWest Bank and $70 million of deposits and
four branches located in Cumberland and Burlington counties from New Jersey
National Bank. As a
24
<PAGE>
result of these two branch purchase transactions, the Bank acquired $122 million
of deposits; the corresponding amount of cash received to fund the deposit
transfer was initially used to purchase investment securities. In addition, the
Bank opened a new banking office in Pleasantville in 1995 and an office in Cape
May Court House in 1996.
In recent years, the Bank also has experienced a significant level of
loan growth. The Bank's loan portfolio increased from $83.4 million at December
31, 1993 to $295.5 million at December 31, 1996. Much of this loan growth is
attributable to the Bank's hiring of a number of experienced loan officers
previously employed by money center and multi-state regional banking
organizations. In most cases, these loan officers brought with them established
contacts and relationships with individuals or entities throughout the Bank's
primary market area and have been able thereby to increase the Bank's customer
base and the number of loan originations. The Bank also has established a number
of regional advisory boards that were responsible for referring approximately
$50 million in loans to the Bank in 1996, representing one-third of all new
outstanding loans last year. In addition, the Bank has made significant efforts
to increase its share of seasonal lending, which has contributed to the Bank's
loan growth. As noted previously, a significant portion of the Bank's total loan
portfolio may be considered unseasoned and, therefore, specific payment
experience for this portion of the portfolio has not yet been established.
To support and manage the expanded operations of the Bank and to provide
adequate management resources to support the further expansion and growth, the
Bank began to recruit and hire additional experienced commercial loan officers
(which itself has contributed to much of the rapid growth in the Bank's total
loan portfolio), credit, compliance, loan review and internal audit personnel,
operations personnel and senior level executives. In addition, the Bank has
enhanced and expanded its operational and management information system and
taken steps to enhance its oversight of third-party vendors. While the Bank
continues to monitor its rapid growth, and the adequacy of the management and
resources available to support such growth, there can be no assurance that the
Bank will be successful in managing all elements relating to its rapid growth.
The growth and expansion of operations through mergers and acquisitions
and internal growth has resulted in a significant increase in assets, loans and
deposits since December 31, 1993, and a concomitant increase in net interest
income, non-interest income and non-interest expenses.
RESULTS OF OPERATIONS
Net income for the year ended December 31, 1996 was $3.0 million or
$1.58 per share in comparison to $2.8 million or $1.52 per share for the year
ended December 31, 1995. The increase in net income was primarily due to an
increase in net interest income of $3.6 million which was substantially offset
by an increase in non-interest expenses of $3.2 million, an increase in the
provision for loan losses of $92,000 and an increase in income tax expense of
$222,000 in comparison to the results of operations for 1995.
Net income for the year ended December 31, 1995 increased $979,000, or
53.2%, to $2.8 million from $1.8 million for the year ended December 31, 1994.
The increase in net income was generally attributable to a large increase in net
interest income of $4.9 million and an increase of $900,000 in non-interest
income. Net interest income increased from $8.3 million in 1994 to $13.2 million
in 1995; and non-interest income increased from $732,000 in 1994 to $1.7 million
in 1995. This increase was partially offset by increases in non-interest expense
of $4.1 million, an increase in the provision for loan losses
25
<PAGE>
of $400,000 and an increase in income tax expense of $365,000. Non-interest
expenses increased from $6.0 million in 1994 to $10.0 million in 1995. The
provision for loan losses increased from $383,000 in 1994 to $808,000 in 1995.
Income tax expense increased from $775,000 in 1994 to $1.1 million in 1995.
Net Interest Income. Net interest income is the most significant component of
the Company's income from operations. Net interest income is the difference
between interest received on interest-earning assets (primarily loans and
investment securities) and interest paid on interest-bearing liabilities
(primarily deposits and borrowed funds). Net interest income depends on the
volume and rate earned on interest-earning assets and the volume and interest
rate paid on interest-bearing liabilities.
The following table sets forth a summary of average balances with
corresponding interest income and interest expense as well as average yield and
cost information for the periods presented. Average balances are derived from
daily balances.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------------
1996 1995 1994
------------------------- ------------------------- --------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ----
Interest-earning assets: (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable (1) $235,744 $22,074 9.36 % $155,139 $15,101 9.73 % $108,265 $9,591 8.86 %
Investment securities 129,164 7,127 5.52 85,445 5,286 6.19 33,931 2,151 6.34
Federal funds sold 1,323 68 5.14 7,756 463 5.97 10,988 452 4.11
-------- ------- ------ -------- ------- ------ -------- ------ ------
Total interest-earning
asset 366,231 29,269 7.99 248,340 20,850 8.40 153,184 12,194 7.96
Non-interest-earning assets 40,316 24,409 15,076
-------- ------- ------
Total assets $406,547 $272,749 $168,260
========= ======== ========
Interest-bearing liabilities
Interest-bearing deposit
accounts $298,538 $11,954 4.00 % $202,276 $7,640 3.78 % $122,843 $3,845 3.13 %
Borrowed money 10,397 580 5.58 775 47 6.06 1,202 93 7.74
-------- ------- ------ -------- ------- ------ -------- ------ ------
Total interest-bearing
liabilities 308,935 12,534 4.06 203,051 7,687 3.79 124,045 3,938 3.17
Non-interest-bearing
liabilities 72,486 47,004 28,551
-------- -------- --------
Total liabilities 381,421 250,055 152,596
Shareholder's equity 25,126 22,694 15,664
-------- -------- --------
Total liabilities
and shareholders equity $406,547 $272,749 $168,260
======== ========= ========
Net interest income $16,735 $13,163 $8,256
======== ======= ======
Interest rate spread (2) 3.93 % 4.61 % 4.79 %
==== ==== ====
Net yield on interest
earning assets (3) 4.57 % 5.30 % 5.39 %
==== ==== ====
Ratio of average
interest-earning assets
to average interest-
bearing liabilities 118.55 % 122.30 % 123.49 %
====== ====== ======
</TABLE>
- ----------------------
(1) Average balances include non-accrual loans.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
26
<PAGE>
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 rate
(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>
Years ended December 31,
-------------------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
---------------------------------------- -----------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------------------- -----------------------------------------
Rate / Rate /
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ ---
Interest income: (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable $ 7,847 ($ 575) ($ 299) $ 6,973 $ 4,156 $ 945 $ 409 $ 5,510
Investment securities 2,707 (573) (293) 1,841 3,264 (51) (45) 3,135
Federal funds sold (382) (65) 53 (394) (133) 204 (60) 11
------ ------- ------- ------- ------- ------- ------- -------
Total interest-earning assets $10,172 ($1,213) ($ 539) $ 8,420 $ 7,287 $ 1,098 $ 271 $ 8,656
======= ======= ======= ======= ======= ======= ======= =======
Interest expense:
Deposit accounts $ 3,658 $ 445 $ 211 $ 4,314 $ 2,483 $ 796 $ 515 $ 3,795
Borrowings 584 (4) (47) 533 (33) (20) 7 (46)
------ ------- ------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities $4,242 $ 441 $ 164 $ 4,847 $ 2,450 $ 776 $ 522 $ 3,749
====== ======= ======= ======= ======= ======= ======= =======
Net change in interest income $5,930 ($1,654) ($ 703) $ 3,573 $ 4,837 $ 322 ($ 252) $ 4,907
====== ======= ======= ======= ======= ======= ======= =======
</TABLE>
Net interest income increased $3,573,000 or 27% to $16,736,000 in 1996
compared to $13,163,000 in 1995. The increase is due primarily to the growth of
average interest-earning assets from $248,340,000 in 1995 to $366,231,000 in
1996, partially offset by a decline in the interest rate spread from 4.61% in
1995 to 3.93% in 1996. The decline in the interest rate spread had a
corresponding impact on the net interest margin which declined 73 basis points
to 4.57% in 1996.
The increase in average interest-earning assets of $117,891,000 reflects
an increase of $80,605,000 in average loans and $43,719,000 in average
investment securities which were funded by an increase of $105,884,000 of
average interest-bearing liabilities and an increase of $25,482,000 of average
non-interest bearing liabilities. This increase in interest-bearing liabilities
reflects the acquisition of the branches and deposits in 1995, the growth of
deposits at existing offices in 1996, the opening of two new branches in 1995
and 1996 and an increase in borrowings in 1996.
The interest rate spread and net interest margin declined in 1996
compared to 1995 due to a decline in the yield on average interest-earning
assets from 8.40% in 1995 to 7.99% in 1996 and an increase in the interest cost
of average interest-bearing liabilities from 3.79% in 1995 to 4.06% in 1996.
The yield on average interest-earning assets declined in 1996 due to a
decline in the yield of loans and investment securities. As general market
interest rates were relatively stable during 1995 and 1996, the decline in the
yield of loans in 1996 reflects the impact of increased competition for new loan
originations The decline in the yield of investment securities was due primarily
to a restructuring of the available for sale investment securities portfolio
during 1996.
27
<PAGE>
The increase in the interest cost of average interest-bearing
liabilities is due principally to an increase in the interest cost of
interest-bearing deposits from 3.78% in 1995 to 4.00% in 1996. The higher
interest cost of deposits in 1996 reflects primarily the increase in
certificates of deposit, as a percentage of total deposits and premium interest
rates offered by the Bank on certificates of deposit, during 1996. The premium
rates were offered on selected maturities of certificates of deposit to generate
deposit growth to fund the significant loan demand experienced by the Bank.
Net interest income increased $4,907,000, or 59%, to $13,163,000 in 1995
compared to $8,256,000 in 1994. The increase is due primarily to an increase in
average earning assets, from $153,184,000 in 1994 to $248,340,000 in 1995,
partially offset by a decline in the interest rate spread from 4.79% in 1994 to
4.61% in 1995. The decline in the spread results from a shift in the deposit mix
from lower cost savings deposits into higher cost time deposits and was offset
by an increase in the yield on earning assets from 7.96% in 1994 to 8.40% in
1995. The yield on earning assets increased due to a shift in investment from
lower yielding federal funds sold to investment securities, an increase in loan
yields from 8.86% in 1994 to 9.73% in 1995, and an increased yield on federal
funds sold from 4.11% in 1994 to 5.97% in 1995.
The $95,156,000 increase in earning assets was largely the result of
branches acquired in 1995 and assets acquired in the Tuckahoe and Ocean
transactions completed in 1994.
The average balance of loans outstanding increased $46,874,000 in 1995,
to $155,139,000 from $108,265,000 in 1994. The increase in loans was a result of
the full year's impact of the acquisition of Tuckahoe and Ocean and the
origination of new loans during the year.
The average balance of investment securities increased from $33,931,000
in 1994 to $85,445,000 in 1995 as a direct result of the acquisitions that
occurred in mid-1994 and branch acquisitions in 1995. The positive impact on
interest income resulting from increased balances was slightly offset by a
decline in yield from 6.34% to 6.19% in 1995.
Average interest-bearing deposit balances increased 65% from
$122,843,000 in 1994 to $202,276,000 in 1995, primarily due to the bank and
branch acquisitions. The impact on interest expense was augmented by an increase
in the cost of deposits from 3.13% in 1994 to 3.78% in 1995. The increased
interest costs resulted from a shift in deposit composition and an increased
cost on time deposits. In 1994, savings and time deposits each comprised 31% of
total deposits, while time deposits in 1995 increased to 39% of deposits and
savings declined to 23% of deposits. In addition, the cost of time deposits
increased from 3.95% to 5.48% primarily due to generally higher market rates.
Interest on borrowed funds decreased $46,000 from $93,000 in 1994 to
$47,000 in 1995. The decrease was primarily due to a decrease in average
balances, from $1,202,000 in 1994 to $775,000 in 1995. As a result of the cash
it received from its 1994 and 1995 acquisitions, the Bank had a significantly
lower need to borrow funds.
Provision for Loan Losses. The Company recorded a provision for loan losses of
$900,000 in 1996 compared with $808,000 in 1995 and $383,000 in 1994. The
increase in the provision for loan losses in 1995 was attributable to an
increase in the size of the loan portfolio due to the bank acquisitions in 1994
and internal loan growth in 1995. Management regularly performs an analysis to
identify the inherent risk of loss in its loan portfolio. This analysis includes
evaluation of concentrations of credit, past loss experience, current economic
conditions, amount and composition of the loan portfolio (including loans being
specifically monitored by management), estimated fair value of underlying
collateral, loan commitments outstanding, delinquencies, and other factors.
28
<PAGE>
The Bank will continue to monitor its allowance for loan losses and make
future adjustments to the allowance through the provision for loan losses as
economic conditions dictate. Although the Bank maintains its allowance for loan
losses at a level that it considers to be adequate to provide for the inherent
risk of loss in its loan portfolio, there can be no assurance that future losses
will not exceed estimated amounts or that additional provisions for loan losses
will not be required in future periods. In addition, the Bank's determination as
to the amount of its allowance for loan losses is subject to review by the OCC,
as part of its examination process, which may result in the establishment of an
additional allowance based upon the judgment of the OCC after a review of the
information available at the time of the OCC examination.
Non-Interest Income. Other operating income increased $95,000, or 5.7%, from
$1,651,000 for the year ended December 31, 1995 to $1,746,000 for the year ended
December 31, 1996. The increase was primarily a result of an increase in service
charges on deposit accounts and other service charges, partially offset by a
reduction of gains on asset sales. Gains on sales of investment securities
declined by $170,000, from $377,000 in 1995 to $207,000 in 1996. During 1995,
the Company recognized $208,000 as gains on the sales of loans. During 1996,
there were no sales of loans in which gains or losses were recorded. Service
charges on deposit accounts increased $397,000, from $660,000 for the year ended
December 31, 1995 to $1,057,000 in 1996. The increase was due to a larger
customer base in 1996 as a result of the branch acquisitions in 1995 and the
growth of the Bank's business and higher fees on deposit accounts. Other service
charges increased $88,000, from $28,000 in 1995 to $116,000 in 1996. The
increase was also a result of a larger customer base.
Other operating income increased $919,000, or 125%, from $732,000 for
the year ended December 31, 1994 to $1,651,000 for the same period in 1995. The
increase was due to an increase in service charges on deposit accounts augmented
by gains on sales of loans and investment securities. Service charges on deposit
accounts increased $241,000, from $419,000 for the year ended December 31, 1994,
to $660,000 in 1995. The increased income was a result of a larger customer base
resulting from bank acquisitions occurring during 1994 and branch acquisitions
occurring during 1995. During 1995, the Company recorded gains on sales of loans
amounting to $208,000, and gains on sales of investment securities amounting to
$377,000. During 1994, there were no gains on sales of loans or investment
securities.
Non-Interest Expenses. Other operating expenses increased $3,160,000, from
$10,047,000 for the year ended December 31, 1995 to $13,207,000 for the year
ended December 31, 1996. The increase reflects the Company's strategy to build
an infrastructure to support planned expansion. Non-interest expense was
directly impacted by increased salaries and employee benefits, equipment
expense, data processing and amortization of intangibles, partially offset by a
reduction of insurance expense. Salaries and employee benefits increased
$1,837,000, from $4,689,000 for the year ended December 31, 1995 to $6,526,000
during 1996. The increase was a result of a higher number of officers and other
employees during 1996. In addition, during 1996 the Company began a 401(k)
benefits plan. As a result of the Company match, as well as administrative
costs, the Company incurred approximately $91,000 in expenses during 1996.
Equipment costs increased $359,000, from $459,000 for the year ended December
31, 1995 to $818,000 in 1996. Equipment costs increased as a result of the need
for more equipment to operate a larger organization, as well as upgrades to the
Company's telephone system and establishment of a computer network. Data
processing fees increased $451,000, from $635,000 for the year ended December
31, 1995 to $1,086,000 for 1996. The increase was a result of maintaining a
larger deposit and loan base during 1996. The amortization of the excess cost
over fair value of assets increased $484,000, from $343,000 for the year ended
December 31, 1995 to $827,000 in 1996. The increase was a result of a full year
of amortizing the intangibles associated with the 1995 acquisitions. Insurance
expenses declined $187,000, from $383,000 for the year ended December 31, 1995,
to
29
<PAGE>
$196,000 for 1996. The reduction of insurance expense was a result of lower
insurance premiums assessed by the FDIC amounting to $181,000.
Other operating expenses increased $4,056,000, from $5,991,000 for the
year ended December 31, 1994 to $10,047,000 in 1995. The increase was due to
increased salaries and employee benefits, date processing expense, amortization
of intangibles and other expenses. Salaries and employee benefits increased
$2,062,000, from $2,627,000 for the year ended December 31, 1994 to $4,689,000
in 1995. The increase was a result of higher staffing levels as a result of the
acquisitions that occurred during 1995 and 1994. Data processing fees increased
by $316,000, from $319,000 for the year ended December 31, 1994 to $635,000 in
1995. This increase was also due to added processing in connection with the
larger deposit and loan base resulting from the 1994 and 1995 acquisitions. The
amortization of the excess cost over fair value of assets acquired increased
$209,000, from $134,000 for the year ended December 31, 1994 to $343,000 in
1995. The increase was a direct result of the 1994 and 1995 acquisitions. Other
expenses increased by $892,000, from $714,000 for the year ended December 31,
1994, to $1,606,000 in 1995. In 1995, these expenses increased in almost all
categories as a result of operating a larger organization than in 1994.
Income Tax Expense. Income taxes increased $222,000, or 19%, from $1,140,000 for
the year ended December 31, 1995 to $1,362,000 for 1996. The increase was due to
increased pre-tax income. For the same reason, income taxes increased by
$365,000, from $775,000 for the year ended December 31, 1994 to $1,140,000 in
1995.
LIQUIDITY AND CAPITAL RESOURCES
A major source of the Company's funding is its retail deposit branch
network, which management believes will be sufficient to meet its long-term
liquidity needs. The ability of the Company to retain and attract new deposits
is dependent upon the variety and effectiveness of its customer account
products, customer service and convenience, and rates paid to customers. The
Company also obtains funds from the repayment and maturities of loans and
maturities of investment securities, while additional funds can be obtained from
a variety of sources including loans sales, securities sold under agreements to
repurchase, FHLB advances, and other secured and unsecured borrowings. It is
anticipated that FHLB advances and securities sold under agreements to
repurchase will be secondary sources of funding, and management expects there to
be adequate collateral for such funding requirements.
The Company's primary uses of funds are the origination of loans, the
funding of the Company's maturing certificates of deposit, deposit withdrawals,
and the repayment of borrowings. Certificates of deposit scheduled to mature
during the twelve months ending December 31, 1997 total $169.5 million. The
Company may renew these certificates, attract new replacement deposits, or
replace such funds with borrowings. As noted above, the Company has paid premium
rates on certain certificates of deposit, accordingly, certain of these actions
may require the continued payment of premium rates with an adverse impact on net
interest income.
The Company anticipates that cash and cash equivalents on hand, the cash
flow from assets as well as other sources of funds will provide adequate
liquidity for the Company's future operating, investing and financing needs. In
addition to cash and cash equivalents of $21.8 million at December 31, 1996, the
Company has substantial additional secured borrowing capacity with the FHLB and
other sources.
Net cash provided by operating activities for the year ended December
31, 1996 totalled $3.8 million, as compared to $4.1 million for the year ended
December 31, 1995. Net cash provided by
30
<PAGE>
operating activities for the year ended December 31, 1995 totalled $4.1 million
an increase of $2.6 million from the year ended December 31, 1994.
Net cash used in investing activities for the year ended December 31,
1996 totalled $64.4 million, a decrease from the year ended December 31, 1995 of
$80.7 million. The decrease was primarily attributable to the 1995 branch
acquisitions which resulted in an increase in investment securities of $97.6
million, offset by an increase in cash used for loan originations of
approximately $62.0 million, and net proceeds from sale of investment securities
and mortgage-backed securities of approximately $50 million.
Net cash used in investing activities for the year ended December 31,
1995 totalled $145.1 million, an increase from the year ended December 31, 1994
of $137.6 million. This increase was primarily attributable to the 1995 branch
acquisitions which resulted in an increase in investment securities of $97.6
million and an increase in loan originations of $47.8 million.
Net cash provided by financing activities for the year ended December
31, 1996 totalled $65.1 million. This is a result of a net increase in deposits
of $50.7 million, an increase in net borrowings of $13.3 million, and a $1.1
million increase resulting from the proceeds of the exercise of stock options.
The increase in deposits and net borrowings were used primarily to fund the
increase in loan originations and investment securities.
Net cash provided by financing activities for the year ended December
31, 1995 totalled $148.1 million. This is a result of an increase in deposits
resulting from the 1995 branch acquisitions of $122.5 million, a net increase in
customers deposits of $16.7 million, and an increase in net borrowings of $8
million. The increase in deposits and net borrowings were used primarily to fund
the increase in loan originations and investment securities.
The Company has a number of sources of liquidity, including
distributions from the Bank, investment securities, cash and amounts due from
other banks, secondary sources of liquidity, which include the ability to borrow
funds from the Federal Reserve discount window of $5.0 million, lines of credit
with the FHLB of $40.2 million, and lines of credit at correspondent banks of
$18.0 million.
The Company has experienced a significant increase in commercial loan
demand, and expects such demand to continue into 1997. The Company has met this
increased need for funds by attracting higher levels of time deposits and
utilizing lines of credit. For long-term liquidity requirements, the Company has
the ability to liquidate portions of its investment portfolio, the entire
balance of which was reclassified as available for sale. The Company believes it
has adequate liquidity resources to satisfy its current and anticipated
obligations.
The Company monitors its capital levels relative to its business
operations and growth and has sought to maintain the Bank's and its capital at
levels consistent with or in excess of the regulatory requirements. During 1996,
in order to maintain the Bank's total risk-based capital level in excess of 10%,
the Company entered into a $6 million line of credit with another bank. At
December 31, 1996, the Company had fully drawn down this line of credit and the
proceeds were invested in the Bank as additional capital.
Due to the pending branch purchases and the Company's anticipated
further growth, the Company intends to raise approximately $25 million of
additional capital through the public offering of the Preferred Securities.
31
<PAGE>
The increase of commercial loans has also had the effect of lowering the
Company's risk-based capital ratios. In general, commercial loans are
categorized as having a 100% risk-weighting using the calculations required by
the Company's regulators. The rate at which commercial loans have grown has
outpaced the growth rate of the Company's capital.
It is the Company's intent to maintain adequate risk-based capital
levels. Management monitors capital levels and, when appropriate, will recommend
a capital-raising effort to the Company's board of directors. The Company has
the ability to raise capital through a private placement or a public offering,
as may be appropriate. The following table sets forth the Bank's risk-based
capital levels at December 31, 1996:
<TABLE>
<CAPTION>
To Be Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Risk-Based Capital $28,907,862 9.34% $12,380,480 4.00% $18,570,720 6.00%
Total Risk-Based Capital 31,503,174 10.18% 24,760,960 8.00% 30,951,200 10.00%
Leverage 28,907,862 6.81% 16,974,791 4.00% 21,218,489 5.00%
</TABLE>
The following table sets forth the Company's risk-based capital levels at
December 31, 1996:
<TABLE>
<CAPTION>
To Be Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Risk-Based Capital $23,027,487 7.44% $12,385,363 4.00% $18,578,045 6.00%
Total Risk-Based Capital 25,622,799 8.28% 24,770,727 8.00% 30,963,409 10.00%
Leverage 23,027,487 5.43% 16,978,392 4.00% 21,203,948 5.00%
</TABLE>
Asset and Liability Management
The Company's exposure to interest rate risk results from the difference
in maturities on interest-bearing liabilities and interest-earning assets and
the volatility of interest rates. Because the Company's assets have a longer
maturity than its liabilities, the Company's earnings will tend to be negatively
affected during periods of rising interest rates. Conversely, this mismatch
should benefit the Company during periods of declining interest rates.
Management monitors the relationship between the interest rate sensitivity of
the Company's assets and liabilities. In this regard, the Company emphasizes the
origination of short-term commercial loans and revolving home equity loans and
de-emphasizes the origination of long-term mortgage loans.
32
<PAGE>
Gap Analysis
Banks have become increasingly concerned with the extent to which they
are able to match maturities of interest-earning assets and interest-bearing
liabilities. Such matching is facilitated by examining the extent to which such
assets and liabilities are interest-rate sensitive and by monitoring an
institution's interest rate sensitivity gap. An asset or liability is considered
to be interest-rate sensitive if it will mature or reprice within a specific
time period. The interest rate sensitivity gap is defined as the excess of
interest-earning assets maturing or repricing within a specific time period over
interest-bearing liabilities maturing or repricing within that time period. On a
monthly basis, the Bank monitors its gap, primarily its six-month and one-year
maturities and works to maintain its gap within a range that does not exceed a
negative 15% of total assets. The Company attempts to maintain its ratio of
rate-sensitive assets to rate-sensitive liabilities between 75% to 125%.
The Bank currently has a negative position with respect to its exposure
to interest rate risk. Management monitors its gap position at monthly meetings.
The Asset/Liability Committee of the Bank's Board of Directors meets quarterly
to discuss the Bank's interest rate risk. The Bank uses simulation models to
measure the impact of potential changes of up to 200 basis points in interest
rates on the net interest income of the Company. As described below, sudden
changes to interest rates should not have a material impact to the Bank's
results of operations. Should the Bank experience a positive or negative
mismatch in excess of the approved range, it has a number of remedial options.
It has the ability to reposition its investment portfolio to include securities
with more advantageous repricing and/or maturity characteristics. It can attract
variable- or fixed-rate loan products as appropriate. It can also price deposit
products to attract deposits with maturity characteristics that can lower its
exposure to interest rate risk.
At December 31, 1996, total interest-bearing liabilities maturing or
repricing within one year exceeded total interest-earning assets maturing or
repricing during the same time period by $38 million, representing a negative
cumulative one-year gap ratio of 8.73%. As a result, the yield on
interest-earning assets of the Bank should adjust to changes in interest rates
at a slower rate than the cost of the Bank's interest-bearing liabilities.
Because the Bank had positive gap characteristics in its shorter maturity
periods, the Bank's one-year gap mismatch would have a negligible effect on the
Bank's net interest margin during periods of rising or declining market interest
rates.
The following table summarizes the maturity and repricing
characteristics of the Bank's interest-earning assets and interest-bearing
liabilities as of December 31, 1996. All amounts are categorized by their actual
maturity or repricing date with the exception of interest-bearing demand
deposits and savings deposits. The Bank's historical experience with both
interest-bearing demand deposits and savings deposits reflects an insignificant
change in deposit levels for these core deposits. As a result, the Bank
allocates approximately 35% to the 0-3 month category and 65% to the 1-5 year
category.
33
<PAGE>
<TABLE>
<CAPTION>
Maturity/Repricing Time Periods
(Amounts in Thousands)
0-3 Months 4-12 Months 1-5 Years Over 5 Years Total
---------- ----------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
Loans Receivable $ 141,565 $ 38,460 $ 88,388 $ 29,683 $ 298,096
Investment Securities - 8,730 61,168 25,683 95,581
Federal Funds Sold 4,800 - - - 4,800
------- ------- ------- -------- --------
Total interest-earning assets 146,365 47,190 149,556 55,366 398,477
------- ------- ------- -------- --------
Interest-bearing demand deposits 21,173 - 35,951 - 57,124
Savings deposits 25,769 - 37,738 - 63,507
Time certificates under $100,000 41,529 93,339 16,747 - 151,615
Time certificates $100,000 or more 18,805 15,810 2,626 - 37,241
Federal Home Loan Bank advances 10,000 - - - 10,000
Securities sold under agreements
to repurchase 5,253 - - - 5,253
------- ------- ------- -------- --------
Total interest-bearing
liabilities 122,529 109,149 93,062 - 324,740
------- ------- ------- -------- --------
Periodic Gap $ 23,836 $(61,959) $ 56,494 $ 55,366 $ 73,737
======= ======== ======= ======= ========
Cumulative Gap $ 23,836 $(38,123) $ 18,371 $ 73,737
======= ======== ======= =======
Cumulative Gap Ratio 5.46% -8.73% 4.21% 16.88%
======= ======== ======= =======
</TABLE>
Impact of Inflation and Changing Prices
The financial statements of the Company and notes thereto, presented
elsewhere herein, have been prepared in accordance with generally accepted
accounting principles, which requires the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time and due to inflation. The
impact of inflation is reflected in the increased cost of the Company's
operations. Nearly all the assets and liabilities of the Company are monetary.
As a result, interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the price of
goods and services.
FINANCIAL CONDITION
General - The Company has experienced significant growth in its statement of
financial condition. The increase has been the result of acquisitions and
internal growth. Increases were most prevalent in loans, generally commercial
loans, and deposits. The Company's assets increased by $66.9 million, or 18%,
from $369.9 million at December 31, 1995 to $436.8 million at December 31, 1996.
The increase in assets primarily reflects the Company's deployment of proceeds
into the loan portfolio, from sales of investment securities and increased
deposit levels. Comparing balances from December 31, 1996 to 1995, the Company's
net loans receivable increased $111.9 million, federal funds sold increased $4.8
million and investment securities decreased $51.4 million. Total liabilities
increased $64.2 million, or 19%, from $345.2 million at December 31, 1995 to
$409.4 million at December 31, 1996. Deposits increased $50.7 million and
borrowed funds increased $13.2 million. Before the effect of unrealized gains or
losses on securities held for sale, shareholders' equity increased $4.1 million,
or 17%, from $24.3 million at December 31, 1995 to $28.4 million at December 31,
1996.
34
<PAGE>
Loans - Net loans receivable increased $111.9 million, or 61%, from $183.6
million at December 31, 1995 to $295.5 million at December 31, 1996.
Approximately $104.2 million of this increase was in commercial loans --
predominately commercial real estate loans. This significant increase was a
result of a considerably larger commercial lending staff (many with
long-established customer relationships) available to offer competitively priced
loans. Installment loans increased $8.7 million, mostly due to a more active
consumer lending department and an increase in financing of mobile homes.
Residential real estate loans decreased $568,000 as a result of scheduled
principal repayments. During 1996, the Bank used outside loan correspondents to
originate residential mortgages. These loans were originated using the Bank's
underwriting standards, rates and terms, and were approved according to the
Bank's lending policy prior to origination. Prior to closing, the Bank usually
had commitments to sell these loans with servicing released, at par and without
recourse, in the secondary market. Secondary market sales were generally
scheduled to close shortly after the origination of the loan. Set forth below is
selected data relating to the composition of the Bank's loan portfolio by type
of loan on the dates indicated.
ANALYSIS OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994 1993 1992
------------------ ------------------- ----------------- ------------------ ---------------------
$ % $ % $ % $ % $ %
--- --- --- --- --- --- --- --- --- ---
Type of Loan: (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $223,116 75.50 $118,874 64.73 $ 69,249 51.35 $ 41,642 49.94 $ 34,475 42.00
Home equity 22,070 7.47 25,129 13.68 26,799 19.87 23,510 28.19 22,257 27.12
Residential real estate 31,777 10.75 29,287 15.95 29,633 21.97 19,151 22.97 26,213 31.94
Installment 21,133 7.15 12,409 6.76 10,787 8.00 151 0.18 219 0.27
Less: Loan loss allowance 2,595 0.88 2,065 1.12 1,607 1.19 1,067 1.28 1,084 1.32
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Net loans $295,501 100.00 $183,634 100.00 $134,861 100.00 $ 83,387 100.00 $ 82,080 100.00
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Type of Security:
Residential real estate:
1-4 family $ 84,036 28.44 $ 68,904 37.52 $ 72,466 53.73 $ 49,777 59.69 $ 52,532 64.00
Other 11,115 3.76 6,295 3.43 839 0.62 757 0.91 372 0.45
Commercial real estate 166,893 56.48 85,239 46.42 48,845 36.22 28,682 34.40 23,930 29.15
Commercial business loans 20,455 6.92 13,822 7.53 6,621 4.91 5,031 6.03 6,099 7.43
Consumer 15,229 5.15 11,214 6.11 6,511 4.83 151 0.18 219 0.27
Other 368 0.12 225 0.11 1,186 0.88 56 0.07 12 0.01
Less: Loan loss allowance 2,595 0.88 2,065 1.12 1,607 1.19 1,067 1.28 1,084 1.32
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Net loans $295,501 100.00 $183,634 100.00 $134,861 100.00 $ 83,387 100.00 $ 82,080 100.00
======== ====== ======== ====== ======== ====== ========= ====== ======== ======
</TABLE>
35
<PAGE>
The following table sets forth the estimated maturity of the Bank's loan
portfolio at December 31, 1996. The table does not include prepayments or
scheduled principal prepayments. Adjustable rate mortgage loans are shown as
maturing based on contractual maturities.
Due Due after Allowance
within 1 through Due after for
1 year 5 years 5 years Loan Loss Total
------ ------- ------- --------- -----
(In thousands)
Commercial and industrial $40,553 $109,168 $ 73,800 $(1,301) $222,220
Home equity 22,069 (490) 21,579
Residential real estate 2,331 1,606 27,805 (139) 31,603
Installment 867 6,444 13,453 (167) 20,597
Unassigned reserve (498) (498)
------- -------- -------- ------- --------
$43,751 $117,218 $137,127 $(2,595) $295,501
====== ======= ======= ======= ========
The following table sets forth the dollar amount of all loans due after
December 31, 1997, which have pre-determined interest rates and which have
floating or adjustable interest rates.
Floating or
Adjustable
Fixed Rates Rates Total
----------- ----- -----
(In thousands)
Commercial and industrial $ 97,729 $ 84,885 $182,614
Home equity 621 21,111 21,732
Residential real estate 23,588 5,237 28,825
Installment 19,897 19,897
-------- -------- --------
$141,835 $111,233 $253,068
======== ======== ========
Non-Performing and Problem Assets
Loan Delinquencies - The Bank's collection procedures provide that after a
commercial loan is ten days past due, or a residential mortgage loan is fifteen
days past due, a late charge is added. The borrower is contacted by mail or
telephone and payment is requested. If the delinquency continues, subsequent
efforts are made to contact the borrower. If the loan continues to be delinquent
for ninety days or more, the Bank usually initiates foreclosure proceedings
unless other repayment arrangements are made. Each delinquent loan is reviewed
on a case by case basis in accordance with the Bank's lending policy.
Commercial loans and commercial real estate loans are placed on
nonaccrual at the time the loan is 90 days delinquent unless the credit is well
secured and in the process of collection. Generally, commercial loans are
charged off no later than 120 days delinquent unless the loan is well secured
and in the process of collection or other extenuating circumstances support
collection. Residential real estate loans are typically charged off at 90 days
delinquent. In all cases, loans must be placed on nonaccrual or charged off at
an earlier date if collection of principal or interest is considered doubtful.
36
<PAGE>
Non-Performing Assets - During 1996, the Company experienced a decline in the
amount of loans that were on non-accrual. Total non-performing assets declined
by $903,000, or 22%, from $4,079,000 at December 31, 1995 to $3,176,000 at
December 31, 1996. The ratio of non-performing assets to net loans was .82% at
December 31, 1996 compared to 1.74% at December 31, 1995. In 1995,
non-performing assets increased by $563,000, from $3,516,000 at December 31,1994
to $4,079,000 at December 31, 1995. Although the dollar amount increased, the
ratio of non-performing assets to net loans decreased, from 1.84% at December
31, 1994 to 1.74% at December 31, 1995. The following table sets forth
information regarding loans that are delinquent ninety days or more. Management
of the Bank believes that all loans accruing interest are adequately secured and
in the process of collection. At the dates shown, the Bank had no restructured
loans within the definition of SFAS No. 15.
Foreclosed Real Estate - Real estate acquired by the Bank as a result of
foreclosure is classified as Real Estate Owned until such time as it is sold.
When Real Estate Owned is acquired, it is recorded at the lower of the unpaid
principal balance of the related loan or its fair value less disposal costs. Any
write-down of Real Estate Owned is charged to operations. At December 31, 1996,
the Bank had $755,628 classified as Real Estate Owned.
Non-Performing Assets
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
Loans accounted for on a non-accrual basis:
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 354 $ 1,721 $ 1,178 $ 1,074 $ 428
Home equity 337 295 341 204 33
Residential real estate 586 607 342 265 199
Installment - 35 40 - -
--------- -------- -------- ------- --------
Total $ 1,277 $ 2,658 $ 1,901 $ 1,543 $ 660
========= ======== ======== ======= ========
Accruing loans that are contractually past
due 90 days or more:
Commercial and industrial $ 404 $ 135 $ 525 $ - $ -
Home equity 62 279 30 - -
Residential real estate 572 64 20 2 183
Installment 105 67 7 - -
--------- -------- -------- ------- --------
Total $ 1,143 $ 545 $ 582 $ 2 $ 183
========= ======== ======= ======== =======
Total non-accrual and 90-day past due loans $ 2,420 $ 3,203 $ 2,483 $ 1,545 $ 843
Real estate owned 756 876 1,033 359 144
--------- -------- -------- ------- --------
Total non-performing assets $ 3,176 $ 4,079 $ 3,516 $ 1,904 $ 987
========= ======== ======= ======== =======
Total non-accrual and 90-day past due loans to net loans 0.82% 1.74% 1.84% 1.85% 1.03%
Total non-accrual and 90-day past due loans to total assets 0.55% 0.87% 1.14% 1.38% 0.81%
Total non-performing assets to total assets 0.73% 1.10% 1.62% 1.70% 0.95%
Total allowance for loan losses to total non-performing loans 107.26% 64.47% 64.74% 69.10% 128.53%
</TABLE>
Interest income that would have been recorded on loans on non-accrual
status, under the original terms of such loans, would have totaled $151,614 for
the year ended December 31, 1996.
Allowances for Losses on Loans and Real Estate Owned - It is the policy of
management to provide for losses on unidentified loans in its portfolio in
addition to classified loans. 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. Management also periodically performs
valuations of Real Estate Owned and establishes allowances to reduce book values
of the properties to their net realizable values when necessary. The following
table sets forth information with respect to the Bank's allowance for losses on
loans at the dates indicated.
37
<PAGE>
<TABLE>
<CAPTION>
At December 31,
---------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Allowance for losses on loans, beginning of period $ 2,065 $ 1,607 $ 1,067
Charge-offs:
Commercial 307 286 312
Mortgage 9 73 1
Installment 85 67 37
--------- -------- ---------
Total charge-offs 401 426 350
--------- -------- ---------
Recoveries
Commercial 6 33 22
Mortgage 4 28
Installment 21 15 13
--------- -------- ---------
Total recoveries 31 76 35
--------- -------- ---------
Net charge-offs 370 350 315
Provision for loan losses 900 808 383
Allowance on acquired loans - - 472
--------- -------- ---------
Allowance for losses on loans, end of period $ 2,595 $ 2,065 $ 1,607
========= ======== =========
Net loans charged off as a percent of average loans outstanding 0.16% 0.23% 0.29%
</TABLE>
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 since the total loan
loss allowance is a valuation reserve applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
At December 31,
---------------
1996 1995 1994
---- ---- ----
Percent of Percent of Percent
Loans to Loans to Loans
Amount Total Loans Amount Total Loans Amount Total
------ ----------- ------ ----------- ------ -----
(Dollars in thousands)
Balance at end of period applicable to:
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 1,301 74.98 % $ 1,094 64.02% $ 847 50.60 %
Residential real estate 139 10.65 403 15.96 231 21.94
Home equity 490 7.40 319 13.34 155 19.58
Installment 167 6.97 54 6.68 47 7.88
Unallocated 498 - 195 - 327 -
-------- ------ -------- ------- --------- ------
Total allowance $ 2,595 100.00 % $ 2,065 100.00% $ 1,607 100.00%
======== ====== ======== ======= ========= ======
</TABLE>
38
<PAGE>
Investment Securities - Substantially all of the Company's investment portfolio
is held at the Bank's wholly-owned subsidiary, Med-Vine, Inc. ("Med-Vine").
Total investment securities decreased $51.4 million, or 35.0%, from $147.0
million at December 31, 1995 to $95.6 million at December 31, 1996. During 1996,
the investment portfolio was managed by a professional portfolio manager. Under
the arrangement with the manager, the board-approved investment policy of
Med-Vine and the Bank was implemented and every securities transaction was
approved by the investment officers of Med-Vine, the Bank and/or the investment
committee of the Board of Directors. The investment portfolio, in most part, had
been acquired in connection with the Bank's purchase of Tuckahoe and Ocean in
1994, and which were subsequently contributed to Med-Vine. The portfolios were
comprised of investments which were generally illiquid and of small principal
amounts. The bank acquisitions originally increased investments by approximately
$59 million. The branch acquisitions resulted in cash being converted to
investments of approximately $115 million. During the course of the year, the
manager restructured the portfolio by selling a large number of these
investments, then reinvesting them mostly in larger blocks of government and
municipal bonds. Some of these investments were sold during the year to fund the
rapid growth of commercial loans.
The investment policy of the Bank is established by senior management
and approved by the Board of Directors. Med-Vine's investment policy is
identical to that of the Bank. It is based on asset and liability management
goals and is designed to provide a portfolio of high quality investments that
optimizes interest income and provides acceptable limits of safety and
liquidity. Prior to the fourth quarter of 1995, investment securities were
purchased with the intent to hold them until their maturity. During the fourth
quarter of 1995, in accordance with the implementation of the SFAS No. 115
Guide, the bank reclassified its entire portfolio of investment securities as
available for sale. As a result, the investment securities are carried at their
approximate market value.
39
<PAGE>
The following table sets forth the carrying value of the Bank's
investment securities portfolio at the dates indicated:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------
1996 1995
-------------------------------------------------------------------------------------
Net Estimated Net Estimated
Amortized Unrealized Market Amortized Unrealized Market
Available for Sale: Cost Losses Value Cost Gains Value
------------ ----------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
U. S. Treasury securities $ 51,954,682 $ (920,871) $ 51,033,811 $ 41,674,219 $ 230,269 $ 41,904,488
Mortgage-backed securities 63,061 - 63,061 41,734,347 263,520 41,997,867
State and political subdivision securities 20,168,222 (328,816) 19,839,406 16,666,509 75,082 16,741,591
Other securities 24,877,433 (232,327) 24,645,106 46,304,169 60,781 46,364,950
------------ ----------- ------------ -------------- ----------- -------------
Total securities available for sale $ 97,063,398 $(1,482,014) $ 95,581,384 $ 146,379,244 $ 629,652 $ 147,008,896
============ =========== ============ ============== =========== =============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------
Net Estimated
Amortized Unrealized Market
Cost Losses Value
------------ ------------ -----------
Held to maturity:
<S> <C> <C> <C>
U. S. Treasury securities $ 20,033,886 $ (369,712) $19,664,174
Government agency and
mortgage-backed securities 19,334,650 (504,981) 18,829,669
State and political subdivision securities 13,550,137 (287,346) 13,262,791
Other securities 7,406,062 (177,500) 7,228,562
------------ ------------ -----------
Total securities held to maturity 60,324,735 (1,339,539) 58,985,196
------------ ------------ -----------
Available for sale:
U. S. Treasury securities
Government agency and
mortgage-backed securities
State and political subdivision securities
Other securities 313,250 313,250
------------ ------------ -----------
Total securities available for sale 313,250 - 313,250
------------ ------------ -----------
Total investment securities $ 60,637,985 $ (1,339,539) $59,298,446
============ ============ ===========
</TABLE>
40
<PAGE>
The following table sets forth certain information regarding the
carrying values, weighted average yields and maturities of the Bank's investment
portfolio at December 31, 1996. All securities are classified as being available
for sale, therefore the carrying value is the estimated market value.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total
---------------- ----------------- ----------------- ------------------- ----------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Aver
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Obligations $7,960 5.40 % $ 43,074 5.55 % $ 51,034 5.53%
Government agency and
mortgage-backed securities 11,632 6.22 $ 2,976 6.78 % $ 51 8.50% 14,659 6.34
Municipal obligations 716 4.27 250 4.34 12,714 4.75 6,159 4.87 19,839 4.77
Other securities 110 5.00 5,107 6.03 30 7.35 4,802 6.36 10,049 6.18
------ ---- -------- ---- -------- ---- -------- ---- -------- ----
Total $8,786 5.30 % $ 60,063 5.71 % $ 15,720 5.14 % $ 11,012 5.53 % $ 95,581 5.56%
====== ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
Deposits - Consumer and commercial deposits are attracted principally from
within the Bank's primary market area through the offering of a broad selection
of deposit instruments including checking, regular savings, money market,
certificates of deposit and individual retirement accounts. Deposit account
terms vary according to the minimum balance required, the time periods the funds
must remain on deposit and the interest rate, among other factors. The Bank
regularly evaluates the internal cost of funds, surveys rates offered by
competing institutions, reviews the Bank's cash flow requirements for lending
and liquidity, and executes rate changes when deemed appropriate. The Bank does
not obtain funds through brokers, nor does it solicit funds outside the State of
New Jersey.
Deposits at December 31, 1996 amounted to $386.0 million, an increase of
$50.8 million, or 15%, over the December 31, 1995 balance of $335.2 million.
Demand deposits, including NOW accounts and money market accounts, increased
$4.8 million, from $128.8 million at December 31, 1995 to $133.6 million at
December 31, 1996. Savings deposits decreased $3.5 million, from $67.0 million
at December 31, 1995 to $63.5 million at December 31, 1996. Certificates of
deposit under $100,000 increased $35.1 million, from $116.5 million at December
31, 1995 to $151.6 million at December 31, 1996. Certificates of deposit of
$100,000 or more increased $14.2 million, from $23.0 million at December 31,
1995 to $37.2 million at December 31, 1996. The increase in certificates of
deposit was due in large part to promotional rates offered on certain
certificates of deposit during the year in response to rates offered by other
financial institutions in the Bank's market areas, as well as in response to a
general increase in overall market rates for certificates of deposit.
The following table sets forth average deposits by various types of
demand and time deposits:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------------
1996 Avg. Yield 1995 Avg. Yield 1994 Avg. Yield
-------- ---------- --------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits $ 65,556 $ 45,562 $ 26,949
Interest bearing demand deposits 62,270 1.78 % 48,609 2.19 29,186 2.43 %
Savings deposits 65,393 2.23 57,470 2.28 44,968 3.10
Time deposits 170,875 5.49 96,256 5.48 45,611 3.95
-------- ---- --------- ---- --------- ----
Total $364,094 3.28 % $ 247,897 3.09 $ 146,714 3.66 %
======== ==== ========= ==== ========= ====
</TABLE>
41
<PAGE>
The following table indicates the amount of certificates of deposit of
$100,000 or more by remaining maturity at December 31, 1996:
(In thousands)
Remaining maturity:
Three months or less $ 18,805
Over three through six months 6,389
Over six through twelve months 9,421
Over twelve months 2,626
--------
$ 37,241
========
Borrowings - Borrowed funds increased $13.3 million, from $8 million at December
31, 1995 to $21.3 million at December 31, 1996. Of the increase, $2 million
represents an increase in advances from the FHLB. Beginning in 1996, the Company
sold securities under agreements with customers to repurchase them, at par, on
the next business day. The securities sold were U.S. Treasury Notes. At December
31, 1996, securities sold under agreements to repurchase amounted to $5.3
million. At December 30, 1996, the Company obtained a $6 million revolving line
of credit from a correspondent bank with a term of 36 months. The floating rate
of interest is the prime rate plus fifty basis points. At December 31, 1996,
there was $6 million outstanding at an interest rate of 8.75%. The proceeds of
the loan were contributed to the bank as capital.
Federal Home Loan Bank Advances
1996 1995
---- ----
Amount outstanding at December 31, (Dollars in thousands)
Advances $ 10,000 $ 8,000
Interest rate 7.375% 5.875%
Approximate average amount outstanding $ 5,265 $ 150
Approximate weighted average rate 5.44% 5.44%
Deposits are the primary source of funds for the bank's lending
activities, investment activities and general business purposes. Should the need
arise, the Bank has the ability to access lines of credit from various sources
including the Federal Reserve Bank, the Federal Home Loan Bank and various other
correspondent banks. In addition, on an overnight basis, the Bank has the
ability to offer securities sold under agreements to repurchase.
BUSINESS OF THE COMPANY
General
The Company is a one-bank holding company headquartered in Vineland, New
Jersey engaged primarily in commercial and consumer banking services through its
sole subsidiary, the Bank. The Company's principal business is to serve as a
holding company for the Bank and was incorporated in 1985. In April 1995, the
Company changed its name from Citizens Investments, Inc. to its present name.
42
<PAGE>
The Bank has one wholly-owned subsidiary, Med-Vine, Inc., a Delaware
corporation, which was formed in 1992 to hold a majority of the Company's
investment portfolio.
As previously discussed, the Company is focused on a strategy to expand
its franchise throughout southern New Jersey. Continued consolidation of the
banking industry, and a regionalization of decision authority by larger banking
institutions resulted in many area businesses and individuals in the Bank's
market underserved. The opportunities provided in this market prompted the Board
and management to actively pursue strategic acquisitions.
In June 1994, Tuckahoe was merged into the Bank and, in July 1994, Ocean
was merged into the Bank. The Tuckahoe and Ocean mergers increased the asset
size of the Bank by approximately $119 million and increased deposit liabilities
by approximately $105 million. On July 14, 1995, the Bank purchased four branch
offices from NatWest Bank and on November 24, 1995, the Bank purchased four
branch offices from the New Jersey National Bank (the "branch purchases"). The
branch purchases increased deposit liabilities of the Bank by approximately $123
million. On December 19, 1996, the Bank entered into a Purchase and Assumption
Agreement to acquire four branch offices including the assumption of
approximately $73 million of deposit liabilities from First Union. The First
Union branch purchase is subject to regulatory approval and is expected to close
during the second quarter of 1997. On February 25, 1997, the Bank entered into a
Purchase and Assumption Agreement to acquire three branch offices including the
assumption of approximately $33 million of deposit liabilities from Oritani. The
Oritani branch purchase is subject to regulatory approval and is expected to
close during the third quarter of 1997.
The Bank offers a wide variety of commercial and consumer lending and
deposit services through its eighteen branch offices located throughout southern
New Jersey. The commercial loans offered by the Bank include short- and
long-term business loans, lines of credit, non-residential mortgage loans, and
real estate construction loans. Consumer loans include home equity loans,
residential real estate loans, and installment loans. The Bank also offers
deposits and personal banking services, including commercial banking services,
retail deposit services such as certificates of deposit, money market accounts,
savings accounts and automatic teller machine ("ATM") access and individual
retirement accounts, and securities brokerage and investment advisory services
through a third-party arrangement.
Market Area
The Bank has been, and intends to continue to be, a community-oriented
financial institution, offering a wide variety of financial services to meet the
needs of the communities it serves. The Bank conducts its business through 18
branch offices and one loan administration office located in the southern New
Jersey counties of Atlantic, Burlington, Cape May, Cumberland, Mercer and Ocean
("primary market area"). The Bank's deposit gathering base and lending area is
concentrated in the communities surrounding its offices.
The Bank is a community-based financial institution headquartered in
Cumberland County, New Jersey. The city of Vineland is approximately 30 miles
southeast of Philadelphia, Pennsylvania, and 30 miles southeast of Camden, New
Jersey. The Philadelphia International Airport is approximately 45 minutes from
Vineland.
Southern New Jersey is among the fastest growing population areas in New
Jersey and has a significant number of retired residents who have traditionally
provided the Bank with a stable source of deposit funds. The economy of the
Bank's primary market area is based upon a mixture of the
43
<PAGE>
agriculture, transportation, manufacturing and tourism trade. The area is also
home to commuters working in New Jersey suburban areas around New York and
Philadelphia.
Management considers the Bank's reputation for customer service as its
major competitive advantage in attracting and retaining customers in its market
area. The Bank also believes it benefits from its community orientation, as well
as its established deposit base and level of core deposits.
Lending Activities
General. The principal lending activity of the Bank is the origination
of commercial real estate loans, commercial business and industrial loans, home
equity loans, mortgage loans and, to a much lesser extent, installment loans.
All loans are originated in the Bank's primary market area. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
description of the Bank's loan portfolio.
Commercial and Industrial Loans. The Bank originates several types of
commercial and industrial loans. Included as commercial loans are short- and
long-term business loans, lines of credit, non-residential mortgage loans and
real estate construction loans. The primary focus of the Bank is on the
origination of commercial loans secured by real estate. The majority of the
Bank's customers for these loans are small- to medium-sized businesses located
in the southern part of New Jersey.
Commercial Real Estate Loans. Loans secured by commercial properties
generally involve a greater degree of risk than residential mortgage loans and
carry larger loan balances. This increased credit risk is a result of several
factors, including the concentration of principal in a limited number of loans
and borrowers, the mobility of collateral, the effects of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. A significant portion of the
Bank's commercial real estate and commercial and industrial loan portfolio
includes a balloon payment feature. A number of factors may affect a borrower's
ability to make or refinance a balloon payment, including without limitation the
financial condition of the borrower at the time, the prevailing local economic
conditions, and the prevailing interest rate environment. There can be no
assurance that borrowers will be able to make or refinance balloon payments when
due.
Furthermore, the repayment of loans secured by commercial real estate is
typically dependent upon the successful operation of the related real estate or
commercial project. If the cash flow from the project is reduced, the borrower's
ability to repay the loan may be impaired. This cash flow shortage may result in
the failure to make loan payments. In such cases, the Company may be compelled
to modify the terms of the loan. In addition, the nature of these loans is such
that they are generally less predictable and more difficult to evaluate and
monitor. As a result, repayment of these loans may be subject to a greater
extent than residential loans to adverse conditions in the real estate market or
economy.
Home Equity Loans. The Bank originates home equity loans, secured by
first or second mortgages owned or being purchased by the loan applicant. Home
equity loans are consumer revolving lines of credit. The interest rate charged
on such loans is usually a floating rate related to the prime lending rate. Home
equity loans may provide for interest only payments for the first two years with
principal payments to begin in the third year. A home equity loan is typically
originated as a fifteen-year note that allows the borrower to draw upon the
approved line of credit during the same period as the note. The Bank generally
requires a loan-to-value ratio in the range of 70% to 80% of the appraised
value, less any outstanding mortgage.
44
<PAGE>
Residential Real Estate Loans. The Bank uses outside loan correspondents
to originate residential mortgages. These loans are originated using the Bank's
underwriting standards, rates and terms, and are approved according to the
Bank's lending policy prior to origination. Prior to closing, the Bank usually
has commitments to sell these loans, at par and without recourse, in the
secondary market. Secondary market sales are generally scheduled to close
shortly after the origination of the loan.
The majority of the Bank's residential mortgage loans consist of loans
secured by owner-occupied, single-family residences. The Bank's mortgage loan
portfolio consists of both fixed-rate and adjustable-rate loans secured by
various types of collateral as discussed below. Management generally originates
residential mortgage loans in conformity with Federal National Mortgage
Association ("FNMA") standards so that the loans will be eligible for sale in
the secondary market. Management expects to continue offering mortgage loans at
market interest rates, with substantially the same terms and conditions as it
currently offers.
The Bank's residential mortgage loans customarily include due-on-sale
clauses, which are provisions giving the Bank the right to declare a loan
immediately due and payable in the event, among other things, that the borrower
sells or otherwise disposes of the real property serving as security for the
loan. Due-on-sale clauses are an important means of adjusting the rates on the
Bank's fixed-rate mortgage portfolio. The Bank usually exercises its rights
under these clauses.
Installment Loans. The Bank originates installment, or consumer loans
secured by a variety of collateral, such as new and used automobiles. The Bank
makes a very limited number of unsecured installment loans. Through its merger
with Ocean in 1994, the Bank acquired a credit card portfolio which it intends
to reduce as current customers pay off their lines of credit.
Loan Solicitation and Processing. Loan originations are derived from a
number of sources such as loan officers, customers, borrowers and referrals from
real estate brokers, accountants, attorneys and regional advisory boards.
Upon receipt of a loan application, a credit report is ordered and
reviewed to verify specific information relating to the loan applicant's
creditworthiness. For residential mortgage loans, written verifications of
employment and deposit balances are requested by the Bank. The Bank requires
that an appraisal of the real estate intended to secure the proposed loan is
undertaken by a certified independent appraiser approved by the Bank and
licensed by the State. After all of the required information is obtained, the
Bank then makes its credit decision. Depending on the type, collateral and
amount of the credit request, various levels of approval may be necessary. In
general, loans of $100,000 or more must be presented at an Officers' Loan
Committee which has the authority to approve unsecured loans to $750,000 and
secured loans to $1.5 million. The Officers' Loan Committee is comprised of the
Bank's CEO, senior lending officer and regional lending officers. Credit
requests in excess of the Officers' Loan Committee must also be presented to the
Bank's Board of Directors for approval. Loans under $100,000 are generally
approved by various levels of Bank management. All loans require the approval of
at least two lending officers.
Title insurance policies are required on all first mortgage loans.
Hazard insurance coverage is required on all properties securing loans made by
the Bank. Flood insurance is also required, when applicable.
Loan applicants are notified of the credit decision by letter. If the
loan is approved, the loan commitment specifies the terms and conditions of the
proposed loan including the amount, interest rate, amortization term, a brief
description of the required collateral, and the required insurance coverage. The
borrower must provide proof of fire, flood (if applicable) and casualty
insurance on the property serving as collateral, which insurance must be
maintained during the full term of the loan. Generally, title insurance endorsed
to the Bank is required on all first mortgage loans.
45
<PAGE>
Loan Commitments. When a commercial loan is approved, the Bank issues a
written commitment to the loan applicant. The commitment indicates the loan
amount, term and interest rate and is valid for approximately 45 days.
Approximately 90% of the Bank's commitments are accepted or rejected by the
customer before the expiration of the commitment. At December 31, 1996, the Bank
had approximately $29.0 million in commercial loan commitments outstanding.
Credit Risk, Credit Administration and Loan Review. Credit risk
represents the possibility that a customer or counterparty may not perform in
accordance with contractual terms. The Bank incurs credit risk whenever it
extends credit to, or enters into other transactions with, its customers. The
risks associated with extensions of credit include general risk, which is
inherent in the lending business, and risk specific to individual borrowers.
Credit administration is responsible for the overall management of the Bank's
credit risk and the development, application and enforcement of uniform credit
policies and procedures the principal purpose of which is to minimize such risk.
One objective of credit administration is to identify and, to the extent
feasible, diversify extensions of credit by industry concentration, geographic
distribution and the type of borrower. Loan review and other loan monitoring
practices provide a means for the Bank's management to ascertain whether proper
credit, underwriting and loan documentation policies, procedures and practices
are being followed by the Bank's loan officers and are being applied uniformly
throughout the Bank. Within the last year, the Bank has taken a number of steps
to enhance its credit administration and loan review functions in an effort to
better manage its credit risk, especially in light of the Bank's rapid growth.
While the Bank continues to review these and other related functional areas,
there can be no assurance that the steps the Bank has taken to date will be
sufficient to enable it to identify, measure, monitor and control all credit
risk.
Investment Securities Activities
General. The investment policy of the Bank is established by senior
management and approved by the Board of Directors. It is based on asset and
liability management goals and is designed to provide a portfolio of high
quality investments that optimize interest income and provides acceptable limits
of safety and liquidity. The Bank's investment goal is to invest available funds
in instruments that meet specific requirements of the Bank's asset and liability
management goals. The investment activities of the Bank consist primarily of
investments in federal funds, securities issued or guaranteed by the United
States Government or its agencies, states and political subdivisions and
corporate bonds. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a description of the Bank's investment
portfolio.
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending
and other investment purposes. In addition to deposits, the Bank derives funds
from the amortization, prepayment or sale of loans, maturities or sale of
investment 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a description of the Bank's sources of funds.
Deposits. Consumer and commercial deposits are attracted principally
from within the Bank's primary market area through the offering of a broad
selection of deposit instruments including checking, regular savings, money
market deposits, term certificate accounts and individual retirement accounts.
Deposit account terms vary according to the minimum balance required, the time
periods the funds must remain on deposit and the interest rate, among other
factors. The Bank regularly evaluates the internal cost of funds, surveys rates
offered by competing institutions, reviews the Bank's cash flow requirements
46
<PAGE>
for lending and liquidity and executes rate changes when deemed appropriate. The
Bank does not obtain funds through brokers, nor does it solicit funds outside
the State of New Jersey.
Competition
The Bank faces substantial competition both in attracting loans and in
lending funds. The State of New Jersey has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank, all of which are
competitors of the Bank to varying degrees. In order to compete with the many
financial institutions serving its primary market area, the Bank's operating
goal is to continue to provide a broad range of financial services with a strong
emphasis on customer service to individuals and businesses in southern New
Jersey.
The competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional and money center banks in the Bank's market area.
Competition for funds also include 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 comes from other insured financial institutions such as
commercial banks, thrift institutions, credit unions, multi-state regional and
money center banks, and mortgage-bankers many of whom have far greater resources
then the Bank. Non-bank competition, such as investment brokerage houses, has
intensified in recent years for all banks since non-bank competitors are not
subject to same regulatory burdens as banks.
Properties
The Company and the Bank operate from their main office and 17 branch
offices. The Bank leases its main office and four branch offices. The remainder
of the branch offices are owned by the Bank. The Bank has entered into Purchase
and Assumption Agreements with First Union to acquire four branch offices and
Oritani to acquire three branch offices. In addition, the Bank plans to open two
de novo branch offices.
Personnel
At December 31, 1996, the Bank had 158 full-time and 43 part-time
employees, all of whom were on the payroll of the Bank. The Bank's employees are
not represented by a collective bargaining group. The Bank believes that its
relationship with its employees is good.
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 such pending claims or lawsuits.
47
<PAGE>
MANAGEMENT
Directors and Executive Officers
The Board of Directors of the Company is currently composed of six
members, each of whom serves for a term of one year. Executive officers are
elected annually by the Board of Directors and serve at the Board's discretion.
The following table sets forth information with respect to the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
Shares of
Current Stock Percent
Director/Executive Director Term Beneficially of
Officer Age (1) Position Since Expires Owned (3) Class
------- ------- -------- ----- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Bernard A. Brown (2) 72 Chairman of the 1985 1997 931,960 (4) 42.32%
Board
Sidney R. Brown (2) 39 Director, Treasurer 1990 1997 43,498 1.98%
Adolph F. Calovi 74 Director, President 1985 1997 218 0.01%
and Chief
Executive Officer
Peter Galetto, Jr. 43 Director, Secretary 1990 1997 18,604 0.84%
Philip W. Koebig, III 54 Director, Executive 1995 1997 95,525 (4) 4.34%
Vice President
Anne E. Koons (2) 44 Director 1990 1997 38,228 1.74%
</TABLE>
- ------------------
(1) At December 31, 1996
(2) Bernard A. Brown is the father of Sidney R. Brown and Anne E. Koons.
Sidney R. Brown is the brother of Anne E. Koons.
(3) Includes shares held directly by the individual as well as by such
individual's spouse, shares held in trust and in other forms of indirect
ownership over which shares the individual effectively exercises sole
voting and investment power and shares which the named individual has a
right to acquire within sixty days of December 31, 1996, pursuant to the
exercise of stock options.
(4) Includes 78,750 and 10,500 options granted to Messrs. Bernard Brown and
Koebig, respectively, which are subject to shareholder approval.
Biographical Information
Directors and Executive Officers of the Company. The principal
occupation of each director and executive officer of the Company is set forth
below. All directors and executive officers have held their present positions
for five years unless otherwise stated. All of the directors reside in the State
of New Jersey.
Bernard A. Brown has been the Chairman of the Board of Directors of the
Company since its inception in January, 1985. Mr. Brown is also the Chairman of
the Board of Directors of the Bank. For many years, Mr. Brown has been the
Chairman of the Board of Directors and President of NFI Industries, Inc., a
trucking conglomerate headquartered in Vineland, New Jersey.
Sidney R. Brown has been the Treasurer and a director of the Company
since April, 1990. Mr. Brown is an officer and director of NFI Industries, Inc.,
and one of the general partners of The Four B's,
48
<PAGE>
a partnership which has extensive real estate holdings in the Eastern United
States. Its primary objective is investing in and consequent development of
commercial real estate, leasing and/or sale. Mr. Brown is currently an officer
and director of several other corporations and partnerships in the
transportation, equipment leasing, insurance, warehousing and real estate
industries.
Adolph F. Calovi has been the President, Chief Executive Officer and a
director of the Company since its inception in January, 1985. Mr. Calovi is a
director of the Bank and, from 1985 to 1994, was its President and Chief
Executive Officer.
Peter Galetto, Jr. has been the Secretary and a director of the Company
since April 1990. Mr. Galetto is the President/Sales for Stanker & Galetto,
Inc., located in Vineland, New Jersey. He is also the President of the
Cumberland Technology Enterprise Center. Mr. Galetto has been the
Secretary/Treasurer of Trimark Building Contractors. He is also an officer and
director of several other corporations and organizations.
Philip W. Koebig, III has been the Executive Vice President of the
Company since 1994. He has been a director of the Company since 1995. Mr. Koebig
is also a director, President and Chief Executive Officer of the Bank since
January, 1995. From 1990 to 1994, Mr. Koebig had been President and Chief
Executive Officer of Covenant Bank for Savings, Haddonfield, New Jersey. He also
serves on the Board of Directors of numerous charitable organizations and
corporations.
Anne E. Koons has been a director of the Company since April, 1990. Ms.
Koons is a real estate agent with Fox & Lazo, and a travel agent for Leisure
Time Travel. Ms. Koons is also a Commissioner of the Camden County Improvement
Authority and a member of the Cooper Medical Center's Foundation Board.
Additional Executive Officers of the Bank. Set forth below is
biographical information of certain executive officers of the Bank who are not
also executive officers of the Company.
Robert F. Mack has been with the Bank since 1992 and serves as its
Senior Vice President and Chief Financial Officer. Mr. Mack has twenty-five
years of extensive banking experience and has worked for several commercial
banks in New Jersey.
Bart A. Speziali has been with the Bank since 1992 as the Senior Lending
Officer and Senior Vice President. Mr. Speziali has over twenty years of banking
experience in southern New Jersey.
James S. Killough joined the Bank in February 1997 as Senior Vice
President of Administrations, Operations and Retail Banking. Before joining the
Bank, Mr. Killough was president and chief professional officer for the United
Way of Camden County, New Jersey for two years. Prior to that, Mr. Killough was
executive vice president for Central Jersey Bank and Trust and Midlantic
National Bank/South.
Executive Compensation
The Company has no full time employees, relying upon employees of the
Bank for the limited services required by the Company. All compensation paid to
officers and employees is paid by the Bank.
49
<PAGE>
Summary Compensation Table. The following table sets forth compensation
awarded to the Chief Executive Officer and Executive Vice President of the
Company who, for the year ended December 31, 1996, received total salary and
bonus payments from the Bank in excess of $100,000. Except as set forth below,
no executive officer of the Company had a salary and bonus during the year ended
December 31, 1996 that exceeded $100,000 for services rendered in all capacities
to the Company.
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Awards
------------------- ------
Securities
Name and Underlying All Other
Principal Position Year Salary Bonus Options(#) Compensation
------------------ ---- ------ ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Adolph F. Calovi 1996 $ 131,000 $ -- -- $ --
President and Chief 1995 131,000 -- -- --
Executive Officer 1994 130,500 -- -- 2,743(1)
Philip W. Koebig, III 1996 174,044 22,500 10,500 10,583(2)
Executive Vice 1995 150,000 -- 52,499 10,383(3)
President 1994 25,965 -- -- 240(4)
</TABLE>
- -----------------
(1) Constitutes life insurance premiums.
(2) Constitutes life and disability insurance premiums of $7,253 and $3,330
in country club dues.
(3) Constitutes life and disability insurance premiums of $7,253 and $3,130
in country club dues.
(4) Constitutes life and disability insurance premiums.
Stock Option Plan. The Company has adopted the 1985 Stock Option Plan
and the 1995 Stock Option Plan (the "Option Plans"). Officers, directors and
employees are eligible to receive, at no cost to them, options under the Option
Plans. Options granted under the Option Plans may be either incentive stock
options (options that afford favorable tax treatment to recipients upon
compliance with certain restrictions pursuant to Section 422 of the Internal
Revenue Code and that do not normally result in tax deductions to the Company)
or options that do not so qualify. The option price may not be less than 100% of
the fair market value of the shares on the date of the grant. Option shares may
be paid in cash, shares of the common stock, or a combination of both.
Options granted under the 1985 Stock Option Plan are exercisable at the
fair market value of the common stock at the time of the grant and until the
year 2001. Options granted under the 1995 Stock Option Plan are exercisable at
the fair market value of the common stock at the time of the grant and for ten
years thereafter.
50
<PAGE>
The following table sets forth additional information concerning options
granted under the Option Plans.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
---------------------------------
Potential Realizable
Individual Grants Value at Assumed
----------------- Annual Rates of Stock
Price Appreciation for
Percent of Total Option Term
Number of Options Granted Exercise -----------
Options to Employees Price Expiration
Name Granted in Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ---- ------- -------------- --------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Philip W. Koebig, III 10,500 8.34 16.67 July 16, 2006 87,518 175,035
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
-----------------------------------------------
Value of
Number of Unexercised
Unexercised In-the-money
Shares Acquired Value Options at Options at
Name on Exercise (#) Realized Fiscal Year-End Fiscal Year-End
- ---- --------------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Adolph F. Calovi 101,346 $953,152 -- --
</TABLE>
Directors' Compensation. Each member of the Board of Directors, except
for the Chairman and employee directors, received a fee of $300 for each meeting
attended for the year ended December 31, 1996. For the year ended December 31,
1996, director fees totaled $26,700.
Employment Agreement. The Company has an employment agreement, dated
January 2, 1995, with Adolph F. Calovi, its President and CEO. Under the terms
of the agreement, Mr. Calovi will receive an annual salary of $131,000 for each
of the four years of the agreement. In addition, he will receive all benefits
offered officers of the Company and will have the use of a Company-owned
automobile.
If, during the term of the agreement, Mr. Calovi's employment terminates
for any reason except voluntary resignation, embezzlement, fraud, or due to a
material default by Mr. Calovi of his employment obligations, the Company will
be fully liable for all remaining salary payments under the agreement.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee of the Company during the year ended December 31, 1996
consisted of Anne E. Koons, Sidney R. Brown and Philip W. Koebig, III. All are
members of the Board of Directors of the Company. Mr. Koebig is also a Director
and Officer of the Bank and did not participate in matters involving his
personal compensation.
51
<PAGE>
Certain Relationships and Related Transactions
Bernard A. Brown, the Chairman of the Board of Directors of the Company
and of the Bank, is, with his wife, the owner of Vineland Construction Company.
The Company and the Bank lease office space in Vineland, New Jersey from
Vineland Construction Company. The Company believes that the transactions with
Vineland Construction Company are on terms substantially the same, or at least
as favorable to the Bank, as those that would be provided by a non-affiliate.
The Company paid $361,731 to Vineland Construction during the year ended
December 31, 1996.
The Bank has a policy of offering various types of loans to officers,
directors and employees of the Bank and of the Company. These loans have been
made in the ordinary course of business and on substantially the same terms and
conditions (including interest rates and collateral requirements) as, and
following credit underwriting procedures that are not less stringent than, those
prevailing at the time for comparable transactions by the Bank with its other
unaffiliated customers and do not involve more than the normal risk of
collectiblity, nor present other unfavorable features. See Note 5 to the
Consolidated Financial Statements.
SUPERVISION AND REGULATION
Introduction
Bank holding companies and banks are extensively regulated under both
federal and state law. The following information describes certain aspects of
that regulation applicable to the Company and the Bank, and does not purport to
be complete. The discussion is qualified in its entirety by reference to all
particular statutory or regulatory provisions.
The Company is a legal entity separate and distinct from the Bank.
Accordingly, the right of the Company, and consequently the right of creditors
and shareholders of the Company, to participate in any distribution of the
assets or earnings of the Bank is necessarily subject to the prior claims of
creditors of the Bank, except to the extent that claims of the Company in its
capacity as creditor may be recognized. The principal source of the Company's
revenue and cash flow is dividends from the Bank. There are legal limitations on
the extent to which a subsidiary bank can finance or otherwise supply funds to
its parent holding company.
The Company
General. As a registered holding company, the Company is regulated under
the BHCA and is subject to supervision and regular inspection by the Federal
Reserve. The BHCA requires, among other things, the prior approval of the
Federal Reserve in any case where the Company proposes to (i) acquire all or
substantially all of the assets of any bank, (ii) acquire direct or indirect
ownership or control of more than 5 percent of the voting shares of any bank, or
(iii) merge or consolidate with any other bank holding company.
Acquisitions/Permissible Business Activities. The BHCA currently permits
bank holding companies from any state to acquire banks and bank holding
companies located in any other state, subject to certain conditions, including
certain nationwide- and state-imposed concentration limits. Effective June 1,
1997, the Bank will have the ability, subject to certain restrictions, including
state opt-out provisions, to acquire by acquisition or merger branches outside
its home state. States may affirmatively opt-in to permit these transactions
earlier, which New Jersey, among other states, has done. The establishment of
new interstate branches also will be possible in those states with laws that
expressly permit it.
52
<PAGE>
Interstate branches will be subject to certain laws of the states in which they
are located. Competition may increase further as banks branch across state lines
and enter new markets.
Under the BHCA, the Company is prohibited, with certain exceptions, from
acquiring direct or indirect ownership or control of more than 5 percent of any
class of voting shares of any nonbanking corporation. Further, the Company may
not engage in any business other than managing and controlling banks or
furnishing certain specified services to subsidiaries, and may not acquire
voting control of nonbanking corporations except those corporations engaged in
businesses or furnishing services that the Federal Reserve deems to be closely
related to banking.
Community Reinvestment. Bank holding companies and their subsidiary
banks are subject to the provisions of the Community Reinvestment Act of 1977,
as amended ("CRA"). Under the terms of the CRA, the Bank's record in meeting the
credit needs of the community served by the Bank, including low- and
moderate-income neighborhoods, is generally annually assessed by the Office of
the Comptroller of the Currency (the "OCC"). When a bank holding company applies
for approval to acquire a bank or other bank holding company, the Federal
Reserve will review the assessment of each subsidiary bank of the applicant bank
holding company, and such records may be the basis for denying the application.
At December 31, 1996, the Bank was rated "Satisfactory" with respect to CRA.
Source of Strength Policy. Under Federal Reserve policy, a bank holding
company is expected to serve as a source of financial strength to each of its
subsidiary banks and to commit resources to support each such bank. Consistent
with its "source of strength" policy for subsidiary banks, the Federal Reserve
has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fund fully the
dividends, and the prospective rate of earnings retention appears to be
consistent with the corporation's capital needs, asset quality and overall
financial condition.
The Bank
General. The Bank is subject to supervision and examination by the OCC.
In addition, the Bank is insured by and subject to certain regulations of the
FDIC and is a member of the FHLB. The Bank is also subject to various
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types,
amount and terms and conditions of loans that may be granted and limitations on
the types of investments that may be made and the types of services that may be
offered. Various consumer laws and regulations also affect the operations of the
Bank.
Dividend Restrictions. Dividends from the Bank constitute the principal
source of income to the Company. The Bank is subject to various statutory and
regulatory restrictions on its ability to pay dividends to the Company. Under
such restrictions, the amount available for payment of dividends to the Company
by the Bank totaled $7.7 million at December 31, 1996. In addition, the OCC has
the authority to prohibit the Bank from paying dividends, depending upon the
Bank's financial condition, if such payment is deemed to constitute an unsafe or
unsound practice. The ability of the Bank to pay dividends in the future is
presently, and could be further, influenced by bank regulatory and supervisory
policies.
Affiliate Transaction Restrictions. The Bank is subject to federal laws
that limit the transactions by subsidiary banks to or on behalf of their parent
company and to or on behalf of any nonbank subsidiaries. Such transactions by a
subsidiary bank to its parent company or to any nonbank subsidiary are limited
to 10 percent of a bank subsidiary's capital and surplus and, with respect to
such parent
53
<PAGE>
company and all such nonbank subsidiaries, to an aggregate of 20 percent of such
bank subsidiary's capital and surplus. Further, loans and extensions of credit
generally are required to be secured by eligible collateral in specified
amounts. Federal law also prohibits banks from purchasing "low-quality" assets
from affiliates.
FDIC Insurance Assessments. Deposits of the Bank are insured by the BIF
of the FDIC and are subject to FDIC insurance assessments. The amount of FDIC
assessments paid by individual insured depository institutions is based on their
relative risk as measured by regulatory capital ratios and certain other
factors. During 1995, the FDIC's Board of Directors significantly reduced
premium rates assessed on deposits insured by the BIF. Under the current
regulations, the Company is assessed a premium on BIF-insured deposits.
Enforcement Powers of Federal Banking Agencies. Federal banking agencies
possess broad powers to take corrective and other supervisory action as deemed
appropriate for an insured depository institution and its holding company. The
extent of these powers depends on whether the institution in question is
considered "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" or "critically undercapitalized". At December
31, 1996, the Bank exceeded the required ratios for classification as "well
capitalized" and the Company exceeded the required ratios for classification as
adequately capitalized. On a pro forma basis, giving effect to the sale of the
Preferred Securities, the First Union and Oritani branch purchases, both the
Bank and the Company will be adequately capitalized. The classification of
depository institutions is primarily for the purpose of applying the federal
banking agencies' prompt corrective action and other supervisory powers and is
not intended to be, and should not be interpreted as, a representation of the
overall financial condition or prospects of any financial institution.
The agencies' prompt corrective action powers can include, among other
things, requiring an insured depository institution to adopt a capital
restoration plan which cannot be approved unless guaranteed by the institution's
parent company; placing limits on asset growth and restrictions on activities;
including restrictions on transactions with affiliates; restricting the interest
rate the institution may pay on deposits; prohibiting the payment of principal
or interest on subordinated debt; prohibiting the holding company from making
capital distributions without prior regulatory approval and, ultimately,
appointing a receiver for the institution. Among other things, only a "well
capitalized" depository institution may accept brokered deposits without prior
regulatory approval and only an "adequately capitalized" depository institution
may accept brokered deposits with prior regulatory approval.
Capital Guidelines. Under the risk-based capital guidelines applicable
to the Company and the Bank, the minimum guideline for the ratio of total
capital to risk-weighted assets (including certain off- balance-sheet
activities) is 8.00 percent. At least half of the total capital must be "Tier 1"
or core capital, which primarily includes common shareholders' equity and
qualifying preferred stock, less goodwill and other disallowed tangibles. "Tier
2" or supplementary capital includes, among other items, certain cumulative and
limited-life preferred stock, qualifying subordinated debt and the allowance for
credit losses, subject to certain limitations, less required deductions as
prescribed by regulation.
In addition, the federal bank regulators established leverage ratio
(Tier 1 capital to total adjusted average assets) guidelines providing for a
minimum leverage ratio of 3 percent for bank holding companies and banks meeting
certain specified criteria, including that such institutions have the highest
regulatory examination rating and are not contemplating significant growth or
expansion. Institutions not meeting these criteria are expected to maintain a
ratio which exceeds the 3 percent minimum by at least 100 to 200 basis points.
The federal bank regulatory agencies may, however, set higher capital
requirements when particular circumstances warrant. Under the federal banking
laws, failure to meet the
54
<PAGE>
minimum regulatory capital requirements could subject a bank to a variety of
enforcement remedies available to federal bank regulatory agencies.
At December 31, 1996, the Bank's and the Company's respective total and
Tier 1 risk-based capital ratios and leverage ratios exceeded the minimum
regulatory capital requirements.
Legislative Proposals and Reforms
In recent years, significant legislative proposals and reforms affecting
the financial services industry have been discussed and evaluated by Congress.
In the last Congress, such proposals included legislation to revise the
Glass-Steagall Act and the BHCA to expand permissible activities for banks,
principally to facilitate the convergence of commercial and investment banking.
Certain proposals also sought to expand insurance activities of banks. It is
unclear whether any of these proposals, or any form of them, will be
reintroduced in the current Congress and become law. Consequently, it is not
possible to determine what effect, if any, they may have on the Company and the
Bank.
DESCRIPTION OF PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Issuer Trustees on behalf of the Issuer Trust will issue the Preferred
Securities and the Common Securities. The Preferred Securities will represent
preferred undivided beneficial interests in the assets of the Issuer Trust and
the holders thereof will be entitled to a preference in certain circumstances
with respect to Distributions and amounts payable on redemption or liquidation
over the Common Securities, as well as other benefits as described in the Trust
Agreement. This summary of certain provisions of the Preferred Securities and
the Trust Agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms. Wherever
particular defined terms of the Trust Agreement are referred to herein, such
defined terms are incorporated herein by reference. A copy of the form of the
Trust Agreement is available upon request from the Issuer Trustees.
General
The Preferred Securities will be limited to $25,000,000 aggregate
Liquidation Amount outstanding (which amount may be increased by up to
$3,750,000 aggregate liquidation amount of Preferred Securities for exercise of
the Underwriters' over-allotment option). See "Underwriting." The Preferred
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Common Securities except as described under "-- Subordination of Common
Securities." The Junior Subordinated Debentures will be registered in the name
of the Issuer Trust and held by the Property Trustee in trust for the benefit of
the holders of the Preferred Securities and Common Securities. The Guarantee
will be a guarantee on a subordinated basis with respect to the Preferred
Securities but will not guarantee payment of Distributions or amounts payable on
redemption or liquidation of such Preferred Securities when the Issuer Trust
does not have funds on hand available to make such payments. See "Description of
Guarantee."
Distributions
The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Issuer Trust, and Distributions on each Preferred
Security will be payable at the annual rate of % of the stated Liquidation
Amount of $25, payable quarterly in arrears on March 31, June 30, September 30
and December 31 of each year (each a "Distribution Date"), to the holders of the
Preferred Securities at
55
<PAGE>
the close of business on 15th day of March, June, September and December
(whether or not a Business Day (as defined below)) next preceding the relevant
Distribution Date. Distributions on the Preferred Securities will be cumulative.
Distributions will accumulate from , 1997. The first Distribution Date
for the Preferred Securities will be June 30, 1997. The amount of Distributions
payable for any period less than a full Distribution period will be computed on
the basis of a 360-day year of twelve 30-day months and the actual days elapsed
in a partial month in such period. Distributions payable for each full
Distribution period will be computed by dividing the rate per annum by four. If
any date on which Distributions are payable on the Preferred Securities is not a
Business Day, then payment of the Distributions payable on such date will be
made on the next succeeding day that is a Business Day (without any additional
Distributions or other payment in respect of any such delay), with the same
force and effect as if made on the date such payment was originally payable.
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right under the Junior Subordinated Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such deferral, quarterly Distributions on the Preferred
Securities by the Issuer Trust will be deferred during any such Extension
Period. Distributions to which holders of the Preferred Securities are entitled
will accumulate additional Distributions thereon at the rate of % per
annum, compounded quarterly from the relevant payment date for such
Distributions, computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. Additional
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by four. The term "Distributions" as used herein
shall include any such additional Distributions. During any such Extension
Period, the Company may not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of the Company's capital stock or (ii) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu in all respects with or junior in
interest to the Junior Subordinated Debentures (other than (a) repurchases,
redemptions or other acquisitions of shares of capital stock of the Company in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of any one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period, (b) as a result of an exchange or conversion
of any class or series of the Company's capital stock (or any capital stock of a
subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) the purchase of fractional interests
in shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with any stockholder's rights
plan, or the issuance of rights, stock or other property under any stockholder's
rights plan, or the redemption or repurchase of rights pursuant thereto, or (e)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock). Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest,
provided that no Extension Period may exceed 20 consecutive quarterly periods or
extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period. No interest shall be
due and payable during an Extension Period, except at the end thereof. The
Company must give the Issuer Trustees notice of its election of such Extension
Period at least one
56
<PAGE>
Business Day prior to the earlier of (i) the date the Distributions on the
Preferred Securities would have been payable but for the election to begin such
Extension Period and (ii) the date the Property Trustee is required to give
notice to holders of the Preferred Securities of the record date or the date
such Distributions are payable, but in any event not less than one Business Day
prior to such record date. The Property Trustee will give notice of the
Company's election to begin a new Extension Period to the holders of the
Preferred Securities. Subject to the foregoing, there is no limitation on the
number of times that the Company may elect to begin an Extension Period. See
"Description of Junior Subordinated Debentures -- Option To Extend Interest
Payment Period" and "Certain Federal Income Tax Consequences -- Interest Income
and Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of
the Preferred Securities will be limited to payments under the Junior
Subordinated Debentures in which the Issuer Trust will invest the proceeds from
the issuance and sale of the Preferred Securities. See "Description of Junior
Subordinated Debentures." If the Company does not make payments on the Junior
Subordinated Debentures, the Issuer Trust may not have funds available to pay
Distributions or other amounts payable on the Preferred Securities. The payment
of Distributions and other amounts payable on the Preferred Securities (if and
to the extent the Issuer Trust has funds legally available for and cash
sufficient to make such payments) is guaranteed by the Company on a limited
basis as set forth herein under "Description of Guarantee."
Redemption
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such repayment
or redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the Preferred Securities, upon not less than 30 nor more
than 60 days' notice, at a redemption price (the "Redemption Price") equal to
the aggregate Liquidation Amount of such Preferred Securities plus accumulated
but unpaid Distributions thereon to the date of redemption (the "Redemption
Date") and the related amount of the premium, if any, paid by the Company upon
the concurrent redemption of such Junior Subordinated Debentures. See
"Description of Junior Subordinated Debentures -- Redemption." If less than all
the Junior Subordinated Debentures are to be repaid or redeemed on a Redemption
Date, then the proceeds from such repayment or redemption shall be allocated to
the redemption pro rata of the Preferred Securities and the Common Securities.
The amount of premium, if any, paid by the Company upon the redemption of all or
any part of the Junior Subordinated Debentures to be repaid or redeemed on a
Redemption Date shall be allocated to the redemption pro rata of the Preferred
Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures
(i) on or after , 2002, in whole at any time or in part from time t
time, or (ii) in whole, but not in part, at any time within 90 days following
the occurrence and during the continuation of a Tax Event, Investment Company
Event or Capital Treatment Event (each as defined below), in each case subject
to possible regulatory approval. See "-- Liquidation Distribution Upon
Dissolution." A redemption of the Junior Subordinated Debentures would cause a
mandatory redemption of a Like Amount of the Preferred Securities and Common
Securities at the Redemption Price.
"25% Capital Limitation" means the limitation imposed by the Federal
Reserve that the proceeds of certain qualifying securities like the Trust
Securities will qualify as Tier 1 capital of the issuer up to
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an amount not to exceed 25% of the Issuer's Tier 1 capital, or any subsequent
limitation adopted by the Federal Reserve.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a
day on which banking institutions in the State of New Jersey or the City of New
York are authorized or required by law or executive order to remain closed, or
(c) a day on which the Property Trustee's Corporate Trust Office or the
Corporate Trust Office of the Debenture Trustee is closed for business.
"Like Amount" means (i) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount (as defined below)
equal to that portion of the principal amount of Junior Subordinated Debentures
to be contemporaneously redeemed in accordance with the Junior Subordinated
Indenture, allocated to the Common Securities and to the Preferred Securities
based upon the relative Liquidation Amounts of such classes and (ii) with
respect to a distribution of Junior Subordinated Debentures to holders of Trust
Securities in connection with a dissolution or liquidation of the Issuer Trust,
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Trust Securities of the holder to whom such Junior
Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of
counsel to the Company experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Preferred Securities, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion, will not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes or (iii) the
Issuer Trust is, or will be within 90 days of the delivery of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Preferred Securities.
"Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the
Preferred Securities, there is more than an insubstantial risk that the Company
will not be entitled to treat an amount equal to the Liquidation Amount of the
Preferred Securities as "Tier 1 Capital" (or the then
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equivalent thereof), except as otherwise restricted under the 25% Capital
Limitation, for purposes of the risk-based capital adequacy guidelines of the
Federal Reserve, as then in effect and applicable to the Company.
If a Tax Event described in clause (i) or (iii) of the definition of Tax
Event above has occurred and is continuing and the Issuer Trust is the holder of
all the Junior Subordinated Debentures, the Company will pay Additional Sums (as
defined below), if any, on the Junior Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Issuer Trust
on the outstanding Preferred Securities and Common Securities of the Issuer
Trust will not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject as a result of
a Tax Event.
Redemption Procedures
Preferred Securities redeemed on each Redemption Date shall be redeemed
at the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Preferred
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds on hand
available for the payment of such Redemption Price. See also "-- Subordination
of Common Securities."
If the Issuer Trust gives a notice of redemption in respect of the
Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, to the extent funds are available, in the case of Preferred Securities
held in book-entry form, the Property Trustee will deposit irrevocably with DTC
funds sufficient to pay the applicable Redemption Price and will give DTC
irrevocable instructions and authority to pay the Redemption Price to the
holders of the Preferred Securities. With respect to Preferred Securities not
held in book-entry form, the Property Trustee, to the extent funds are
available, will irrevocably deposit with the paying agent for the Preferred
Securities funds sufficient to pay the applicable Redemption Price and will give
such paying agent irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of their certificates evidencing the
Preferred Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date for any Preferred Securities called for redemption
shall be payable to the holders of the Preferred Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption shall
have been given and funds deposited as required, then upon the date of such
deposit all rights of the holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price, but without interest on such
Redemption Price, and such Preferred Securities will cease to be outstanding. If
any date fixed for redemption of Preferred Securities is not a Business Day,
then payment of the Redemption Price payable on such date will be made on the
next succeeding day which is a Business Day (without any interest or other
payment in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of Preferred Securities called for redemption is improperly withheld or
refused and not paid either by the Issuer Trust or by the Company pursuant to
the Guarantee as described under "Description of Guarantee," Distributions on
such Preferred Securities will continue to accumulate at the then applicable
rate, from the Redemption Date originally established by the Issuer Trust for
such Preferred Securities to the date such Redemption Price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.
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Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and from
time to time purchase outstanding Preferred Securities by tender, in the open
market or by private agreement, and may resell such securities.
If less than all the Preferred Securities and Common Securities are to
be redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Preferred Securities and Common Securities to be redeemed shall be allocated pro
rata to the Preferred Securities and the Common Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
Securities to be redeemed shall be selected on a pro rata basis not more than 60
days prior to the Redemption Date by the Property Trustee from the outstanding
Preferred Securities not previously called for redemption, or if the Preferred
Securities are then held in the form of a Global Preferred Security (as defined
below), in accordance with DTC's customary procedures. The Property Trustee
shall promptly notify the securities registrar for the Trust Securities in
writing of the Preferred Securities selected for redemption and, in the case of
any Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of
Preferred Securities shall relate, in the case of any Preferred Securities
redeemed or to be redeemed only in part, to the portion of the aggregate
Liquidation Amount of Preferred Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each registered holder of Preferred
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Preferred Securities is withheld or refused and not paid either
by the Issuer Trust or the Company pursuant to the Guarantee, Distributions will
cease to accumulate on the Preferred Securities or portions thereof) called for
redemption.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, and the
Liquidation Distribution in respect of, the Preferred Securities and Common
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of such Preferred Securities and Common Securities. However, if on any
Distribution Date or Redemption Date a Debenture Event of Default has occurred
and is continuing as a result of any failure by the Company to pay any amounts
in respect of the Junior Subordinated Debentures when due, no payment of any
Distribution on, or Redemption Price of, or Liquidation Distribution in respect
of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of such Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid Distributions
on all the outstanding Preferred Securities for all Distribution periods
terminating on or prior thereto, or in the case of payment of the Redemption
Price the full amount of such Redemption Price on all the outstanding Preferred
Securities then called for redemption, shall have been made or provided for, and
all funds available to the Property Trustee shall first be applied to the
payment in full in cash of all Distributions on, or Redemption Price of, the
Preferred Securities then due and payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default under
the Trust Agreement until the effects of all such Events of Default with respect
to such Preferred Securities have been cured, waived or otherwise eliminated.
See "-- Events of Default; Notice" and "Description of Junior Subordinated
Debentures -- Debenture Events
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of Default." Until all such Events of Default under the Trust Agreement with
respect to the Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will act solely on behalf of the holders of the
Preferred Securities and not on behalf of the holders of the Common Securities,
and only the holders of the Preferred Securities will have the right to direct
the Property Trustee to act on their behalf.
Liquidation Distribution Upon Dissolution
The amount payable on the Preferred Securities in the event of any
liquidation of the Issuer Trust is $25 per Preferred Security plus accumulated
and unpaid Distributions, subject to certain exceptions, which may be in the
form of a distribution of such amount in Junior Subordinated Debentures.
The holders of all the outstanding Common Securities have the right at
any time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust.
The Federal Reserve's risk-based capital guidelines currently provide
that redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption should
consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's capital base (unless the equity
or capital instrument were redeemed with the proceeds of, or replaced by, a like
amount of a similar or higher quality capital instrument and the Federal Reserve
considers the organization's capital position to be fully adequate after the
redemption).
In the event the Company, while a holder of Common Securities, dissolves
the Issuer Trust prior to the stated maturity of the Preferred Securities and
the dissolution of the Issuer Trust is deemed to constitute the redemption of
capital instruments by the Federal Reserve under its risk-based capital
guidelines or policies, the dissolution of the Issuer Trust by the Company may
be subject to the prior approval of the Federal Reserve. Moreover, any changes
in applicable law or changes in the Federal Reserve's risk-based capital
guidelines or policies could impose a requirement on the Company that it obtain
the prior approval of the Federal Reserve to dissolve the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company or the holder of the Common Securities, (ii) the distribution of a Like
Amount of the Junior Subordinated Debentures to the holders of the Trust
Securities, if the holders of Common Securities have given written direction to
the Property Trustee to dissolve the Issuer Trust (which direction, subject to
the foregoing restrictions, is optional and wholly within the discretion of the
holders of Common Securities), (iii) the repayment of all the Preferred
Securities in connection with the redemption of all the Trust Securities as
described under "-- Redemption" and (iv) the entry of an order for the
dissolution of the Issuer Trust by a court of competent jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i),
(ii) or (iv) above, the Issuer Trust will be liquidated by the Property Trustee
as expeditiously as the Property Trustee determines to be possible by
distributing, after satisfaction of liabilities to creditors of the Issuer Trust
as provided by applicable law, to the holders of such Trust Securities a Like
Amount of the Junior Subordinated Debentures, unless such distribution is not
practical, in which event such holders will be entitled to receive out of the
assets of the Issuer Trust available for distribution to holders, after
satisfaction of
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liabilities to creditors of the Issuer Trust as provided by applicable law, an
amount equal to, in the case of holders of Preferred Securities, the aggregate
of the Liquidation Amount plus accumulated and unpaid Distributions thereon to
the date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because the Issuer Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Issuer Trust on its
Preferred Securities shall be paid on a pro rata basis. The holders of the
Common Securities will be entitled to receive distributions upon any such
liquidation pro rata with the holders of the Preferred Securities, except that
if a Debenture Event of Default has occurred and is continuing as a result of
any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Preferred Securities shall have a priority
over the Common Securities. See "-- Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Preferred Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Preferred
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by DTC or its nominee and
(iii) any certificates representing the Preferred Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the
Preferred Securities and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on the Preferred Securities until
such certificates are presented to the security registrar for the Trust
Securities for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior
to maturity and the Issuer Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Preferred Securities, the
Preferred Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Preferred Securities.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution and liquidation of the Issuer
Trust were to occur. Accordingly, the Preferred Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Issuer Trust, may trade at a discount to the
price that the investor paid to purchase the Preferred Securities offered
hereby.
Events of Default; Notice
Any one of the following events constitutes an "Event of Default" under
the Trust Agreement (an "Event of Default") with respect to the Preferred
Securities (whatever the reason for such Event of Default and whether it is
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures -- Debenture Events of Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution when
it becomes due and payable, and continuation of such default for a period of 30
days; or
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(iii) default by the Issuer Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement (other
than a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clause (ii) or (iii) above), and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Issuer Trustees and the Company by the
holders of at least 25% in aggregate Liquidation Amount of the outstanding
Preferred Securities, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not been
appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under the Trust
Agreement.
If a Debenture Event of Default has occurred and is continuing as a
result of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Preferred Securities will have a
preference over the Common Securities with respect to payments of any amounts in
respect of the Preferred Securities as described above. See "-- Subordination of
Common Securities," "-- Liquidation Distribution Upon Dissolution" and
"Description of Junior Subordinated Debentures -- Debenture Events of Default."
Removal of Issuer Trustees; Appointment of Successors
The holders of at least a majority in aggregate Liquidation Amount of
the outstanding Preferred Securities may remove an Issuer Trustee for cause or,
if a Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding
Preferred Securities, the successor may be appointed by the holders of at least
25% in Liquidation Amount of Preferred Securities. If an Issuer Trustee resigns,
such Trustee will appoint its successor. If an Issuer Trustee fails to appoint a
successor, the holders of at least 25% in Liquidation Amount of the outstanding
Preferred Securities may appoint a successor. If a successor has not been
appointed by the holders, any holder of Preferred Securities or Common
Securities or the other Issuer Trustee may petition a court in the State of
Delaware to appoint a successor. Any Delaware Trustee must meet the applicable
requirements of Delaware law. Any Property Trustee must be a national or
state-chartered bank, and at the time of appointment have securities rated in
one of the three highest rating categories by a nationally recognized
statistical rating organization and have capital and surplus of at least
$50,000,000. No resignation or removal of an Issuer Trustee and no appointment
of a successor trustee shall be effective until the acceptance of appointment by
the successor trustee in accordance with the provisions of the Trust Agreement.
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Merger or Consolidation of Issuer Trustees
Any entity into which the Property Trustee or the Delaware Trustee may
be merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee is a party, or any entity succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Issuer Trust
The Issuer Trust may not merge with or into, consolidate, amalgamate, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Preferred
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State, so long as (i) such
successor entity either (a) expressly assumes all the obligations of the Issuer
Trust with respect to the Preferred Securities or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities have the same priority as the Preferred Securities with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) a
trustee of such successor entity, possessing the same powers and duties as the
Property Trustee, is appointed to hold the Junior Subordinated Debentures, (iii)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, if then rated, (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect, (v) such successor entity has
a purpose substantially identical to that of the Issuer Trust, (vi) prior to
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, the Issuer Trust has received an opinion from independent counsel
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Issuer Trust nor such successor entity will be
required to register as an investment company under the Investment Company Act,
and (vii) the Company or any permitted successor or assignee owns all the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the Issuer Trust may not,
except with the consent of holders of 100% in aggregate Liquidation Amount of
the Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to, any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Issuer Trust or the successor entity to be taxable as a corporation for United
States federal income tax purposes.
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Voting Rights; Amendment of Trust Agreement
Except as provided above and under "-- Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantee -- Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority of the Common Securities and the Property Trustee, without the consent
of the holders of the Preferred Securities, (i) to cure any ambiguity, correct
or supplement any provisions in the Trust Agreement that may be inconsistent
with any other provision, or to make any other provisions with respect to
matters or questions arising under the Trust Agreement, provided that any such
amendment does not adversely affect in any material respect the interests of any
holder of Trust Securities, or (ii) to modify, eliminate or add to any
provisions of the Trust Agreement to such extent as may be necessary to ensure
that the Issuer Trust will not be taxable as a corporation for United States
federal income tax purposes at any time that any Trust Securities are
outstanding or to ensure that the Issuer Trust will not be required to register
as an "investment company" under the Investment Company Act, and any amendments
of the Trust Agreement will become effective when notice of such amendment is
given to the holders of Trust Securities. The Trust Agreement may be amended by
the holders of a majority of the Common Securities and the Property Trustee with
(i) the consent of holders representing not less than a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities and (ii) receipt by
the Issuer Trustees of an opinion of counsel to the effect that such amendment
or the exercise of any power granted to the Issuer Trustees in accordance with
such amendment will not affect the Issuer Trust's not being taxable as a
corporation for United States federal income tax purposes or the Issuer Trust's
exemption from status as an "investment company" under the Investment Company
Act, except that, without the consent of each holder of Trust Securities
affected thereby, the Trust Agreement may not be amended to (i) change the
amount or timing of any Distribution on the Trust Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Trust Securities as of a specified date or (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any such
payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Issuer
Trust, the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waivable
under Section 5.13 of the Junior Subordinated Indenture, (iii) exercise any
right to rescind or annul a declaration that the Junior Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Junior Subordinated Indenture or the Junior Subordinated
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the holders of at least a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities, except that, if a
consent under the Junior Subordinated Indenture would require the consent of
each holder of Junior Subordinated Debentures affected thereby, no such consent
will be given by the Property Trustee without the prior consent of each holder
of the Preferred Securities. The Property Trustee may not revoke any action
previously authorized or approved by a vote of the holders of the Preferred
Securities except by subsequent vote of the holders of the Preferred Securities.
The Property Trustee will notify each holder of Preferred Securities of any
notice of default with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of the holders of the Preferred
Securities, before taking any of the foregoing actions, the Property Trustee
will obtain an opinion of counsel experienced in such matters to the effect that
the Issuer Trust will not be taxable as a corporation for United States federal
income tax purposes on account of such action.
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Any required approval of holders of Preferred Securities may be given at
a meeting of holders of Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of any
matter upon which action by written consent of such holders is to be taken, to
be given to each registered holder of Preferred Securities in the manner set
forth in the Trust Agreement.
No vote or consent of the holders of Preferred Securities will be
required to redeem and cancel Preferred Securities in accordance with the Trust
Agreement.
Notwithstanding that holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Issuer Trustees or any
affiliate of the Company or any Issuer Trustees, will, for purposes of such vote
or consent, be treated as if they were not outstanding.
Expenses and Taxes
In the Indenture, the Company, as borrower, has agreed to pay all debts
and other obligations (other than with respect to the Preferred Securities) and
all costs and expenses of the Issuer Trust (including costs and expenses
relating to the organization of the Issuer Trust, the fees and expenses of the
Issuer Trustees and the costs and expenses relating to the operation of the
Issuer Trust) and to pay any and all taxes and all costs and expenses with
respect thereto (other than United States withholding taxes) to which the Issuer
Trust might become subject. The foregoing obligations of the Company under the
Indenture are for the benefit of, and shall be enforceable by, any person to
whom any such debts, obligations, costs, expenses and taxes are owed (a
"Creditor") whether or not such Creditor has received notice thereof. Any such
Creditor may enforce such obligations of the Company directly against the
Company, and the Company has irrevocably waived any right or remedy to require
that any such Creditor take any action against the Issuer Trust or any other
person before proceeding against the Company. The Company has also agreed in the
Indenture to execute such additional agreements as may be necessary or desirable
to give full effect to the foregoing.
Book Entry, Delivery and Form
The Preferred Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of, DTC
and registered in the name of DTC's nominee. Unless and until it is exchangeable
in whole or in part for the Preferred Securities in definitive form, a global
security may not be transferred except as a whole by DTC to a nominee of DTC or
by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such
nominee to a successor of such Depository or a nominee of such successor.
Ownership of beneficial interests in a global security will be limited
to persons that have accounts with DTC or its nominee ("Participants") or
persons that may hold interests through Participants. The Company expects that,
upon the issuance of a global security, DTC will credit, on its book-entry
registration and transfer system, the Participants' accounts with their
respective principal amounts of the Preferred Securities represented by such
global security. Ownership of beneficial interests in such global security will
be shown on, and the transfer of such ownership interests will be effected only
through, records maintained by DTC (with respect to interests of Participants)
and on the records of Participants (with respect to interests of Persons held
through Participants). Beneficial owners will not receive written confirmation
from DTC of their purchase, but are expected to receive written confirmations
from the Participants through which the beneficial owner entered into the
transaction. Transfers of ownership
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interests will be accomplished by entries on the books of Participants acting on
behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global security
for all purposes under the Junior Subordinated Indenture. Except as provided
below, owners of beneficial interests in a global security will not be entitled
to receive physical delivery of the Preferred Securities in definitive form and
will not be considered the owners or holders thereof under the Junior
Subordinated Indenture. Accordingly, each person owning a beneficial interest in
such a global security must rely on the procedures of DTC and, if such person is
not a Participant, on the procedures of the Participant through which such
person owns its interest, to exercise any rights of a holder of Preferred
Securities under the Junior Subordinated Indenture. The Company understands
that, under DTC's existing practices, in the event that the Company requests any
action of holders, or an owner of a beneficial interest in such a global
security desires to take any action which a holder is entitled to take under the
Junior Subordinated Indenture, DTC would authorize the Participants holding the
relevant beneficial interests to take such action, and such Participants would
authorize beneficial owners owning through such Participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them. Redemption notices will also be sent to DTC. If less than all of the
Preferred Securities are being redeemed, the Company understands that it is
DTC's existing practice to determine by lot the amount of the interest of each
Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of DTC
or its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Preferred Securities.
None of the Company, the Issuer Trustees, the Administrators, any Paying Agent
or any other agent of the Company or the Issuer Trustees will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
security for such Preferred Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Disbursements of Distributions to Participants shall be the responsibility of
DTC. DTC's practice is to credit Participants' accounts on a payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on the payable date. Payments
by Participants to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Company, the Issuer
Trustees, the Paying Agent or any other agent of the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
the Company or the Issuer Trustees. If DTC notifies the Company that it is
unwilling to continue as such, or if it is unable to continue or ceases to be a
clearing agency registered under the Exchange Act and a successor depository is
not appointed by the Company within ninety days after receiving such notice or
becoming aware that DTC is no longer so registered, the Company will issue the
Preferred Securities in definitive form upon registration of transfer of, or in
exchange for, such global security. In addition, the Company may at any time and
in its sole discretion determine not to have the Preferred Securities
represented by one or more global securities and, in such event, will issue
Preferred Securities in definitive form in exchange for all of the global
securities representing such Preferred Securities.
DTC has advised the Company and the Issuer Trust as follows: DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency"
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registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its Participants and to facilitate the
clearance and settlement of securities transactions between Participants through
electronic book entry changes to accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers (such as the Underwriter), banks, trust companies
and clearing corporations and may include certain other organizations. Certain
of such Participants (or their representatives), together with other entities,
own DTC. Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a custodial
relationship with a Participant, either directly or indirectly.
Same-Day Settlement and Payment
Settlement for the Preferred Securities will be made by the Underwriter
in immediately available funds.
Secondary trading in Preferred Securities of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the Preferred Securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the Preferred Securities.
Payment and Paying Agency
Payments in respect of the Preferred Securities will be made to DTC,
which will credit the relevant accounts at DTC on the applicable Distribution
Dates or, if the Preferred Securities are not held by DTC, such payments will be
made by check mailed to the address of the holder entitled thereto as such
address appears on the securities register for the Trust Securities. The paying
agent (the "Paying Agent") will initially be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrators. The Paying Agent will be permitted to resign as Paying Agent
upon 30 days' written notice to the Property Trustee and the Administrators. If
the Property Trustee is no longer the Paying Agent, the Property Trustee will
appoint a successor (which must be a bank or trust company reasonably acceptable
to the Administrators) to act as Paying Agent.
Registrar and Transfer Agent
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities.
Registration of transfers of Preferred Securities will be effected
without charge by or on behalf of the Issuer Trust, but upon payment of any tax
or other governmental charges that may be imposed in connection with any
transfer or exchange. The Issuer Trust will not be required to register or cause
to be registered the transfer of the Preferred Securities after the Preferred
Securities have been called for redemption.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and continuance
of an Event of Default, undertakes to perform only such duties as are
specifically set forth in the Trust Agreement and, after such Event of Default,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder
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of Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
For information concerning the relationships between Bankers Trust
Company, the Property Trustee, and the Company, see "Description of Junior
Subordinated Debentures -- Information Concerning the Debenture Trustee."
Miscellaneous
The Administrators and the Property Trustee are authorized and directed
to conduct the affairs of and to operate the Issuer Trust in such a way that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable as a corporation for
United States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Property Trustee and the
holders of Common Securities are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Issuer Trust or the Trust
Agreement, that the Property Trustee and the holders of Common Securities
determine in their discretion to be necessary or desirable for such purposes, as
long as such action does not materially adversely affect the interests of the
holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar
rights.
The Issuer Trust may not borrow money, issue debt or mortgage or pledge
any of its assets.
Governing Law
The Trust Agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture, under which Bankers Trust Company is acting as Debenture
Trustee. This summary of certain terms and provisions of the Junior Subordinated
Debentures and the Junior Subordinated Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Junior Subordinated Indenture, including the definitions
therein of certain terms. Whenever particular defined terms of the Junior
Subordinated Indenture (as amended or supplemented from time to time) are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of Junior Subordinated Indenture is available from the
Debenture Trustee upon request.
General
Concurrently with the issuance of the Preferred Securities, the Issuer
Trust will invest the proceeds thereof, together with the consideration paid by
the Company for the Common Securities, in the Junior Subordinated Debentures
issued by the Company. The Junior Subordinated Debentures will bear interest,
accruing from , 1997, at the annual rate of % of the principal
amount thereof, payable quarterly in arrears on March 31, June 30, September 30
and December 31 of each year (each,nt thereof, an "Interest Payment Date"),
commencing June 30, 1997, to the person in whose name each Junior Subordinated
Debenture is registered at the close of business on the 15th day of March, June,
September or December (whether or not a Business Day) next preceding such
Interest Payment Date. It is anticipated
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that, until the liquidation, if any, of the Issuer Trust, each Junior
Subordinated Debenture will be registered in the name of the Issuer Trust and
held by the Property Trustee in trust for the benefit of the holders of the
Trust Securities. The amount of interest payable for any period less than a full
interest period will be computed on the basis of a 360-day year of twelve 30-day
months and the actual days elapsed in a partial month in such period. The amount
of interest payable for any full interest period will be computed by dividing
the rate per annum by four. If any date on which interest is payable on the
Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (without any interest or other payment in respect of any such
delay), with the same force and effect as if made on the date such payment was
originally payable. Accrued interest that is not paid on the applicable Interest
Payment Date will bear additional interest on the amount thereof (to the extent
permitted by law) at the rate per annum of %, compounded quarterly and
computed on the basis of a 360-day year of twelve 30-day months and the actual
days elapsed in a partial month in such period. The amount of additional
interest payable for any full interest period will be computed by dividing the
rate per annum by four. The term "interest" as used herein includes quarterly
interest payments, interest on quarterly interest payments not paid on the
applicable Interest Payment Date and Additional Sums (as defined below), as
applicable.
The Junior Subordinated Debentures will mature on , 2027.
The Junior Subordinated Debentures will be unsecured and will rank
junior and be subordinate in right of payment to all Senior Indebtedness of the
Company. The Junior Subordinated Debentures will not be subject to a sinking
fund. The Junior Subordinated Indenture does not limit the incurrence or
issuance of other secured or unsecured debt by the Company, including Senior
Indebtedness, whether under the Junior Subordinated Indenture or any existing or
other indenture that the Company may enter into in the future or otherwise. See
"-- Subordination."
Option to Extend Interest Payment Period
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time for
a period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. During any such Extension Period
the Company shall have the right to make partial payments of interest on any
interest payment date. At the end of such Extension Period, the Company must pay
all interest then accrued and unpaid (together with interest thereon at the
annual rate of %, compounded quarterly and computed on the basis of a
360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period, to the extent permitted by applicable law). The amount of
additional interest payable for any full interest period will be computed by
dividing the rate per annum by four. During an Extension Period, interest will
continue to accrue and holders of Junior Subordinated Debentures (or holders of
Preferred Securities while outstanding) will be required to accrue interest
income for United States federal income tax purposes. See "Certain Federal
Income Tax Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers,
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directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period, (b) as a result of an exchange or conversion
of any class or series of the Company's capital stock (or any capital stock of a
subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) the purchase of fractional interests
in shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with any stockholder's rights
plan, or the issuance of rights, stock or other property under any stockholders
rights plan, or the redemption or repurchase of rights pursuant thereto, or (e)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock). Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest,
provided that no Extension Period may exceed 20 consecutive quarterly periods or
extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period subject to the above
conditions. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company must give the Issuer Trustees notice of
its election of such Extension Period at least one Business Day prior to the
earlier of (i) the date the Distributions on the Preferred Securities would have
been payable but for the election to begin such Extension Period and (ii) the
date the Property Trustee is required to give notice to holders of the Preferred
Securities of the record date or the date such Distributions are payable, but in
any event not less than one Business Day prior to such record date. The Property
Trustee will give notice of the Company's election to begin a new Extension
Period to the holders of the Preferred Securities. There is no limitation on the
number of times that the Company may elect to begin an Extension Period.
Redemption
The Junior Subordinated Debentures are redeemable prior to maturity at
the option of the Company (i) on or after , 2002, in whole at any
time or in part from time to time, or (ii) in whole, but not in part, at any
time within 90 days following the occurrence and during the continuation of a
Tax Event, Investment Company Event or Capital Treatment Event (each as defined
under "Description of Preferred Securities -- Redemption"), in each case at the
redemption price described below. The proceeds of any such redemption will be
used by the Issuer Trust to redeem the Preferred Securities.
The Federal Reserve's risk-based capital guidelines, which are subject
to change, currently provide that redemptions of permanent equity or other
capital instruments before stated maturity could have a significant impact on a
bank holding company's overall capital structure and that any organization
considering such a redemption should consult with the Federal Reserve before
redeeming any equity or capital instrument prior to maturity if such redemption
could have a material effect on the level or composition of the organization's
capital base (unless the equity or capital instrument were redeemed with the
proceeds of, or replaced by, a like amount of a similar or higher quality
capital instrument and the Federal Reserve considers the organization's capital
position to be fully adequate after the redemption).
The redemption of the Junior Subordinated Debentures by the Company
prior to their Stated Maturity would constitute the redemption of capital
instruments under the Federal Reserve's current risk-based capital guidelines
and may be subject to the prior approval of the Federal Reserve. The
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redemption of the Junior Subordinated Debentures also could be subject to the
additional prior approval of the Federal Reserve under its current risk-based
capital guidelines.
The redemption price for Junior Subordinated Debentures is the
outstanding principal amount of the Junior Subordinated Debentures plus accrued
interest (including any Additional Interest or any Additional Sums) thereon to
but excluding the date fixed for redemption.
Additional Sums
The Company has covenanted in the Junior Subordinated Indenture that, if
and for so long as (i) the Issuer Trust is the holder of all Junior Subordinated
Debentures and (ii) the Issuer Trust is required to pay any additional taxes,
duties or other governmental charges as a result of a Tax Event, the Company
will pay as additional sums on the Junior Subordinated Debentures such amounts
as may be required so that the Distributions payable by the Issuer Trust will
not be reduced as a result of any such additional taxes, duties or other
governmental charges. See "Description of Preferred Securities -- Redemption."
Registration, Denomination and Transfer
The Junior Subordinated Debentures will initially be registered in the
name of the Issuer Trust. If the Junior Subordinated Debentures are distributed
to holders of Preferred Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Preferred Securities. See "Description of
Preferred Securities -- Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a global
security will be made to Cede & Co., the nominee for DTC, as the registered
holder of the Junior Subordinated Debentures, as described under "Description of
Preferred Securities -- Book Entry, Delivery and Form." If Junior Subordinated
Debentures are issued in certificated form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be registrable,
and Junior Subordinated Debentures will be exchangeable for Junior Subordinated
Debentures of other authorized denominations of a like aggregate principal
amount, at the corporate trust office of the Debenture Trustee in New York, New
York or at the offices of any Paying Agent or transfer agent appointed by the
Company, provided that payment of interest may be made at the option of the
Company by check mailed to the address of the persons entitled thereto. However,
a holder of $1 million or more in aggregate principal amount of Junior
Subordinated Debentures may receive payments of interest (other than interest
payable at the Stated Maturity) by wire transfer of immediately available funds
upon written request to the Debenture Trustee not later than 15 calendar days
prior to the date on which the interest is payable.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations, and of a
like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written
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instrument of transfer, duly executed), at the office of the securities
registrar appointed under the Junior Subordinated Debenture or at the office of
any transfer agent designated by the Company for such purpose without service
charge and upon payment of any taxes and other governmental charges as described
in the Junior Subordinated Indenture. The Company will appoint the Debenture
Trustee as securities registrar under the Junior Subordinated Indenture. The
Company may at any time designate additional transfer agents with respect to the
Junior Subordinated Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
Restrictions on Certain Payments; Certain Covenants of the Company
The Company has covenanted that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period or other event
referred to below, (b) as a result of an exchange or conversion of any class or
series of the Company's capital stock (or any capital stock of a subsidiary of
the Company) for any class or series of the Company's capital stock or of any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (c) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock or other property under any stockholder's rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock), if at such time (i) there has
occurred any event (a) of which the Company has actual knowledge that with the
giving of notice or the lapse of time, or both, would constitute a Debenture
Event of Default and (b) that the Company has not taken reasonable steps to
cure, (ii) if the Junior Subordinated Debentures are held by the Issuer Trust,
the Company is in default with respect to its payment of any obligations under
the Guarantee or (iii) the Company has given notice of its election of an
Extension Period as provided in the Junior Subordinated
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Indenture and has not rescinded such notice, or such Extension Period, or any
extension thereof, is continuing.
The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
terminate, windup or liquidate the Issuer Trust, other than (a) in connection
with a distribution of Junior Subordinated Debentures to the holders of the
Preferred Securities in liquidation of the Issuer Trust or (b) in connection
with certain mergers, consolidations or amalgamations permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms and
provisions of the Trust Agreement, to cause the Issuer Trust to continue not to
be taxable as a corporation for United States federal income tax purposes.
Modification of Junior Subordinated Indenture
From time to time, the Company and the Debenture Trustee may, without
the consent of any of the holders of the outstanding Junior Subordinated
Debentures, amend, waive or supplement the provisions of the Junior Subordinated
Indenture to: (1) evidence succession of another corporation or association to
the Company and the assumption by such person of the obligations of the Company
under the Junior Subordinated Debentures, (2) add further covenants,
restrictions or conditions for the protection of holders of the Junior
Subordinated Debentures, (3) cure ambiguities or correct the Junior Subordinated
Debentures in the case of defects or inconsistencies in the provisions thereof,
so long as any such cure or correction does not adversely affect the interest of
the holders of the Junior Subordinated Debentures in any material respect, (4)
change the terms of the Junior Subordinated Debentures to facilitate the
issuance of the Junior Subordinated Debentures in certificated or other
definitive form, (5) evidence or provide for the appointment of a successor
Debenture Trustee, or (6) qualify, or maintain the qualification of, the Junior
Subordinated Indentures under the Trust Indenture Act. The Junior Subordinated
Indenture contains provisions permitting the Company and the Debenture Trustee,
with the consent of the holders of not less than a majority in principal amount
of the Junior Subordinated Debentures, to modify the Junior Subordinated
Indenture in a manner affecting the rights of the holders of the Junior
Subordinated Debentures, except that no such modification may, without the
consent of the holder of each outstanding Junior Subordinated Debenture so
affected, (i) change the Stated Maturity of the Junior Subordinated Debentures,
or reduce the principal amount thereof, the rate of interest thereon or any
premium payable upon the redemption thereof, or change the place of payment
where, or the currency in which, any such amount is payable or impair the right
to institute suit for the enforcement of any Junior Subordinated Debenture or
(ii) reduce the percentage of principal amount of Junior Subordinated
Debentures, the holders of which are required to consent to any such
modification of the Junior Subordinated Indenture. Furthermore, so long as any
of the Preferred Securities remain outstanding, no such modification may be made
that adversely affects the holders of such Preferred Securities in any material
respect, and no termination of the Junior Subordinated Indenture may occur, and
no waiver of any Debenture Event of Default or compliance with any covenant
under the Junior Subordinated Indenture may be effective, without the prior
consent of the holders of at least a majority of the aggregate Liquidation
Amount of the outstanding Preferred Securities unless and until the principal of
(and premium, if any, on) the Junior Subordinated Debentures and all accrued and
unpaid interest thereon have been paid in full and certain other conditions are
satisfied.
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Debenture Events of Default
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure to pay any interest on the Junior Subordinated
Debentures when due (subject to the deferral of any due date in
the case of an Extension Period); or
(ii) failure to pay any principal of or premium, if any, on the
Junior Subordinated Debentures when due whether at maturity,
upon redemption, by declaration of acceleration or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Junior Subordinated Indenture
for 90 days after written notice to the Company from the
Debenture Trustee or the holders of at least 25% in aggregate
outstanding principal amount of the outstanding Junior
Subordinated Debentures; or
(iv) the Company consents to the appointment of a receiver or other
similar official in any liquidation, insolvency or similar
proceeding with respect to the Company or all or substantially
all its property.
For purposes of the Trust Agreement and this Prospectus, each such Event
of Default under the Junior Subordinated Debenture is referred to as a
"Debenture Event of Default." As described in "Description of Preferred
Securities -- Events of Default; Notice," the occurrence of a Debenture Event of
Default will also constitute an Event of Default in respect of the Trust
Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Preferred Securities
shall have such right. The holders of a majority in aggregate principal amount
of outstanding Junior Subordinated Debentures may annul such declaration and
waive the default if all defaults (other than the non-payment of the principal
of Junior Subordinated Debentures which has become due solely by such
acceleration) have been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate Liquidation Amount of the outstanding
Preferred Securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a covenant
or provision which under the Junior Subordinated Indenture cannot be modified or
amended without the consent of the holder of each outstanding Junior
Subordinated Debenture
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affected thereby. See "-- Modification of Junior Subordinated Indenture." The
Company is required to file annually with the Debenture Trustee a certificate as
to whether or not the Company is in compliance with all the conditions and
covenants applicable to it under the Junior Subordinated Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the Junior
Subordinated Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
Enforcement of Certain Rights by Holders of Preferred Securities
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Preferred Securities may institute a
Direct Action against the Company for enforcement of payment to such holder of
an amount equal to the amount payable in respect of Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Preferred Securities held by such holder. The Company may not amend the
Junior Subordinated Indenture to remove the foregoing right to bring a Direct
Action without the prior written consent of the holders of all the Preferred
Securities. The Company will have the right under the Junior Subordinated
Indenture to set-off any payment made to such holder of Preferred Securities by
the Company in connection with a Direct Action.
The holders of the Preferred Securities are not able to exercise
directly any remedies available to the holders of the Junior Subordinated
Debentures except under the circumstances described in the preceding paragraph.
See "Description of Preferred Securities -- Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The Junior Subordinated Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, and no Person
may consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i) if
the Company consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
the Company's obligations in respect of the Junior Subordinated Debentures; (ii)
immediately after giving effect thereto, no Debenture Event of Default, and no
event which, after notice or lapse of time or both, would constitute a Debenture
Event of Default, has occurred and is continuing; and (iii) certain other
conditions as prescribed in the Junior Subordinated Indenture are satisfied.
The provisions of the Junior Subordinated Indenture do not afford
holders of the Junior Subordinated Debentures protection in the event of a
highly leveraged or other transaction involving the Company that may adversely
affect holders of the Junior Subordinated Debentures.
Satisfaction and Discharge
The Junior Subordinated Indenture provides that when, among other
things, all Junior Subordinated Debentures not previously delivered to the
Debenture Trustee for cancellation (i) have become due and payable, (ii) will
become due and payable at the Stated Maturity within one year, and the Company
deposits or causes to be deposited with the Debenture Trustee funds, in trust,
for the
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purpose and in an amount sufficient to pay and discharge the entire indebtedness
on the Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation, for the principal (and premium, if any) and interest
to the date of the deposit or to the Stated Maturity, as the case may be, then
the Junior Subordinated Indenture will cease to be of further effect (except as
to the Company's obligations to pay all other sums due pursuant to the Junior
Subordinated Indenture and to provide the officers' certificates and opinions of
counsel described therein), and the Company will be deemed to have satisfied and
discharged the Junior Subordinated Indenture.
Subordination
The Junior Subordinated Debentures will be subordinate and junior in
right of payment, to the extent set forth in the Junior Subordinated Indenture,
to all Senior Indebtedness (as defined below) of the Company. If the Company
defaults in the payment of any principal, premium, if any, or interest, if any,
or any other amount payable on any Senior Indebtedness when the same becomes due
and payable, whether at maturity or at a date fixed for redemption or by
declaration of acceleration or otherwise, then, unless and until such default
has been cured or waived or has ceased to exist or all Senior Indebtedness has
been paid, no direct or indirect payment (in cash, property, securities, by
setoff or otherwise) may be made or agreed to be made on the Junior Subordinated
Debentures, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" means, whether recourse is to all
or a portion of the assets of the Company and whether or not contingent, (i)
every obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Company; (iv) every obligation of the Company issued or
assumed as the deferred purchase price of property services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of the Company; (vi) every
obligation of the Company for claims (as defined in Section 101(4) of the United
States Bankruptcy Code of 1978, as amended) in respect of derivative products
such as interest and foreign exchange rate contracts, commodity contracts and
similar arrangements; and (vii) every obligation of the type referred to in
clauses (i) through (vi) of another person and all dividends of another person
the payment of which, in either case, the Company has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise; provided
that "Senior Indebtedness" shall not include (i) any obligations which, by their
terms, are expressly stated to rank pari passu in right of payment with, or to
not be superior in right of payment to, the Junior Subordinated Debentures, (ii)
any Senior Indebtedness of the Company which when incurred and without respect
to any election under Section 1111(b) of the United States Bankruptcy Code of
1978, as amended, was without recourse to the Company, (iii) any indebtedness of
the Company to any of its subsidiaries, (iv) indebtedness to any executive
officer or director of the Company, or (v) any indebtedness in respect of debt
securities issued to any trust, or a trustee of such trust, partnership or other
entity affiliated with the Company that is a financing entity of the Company in
connection with the issuance of such financing entity of securities that are
similar to the Preferred Securities.
In the event of (i) certain events of bankruptcy, dissolution or
liquidation of the Company or the holder of the Common Securities, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshalling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or
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distribution, whether in cash, securities or other property, shall be made on
account of the Junior Subordinated Debentures. In such event, any payment or
distribution on account of the Junior Subordinated Debentures, whether in cash,
securities or other property, that would otherwise (but for the subordination
provisions) be payable or deliverable in respect of the Junior Subordinated
Debentures will be paid or delivered directly to the holders of Senior
Indebtedness in accordance with the priorities then existing among such holders
until all Senior Indebtedness (including any interest thereon accruing after the
commencement of any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Company the amounts at the time due and owing
on the Junior Subordinated Debentures and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the Junior Subordinated Debentures of any
character or any security, whether in cash, securities or other property is
received by any holder of any Junior Subordinated Debentures in contravention of
any of the terms hereof and before all the Senior Indebtedness has been paid in
full, such payment or distribution or security will be received in trust for the
benefit of, and must be paid over or delivered and transferred to, the holders
of the Senior Indebtedness at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid to the extent necessary to pay all such
Senior Indebtedness in full. By reason of such subordination, in the event of
the insolvency of the Company, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
Information Concerning the Debenture Trustee
The Debenture Trustee, other than during the occurrence and continuance
of a default by the Company in performance of its obligations under the Junior
Subordinated Debenture, is under no obligation to exercise any of the powers
vested in it by the Junior Subordinated Indenture at the request of any holder
of Junior Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities that might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
Bankers Trust Company, the Debenture Trustee, may serve from time to
time as trustee under other indentures or trust agreements with the Company or
its subsidiaries relating to other issues of their securities. In addition, the
Company and certain of its affiliates may have other banking relationships with
Bankers Trust Company and its affiliates.
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Governing Law
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance of Preferred Securities by the Issuer Trust for the benefit of
the holders from time to time of the Preferred Securities. Bankers Trust Company
will act as Guarantee Trustee under the Guarantee. This summary of certain
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all the provisions of the
Guarantee, including the definitions therein of certain terms. A copy of the
form of Guarantee is available upon request from the Guarantee Trustee. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities.
General
The Company will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth in the Guarantee and described herein, the
Guarantee Payments (as defined below) to the holders of the Preferred
Securities, as and when due, regardless of any defense, right of set-off or
counterclaim that the Issuer Trust may have or assert other than the defense of
payment. The following payments with respect to the Preferred Securities, to the
extent not paid by or on behalf of the Issuer Trust (the "Guarantee Payments"),
will be subject to the Guarantee: (i) any accumulated and unpaid Distributions
required to be paid on such Preferred Securities, to the extent that the Issuer
Trust has funds on hand available therefor at such time, (ii) the Redemption
Price with respect to any Preferred Securities called for redemption, to the
extent that the Issuer Trust has funds on hand available therefor at such time,
and (iii) upon a voluntary or involuntary dissolution, of the Issuer Trust
(unless the Junior Subordinated Debentures are distributed to holders of the
Preferred Securities), the lesser of (a) the aggregate of the Liquidation Amount
and all accumulated and unpaid Distributions to the date of payment, to the
extent that the Issuer Trust has funds on hand available therefor at such time,
and (b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Preferred Securities on liquidation of the Issuer
Trust. The Company's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by the Company to the holders of the
Preferred Securities or by causing the Issuer Trust to pay such amounts to such
holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis
of the Issuer Trust's obligations under the Preferred Securities, but will apply
only to the extent that the Issuer Trust has funds sufficient to make such
payments, and is not a guarantee of collection.
If the Company does not make payments on the Junior Subordinated
Debentures held by the Issuer Trust, the Issuer Trust will not be able to pay
any amounts payable in respect of the Preferred Securities and will not have
funds legally available therefor. The Guarantee will rank subordinate and junior
in right of payment to all Senior Indebtedness of the Company. See "-- Status of
the Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness, whether
under the Junior Subordinated Indenture, any other indenture that the Company
may enter into in the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture, taken together,
fully, irrevocably and unconditionally
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guaranteed all the Issuer Trust's obligations under the Preferred Securities on
a subordinated basis. No single document standing alone or operating in
conjunction with fewer than all the other documents constitutes such guarantee.
It is only the combined operation of these documents that has the effect of
providing a full, irrevocable and unconditional guarantee of the Issuer Trust's
obligations in respect of the Preferred Securities. See "Relationship Among the
Preferred Securities, the Junior Subordinated Debentures and the Guarantee."
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Indebtedness
of the Company in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Preferred Securities of the Junior
Subordinated Debentures.
Amendments and Assignment
Except with respect to any changes which do not materially adversely
affect the rights of holders of the Preferred Securities (in which case no vote
will be required), the Guarantee may not be amended without the prior approval
of the holders of not less than a majority of the aggregate Liquidation Amount
of the outstanding Preferred Securities. The manner of obtaining any such
approval will be as set forth under "Description of the Capital Securities --
Voting Rights; Amendment of Trust Agreement." All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Preferred Securities then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee.
Any registered holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer Trust,
the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
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Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance
of a default by the Company in performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after the occurrence of an event of default with respect to the Guarantee, must
exercise the same degree of care and skill as a prudent person would exercise or
use in the conduct of his or her own affairs. Subject to this provision, the
Guarantee Trustee is under no obligation to exercise any of the powers vested in
it by the Guarantee at the request of any holder of the Preferred Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
For information concerning the relationship between Bankers Trust
Company, as Guarantee Trustee, and the Company, see "Description of Junior
Subordinated Debentures -- Information Concerning the Debenture Trustee."
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Preferred Securities, upon full
payment of the amounts payable with respect to the Preferred Securities upon
liquidation of the Issuer Trust or upon distribution of Junior Subordinated
Debentures to the holders of the Preferred Securities. The Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the Preferred Securities must restore payment of any sums
paid under the Preferred Securities or the Guarantee.
Governing Law
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the Preferred
Securities (to the extent the Issuer Trust has funds available for such payment)
are irrevocably guaranteed, on a subordinated basis, by the Company as and to
the extent set forth under "Description of Guarantee." Taken together, the
Company's obligations under the Junior Subordinated Debentures, the Junior
Subordinated Indenture, the Trust Agreement and the Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations in respect of the
Preferred Securities. If and to the extent that the Company does not make
payments on the Junior Subordinated Debentures, the Issuer Trust will not have
sufficient funds to pay Distributions or other amounts due on the Preferred
Securities. The Guarantee does not cover payment of amounts payable with respect
to the Preferred Securities when the Issuer Trust does not have sufficient funds
to pay such amounts. In such event, the remedy of a holder of the Preferred
Securities is to institute a legal proceeding directly against the Company for
enforcement of payment of the Company's obligations under Junior Subordinated
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Debentures having a principal amount equal to the Liquidation Amount of the
Preferred Securities held by such holder.
The obligations of the Company under the Junior Subordinated Debentures
and the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
Sufficiency of Payments
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable on the Preferred Securities, primarily because (i) the
aggregate principal amount of the Junior Subordinated Debentures will be equal
to the sum of the aggregate stated Liquidation Amount of the Preferred
Securities and Common Securities; (ii) the interest rate and interest and other
payment dates on the Junior Subordinated Debentures will match the Distribution
rate, Distribution Dates and other payment dates for the Preferred Securities;
(iii) the Company will pay for any and all costs, expenses and liabilities of
the Issuer Trust except the Issuer Trust's obligations to holders of the Trust
Securities; and (iv) the Trust Agreement further provides that the Issuer Trust
will not engage in any activity that is not consistent with the limited purposes
of the Issuer Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
Enforcement Rights of Holders of Preferred Securities
A holder of any Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
Trust or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the
Company would not constitute a default or Event of Default in respect of the
Preferred Securities. However, in the event of payment defaults under, or
acceleration of, Senior Indebtedness of the Company, the subordination
provisions of the Junior Subordinated Indenture provide that no payments may be
made in respect of the Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default thereunder has been
cured or waived. See "Description of Junior Subordinated Debentures --
Subordination."
Limited Purpose of Issuer Trust
The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Issuer Trust, and the Issuer Trust exists for the
sole purpose of issuing its Preferred Securities and Common Securities and
investing the proceeds thereof in Junior Subordinated Debentures. A principal
difference between the rights of a holder of a Preferred Security and a holder
of a Junior Subordinated Debenture is that a holder of a Junior Subordinated
Debenture is entitled to receive from the Company payments on Junior
Subordinated Debentures held, while a holder of Preferred Securities is entitled
to receive Distributions or other amounts distributable with respect to the
Preferred Securities from the Issuer Trust (or from the Company under the
Guarantee) only if and to the extent the Issuer Trust has funds available for
the payment of such Distributions.
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Rights Upon Dissolution
Upon any voluntary or involuntary dissolution of the Issuer Trust, other
than any such dissolution involving the distribution of the Junior Subordinated
Debentures, after satisfaction of liabilities to creditors of the Issuer Trust
as required by applicable law, the holders of the Preferred Securities will be
entitled to receive, out of assets held by the Issuer Trust, the Liquidation
Distribution in cash. See "Description of Preferred Securities -- Liquidation
Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation or
bankruptcy of the Company, the Issuer Trust, as registered holder of the Junior
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated and junior in right of payment to all Senior Indebtedness as set
forth in the Junior Subordinated Indenture, but entitled to receive payment in
full of all amounts payable with respect to the Junior Subordinated Debentures
before any stockholders of the Company receive payments or distributions. Since
the Company is the guarantor under the Guarantee and has agreed under the Junior
Subordinated Indenture to pay for all costs, expenses and liabilities of the
Issuer Trust (other than the Issuer Trust's obligations to the holders of the
Trust Securities), the positions of a holder of the Preferred Securities and a
holder of such Junior Subordinated Debentures relative to other creditors and to
stockholders of the Company in the event of liquidation or bankruptcy of the
Company are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income
tax consequences of the purchase, ownership and disposition of Preferred
Securities. This summary only addresses the tax consequences to a person that
acquires Preferred Securities on their original issue at their original offering
price and that is, except as noted below, (i) an individual citizen or resident
of the United States, (ii) a corporation, partnership, or other entity organized
under the laws of the United States or any state thereof or the District of
Columbia, (iii) an estate the income of which is subject to United States
federal income tax regardless of source, or (iv) a trust if (a) a United States
court of law is able to exercise primary supervision over the trust's
administration and (b) one or more United States fiduciaries have the authority
to control all of the trust's substantial decisions (a "United States Person").
This summary does not address all tax consequences that may be applicable to a
United States Person that is a beneficial owner of Preferred Securities, nor
does it address the tax consequences to, except as noted below, (i) persons that
are not United States Persons, (ii) persons that may be subject to special
treatment under United States federal income tax law, such as banks, insurance
companies, thrift institutions, regulated investment companies, real estate
investment trusts, tax-exempt investors and dealers in securities or currencies,
(iii) persons that will hold Preferred Securities as part of a position in a
"straddle" or as part of a "hedging," "conversion" or other integrated
investment transaction for United States federal income tax purposes, (iv)
persons whose functional currency is not the United States dollar or (v) persons
that do not hold Preferred Securities as capital assets. In addition, this
summary does not include any description of alternative minimum tax consequences
or the tax laws of any state, local or foreign government that may be applicable
to a holder of Preferred Securities.
The statements of law or legal conclusions set forth in this summary
constitute the opinion of Malizia, Spidi, Sloane & Fisch, P.C., in its capacity
as special tax counsel to the Company and the Issuer Trust ("Tax Counsel"). This
summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change at any time. Such changes may be applied retroactively in a manner that
could cause the tax consequences to vary substantially from the consequences
described below, possibly adversely affecting a beneficial owner of Preferred
Securities. In particular, legislation has been proposed that could adversely
affect the Company's ability to deduct
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interest on the Junior Subordinated Debentures, which may in turn permit the
Company to cause a redemption of the Preferred Securities. See "-- Possible Tax
Law Changes." The authorities on which this summary is based are subject to
various interpretations, and it is therefore possible that the United States
federal income tax treatment of the purchase, ownership and disposition of
Preferred Securities may differ from the treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS
IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE UNITED STATES FEDERAL
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF PREFERRED
SECURITIES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Classification of the Junior Subordinated Debentures and the Issuer Trust
Under current law and assuming compliance with the terms of the Trust
Agreement, the Issuer Trust will not be taxable as a corporation but will
instead be classified as a grantor trust for United States federal income tax
purposes. As a result, each beneficial owner of Preferred Securities (a
"Securityholder") will be treated for federal income tax purposes as a holder of
its pro rata share of the Junior Subordinated Debentures held by the Issuer
Trust. Accordingly, each Securityholder will be required to include in its gross
income its pro rata share of the interest income, including OID, paid or accrued
with respect to the Junior Subordinated Debentures whether or not cash is
actually distributed to the Securityholders. See "-- Interest Income and
Original Issue Discount." The Junior Subordinated Debentures will be classified
as indebtedness of the Company for United States federal income tax purposes.
The Company, the Issuer Trust and holders of the Preferred Securities
(by the acceptance of a beneficial interest in a Preferred Security) will agree
to treat the Junior Subordinated Debentures as indebtedness for United States
federal income tax purposes. In connection with the issuance of the Junior
Subordinated Debentures, Tax Counsel is of the opinion that, under current law,
and based on the representations, facts and assumptions set forth herein, the
Junior Subordinated Debentures will be classified as indebtedness for United
States federal income tax purposes.
Interest Income and Original Issue Discount
Under applicable Treasury regulations (the "Regulations"), a "remote"
contingency that stated interest will not be timely paid will be ignored in
determining whether a debt instrument is issued with OID. The Company believes
that the likelihood of its exercising its option to defer payments of interest
is remote. Based on the foregoing, the Company believes that the Junior
Subordinated Debentures will not be considered to be issued with OID at the time
of their original issuance and, accordingly, a Securityholder should include in
gross income such Securityholder's allocable share of interest on the Junior
Subordinated Debentures in accordance with such Securityholder's method of tax
accounting.
Under the Regulations, if the Company exercised its option to defer any
payment of interest, the Junior Subordinated Debentures would at that time be
treated as issued with OID, and all stated interest (and de minimis OID, if any)
on the Junior Subordinated Debentures would thereafter be treated as OID as long
as the Junior Subordinated Debentures remained outstanding. In such event, all
of a Securityholder's taxable interest income with respect to the Junior
Subordinated Debentures would be accounted for as OID on an economic accrual
basis regardless of such Securityholder's method of tax accounting, and actual
distributions of stated interest would not be reported as taxable income.
84
<PAGE>
Consequently, a Securityholder would be required to include in gross income OID
even though the Company would not make any actual cash payments during an
Extension Period.
The Regulations have not been addressed in any published rulings or
other published interpretations by the IRS, and it is possible that the IRS
could take a position contrary to the interpretation herein.
Because income on the Preferred Securities will constitute interest or
OID, corporate Securityholders will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Preferred
Securities.
Subsequent uses of the term "interest" in this summary include income in
the form of OID.
Distribution of Junior Subordinated Debentures to Securityholders
Under current law, a distribution by the Issuer Trust of the Junior
Subordinated Debentures as described under the caption "Description of Preferred
Securities -- Liquidation Distribution Upon Dissolution" will be non-taxable and
will result in the Securityholder receiving directly its pro rata share of the
Junior Subordinated Debentures previously held indirectly through the Issuer
Trust, with a holding period and aggregate tax basis equal to the holding period
and aggregate tax basis such Securityholder had in its Preferred Securities
before such distribution. If, however, the liquidation of the Issuer Trust were
to occur because the Issuer Trust is subject to United States federal income tax
with respect to income accrued or received on the Junior Subordinated
Debentures, the distribution of Junior Subordinated Debentures to
Securityholders by the Issuer Trust would be a taxable event to the Issuer Trust
and each Securityholder, and the Securityholder would recognize gain or loss as
if the Securityholder had exchanged its Preferred Securities for the Junior
Subordinated Debentures it received upon the liquidation of the Issuer Trust. A
Securityholder will accrue interest in respect of Junior Subordinated Debentures
received from the Issuer Trust in the manner described above under "-- Interest
Income and Original Issue Discount."
Under certain circumstances described herein (see "Description of Junior
Subordinated Debentures -- Redemption"), the Junior Subordinated Debentures may
be redeemed by the Company for cash and the proceeds of such redemption
distributed by the Issuer Trust to holders in redemption of their Preferred
Securities. Under current law, such a redemption would, for United States
federal income tax purposes, constitute a taxable disposition of the redeemed
Preferred Securities, and a holder would recognize gain or loss as if it sold
such redeemed Preferred Securities for cash. See "-- Sales of Preferred
Securities."
Sales of Preferred Securities
A Securityholder that sells Preferred Securities will recognize gain or
loss equal to the difference between its adjusted tax basis in the Preferred
Securities and the amount realized on the sale of such Preferred Securities.
Assuming that the Company does not exercise its option to defer payment of
interest on the Junior Subordinated Debentures, and the Preferred Securities are
not considered issued with OID, a Securityholder's adjusted tax basis in the
Preferred Securities generally will be its initial purchase price. If the Junior
Subordinated Debentures are deemed to be issued with OID as a result of the
Company's deferral of any interest payment, or otherwise, a Securityholder's tax
basis in the Preferred Securities generally will be its initial purchase price,
increased by OID previously includible in such Securityholder's gross income to
the date of disposition and decreased by distributions or other payments
received on the Preferred Securities since and including the date of
commencement of the first Extension
85
<PAGE>
Period. Such gain or loss generally will be a capital gain or loss (except to
the extent of any accrued interest with respect to such Securityholder's pro
rata share of the Junior Subordinated Debentures required to be included in
income) and generally will be a long-term capital gain or loss if the Preferred
Securities have been held for more than one year.
Should the Company exercise its option to defer any payment of interest
on the Junior Subordinated Debentures, the Preferred Securities may trade at a
price that does not accurately reflect the value of accrued but unpaid interest
with respect to the underlying Junior Subordinated Debentures. In the event of
such a deferral, a Securityholder that disposes of its Preferred Securities
between record dates for payments of distributions thereon will be required to
include in income as ordinary income its share of accrued but unpaid interest on
the Junior Subordinated Debentures to the date of disposition as OID, but may
not receive the cash related thereto. However, such Securityholder will add such
amount to its adjusted tax basis in the Preferred Securities. To the extent the
selling price is less than the Securityholder's adjusted tax basis, such
Securityholder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
Backup Withholding Tax and Information Reporting
The amount of interest income paid or accrued on the Preferred
Securities held of record by United States Persons (other than corporations and
other exempt Securityholders) will be reported to the IRS. "Backup" withholding
at a rate of 31% will apply to payments of interest to non-exempt United States
Persons unless the Securityholder furnishes its taxpayer identification number
in the manner prescribed in applicable Treasury regulations, certifies that such
number is correct, certifies as to no loss of exemption from backup withholding
and meets certain other conditions.
Payment of the proceeds from the disposition of Preferred Securities to
or through the United States office of a broker is subject to information
reporting and backup withholding unless the Securityholder establishes an
exemption from information reporting and backup withholding.
Any amounts withheld from a Securityholder under the backup withholding
rules will be allowed as a refund or a credit against such Securityholder's
United States federal income tax liability, provided the required information is
furnished to the IRS.
It is anticipated that income on the Preferred Securities will be
reported to Securityholders on Form 1099 and mailed to Securityholders by
January 31 following each calendar year.
These backup withholding tax and information reporting rules currently
are under review by the United States Treasury Department and proposed Treasury
regulations issued on April 15, 1996 would modify certain of such rules
generally with respect to payments made after December 31, 1997. Accordingly,
the application of such rules to the Preferred Securities could be changed.
United States Alien Securityholders
For purposes of this discussion, a "United States Alien Securityholder"
is any person that for United States federal income tax purposes is not a United
States Person (as defined above).
Under current United States federal income tax law: (i) payments by the
Issuer Trust or any of its paying agents to any holder of Preferred Securities
that is a United States Alien Securityholder will not be subject to United
States federal withholding tax, provided that (a) the beneficial owner of the
86
<PAGE>
Preferred Securities does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (b) the beneficial owner of the Preferred Securities is not a controlled
foreign corporation that is related to the Company through stock ownership, and
(c) either (A) the beneficial owner of the Preferred Securities certifies to the
Issuer Trust, or its agent, under penalties of perjury, that it is not a United
States Person and provides its name and address, or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution") and holds the Preferred Securities certifies to the Issuer Trust
or its agent under penalties of perjury that such statement has been received
from the beneficial owner by it or by a Financial Institution between it and the
beneficial owner and furnishes the Issuer Trust or its agent with a copy
thereof; and (ii) a United States Alien Securityholder of Preferred Securities
will not be subject to United States federal withholding tax on any gain
realized upon the sale or other disposition of Preferred Securities.
Possible Tax Law Changes
On February 6, 1997, President Clinton released his budget proposals for
fiscal year 1998. One of the revenue provisions of those proposals would
generally deny interest deductions for interest on an instrument issued by a
corporation that has a maximum term of more than 15 years and that is not shown
as indebtedness on the separate balance sheet of the issuer or, where the
instrument is issued to a related party (other than a corporation), where the
holder or some other related party issues a related instrument that is not shown
as indebtedness on the issuer's consolidated balance sheet. If enacted as
proposed by the President, this provision would be effective for instruments
issued on or after the date of first action by a Congressional committee with
respect to the proposal. It is not clear from the President's proposals as to
what constitutes Congressional "committee action" with respect to this proposal.
If the proposed provision were to apply to the Junior Subordinated Debentures,
the Company would be unable to deduct interest on the Junior Subordinated
Debentures. Under current law, the Company will be able to deduct interest on
the Junior Subordinated Debentures, however, the Company and the Issuer Trust
have been advised by Tax Counsel that such recently proposed legislation would
change the deductibility of the interest paid by the Company on the Junior
Subordinated Debentures for federal income tax purposes, and that Congress could
amend such legislation giving it retroactive effect prior to its enactment into
law. There can be no assurance that future legislative proposals or final
legislation will not affect the ability of the Company to deduct interest on the
Junior Subordinated Debentures. Such a change could give rise to a Tax Event,
which may permit the Company to cause a redemption of the Preferred Securities,
as described more fully in this Prospectus under "Description of Preferred
Securities -- Redemption."
CERTAIN ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be considered
a "party in interest" within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or a "disqualified person" within the
meaning of Section 4975 of the Code with respect to many employee benefit plans
("Plans") that are subject to ERISA. The purchase of the Preferred Securities by
a Plan that is subject to the fiduciary responsibility provisions of ERISA or
the prohibited transaction provisions of Section 4975(e)(1) of the Code) and
with respect to which the Company, or any affiliate of the Company is a service
provider (or otherwise is a party in interest or a disqualified person) may
constitute or result in a prohibited transaction under ERISA or Section 4975 of
the Code, unless the Preferred Securities are acquired pursuant to and in
accordance with an applicable exemption. Any pension or other employee benefit
plan proposing to acquire any Preferred Securities should consult with its
counsel.
87
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") dated , 1997, among the Company, the Issuer
Trust and the underwriters named therein (the "Underwriters"), the Issuer Trust
has agreed to sell to the Underwriters, and the Underwriters have severally
agreed to purchase from the Issuer Trust the following respective aggregate
Liquidation Amount of Preferred Securities at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
Underwriter: Number of Shares:
- ----------- ----------------
Advest, Inc..................................
-----------
Total.......................................... $25,000,000
===========
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the Preferred Securities offered hereby if any
of such Preferred Securities are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Preferred Securities to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $
per share to certain other dealers. After the public offering, the offering
price and other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to an
additional $3,750,000 aggregate Liquidation Amount of the Preferred Securities
at the public offering price, less the underwriting discounts and commissions
set forth on the cover page of this Prospectus, plus accrued interest, if any,
from , 1997. To the extent that the Underwriter exercises suc
option, the Company will be obligated, pursuant to the option, to sell such
Preferred Securities to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of the
Preferred Securities offered hereby. If purchased, the Underwriters will offer
such additional Preferred Securities on the same terms as those on which the
$25,000,000 aggregate Liquidation Amount of the Preferred Securities are being
offered.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation for the Underwriter's arranging the investment therein of such
proceeds an amount of $ per Preferred Security (or $ in the
aggregate) for the account of the Underwriters. aggregate)
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Preferred Securities as interests in a direct participation
program, the offering of the Preferred Securities is being made in compliance
with the applicable provisions of Rule 2810 of the NASD's Conduct Rules.
88
<PAGE>
The Preferred Securities are a new issue of securities with no
established trading market. The Company and the Issuer Trust have been advised
by the Underwriters that they intend to make a market in the Preferred
Securities. However, the Underwriters are not obligated to do so and such market
making may be interrupted or discontinued at any time without notice at the sole
discretion of each of the Underwriters. Application has been made by the Company
to list the Preferred Securities in the Nasdaq National Market, but one of the
requirements for listing and continuing listing is the presence of two market
makers for the Preferred Securities, and the presence of a second market maker
cannot be assured. Accordingly, no assurance can be given as to the development
or liquidity of any market for the Preferred Securities.
The Company and the Issuer Trust have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Underwriters may in the future perform various services to the
Company, including investment banking services, for which it has or may receive
customary fees for such services.
VALIDITY OF SECURITIES
The validity of the Guarantee and the Junior Subordinated Debentures and
certain tax matters will be passed upon for the Company by Malizia, Spidi,
Sloane & Fisch, P.C., Washington, D.C., counsel to the Company. Certain legal
matters will be passed upon and for the Underwriters by Arnold & Porter,
Washington, D.C., and New York, New York. Certain matters of Delaware law
relating to the validity of the Preferred Securities, the enforceability of the
Trust Agreement and the creation of the Issuer Trust will be passed upon by
Richards, Layton & Finger, special Delaware counsel to the Company and the
Issuer Trust. Malizia, Spidi, Sloane & Fisch, P.C. and Arnold & Porter will rely
as to certain matters of Delaware law on the opinion of Richards, Layton &
Finger.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995, and for the three years ended December 31, 1996, included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing in this Prospectus, and have been included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
also may be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov. This Prospectus does not contain all the
information set forth in the Registration Statement and exhibits thereto, which
the Company has filed with the Commission under the Securities Act and to which
reference is hereby made.
89
<PAGE>
No separate financial statements of the Issuer Trust have been included
or incorporated by reference herein. The Company and the Issuer Trust do not
consider that such financial statements would be material to holders of the
Preferred Securities because the Issuer Trust is a newly formed special purpose
entity, has no operating history or independent operations and is not engaged in
and does not propose to engage in any activity other than holding as trust
assets the Junior Subordinated Debentures and issuing the Trust Securities. See
"Sun Capital Trust," "Description of Preferred Securities," "Description of
Junior Subordinated Debentures" and "Description of Guarantee." In addition, the
Company does not expect that the Issuer Trust will be filing reports under the
Exchange Act with the Commission.
90
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Sun Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial condition
of Sun Bancorp, Inc. and subsidiaries (the "Company") as of December 31, 1996
and 1995, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Sun Bancorp, Inc. and subsidiaries
as of December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
January 31, 1997
F-1
<PAGE>
SUN BANCORP, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
- -----------------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 17,006,758 $ 17,242,366
Federal funds sold 4,800,000
------------- -------------
Cash and cash equivalents 21,806,758 17,242,366
Investment securities available for sale (amortized cost -
$97,063,398; 1996 and $146,379,244; 1995) 95,581,384 147,008,896
Loans receivable (net of allowance for loan losses - $2,595,312;
1996 and $2,064,640; 1995) 295,500,668 183,633,631
Bank properties and equipment 12,222,507 11,419,175
Real estate owned 755,628 876,302
Accrued interest receivable 2,850,399 2,564,921
Excess of cost over fair value of net assets acquired 5,365,218 6,191,919
Deferred taxes 1,070,535 205,169
Other assets 1,641,959 752,257
------------- -------------
TOTAL $ 436,795,056 $ 369,894,636
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits $ 385,986,905 $ 335,247,796
Advances from the Federal Home Loan Bank 10,000,000 8,000,000
Loan payable 6,000,000
Securities sold under agreements to repurchase 5,253,048
Other liabilities 2,140,527 1,976,044
------------- -------------
Total liabilities 409,380,480 345,223,840
------------- -------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 13)
SHAREHOLDERS' EQUITY
Preferred stock $1 par value, 1,000,000 shares authorized, none issued
Common stock $1 par value, 10,000,000 shares authorized:
issued and outstanding; 1,848,929 shares; 1996 and 1,651,175 shares; 1995 1,848,929 1,651,175
Surplus 18,124,359 17,197,275
Retained earnings 8,419,417 5,406,774
Unrealized (loss) gain on securities available for sale, net of income taxes . (978,129) 415,572
------------- -------------
Total shareholders' equity 27,414,576 24,670,796
------------- -------------
TOTAL $ 436,795,056 $ 369,894,636
============= =============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
SUN BANCORP, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ----------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $22,073,767 $15,100,885 $ 9,590,994
Interest on investment securities 7,127,393 5,285,877 2,151,351
Interest on federal funds sold 68,366 463,001 452,117
----------- ----------- -----------
Total interest income 29,269,526 20,849,763 12,194,462
----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits 11,953,591 7,639,933 3,844,753
Interest on borrowed funds 580,412 47,158 93,796
----------- ----------- -----------
Total interest expense 12,534,003 7,687,091 3,938,549
----------- ----------- -----------
Net interest income 16,735,523 13,162,672 8,255,913
PROVISION FOR LOAN LOSSES 900,000 807,660 382,671
----------- ----------- -----------
Net interest income after provision for loan losses 15,835,523 12,355,012 7,873,242
----------- ----------- -----------
OTHER INCOME:
Service charges on deposit accounts 1,057,139 659,811 419,363
Other service charges 115,999 28,068 17,224
Gain on sale of fixed assets 45,207 46,487 21,164
Gain on sale of loans 207,984
Gain on sale of investment securities 206,538 377,126
Other 320,890 331,513 274,533
----------- ----------- -----------
Total other income 1,745,773 1,650,989 732,284
----------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits 6,525,903 4,689,269 2,626,679
Occupancy expense 1,407,875 1,269,514 1,090,833
Equipment expense 817,696 459,460 249,951
Provision for losses on real estate owned 78,000 120,000
Professional fees and services 352,970 249,760 164,770
Data processing expense 1,085,874 634,753 318,552
Amortization of excess cost over fair value of assets acquired 826,701 342,562 134,435
Postage and supplies 420,120 335,055 173,823
Insurance 196,110 382,554 397,961
Other 1,573,404 1,606,404 713,733
----------- ----------- -----------
Total other expenses 13,206,653 10,047,331 5,990,737
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 4,374,643 3,958,670 2,614,789
INCOME TAXES 1,362,000 1,140,000 775,134
----------- ----------- -----------
NET INCOME $ 3,012,643 $ 2,818,670 $ 1,839,655
============= =========== ===========
Earnings per common and common equivalent share
Net income $ 1.58 $ 1.52 $ 1.42
=========== =========== ===========
Earnings per common share - assuming full dilution
Net income $ 1.56 $ 1.52 $ 1.42
=========== =========== ===========
Weighted average shares 1,797,900 1,720,295 1,200,503
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
SUN BANCORP, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized
Gain (Loss)
on Securities
Common Retained Available
Stock Surplus Earnings For Sale Total
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ 1,017,522 $ 10,540,290 $ 748,449 $ 12,306,261
Exercise of stock options 450 2,943 3,393
Sale of common stock 538,462 5,883,415 6,421,877
Net income 1,839,655 1,839,655
------------- ------------ ------------ ----------- -----------
BALANCE, DECEMBER 31, 1994 1,556,434 16,426,648 2,588,104 20,571,186
Exercise of stock options 74,741 530,627 605,368
Sale of common stock 20,000 240,000 260,000
Unrealized gain on securities
available for sale, net of income taxes $ 415,572 415,572
Net income 2,818,670 2,818,670
------------- ------------ ------------ ----------- ------------
BALANCE, DECEMBER 31, 1995 1,651,175 17,197,275 5,406,774 415,572 24,670,796
Stock dividend 87,892 (87,892)
Cash paid for fractional interest
resulting from stock dividend (2,146) (2,146)
Exercise of stock options 109,862 1,017,122 1,126,984
Unrealized loss on securities
available for sale,
net of income taxes (1,393,701) (1,393,701)
Net income 3,012,643 3,012,643
------------- ------------ ------------ ----------- ------------
BALANCE, DECEMBER 31, 1996 $ 1,848,929 $ 18,124,359 $ 8,419,417 $ (978,129) $ 27,414,576
============= ============ ============ =========== ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
SUN BANCORP, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,012,643 $ 2,818,670 $ 1,839,655
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 900,000 807,660 382,671
Provision for loss on real estate owned 78,000 120,000
Depreciation and amortization 484,059 325,913 215,381
Amortization of excess cost over fair value of assets acquired 826,701 342,562 134,435
Gain on sale of loans (207,984)
Gain on sale of investment securities available for sale (206,538) (246,129)
Gain on sale of mortgage-backed securities available for sale (130,997)
Gain on sale of bank properties and equipment (29,298) (46,487) (21,164)
Deferred income taxes (147,401) (27,398) (193,836)
Changes in assets and liabilities which provided (used) cash:
Accrued interest and other assets (1,175,180) (838,246) 196,972
Accounts payable and accrued expenses 164,483 1,215,343 (1,145,147)
------------- ------------- -------------
Net cash provided by operating activities 3,829,469 4,090,907 1,528,967
------------- ------------- -------------
INVESTING ACTIVITIES:
Purchases of investment securities held to maturity (30,094,922) (6,056,403)
Purchases of investment securities available for sale (194,220,677) (27,823,745)
Purchases of mortgage-backed securities held to maturity (45,544,706) (778,160)
Purchases of mortgage-backed securities available for sale (4,074,088)
Increase in investment securities resulting from branch acquisitions (97,600,000)
Proceeds from maturities of investment securities held to maturity 65,280,038 8,141,545
Proceeds from maturities of investment securities available for sale 99,213,685 10,344,666
Proceeds from maturities of mortgage-backed securities held to maturity 19,908,185 176,542
Proceeds from maturities of mortgage-backed securities available for sale 125,716
Proceeds from sale of investment securities available for sale 93,679,375 16,880,505
Proceeds from sale of mortgage-backed securities available for sale 50,782,081 7,359,934
Proceeds from sale of loans 1,870,608
Net increase in loans (112,767,037) (50,605,944) (2,845,797)
Increase in loans resulting from branch acquisitions (636,714)
Purchase of bank properties and equipment (1,359,295) (825,912) (481,895)
Increase in bank properties and equipment resulting from branch acquisitions (5,430,744)
Proceeds from sale of bank properties and equipment 42,606 250,824 21,164
Excess of cost over fair value of branch assets acquired (4,450,145)
Decrease (increase) in real estate owned 120,674 78,578 (244,249)
Purchase price of acquisitions, net of cash received (5,410,572)
------------- ------------- -------------
Net cash used in investing activities (64,382,072) (145,113,582) (7,477,825)
------------- ------------- -------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 50,739,109 16,685,101 (6,638,004)
Increase in deposits resulting from branch acquisitions 122,543,875
Borrowings and repurchase agreements 21,253,048 12,500,000 4,500,000
Repayment of borrowings and repurchase agreements (8,000,000) 4,500,000 (5,750,000)
Proceeds from exercise of stock options 1,126,984 605,368 3,393
Payments for fractional interests resulting from stock dividend (2,146)
Proceeds from issuance of common stock 260,000 6,421,877
------------- ------------- -------------
Net cash provided by (used in) financing activities 65,116,995 148,094,344 (1,462,734)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,564,392 7,071,669 (7,411,592)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 17,242,366 10,170,697 17,582,289
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 21,806,758 $ 17,242,366 $ 10,170,697
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 12,743,696 $ 6,100,954 $ 3,827,301
============= ============= =============
Income taxes paid $ 1,577,757 $ 994,516 $ 1,115,000
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH ITEMS -
Transfer of loans to real estate owned $ 424,644 $ 196,181 $ 449,478
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
SUN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Sun Bancorp, Inc. (the "Company") is registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended. The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiary, Sun National Bank (the "Bank"), and the Bank's wholly owned
subsidiary, Med-Vine, Inc. All significant inter-company balances and
transactions have been eliminated.
The Company and the Bank have their administrative offices in Vineland, New
Jersey. The Bank has nineteen financial service centers located throughout
central and southern New Jersey. The Company's principal business is to serve
as a holding company for the Bank. The Bank is in the business of attracting
customer deposits and using these funds to originate loans, primarily
commercial real estate and non-real estate loans. Med-Vine, Inc. is a
Delaware holding company which holds the majority of the Bank's investment
portfolio. The principal business of Med-Vine, Inc. is investing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements - The preparation
of financial statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period. The
significant estimates include: allowance for loan losses, real estate owned
and excess of cost over fair value of net assets acquired. Actual results
could differ from those estimates.
Investment Securities - The Bank accounts for debt and equity securities as
follows:
Held to Maturity - Debt securities that management has the positive intent
and ability to hold until maturity are classified as held to maturity and
carried at their remaining unpaid principal balance, net of unamortized
premiums or unaccreted discounts. Premiums are amortized and discounts are
accreted using the interest method over the estimated remaining term of
the underlying security.
Available for Sale - Debt and equity securities that will be held for
indefinite periods of time, including securities that may be sold in
response to changes to market interest or prepayment rates, needs for
liquidity, and changes in the availability of and the yield of alternative
investments, are classified as available for sale. These assets are
carried at fair value. Fair value is determined using published quotes as
of the close of business. Unrealized gains and losses are excluded from
earnings and are reported net of tax as a separate component of
shareholders' equity until realized. Realized gains and losses on the sale
of investment securities are reported in the consolidated statement of
income and determined using the adjusted cost of the specific security
sold.
Loans Purchased - The discounts and premiums resulting from the purchase of
loans are amortized to income using the interest method over the remaining
period to contractual maturity, adjusted for anticipated prepayments.
Interest Income on Loans - Interest on commercial, real estate and
installment loans is credited to operations based upon the principal amount
outstanding. Interest accruals are generally discontinued when a loan becomes
90 days past due or when principal or interest is considered doubtful of
collection. When interest accruals are discontinued, interest credited to
income in the current year is reversed, and interest accrued in the prior
year is charged to the allowance for loan losses.
F-6
<PAGE>
Allowance for Loan Losses - The allowance for loan losses is determined by
management based upon past experience, an evaluation of potential loss in the
loan portfolio, current economic conditions and other pertinent factors. The
allowance for loan losses is maintained at a level that management considers
adequate to provide for potential losses based upon an evaluation of known
and inherent risk in the loan portfolio. Allowances for loan losses are based
on estimated net realizable value unless it is probable that loans will be
foreclosed, in which case allowances for loan losses are based on fair value.
Management's periodic evaluation is based upon evaluation of the portfolio,
past loss experience, current economic conditions and other relevant factors.
While management uses the best information available to make such
evaluations, future adjustments to the allowance may be necessary if economic
conditions differ substantially from the assumptions used in making the
evaluations.
The Bank adopted the requirements of Statement of Financial Accounting
Standard ("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan,
and SFAS No. 118, Accounting by Creditors for Impairment of a Loan Income
Recognition and Disclosures, effective January 1, 1995. SFAS 114 requires
that certain impaired loans be measured based either on the present value of
expected future cash flows discounted at the loan's effective interest rate,
the loan's observable market price, or the fair value of the collateral if
the loan is collateral dependent. There was no effect on financial statements
as previously reported and on current earnings of initially applying the new
standards.
Bank Properties and Equipment - Bank properties and equipment are stated at
cost, less allowances for depreciation. The provision for depreciation is
computed by the straight-line method based on the estimated useful lives of
the assets.
Deferred Loan Fees - Loan fees net of certain direct loan origination costs
are deferred and the balance is recognized into income as a yield adjustment
over the life of the loan using the interest method.
Real Estate Owned - Real estate owned is comprised of property acquired
through foreclosure and is carried at the lower of the related loan balance
or fair value of the acquired property based on an annual appraisal less
estimated cost to dispose. Losses arising from foreclosure transactions are
charged against the allowance for loan losses. Losses subsequent to
foreclosure are charged against operations.
Excess of Cost Over Fair Value of Net Assets Acquired - The excess of cost
over fair value of net assets acquired is net of accumulated amortization of
$2,037,866 and $1,211,165 at December 31, 1996 and 1995, respectively, and is
amortized by the straight-line method over 15 years for bank acquisitions and
over 7 years for branch acquisitions.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and
cash equivalents include amounts due from banks and federal funds sold.
Income Taxes - The Company accounts for income taxes in accordance with SFAS
No. 109, Accounting for Income Taxes. Under this method, deferred income
taxes are recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. Also, under SFAS No. 109, the
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
Earnings Per Share - Earnings per common and common equivalent share is
computed using the weighted average common shares and common equivalent
shares outstanding during the period.
Stock dividend - On September 17, 1996, the Company's Board of Directors
declared a special 5% stock dividend which was paid on October 30, 1996 to
stockholders of record on October 15, 1996. Accordingly, earnings per share
for the years ended December 31, 1995 and 1994 have been restated to reflect
the increased number of shares outstanding.
Accounting for Stock Options - The Company accounts for stock-based
compensation in accordance with the Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees. This method
calculates compensation expense using the intrinsic value method which
recognizes as expense the difference between the market value of the stock
and the exercise price at grant date. The Company has not recognized any
compensation expense under this method. In the year ending December 31, 1996,
the Company adopted the reporting disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation which requires the Company to
disclose the pro forma effects of accounting for stock-based compensation
using the fair value method as described in the accounting requirements of
SFAS No. 123. As permitted by SFAS No. 123, the Company will continue to
account for stock-based compensation under APB Opinion No. 25.
F-7
<PAGE>
Accounting Principles Issued and Not Adopted - In June 1996, the FASB issued
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The statement which is effective for
transactions occurring after December 31, 1996, requires an entity to
recognize, prospectively, the financial and servicing assets it controls and
the liabilities it has incurred, derecognize financial assets when control
has been surrendered, and derecognize liabilities when extinguished. It
requires that servicing assets and other retained interests in transferred
assets be measured by allocating the previous carrying amount between the
asset sold, if any, and retained interest, if any, based on their relative
fair values at the date of transfer. It also provides implementation guidance
for servicing of financial assets, securitizations, loan syndications, and
participations and transfers of receivables with recourse. The Statement
supersedes SFAS No. 122, Accounting for Mortgage Servicing Rights, which was
adopted by the Company on January 1, 1996, and which management of the
Company determined had no material impact on the Company's results of
operations or financial position. In December 1996, the FASB issued SFAS No.
127, Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125. SFAS No. 127 defers for one year the effective date of Statement No.
125 as it relates to transactions involving secured borrowings and collateral
and transfers and servicing of financial assets. This Statement also provides
additional guidance on these types of transactions. Management of the Company
does not believe the Statements will have a material impact on the Company's
results of operations or financial position when adopted.
Reclassifications - Certain reclassifications have been made in the 1995 and
1994 consolidated financial statements to conform to those classifications
used in 1996.
3. ACQUISITIONS
On July 14, 1995, the Bank purchased four branches from NatWest Bank. The
Bank acquired approximately $52,317,000 of deposit liabilities plus $479,000
of accrued interest, $1,755,000 of real estate and equipment, $588,000 of
loans plus related accrued interest and $610,000 in cash. The Bank paid a
premium of approximately $2,082,000, which is being amortized over seven
years.
On November 24, 1995, the Bank purchased four branches from New Jersey
National Bank. The Bank acquired approximately $70,227,000 of deposit
liabilities plus $492,000 of accrued interest, $3,675,000 of real estate and
equipment, $48,000 of loans plus related accrued interest and $1,009,000 in
cash. The Bank paid a premium of approximately $2,368,000, which is being
amortized over seven years.
On June 29, 1994, the Company acquired 100% of the outstanding shares of The
First National Bank of Tuckahoe ("Tuckahoe") for approximately $7,070,000.
The purchase method of accounting was used to record the acquisition. Under
the purchase method of accounting, all assets and liabilities acquired were
adjusted to fair value as of the acquisition date, and the resultant premiums
and discounts are amortized to income over the expected economic lives of the
related assets and liabilities. Excess cost over fair value of assets
acquired resulting from this acquisition amounted to approximately $612,000
and is being amortized over 15 years using the straight-line method.
A summary statement of the cash used to purchase Tuckahoe is set forth below:
Fair value of assets purchased $50,782,529
Liabilities assumed 43,073,874
-----------
Cssh paid 7,708,655
Cash acquired 7,270,791
-----------
Net cash used for purchase $ 437,864
===========
F-8
<PAGE>
On July 29, 1994, the Bank acquired 100% of the outstanding capital stock of
Southern Ocean State Bank ("Ocean") from BMJ Financial Corp., the parent bank
holding company of Ocean for approximately $6,560,000. The purchase method of
accounting was used to record the acquisition. Excess cost over fair value of
assets acquired resulting from the valuations amounted to approximately
$920,000 and is being amortized over 15 years using the straight-line method.
A summary statement of the cash used to purchase Ocean is set forth below:
Fair value of assets purchased $68,357,063
Liabilities assumed 61,511,320
-----------
Cash paid 6,845,743
Cash acquired 1,873,035
-----------
Net cash used for purchase $ 4,972,708
===========
The results of operations of the acquired entities have been included in the
consolidated results of operations from the dates of acquisitions.
4. INVESTMENT SECURITIES
During 1995, in accordance with the implementation of the SFAS No. 115 Guide,
the Company reclassified its portfolio of investment securities as available
for sale. The carrying amounts of investment securities and the approximate
market values at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for Sale: Cost Gains Losses Value
<S> <C> <C> <C> <C>
Debt Securities
U. S. Treasury Obligations $ 51,954,682 $ 12,086 $ (932,957) $51,033,811
State and Municipal Obligations 20,168,222 28,006 (356,822) 19,839,406
Other bonds 20,075,483 7,635 (239,962) 19,843,156
Mortgage-backed securities 63,061 -- -- 63,061
------------ ----------- ----------- -----------
Total debt securities 92,261,448 47,727 (1,529,741) 90,779,434
------------ ----------- ----------- -----------
Equity Securities
Federal Reserve Bank stock 617,800 617,800
Federal Home Loan Bank stock 4,100,900 4,100,900
Atlantic Central Bankers Bank
stock 83,250 83,250
------------ ----------- ----------- -----------
Total equity securities 4,801,950 - - 4,801,950
------------ ----------- ----------- -----------
Total $ 97,063,398 $ 47,727 $(1,529,741) $95,581,384
============ =========== =========== ===========
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for Sale: Cost Gains Losses Value
<S> <C> <C> <C> <C>
Debt Securities
U. S. Treasury Obligations $ 41,674,219 $ 245,730 $ (15,461) $ 41,904,488
State and Municipal Obligations 16,666,509 103,281 (28,199) 16,741,591
Other bonds 44,901,919 70,123 (9,342) 44,962,700
Mortgage-backed securities 41,734,347 289,003 (25,483) 41,997,867
-------------- ---------- ----------- ------------
Total debt securities 144,976,994 708,137 (78,485) 145,606,646
-------------- ---------- ----------- ------------
Equity Securities
Federal Reserve Bank stock 533,800 533,800
Federal Home Loan Bank stock 818,200 818,200
Atlantic Central Bankers Bank stock 50,250 50,250
-------------- ---------- ----------- ------------
Total equity securities 1,402,250 - - 1,402,250
-------------- ---------- ----------- ------------
Total $ 146,379,244 $ 708,137 $ (78,485) $147,008,896
============== ========== =========== ============
</TABLE>
During 1996, the Bank sold $144,529,374 of securities available for sale
resulting in a gross gain of $206,538. During 1995, the Bank sold $24,240,439
of securities available for sale resulting in a gross gain of $377,126. There
were no such sales during 1994.
At December 31, 1996 the Bank was required to maintain an average reserve
balance of $3,579,000 with the Federal Reserve Bank.
The maturity schedule of the investment in debt securities available for sale
at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Market Value
<S> <C> <C>
Due in one year or less $ 8,828,772 $ 8,786,619
Due after one year through five years 61,132,578 60,063,074
Due after five years through ten years 15,890,087 15,708,094
Due after ten years 6,346,950 6,158,586
------------- -------------
92,198,387 90,716,373
Mortgage-backed securities 63,061 63,061
------------- -------------
$ 92,261,448 $ 90,779,434
============= =============
</TABLE>
At December 31, 1996, $4,000,000 of U.S. Treasury Notes were pledged to
secure public deposits.
F-10
<PAGE>
5. LOANS
The components of loans as of December 31, 1996 and 1995 were as follows:
1996 1995
Commercial and industrial $ 223,116,474 $ 118,874,150
Real estate-residential mortgages 53,846,436 54,414,800
Installment 21,133,070 12,409,321
------------- -------------
Total gross loans 298,095,980 185,698,271
Allowance for loan losses (2,595,312) (2,064,640)
------------- -------------
Net loans $ 295,500,668 $ 183,633,631
============= =============
Nonaccrual loans $ 1,277,208 $ 2,658,118
============= =============
There were no irrevocable commitments to lend additional funds on nonaccrual
loans at December 31, 1996. The reduction in interest income resulting from
nonaccrual loans was $151,614, $276,955 and $146,308 for the years ended
December 31, 1996, 1995 and 1994, respectively. Interest income recognized on
these loans during the years ended December 31, 1996, 1995 and 1994 was
$15,414, $24,989 and $18,907, respectively.
Certain officers, directors and their associates (related parties) have loans
and conduct other transactions with the Company. Such transactions are made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for other nonrelated party transactions. The
aggregate dollar amount of these loans to related parties as of December 31,
1996, along with an analysis of the activity for 1996, is summarized as
follows:
1996 1995
Balance, beginning of year $ 8,621,460 $ 6,132,256
Additions 7,306,997 4,272,121
Repayments (4,491,323) (1,782,917)
------------ ------------
Balance, end of year $ 11,437,134 $ 8,621,460
============ ============
Under approved lending decisions, the Company has commitments to lend
additional funds totaling approximately $58,635,413 and $67,928,316 at
December 31, 1996 and 1995, respectively. 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 creditworthiness on a
case-by-case basis. The type and amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the borrower.
Most of the Bank's business activity is with customers located within its
local market area. Generally, loans granted are secured by commercial real
estate, residential real estate and other assets. The ultimate repayment of
loans is dependent to a certain degree on the local economy and real estate
market.
F-11
<PAGE>
6. ALLOWANCE FOR LOAN LOSSES
An analysis of the change in the allowance for loan losses is as follows:
1996 1995 1994
Balance, January 1 $ 2,064,640 $ 1,607,375 $ 1,067,402
Charge-offs (400,387) (426,289) (349,439)
Recoveries 31,059 75,894 34,829
----------- ----------- -----------
Net charge-offs (369,328) (350,395) (314,610)
Allowance on acquired loans 0 0 471,912
Provision for loan losses 900,000 807,660 382,671
----------- ----------- -----------
Balance, December 31 $ 2,595,312 $ 2,064,640 $ 1,607,375
=========== =========== ===========
The provision for loan losses charged to expense is based upon past loan and
loss experience and an evaluation of estimated losses in the current loan
portfolio, including the evaluation of impaired loans under SFAS Nos. 114 and
118. A loan is considered to be impaired when, based upon current information
and events, it is probable that the Bank will be unable to collect all
amounts due according to the contractual terms of the loan. An insignificant
delay or insignificant shortfall in amount of payments does not necessarily
result in the loan being identified as impaired. For this purpose, delays
less than 90 days are considered to be insignificant. Impairment losses are
included in the provision for loan losses. SFAS Nos. 114 and 118 do not apply
to large groups of smaller balance, homogeneous loans that are collectively
evaluated for impairment, except for those loans restructured under a
troubled debt restructuring. Loans collectively evaluated for impairment
include consumer loans and residential real estate loans, and are not
included in the data that follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Impaired loans with related reserve for
loan losses ($296,307) calculated
under SFAS No. 114 $ 454,489
Impaired loans with no related reserve for
loan losses calculated
under SFAS No. 114 $ 584,114 527,908
------------ ------------
Total impaired loans $ 584,114 $ 982,397
============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
<S> <C> <C>
Average impaired loans $ 596,519 $ 411,289
================= =================
Interest income recognized on impaired loans $ 18,284 $ 18,561
================= =================
Cash basis interest income recognized on impaired loans $ 15,414 $ 0
================= =================
</TABLE>
Interest payments on impaired loans are typically applied to principal unless
the ability to collect the principal amount is fully assured, in which case
interest is recognized on the cash basis.
Commercial loans and commercial real estate loans are placed on nonaccrual at
the time the loan is 90 days delinquent unless the credit is well secured and
in the process of collection. Generally, commercial loans are charged off no
later than 120 days delinquent unless the loan is well secured and in the
process of collection, or other extenuating circumstances support collection.
Residential real estate loans are typically placed on nonaccrual at the time
the loan is 90 days delinquent. Other consumer loans are typically charged
off at 90 days delinquent. In all cases, loans must be placed on nonaccrual
or charged off at an earlier date if collection of principal or interest is
considered doubtful.
F-12
<PAGE>
7. BANK PROPERTIES AND EQUIPMENT
Bank properties and equipment at December 31 consist of the following major
classifications:
1996 1995
Land $ 3,084,395 $ 2,873,500
Buildings 6,982,449 6,861,123
Leasehold improvements and equipment 3,991,723 3,090,188
------------ ------------
14,058,567 12,824,811
Accumulated depreciation and amortization (1,836,060) (1,405,636)
------------ ------------
Total $ 12,222,507 $ 11,419,175
============ ============
8. REAL ESTATE OWNED
Real estate owned consisted of the following:
December 31,
----------------------
1996 1995
Commercial properties $ 435,765 $ 492,501
Residential properties 360,863 471,801
--------- ---------
796,628 964,302
Allowance (41,000) (88,000)
--------- ---------
Total $ 755,628 $ 876,302
========= =========
During 1996, 1995 and 1994, $0, $78,000 and $120,000, respectively, was
charged against operations to adjust real estate owned for declines in value.
9. DEPOSITS
Deposits consist of the following major classifications:
December 31,
---------------------------
1996 1995
Demand Deposits $133,624,391 $128,802,293
Savings Deposits 63,506,894 66,970,293
Time Certificates under $100,000 151,615,202 116,462,390
Time Certificates $100,000 or more 37,240,418 23,012,820
------------ ------------
Total $385,986,905 $335,247,796
============ ============
F-13
<PAGE>
Of the total demand deposits, approximately $76,500,000 and $62,700,000 are
non-interest bearing at December 31, 1996 and 1995, respectively.
A summary of certificates by year of maturity is as follows:
Year Ended December 31,
1997 $ 169,482,951
1998 12,828,611
1999 4,032,751
Thereafter 2,511,307
--------------------
Total $ 188,855,620
====================
A summary of interest expense on deposits is as follows:
Year Ended December 31,
---------------------------------------
1996 1995 1994
Savings Deposits $ 1,455,043 $ 1,394,849 $ 1,334,432
Time Certificates 9,382,920 5,274,045 1,802,296
Interest-Bearing Checking 1,115,628 971,039 708,025
----------- ----------- -----------
Total $11,953,591 $ 7,639,933 $ 3,844,753
=========== =========== ===========
10. ADVANCES FROM THE FEDERAL HOME LOAN BANK AND OTHER BORROWINGS
Federal Home Loan Bank advances at December 31, 1996 and 1995 were
$10,000,000 and $8,000,000, respectively. Advances are collateralized under a
blanket collateral lien agreement. The amounts outstanding at December 31,
1996 and 1995 were borrowed under overnight lines of credit at interest rates
of 7.375% and 5.875%, respectively. Interest expense on advances was $286,316
and $6,733 for the years ended December 31, 1996 and 1995, respectively.
There were no such borrowings during 1994.
At December 30, 1996, the Company obtained a $6,000,000 revolving line of
credit from a correspondant bank with a term of 36 months. The floating rate
of interest is the prime rate plus fifty basis points. At December 31, 1996,
there was $6,000,000 outstanding at an interest rate of 8.75%.
During 1996, the Bank entered into various retail transactions with
securities sold under agreements to repurchase with approved customers. At
December 31, 1996 the total of such repurchase agreements is $5,253,048 with
an average interest rate of 5.01%. Interest expense on repurchase agreements
was $122,788 during 1996.
11. STOCK OPTION PLAN
On April 18, 1995, the Company adopted a Stock Option Plan (the "1995 Plan").
Options granted under the 1995 Plan may be either qualified incentive stock
options or nonqualified options as determined by the Executive Compensation
Committee.
Options granted under the 1995 Plan are at the estimated fair value at the
date of grant and are exercisable at the time of the grant and for 10 years
thereafter. There were 100,000 shares of stock reserved for issuance under
the 1995 Plan.
On May 31, 1985, the Company adopted a Stock Option Plan (the "1985 Plan").
During 1995, options were no longer eligible to be granted under the 1985
Plan. Options granted under the 1985 Plan were either qualified incentive
stock options or nonqualified options as determined by the Executive
Compensation Committee.
F-14
<PAGE>
Options granted under the 1985 Plan were at the estimated fair value at the
date of grant and are exercisable at the time of the grant and until the year
2001. There were 313,826 shares of stock reserved for issuance under the 1985
Plan.
Options granted under the 1995 and 1985 Plans, adjusted for the 5% stock
dividend granted in 1996, are as follows:
<TABLE>
<CAPTION>
Incentive Nonqualified
<S> <C> <C>
Options granted and outstanding:
December 31, 1996 at prices ranging from $7.18 to $16.67 per share 290,722 50,674
=============== ===============
December 31, 1995 at prices ranging from $7.18 to $15.42 per share 186,153 157,087
=============== ===============
December 31, 1994 at prices ranging from $7.18 to $15.42 per share 91,581 201,577
=============== ===============
</TABLE>
Activity in the stock option plans for the three-year period ended December
31, 1996:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Number Price Price
of Shares Per Share Per Share
--------- --------------- -----------
<S> <C> <C> <C>
Outstanding at January 1, 1994 295,730 $7.18 - $15.42 $ 8.49
1994:
Exercised (472) $7.18 7.18
Expired (2,100) $12.38 12.38
--------
Outstanding at December 31, 1994 293,158 8.46
1995:
Granted 131,250 $12.38 12.38
Exercised (78,478) $7.18 - $ 9.98 7.71
Expired (2,690) $7.18 - $15.42 13.81
--------
Outstanding at December 31, 1995 343,240 10.12
1996:
Granted 113,925 $16.67 16.67
Exercised (115,303) $7.18 - $ 9.07 8.82
Expired (466) $15.42 15.42
--------
Outstanding at December 31, 1996 341,396 $7.18 - $16.67 12.73
======== ---------------
</TABLE>
The following table summarizes stock options outstanding at December 31,
1996:
<TABLE>
<CAPTION>
Number of Options Weighted Average Remaining Weighted Average
Range of Exercise Price Outstanding Contractural Life Exercise Price
----------------------- ----------- ----------------- --------------
<S> <C> <C> <C> <C>
7.18 - 7.90 76,464 5 7.39
12.38 - 16.67 264,932 9 14.52
----- ----- ------- - -----
341,396 8 12.87
======= = =====
</TABLE>
Under the 1995 Plan, the nonqualified options expire ten years and ten days
after the date of grant, unless terminated earlier under the option terms.
The incentive options expire ten years after the date of grant, unless
terminated earlier under the option terms. Under the 1985 Plan, all options
expire in the year 2001. All options are exercisable at December 31, 1996.
The Company accounts for stock-based compensation in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees. This method
calculates compensation expense using the intrinsic value method which
recognizes as expense the difference between the market value of the stock
and the exercise price at grant date. The Company has not
F-15
<PAGE>
recognized any compensation expense under this method. In the year ending
December 31, 1996, the Company adopted the reporting disclosure requirements
of SFAS No. 123, Accounting for Stock-Based Compensation which requires the
Company to disclose the pro forma effects of accounting for stock-based
compensation using the fair value method as described in the accounting
requirements of SFAS No. 123. As permitted by SFAS No. 123, the Company will
continue to account for stock-based compensation under APB Opinion No. 25.
Had compensation cost for the Company's two stock option plans been
determined based on the fair value at the dates of awards under those plans
consistent with the method of SFAS No. 123, the Company's net income and
income per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net income: As reported $ 3,012,643 $ 2,818,670
Pro forma $ 2,461,089 $ 2,370,020
Net income per common and common equivalent share:
Primary As reported $ 1.58 $ 1.52
Pro forma $ 1.29 $ 1.28
Fully diluted As reported $ 1.56 $ 1.52
Pro forma $ 1.27 $ 1.28
</TABLE>
Significant assumptions used to calculate the above fair value of the awards
are as follows:
1996 1995
---- ----
Risk free interest rate of return 6.44% 5.65%
Expected option life 60 months 60 months
Expected volatility 14% 15%
Expected dividends 0 0
12. BENEFITS
During 1996, the Company established a 401(k) Savings Plan (the "401(k)
Plan") for all qualified employees. Substantially all employees are eligible
to participate in the 401(k) Plan following completion of one year of service
and attaining age 21. Vesting in the Company's contribution accrues over four
years at 25% each year. Pursuant to the 401(k) Plan, employees can contribute
up to 15% of their compensation to a maximum of $9,500 in 1996. The Company
contributes 50% of the employee contribution, up to 6% of compensation. The
Company's contribution to the 401(k) Plan was $85,722 for the year ended
December 31, 1996. The Company paid $4,861 during 1996 to administer the
401(k) Plan.
13. COMMITMENTS AND CONTINGENT LIABILITIES
The Company, from time to time, may be a defendant in legal proceedings
related to the conduct of its business. Management, after consultation with
legal counsel, believes that the liabilities, if any, arising from such
litigation and claims will not be material to the consolidated financial
statements.
In the normal course of business, the Bank has various commitments and
contingent liabilities, such as customers' letters of credit (including
standby letters of credit of $9,663,853 and $6,196,871 at December 31, 1996
and 1995, respectively), which are not reflected in the accompanying
financial statements. Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers. In the
judgment of management, the financial position of the Company will not be
affected materially by the final outcome of any contingent liabilities and
commitments.
Office space and branch facilities are leased from a company affiliated with
the chairman under separate agreements with the Company. The leases, which
expire in the year 2012, provide for a combined annual rental of $286,641
with annual increases based on increases in the Consumer Price Index.
In February 1985, the Bank entered into an agreement with a partnership
comprised of directors and shareholders of the Bank to lease an office
building for an initial term of 10 years with three renewal options of five
years each, requiring annual rentals of $96,000 in addition to real estate
taxes during the extension periods. The Bank has exercised its first
five-year renewal option. The Bank subleases a portion of the office
building.
F-16
<PAGE>
Future minimum payments under noncancelable operating leases with initial
terms of one year or more consisted of the following at December 31, 1996:
1997 $ 455,966
1998 421,371
1999 415,041
2000 327,041
2001 319,041
Thereafter 3,214,623
--------------------
$ 5,153,083
====================
Rental expense included in occupancy expense for all operating leases was
$516,526, $510,285 and $390,157 for 1996, 1995 and 1994, respectively.
14. INCOME TAXES
The income tax provision consists of the following:
1996 1995 1994
Current $ 1,509,401 $ 1,167,398 $ 968,970
Deferred (147,401) (27,398) (193,836)
----------- ----------- -----------
Total $ 1,362,000 $ 1,140,000 $ 775,134
=========== =========== ===========
Items that gave rise to significant portions of the deferred tax accounts at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax asset:
Allowance for loan losses $ 590,257 $ 427,997
Deferred loan fees 63,900 89,012
Other real estate 73,344 89,324
Goodwill amortization 72,150 20,358
Unrealized loss on investment securities 503,885
Other 51,274 62,229
----------- -----------
Total deferred tax asset 1,354,810 688,920
Deferred tax liability:
Property (284,275) (269,671)
Unrealized gain on investment securities (214,080)
----------- -----------
Total deferred tax liability (284,275) (483,751)
----------- -----------
Net deferred tax asset $ 1,070,535 $ 205,169
=========== ===========
</TABLE>
The provision for federal income taxes in 1996, 1995 and 1994, differs from
that completed at the statutory rate as follows:
Year Ended December 31,
------------------------------------------
1996 1995 1994
Tax computed at the statutory rate $ 1,487,379 $ 1,345,948 $ 889,028
Increase in charge resulting from:
State tax, net of federal benefit 33,785
Goodwill amortization 57,327 57,160 43,464
Tax exempt interest (net) (340,896) (157,940) (72,009)
Other, net 158,190 (105,168) (119,134)
----------- ----------- -----------
$ 1,362,000 $ 1,140,000 $ 775,134
=========== =========== ===========
F-17
<PAGE>
15. EARNINGS PER SHARE
Earnings per common share and common equivalent share is computed by dividing
the net income by the weighted average number of shares of common stock and
common stock equivalents outstanding during the year. Stock options granted
and outstanding have been considered to be the equivalent of common stock
from the time of issuance. The number of common shares was increased by the
number of common shares that are assumed to have been purchased with the
proceeds from the exercise of the options (treasury stock method); those
purchases were assumed to have been made at the estimated market price of the
common stock, but not to exceed twenty percent of the outstanding shares. The
market price of common shares is based either on an independent valuation of
the Company's shares or on the price received on shares sold on or near the
reporting dates. Retroactive recognition has been given to market values,
common stock and common stock equivalents outstanding for periods prior to
the date of the Company's stock dividend.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Assumptions:
Net income for the period $3,012,643 $2,818,670 $1,839,655
Average common shares outstanding 1,797,900 1,720,295 1,200,503
Dilutive options outstanding to purchase equivalent shares 341,396 343,241 271,779
Average exercise price per share $ 12.73 $ 10.12 $ 8.08
Estimated average market value per common share - for primary computation $ 18.84 $ 16.19 $ 12.38
Estimated period-end market value per common share - for fully diluted computation $ 21.00 $ 16.19 $ 12.38
Computation:
Application of assumed proceeds:
Towards repurchase of outstanding common shares of applicable market value $4,346,654 $3,471,962 $2,196,232
Adjustment of shares outstanding - primary:
Actual average shares 1,797,900 1,720,295 1,200,503
Net additional shares issuable 110,656 128,796 94,391
--------- --------- ---------
Adjusted shares outstanding 1,908,556 1,849,091 1,294,894
========= ========= =========
Adjustment of shares outstanding - fully diluted:
Actual average shares 1,797,900 1,720,295 1,200,503
Net additional shares issuable 134,412 128,796 94,391
--------- --------- ---------
Adjusted shares outstanding 1,932,312 1,849,091 1,294,894
========= ========= =========
Earnings per common and common equivalent share
Primary $ 1.58 $ 1.52 $ 1.42
Fully diluted $ 1.56 $ 1.52 $ 1.42
</TABLE>
16. REGULATORY MATTERS
The ability of the Bank to pay dividends to the Company is controlled by
certain regulatory restrictions. Permission from the Office of the
Comptroller of the Currency ("OCC") is required if the total of dividends
declared in a calendar year exceeds the total of the Bank's net profits, as
defined by the Comptroller, for that year, combined with its retained net
profits of the two preceding years. At December 31, 1996 such amounts are
$7,670,968.
F-18
<PAGE>
The Bank is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory --and possibly additional discretionary -- actions
by regulators, that, if undertaken, could have a direct material effect on
the Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of capital (as defined in the regulations) to total adjusted
assets (as defined), and of risk-based capital (as defined) to risk-weighted
assets (as defined). Management believes, as of December 31, 1996, that the
Bank meets all applicable capital adequacy requirements.
The most recent notification from the OCC (as of March 31, 1996) categorized
the Bank as adequately capitalized under the regulatory framework for prompt
corrective action. To be categorized as adequately capitalized, the Bank must
maintain minimum Tier 1 Capital, Total Risk-Based Capital and Leverage Ratios
as set forth in the table. Since the most recent notification from the OCC,
the Bank received additional capital from the Company. As a result,
management believes that the Bank would be considered well-capitalized by the
OCC at December 31, 1996. The Bank's actual capital amounts and ratios are
also in the table below:
<TABLE>
<CAPTION>
To Be
Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
-------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1996
Tier 1 Risk-Based Capital $ 28,907,862 9.34% $ 12,380,480 8.00% $ 18,570,720 6.00%
Total Risk-Based Capital 31,503,174 10.18% 24,760,960 8.00% 30,951,200 10.00%
Leverage 28,907,862 6.81% 16,974,791 4.00% 21,218,489 5.00%
At December 31, 1995
Tier 1 Risk-Based Capital $ 18,063,305 8.26% $ 8,750,160 4.00% $ 13,125,240 6.00%
Total Risk-Based Capital 20,127,945 9.20% 17,500,320 8.00% 21,875,400 10.00%
Leverage 18,063,305 5.61% 12,869,123 4.00% 16,086,404 5.00%
</TABLE>
The Company's tier 1 risk-based capital, total risk-based capital, and
leverage capital are 7.44%, 8.28%, and 5.43% at December 31, 1996 and 8.67%,
9.64%, and 5.74% at December 31, 1995.
Under the framework, an adequately capitalized bank's capital levels will not
allow the Bank to accept brokered deposits without prior approval from
regulators.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of SFAS No. 107, Disclosures
about Fair Value of Financial Instruments. The estimated fair value amounts
have been determined by the Bank using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Bank could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
F-19
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996 December 31,1995
-----------------------------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 21,806,758 $ 21,806,758 $ 17,242,366 $ 17,242,366
Investment securities 95,581,384 95,581,384 147,008,896 147,008,896
Loans receivable 295,500,668 293,777,592 183,633,631 187,037,088
Liabilities:
Demand deposits 133,624,391 133,624,391 128,802,293 128,802,293
Savings deposits 63,506,894 63,506,894 66,970,293 66,970,293
Certificates of deposit 188,855,620 191,448,487 139,475,210 140,877,573
Federal Home Loan Bank 10,000,000 10,000,000 8,000,000 8,000,000
Advances
Loan payable 6,000,000 6,000,000 0 0
Repurchase agreements 5,253,048 5,253,048 0 0
</TABLE>
Cash and cash equivalents - For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
Investment securities - For investment securities, fair values are based on
quoted market prices, dealer quotes and prices obtained from independent
pricing services.
Loans receivable - The fair value was estimated by discounting approximate
cash flows of the portfolio to achieve a current market yield.
Demand deposits, savings deposits, certificates of deposit and advances from
the Federal Home Loan Bank - The fair value of demand deposits, savings
deposits and advances from the Federal Home Loan Bank is the amount payable
on demand at the reporting date. The fair value of certificates of deposit is
estimated using rates currently offered for deposits and advances of similar
remaining maturities.
Loan payable - The fair value of the loan payable is estimated to be the
amount outstanding at the reporting date. The interest rate on the loan
adjusts with changes in the prime lending rate.
Repurchase agreements - Securities sold under agreements to repurchase are
overnight transactions, therefore the carrying amount is a reasonable
estimate of fair value.
Commitments to extend credit and letters of credit - The majority of the
Bank's commitments to extend credit and letters of credit carry current
market interest rates if converted to loans. Because commitments to extend
credit and letters of credit are generally unassignable by either the Bank or
the borrower, they only have value to the Bank and the borrower. The
estimated fair value approximates the recorded deferred fee amounts, which
are not significant.
No adjustment was made to the entry-value interest rates for changes in
credit performing commercial loans and real estate loans for which there are
no known credit concerns. Management segregates loans in appropriate risk
categories. Management believes that the risk factor embedded in the entry-
value interest rates along with the general reserves applicable to the
performing commercial and real estate loan portfolios for which there are no
known credit concerns result in a fair valuation of such loans on an
entry-value basis.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1996 and 1995. Although management
is not aware of any factors that would significantly affect the estimated
fair value amounts, such amounts have not been comprehensively revalued for
purposes of these consolidated financial statements since December 31, 1996
and 1995, and therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
F-20
<PAGE>
18. INTEREST RATE RISK
The Company's exposure to interest rate risk results from the difference in
maturities on interest-bearing liabilities and interest-earning assets and
the volatility of interest rates. Because the Company's assets have a shorter
maturity than its liabilities, the Company's earnings will tend to be
negatively affected during periods of declining interest rates. Conversely,
this mismatch should benefit the Company during periods of rising interest
rates. Management monitors the relationship between the interest rate
sensitivity of the Company's assets and liabilities.
19. PENDING ACQUISITION (UNAUDITED)
On December 19, 1996, the Bank entered into a purchase and assumption
agreement with First Union National Bank ("First Union"), whereby the Bank
will assume certain deposits liabilities of four branch offices from First
Union. At December 31, 1996, the branches had deposits of approximately $73
million. In addition, the Bank will acquire approximately $2.5 million of
loans as well as property and equipment pertaining to the branches. The Bank
has agreed to pay First Union a premium of approximately $5.9 million. The
transaction is expected to be completed in the second quarter of 1997. The
agreement is subject to regulatory approval.
On February 25, 1997, the Bank entered into a purchase and assumption
agreement with Oritani Savings Bank, SLA ("Oritani"), whereby the Bank will
assume certain deposit liabilities of three branch offices from Oritani. At
December 31, 1996, the branches had deposits of approximately $33 million. In
addition, the Bank will acquire property and equipment pertaining to the
branches. The Bank has agreed to pay Oritani a premium of approximately $2.1
million. The transaction is expected to be completed in the third quarter of
1997. The agreement is subject to regulatory approval.
20. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Condensed Statements of Financial Condition December 31,
------------------------------
1996 1995
Assets
Cash $ 27,187 $ 159,205
Investments in subsidiaries 33,294,851 24,463,659
Office property and equipment 9,756
Accrued interest and other assets 95,417 38,176
------------ ------------
Total $ 33,417,455 $ 24,670,796
============ ============
Liabilities and Shareholders' Equity
Loans Payable $ 6,000,000
Accrued interest payable 2,879
Shareholders' Equity 27,414,576 $ 24,670,796
------------ ------------
Total $ 33,417,455 $ 24,670,796
============ ============
<TABLE>
<CAPTION>
Condensed Statements of Income Years Ended December 31,
--------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Net interest (expense) $ (1,888) $ (27,045)
Other income 15,909 $ 12,278 7,200
Expenses (16,271) (27,025) (8,090)
------------ ------------ ------------
(Loss) before equity in undistributed
income of subsidiaries and income tax expense (2,250) (14,747) (27,935)
Equity in undistributed income of subsidiaries 3,014,893 2,833,417 1,877,590
Income tax expense (10,000)
------------ ------------ ------------
Net income $ 3,012,643 $ 2,818,670 $ 1,839,655
============ ============ ============
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows Year Ended December 31,
---------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Operating activities:
Net income $ 3,012,643 $ 2,818,670 $ 1,839,655
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Depreciation and amortization 9,756 8,360 4,486
Undistributed income of subsidiaries (3,014,893) (2,833,417) (1,877,590)
Tax benefit from exercise of non-qualified stock options (net) (110,000)
Changes in assets and liabilities which provided (used) cash:
Accrued interest and other assets (57,241) 9,665 (9,701)
Accounts payable and accrued expenses 2,879
------------- ------------- -------------
Net cash provided by (used in) operating activities (156,856) 3,278 (43,150)
------------- ------------- -------------
Investing activities:
Proceeds from maturities of investment securities 2,000,000
Purchase price of acquisitions, net of cash received (7,801,950)
Exercise of stock options 1,126,984 605,358 3,393
Payment for fractional interest resulting from stock dividend (2,146)
Purchase of bank properties and equipment (20,904)
Dividend from subsidiary 1,400,000
Advances to subsidiary (7,100,000) (1,700,000) (1,200,000)
------------- ------------- -------------
Net cash used in investing activities (5,975,162) (1,094,642) (5,619,461)
------------- ------------- -------------
Financing activities:
Net borrowings under line of credit agreement 6,000,000 4,500,000
Repayments of short-term borrowings (4,500,000)
Proceeds from issuance of common stock 260,000 6,421,877
------------- ------------- -------------
Net cash provided by financing activities 6,000,000 260,000 6,421,877
------------- ------------- -------------
(Decrease) increase in cash (132,018) (831,364) 759,266
Cash, beginning of year 159,205 990,569 231,303
------------- ------------- -------------
Cash, end of year $ 27,187 $ 159,205 $ 990,569
============== ============= =============
</TABLE>
21. SUBSEQUENT EVENT
In February 1997, the Company intends to create a special purpose subsidiary
to issue approximately $25 million of trust preferred securities. The
proceeds from the sale of these securities are intended to purchase junior
subordinated notes issued by the Company. The proceeds received by the
Company from the sale of the junior subordinated notes are expected to be
used to increase its capital to support recent and pending acquisitions and
for other general corporate purposes.
F-22
<PAGE>
============================================== ===============================
No Person has been authorized in
connection with the offering made
hereby to give any information or to
make any representation not contained
in this prospectus and, if given or made,
such information or representation must
not be relied upon as having been authorized
by the company or any underwriter. This
prospectus does not constitute an offer to [Logo]
sell or a solicitation of any offer to buy
any of the securities offered hereby to $25,000,000
any person or by anyone in any jurisdiction
in which it is unlawful to make such offer or
solicitation. Neither the delivery of this SUN CAPITAL TRUST
prospectus nor any sale made hereunder shall,
under any circumstances, create any implication
that the information contained herein is correct % Preferred Securities
as of any date subsequent to the date hereof. (Liquidation Amount $25 per
Preferred Security)
guaranteed, as described
herein, by
TABLE OF CONTENTS
PAGE SUN BANCORP, INC.
Summary...................................
Selected Consolidated Financial Data...... 5
and Other Information................... 10 -------------------
Risk Factors.............................. 11 PROSPECTUS
Sun Capital Trust......................... 19 -------------------
Use of Proceeds........................... 20
First Union and Oritani Branch Purchases.. 20
Capitalization............................ 23
Accounting Treatment...................... 24 Advest, Inc.
Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................... 24
Business of the Company................... 42 , 1997
Management................................ 48
Supervision and Regulation................ 52
Description of Preferred Securities....... 55
Description of Junior Subordinated
Debentures.............................. 69
Description of Guarantee.................. 79
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee............ 81
Certain Federal Income Tax
Consequences............................ 83
Certain ERISA Considerations.............. 87
Underwriting.............................. 88
Validity of Securities.................... 89
Experts................................... 89
Available Information..................... 89
Financial Statements...................... F-1
============================================== ===============================
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Registration Fees......................... $ 8,700
* Legal Services............................ 175,000
* Printing and Engraving.................... 90,000
* Nasdaq Listing Fees....................... 10,600
* Accounting Fees........................... 75,000
* Trustee Fees and Expenses................. 20,000
* Blue Sky Fees and Expenses................ 5,000
* Miscellaneous............................. 15,700
----------
* TOTAL .......................... $ 400,000
==========
- ------------------------
* Estimated
Item 16. Exhibits and Financial Statement Schedules:
The financial statements and exhibits filed as part of this
Registration Statement are as follows:
(a) List of Exhibits:
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of Sun Bancorp, Inc. *
3.2 Bylaws of Sun Bancorp, Inc. *
4.1 Form of Junior Subordinated Indenture. **
4.2 Form of Junior Subordinated Debenture Certificate
(included in Exhibit 4.1).
4.3 Form of Trust Agreement. **
4.4 Form of Amended and Restated Trust Agreement. **
4.5 Form of Preferred Security (included in Exhibit 4.4).
4.6 Form of Guarantee. **
5.1 Opinion of Richards, Layton & Finger.
5.2 Opinion of Malizia, Spidi, Sloane, & Fisch, P.C.
8.1 Tax Opinion of Malizia, Spidi, Sloane, & Fisch, P.C.
10.1 Employment Agreement with Adolph F. Calovi.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Richards, Layton & Finger
(included in Exhibit 5.1).
23.3 Consent of Malizia, Spidi, Sloane & Fisch, P.C.
(included in Exhibit 5.2).
25.1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Bankers Trust Company, as trustee
under the Junior Subordinated Indenture, the Amended and
Restated Trust Agreement and the Guarantee Agreement
relating to Sun Capital Trust.
27.1 Financial Data Schedule. **
(b) Financial Statements Schedules***
- ----------------
* Incorporated by reference to the registrant's Registration Statement on
Form 10, file no. 0-20957.
** Previously filed.
*** All schedules are omitted because they are not required or applicable or
the required information is shown in the financial statements or the notes
thereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants have duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Vineland, New Jersey,
as of March 3, 1997.
SUN BANCORP, INC.
By: /s/ Adolph F. Calovi
-------------------------------------
Adolph F. Calovi
President
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of March 3, 1997.
/s/ Adolph F. Calovi /s/ Bernard A. Brown
- ------------------------- ---------------------------------------
Adolph F. Calovi Bernard A. Brown
President Chairman of the Board
(Principal Executive Officer)
/s/ Sidney R. Brown /s/ Philip W. Koebig, III
- ------------------------- ---------------------------------------
Sidney R. Brown Philip W. Koebig, III
Treasurer and Director Executive Vice President and Director
/s/ Peter Galetto, Jr. /s/ Anne E. Koons
- ------------------------- ---------------------------------------
Peter Galetto, Jr. Anne E. Koons
Secretary and Director Director
/s/ Robert F. Mack
- -------------------------
Robert F. Mack
Vice President and Controller
(Principal Financial
and Accounting Officer)
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Issuer Trust has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Vineland,
New Jersey, as of March 3, 1997.
SUN CAPITAL TRUST
By: SUN BANCORP, INC.
as Depositor
By: /s/ Philip W. Koebig, III
--------------------------------------
Philip W. Koebig, III
Executive Vice President
<PAGE>
As filed with the Securities and Exchange Commission on March 3, 1997
Registration Nos. 333-21903
333-21903-01
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
EXHIBITS TO
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------------
SUN CAPITAL TRUST
SUN BANCORP, INC.
-----------------
(Exact Name of Registrants as Specified in their Charters)
Delaware Requested
New Jersey 6035 52-1382541
- ---------------- -------------------------- --------------------
(States or Other (Primary Standard Industry (I.R.S. Employer
Jurisdictions of Classification Code Number) Identification Nos.)
Incorporation or
Organization)
226 Landis Avenue, Vineland, New Jersey 08360
(609) 691-7700
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(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrants' Principal Executive Offices)
Mr. Adolph F. Calovi
President
Sun Bancorp, Inc.
226 Landis Avenue, Vineland, New Jersey 08360
(609) 691-7700
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(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Please send copies of all communications to:
John J. Spidi, Esq. Steven L. Kaplan Esq.
Lloyd H. Spencer III, Esq. ARNOLD & PORTER
Felicia C. Battista, Esq. 555 Twelfth Street, N.W.
MALIZIA, SPIDI, SLOANE & FISCH, P.C. Washington, D.C. 20004
1301 K Street, N.W., Suite 700 East,
Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
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INDEX TO EXHIBITS TO FORM S-1
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of Sun Bancorp, Inc. *
3.2 Bylaws of Sun Bancorp, Inc. *
4.1 Form of Junior Subordinated Indenture. **
4.2 Form of Junior Subordinated Debenture Certificate
(included in Exhibit 4.1).
4.3 Form of Trust Agreement. **
4.4 Form of Amended and Restated Trust Agreement. **
4.5 Form of Preferred Security (included in Exhibit 4.4).
4.6 Form of Guarantee. **
5.1 Opinion of Richards, Layton & Finger.
5.2 Opinion of Malizia, Spidi, Sloane, & Fisch, P.C.
8.1 Tax Opinion Malizia, Spidi, Sloane, & Fisch, P.C.
10.1 Employment Agreement with Adolph F. Calovi.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Richards, Layton & Finger
(included in Exhibit 5.1).
23.3 Consent of Malizia, Spidi, Sloane & Fisch, P.C.
(included in Exhibit 5.2).
25.1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Bankers Trust Company, as trustee
under the Junior Subordinated Indenture, the Amended and
Restated Trust Agreement and the Guarantee Agreement
relating to Sun Capital Trust.
27.1 Financial Data Schedule. **
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* Incorporated by reference to the registrant's Registration Statement on
Form 10, file no. 0- 20957.
** Previously filed.
Exhibit 1.1
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$25,000,000*
SUN CAPITAL TRUST
SUN BANCORP, INC.
____% Preferred Securities
(Liquidation Amount $25 per Preferred Security)
UNDERWRITING AGREEMENT
_________ __, 1997
ADVEST, INC.
As Representative of the Several
Underwriters
One World Financial Center
200 Liberty Street, 30th Floor
New York, New York 10281
Ladies and Gentlemen:
Sun Capital Trust (the "Trust"), a statutory business trust
organized under the Business Trust Act (the "Delaware Act") of the State of
Delaware (Chapter 38, Title 12, of the Delaware Business Code, 12 Del. C.
Section 3801 et seq.), and Sun Bancorp, Inc., a New Jersey corporation (the
"Company"), as depositor of the Trust and as guarantor, hereby confirms its
agreement with you and the several underwriters, on whose behalf you have been
duly authorized to act as their representative (the "Representative"), as
follows:
SECTION 1. Introduction. The Company agrees, upon the terms and
conditions set forth in this Underwriting Agreement (this "Agreement"), to issue
and sell to the several underwriters identified in Scheduled A annexed hereto
(the "Underwriters"), who are acting severally and not jointly, an aggregate
liquidation amount of $25,000,000 (the "Firm Securities") of the Trust's _____%
preferred securities (the "Preferred Securities"). The Trust and the Company
also propose to issue and sell to the Underwriters, at the Underwriters' option,
up to an additional $3,750,000 aggregate Liquidation Amount of Preferred
Securities (the "Option Securities") as set forth herein. The term "Preferred
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* Plus an option to acquire up to an additional $3,750,000 aggregate liquidation
amount of Preferred Securities from the Trust to cover over-allotments.
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Securities" as used herein, unless indicated otherwise, shall mean the Firm
Securities and the Option Securities.
The Preferred Securities and the Common Securities (as defined
herein) are to be issued pursuant to the terms of an Amended and Restated Trust
Agreement dated as of ___________, 1997 (the "Trust Agreement"), among the
Company, as depositor, and, together with the Trust, the "Offerors," and Bankers
Trust Company ("Trust Company"), a New York banking corporation, as property
trustee ("Property Trustee") and Bankers Trust (Delaware) ("Trust Delaware"), a
Delaware banking corporation, as Delaware trustee ("Delaware Trustee") and the
holders from time to time of undivided interests in the assets of the Trust. The
Preferred Securities will be guaranteed by the Company on a subordinated basis
and subject to certain limitations with respect to distributions and payments
upon liquidation, redemption or otherwise (the "Guarantee") pursuant to the
Preferred Securities Guarantee Agreement dated as of ____________, 1997 (the
"Guarantee Agreement"), between the Company and the Trust Company, as Trustee
(the "Guarantee Trustee"). The assets of the Trust will consist of ______%
junior subordinated deferrable interest debentures, due ___________, 2027 (the
"Subordinated Debentures") of the Company which will be issued under an
indenture dated as of ___________, 1997 (the "Indenture"), between the Company
and the Trust Company, as Trustee (the "Indenture Trustee"). Under certain
circumstances, the Subordinated Debentures will be distributable to the holders
of undivided beneficial interests in the assets of the Trust. The entire
proceeds from the sale of the Preferred Securities will be combined with the
entire proceeds from the sale by the Trust to the Company of the Trust's common
securities (the "Common Securities"), and will be used by the Trust to purchase
an equivalent amount of the Subordinated Debentures.
The Offerors have filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1 (Nos. 333-________ and
333-________-01) and a related preliminary prospectus for the registration of
the Preferred Securities, the Guarantee and the Subordinated Debentures under
the Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations thereunder (the "Securities Act Regulations"). The Offerors have
prepared and filed such amendments thereto, if any, and such amended preliminary
prospectuses, if any, as may have been required to the date hereof, and will
file such additional amendments thereto and such amended prospectuses as may
hereafter be required. The registration statement has been declared effective
under the Securities Act by the Commission. The registration statement as
amended at the time it became effective (including the Prospectus and all
information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) of the Securities Act Regulations) is
hereinafter called the "Registration Statement," except that, if the Company
files a post-effective amendment to such registration statement which becomes
effective prior to the Closing Date (as defined below), "Registration Statement"
shall refer to such registration statement as so amended. Each prospectus
included in the registration statement, or amendments thereof, before it became
effective under the Securities Act and any prospectus filed with the Commission
by the Company with the consent of the
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Underwriters pursuant to Rule 424(a) of the Securities Act Regulations
(including the documents incorporated by reference therein) is hereinafter
called the "Preliminary Prospectus." The term "Prospectus" means the final
prospectus (including the documents incorporated by reference therein, if any),
as first filed with the Commission pursuant to paragraph (1) or (4) of Rule
424(b) of the Securities Act Regulations. The Commission has not issued any
order preventing or suspending the use of any Preliminary Prospectus.
SECTION 2. Representations and Warranties. Each of the Offerors
represents and warrants to, and agrees with, each of the Underwriters as
follows:
(a) The Company is duly incorporated and validly existing as
a corporation in good standing under the laws of the State of New Jersey with
full power and authority (corporate and other) to own, lease, and operate its
properties and conduct its business as described in the Prospectus (as defined
in Section 2(e) of this Agreement); the Company is duly registered under the
Bank Holding Company Act of 1956, as amended (the "BHCA"); the Company has no
subsidiaries except those described in the Registration Statement (each a
"Subsidiary"); the Company owns, directly or indirectly, beneficially and of
record all of the outstanding capital stock of each Subsidiary free and clear of
any claim, lien, encumbrance or security interest. The Company and each of its
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which any of them own or lease
properties, has an office, or in which the business conducted by any of them
make such qualification necessary, except where the failure to so qualify would
not have a material adverse effect on the condition (financial or otherwise),
business, prospects, assets, properties, results of operations, or net worth of
the Company or any of the Subsidiaries ("Material Adverse Effect"); and no
proceeding has been instituted in any jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification.
(b) The Preferred Securities have been duly and validly
authorized for issuance and sale to the Underwriters pursuant to this Agreement
and, when executed and authenticated in accordance with the terms of the Trust
Agreement and delivered to the Underwriters against payment of the consideration
set forth herein, will constitute valid and legally binding obligations of the
Trust enforceable in accordance with their terms and entitled to the benefits
provided by the Trust Agreement. The Trust Agreement has been duly authorized
and, when executed by the proper officers of the Trust and delivered by the
Trust, will have been duly executed and delivered by the Trust and will
constitute the valid and legally binding instrument of the Trust, enforceable in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other laws relating to or affecting enforcement of
creditors' rights generally or by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law). The
Subordinated Debentures have been duly and validly authorized for delivery by
the Company and, when duly authenticated in accordance with the terms of the
Indenture and delivered to the Trust against payment of the consideration set
forth herein, will constitute valid and
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legally binding obligations of the Company enforceable against the Company in
accordance with their terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, receivership, readjustment of
debt, moratorium, fraudulent conveyance or similar laws relating to or affecting
creditors' rights generally, general equity principles (whether considered in a
proceeding in equity or at law)) and entitled to the benefits provided by the
Indenture. The Indenture has been duly authorized and, when executed by the
proper officers of the Company and delivered by the Company, will have been duly
executed and delivered by the Company and will constitute the valid and legally
binding instrument of the Company, enforceable in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency or other
laws relating to or affecting enforcement of creditors' rights generally or by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law). The Trust Agreement, the Guarantee Agreement,
and the Indenture have been duly qualified under the Trust Indenture Act; and
the Preferred Securities, the Common Securities, the Trust Agreement, the
Guarantee Agreement, the Subordinated Debentures and the Indenture conform in
all material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus.
(c) Neither the Trust nor the Company or any Subsidiary, is,
or with the giving of notice or lapse of time or both will be, in violation or
breach of, or in default under, nor will the execution or delivery of, or the
performance and consummation of the transactions contemplated by this Agreement
(including the offer, sale, or delivery of the Preferred Securities), conflict
with, or result in a violation or breach of, or constitute a default under, any
provision of the organization documents of the Trust or the Articles of
Incorporation, Bylaws (as amended or restated) of the Company, or other
governing documents of the Trust, the Company or any Subsidiary, or of any
provision of any agreement, contract, mortgage, deed of trust, lease, loan
agreement, indenture, note, bond, or other evidence of indebtedness, or other
material agreement or instrument to which the Trust, the Company or any
Subsidiary is a party or by which any of them is bound or to which any of their
properties is subject, nor will the performance by the Offerors of their
obligations hereunder violate any rule, regulation, order, or decree, applicable
to the Trust, the Company or any Subsidiary of any court or any regulatory body,
administrative agency, or other governmental body having jurisdiction over the
Trust, the Company or any Subsidiary or any of their respective properties, or
any order of any court or governmental agency or authority entered in any
proceeding to which the Trust, the Company or any Subsidiary was or is now a
party or by which it is bound, except those, if any, described in the Prospectus
or which are not material to the Company and the Trust taken as a whole. No
consent, approval, filing, authorization, registration, qualification, or order,
including with or by any bank regulatory agency, is required for the execution,
delivery, and performance of this Agreement or the consummation of the
transactions contemplated by this Agreement, other than such that have been
obtained or made, except for compliance with the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Blue Sky Laws
applicable to the public offering of the Preferred Securities by the
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Underwriters, the clearance of such offering and the underwriting arrangements
evidenced hereby with the National Association of Securities Dealers, Inc.
("NASD"), and the listing of the Preferred Security on the Nasdaq Stock Market.
This Agreement has been duly authorized, executed and delivered by the Company
and the Trust and constitutes a valid and binding obligation of the Company and
the Trust and is enforceable against the Company and the Trust in accordance
with the terms.
(d) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus complies with the requirements of the Securities Act and the
Securities Act Regulations. As of the effective date of the Registration
Statement, and at all times subsequent thereto up to the Closing Date or any
Option Closing Date (as defined below), the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained or will contain
all statements that are required to be stated therein in accordance with the
Securities Act and the Securities Act Regulations and conformed or will conform
in all respects to the requirements of the Securities Act and the Securities Act
Regulations and conformed or will conform in all respects to the requirements of
the Securities Act and the Securities Act Regulations, and neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto included or will include any untrue statement of a material fact or
omitted or will omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
no representation or warranty is made as to information contained in or omitted
from the Registration Statement, the Prospectus or any amendment or supplement
in reliance upon and in conformity with written information furnished to the
Company and the Trust by the Underwriters.
(e) Deloitte & Touche which has audited, reviewed, and
expressed its opinion with respect to certain of the financial statements and
schedules filed with the Commission as a part of the Registration Statement and
included or to be included, as the case may be, in the Prospectus and in the
Registration Statement, and whose report is included in the Prospectus and the
Registration Statement are independent accountants as required by the Securities
Act and the Securities Act Regulations.
(f) The financial statements and schedules and the related
notes thereto included or to be included, as the case may be, in the
Registration Statement, the Preliminary Prospectus, and the Prospectus present
fairly the financial position of the entities purported to be shown thereby as
of the respective dates of such financial statements and schedules, and the
results of operations and changes in equity and in cash flows of the entities
purported to be shown thereby for the respective periods covered thereby, all in
conformity with generally accepted accounting principles consistently applied
throughout the periods involved, except as may be disclosed in the Prospectus.
All adjustments necessary for a fair presentation of the results of such periods
have been made. The Company had an outstanding capitalization as set forth under
"Capitalization" in the Prospectus as of the date indicated therein and there
has been no material change therein since such date except as disclosed in the
Prospectus.
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The financial, operating, and statistical information set forth in the
Prospectus under captions "Summary," "Summary Financial Information," "Use of
Proceeds," "Capitalization," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and "Management" are fairly presented and prepared on a
basis consistent with the audited financial statements of the Company.
(g) There is no litigation or governmental proceeding,
action, or investigation pending or, to the knowledge of the Trust or the
Company, threatened, to which the Trust, the Company or any Subsidiary is or may
be a party or to which property owned or leased by the Company or any Subsidiary
is or may be subject, or related to environmental or discrimination matters,
which is required to be disclosed in the Registration Statement or the
Prospectus by the Securities Act or the Securities Act Regulations and is not so
disclosed, or which questions the validity of this Agreement or any action taken
or to be taken pursuant hereto.
(h) Either the Company or a Subsidiary, as the case may be,
has good and marketable title in fee simple to all items of real property and
good and marketable title to all the personal properties and assets reflected as
owned by the Company or a Subsidiary in the Prospectus (or elsewhere in the
Registration Statement), in each case clear of all liens, mortgages, pledges,
charges, or encumbrances of any kind or nature except those, if any, reflected
in the financial statements described above (or elsewhere in the Registration
Statement) or which are not material to the Company or any Subsidiary; all
properties held or used by the Company or a Subsidiary under leases, licenses,
franchises or other agreements are held by them under valid, existing, binding,
and enforceable leases, franchises, licenses, or other agreements with respect
to which it is not in default.
(i) Neither the Trust nor the Company or any Subsidiary has
taken or will take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation, under the Exchange Act or
otherwise, of the price of the Preferred Securities.
(j) Except as reflected in or contemplated by the
Registration Statement, since the respective dates as of which information is
given in the Registration Statement and prior to the Closing Date and Option
Closing Date (as such terms are hereinafter defined):
(i) neither the Company nor any Subsidiary has or will
have incurred any material liabilities or obligations, direct or contingent, or
entered into any material transaction not in the ordinary course of business;
(ii) neither the Company nor any Subsidiary has or will
have paid or declared any dividend or other distribution with respect to its
capital stock and neither the
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Company nor any Subsidiary has or will be delinquent in the payment of principal
or interest on any outstanding debt obligations; and
(iii) there has not been and will not be any change in
the capital stock or any material change in the indebtedness of the Company
or any Subsidiary (except as may result from the closing of the transactions
contemplated by this Agreement), or any adverse change in the condition
(financial or otherwise), or any development involving a prospective adverse
change in their respective businesses (resulting from litigation or
otherwise), prospects, properties, condition (financial or otherwise), net
worth, or results of operations which is material to the Company or any
Subsidiary.
(k) There is no contract or other document, transaction, or
relationship required to be described in the Registration Statement, or to be
filed as an exhibit to the Registration Statement, by the Securities Act or by
the Securities Act Regulations that has not been described or filed as required.
(l) All documents delivered or to be delivered by the
Offerors or any of their representatives in connection with the issuance and
sale of the Preferred Securities were on the dates on which they were delivered,
or will be on the dates on which they are to be delivered, true, complete, and
correct in all material respects.
(m) The Company and each Subsidiary have filed all necessary
federal and all state and foreign income and franchise tax returns and paid all
taxes shown as due thereon; and no tax deficiency has been asserted or
threatened against the Company or any Subsidiary that would have a Material
Adverse Effect, except as described in the Prospectus.
(n) Neither the Trust nor the Company or any Subsidiary has,
directly or indirectly, at any time:
(i) made any unlawful contribution to any candidate for
political office, or failed to disclose any contribution in violation of law; or
(ii) made any payment to any federal, state, local, or
foreign government officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by
the laws of the United States or any jurisdiction thereof or applicable
foreign jurisdictions.
(o) The Company or a Subsidiary owns or possesses adequate
rights to use all patents, patent applications, trademarks, service marks, trade
names, trademark registrations, servicemark registrations, copyrights, and
licenses necessary for the conduct of the business of the Company and the
Subsidiaries or ownership of their respective properties, and neither the
Company nor any Subsidiary has received notice of conflict with the asserted
rights of others in respect thereof which has not been resolved.
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(p) The Company and each Subsidiary have in place and
effective such policies of insurance, with limits of liability in such amounts,
as are normal and prudent in the ordinary scope of business similar to that of
the Company and such Subsidiary in the respective jurisdiction in which they
conduct business.
(q) The Company and each Subsidiary have and hold, and at
the Closing Date or Option Closing Date will have and hold, and are operating in
compliance with, and have fulfilled and performed all of their material
obligations with respect to, all permits, certificates, franchises, grants,
easements, consents, licenses, approvals, charters, registrations,
authorizations, and orders (collectively, "Permits") required under all laws,
rules, and regulations in connection with their respective businesses, and all
of such Permits are in full force and effect; and there is no pending
proceeding, and neither the Company nor any Subsidiary has received notice of
any threatened proceeding, relating to the revocation or modification of any
such Permits. Neither the Company nor any Subsidiary is or has been (by virtue
of any action, omission to act, contract to which it is a party or by which it
is bound, or any occurrence or state of facts whatsoever) in violation of any
applicable federal, state, municipal, or local statutes, laws, ordinances,
rules, regulations and/or orders issued pursuant to foreign, federal, state,
municipal, or local statutes, laws, ordinances, rules, or regulations (including
those relating to any aspect of banking, bank holding companies, environmental
protection, occupational safety and health, and equal employment practices)
heretofore or currently in effect, except such violation that has been fully
cured or satisfied without recourse or that is not reasonably likely to have a
Material Adverse Effect.
(r) The provisions of any employee pension benefit plan
("Pension Plan") as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), in which the Company or any
Subsidiary is a participating employer are in substantial compliance with ERISA,
and neither the Company nor any Subsidiary is in violation of ERISA. The
Company, each Subsidiary, or the plan sponsor thereof, as the case may be, has
duly and timely filed the reports required to be filed by ERISA in connection
with the maintenance of any Pension Plans in which the Company or any Subsidiary
is a participating employer, and no facts, including any "reportable event" as
defined by ERISA and the regulations thereunder, exist in connection with any
Pension Plan in which the Company or any Subsidiary is a participating employer
which might constitute grounds for the termination of such plan by the Pension
Benefit Guaranty Corporation or for the appointment by the appropriate U.S.
District Court of a trustee to administer any such plan. The provisions of any
employee benefit welfare plan, as defined in Section 3(1) of ERISA, in which the
Company or any Subsidiary is a participating employer, are in substantial
compliance with ERISA, and the Company, any Subsidiary, or the plan sponsor
thereof, as the case may be, has duly and timely filed the reports required to
be filed by ERISA in connection with the maintenance of any such plans.
(s) Neither the Company nor the Trust is an open-end
investment company, unit investment trust or face-amount certificate company
that is, or is required to be,
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registered under Section 8 of the Investment Company Act of 1940, as amended, or
subject to regulation under such Act.
(t) The Company is a member in good standing of the Federal
Reserve System and the deposits of each bank or savings bank Subsidiary are
insured by the Federal Deposit Insurance Corporation ("FDIC").
(u) Neither this Agreement nor any certificate, statement or
other document delivered or to be delivered by the Offerors or any Subsidiary
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
(v) The Company and the Trust have satisfied the conditions
for the use of Form S-1 with respect to the offering of the Preferred
Securities, the Guarantee and the Subordinated Debentures for sale to the
public.
Any certificate signed by any director or officer of the Company or
the Trust, as the case may be, and delivered to the Representative or to counsel
for the Underwriters shall be deemed a representation and warranty of the
Company or the Trust, as the case may be, to the Underwriters as to the matters
covered thereby.
Any certificate delivered by the Company or the Trust, as the case
may be, to their respective counsel for purposes of enabling such counsel to
render an opinion pursuant to Section 8 will also be furnished to the
Representative and counsel for the Underwriters and shall be deemed to be
additional representations and warranties to the Underwriters by the Company and
the Trust as to the matters covered thereby.
SECTION 3. Purchase Sale and Delivery to Underwriters, Closing. On
the basis of the representations and warranties herein contained and subject to
the terms and conditions herein set forth, the Trust and the Company, as the
case may be, agree that the Trust will issue and sell to the Underwriters, and
each of the Underwriters agrees, severally and not jointly to purchase from the
Trust, the number of Firm Securities set forth opposite the name of such
Underwriter in Schedule A at a purchase price of $ per Firm Security.
Payment of the purchase price for, and delivery of, the Firm
Securities shall be made at the offices of Arnold & Porter, 555 Twelfth Street,
N.W., Washington, D.C., or at such other place as shall be agreed upon by the
Representative, the Trust and the Company, at 9:00 A.M. Eastern Standard Time,
on the third business day (unless postponed in accordance with the provisions of
Section 14) following the date of this Agreement, or such other time not later
than ten (10) business days after such date as shall be agreed upon by the
Representative, the Trust and the Company (such time and date of payment and
delivery being herein called the "Closing Date").
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As compensation (the "Underwriting Commission") for the commitments
of the Underwriters contained in this Section 2, the Company hereby agrees to
pay to the Underwriters an amount equal to _____% of the public offering price
of the Preferred Securities. Such payment will be made on the Closing Date or on
the Option Closing Date (as defined below) with respect to the Option
Securities.
Payment for the Firm Securities shall be made to the Trust by wire
transfer of immediately available funds, against delivery to the Underwriter of
the Firm Securities to be purchased by it. The Firm Securities shall be issued
in the form of one or more fully registered global notes (the "Global Notes") in
book-entry form in such denominations and registered in the name of the nominee
of The Depository Trust Company (the "DTC") or in such names as the
Representative may request in writing at least two business days before the
Closing Date. The Global Notes representing the Firm Securities shall be made
available for examination by the Representative and counsel to the Underwriters
not later than ______ A.M. Eastern Standard Time on the last business day prior
to the Closing Date.
In addition, on the basis of the representations, warranties, and
agreements contained herein, but subject to the terms and conditions set forth
herein, the Trust hereby grants to the Underwriters an option to purchase,
severally and not jointly, from the Trust the Option Securities in the same
proportion as the number of Preferred Securities set forth opposite their names
on Schedule A bears to the total number of Firm Securities, at the same purchase
price per Preferred Security to be paid for the Firm Securities, for use solely
in covering any over-allotments made by the Underwriters in the sale and
distribution of the Firm Securities. The option granted hereunder may be
exercised at any time (but not more than once) within thirty (30) days after the
date of this Agreement, upon notice by the Representative to the Trust which
sets forth the aggregate liquidation amount of Option Securities as to which the
Underwriters are exercising the option, and the time and place at which the
certificate representing the Option Securities will be delivered. Such time of
delivery may not be earlier than the Closing Date and herein is called the
"Option Closing Date." The Option Closing Date shall be determined by the
Representative, but if at any time other than the Closing Date, shall not be
earlier than three nor later than five full business days after delivery of such
notice to exercise. Certificates for the Option Securities will be made
available for inspection at least 24 hours prior to the Option Closing Date at
the offices of the DTC, or its designated custodian, or at such other location
as specified by the Representative. The manner of payment for a delivery of the
Option Securities shall be the same as for the Firm Securities as specified in
this Section 4.
SECTION 4. Representations and Warranties of the Underwriters. The
Representative, on behalf of the Underwriters, represents and warrants to the
Company that the information set forth (a) in the last paragraph of the cover
page of the Prospectus, (b) on the inside front cover page of the Prospectus
relating to stabilization, and (c) in the section in the Prospectus entitled
"Underwriting" was the only written information furnished to the Company by and
on behalf of any Underwriter expressly for use in connection with the
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preparation of the Registration Statement, and is correct and complete in all
material respects and does not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
SECTION 5. Offering by the Underwriters. The Trust and the Company
are advised by the Representative that the Underwriters propose to make a public
offering of the Preferred Securities, on the terms and conditions set forth in
the Registration Statement from time to time as and when the Underwriters deem
advisable after the Registration Statement becomes effective. Because the NASD
is expected to view the Preferred Securities as interests in a direct
participation program, the offering of the Preferred Securities is being made in
compliance with the applicable provisions of Rule 2810 of the NASD's Conduct
Rules.
SECTION 6. Agreements of the Offerors. Each of the Offerors
covenants and agrees with the Underwriter that:
(a) If any information shall have been omitted from the
Registration Statement in reliance upon Rule 430A, the Company, at the earliest
possible time, will furnish the Representative with a copy of the Prospectus to
be filed by the Offerors with the Commission to comply with Rule 424(b) and Rule
430A under the Securities Act, and, if the Representative does not object to the
contents thereof, will file such Prospectus with the Commission in compliance
with such Rules. Upon compliance with such Rules, the Company will so advise the
Representative promptly. The Company will advise the Representative and counsel
to the Underwriter promptly of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose, or of any notification of the suspension of
qualification of the Preferred Securities for sale in any jurisdiction or the
initiation or threatening of any proceedings for that purpose. The Company also
will advise the Representative and counsel to the Underwriters promptly of any
request of the Commission for amendment or supplement of the Registration
Statement, of any Preliminary Prospectus, or of the Prospectus, or for
additional information, and the Offerors will not file any amendment or
supplement to the Registration Statement (either before or after it becomes
effective), to any Preliminary Prospectus, or to the Prospectus (including a
prospectus filed pursuant to Rule 424(b)) if the Representative has not been
furnished with a copy prior to such filing or if the Representative reasonably
objects to such filing.
(b) During the time during which a Prospectus relating to
the Preferred Securities is required to be delivered under the Securities Act,
the Offerors shall comply with all requirements imposed on them by the
Securities Act, as now and hereafter amended, and by the Securities Act
Regulations, as from time to time in force, so far as is necessary to permit the
continuance of sales or dealings in the Preferred Securities as contemplated by
the provisions hereof and the Prospectus. If any event occurs as a result of
which the Prospectus, including any subsequent amendment or supplement, would
include an untrue
<PAGE>
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statement of a material fact, or would omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or if it
becomes necessary at any time to amend the Prospectus, including any amendment
or supplement thereto, to comply with the Securities Act, the Company promptly
will advise the Representative and counsel to the Underwriters thereof and the
Offerors will promptly prepare and file with the Commission an amendment or
supplement that will correct such statement or omission or an amendment that
will effect such compliance; and, if any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement, the Company, upon request of the Representative but at the expense of
such Underwriter, will prepare promptly such prospectus or prospectuses as may
be necessary to permit compliance with the requirements of Section 10(a)(3) of
the Securities Act.
(c) The Offerors will not, prior to the Option Closing Date
or thirty (30) days after the date of this Agreement, whichever occurs first,
incur any material liability or obligation, direct or contingent, or enter into
any material transaction, other than in the ordinary course of business, or any
transaction with a related party which is required to be disclosed in the
Prospectus pursuant to Item 404 of Regulation S-K under the Securities Act,
except as contemplated by the Prospectus.
(d) The Company will make generally available to its
security holders and the Representative an earnings statement of the Company as
soon as practicable, but in no event later than fifteen (15) months after the
end of the Company's current fiscal quarter, covering a period of twelve (12)
consecutive calendar months beginning after the effective date of the
Registration Statement, but beginning not later than four (4) months after such
effective date, which will satisfy the provisions of the last subsection of
Section 11(a) of the Securities Act and Rule 158 promulgated thereunder.
(e) During such period as a prospectus is required by law to
be delivered in connection with sales by an underwriter or dealer, the Company
will furnish to the Representative, at the expense of the Company, copies of the
Registration Statement, the Prospectus, any Preliminary Prospectus, and all
amendments and supplements to any such documents in each case as soon as
available and in such quantities as the Representative may reasonably request,
for the purposes contemplated by the Securities Act.
(f) The Offerors shall take or cause to be taken in
cooperation with the Representative and counsel to the Underwriters all actions
required in qualifying or registering the Preferred Securities for sale under
the Blue Sky Laws of such jurisdictions as the Representative may reasonably
designate, provided the Offerors shall not be required to qualify generally as
foreign corporations or to consent generally to the service of process under the
law of any such state (except with respect to the offering and sale of the
Preferred Securities), and will continue such qualifications or registrations in
effect so long as reasonably requested by the Representative to effect the
distribution of the Preferred
<PAGE>
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Securities (including, without limitation, compliance with all undertakings
given pursuant to such qualifications or registrations). In each jurisdiction
where any of the Preferred Securities shall have been qualified as provided
above, the Offerors will file such reports and statements as may be required to
continue such qualification for a period of not less than one (1) year from the
date of this Agreement.
(g) The Company will furnish to its security holders annual
reports containing financial statements audited by independent public
accountants and quarterly reports containing financial statements and financial
information which may be unaudited. During the period ending five (5) years
after the date of this Agreement, (i) as soon as practicable after the end of
the fiscal year, the Company will furnish to the Representative two copies of
the annual report of the Company containing the consolidated balance sheet of
the Company as of the close of such fiscal year and corresponding consolidated
statements of earnings, stockholders' equity and cash flows for the year then
ended, such consolidated statements financial statements to be under the
certificate or opinion of the Company's independent accountants, and (ii) the
Company will file promptly and will furnish to the Representative at or before
the filing thereof copies of all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission pursuant to
Section 13, 14, or 15 of the Exchange Act. During such five-year period the
Company also will furnish to the Representative one copy of the following:
(i) as soon as practicable after the filing thereof,
each other report, statement, or other document filed by the Company with the
Commission;
(ii) as soon as practicable after the filing thereof,
all reports, statements, other documents and financial statements furnished by
the Company to Nasdaq pursuant to requirements of or agreements with Nasdaq; and
(iii) as soon as available, each report, statement, or
other document of the Company mailed to its stockholders.
(h) The Offerors will use their best efforts to satisfy or
cause to be satisfied the conditions to the obligations of the Underwriters in
Section 8 hereof.
(i) The Offerors shall deliver the requisite notice of
issuance to the NASD and shall take all necessary or appropriate action within
its power to maintain the authorization for trading of the Preferred Securities
on the Nasdaq Stock Market for a period of at least thirty-six (36) months after
the date of this Agreement.
(j) The Company shall prepare and timely file with the
Commission, from time to time, such reports as may be required by the Securities
Act Regulations.
<PAGE>
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(k) The Trust shall comply in all respects with the
undertakings given by the Trust in connection with the qualification or
registration of the Preferred Securities for offering and sale under the Blue
Sky Laws.
(l) The Trust shall apply the net proceeds from the sale of
the Preferred Securities to be sold by it hereunder in the manner and for the
purposes specified under the heading "Use of Proceeds" in the Prospectus. The
Offerors shall file, and will furnish or cause to be furnished to the
Underwriter and counsel to the Underwriter copies of all reports as may be
required in accordance with Rule 463 under the Securities Act.
(m) The Company shall supply the Representative and counsel
to the Underwriters, at the Company's cost, four copies of a bound volume of the
offering contemplated by this Agreement and Underwriting materials within a
reasonable time after the Closing Date.
(n) Except for the sale of Preferred Securities pursuant to
this Agreement, neither the Company nor any Subsidiary shall, directly or
indirectly, offer, sell, contract to sell, issue, distribute, grant any option,
right, or warrant to purchase or otherwise dispose of any shares of common stock
of the Company or the Preferred Securities, in the open market or otherwise, for
a period of one-hundred eighty (180) days after the later of the effective date
of the Registration Statement or the date of this Agreement, without the express
prior written consent of the Representative.
SECTION 7. Payment of Expenses and Fees
(a) Whether or not the transactions contemplated hereunder
are consummated, or if this Agreement is terminated for any reason, the Company
will pay or cause to be paid the costs, fees, and expenses incurred in
connection with the offering of the Preferred Securities as follows:
(i) All costs, fees, and expenses incurred in
connection with the performance of the Company and the Trust's obligations
hereunder, including all fees and expenses of the Company and the Trust's
accountants and counsel, all costs and expenses incurred in connection
with the preparation, printing, filing, and distribution (including deliver
and shipping costs) of the Registration Statement, each Preliminary
Prospectus, and the Prospectus (including all amendments and exhibits
thereto and the financial statements therein), and agreements and supplements
provided for herein, this Agreement and other underwriting documents, including
various Underwriters' letters, and the Preliminary and Supplemental Blue Sky
Memoranda.
(ii) All filing and registration fees and expenses,
including the legal fees and disbursements of counsel, incurred in connection
with qualifying or registering all or any part of the Preferred Securities, the
Guarantee and the Subordinated Debentures for offer and sale under the Blue Sky
Laws.
(iii) All fees and expenses of the Offerors' registrar
and transfer agent; all transfer taxes, if any, and all other fees and expenses
incurred in connection with the sale and delivery of the Preferred
Securities to the Underwriters.
<PAGE>
- 15 -
(iv) The filing fees of the NASD and applicable fee
charged by Nasdaq for inclusion of the Preferred Securities for quotation on th
National Market System, and
(v) All other costs and expenses incident to the
performance of the Company's and the Trust's obligations hereunder which are not
otherwise provided for in this Section 7(a).
(b) On the consummation of the offering of the Preferred
Securities, the Company shall pay Advest, Inc. Twenty-Five Thousand Dollars and
00/100 ($25,000.00) as a financial advisory fee.
SECTION 8. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters under this Agreement shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Trust set forth herein as of the Closing Date, and if applicable, as of the
Option Closing Date, as the case may be, to the accuracy of the statements of
the Offerors' directors and officers, to the performance by the Company and the
Trust of their obligations hereunder, and to the following additional
conditions, except to the extent expressly waived in writing by the
Representative:
(a) The Registration Statement and all post-effective
amendments thereto shall have been declared effective by the Commission no later
than 5:30 p.m. eastern time, on the date of this Agreement, or such later time
as shall have been consented to by the Representative, but in any event not
later than 5:30 p.m., eastern time, on the third full business day following the
date hereof; if the Offerors omitted information from the Registration Statement
at the time it became effective in reliance on Rule 430A under the Securities
Act, the Prospectus shall have been filed with the Commission in compliance with
Rule 424(b) and Rule 430A under the Securities Act; no stop order suspending the
effectiveness of the Registration Statement or any amendment or supplement
thereto shall have been issued; no proceeding for the issuance of such an order
shall have been initiated or shall be pending or, to the knowledge of the
Offerors or the Representative, threatened or contemplated by the Commission;
and any request of the Commission for additional information (to be included in
the Registration Statement or the Prospectus or otherwise) shall have been
disclosed to the Representative and complied with to the Representative's
satisfaction.
(b) The Preferred Securities, the Guarantee and the
Subordinated Debentures shall have been qualified or registered for sale, or
subject to an available exemption from such qualification or registration, under
the Blue Sky Laws of such jurisdictions as shall have been reasonably specified
by the Representative and the offering contemplated by this Agreement shall have
been cleared by the NASD.
<PAGE>
- 16 -
(c) Since the dates as of which information is given in the
Registration Statement:
(i) There shall not have been any adverse change, or
any development involving a prospective material adverse change, in the ability
of the Company or any Subsidiary to conduct their respective business (whether
by reason of any court, legislative, other governmental action, order, decree,
or otherwise), or in the general affairs, condition (financial and
otherwise) business, prospectus, properties, management, financial position or
earnings, results of operations, or net worth of the Company or any Subsidiary,
whether or not arising from transactions in the ordinary course of business; and
(ii) Neither the Company nor any Subsidiary shall have
sustained any loss or interference from any labor dispute, strike, fire, flood
windstorm, accident, or other calamity (whether or not insured) or from any
court or governmental action, order, or decree.
The effect of which on the Company or any Subsidiary, in any such case described
in clause (c)(i) or (ii) above, is in the reasonable opinion of the
Representative so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the Preferred
Securities on the terms and in the manner contemplated in the Registration
Statement and the Prospectus.
(d) There shall have been furnished to the Representative on
the Closing Date, except as otherwise expressly provided below:
(i) An opinion of Malizia, Spidi, Sloane & Fisch, P.C.,
counsel the Company, dated as of the Closing Date and any Option Closing Date,
in form and substance substantially in the form attached hereto as Exhibit A.
(ii) The favorable opinion, dated the Closing Date, of
White & Case, counsel to the Trust Company and Trust Delaware, substantially
in the form attached hereto as Exhibit B.
(iii) The favorable opinion, dated the Closing Date, of
Richards, Layton & Finger, special Delaware counsel to the Company and the
Trust, substantially to the effect and in the form attached hereto as Exhibit C.
(iv) The favorable opinion, dated the Closing Date, of
Arnold & Porter, counsel to the Underwriters as to such matters as the
Representative shall reasonably request.
In rendering such opinions specified in clause
(d)(ii), (iii) or (iv) above, counsel may rely upon an opinion or opinions, each
dated the Closing Date, of other
<PAGE>
- 17 -
counsel retained by them or the Company as to laws of any jurisdiction other
than the United States or the State of New York, provided that (A) such reliance
is expressly authorized by each opinion so relied upon and a copy of each such
opinion is delivered to the Representative, and (B) counsel shall state in their
opinion that they believe that they and the Underwriters are justified in
relying thereon. Insofar as such opinions involve factual matters, such counsel
may rely, to the extent such counsel deems proper, upon certificates of officers
of the Company, its subsidiaries and the Trust and certificates of public
officials.
(e) At the time this Agreement is executed and also on the
Closing Date and the Option Closing Date, as the case may be, there shall be
delivered to the Representative a letter addressed to the Representative from
Deloitte & Touche, the Company's independent accountants, the first letter to be
dated the date of this Agreement, the second letter to be dated the Closing
Date, and the third letter to be dated the Option Closing Date if any, which
shall be in form and substance reasonably satisfactory to the Representative and
shall contain information as of a date within five days of the date of such
letter. There shall not have been any change set forth in any letter referred to
in this subsection c that makes it impracticable or inadvisable in the judgment
of the Representative to proceed with the public offering or purchase of the
Preferred Securities as contemplated hereby.
(f) On the Closing Date, a certificate signed by the
Chairman of the Board, the President, a Vice Chairman of the Board or any
Executive or Senior Vice President and the principal financial or accounting
officer of the Company, dated the Closing Date, to the effect that the signers
of such certificate have carefully examined the Registration Statement and this
Agreement and that:
(i) The representations and warranties of the
Company in this Agreement are true and correct in all material respects on and
as of the Closing Date with the same effect as if made on the Closing Date and
the Company has complied in all material respects with all the agreements and
satisfied in all material respects all the conditions on its part to be
performed or satisfied at or prior to the Closing Date; and
(ii) The Commission has not issued an order preventing
or suspending the use of the Prospectus or any Preliminary Prospectus or any
amendment thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and, to the best knowledge of the
respective signatories, no proceeding for that purpose has been instituted or is
pending or contemplated under the Securities Act;
(iii) Each of the respective signatories of the
certificate has carefully examined the Registration Statement, the Prospectus,
and any amendments or supplements thereto, and such documents contai all
statements and information required to be made therein, and neither the
Registration Statement nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to
<PAGE>
- 18 -
be stated therein or necessary to make the statements therein not misleading
and, since the date on which the Registration Statement was initially filed, no
event has occurred that was required to be set forth in an amended or
supplemented prospectus or in an amendment to the Registration Statement that
has not been so set forth; provided, however, that no representation need be
made as to information contained in or omitted from the Registration Statement
or any amendment or supplement in reliance upon and in conformity with written
information furnished to the Company and the Trust by or on behalf of any
Underwriter through the Representative; and
(iv) Since the date on which the Registration Statement was
initially filed with the Commission, there has not been any material adverse
change or a development involving a prospective material adverse change in the
business, properties, financial condition, or earnings of the Company or any of
its Subsidiaries, whether or not arising from transactions in the ordinary
course of business, except as disclosed in the Registration Statement as
heretofore amended or (but only if the Representative expressly consents thereto
in writing) as disclosed in an amendment or supplement thereto filed with the
Commission and delivered to the Representative after the execution of this
Agreement; since such date and except as so disclosed or in the ordinary course
of business, neither the Company nor any Subsidiary has incurred any liability
or obligation, direct or indirect, or entered into any transaction that is
material to the Company or such Subsidiary, as the case may be, not contemplated
in the Prospectus; since such date and except as disclosed there has not been
any change in the outstanding capital stock of the Company , or any change that
is material to the Company or any of its Subsidiaries in the short-term debt or
long-term debt of the Company or any Subsidiary; since such date and except as
so disclosed, neither the Company nor any of its Subsidiaries have incurred any
material contingent obligations, and no material litigation is pending or
threatened against the Company or any Subsidiary; and, since such date and
except as so disclosed, neither the Company nor any of its Subsidiaries have
sustained any material loss or interference from any strike, fire, flood,
windstorm, accident or other calamity (whether or not insured) or from any court
or governmental action, order, or decree.
(g) Prior to the Closing Date, the Company shall have
furnished to the Representative such further information, certificates and
documents as the Representative may reasonably request in connection with the
offering of the Preferred Securities.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Underwriters by notice from the Representative to the Company at any time
without liability on the part of any Underwriters, including the Representative,
or the Company, except for expenses to be paid by the Company pursuant to
Section 7 hereof or reimbursed by the Company pursuant to Section 9 and except
to the extent provided in Section 11.
<PAGE>
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SECTION 9. Reimbursement of Underwriters' Expenses. If the sale of
the Preferred Securities to the Underwriters on the Closing Date is not
consummated because the offering is terminated or indefinitely suspended by the
Company or by the Representative for any reason permitted by this Agreement,
other than the Underwriter's inability to legally act as Underwriter, the
Company will reimburse the Underwriter for the Underwriter's reasonable
out-of-pocket expenses, including fees and disbursements of its counsel, that
shall have been incurred by the Underwriter in connection with the proposed
purchase and sale of the Preferred Securities in an aggregate amount not to
exceed $90,000. Any such termination or suspension shall be without liability of
any party to the other except that the provisions of this Section 9, and
Sections 7 and 11 shall remain effective and shall apply.
SECTION 10. Maintain Effectiveness of Registration Statement. The
Representative and the Company will use their respective best efforts to prevent
the issuance of any stop order or other such order suspending the effectiveness
of the Registration Statement and, if such stop order is issued, to obtain the
lifting thereof as soon as possible.
SECTION 11. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, expenses, liabilities, or actions in respect thereof ("Claims"), joint
or several to which such Underwriter or each such controlling person may become
subject under the Securities Act, the Exchange Act, the Securities Act
Regulations, Blue Sky Laws or other federal or state statutory laws or
regulations, at common law or otherwise (including payments made in settlement
of any litigation, if such settlement is effected with the written consent of
the Company, which consent shall not be unreasonably withheld), insofar as such
Claims arise out of or are based upon the inaccuracy or breach of any
representation, warranty, or covenant of the Company or the Trust contained in
this Agreement, any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or in any application filed
under any Blue Sky Law or other document executed by the Offerors for that
purpose or based upon written information furnished by the Offerors and filed in
any state or other jurisdiction to qualify or register any or all of the
Preferred Securities under the securities laws thereof (any such document,
application, or information being hereinafter called a "Blue Sky Application"),
or arise out of or are based upon the omission or alleged omission to state in
any of the foregoing a material fact required to be stated therein or necessary
to make the statements therein not misleading. The Company agrees to reimburse
each Underwriter and each such controlling person promptly for any legal fees or
other expenses incurred by such Underwriter or any such controlling person in
connection with investigating or defending any such Claim or appearing as a
third-party witness in connection with any such Claim; provided, however, that
the Company will not be liable in any such case to the extent that:
<PAGE>
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(i) Any such Claim arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto or in any Blue Sky
Application in reliance upon and in conformity with the written information
furnished by or on behalf of the Underwriters to the Offerors expressly for use
therein pursuant to Section 4 of this Agreement; or
(ii) Such statement or omission was contained or
made in any Preliminary Prospectus and corrected in the Prospectus and (1)
any such Claim suffered or incurred by any Underwriter (or any person who
controls such Underwriter) resulted from an action, claim, or suit by any person
who purchased Preferred Securities that are the subject thereof from such
Underwriter in the offering of the Preferred Securities, and (2) such
Underwriter failed to deliver a copy of the Prospectus (as then amended if the
Offerors shall have amended the Prospectus) to such person at or prior to the
confirmation of the sale of such Preferred Securities in any case where such
delivery is required by the Securities Act, unless such failure was due to
failure by the Company to provide copies of the Prospectus (as so amended) to
the Underwriter as required by this Agreement.
(b) Each Underwriter severally, but not jointly, agrees to
indemnify and hold harmless the Offerors, each of their directors, each of their
officers who sign the Registration Statement, and each person who controls the
Company or the Trust within the meaning of the Securities Act, against any Claim
to which the Offerors, or any such director, officer, or controlling person may
become subject under the Securities Act, the Exchange Act, the Securities Act
Regulations, Blue Sky Laws, or other federal or state statutory laws or
regulations, at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter and the Representative, which consent shall not be unreasonably
withheld), insofar as such Claim arises out of or is based upon any untrue or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, or arises out of or is based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or in any Blue Sky Application, in reliance
upon and in conformity with the written information furnished by such
Underwriter to the Offerors pursuant to Section 4 of this Agreement. Each
Underwriter will severally reimburse any legal fees or other expenses reasonably
incurred by the Offerors, or any such director, officer, or controlling person
in connection with investigating or defending any such Claim, and from any and
all Claims resulting from failure of such Underwriter to deliver a copy of the
Prospectus, if the person asserting such Claim purchased Shares from such
Underwriter and a copy of the Prospectus (as then amended if the Offerors shall
have amended the Prospectus) was not sent or given by or on behalf of such
Underwriter to such
<PAGE>
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person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Preferred Securities to such person, and if the
Prospectus (as so amended) would have cured the defect giving rise to such Claim
(unless such failure was due to a failure by the Company and the Trust to
provide sufficient copies of the Prospectuses (as so amended) to each
Underwriter). The indemnification obligations of each Underwriter as provided
above are in addition to any liabilities any such Underwriter may otherwise
have.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) of this Section 11 of notice of the commencement of any
action in respect of a Claim, such indemnified party will, if a Claim in respect
thereof is to be made against an indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof. In case
any such action is brought against any indemnified party, and such indemnified
party notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with all other indemnifying parties, similarly notified,
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to the indemnified party and/or other indemnified parties
that are different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties.
(d) Upon receipt of notice from the indemnifying party to
such indemnified party of the indemnifying party's election to assume the
defense of such action and upon approval by the indemnified party of counsel
selected by the indemnifying party, the indemnifying party will not be liable to
such indemnified party under subsection (a) or (b) of this Section 11 for any
legal fees or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, unless:
(i) the indemnified party shall have employed separate
counsel in connection with the assumption of legal defenses in accordance with
the proviso to the last sentence of subsection (c) of this Section 11 (it being
understood, however, that the indemnified party shall not be liable for the
legal fees and expenses of more than one separate counsel, approved by the
Representative if one or more of the Underwriters or their controlling persons
are the indemnified parties);
(ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the indemnified party's
notice to the indemnifying party of commencement of the action; or
<PAGE>
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(e) If the indemnification provided for in this Section 11
is unavailable to an indemnified party or insufficient to hold harmless an
indemnified party under subsection (a) or (b) of this Section 11 in respect of
any Claim referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall, subject, to the limitations
hereinafter set forth, contribute to the amount paid or payable by such
indemnified party as a result of such Claim:
(i) in such proportion as is appropriate to reflect the
relative benefits received by the Offerors on the one hand and the Underwriters
on the other hand from the offering of the Preferred Securities; or
(ii) if the allocation provided by clause (e)(i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (e)(i) above,
but also the relative fault of the Offerors on the one hand and the Underwriters
on the other hand in connection with the statements or omissions that resulted
in such Claim, as well as any other relevant equitable considerations.
The respective relative benefits received by the Offerors on the
one hand and the Underwriters on the other hand shall be deemed to be in such
proportion that the Underwriters are responsible for that portion represented by
the percentage that the amount of the Underwriting Commission bears to the
public offering price per Preferred Security appearing thereon, and the Company
(including the Company's directors, officers, and controlling persons) is
responsible for the remaining portion.
The relative fault of the Offerors on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Offerors on the one hand or the Underwriters on the other hand
and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such untrue statement or omission. The amount
paid or payable by a party as a result of the Claims referred to above shall be
deemed to include, subject to the limitations set forth in subsections (c) and
(d) of this Section 11, any legal or other fees or expenses reasonably incurred
by such party in connection with investigating or defending any action or claim.
(f) The Offerors and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 11 were
determined by pro rata or per capita allocation or by any other method or
allocation that does not take into account the equitable considerations referred
to in subsection (e) of this Section 11. Notwithstanding the other provisions of
this Section 11, no underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Preferred Securities
underwritten by it and distributed to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue
<PAGE>
- 23 -
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligation to contribute pursuant to this Section 11 are several
in proportion to their respective underwriting commitments and not joint.
(g) The obligations of the Company, the Trust and the
Underwriters under this Section 11 shall be in addition to any liability that
the Company, the Trust or the Underwriter may otherwise have.
SECTION 12. Default of Underwriters. It shall be a condition to
this Agreement and to the obligations of the Trust to sell and deliver the
Preferred Securities hereunder, and to the obligations of each Underwriter to
purchase the Preferred Securities in the manner described herein, that, except
as hereinafter provided in this Section 12, each of the Underwriters (except a
defaulting Underwriter) shall purchase and pay for all the Preferred Securities
agreed to be purchased by such Underwriter hereunder upon tender to the
Representative of all such Preferred Securities in accordance with the terms
hereof. If any Underwriter or Underwriters default in its or their obligations
to purchase Preferred Securities hereunder on either the Closing Date or the
Option Closing Date and the aggregate number of Preferred Securities that such
defaulting Underwriter or Underwriters agreed but failed to purchase does not
exceed ten percent (10%) of the liquidation amount of Preferred Securities the
Underwriters are obligated to purchase on such Closing Date, the Representative
may make arrangements for the purchase of such Preferred Securities by other
persons, including any of the Underwriters, but if no such arrangements are made
by such Closing Date or Option Closing Date the nondefaulting Underwriters shall
be obligated severally, in proportion to their respective commitments hereunder,
to purchase the Preferred Securities such defaulting Underwriters agreed but
failed to purchase on such Closing Date or Option Closing Date. If any
Underwriter or Underwriters so default and the liquidation amount of Preferred
Securities with respect to which such default or defaults occur is greater than
the above percentage and arrangements satisfactory to the Representative for the
purchase of such Preferred Securities by other person are not made within
thirty-six (36) hours after such default, this Agreement will terminate without
liability on the part of any nondefaulting Underwriter or the Company, except to
the extent provided in Section 11.
If Preferred Securities to which a default relates are to be
purchased by the nondefaulting Underwriters or by another party or parties, the
Representative or the Company shall have the right to postpone the Closing Date
or Option Closing Date, as the case may be, for not more than seven (7) business
days in order that the necessary changes in the Registration Statement,
Prospectus, and any other documents, as well as any other arrangements, may be
effected. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 12. Nothing herein will
relieve a defaulting Underwriter from liability for its default.
<PAGE>
- 24 -
SECTION 13. Effective Date. This Agreement shall become effective
immediately on the date hereof.
SECTION 14. Termination. Without limiting the right to terminate
this Agreement pursuant to any other provision hereof, this Agreement may be
terminated by the Representative prior to the Closing Date and the option from
the Company and the Trust referred to in Section 3, if exercised, may be
canceled by the Representative at any time prior to the Option Closing Date, if:
(a) The Offerors shall have failed, refused, or been unable,
at or prior to the Closing Date or Option Closing Date, as the case may be to
perform any agreement on its part to be performed hereunder.
(b) Any other condition to the obligations of the
Underwriters hereunder is not fulfilled; or
(c) In the Representative's judgment, payment for and
delivery of the Preferred Securities is rendered impracticable or inadvisable
because:
(i) Additional governmental restrictions, not in force
and effect on the date hereof, shall have been imposed upon trading in
securities generally or minimum or maximum prices shall have been generally
established on any national securities exchange or over-the-counter market,
or trading in securities generally shall have suspended on any national
securities exchange or on the Nasdaq Stock Market, or a general banking
moratorium shall have been established by federal or state authorities;
(ii) Any event shall have occurred or shall exist that
makes untrue or incorrect in any material respect any statement or information
contained in the Registration Statement or that is not reflected in the
Registration Statement but should be reflected therein to make the statements
or information contained therein not misleading in any material respect; or
(iii) Any outbreak or escalation of major hostilities
or other national or international calamity or any substantial change in
political, financial or economic conditions shall have occurred or shall
have accelerated to such extent, in the Representative's judgment, as to have
a material adverse effect on the general securities market or make it
impracticable or inadvisable to proceed with completion of the sale and payment
for the Preferred Securities as provided in this Agreement.
Any termination pursuant to this Section 14 shall be without
liability on the part of any Underwriter to the Company or on the part of the
Company to any Underwriter (except for expenses to be paid by the Company
pursuant to Section 7 or reimbursed by the
<PAGE>
- 25 -
Company pursuant to Section 9 and except as to indemnification to the extent
provided in Section 11).
SECTION 15. Representations and Indemnities to Survive Delivery.
The respective indemnity and contribution agreements of the Company and the
Underwriters, and the representations, warranties, covenants, other statements
of the Offerors and of their directors and officers set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Offerors, or any
of its or their partners, officers, directors, or any controlling person, as the
case may be, and will survive delivery of and payment for the Preferred
Securities sold hereunder or the termination or cancellation of this Agreement.
SECTION 16. Notices. All communications hereunder shall be in
writing and, if sent to the Representative, will be mailed, delivered, or
telecopied (with receipt confirmed) to Advest, Inc., at One World Financial
Center, 200 Liberty Street, New York, New York 10281, Attention: Michael T.
Mayes, Managing Director (Fax No. (212) 786-4097) with a copy to Steven Kaplan,
Arnold & Porter, 555 12th Street, N.W., Washington, D.C. 20004, (Fax No. (202)
942-5999; and if sent to the Company or the Trust will be mailed, delivered, or
telecopied (with receipt confirmed) to Sun Bancorp, Inc., 226 Landis Avenue,
Vineland, New Jersey 08360 (Fax No. (609) 696-8844) with a copy to John J.
Spidi, Malizia, Spidi, Sloane & Fisch, P.C., One Franklin Square, 1301 K Street,
N.W., Suite 700 East, Washington, D.C. 20005 (Fax No. (202) 434-4661).
SECTION 17. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors or
assigns, and to the benefit of the directors and officers (and their personal
representatives) and controlling persons referred to in Section 11, and no other
person shall acquire or have any right or obligation hereunder. The terms
"successors or assigns," as used in this Agreement, shall not include any
purchaser of the Preferred Securities from any Underwriter merely by reason of
such purchase.
SECTION 18. Partial Unenforceability. If any section, subsection,
clause, or provision of this Agreement is for any reason determined to be
invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other section, subsection, clause, or provision hereof.
SECTION 19. Applicable Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York.
SECTION 20. Entire Agreement. This Agreement embodies the entire
agreement among the parties hereto with respect to the transactions contemplated
herein, and there have been and are no agreements among the parties with respect
to such transactions other than as set forth or provided for herein.
<PAGE>
- 26 -
SECTION 21. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed counterparts hereof,
whereupon it will become a binding agreement among the Company, the Trust and
the Underwriters, including the Representative, in accordance with its terms.
Very truly yours,
SUN BANCORP, INC.
By:
----------------------------------------------
Title:
----------------------------------------------
SUN CAPITAL TRUST
By:
----------------------------------------------
Title:
----------------------------------------------
ADVEST, INC.
As representative of the several Underwriters listed
in Schedule A.
By:
----------------------------------------------
Title:
----------------------------------------------
<PAGE>
SUN CAPITAL TRUST
SUN BANCORP, INC.
SCHEDULE A
Liquidation Amount of
Firm Securities to be
Name of Underwriter Purchased
- ------------------- ---------
Advest, Inc......................................... $
Aggregate Liquidation Amount........................ $25,000,000
==========
Exhibit 5.1
<PAGE>
[Richards, Layton & Finger Letterhead]
Sun Capital Trust
c/o Sun Bancorp, Inc.
226 Landis Avenue
Vineland, New Jersey 08360
Re: Sun Capital Trust
-----------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for Sun Capital Trust, a Delaware
business trust (the "Trust"), in connection with the matters set forth herein.
At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our examination
of documents has been limited to the examination of originals or copies of the
following:
(a) The Certificate of Trust of the Trust (the "Certificate"), as filed in
the office of the Secretary of State of the State of Delaware (the "Secretary of
State") on February 13, 1997;
(b) The Trust Agreement of the Trust, dated as of February 13, 1997,
between Sun Bancorp, Inc., a New Jersey corporation (the "Company"), and the
trustee of the Trust named therein;
(c) The Registration Statement (the "Registration Statement") on Form S-1,
including a prospectus (the "Prospectus") relating to the Preferred Securities
of the Trust representing preferred undivided beneficial interests in the Trust
(each, a "Preferred Security" and collectively, the "Preferred Securities"), as
filed by the Company and the Trust as set forth therein with the Securities and
Exchange Commission on February 14, 1997;
(d) A form of Amended and Restated Trust Agreement of the Trust, to be
entered into among the Company, the trustees of the Trust named therein, and the
holders, from time to time, of undivided beneficial interests in the Trust (the
"Trust Agreement"), attached as an exhibit to the Registration Statement; and
(e) A Certificate of Good Standing for the Trust, dated February 25, 1997,
obtained from the Secretary of State.
<PAGE>
Sun Capital Trust
February 25, 1997
Page 2
Initially capitalized terms used herein and not otherwise defined are used
as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other than
the documents listed above, and we have assumed that there exists no provision
in any document that we have not reviewed that bears upon or is inconsistent
with the opinions stated herein. We have conducted no independent factual
investigation of our own but rather have relied solely upon the foregoing
documents, the statements and information set forth therein and the additional
matters recited or assumed herein, all of which we have assumed to be true,
complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust Agreement
constitutes the entire agreement among the parties thereto with respect to the
subject matter thereof, including with respect to the creation, operation and
termination of the Trust, and that the trust Agreement and the Certificate are
in full force and effect and have not been amended, (ii) except to the extent
provided in paragraph 1 below, the due creation or due organization or due
formation, as the case may be, and valid existence in good standing of each
party to the documents examined by us under the laws of the jurisdiction
governing its creation, organization or formation, (iii) the legal capacity of
natural persons who are parties to the documents examined by us, (iv) that each
of the parties to the documents examined by us has the power and authority to
execute and deliver, and to perform its obligations under, such documents, (v)
the due authorization, execution and delivery by all parties thereto of all
documents examined by us, (vi) the receipt by each Person to whom a Preferred
Security is to be issued by the Trust (collectively, the "Preferred Security
Holders") of a Preferred Security Certificate for such Preferred Security and
the payment for the Preferred Security acquired by it, in accordance with the
Trust Agreement and the Prospectus, and (vii) that the Preferred Securities are
issued and sold to the Preferred Security Holders in accordance with the Trust
Agreement and the Prospectus. We have not participated in the preparation of the
Registration Statement and assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware (excluding the
securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal laws
and rules and regulations relating thereto. Our opinions are rendered only with
respect to Delaware laws and rules, regulations and orders thereunder which are
currently in effect.
<PAGE>
Sun Capital Trust
February 25, 1997
Page 3
Based upon the foregoing, and upon our examination of such questions of law
and statutes of the State of Delaware as we hare considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good standing
as a business trust under the Delaware Business Trust Act, 12 Del. C. Section
3801, et seq.
2. The Preferred Securities will represent valid and, subject to the
qualifications set forth in paragraph 3 below, fully paid and nonassessable
undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the Trust, will
be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated to make payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement. In addition, we hereby
consent to the use of our name under the heading "Validity of Securities" in the
Prospectus. In giving the foregoing consents, we do not thereby admit that we
come within the category of Persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder. Except as stated above, without
our prior written consent, this opinion may not be furnished or quoted to, or
relied upon by, any other Person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger
-----------------------------
Exhibit 5.2
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
Attorneys at Law
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Telephone: (202) 434-4660
Telecopier: (202) 434-4661
February 14, 1997
Sun Bancorp, Inc.
226 Landis Avenue
Vineland, New Jersey 08360
Gentlemen/Ladies:
We have acted as counsel to Sun Bancorp, Inc. (the "Company") in
connection with the preparation and filing by the Company and Sun Capital Trust
(the "Trust") of a registration statement (the "Registration Statement") on Form
S-1 under the Securities Act of 1933, as amended (the "Act"), with respect to
the offer and sale of certain of the Trust's Preferred Securities (liquidation
amount $25 per Preferred Security) (the "Preferred Securities") and certain of
the Company's Junior Subordinated Debentures (the "Debentures") and the related
Guarantee Agreement by and between the Company and Bankers Trust Company, as
trustee (the "Guarantee"). In connection therewith, you have requested our
opinion as to certain matters referred to below.
In our capacity as such counsel, we have familiarized ourselves with
the actions taken by the Company in connection with the registration of the
Debentures and the Guarantee. We have examined the originals or certified copies
of such records, agreements, certificates of public officials and others, and
such other documents, including the Registration Statement and the amendment
thereto, as we have deemed relevant and necessary as a basis for the opinions
hereinafter expressed. In such examination, we have assumed the genuineness of
all signatures on original documents and the authenticity of all documents
submitted to us as originals, the conformity to original documents of all copies
submitted to us as conformed or photostatic copies, and the authenticity of the
originals of such latter documents. We are attorneys admitted to practice before
the courts of the United States and the courts of the State of New Jersey and,
accordingly, we express no opinion with respect to matters governed by the laws
of any jurisdiction other than the federal laws of the United States or the
internal laws of the State of New Jersey.
<PAGE>
Sun Bancorp, Inc.
February 14, 1997
Page 2
Based upon and subject to the foregoing, we are of the opinion that,
when issued (with respect to the Debentures), or executed and delivered (with
respect to the Guarantee), as set forth in the Registration Statement, the
Debentures and the Guarantee will be the valid and binding obligations of the
Company, enforceable in accordance with their terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of bank holding companies
the accounts of whose subsidiaries are insured by the Federal Deposit Insurance
Corporation or by general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
We consent to the references to this opinion and to Malizia, Spidi,
Sloane & Fisch, P.C. in the Prospectus included as part of the Registration
Statement under the caption "Validity of Securities," and to the inclusion of
this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Malizia, Spidi, Sloane & Fisch, P.C.
----------------------------------------
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
Exhibit 8.1
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
Attorneys at Law
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Telephone: (202) 434-4660
Telecopier: (202) 434-4661
February 28, 1997
Board of Directors
Sun Bancorp, Inc.
226 Landis Avenue
Vineland, New Jersey 08360
Dear Board Members:
We have acted as special tax counsel to Sun Bancorp, Inc. (the "Company")
and to Sun Capital Trust (the "Trust") in connection with the registration
statement of the Company and the Trust on Form S-1 (Registration Nos. 333-21903
and 333-21903-01, for the Company and the Trust, respectively), as amended
("Registration Statement"), of which a prospectus ("Prospectus") is a part,
filed by the Company and the Trust with the United States Securities and
Exchange Commission under the Securities Act of 1933, as amended. This opinion
is furnished pursuant to the requirements of Item 601(b)(8) of Regulation S-K.
For the purposes of rendering this opinion, we have reviewed and relied
upon the Registration Statement and such other documents and instruments as we
deemed necessary for the rendering of this opinion. In our examination of
relevant documents, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as copies, the authenticity
of such copies and the accuracy and completeness of all corporate records made
available to us by the Company and the Trust.
Based solely upon our review of such documents, and upon such information
as the Company has provided to us (which we have not attempted to verify in any
respect), and reliance upon such documents and information, we hereby adopt and
incorporate by reference the opinion set forth in the Prospectus under the
caption "Certain Federal Income Tax Consequences."
Our opinion is limited to the federal income tax matters described above
and does not address any other federal income tax considerations or any state,
local, foreign, or other tax considerations. If any of the information on which
we have relied is incorrect, or if changes in the relevant facts occur after the
date hereof, our opinion could be affected thereby. Moreover, our opinion is
based on the Internal Revenue Code of 1986, as amended, applicable Treasury
regulations promulgated thereunder, and Internal Revenue Service rulings,
procedures, and other
<PAGE>
Board of Directors
Sun Bancorp, Inc.
February 28, 1997
Page 2
pronouncements published by the United States Internal Revenue Service. These
authorities are all subject to change, and such change may be made with
retroactive effect. We can give no assurance that, after such change, our
opinion would not be different. We undertake no responsibility to update or
supplement our opinion. This opinion is not binding on the Internal Revenue
Service, and there can be no assurance, and none is hereby given, that the
Internal Revenue Service will not take a position contrary to one or more of the
positions reflected in the foregoing opinion, or that our opinion will be upheld
by the courts if challenged by the Internal Revenue Service.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the use of our name in the Prospectus
under the caption "Certain Federal Income Tax Consequences."
Sincerely,
/s/MALIZIA, SPIDI, SLOANE & FISCH, P.C.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
Exhibit 10.1
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of January 2,
1995 by and between ADOLPH F. CALOVI as Employee (referred to as "Employee") and
Citizens Investments, Inc. as Employer (referred to as "Citizens").
Intending to be legally bound hereby, Citizens and Employee agree as
follows:
1. Citizens agrees to employ Employee for a period of four years from
the effective date specified in paragraph 9 hereof. For the first year of the
four year term, Employee shall have the title and duties of President and Chief
Executive Officer of Citizens. During the final three years of the term,
Employee shall have the title and duties of Vice Chairman of the Board of
Citizens.
2. Employee shall perform such executive duties for Citizens,
consistent with his office, as are reasonably assigned by Citizens' Board of
Directors. It is contemplated that Employee will work approximately thirty hours
per week (and, subject to illness or authorized leave, in any event a minimum of
twenty hours per week), for forty weeks each year. Employee will not be required
to relocate or to accept travel obligations beyond that which has been customary
in the past.
3. Employee shall be paid One hundred thirty-one thousand dollars
($131,000) per year as base payment, for each of the four years of this
Agreement. Each year of this Agreement, this base payment shall be paid in equal
biweekly payments.
4. Citizens shall provide Employee with all benefits offered officers
of Citizens and/or its subsidiaries, and shall provide Employee with the use of
an appropriate automobile.
5. Employee shall be entitled to four weeks of vacation per year.
6. Citizens shall reimburse Employee for all expenses incurred by
Employee on Citizen's behalf, including, but not limited to, travel (for
example, automobile and air fare costs) and entertainment expenses. Employee is
not obligated to incur expenses on Citizens' behalf.
7. If, during the four year term of this Agreement, Employee's
employment with Citizens terminates for any reason (including but not limited to
death or disability) other than Employee's voluntary written resignation or
embezzlement or fraud committed against Employer or due to the material default
by Employee of his obligations hereunder, which default shall continue sixty
days after written notice thereof (specifying in detail the nature of the
default) shall have been provided to Employee, (a) Citizens shall be fully
liable to pay to Employee or his Personal Representative all remaining base
payment referred to in Paragraph Three of this Agreement for the remaining part
of the four year term, and (b) Citizens shall be required to provide the
benefits (referred to in Paragraphs Four and Five, above) only through the
effective date of termination and reimbursement for expenses that Employee
incurred on behalf of Citizens (referred to in Paragraph Six above) only through
the effective date of termination.
<PAGE>
8. Employee may terminate this Agreement at any time, in which case
Citizens shall be obligated to provide to Employee all payments, benefits,
reimbursements and other things, that have accrued in favor of Employee through
the effective date of such termination by Employee.
9. This Agreement is effective January 15, 1995, which effective date
shall be the first day of the first year of this Agreement.
10. This Agreement shall be construed in accordance with, and governed
by, the internal laws of the State of New Jersey. Should any provision of this
Agreement be determined to violate such law, all the other provisions of this
Agreement shall remain in full force and effect.
11. If Citizens contests, breaches, or fails to comply in any respect
with this Agreement, other than as a result of a breach by Employee of
Employee's obligations hereunder, Citizens shall be required to pay to Employee
all costs and expenses (including but not limited to attorneys' fees) incurred
by Employee in connection with the contest, breach and/or failure to comply.
12. This Agreement is binding on the successors of Citizens.
13. This Agreement may be amended or modified only in writing signed by
Employee and appropriate representatives of Citizens.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
FOR EMPLOYER:
ATTEST: CITIZENS INVESTMENTS, INC.
/s/ Bernice Kendall /s/ Bernard Brown
- ------------------- -----------------
Dated: November 16, 1994 By:
Chairman
WITNESS: FOR EMPLOYEE:
/s/ Linda Crispin /s/ Adolph F. Calovi
- ----------------- --------------------
Dated: November 16, 1994 Adolph F. Calovi
Exhibit 23.1
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Sun Bancorp, Inc. on
Amendment No. 1 to Form S-1 of our report dated January 31, 1997 appearing in
the Prospectus, and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche, LLP
----------------------
Deloitte & Touche, LLP
Philadelphia, PA
February 26, 1997
Exhibit 25.1
<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT
OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2) ___________
------------------------------
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
Bankers Trust Company
Legal Department
130 Liberty Street, 31st Floor
New York, New York 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
---------------------------------------------------------
SUN BANCORP, INC. SUN CAPITAL TRUST
(Exact name of obligor (Exact name of Co-Registrant
as specified in its charter) as specified in its charter)
NEW JERSEY 52-1382541 DELAWARE Applied for
(State or other (I.R.S. employer (State or other (I.R.S. employer
jurisdiction of Identification no.) jurisdiction of Identification no.)
Incorporation or incorporation or
organization) organization)
226 LANDIS AVENUE c/o SUN BANCORP, INC.
VINELAND, NEW JERSEY 08360 226 LANDIS AVENUE
(Address, including zip code VINELAND, NEW JERSEY 08360
of principal executive offices) (Address, including zip code of
principal executive offices)
Preferred Securities of Sun Capital Trust
Junior Subordinated Debentures of Sun Bancorp, Inc.
Guarantee of Sun Bancorp, Inc.
of certain obligations under the Capital Securities
(Title of the indenture securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority
to which it is subject.
Name Address
---- -------
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None.
Item 3. -15. Not Applicable
Item 16. List of Exhibits.
Exhibit 1 - Restated Organization Certificate of Bankers
Trust Company dated August 7, 1990, Certificate of
Amendment of the Organization Certificate of
Bankers Trust Company dated June 21, 1995 -
Incorporated herein by reference to Exhibit 1 filed
with Form T-1 Statement, Registration No. 33-65171,
Certificate of Amendment of the Organization
Certificate of Bankers Trust Company dated March
20, 1996, filed with Form T-1 Statement,
Registration No. 333-20111, and Certificate of
Amendment of the Organization Certificate of
Bankers Trust Company dated December 18, 1996, copy
attached.
Exhibit 2 - Certificate of Authority to commence business -
Incorporated herein by reference to Exhibit 2
filed with Form T-1 Statement, Registration
No. 33-21047.
Exhibit 3 - Authorization of the Trustee to exercise
corporate trust powers Incorporated herein by
reference to Exhibit 2 filed with Form T-1
Statement, Registration No. 33-21047.
Exhibit 4 - Existing By-Laws of Bankers Trust Company,
as amended on January 21, 1997 - Incorporated
herein by reference to Exhibit 4 filed with Form
T-1 Statement, Registration No. 333-20111.
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<PAGE>
Exhibit 5 - Not applicable.
Exhibit 6 - Consent of Bankers Trust Company required by
Section 321(b) of the Act. Incorporated herein by
reference to Exhibit 4 filed with Form T-1
Statement, Registration No. 22-18864.
Exhibit 7 - A copy of the latest report of condition of
Bankers Trust Company dated as of September 30,
1996.
Exhibit 8 - Not Applicable.
Exhibit 9 - Not Applicable.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on the 12th day
of February, 1997.
BANKERS TRUST COMPANY
By: /s/Kevin Weeks
--------------
Kevin Weeks
Assistant Treasurer
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 9/30/96 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1
City, State ZIP: New York, NY 10006 11
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
</TABLE>
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks September 30, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
Schedule RC--Balance Sheet
<TABLE>
<CAPTION>
----------------
| C400 |
-----------------------------------------
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS | / / / / / / / / / / / / / / / / / / |
1. Cash and balances due from depository institutions
(from Schedule RC-A): | / / / / / / / / / / / / / / / / / |
a. Noninterest-bearing balances and currency and coin(1) ........ | 0081 809,000 | 1.a.
b. Interest-bearing balances(2) ................................. | 0071 4,453,000 | 1.b.
2. Securities: | / / / / / / / / / / / / / / / / / / |
a. Held-to-maturity securities (from Schedule RC-B, column A) ... | 1754 0 | 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D).. | 1773 4,133,000 | 2.b.
3 Federal funds sold and securities purchased under agreements to
resell in domestic offices | / / / / / / / / / / / / / / / / / / |
of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | / / / / / / / / / / / / / / / / / / |
a. Federal funds sold ............................................ | 0276 5,933,000 | 3.a.
b. Securities purchased under agreements to resell ............... | 0277 413,000 | 3.b.
4. Loans and lease financing receivables: | / / / / / / / / / / / / / / / / / / |
a. Loans and leases, net of unearned income (from Schedule RC-C)
RCFD 2122 27,239,000 | / / / / / / / / / / / / / / / / / / | 4.a.
b. LESS: Allowance for loan and lease losses....................
...................................RCFD 3123 917,000 | / / / / / / / / / / / / / / / / / / | 4.b.
c. LESS: Allocated transfer risk reserve
...................................RCFD 3128 0 | / / / / / / / / / / / / / / / / / / | 4.c.
d. Loans and leases, net of unearned income, | / / / / / / / / / / / / / / / / / / |
allowance, and reserve (item 4.a minus 4.b and 4.c) ........... | 2125 26,322,000 | 4.d.
5. Assets held in trading accounts ..................................... | 3545 36,669,000 | 5.
6. Premises and fixed assets (including capitalized leases) ............ | 2145 870,000 | 6.
7. Other real estate owned (from Schedule RC-M) ........................ | 2150 215,000 | 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) | 2130 212,000 | 8.
9. Customers' liability to this bank on acceptances outstanding ........ | 2155 577,000 | 9.
10. Intangible assets (from Schedule RC-M) .............................. | 2143 18,000 | 10.
11. Other assets (from Schedule RC-F) ................................... | 2160 8,808,000 | 11.
12. Total assets (sum of items 1 through 11) ............................ | 2170 89,432,000 | 12.
-----------------------------------------
</TABLE>
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(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held in trading accounts.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 9/30/96 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2
City, State Zip: New York, NY 10006 12
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
</TABLE>
<TABLE>
<CAPTION>
Schedule RC--Continued ___________________________________
Dollar Amounts in Thousands | / / / / / / / / Bil Mil Thou __ __|
- ------------------------------------------------------------------------ ---------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES | / / / / / / / / / / / / |
13. Deposits: | / / / / / / / / / / / / |
a. In domestic offices (sum of totals of
columns A and C from Schedule RC-E, part I) | RCON 2220 9,391,000 | 13.a.
(1) Noninterest-bearing(1) .............RCON 6631 2,734,000... | / / / / / / / / / / / / | 13.a.(1)
(2) Interest-bearing ....................RCON 6636 6,657,000... | / / / / / / / / / / / / | 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(from Schedule RC-E | / / / / / / / / / / / / |
part II) | RCFN 2200 23,385,000 | 13.b.
(1) Noninterest-bearing ................RCFN 6631 654,000 | / / / / / / / / / / / / | 13.b.(1)
(2) Interest-bearing ...................RCFN 6636 22,731,000 | / / / / / / / / / / / / | 13.b.(2)
14. Federal funds purchased and securities sold under agreements to
repurchase in | / / / / / / / / / / / /
domestic offices of the bank and of its Edge and Agreement
subsidiaries, and in IBFs: | / / / / / / / / / / / / |
a. Federal funds purchased ...................................... | RCFD 0278 3,090,000 | 14.a.
b. Securities sold under agreements to repurchase ............... | RCFD 0279 99,000 | 14.b.
15. a Demand notes issued to the U.S. Treasury ..................... | RCON 2840 0 | 15.a.
b. Trading liabilities .......................................... | RCFD 3548 18,326,000 | 15.b.
16. Other borrowed money: | / / / / / / / / / / / / |
a. With original maturity of one year or less ................... | RCFD 2332 17,476,000 | 16.a.
b. With original maturity of more than one year ................. | RCFD 2333 2,771,000 | 16.b.
17. Mortgage indebtedness and obligations under capitalized leases ...... | RCFD 2910 31,000 | 17.
18. Bank's liability on acceptances executed and outstanding ............ | RCFD 2920 577,000 | 18.
19. Subordinated notes and debentures ................................... | RCFD 3200 1,228,000 | 19.
20. Other liabilities (from Schedule RC-G) .............................. | RCFD 2930 8,398,000 | 20.
21. Total liabilities (sum of items 13 through 20) ...................... | RCFD 2948 84,772,000 | 21.
| / / / / / / / / / / / / |
22. Limited-life preferred stock and related surplus .................... | RCFD 3282 0 | 22.
EQUITY CAPITAL | / / / / / / / / / / / / |
23. Perpetual preferred stock and related surplus ....................... | RCFD 3838 500,000 | 23.
24. Common stock ........................................................ | RCFD 3230 1,002,000 | 24.
25. Surplus (exclude all surplus related to preferred stock) ............ | RCFD 3839 527,000 | 25.
26. a. Undivided profits and capital reserves ......................... | RCFD 3632 3,017,000 | 26.a.
b. Net unrealized holding gains (losses) on
available-for-sale securities .................................. | RCFD 8434 (16,000) | 26.b.
27. Cumulative foreign currency translation adjustments ................. | RCFD 3284 (370,000) | 27.
28. Total equity capital (sum of items 23 through 27) ................... | RCFD 3210 4,660,000 | 28.
29. Total liabilities, limited-life preferred stock, and equity capital
(sum of items 21, 22, | / / / / / / / / / / / / |
and 28) ............................................................. | RCFD 3300 89,432,000 | 29.
-------------------------------
</TABLE>
Memorandum
<TABLE>
<CAPTION>
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that
best describes the most comprehensive level of auditing work performed
for the bank by independent external Number
auditors as of any date during 1995 .......................... | RCFD 6724 N/A | M.1
-------------------------------
<S> <C> <C> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company external auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required
by state chartering authority)
</TABLE>
- ----------------------
(1) Including total demand deposits and noninterest-bearing time and savings
deposits.
