As filed with the Securities and Exchange Commission on October 3, 1997
Registration No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------------------------
HARBOR FLORIDA BANCORP, INC.
(Name of registrant issuer in its charter)
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Delaware 6035 65-0737675
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<S> <C> <C>
(State or other jurisdiction of (Primary standard industrial (IRS employer
incorporation or organization) classification code number) identification number)
</TABLE>
100 S. Second Street, Fort Pierce, Florida 34950
(561) 461-2414
- --------------------------------------------------------------------------------
(Address and telephone number of principal executive offices
and principal place of business)
Harbor Florida Bancorp, Inc.
100 S. Second Street
Fort Pierce, Florida 34950
(561) 461-2414
- --------------------------------------------------------------------------------
(Name, address, and telephone number of agent for service)
Please send copies of all communications to:
Raymond J. Gustini, Esquire
Jeremy J. Sher, Esquire
Peabody & Brown
1255 23rd Street, N.W., Suite 800
Washington, D.C. 20037
(202) 973-7700
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. [X]
CALCULATION OF REGISTRATION FEE (1)
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<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Title of each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Per Aggregate Offering Registration Fee
Security Price(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 15,208,750 $10.00 $152,087,500 $52,444
per share
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The shares of Common Stock held by the Public Stockholders were previously
registered with the Commission on Form S-4, Registration number 333-18381.
The fee to register those shares was paid on December 20, 1996.
(2) Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
<TABLE>
<CAPTION>
Cross Reference Sheet showing the location
in the Prospectus of the Items of Form S-1
<S> <C> <C>
1 Forepart of the Registration Statement and Forepart of the Registration Statement; Outside
Outside Front Cover of Prospectus Front Cover Page
2 Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Outside Back Cover Page
Prospectus
3 Summary Information; Risk Factors and Ratio of Summary; Risk Factors
Earnings to Fixed Charges
4 Use of Proceeds Capitalization, Use of Proceeds
5 Determining of Offering Price Market for Common Stock; The Conversion - Stock
Pricing and Number of Shares to be Issued, and - The
Distribution Exchange
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution The Conversion
9. Description of Securities to be Registered Description of Capital Stock of Harbor Florida
10. Interests of Named Experts and Counsel Legal and Tax matters; Experts
11. Information with Respect to the Registrant
(a) Description of Business Business of Harbor Federal
(b) Description of Property Business of Harbor Federal - Properties
(c) Legal Proceedings Business of Harbor Federal - Legal Proceedings
(d) Market Price of and Dividends on the Outside Front Cover Page; Market for Common Stock;
Registrant's Common Equity and Related Dividend Policy
Stockholder Matters
(e) Financial Statements Consolidated Financial Statements; Pro Forma Data
</TABLE>
<PAGE>
PROSPECTUS
HARBOR FLORIDA BANCORP, INC.
Up to 22,447,612 Shares of Common Stock
(Anticipated Maximum)
$10.00 Per Share Purchase Price
Harbor Florida Bancorp, Inc. ("Harbor Florida" or the "Company"), a
Delaware corporation, is offering up to 22,447,612 shares (which may be
increased to 26,162,135 shares under certain circumstances described below) of
its common stock, par value $.01 per share (the "Common Stock"), in connection
with (i) the Distribution Exchange described herein to be effected in connection
with the Conversion of Harbor Financial, M.H.C. (the "Mutual Holding Company")
into an interim federal stock association and its merger into Harbor Florida,
the owner of 100% of Harbor Federal Savings Bank (the "Bank") and (ii) the
Offerings described herein.
The Offerings. In addition to the Distribution Exchange,
nontransferable subscription rights to subscribe for up to 13,225,000 shares
(which may be increased to 15,208,750 shares under certain circumstances
described below) of Common Stock (the "Conversion Stock") have been granted to
certain depositors of the Bank as of specified record dates, and to the ESOP
(the "Subscription Offering"), subject to the limitations described herein.
Commencing concurrently with the Subscription Offering, and subject to the prior
rights of holders of subscription rights, the right of the Bank, the Mutual
Holding Company and Harbor Florida (the "Primary Parties") to reject such orders
in whole or in part, and the other limitations described herein, Harbor Florida
is offering the shares of Conversion Stock not subscribed for in the
Subscription Offering, if any, for sale to stockholders of Harbor Florida as of
_____________, 1997, other than the Mutual Holding Company (the "Eligible Public
Stockholders" in the "Public Stockholder Offering"). After satisfying those with
subscription rights and the Eligible Public Stockholders, Harbor Florida is
offering shares of conversion stock in a community offering (the "Community
Offering") to certain members of the general Public to whom a copy of this
Prospectus is delivered by or on behalf of Harbor Florida, with preference given
to natural persons residing in the Bank's Local Community. Harbor Florida and
the Bank have determined the Bank's Local Community to be the six Florida
counties of Volusia, Brevard, Indian River, Martin, Okeechobee and St. Lucie.
(The Subscription Offering, Eligible Public Stockholder Offering and the
Community Offering are referred to collectively as the "Offerings"). The Primary
Parties have engaged Friedman, Billings, Ramsey & Co., Inc. ("FBR") to consult
with and advise them in the Conversion, and FBR has agreed to use its best
efforts to solicit subscriptions and purchase orders for shares of Conversion
Stock in the Subscription and Community Offerings. See "THE CONVERSION --
Marketing Arrangements."
<PAGE>
The Subscription Offering will terminate at Noon, Florida Time, on
December ______, 1997 (the "Expiration Date"), unless extended by the Primary
Parties, with approval of the OTS, if necessary. The Community Offering is
expected to terminate at the same time as the Subscription Offering. The
Community Offering must be completed within 45 days after the close of the
Subscription Offering, or February ______, 1998, unless extended by the Primary
Parties with the approval of the OTS, if necessary. Orders submitted are
irrevocable until the completion of the Conversion; provided that, if the
Conversion is not completed within the 45 day period referred to above, unless
such period has been extended with the consent of the OTS, if necessary, all
subscribers will have their funds returned promptly with interest, and all
withdrawal authorizations will be cancelled. See "THE CONVERSION -- The
Offerings" and " -- Subscription Offering."
The Distribution Exchange. Pursuant to a Plan of Conversion and Plan of
Merger (the "Plan" or "Plan of Conversion") adopted by Harbor Florida and the
Mutual Holding Company, the Mutual Holding Company will be converted to an
interim federal stock association and merged into the Company upon consummation
of the transactions described herein (collectively, with the Offerings, the
"Conversion"). As a result of the Conversion, each of the 2,654,369 shares of
Common Stock held by the Mutual Holding Company immediately prior to the
Conversion will be cancelled and each of the 2,315,871 shares of Common Stock
held by stockholders other than the Mutual Holding Company ("Public
Stockholders") (the "Public Harbor Florida Shares"), will receive a distribution
(the "Distribution Exchange") of additional shares of Common Stock together with
shares of Common Stock held prior to the distribution pursuant to a ratio (the
"Distribution Exchange Ratio," which ratio includes shares of Public Harbor
Florida Shares held prior to the Distribution), that will result in the Public
Stockholders owning in the aggregate the same percentage of the outstanding
Common Stock immediately following the Conversion before giving effect to (a)
the payment of cash in lieu of fractional Distribution Exchange Shares, and (b)
the purchase by such stockholders of additional Common Stock in the Offerings
described herein. As discussed under " -- Independent Valuation" below and
herein, the final Distribution Exchange Ratio will be determined based on the
Public Stockholders' ownership interest and not on the market value of the
Public Harbor Florida Shares.
ii
<PAGE>
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY EACH PROSPECTIVE INVESTOR,
SEE "RISK FACTORS" BEGINNING ON PAGE ____ HEREOF.
----------
FOR INFORMATION ON HOW TO SUBSCRIBE FOR SHARES OF CONVERSION
STOCK, PLEASE CALL THE STOCK INFORMATION CENTER
AT 1-888-613-2262
(Toll-Free)
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THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, OR ANY OTHER FEDERAL AGENCY OR STATE SECURITIES
COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR OTHER AGENCY
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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====================================================================================================
Estimated Fees,
Underwriting
Commissions and
Reorganization Estimated
Purchase Price(l) Expenses(2) Net Proceeds(3)
- ------------------------------------ ---------------------- ---------------------- -----------------
<S> <C> <C> <C>
Minimum Per Share $10.00 $0.15 $9.85
- ------------------------------------ ---------------------- ---------------------- -----------------
Midpoint Per Share $10.00 $0.13 $9.87
- ------------------------------------ ---------------------- ---------------------- -----------------
Maximum Per Share $10.00 $0.12 $9.88
- ------------------------------------ ---------------------- ---------------------- -----------------
Maximum Per Share, as adjusted(4)... $10.00 $0.11 $9.89
- ------------------------------------ ---------------------- ---------------------- -----------------
Total Minimum....................... $97,750,000 $1,424,475 $96,325,525
- ------------------------------------ ---------------------- ---------------------- -----------------
Total Midpoint...................... $115,000,000 $1,543,500 $113,456,500
- ------------------------------------ ---------------------- ---------------------- -----------------
Total Maximum....................... $132,250,000 $1,662,525 $130,587,475
- ------------------------------------ ---------------------- ---------------------- -----------------
Total Maximum, as adjusted(4)....... $152,087,500 $1,799,404 $150,288,096
====================================================================================================
</TABLE>
(1) Based upon the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Price Range, respectively. Does not include shares of Common
Stock to be issued to Eligible Public Stockholders in the Distribution
Exchange.
(2) Consists of the estimated costs to the Primary Parties to be incurred in
connection with the Conversion, including estimated fixed expenses of
$750,000 and marketing fees and reimbursable expenses to be paid to
Friedman, Billings, Ramsey & Co., Inc. in connection with the Offerings See
"THE CONVERSION AND REORGANIZATION --Marketing Arrangements." The actual
fees and expenses may vary substantially from the estimates. See "PRO FORMA
DATA." The fees paid to the Friedman, Billings, Ramsey & Co. may be deemed
to be underwriting fees.
iii
<PAGE>
(3) Actual net proceeds may vary substantially from estimated amounts depending
on the number of shares sold in the Offerings and other factors. See
"CAPITALIZATION" and "PRO FORMA DATA."
(4) Gives effect to an increase in the number of shares which could occur
without a resolicitation of subscribers or any right of cancellation due to
an increase in the Estimated Price Range of up to 15% above the maximum of
the Estimated Price Range to reflect changes in market and financial s
following commencement of the Offerings. See "THE CONVERSION -- Stock
Pricing and Number of Shares To Be Issued."
Independent Valuation. Pursuant to regulations of the OTS, the offering of
Conversion Stock in the Offerings is required to be based on an independent
valuation of the pro forma market value of Harbor Florida, the Bank and the
Mutual Holding Company. RP Financial, Inc. ("RP") has prepared an independent
appraisal, which states at the midpoint of the valuation range (the "Midpoint")
that the estimated pro forma market value of Harbor Florida, the Bank and the
Mutual Holding Company on a combined basis was $215,334,643 as of September 19,
1997 (the "Appraisal"). The Appraisal was multiplied by 53.41% (which represents
the Mutual Holding Company's percentage interest in Harbor Florida as of
September 19, 1997, to determine a midpoint of the offering range
($115,000,000), and the minimum and maximum range were set at 15% below and
above the midpoint, respectively, resulting in a range of $97,750,000 to
$132,250,000 (the "Offering Price Range").
The Boards of Directors of the Primary Parties determined that the
Conversion Stock would be sold at $10.00 per share (the "Purchase Price"),
resulting in a range of 9,775,000 to 13,225,000 shares of Conversion Stock being
offered. Upon consummation of the Conversion, the Conversion Stock and the
Distribution Exchange Shares will represent approximately 53.41% and 46.59%,
respectively, of the Company's total outstanding shares. Based upon the Offering
Price Range, the Distribution Exchange Ratio is expected to range from 3.6826 to
4.9824, resulting in a range of 6,212,573 Distribution Exchange Shares to
9,222,612 Distribution Exchange Shares to be issued in the Conversion. The
22,447,612 shares of Common Stock offered hereby include up to 13,225,000 shares
of Conversion Stock (subject to adjustment up to 15,208,750 shares as described
herein) and up to 9,622,612 shares of Distribution Exchange Shares (subject to
adjustment up to 10,953,35 shares as described herein). The Offering Price Range
may be increased or decreased to reflect changes in market and economic
conditions prior to completion of the Conversion, and under certain
circumstances specified herein subscribers will be resolicited and given the
right to modify or cancel their orders. See "THE CONVERSION -- Stock Pricing,
Distribution Exchange Ratio and Number of Shares to be Issued."
Restrictions on Transfer of Subscription Rights and Shares. No person may
transfer or enter into any agreement or understanding to transfer the legal or
beneficial ownership of the subscription rights issued under the Plan of
Conversion or the shares of Common Stock to be issued upon their exercise. Each
person exercising subscription rights will be required to certify that a
purchase of Common Stock is solely for the purchaser's own account and that
there is no agreement or understanding regarding the sale or transfer of such
shares. See "THE CONVERSION -- Restrictions on Transfer of Subscription Rights
and Shares." Harbor Florida will pursue any and all legal and equitable remedies
in the event they
iv
<PAGE>
become aware of the transfer of subscription rights and will not honor orders
known by them to involve the transfer of such rights.
Purchase Limitations. The Plan sets forth various purchase limitations
which are applicable in the Offerings. The minimum purchase is 25 shares. The
maximum number of shares of Conversion Stock which may be purchased by any
person in the First Priority, Third Priority and Fourth Priority of the
Subscription Offering, any person in the Eligible Public Stockholders Offering
and any person in the Community Offering shall not exceed the number of shares
of Conversion Stock as shall equal $500,000 divided by the price at which the
shares are sold (the "Actual Purchase Price"). The Plan also provides that the
maximum number of shares of Conversion Stock which may be subscribed for or
purchased in all categories in the Conversion by any person (or persons through
a single account) together with any associate or group of persons acting in
concert shall not exceed such number of shares of Conversion Stock as shall
equal $750,000 divided by the Actual Purchase Price except for the Tax Qualified
Employee Benefit Plans which in the aggregate may subscribe for 10% of the
Conversion Stock. Further, the Plan provides that, except for the Tax Qualified
Employee Stock Benefit Plans, the maximum number of shares of Conversion Stock
which may be purchased in all categories in the Conversion by any person (or
persons through a single account), together with any associate or group of
persons acting in concert that, when combined with Distribution Exchange Shares,
shall not exceed $7.5 million divided by the Actual Purchase Price. Directors
and officers may not purchase in the aggregate more than 25% of the total number
of shares of Conversion Stock sold in the Offerings, including any shares which
may be issued in the event of an increase in the maximum of the Estimated Price
Range to reflect changes in market, financial, or economic conditions after the
commencement of the Subscription Offering and prior to the completion of the
Offerings. Notwithstanding anything to the contrary, Public Stockholders will
not have to sell Company stock or be limited in receiving Distribution Exchange
Shares even if their ownership of Company shares when converted into
Distribution Exchange Shares would exceed an applicable limitation.
Required Approvals. The consummation of the Conversion is subject to the
receipt of various regulatory approvals and the approval of the members of the
Mutual Holding Company and the stockholders of Harbor Florida in the manner set
forth herein. See "THE CONVERSION -- Required Approvals."
Market for Common Stock. The Public Harbor Florida Shares are currently
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ National Market") under the symbol "HARB." After the Conversion,
shares of Harbor Florida will continue to trade on the NASDAQ National Market
under the same symbol. See "MARKET FOR COMMON STOCK."
The closing price of a share of a Public Harbor Federal Share was $47.75 on
August 26, 1997, the most recent day in which trading of Public Harbor Florida
Shares occurred preceding the announcement of the Conversion and was _________
on November 13, 1997, the date of this Prospectus.
v
<PAGE>
This Prospectus contains forward-looking statements which reflect Harbor
Florida Bancorp Inc.'s views regarding future events and financial performance.
Actual results could differ materially from those projected in the
forward-looking statements as a results of risks and uncertainties including,
but not limited to, those found in the Risk Factors section. The words
"believe," "expect," and "anticipate" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of their dates. Harbor
Florida Bancorp, Inc. undertakes no obligation to publicly update or revise any
forward looking statements, whether as a result of new information, future
events or otherwise. The Risk Factors discussion begins on page ____ of this
Prospectus.
vi
<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed information
regarding Harbor Florida and the Mutual Holding Company, and the Consolidated
Financial Statements of Harbor Florida and the Notes thereto, appearing
elsewhere in this Prospectus.
HARBOR FLORIDA BANCORP, INC.
Harbor Florida Bancorp, Inc. is a Delaware corporation organized in
December of 1996. It is currently the mid-tier holding company (the "Mid-Tier
Holding Company") for Harbor Federal Savings Bank. At present, 53.41% of its
common stock is held by the Mutual Holding Company. The other 46.59% of its
outstanding Common Stock is held by the Public Stockholders. Harbor Florida has
no other business or activities other than acting as the holding company of
Harbor Federal Savings Bank. After the Conversion, Harbor Florida will be 100%
publicly owned and serve as the holding company for Harbor Federal Savings Bank.
Harbor Florida's Common Stock is registered with the SEC under Section 12(g) of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act").
HARBOR FEDERAL SAVINGS BANK
Harbor Federal Savings Bank is a federally chartered stock savings bank
that was organized on January 6, 1994, as a subsidiary of the Mutual Holding
Company. Prior to that date, Harbor Federal Savings & Loan Association, in its
mutual form, had operated in the market area now served by the Bank). In
connection with the organization of the Mutual Holding Company (the "MHC
Reorganization"), Harbor Federal Savings & Loan Association transferred
substantially all of its assets and liabilities to the Bank in exchange for
2,654,369 shares of common stock (the "Bank Common Stock") and converted its
charter to that of a federal mutual holding company known as Harbor Financial,
M.H.C. As part of the MHC Reorganization, the Bank sold an additional 2,239,831
shares of Bank Common Stock to certain members of the general public.
On June 25, 1997, pursuant to a reorganization, all Bank Common Stock was
exchanged on a one-for-one basis for Harbor Florida Common Stock. This resulted
in the Bank becoming the 100% owned subsidiary of Harbor Florida.
As of June 30, 1997, the Bank had $1.1 billion of total assets, $1 billion
of total liabilities (including $916.9 million of deposits) and $81.7 million of
stockholders equity.
1
<PAGE>
HARBOR FINANCIAL, M.H.C.
Harbor Financial, M.H.C. is a federally chartered mutual holding company
chartered on January 6, 1994, in connection with the MHC Reorganization. The
Mutual Holding Company's primary asset is 2,654,369 shares of Harbor Florida
Common Stock, which represents 53.41% of the shares of Harbor Florida Common
Stock outstanding as of the date of this Prospectus. As part of the Conversion,
the Mutual Holding Company will convert from mutual form to a federal interim
stock savings institution and simultaneously merge with and into Harbor Florida,
with Harbor Florida being the surviving entity. A special liquidation account
for the benefit of Eligible Account Holders and Supplemental Eligible Account
Holders of the Bank will also be established. See "THE CONVERSION -- Liquidation
Rights" and " -- Effect on Liquidation Rights."
THE CONVERSION
Purposes of the Conversion
In their decision to pursue the Conversion, the Mutual Holding Company and
Harbor Florida considered various regulatory uncertainties associated with the
mutual holding company structure including the ability to waive dividends in the
future as well as the general uncertainty regarding a possible elimination of
the federal savings association charter. See "RISK FACTORS -- Proposed Federal
Legislation." In addition, the Mutual Holding Company and Harbor Florida
considered the various advantages of a fully converted stock holding company
form of organization including: (1) the larger capital base of a fully converted
stock holding company; (2) the enhancement of Harbor Florida's future access to
the capital markets; (3) the increase in the number of outstanding shares of
publicly traded stock (which may increase the liquidity of the Common Stock);
(4) a stock holding company's ability to repurchase shares of its common stock
without increasing the Mutual Holding Company's percentage interest in Harbor
Florida; and (5) recent consolidations in the Florida market and the greater
ability to acquire other financial institutions or branches of other financial
institutions. For additional information see "THE CONVERSION -- Purposes of the
Conversion."
Description of the Conversion
On September 24, 1997, the Board of Directors of Harbor Florida and the
Mutual Holding Company adopted the Plan. Pursuant to the Plan, (i) the Mutual
Holding Company will convert to an interim federal stock savings institution and
simultaneously merge with and into Harbor Florida, pursuant to which the Mutual
Holding Company will cease to exist and the 2,654,369 shares or 53.41% of the
outstanding Harbor Florida Common Stock held by the Mutual Holding Company will
be cancelled. The outstanding Public Harbor Florida Shares, which amounted to
2,315,871 shares or 46.59% of the outstanding Harbor Florida Common Stock at
June 30, 1997, will be converted into the Distribution
2
<PAGE>
Exchange Shares pursuant to the Distribution Exchange Ratio, which will result
in the holders of such shares owning in the aggregate approximately 46.59% of
the Common Stock to be outstanding upon the completion of the Conversion (such
amount which is equal to the amount of Conversion Stock and the Distribution
Exchange Shares) (which is approximately equal to the percentage of Harbor
Florida Common Stock owned by them in the aggregate immediately prior to
consummation of the Conversion), before giving effect to (a) the payment of cash
in lieu of issuing fractional Distribution Exchange Shares, and (b) any shares
of Conversion Stock purchased by Harbor Florida's stockholders in the Offerings
or by the ESOP thereafter.
The following diagram outlines the current organizational structure of
the Primary Parties' and their ownership interests:
- --------------------------------- -------------------------------------
Harbor Financial, Holders of Public Harbor
M.H.C. Florida Shares
- --------------------------------- -------------------------------------
53.41% 46.59%
-------------------------------------------
Harbor Florida
Bancorp, Inc.
-------------------------------------------
100%
-------------------------------------------
Harbor Federal
Savings Bank
-------------------------------------------
The following diagram reflects the Conversion, including (i) the merger of
the Mutual Holding Company (following its conversion into an interim federal
stock savings association) with and into the Company, with the Company as the
surviving entity; and (ii) the offering of Conversion Stock. The diagram assumes
that there are no fractional shares and does not give effect to purchases of
Conversion Stock by holders of Public Harbor Florida Shares or the exercise of
outstanding stock options. In addition to shares of Common Stock to be issued
pursuant to the Distribution Exchange, Harbor Florida is offering shares of
Conversion Stock
3
<PAGE>
in the Offerings as part of the Conversion. See "-- The Offerings" below and
"THE CONVERSION -- The Offerings."
- ------------------------------------ -----------------------------------
Purchasers of Holders of Public
Conversion Stock Harbor Florida Shares
- ------------------------------------ -----------------------------------
53.41% 46.59%
-----------------------------------------
Harbor Florida
Bancorp, Inc.
-----------------------------------------
100%
-----------------------------------------
Harbor Federal
Savings Bank
-----------------------------------------
Pursuant to OTS regulations, consummation of the Conversion is conditioned
upon the approval of the Plan by the OTS, as well as (1) the approval of the
holders of at least a majority of the total number of votes eligible to be cast
by the members of the Mutual Holding Company (which consist of depositors of the
Bank) ("Members") as of the close of business on _________, 1997 (the "Voting
Record Date"), at a special meeting of Members called for the purpose of
submitting the Plan for approval (the "Members' Meeting"), and (2) the approval
of the holders of at least two-thirds of the shares of the outstanding Harbor
Florida Common Stock held by the Mutual Holding Company and the Public
Stockholders (collectively, the "Stockholders"), as of the Voting Record Date,
at a special meeting of Stockholders called for the purpose of considering the
Plan (the "Stockholders' Meeting"). In addition, the Primary Parties have
conditioned the consummation of the Conversion on the approval of the Plan by at
least a majority of the votes cast, in person or by proxy, by the Eligible
Public Stockholders at the Stockholders' Meeting. The Mutual Holding Company
intends to vote its shares of Harbor Florida Common Stock, which amount to
53.41% of the outstanding shares, in favor of the Plan at the Stockholders'
Meeting. In addition, as of June 30, 1997, directors and executive officers of
the Bank as a group (11 persons) beneficially owned 410,331 shares or 8.26% of
the outstanding Harbor Florida Common Stock, which shares can also be expected
to be voted in favor of the Plan at the Stockholders' Meeting.
4
<PAGE>
The Offerings
Pursuant to the Plan and in connection with the Conversion, the Company is
offering up to 13,225,000 shares of Conversion Stock in the Offerings.
Conversion Stock is first being offered in the Subscription Offering, with
nontransferable subscription rights being granted, in the following order of
priority: (i) First Priority, to depositors of the Bank with account balances of
$50.00 or more as of the close of business on July 31, 1996, ("Eligible Account
Holders"); (ii) Second Priority, to the ESOP; (iii) Third Priority, to
depositors of the Bank with account balances of $50.00 or more as of the close
of business on September 30, 1997 ("Supplemental Eligible Account Holders"); and
(iv) Fourth Priority, Depositors of the Bank as of the Voting Record Date (other
than Eligible Account Holders and Supplemental Eligible Account Holders) and
certain borrowers ("Other Members"). Subscription rights will expire if not
exercised by Noon, Florida Time, on December _________, 1997, unless extended.
Subject to the prior rights of holders of subscription rights, Conversion
Stock not subscribed for in the Subscription Offering is being offered first to
Eligible Public Stockholders and then in a Community Offering to certain members
of the general public to whom a copy of this Prospectus is delivered, with
preference given to natural persons residing in the Bank's Local Community. The
Primary Parties reserve the absolute right to reject or accept any orders in the
Community Offering, in whole or in part, either at the time of receipt of an
order or as soon as practicable following the Expiration Date. The closing of
all shares sold in the Offerings will occur simultaneously, and all shares of
Conversion Stock will be sold at a uniform price of $10.00 per share.
Procedure for Purchasing Shares in the Offerings.
To help ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no Prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery of the Prospectus in accordance with Rule
15c2-8. Order forms will only be distributed with a Prospectus.
To purchase shares in the Offerings, an executed order form with the
required payment for each share subscribed for, or with appropriate
authorization for withdrawal from a deposit account at the Bank (which may be
given by completing the appropriate blanks on the order form), must be received
by the Bank at any of its offices by 12 noon, Florida Time, on the Expiration
Date. Order forms which are not received by such time or are executed
defectively or are received without full payment (or appropriate withdrawal
instructions) are not required to be accepted. The Bank is not required to
accept orders submitted on facsimilied order forms. The Primary Parties have the
right to waive or permit the correction of incomplete or improperly executed
forms, but do not represent that they will do so. The waiver of an irregularity
on an order form, the allowance by the Primary Parties of a correction of an
incomplete or improperly executed order form, or the acceptance of an order
after 12 noon on
5
<PAGE>
the Expiration date in no way obligates the Primary Parties to waive an
irregularity, allow a correction, or accept an order with respect to any other
order form. The interpretation by the Primary Parties of the acceptability of an
order form will be final. Once received, an executed order form may not be
modified, amended or rescinded without the consent of the Primary Parties,
unless the Offerings have not been completed within 45 days after the end of the
Subscription, Eligible Public Stockholders, and Community Offerings, unless such
period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the Eligibility
Record Date ( July 31, 1996) or the Supplemental Eligibility Record Date
(September 30, 1997) must list on the order form all accounts in which they have
an ownership interest at the applicable eligibility date, giving all names in
each account and the account numbers.
Payment for subscriptions and orders may be made (i) in cash if delivered
in person at any office of the Bank, (ii) by check or money order, or (iii) by
authorization of withdrawal from certificate of deposit accounts or IRAs
maintained with the Bank. The Primary Parties may in their sole discretion elect
not to accept payment for shares of Conversion Stock by wired funds and there
shall be no liability for failure to accept such payment. Funds will be
deposited in a segregated account at the Bank and interest will be paid on funds
made by cash, check or money order at the Bank's passbook rate of interest from
the date payment is received until completion or termination of the Conversion.
If payment is made by authorization of withdrawal from certificate accounts, the
funds authorized to be withdrawn from a Bank deposit account may continue to
accrue interest at the contractual rates until completion or termination of the
Conversion, but a hold will be placed on such funds, thereby making them
unavailable to the depositor until completion or termination of the Conversion.
If a subscriber authorizes the Bank to withdraw the aggregate amount of the
purchase price from a deposit account, the Bank will do so as of the effective
date of the Conversion. The Bank may waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization, the certificate
will be canceled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the passbook rate.
The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes, but rather may pay for such shares of Conversion Stock
subscribed for upon consummation of the Offerings, provided that there is in
force from the time of its subscription until such time, a loan commitment from
an unrelated financial institution or the Company to lend to the ESOP, at such
time, the aggregate purchase price of the shares for which it subscribed.
6
<PAGE>
Owners of self-directed Individual Retirement Accounts ("IRAs") may use the
assets of such IRAs to purchase shares of Conversion Stock in the Offerings,
provided that such IRAs are not maintained at the Bank. Persons with
self-directed IRAs maintained at the Bank must have their accounts transferred
to an unaffiliated institution or broker to purchase shares of Conversion Stock
in the Offerings. In addition, ERISA provisions and Internal Revenue Service
("IRS") regulations require that officers, directors and 10% stockholders who
use self-directed IRA funds to purchase shares of Conversion Stock in the
Subscription and Community Offerings make such purchases for the exclusive
benefit of the IRAs. Any interested parties wishing to use IRA funds for stock
purchases are advised to contact the Stock Information Center for additional
information.
The Primary Parties have retained FBR as consultant and advisor in
connection with the Offerings and to assist in soliciting subscriptions in the
Offerings on a best efforts basis. See "THE CONVERSION -- The Offerings" " --
Subscription Offering," "-- Community Offering," and " --Marketing
Arrangements."
Purchase Limitations
The Plan sets forth various purchase limitations which are applicable in
the Offerings. The minimum purchase is 25 shares. The maximum number of shares
of Conversion Stock which may be purchased by any person in the First Priority,
Third Priority and Fourth Priority of the Subscription Offering, any person in
the Eligible Public Stockholders Offering and any person in the Community
Offering shall not exceed the number of shares of Conversion Stock as shall
equal $500,000 divided by the Actual Purchase Price. The Plan also provides that
the maximum number of shares of Conversion Stock which may be subscribed for or
purchased in all categories in the Conversion by any person (or persons through
a single account) together with any associate or group of persons acting in
concert shall not exceed such number of shares of Conversion Stock as shall
equal $750,000 divided by the Actual Purchase Price except for the Tax Qualified
Employee Benefit Plans which, in the aggregate, may subscribe for up to 10% of
the Conversion Stock. Further, the Plan provides that, except for the Tax
Qualified Employee Stock Benefit Plans, the maximum number of shares of
Conversion Stock which may be purchased in all categories in the Conversion by
any person (or persons through a single account), together with any associate or
group of persons acting in concert, when combined with Distribution Exchange
Shares equals $7.5 million divided by the Actual Purchase Price. Directors and
officers may not purchase in the aggregate more than 25% of the total number of
shares of Conversion Stock sold in the Offerings, including any shares which may
be issued in the event of an increase in the maximum of the Estimated Price
Range to reflect changes in market, financial, or economic conditions after the
Commencement of the Subscription Offering and prior to the completion of the
Offerings. Notwithstanding anything to the contrary, Public Stockholders will
not have to sell Company stock or be limited in receiving Distribution Exchange
Shares even if their ownership of Company shares, when converted into
Distribution Exchange Shares, would exceed an applicable limitation.
7
<PAGE>
Stock Pricing, Distribution Exchange Ratio and Number of Shares to be Issued in
the Conversion
OTS regulations require the aggregate purchase price of the Conversion
Stock to be consistent with the Appraisal of the Bank, Harbor Florida and the
Mutual Holding Company, which was $215,334,643 at the midpoint of the valuation
range as of September 19, 1997. Because the holders of the Public Harbor Florida
Shares will continue to hold the same aggregate percentage ownership interest in
the Company as they held in Harbor Florida (before giving effect to any shares
of Common Stock purchased by Harbor Florida's stockholders in the Offerings or
the ESOP) before the payment of cash in lieu of issuing fractional Distribution
Exchange Shares, the Appraisal was multiplied by 53.41% (which represents the
Mutual Holding Company's percentage interest in Harbor Florida as of September
19, 1997) to determine the midpoint of the Offering Price Range, which is
$115,000,000. In accordance with OTS regulations, the minimum and maximum of the
Offering Price Range were set at 15% below and above the midpoint, respectively,
resulting in an offering range of $97,750,000 to $132,250,000. The full text of
the Appraisal describes the procedures followed, the assumptions made,
limitations on the review undertaken and matters considered, which included the
trading market for Harbor Florida Common Stock (see "MARKET FOR COMMON STOCK"),
but was not dependent thereon. The Appraisal has been filed as an exhibit to the
Registration Statement and Application for Conversion of which this Prospectus
is a part, and is available in the manner set forth under "ADDITIONAL
INFORMATION." The Appraisal is not intended and should not be construed as a
recommendation of any kind as to the advisability of purchasing such stock.
All shares of Conversion Stock will be sold at the Purchase Price of $10.00
per share, which was established by the Boards of Directors of the Primary
Parties. The actual number of shares to be issued in the Offerings will be
determined by the Primary Parties based upon the final updated valuation of the
estimated pro forma market value of the Conversion Stock at the completion of
the Offerings. The number of shares of Conversion Stock to be issued is expected
to range from a minimum of 9,775,000 shares to a maximum of 13,225,000 shares.
Subject to approval of the OTS, the Offering Price Range may be increased or
decreased to reflect market and economic conditions prior to the completion of
the Offerings, and under such circumstances the Primary Parties may increase or
decrease the number of shares of Conversion Stock. No resolicitation of
subscribers will be made and subscribers will not be permitted to modify or
cancel their subscriptions unless (i) the gross proceeds from the sale of the
Conversion Stock are less than the minimum or more than 15% above the maximum of
the current Offering Price Range (exclusive of a number of shares equal to up to
an additional 8.0% of the Common Stock outstanding immediately on completion of
the Conversion which may be issued to the ESOP out of authorized but unissued
shares of Common Stock to the extent such shares are not purchased in the
Offerings due to an oversubscription by Eligible Account Holders) or (ii) the
Offerings are extended beyond _________, 1997. Any increase or decrease in the
number of shares of Conversion Stock will result in a corresponding change in
the number of Distribution Exchange Shares, so that upon consummation of the
Conversion, the Conversion Stock and the Distribution Exchange Shares will
represent approximately
8
<PAGE>
53.41% and 46.59%, respectively, of the Company's total outstanding shares.
Nevertheless, Distribution Exchange Shares may represent less than 46.59% of the
Company's total outstanding shares if there are insufficient shares for the ESOP
to purchase 8.0% of the Common Stock outstanding immediately upon completion of
the Conversion and, consequently, Harbor Florida has to issue authorized but
unissued shares to the ESOP in order to satisfy its order to purchase such
amount of Conversion Stock in the Offerings. See "PRO FORMA DATA," "RISK FACTORS
- -- Possible Dilutive Effect of Issuance of Additional Shares" and "THE
CONVERSION -- Stock Pricing, Distribution Exchange Ratio and Number of Shares to
be Issued."
Based on the 2,315,871 Public Harbor Florida Shares outstanding at June 30,
1997, and assuming a minimum of 9,775,000 and a maximum of 13,225,000 shares of
Conversion Stock are issued in the Offerings, the Distribution Exchange Ratio is
expected to result in the distribution of approximately 6,212,573 Distribution
Exchange Shares to 9,222,612 Distribution Exchange Shares for each Public Harbor
Florida Share outstanding immediately prior to the consummation of the
Conversion. The Distribution Exchange Ratio will be affected if any stock
options to purchase shares of Harbor Florida Common Stock are exercised after
June 30, 1997 and prior to consummation of the Conversion. If any of such stock
options are outstanding immediately prior to consummation of the Conversion,
they will be converted into options to purchase shares of Common Stock, with the
number of shares subject to the option and the exercise price per share to be
adjusted based upon the Distribution Exchange Ratio so that the aggregate
exercise price remains unchanged, and with the duration of the option remaining
unchanged. As of the date of this Prospectus, there were options to purchase
134,786 shares of Harbor Florida Common Stock outstanding, which had an average
exercise price of $11.71 per share. Harbor Florida has no plans to grant
additional stock options prior to the consummation of the Conversion.
Upon consummation of the Conversion, holders of Public Harbor Florida
Shares in certificate form will receive additional certificates, pursuant to the
Distribution Exchange Ratio, based on the amount of Conversion Stock sold, so
that the percentage of Common Stock they own will remain constant. See "THE
CONVERSION -- Delivery and Exchange of Certificates."
The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Offering Price Range, the following: (i) the
total number of shares of Conversion Stock and Distribution Exchange Shares to
be issued in the Conversion, (ii) the percentage of the total Common Stock
represented by the Conversion Stock and the Distribution Exchange Shares, and
(iii) the Distribution Exchange Ratio. The table assumes there is no cash paid
in lieu of issuing fractional Distribution Exchange Shares.
9
<PAGE>
<TABLE>
<CAPTION>
Total Shares
of Common
Conversion Stock Distribution Exchange Stock to be Distribution
to be Issued(1) Shares (1)(2) Outstanding Exchange Ratio(2)
--------------------- ---------------------- ------------- -----------------
Amount Percent Amount Percent
---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Minimum 9,775,000 53.41% 8,528,444 46.59% 18,303,444 3.6826
Midpoint 11,500,000 53.41 10,033,464 46.59 21,533,464 4.3325
Maximum 13,225,000 53.41 11,538,483 46.59 24,763,483 4.9824
15% Above Maximum 15,208,750 53.41 13,269,256 46.59 28,478,006 5.7297
</TABLE>
-----------------
(1) Assumes that outstanding options to purchase 134,786 shares of Harbor
Florida Common Stock at June 30, 1997 are not exercised prior to
consummation of the Conversion.
(2) Includes shares of stock held prior to the issuance of additional
certificates representing additional shares of Common Stock.
Amendment of Certificate of Incorporation. Pursuant to the Plan, Harbor
Florida will, upon approval of stockholders, amend its Certificate of
Incorporation. Harbor Federal will increase its authorized shares from
13,000,000 to _____________________. Harbor Florida is seeking this amendment so
that sufficient authorized shares are available for the Conversion Stock to be
sold in the Offerings as well as the Distribution Exchange Shares to be
distributed to the Public Stockholders. The Mutual Holding Company intends to
vote its shares of Harbor Florida in favor of the amendment to the Certificate
of Incorporation. Accordingly, its approval is assumed.
Benefits of Conversion to Directors and Officers
Harbor Florida currently intends to adopt certain stock benefit plans for
the benefit of directors and employees of Harbor Florida and the Bank. The
proposed benefit plans are as follows: (i) a Stock Option Plan, pursuant to
which a number of authorized but unissued shares of Common Stock equal to 10% of
the Conversion Stock to be sold in the Offerings (1,322,500 shares at the
maximum of the Offering Price Range) may be reserved for issuance pursuant to
stock options and stock appreciation rights to directors, officers and
employees; and (ii) a Management Recognition and Retention Plan (the
"Recognition Plan"), which may purchase a number of shares of Common Stock, with
funds contributed by Harbor Florida, either from Harbor Florida or in the open
market, equal to an amount which will equal 4.0% of the total Conversion stock
issued in the Conversion (529,000 shares at the maximum of the Offering Price
Range) for distribution to directors, officers and employees (without any
requirement of payment by the grantee). Harbor Florida has not determined when
it will implement the Stock Option Plan and the Recognition Plan. If, however,
it is implemented prior to one year following the consummation of the
Conversion, Harbor Florida will submit such plans to stockholders for approval
at an annual or special meeting at least six months following the consummation
of the Conversion and the Reorganization. In such event, OTS
11
<PAGE>
regulations permit individual members of management to receive up to 25% of the
shares reserved pursuant to any stock option or non-tax qualified stock benefit
plan, and directors who are not employees to receive up to 5% of such stock (or
stock options) reserved individually and up to 30% in the aggregate under any
such plan. See "MANAGEMENT OF THE BANK -- Benefit Plans."
In the event that the Recognition Plan purchases shares of Common Stock in
the open market with funds contributed by Harbor Florida, the cost of such
shares initially will be deducted from the stockholders' equity of the Company,
but the number of outstanding shares of Common Stock will not increase and
stockholders accordingly will not experience dilution of their ownership
interest. In the event that the Recognition Plan purchases shares of Common
Stock from Harbor Florida with funds contributed by Harbor Florida, total
stockholders' equity would neither increase or decrease, but under such
circumstances stockholders would experience dilution of their ownership
interests (by approximately 3.8% at the maximum of the Offering Price Range) and
per share stockholders' equity and per share net earnings would decrease as a
result of an increase in the number of outstanding shares of Common Stock. In
either case, Harbor Florida will incur operating expense and increases in
stockholders' equity as the shares held by the Recognition Plan are granted and
issued in accordance with the terms thereof. For a presentation of the effects
of anticipated purchases of Common Stock by the Recognition Plan, see "PRO FORMA
DATA."
In addition, the ESOP intends to purchase up to 8.0% of the Conversion
Stock issued in the Conversion (1,058,000 shares or $10,580,000 of Conversion
Stock at the maximum of the Offering Price Range) with a loan funded by Harbor
Florida. See "USE OF PROCEEDS." In the event that there are insufficient shares
available to fill the ESOP's order due to an oversubscription by Eligible
Account Holders, Harbor Florida may issue authorized but unissued shares of
Common Stock to the ESOP in an amount sufficient to fill the ESOP's order,
subject to approval of the OTS, and/or the ESOP may purchase such shares in the
open market, if permitted. In the event that additional shares of Common Stock
are issued to the ESOP to fill its order, stockholders would experience dilution
of their ownership interests (by up to _________% at the maximum of the Offering
Price Range, assuming the ESOP purchased no shares in the Offerings) and per
share stockholders' equity and per share net earnings would decrease as a result
of an increase in the number of outstanding shares of Common Stock. See
"MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan" and "RISK FACTORS --
Possible Dilutive Effective of Issuance of Additional Shares."
The foregoing plans are in addition to a stock option plan and a directors'
stock option plan; which were adopted by the Bank in 1993. After the creation of
Harbor Florida as the Mid-Tier Holding Company of the Bank, these plans remained
as benefit plans of the Bank. The stock options and restricted stock awards made
pursuant to these plans are currently for Harbor Florida Common Stock. These
plans will continue in existence after the Conversion. See "MANAGEMENT OF THE
BANK -- Benefit Plans" and "THE CONVERSION -- Effects of the Conversion," " --
Effect on Existing Option Plans."
11
<PAGE>
Use of Proceeds
Net proceeds from the sale of the Conversion Stock are estimated to be
between $96.3 million and $130.6 million, depending on the number of shares sold
and the expenses of the Conversion. See "PRO FORMA DATA." Harbor Florida plans
to contribute to the Bank 50% of the net proceeds from the Offerings and retain
the remainder of the net proceeds. Harbor Florida intends to use a portion of
the net proceeds retained by it to make a loan directly to the ESOP to enable
the ESOP to purchase up to 8.0% of the Conversion Stock to be issued in the
Conversion. The amount of the loan is expected to be between $7.8 million and
$10.6 million at the minimum and maximum of the Offering Price Range,
respectively. It is anticipated that the loan to the ESOP will have a term of
not less than 15 years and a fixed rate of interest at the prime rate as of the
date of the loan. See "MANAGEMENT OF THE BANK -- Benefit Plans" and " --
Employee Stock Ownership Plan." The remaining net proceeds will initially be
used to invest primarily in short-term interest-bearing deposits and short and
intermediate term marketable securities. Funds retained by Harbor Florida may be
used to support the future expansion of operations or diversification into other
banking-related businesses and for other business or investment purposes,
including the acquisition of other financial institutions and/or branch offices,
although there are no current plans, arrangements, understandings or agreements
regarding such expansion, diversification or acquisitions. In addition, subject
to applicable limitations, such funds also may be used in the future to
repurchase shares of Common Stock, although Harbor Florida currently has no
intention of effecting any such transactions following consummation of the
Conversion. See "THE CONVERSION -- Certain Restrictions on Purchases or
Transfers of Shares after the Conversion." Funds contributed to the Bank from
the Company will be used for general business purposes. The proceeds will be
used to support the Bank's lending and investment activities and thereby enhance
the Bank's capabilities to serve the borrowing and other financial needs of the
communities it serves. The Bank plans to initially use the proceeds to invest
primarily in short-term interest-bearing deposits and short and intermediate
term marketable securities. See "USE OF PROCEEDS."
Dividend Policy
Since the completion of the first full quarter after the MHC
Reorganization, i.e. March 31, 1994, until the adoption of the Plan, Harbor
Florida or the Bank has paid a regular quarterly cash dividend. For the fiscal
year ending September 30, 1996, that dividend was 30(cent) per quarter, and
$1.20 per year. The dividend was increased by the Board of Directors to (cent)
per quarter for the quarter ended March 31, 1997. Following the consummation of
the Conversion, the Board of Directors of Harbor Florida intends to declare cash
dividends on the Common Stock commencing with the first quarter following the
consummation of the Conversion. The first quarterly dividend is expected to be
an amount of no less than 35(cent) ($1.40 annualized) per share on the total
Public Harbor Florida Shares outstanding immediately before the consummation of
the Conversion. For example, based on the Distribution Exchange ratio of 4.3325
at the midpoint of the Offering Price Range, the cash dividend after the
Conversion would be approximately $0.8078 per share per quarter.
12
<PAGE>
However, no assurance can be given as to the amount of a dividend or that a
dividend will be paid or if paid that the dividend will not reduced or
eliminated in future periods. Pending the completion of the Conversion, Harbor
Florida intends to continue paying its regular quarterly cash dividend. See
"DIVIDEND POLICY."
Dissenters' Rights and Rights of Appraisal
Pursuant to Section 262 of the General Corporation Law of Delaware, Public
Stockholders will have no dissenters' rights or rights of appraisal in
connection with the Conversion.
Prospectus Delivery and Procedure for Purchasing Shares
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 under the Exchange Act, no
prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery in accordance with Rule 15c2-8. Order
forms will be distributed only with a prospectus. The Primary Parties will
accept for processing orders submitted on original order forms with an executed
certification. In their discretion, the Primary Parties may accept photocopies
or facsimile copies of order forms or the form of certification. Payment by
cash, check, money order, bank draft or debit authorization to an existing
account at the bank must accompany the order form. In their discretion, the
Primary Parties may accept wire transfers . See "THE CONVERSION."
SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data as, of, and for the
periods ended September 30, 1996, 1995, 1994, 1993 and 1992 have been derived
from the audited consolidated financial statements of Harbor Florida. The
Selected Consolidated Financial Data as of June 30, 1997 and for the nine months
ended June 30, 1997 and 1996 have been derived from the unaudited consolidated
financial statements of Harbor Florida which, in the opinion of management,
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for these periods. The operating results for the nine months ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the year ended September 30, 1997. The financial data presented below is
qualified in its entirety by the more detailed financial data appearing
elsewhere herein, including the audited consolidated financial statements and
notes thereto beginning on page F-1.
13
<PAGE>
Selected Consolidated Financial Condition Data
<TABLE>
<CAPTION>
September 30,
June 30, ----------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Total assets $1,116,718 $1,057,443 $886,570 $808,110 $759,389 $731,504
Loans (net)(1) 815,789 765,019 631,307 576,406 546,699 530,994
Federal funds sold 10,250 16,075 12,825 7,400 17,500 23,075
Investment securities(2) 62,493 53,493 25,186 40,286 45,522 20,493
Mortgage-backed securities 156,559 153,293 164,759 120,099 89,535 97,201
Real estate owned (net) 2,896 3,118 2,786 2,522 6,198 16,527
Deposits 904,904 851,853 720,981 673,830 651,093 654,988
FHLB advances 100,000 95,000 65,000 45,000 45,000 15,000
Other borrowings 449 674 974 1,273 990 7,027
Stockholders' equity 93,706 84,832 77,500 68,251 40,230 34,527
- ---------------
</TABLE>
(1) Excludes loans held for sale of $3.1 million, $4.9 million, $1.0 million,
$25,000, $679,000, and $151,000 as of June 30, 1997, September 30, 1996,
1995, 1994, 1993 and 1992 respectively.
(2) Includes investments available for sale of $47.5 million and $33.5 million
as of June 30, 1997, and September 30, 1996, respectively.
14
<PAGE>
Selected Consolidated Operating Data
<TABLE>
<CAPTION>
Nine Months Ended
June 30, Years Ended September 30,
--------------------- ------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $62,805 $54,471 $74,357 $64,884 $56,084 $55,674 $60,801
Interest expense 33,382 28,653 39,114 33,280 26,276 27,251 35,760
------ ------ ------ ------ ------ ------ ------
Net interest income 29,423 25,818 35,243 31,604 29,808 28,423 25,041
Provision for (recovery of) loan
losses 456 (149) (76) 460 1,553 1,890 2,755
--- ----- ---- --- ----- ----- -----
Net interest income after
provision for loan losses 28,967 25,967 35,319 31,144 28,255 26,533 22,286
------ ------ ------ ------ ------ ------ ------
Other income:
Income (loss) from real estate
operations 23 (181) (301) (40) 1,250 (2,792) 1,810
Gain on sale of mortgage loans 135 (67) (40) 92 118 281 223
Other 2,737 2,389 3,226 2,855 2,701 2,668 3,152
----- ----- ----- ----- ----- ----- -----
Total other income 2,895 2,141 2,885 2,907 4,069 157 5,185
----- ----- ----- ----- ----- --- -----
Other expenses:
Compensation and benefits 8,864 7,947 10,690 10,048 9,433 9,078 7,907
Professional fees 485 397 527 699 1,137 711 1,351
SAIF deposit insurance premium 645 1,270 6,300 1,556 1,672 1,627 1,496
Other 5,712 5,037 6,615 5,895 5,624 5,555 5,388
----- ----- ----- ----- ----- ----- -----
Total other expenses 15,706 14,651 24,132 18,198 17,866 16,971 16,142
------ ------ ------ ------ ------ ------ ------
Income tax expense 6,339 5,207 5,432 5,958 5,254 4,016 4,365
----- ----- ----- ----- ----- ----- -----
Income before extraordinary
item and cumulative effect
of change in accounting principle 9,817 8,250 8,640 9,895 9,204 5,703 6,964
Extraordinary item (1) and (2) --- --- --- --- (1,342) --- 456
Cumulative effect on prior years
of changing to a different
method of accounting for
income taxes --- --- --- --- 1,935 --- ---
------ ------ ------ ------ ------ ------ ------
Net income $ 9,817 $ 8,250 $ 8,640 $ 9,895 $ 9,797 $ 5,703 $ 7,420
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ----------
(1) Income tax benefit of net operating loss carryforward for year 1992.
(2) Extinguishment of FHLB advances for year 1994.
15
<PAGE>
Selected Financial Ratios
<TABLE>
<CAPTION>
At or for the
Nine Months
Ended June 30,(1) At or for the Years Ended September 30,
------------------- ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets 1.21% 1.18% 0.91%(2) 1.16% 1.25% 0.77% 1.01%
Return on average stockholders' 14.74 13.56 10.51(2) 13.61 16.85 15.14 23.40
equity
Net interest rate spread 3.36 3.40 3.40 3.42 3.68 3.92 3.54
Net yield on average interest-
earning assets 3.70 3.79 3.79 3.80 3.92 4.04 3.60
Noninterest expense to average 1.93 2.10 2.53 2.14 2.27 2.29 2.20
assets
Net interest income to noninterest
expense 1.86 1.76 1.46 1.74 1.67 1.67 1.55
Average interest-earning assets
to average interest-bearing
liabilities 108.09 109.34 109.24 109.58 106.94 103.13 100.82
Asset Quality Ratios:
Nonperforming assets to total 0.46 0.56 0.50 0.71 0.85 2.19 3.72
assets
Allowance for loan losses to 1.40 1.47 1.44 1.60 1.64 1.34 1.14
total loans
Allowance for loan losses to
nonperforming loans 511.78 407.46 507.25 286.70 329.74 209.67 163.17
Allowance for losses on real
estate owned to total real
estate owned 20.00 35.60 35.45 40.00 33.37 26.09 14.61
Capital Ratios:
Average stockholders' equity to
average assets 8.20 8.72 8.62 8.54 7.40 5.09 4.32
Stockholders' equity to assets
at period end 8.39 8.39 8.02 8.74 8.45 5.30 4.72
</TABLE>
- ----------
(1) Annualized for the interim periods.
(2) Includes one-time SAIF special assessment expense of $4,552,000, $2,839,000
net of tax. Without the one-time SAIF special assessment, return on average
assets for year ended September 30, 1996, would have been 1.20% and return
on average equity would have been 13.92%.
------------------
16
<PAGE>
RECENT DEVELOPMENTS
<TABLE>
<CAPTION>
Selected Consolidated Financial Condition Data
September 30, 1997 June 30, 1997 September 30, 1996
------------------ ------------- ------------------
(In thousands)
<S> <C> <C>
Total assets $1,116,718 $1,057,443
Loans (net)(1) 815,789 765,019
Federal funds sold 10,250 16,075
Investment securities. 62,493 53,493
Mortgage-backed securities 156,559 153,293
Real estate owned (net) 2,896 3,118
Deposits 904,904 851,853
FHLB advances 100,000 95,000
Other borrowings 449 674
Stockholders' equity 93,706 84,832
</TABLE>
- ----------
(1) Excludes loans held for sale of $_________, $3.1 million and $4.9 million
as of September 30, 1997, June 30, 1997 and September 30, 1996,
respectively.
Selected Consolidated Operating Data
<TABLE>
<CAPTION>
Three Months Ended Years Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
(In thousands)
<S> <C> <C>
Interest income $19,885 $74,357
Interest expense 10,461 39,114
------ ------
Net interest income 9,424 35,243
Provision for (recovery of) loan losses 72 (76)
---- ----
Net interest income after provision
for loan losses 9,352 35,319
----- ------
Other income:
Income (loss) from real estate operations (120) (301)
Gain (loss) on sale of mortgage loans 27 (40)
Other 837 3,226
--- -----
Total other income 744 2,885
--- -----
Other expenses:
Compensation and benefits 2,744 10,690
Occupancy 607 2,632
Professional fees 130 527
SAIF deposit insurance premium 5,032 6,300
Other 968 3,983
--- -----
Total other expenses 9,481 24,132
Income before income taxes 615 14,072
Income tax expense 225 5,432
--- -----
Net income $ 390 $ 8,640
======= =======
</TABLE>
17
<PAGE>
Selected Financial Ratios
<TABLE>
<CAPTION>
At or for the Three
Months Ended At or for the Years Ended
September 30, (1) September 30,
----------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Performance Ratio
Return on average assets .15%(2) .91%(2)
Return on average stockholders' equity 1.81(2) 10.51(2)
Net interest rate spread 3.40 3.40
Net yield on average interest-earning
assets 3.78 3.79
Noninterest expense to average assets 3.67 2.53
Net interest income to noninterest
expense 1.00 1.46
Average interest-earning assets to
average interest-bearing liabilities 109.05 109.24
Asset Quality Ratios:
Nonperforming assets to total assets .50 .50
Allowance for loan losses to total loans 1.44 1.44
Allowance for loan losses to
nonperforming loans 507.25 507.25
Allowance for losses on real estate
owned to total real estate owned 35.45 35.45
Capital Ratios:
Average stockholders' equity to average
assets 8.32 8.62
Stockholders' equity to assets at period
end 8.02 8.02
</TABLE>
- ----------
(1) Annualized for the interim periods.
(2) Includes one-time SAIF special assessment expense of $4,552,000, $2,839,000
net of tax. Without the one-time SAIF special assessment, return on average
assets for year ended September 30, 1996, would have been 1.20% and return
on average equity would have been 13.92%.
---------------
18
<PAGE>
Regulatory Capital
September 30, 1997
---------------------------------------------------
Amount Percent of Assets(1)
------ --------------------
(Dollars in thousands)
Tangible Capital:
Capital level
Requirement
Excess
Core capital:
Capital level
Requirement
Excess
Risk-based capital:
Capital level
Requirement
Excess
- ----------
(1) Tangible and core capital levels are calculated on the basis of a
percentage of total adjusted assets; risk-based capital levels are
calculated on the basis of a percentage of risk-weighted assets.
[TEXT TO COME WITH AMENDMENT]
19
<PAGE>
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered by investors before deciding whether to
purchase the Common Stock offered hereby.
Vulnerability to Changes in Interest Rates
The Bank's profitability, like that of many financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits. When interest-bearing liabilities mature or reprice more quickly
than interest-earning assets in a given period, a significant increase in market
rates of interest could adversely affect net interest income. Similarly, when
interest-earning assets mature or reprice more quickly than interest-bearing
liabilities, falling interest rates could result in a decrease in net interest
income. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Asset and Liability Management."
Intent to Remain Independent; Unsuitability as a Short-term Investment
The Bank and its predecessors have operated as independent
community-oriented savings associations since 1934. Following the Conversion, it
is Harbor Florida's intent to continue to operate as an independent financial
institution. Accordingly, the Common Stock may not be a suitable investment for
individuals anticipating a rapid sale of Harbor Florida to a third party. See
"BUSINESS OF HARBOR FLORIDA BANCORP, INC."
Also due to Harbor Florida's intention to remain independent, certain
provisions in Harbor Florida's Certificate of Incorporation and Bylaws may
assist Harbor Florida in maintaining its status as an independent publicly owned
corporation. These provisions, as well as the Delaware General Corporation law
and certain federal regulations, may have certain anti-takeover effects. These
provisions include: restriction on the acquisition of Harbor Florida's equity
securities and limitations on voting rights, the classification of the terms of
the members of the Board of Directors, certain provisions relating to the
meeting of stockholders, denial of cumulative voting by stockholders in the
election of directors, the issuance of preferred stock and additional shares of
Common Stock without shareholder approval, and supermajority provisions for the
approval of certain business combinations. See "RESTRICTIONS ON ACQUISITION OF
THE COMPANY." As a result, stockholders who might wish to participate in a
change of control transaction may not have the opportunity to do so.
20
<PAGE>
Price of Common Stock Following the Conversion
Since the MHC Reorganization and public stock issuance on January 6, 1994,
Harbor Florida's common stock and its predecessor the Bank's common stock has
generally increased in value. The Public Harbor Florida Shares were initially
sold to the public at $10 per share. On November 13, 1997, the date of this
prospectus, the closing price of the Public Harbor Florida Shares was
__________. There can be no assurance that the Conversion Stock will appreciate
in value as has the Public Harbor Florida Shares. Additionally, there can be no
assurance that the Common Stock will appreciate after the Conversion. The Board
of Directors of Harbor Florida has set an offering price for the Conversion
Stock of $10 a share. However, the pricing of this stock should in no way be
seen as an indication or assurance that the Conversion Stock or the Common Stock
will appreciate after the Conversion in the same manner as the Public Harbor
Florida Shares which were also initially sold at $10 per share.
Competition
The Bank operates in a highly competitive market and experiences strong
competition in its local market area in both originating loans and attracting
deposits. That market will undergo significant consolidation when two of the
nation's largest financial institutions complete a merger at the end of 1997.
Competition also arises from larger banking organizations as well as from
numerous savings institutions and commercial banks, as well as credit unions,
mortgage bankers and national and local securities firms. Many of these
institutions are significantly larger than the Bank, are and headquartered in
other states, and have focused on Florida and expanded rapidly in Florida. Many
have greater resources than the Bank, in the form of greater capital, branches,
electronic banking capability and product variety. The Bank recognizes its need
to monitor competition and modify its products and services as necessary and
possible, taking into consideration the cost impact of such actions. As a result
of the level of competition in its market, the Company's growth and
profitability in the future may be adversely affected. See "BUSINESS -- Market
Area" and " -- Competition."
Geographical Concentration of Loans
At June 30, 1997, substantially all of the Bank's real estate mortgage
loans were secured by properties located in the Bank's primary market area.
While the Bank currently believes that its loans are adequately secured or
reserved for, in the event that real estate prices in the Bank's market area
substantially weaken or economic conditions in its market area deteriorate,
reducing the value of properties securing the Bank's loans, some borrowers may
default and the value of the real estate collateral may be insufficient to fully
secure the loans. In either event, the Bank may experience increased levels of
delinquencies and related losses having an adverse impact on net income.
Additionally, some of the real estate securing loans held by the Bank are
vacation homes or second homes used as rental properties. As such, such loans
may have a higher level of risk than loans secured by primary residences.
21
<PAGE>
Certain Anti-Takeover Provisions
Certain provisions of Harbor Federal's certificate of incorporation and
bylaws, including a provision limiting voting rights of beneficial owners of
more than 10% of the Common Stock, and the Bank's stock charter and bylaws, as
well as certain Delaware laws and regulations, will assist Harbor Florida in
maintaining its status as an independent publicly owned corporation and may have
certain anti-takeover effects.
Certificate of Incorporation and Bylaws of Harbor Florida. Harbor Florida
articles of incorporation and bylaws provide for, among other things, a limit on
voting more than 10% of the Common Stock described above, staggered terms for
members of its Board of Directors, noncumulative voting for directors, limits on
the calling of special meetings of stockholders and director nominations, a
prohibition on action by consent, a fair price or super majority stockholder
approval requirement for certain business combinations and certain shareholder
proposal notice requirements.
Federal Stock Charter of the Bank. Provisions in the Bank's federal stock
charter that have an anti-takeover effect could also be applicable to changes in
control of Harbor Florida as the sole shareholder of the Bank. The Bank's
federal stock charter includes a provision applicable for five years which
prohibits the acquisition or offer to acquire directly or indirectly the
beneficial ownership of more than 10% of the Bank's securities by any person or
entity other than Harbor Florida. Any person violating this restriction may not
vote the Bank's securities in excess of 10%.
These provisions in Harbor Florida's and the Bank's governing instruments
may discourage potential proxy contests and other takeover attempts by making
Harbor Florida less attractive to a potential acquiror, particularly those
takeover attempts which have not been negotiated with the Board of Directors of
Harbor Florida and/or the Bank, as the case may be. These provisions may also
have the effect of discouraging a future takeover attempt which would not be
approved by Harbor Florida's Board, but pursuant to which stockholders may
receive a substantial premium for their shares over then current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have any opportunity to do so. In addition, certain of these provisions
that limit the ability of persons (including management or others) owning more
than 10% of the shares to vote their shares will be enforced by the Board of
Directors of Harbor Florida or the Bank, as the case may be, to limit the voting
rights of 10% or greater stockholders and thus could have the effect in a proxy
contest or other solicitation to defeat a proposal that is desired by the
holders of a majority of the shares of Common Stock.
Federal Law and Regulations. Federal law also requires OTS approval
prior to the acquisition of "control" (as defined in OTS regulations) of an
insured institution, including a holding company thereof. In the event any
person or group of persons acquires shares in
22
<PAGE>
violation of these limitations, such person or group may be restricted from
voting his or their shares in excess of 10% of the outstanding Common Stock.
Such laws and regulations may also limit a person's ability without regulatory
approval to solicit proxies enabling him to elect one third or more of Harbor
Florida's Board of Directors or exert a controlling influence on the operations
of the Bank or the Company.
In addition, certain of these provisions may limit the ability of persons
(including management or others) owning more than 10% of the shares to vote
their shares (by proxy or otherwise) for proposals that they believe to be in
the best interests of shareholders. See "MANAGEMENT OF THE BANK -- Benefit
Plans," and " -- Description of Capital Stock."
Voting Power of Directors and Executive Officers
Directors and executive officers of Harbor Florida expect to beneficially
own approximately _________ shares or _________% of the shares of Common Stock
outstanding (excluding unexercisable stock options) upon consummation of the
Conversion based upon the midpoint of the Offering Price Range. See "BENEFICIAL
OWNERSHIP OF COMMON STOCK."
In addition, Harbor Florida may acquire Common Stock on behalf of the
Recognition Plan in an amount which will equal 4.0% of the Conversion Stock
issued in the Offering (529,000 shares based on the maximum of the Offering
Price Range). Under the terms of the Recognition Plan, individuals to whom
shares of Common Stock are awarded will be able to vote the Common Stock
immediately after it is awarded. Harbor Florida also may reserve for future
issuance pursuant to the Stock Option Plan (which will be subject to stockholder
approval if implemented prior to one year following the Conversion), a number of
authorized shares of Common Stock equal to an aggregate of 10.0% of the
Conversion Stock issued in the Offerings (1,332,500 shares, based on the maximum
of the Offering Price Range). These options are in addition to the options for
43,304 shares of Harbor Florida Common Stock which were previously granted to
directors and executive officers and remain unexercised under the option plans
adopted by the Bank in connection with the MHC Reorganization. In addition, the
ESOP intends to purchase up to 8% of the shares of Common Stock to be issued by
Harbor Florida in the Conversion. See "MANAGEMENT OF THE BANK -- Option Grants
in Last Fiscal Year," " -- Other Stock Benefit Plans," and " -- Stock Option
Plan."
Management's potential voting power could, together with additional
stockholder support, preclude or make more difficult takeover attempts which do
not have the support of the Company's Board of Directors and may tend to
perpetuate existing management.
23
<PAGE>
Return on Equity
As a result of the Bank's high capital levels and the additional capital
that will be raised by Harbor Florida in the Conversion, Harbor Florida's
ability to leverage the net proceeds from the Conversion may be limited in the
near future. Accordingly, return on capitalized equity is initially expected to
be lower than it has been in recent years.
ESOP Compensation Expense
An employer must record compensation expense in an amount equal to the fair
value of shares committed to be released to employees from an employee stock
ownership plan. Assuming shares of Common Stock appreciate in value over time,
compensation expenses relating to the ESOP to be established in connection with
the Conversion will increase. It is impossible to determine at this time the
extent of such impact on future net income. See "PRO FORMA DATA."
Potential Elimination Of Thrift Charter
The Bank is subject to extensive regulation, supervision and examination by
the Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance
Corporation ("FDIC"). A bill, H.R. 10, has been reported by the U.S. House of
Representatives, Committee on Banking and Financial Services, that would
consolidate the OTS with the Office of the Comptroller of the Currency ("OCC")
and eliminate the federal thrift charter under which the Bank currently
operates. If this legislation becomes law, the Bank will be forced to become a
state chartered bank or a national commercial bank. If the Bank becomes a
commercial bank, its investment authority and ability of Harbor Florida to
engage in diversified activities would be more limited and could effect the
Bank's profitability. See "REGULATION."
Possible Dilutive Effect of Issuance of Additional Shares
Various possible and planned issuances of Common Stock could dilute the
interests of prospective stockholders of Harbor Florida or existing stockholders
of Harbor Florida following consummation of the Conversion, as noted below.
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Offering Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Offerings. In the event that the Offering Price Range is so increased, it is
expected that Harbor Florida will issue up to 15,208,750 shares of Conversion
Stock at the Purchase Price for an aggregate price of up to $152,087,500. An
increase in the number of shares will decrease net earnings per share and
stockholders' equity per share on a pro forma basis and will increase Harbor
Florida's consolidated stockholders' equity and net earnings. See
"CAPITALIZATION" and "PRO FORMA DATA."
24
<PAGE>
The ESOP intends to purchase an amount of Common Stock equal to up to 8.0%
of the Conversion Stock issued in the Conversion. In the event that there are
insufficient shares available to fill the ESOP's order due to an
oversubscription by Eligible Account Holders and the total number of shares of
Conversion Stock issued in the Conversion is increased by up to 15%, the
additional shares will first be allocated to fill the ESOP's subscription and
thereafter in accordance with the terms of the Plan of Conversion.
Alternatively, Harbor Florida may issue authorized but unissued shares of Common
Stock to the ESOP in an amount sufficient to fill the ESOP's order and/or the
ESOP may purchase such shares in the open market. In the event that additional
shares of Common Stock are issued to the ESOP to fill its order, stockholders
would experience dilution of their ownership interests (by up to _________% at
the maximum of the Offering Price Range, assuming the ESOP purchased no shares
in the Offerings) and per share stockholders' equity and per share net earnings
would decrease as a result of an increase in the number of outstanding shares of
Common Stock. See "MANAGEMENT OF THE BANK -- Benefit Plans," " -- Employee Stock
Ownership Plan," and "THE CONVERSION -- The Offerings" " -- Subscription
Offering," and " -- Priority 2: ESOP."
If the Recognition Plan is implemented, the Recognition Plan may acquire an
amount of Common Stock which will equal 4.0% of the shares of Conversion Stock
issued in the Conversion (529,000 shares, based on the maximum of the Offering
Price Range). Such shares of Common Stock may be acquired in the open market
with funds provided by Harbor Florida, if permissible, or from authorized but
unissued shares of Common Stock. In the event that additional shares of Common
Stock are issued to the Recognition Plan, stockholders would experience dilution
of their ownership interests and per share stockholders' equity and per share
net earnings would decrease as a result of an increase in the number of
outstanding shares of Common Stock. See "PRO FORMA DATA" and "MANAGEMENT OF THE
BANK -- -- Recognition Plan."
If Harbor Florida's Stock Option Plan is implemented, Harbor Florida may
reserve for future issuance pursuant to such plan a number of authorized shares
of Common Stock equal to an aggregate of 10% of the Conversion Stock issued in
the Offerings (1,322,500 shares, based on the maximum of the Offering Price
Range). See "PRO FORMA DATA" and "MANAGEMENT OF THE BANK -- Benefit Plans," and
" -- Stock Option Plan."
In 1993 the Bank adopted, and continues to maintain, the Harbor Federal
Savings Bank Incentive Stock Option Plan (the "Option Plan"), and the Harbor
Federal Savings Bank Stock Option Plan for Nonemployee Directors (the "Directors
Option Plan"). Upon consummation of the Conversion, these plans will remain
plans of the Bank. See "MANAGEMENT OF THE BANK -- Other Stock Benefit Plans."
The OTS has required that the purchase limitations contained in the Plan of
Conversion include Distribution Exchange Shares to be issued to Public
Stockholders for their Public
25
<PAGE>
Harbor Florida Shares. As a result, certain holders of Public Harbor Florida
Shares may be limited in their ability to purchase Conversion Stock in the
Offerings. For example, a Public Stockholder which acquires Distribution
Exchange Shares in an amount equal to $7.5 million of Conversion Stock will not
be able to purchase any shares of Conversion Stock in the Offerings, although
such a stockholder will be able to purchase shares of Common Stock in the market
during the Offerings and thereafter. No stockholder will be required to sell
shares if, as a result of receiving Distribution Exchange Shares, his ownership
percentage would exceed a purchase limitation. See "THE CONVERSION --
Limitations on Conversion Stock Purchases and Ownership."
Risk of Delay
The Subscription and Community Offering will expire at Noon, Florida Time,
on December _________, 1997, unless extended by the Primary Parties. However,
unless waived by the Primary Parties, all orders will be irrevocable unless the
Conversion is not completed by December _________ 1997. In the event the
Conversion is not completed by December _________, 1997, subscribers will have
the right to modify or rescind their subscriptions and to have their
subscription funds returned with interest.
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
The Primary Parties have received an opinion of RP that subscription rights
granted to Eligible Account Holders, Supplemental Eligible Account Holders,
Other Members, and Eligible Public Stockholders have no value. However, this
opinion is not binding on the Internal Revenue Service ("IRS"). If the
subscription rights granted to Eligible Account Holders, Supplemental Eligible
Account Holders, Other Members, and Eligible Public Stockholders are deemed to
have an ascertainable value, receipt of such rights likely would be taxable only
to those Eligible Account Holders, Supplemental Eligible Account Holders, Other
Members, directors, officers and employees and Eligible Public Stockholders in
an amount equal to such value. Whether subscription rights are considered to
have ascertainable value is an inherently factual determination. See "THE
CONVERSION -- Effects of the Conversion" and " -- Tax Aspects."
HARBOR FLORIDA BANCORP, INC.
The Company was organized in December 1996 at the direction of the Board of
Directors of the Bank for the purpose of holding all of the capital stock of the
Bank. Harbor Florida acquired all of the outstanding stock of the Bank in a
one-for-one stock exchange consummated on June 25, 1997. The Company has
received the approval of the OTS to become, and is currently, a thrift holding
company, and as such is subject to regulation by the OTS. After completion of
the Conversion, Harbor Florida is expected to conduct business initially as a
unitary thrift company. See "BUSINESS OF HARBOR FLORIDA BANCORP,
26
<PAGE>
INC." and "REGULATION -- Company Regulation." Upon consummation of the
Conversion, Harbor Florida will have no significant assets other than all of the
outstanding shares of the Bank Common Stock, a note evidencing Harbor Florida's
loan to the ESOP, and the remaining portion of the net proceeds from the
Offerings retained by Harbor Florida. Harbor Florida will have no significant
liabilities. See "USE OF PROCEEDS."
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify, its business activities
through existing or newly formed subsidiaries, or through acquisitions of or
mergers with other financial institutions and financial services related
companies, should it decide to do so. The Florida market is a competitive market
with numerous banking organizations. Recently this market has experienced
considerable consolidation and although there are no current arrangements,
understandings or agreements regarding any such opportunities or transactions,
the Company, with its increased capital, will be in a position after the
Conversion, subject to regulatory limitations and its financial condition, to
take advantage of any such acquisition and expansion opportunities that may
arise. The initial activities of Harbor Florida are anticipated to be funded by
the proceeds to be retained by the Company and earnings thereon, as well as
dividends from the Bank. See "DIVIDEND POLICY."
Harbor Florida's executive office is located at the home office of the Bank
at 100 S. Second Street, Fort Pierce, Florida 34954, and its telephone number is
(561) 461-2414.
HARBOR FEDERAL SAVINGS BANK
General
The Bank was established in 1934 as a federally chartered savings
association. In January, 1994, it was reorganized into the mutual holding
company form of organization whereby it (i) formed a new stock savings
association; (ii) transferred substantially all of its assets and liabilities to
the newly formed stock savings bank in exchange for all of the common stock of
such institution; and (iii) reorganized from a federally chartered, mutual
association to a federally chartered, mutual holding company known as "Harbor
Financial, M.H.C." As part of the MHC Reorganization, the newly formed stock
savings bank subsidiary issued 2,239,831 shares of capital stock to certain
members of the general public and 2,654,369 shares of stock to the Mutual
Holding Company. On June 25, 1997, the Bank completed its reorganization into
the Mid-Tier Holding Company structure. Pursuant to that reorganization, the
Bank exchanged all of its shares in a one-for-one exchange for the shares of
Harbor Florida, a newly created Delaware corporation, which became the Mid-Tier
Holding Company of the Bank. The primary purpose of that reorganization was to
facilitate repurchases of shares without adverse tax consequences. The Bank
became the 100% owned subsidiary of Harbor Florida. The Bank currently conducts
its business from 23 offices in six counties in southeastern Florida. At June
30, 1997, the Bank had $1.1 billion of total assets, $1.0 billion
27
<PAGE>
of total liabilities, including $916.9 million of deposits, and $81.7 million of
stockholders' equity.
The Bank is primarily engaged in attracting deposits from the general
public through its offices and using those and other available sources of funds
to originate loans secured by one to four-family residences. One- to four-family
residential loans amounted to $620.1 million, or 72.16%, of the Bank's total
loan portfolio at June 30, 1997. To a lesser extent, the Bank originates loans
secured by existing multi-family residential and nonresidential real estate,
which amounted to $14.5 million or 1.68%, and $53.0 million or 6.17%,
respectively, of the total loan portfolio at June 30, 1997, as well as
construction loans and consumer loans, which amounted to $41.4 million, or 4.82%
of the total loan portfolio and $87.0 million, or 10.13%, of the total loan
portfolio at such date, respectively. The Bank also invests in U.S. Government
and federal agency obligations and mortgage-backed securities which are insured
by federal agencies. The Bank has two active subsidiary corporations. Appraisal
Analysis, Inc. provides real estate appraisal services to the Bank as well as
third parties. H.F. Development Company, Inc. serves as a repository of selected
REO properties held for disposition.
The Bank is a community-oriented savings association which emphasizes
customer service and convenience. As part of this strategy, the Bank has sought
to develop a variety of products and services which meet the needs of its retail
customers. The Bank generally has sought to achieve long-term financial strength
and stability by (i) increasing the amount and stability of its net interest
income, (ii) maintaining a high level of asset quality, (iii) maintaining a high
level of regulatory capital, and (iv) controlling general, administrative and
other expenses. In pursuit of these goals, the Bank has adopted a number of
complementary business strategies which emphasize retail lending and deposit
products and services traditionally offered by savings institutions. Highlights
of the Bank's business strategy include the following:
Emphasis on Traditional Lending and Investment Activities. Management
believes that Harbor Florida is more likely to achieve its goals of long-term
financial strength and profitability by emphasizing retail products and
services, as opposed to wholesale or commercial activities. The Bank's primary
lending emphasis is the origination of loans secured by first liens on
single-family (one- to four-unit) residences. In addition, the Bank originates
consumer loans, such as home equity loans, and multi-family and nonresidential
real estate loans. Such loans generally provide for higher interest rates and
shorter terms than single-family residential real estate loans. At June 30,
1997, the Bank's net loans amounted to $815.8 million or 73.05% of the Bank's
total assets.
Maintain Asset Quality. Management believes that continuously seeking to
maintain asset quality is key to long-term financial success and, as a result,
the investments which are emphasized by the Bank and its related policies and
practices are intended to maintain a high level of asset quality and reduce
credit risk. At June 30, 1997, the Bank's non-performing
28
<PAGE>
assets, which consist of non-accrual loans, accruing loans that are
contractually past due 90 days or more, and real estate owned, amounted to $5.1
million or 0.46% of the Bank's total assets. At June 30, 1997, the Bank's
allowance for loan losses amounted to $11.4 million or 1.40% of the Bank's total
loans outstanding.
Controlling Expenses. The Bank's noninterest expenses have amounted to
1.93%, 2.53% (2.05 excluding the one-time SAIF special assessment), and 2.14% of
average assets for the nine months ended June 30, 1997 (annualized) and the
years ended September 30, 1996 and 1995, respectively. However, these expenses
may increase in the future should Harbor Florida implement certain benefit plans
or should experience significant growth. See "RISK FACTORS -- ESOP Compensation
Expense" and "MANAGEMENT OF THE BANK -- Benefit Plans."
Regulation
The Bank is subject to examination and comprehensive regulation by the OTS,
which is the Bank's chartering authority and primary regulator, and by the
Federal Deposit Insurance Corporation ("FDIC"), which, as administrator of the
SAIF, insures the Bank's deposits up to applicable limits. The Bank also is
subject to certain reserve requirements established by the Board of Governors of
the Federal Reserve System ("Federal Reserve Board") and is a member of the
Federal Home Loan Bank ("FHLB") of Atlanta, which is one of the 12 regional
banks comprising the FHLB System. See "REGULATION."
Office
The Bank's principal executive office is located at 100 S. Second Street,
Fort Pierce, Florida 34964 and its telephone number is (561) 461-2414.
HARBOR FINANCIAL, M.H.C.
The Mutual Holding Company is a federally chartered mutual holding company
which was chartered on January 6, 1994 in connection with the MHC
Reorganization. The Mutual Holding Company's primary asset is 2,654,369 shares
of Harbor Florida Common Stock, which represent 53.41% of the shares of Harbor
Florida Common Stock outstanding as of June 30, 1997. Prior to the Conversion,
each depositor in the Bank has both a deposit account in the institution and a
pro rata ownership interest in the net worth of the Mutual Holding Company based
upon the value in his account, which interest may only be realized in the event
of a liquidation of the Mutual Holding Company. As part of the Conversion, the
Mutual Holding Company will convert from mutual form to a federal interim stock
savings institution and simultaneously merge with and into Harbor Florida, with
Harbor Florida being the surviving entity.
29
<PAGE>
USE OF PROCEEDS
Net proceeds from the sale of the Conversion Stock are estimated to be
between $96.3 million and $130.6 million ($150.2 million assuming an increase in
the Offering Price Range by 15%). See "Pro Forma Data" as to the assumptions
used to arrive at such amounts.
Harbor Florida plans to contribute to the Bank 50% of the net proceeds from
the Offerings and retain the remainder of the net proceeds. The net proceeds
will initially be used to invest primarily in short-term interest-bearing
deposits and short and intermediate term marketable securities. The Company
intends to use a portion of the net proceeds to make a loan directly to the ESOP
to enable the ESOP to purchase Conversion Stock equal to up to 8.0% of the
Common Stock to be outstanding upon consummation of the Conversion. Based upon
the issuance of 782,000 shares and 1,058,000 shares of Conversion Stock at the
minimum and maximum of the Offering Price Range, respectively, the loan to the
ESOP would be $7.8 million and $10.6 million, respectively. It is anticipated
that the loan to the ESOP will have a term of not less than 15 years and a fixed
rate of interest at the prime rate as of the date of the loan. See "MANAGEMENT
OF THE BANK -- Employee Stock Ownership Plan." The net proceeds retained by
Harbor Florida also may be used to support the future expansion of operations or
diversification into other banking-related businesses and for other business or
investment purposes, including the acquisition of other financial institutions
and/or branch offices, although there are no current plans, arrangements,
understandings or agreements regarding such expansion, diversification or
acquisitions. In addition, subject to applicable regulatory limitations, the net
proceeds also may be used to repurchase shares of Common Stock, although Harbor
Florida currently has made no decision concerning the repurchase of shares
following consummation of the Conversion. See "THE CONVERSION -- Certain
Restrictions on Purchase or Transfer of Shares after the Conversion." The
portion of the net proceeds contributed to the Bank will be used for general
corporate purposes, primarily investment in residential real estate loans and
will be initially used to invest primarily in short-term interest-bearing
deposits and marketable securities.
DIVIDEND POLICY
Upon completion of the Conversion, the Board of Directors of Harbor Florida
will continue to have the authority to declare dividends on the Common Stock,
subject to statutory and regulatory requirements. Following consummation of the
Conversion, the Board of Directors of Harbor Florida intends to pay cash
dividends on the Common Stock at an initial quarterly rate equal to no less than
35(cent) per share based on the total Public Harbor Florida Shares outstanding
before consummation of the Conversion. Based upon the Offering Price Range, the
Distribution Exchange Ratio is expected to be 3.6826, 4.3325, 4.9824 and 5.7297
at the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Price Range, respectively, resulting in an initial quarterly dividend rate of
$0.9504, $0.8078,
30
<PAGE>
$0.7025 and $0.6109 per share, respectively, commencing with the first full
quarter following consummation of the Conversion. Declarations of dividends by
the Board of Directors will depend upon a number of factors, including the
amount of the net proceeds from the Offerings retained by Harbor Florida,
investment opportunities available to Harbor Florida or the Bank, capital
requirements, regulatory limitations, Harbor Florida's and the Bank's financial
condition and results of operations, tax considerations and general economic
conditions. Consequently, there can be no assurance that dividends will in fact
be paid on the Common Stock or that, if paid, such dividends will not be reduced
or eliminated in future periods. Harbor Federal intends to continue to pay
regular quarterly dividends through either the date of consummation of the
Conversion (on a pro rata basis) or the end of the fiscal quarter during which
the consummation of the Conversion occurs.
Dividends from Harbor Florida after the Conversion will depend, in part,
upon receipt of dividends from the Bank, because Harbor Florida initially will
have no source of income other than dividends from the Bank, earnings from the
investment of proceeds from the sale of Conversion Stock retained by Harbor
Florida, and interest on the ESOP loan. A regulation of the OTS imposes
limitations on "capital distributions" by savings institutions, including cash
dividends, payments by a savings institution to repurchase or otherwise acquire
its stock, payments to stockholders of another savings institution in a cash-out
merger and other distributions charged against capital. The regulation
establishes a three-tiered system, with the greatest flexibility being afforded
to well-capitalized or Tier 1 savings institutions and the least flexibility
being afforded to under-capitalized or Tier 3 savings institutions. As of June
30, 1997, the Bank was a Tier 1 savings institution and is expected to continue
to so qualify immediately following the consummation of the Conversion.
Any payment of dividends by the Bank to Harbor Florida which would be
deemed to be a distribution from the Bank's pre-1988 bad debt reserves for
federal income tax purposes would require a payment of taxes at the then-current
tax rate by the Bank on the amount of earnings deemed to be removed from the
reserves for such distribution. The Bank has no current intention of making any
distribution that would create such a federal tax liability either before or
after the Conversion. See "REGULATION --Federal and State Taxation."
Unlike the Bank, Harbor Florida is not subject to the aforementioned
regulatory restrictions on the payment of dividends to its stockholders,
although the source of such dividends will be, in part, dependent upon dividends
from the Bank in addition to the net proceeds retained by Harbor Florida and
earnings thereon. Harbor Florida is subject, however, to the requirements of
Delaware law.
MARKET FOR COMMON STOCK
There is an established market for the Harbor Florida Common Stock, which
is currently listed on the NASDAQ National Market under the symbol "HARB." The
Harbor
31
<PAGE>
Florida Common Stock had _________ market makers as of June 30, 1997. It is
expected that the Common Stock will be more liquid after the Conversion than the
Harbor Florida Common Stock because there will be significantly more outstanding
shares owned by the public. However, there can be no assurance that an active
and liquid trading market for the Common Stock will be maintained. FBR will
assist Harbor Florida in obtaining additional market makers, if necessary, but
there can be no assurance that additional market makers will be identified.
Making a market involves maintaining bid and ask quotations and being able, as
principal, to effect transactions in reasonable quantities at those quoted
prices, subject to various securities laws and other regulatory requirements.
At June 30, 1997, there were 4,970,240 shares of Harbor Florida Common
Stock outstanding, including 2,315,871 Public Harbor Florida Shares, which were
held of record by approximately 2,295 stockholders. The following table shows
the high and low per share sales prices of the Harbor Florida Common Stock as
reported by NASDAQ National Market since the MHC Reorganization and the
dividends declared per share during the periods indicated. Such quotations
reflect inter-dealer prices, without retail markup, markdown or commission and
may not necessarily represent actual transactions.
Dividends
Quarter Ended High Low Declared Per Share
- ------------- ------- ------ ------------------
March 31, 1994 $14.50 $11.00 $.1125
June 30, 1994 15.25 11.75 .1125
September 30, 1994 20.25 14.25 .1125
December 31, 1994 19.25 15.00 .2250
March 31, 1995 18.50 15.50 .2250
June 30, 1995 19.75 17.75 .2250
September 30, 1995 23.50 19.75 .2250
December 31, 1995 27.75 21.75 .30
March 31, 1996 28.25 24.75 .30
June 30, 1996 29.375 25.25 .30
September 30, 1996 30.25 23.75 .30
December 31, 1996 36.25 29.50 .35
March 31, 1997 39.00 33.50 .35
June 30, 1997 46.00 35.00 .35
CAPITALIZATION
The following table presents Harbor Florida's and its consolidated
subsidiaries', including the Bank's, historical capitalization including
deposits at June 30, 1997 and the pro forma consolidated capitalization of
Harbor Florida after giving effect to the Conversion based
32
<PAGE>
upon the sale of the indicated number of shares at $10 per share and upon the
other assumptions set forth under "PRO FORMA DATA."
33
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Consolidated Capitalization
at June 30, 1997 Based Upon The Sale Of:
----------------------------------------
Minimum as
Minimum 9,775,000 Midpoint Maximum 13,225,000 adjusted(1)
Historical shares 11,500,000 shares shares 15,208,750 shares
Capitalization Price of $10.00 Price of $10.00 Price of $10.00 Price of $10.00
June 30, 1997 Per Share Per Share Per Share Per Share
------------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Deposits (2) $904,904 $904,904 $904,904 $904,904 $904,904
Borrowings(6) 100,449 100,449 100,449 100,449 100,449
------- ------- ------- ------- -------
Total deposits and borrowings $1,005,353 $1,005,353 $1,005,353 $1,005,353 $1,005,353
========== ========== ========== ========== ==========
Stockholders' equity:
Preferred stock, par value $.01
per share, 1,000,000 shares
authorized; none issued ______ ______ ______ ______ ______
Common stock, par value $.01 per
share, 13,000,000 shares authorized;
4,970,240 issued or shares to
be issued as reflected(3)(4)(7) 50 183 215 248 285
Additional paid-in capital(3) 26,550 122,743 139,841 156,939 176,604
Retained earnings(5) 68,484 68,484 68,484 68,484 68,484
Unrealized gain (loss) on
securities available for sale, net (43) (43) (43) (43) (43)
Less: Existing plans
Common stock acquired by ESOP (449) (449) (449) (449) (449)
Common stock acquired by
Deferred Compensation Plans (886) (886) (886) (886) (886)
Common stock acquired by ESOP(3) 0 (7,820) (9,200) (10,580) (12,167)
Common stock acquired by
Recognition Plan(3) 0 (3,910) (4,600) (5,290) (6,084)
----- ------ ------ ------ ------
Total stockholders' equity $93,706 $178,302 $193,362 $208,423 $225,744
======= ======== ======== ======== ========
Total stockholders' equity to
total assets 8.39% 14.84% 16.10% 17.35% 18.79%
</TABLE>
34
<PAGE>
- ----------
(1) As adjusted to give effect to an increase in the number of shares that
could occur to an increase in the Estimated Price Range of up to 15% to
reflect changes in market and financial conditions prior to the completion
of the Conversion or to fill the order of the ESOP.
(2) No effect is given to possible withdrawals from deposit accounts to
purchase the Common Stock. Any such withdrawals will reduce pro forma
deposits by the amounts thereof.
(3) Assumes that 8% and 4% of the shares sold in the Offering will be purchased
by the ESOP and the Recognition Plan, respectively. No shares will be
purchased by the Recognition Plan in the Conversion. It is assumed on a pro
forma basis that the Recognition Plan will be adopted by the Board of
Directors, approved by the stockholders at a special or annual meeting no
earlier than six months after completion of the Conversion and reviewed by
the OTS. It is assumed that the Recognition Plan will purchase Common Stock
in the open market in order to give an indication of its effects on
capitalization. The pro forma presentation does not show the impact of: (i)
results of operations after the Conversion; (ii) changes in market prices
of shares of the Common Stock after the Conversion; or (iii) a smaller than
4% purchase by the Recognition Plan. Assumes that the funds used to acquire
the ESOP shares will be borrowed from the Company for a 15 year term. For
an estimate of impact of the ESOP on earnings, see "PRO FORMA DATA." The
Bank intends to make contributions to the ESOP sufficient to service and
ultimately retire its debt. The amount to be acquired by the ESOP and the
Recognition Plan is reflected as a reduction in stockholder equity. The
issuance of authorized but unissued shares for the Recognition Plan in an
amount equal to 4% of the amount of Conversion Stock in the Offering will
have the effect of diluting existing stockholders' interests by 3.8%. There
can be no assurance that approval of the Recognition Plan will be obtained.
See "MANAGEMENT OF THE BANK -- Other Stock Benefit Plans" and " -- Stock
Option Plans."
(4) Assumes that (i) the 2,315,871 Public Harbor Florida Shares outstanding at
June 30, 1997 are added to 6,212,573, 7,717,593, 9,222,612 and 10,953,385
Distribution Exchange Shares at the minimum midpoint maximum and 15% above
the maximum of the offering price range, respectively; and (ii) that no
cash in lieu of fractional Distribution Exchange Shares will be issued by
the Company. No effect has been given to the issuance of additional shares
of Common Stock pursuant to existing and proposed stock option plans as
opposed to purchases in the open market. See "PRO FORMA DATA."
(5) The retained earnings of the Bank will be substantially restricted after
the Conversion by virtue of the liquidation account to be established in
connection with the Conversion. See "THE CONVERSION -- Liquidation Rights."
In addition, certain distributions of the Bank's retained earnings may be
treated as being from its pre-1988 accumulated bad debt reserve for tax
purposes which would cause the Bank to have additional taxable income and
financial statement expense. See "REGULATION -- Federal and State
Taxation." The pro forma amounts do not include $273,000 of assets held by
the Mutual Holding Company.
(6) Consists of $100 million in advances from the FHLB of Atlanta and $449,000
from a third party lender to fund the existing ESOP.
(7) Upon consummation of the Conversion, the Certificate of Incorporation of
Harbor Florida will be amended to authorize ______ shares of Common Stock.
-------------
35
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
At June 30, 1997 the Bank exceeded each of the three OTS capital
requirements. Set forth below is a summary of the Bank's compliance with the OTS
capital standards as of June 30, 1997, on a historical and pro forma basis
assuming that the indicated number of shares of Common Stock were sold at $10
per share as of such date. See "PRO FORMA DATA" for the assumptions used to
determine the net proceeds of the Conversion.
36
<PAGE>
<TABLE>
<CAPTION>
Pro Forma at June 30, 1997 Based Upon Sale at $10.00 Per Share
-------------------------------------------------------------------------------------------
(Dollars in thousands)
9,775,000 Shares 11,500,000 Shares 13,225,000 Shares 15,208,750 Shares
Historical (Minimum of (Midpoint of (Maximum of (15% above Maximum
at June 30, 1997(1) Offering Range) Offering Range) Offering Range) Offering Range)
------------------- --------------- --------------- --------------- ---------------
Percent Percent Percent Percent Percent
of of of of of
Amount Assets(1) Amount(2) Assets(1) Amount(2) Assets(1) Amount(2) Assets(1) Amount(2) Assets(1)
------ --------- --------- --------- ------------------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital(3) $81,706 7.32% $118,139 10.18% $124,634 10.66% $131,130 11.14% $138,599 11.69%
Tangible capital $78,386 7.04% $114,819 9.92% $121,314 10.41% $127,810 10.89% $135,279 11.44%
Tangible requirement 16,701 1.50 17,365 1.50 17,483 1.50 17,601 1.50 17,737 1.50
Excess $61,685 5.54% $97,454 8.42% $103,831 8.91% $110,209 9.39% $117,542 9.94%
Core capital $78,386 7.04% $114,819 9.92 $121,314 10.41% $127,810 10.89% $135,279 11.44%
Core requirement 33,402 3.00 34,730 3.00 34,966 3.00 35,202 3.00 35,474 3.00
Excess $44,984 4.04% $80,090 6.92% $86,348 7.41% $92,608 7.89% $99,805 8.44%
Total risk-based
capital(4) $85,688 14.77% $122,121 20.73% $128,616 21.78% $135,112 22.82% $142,581 24.00%
Risk-based
requirement 46,416 8.00 47,124 8.00 47,250 8.00 47,376 8.00 47,521 8.00
Excess $39,272 6.77% $74,997 12.73% $81,366 13.78% $87,736 14.82% $95,060 16.00%
</TABLE>
- ----------
(1) GAAP, adjusted or risk weighted assets as appropriate.
(2) Pro forma capital levels include the impact of the ESOP, Recognition Plan
and assume receipt by the Bank of 50% of the net proceeds of the
Conversion.
(3) Subject to certain restrictions.
(4) Assumes net proceeds are invested in assets that carry 20% risk weight.
37
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $96.3 million and $130.6 million (or $150.3
million in the event the Offering Price Range is increased by 15%) based upon
the following assumptions: (i) no fees will be paid to FBR on shares purchased
by (x) the ESOP or by (y) officers, directors and associates thereof; (ii) FBR
will receive a fee equal to .75% of the aggregate Purchase Price for sales in
the Subscription and Community Offering (excluding the sale of shares by the
ESOP and to officers, directors or employees or members of their immediate
families); and (iii) total expenses, excluding the marketing fees to be paid to
FBR, will be approximately $750,000 at the Midpoint of the Offering Range.
Actual expenses may vary from those estimated.
Pro forma net earnings have been calculated for the nine months ended June
30, 1997, and year ended September 30, 1996 as if the Conversion Stock to be
issued in the Offerings had been sold (and the Distribution Exchange Shares
issued) at the beginning of the respective periods and the net proceeds had been
invested at 6.17% and 6.22% at June 30, 1997 and September 30, 1996,
respectively. The assumed interest rates for the Bank were calculated as the
arithmetic average of the weighted average earned by the Bank on its
interest-earning assets and weighted average rate paid on its interest-bearing
deposits. The effect of withdrawals from deposit accounts for the purchase of
Conversion Stock has not been reflected. An effective combined federal and state
tax rate of 39.3% has been assumed for the periods, resulting in after-tax
yields of 3.75% and 3.78% for the nine months ended June 30, 1997 and the year
ended September 30, 1996, respectively. Historical and pro forma per share
amounts have been calculated by dividing historical and pro forma amounts by the
indicated number of shares of Common Stock, as adjusted to give effect to the
shares purchased by the ESOP and Recognition Plan. See Notes 1 and 2 to the
tables below. No effect has been given in the pro forma stockholders' equity
calculations for the assumed earnings on the net proceeds. As discussed under
"Use of Proceeds," Harbor Florida intends to retain 50% of the net proceeds from
the Offerings. Harbor Florida intends to make a loan to fund the purchase by the
ESOP an amount of Conversion Stock equal to up to 8% of the Common Stock
outstanding upon consummation of the Conversion.
At the consummation of the Conversion, 8,528,444, 10,033,464, 11,538,483
and 13,269,256 shares of Common Stock, at the minimum, midpoint, maximum and 15%
above the maximum, respectively, will be issued to Public Stockholders pursuant
to the Distribution Exchange. See "THE CONVERSION -- The Distribution Exchange
Ratio."
No effect has been given in the tables to the issuance of additional shares
of Common Stock pursuant to existing and proposed stock option plans as opposed
to purchases in the open market. See "MANAGEMENT OF THE BANK -- Benefit Plans."
The tables below give
38
<PAGE>
effect to the Recognition Plan, which is expected to be adopted by Harbor
Florida following the Conversion and presented (together with the Stock Option
Plan) to stockholders for approval at an annual or special meeting of
stockholders to be held at least six months following the consummation of the
Conversion. If the Recognition Plan is approved by stockholders, the Recognition
Plan intends to acquire an amount of Common Stock equal to 4.0% of the shares of
Conversion Stock issued in the Offerings, either through open market purchases
or from authorized but unissued shares of Common Stock. No effect has been given
to (i) Harbor Florida's results of operations after the Conversion, or (ii) the
market price of the Common Stock after the Conversion.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma stockholders' equity represents the difference
between the stated amount of pro forma assets and liabilities of the Company
computed in accordance with generally accepted accounting principles ("GAAP").
The pro forma stockholders' equity is not intended to represent the fair market
value of the Common Stock and may be different than amounts that would be
available for distribution to stockholders in the event of liquidation.
39
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended September 30, 1996
-------------------------------------
Midpoint Maximum Maximum As
Minimum 11,500,000 13,225,000 Adjusted
9,755,000 Shares Shares Shares 15,208,750 Shares
$10.00 per share $10.00 per share $10.00 per share $10.00 per share
---------------- ---------------- ---------------- ----------------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Gross proceeds $97,750 $115,000 $132,250 $152,088
Less: estimated offering expenses 1,424 1,544 1,663 1,799
----- ----- ----- -----
Estimated net proceeds $96,326 $113,456 $130,587 $150,289
Less: Common Stock acquired by ESOP (7,820) (9,200) (10,580) (12,167)
Common Stock acquired by
Recognition Plan (3,910) (4,600) (5,290) (6,084)
------ ------ ------ ------
Estimated net proceeds as adjusted $84,596 $99,656 $114,717 $132,038
======= ======= ======== ========
Consolidated net income:
Historical net income $8,640 $8,640 $8,640 $8,640
Pro forma income on net proceeds 3,194 3,763 4,331 4,985
Pro forma ESOP adjustments(1) (316) (372) (428) (492)
Pro forma Recognition Plan adjustments(2) (475) (558) (642) (739)
---- ---- ---- ----
Pro forma net income $11,043 $11,473 $11,901 $12,394
======= ======= ======= =======
Per share income
Historical net income $0.48 $0.41 $0.36 $0.31
Pro forma income on net proceeds 0.18 0.18 0.18 0.18
Pro forma ESOP adjustments(1) (0.02) (0.02) (0.02) (0.02)
Pro forma Recognition Plan adjustment(2) (0.03) (0.03) (0.03) (0.03)
----- ----- ----- -----
Pro forma net income per share $0.61 $0.54 $0.49 $0.44
===== ===== ===== =====
Number of shares used in EPS calculation(7): 17,944,757 21,111,483 24,278,207 27,919,933
Stockholders' equity(6):
Historical $84,832 $84,832 $84,832 $84,832
Estimated net proceeds(3) 96,326 113,456 130,587 150,289
Less: Common stock acquired by ESOP(1) (7,820) (9,200) (10,580) (12,167)
Common stock acquired by
Recognition Plan(2) (3,910) (4,600) (5,290) (6,084)
------ ------ ------ ------
Pro forma stockholders' equity(5) $169,428 $184,488 $199,549 $216,870
======== ======== ======== ========
Stockholders' equity per share(6):
Historical $4.63 $3.94 $3.43 $2.98
Estimated net proceeds(3) 5.27 5.27 5.27 5.27
Less: Common Stock acquired by ESOP(1) (0.43) (0.43) (0.43) (0.43)
Common Stock acquired by
Recognition Plan(2) (0.21) (0.21) (0.21) (0.21)
----- ----- ----- -----
Pro forma stockholders' equity per
share(4)(5)(7) $9.26 $8.57 $8.06 $7.62
===== ===== ===== =====
Offering price as a percent of pro forma
shareholders' equity per share(4) 107.99% 116.69% 124.07% 131.23%
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months Ended June 30, 1997
---------------------------------------
Midpoint Maximum Maximum As
Minimum 11,500,000 13,225,000 Adjusted
9,755,000 Shares Shares Shares 15,208,750 Shares
$10.00 per share $10.00 per share $10.00 per share $10.00 per share
---------------- ---------------- ---------------- ----------------
(Dollars in thousands except per data share)
<S> <C> <C> <C> <C>
Gross proceeds $97,750 $115,000 $132,250 $152,088
Less: estimated offering expenses 1,424 1,544 1,663 1,799
----- ----- ----- -----
Estimated net proceeds $96,326 $113,456 $130,587 $150,289
Less: Common Stock acquired by ESOP (7,820) (9,200) (10,580) (12,167)
Common Stock acquired by
Recognition Plan (3,910) (4,600) (5,290) (6,084)
------ ------ ------ ------
Estimated net proceeds as adjusted $84,596 $99,656 $114,717 $132,038
======= ======= ======== ========
Consolidated net income:
Historical net income $9,817 $9,817 $9,817 $9,817
Pro forma income on net proceeds 2,376 2,799 3,222 3,709
Pro forma ESOP adjustments(1) (237) (279) (321) (369)
Pro forma Recognition Plan adjustments(2) (356) (419) (482) (554)
---- ---- ---- ----
Pro forma net income $11,600 $11,918 $12,236 $12,603
======= ======= ======= =======
Per share income
Historical net income $0.55 $0.47 $0.41 $0.34
Pro forma income on net proceeds 0.13 0.13 0.13 0.13
Pro forma ESOP adjustments(1) (0.01) (0.01) (0.01) (0.01)
Pro forma Recognition Plan adjustment(2) (0.02) (0.02) (0.02) (0.02)
----- ----- ----- -----
Pro forma net income per share $0.65 $0.57 $0.51 $0.44
===== ===== ===== =====
Number of shares used in EPS 17,907,412 21,067,547 24,277,680 27,881,827
Calculation(7):
Stockholders' equity(6):
Historical $93,706 $93,706 $93,706 $93,706
Estimated net proceeds(3) 96,326 113,456 130,587 150,289
Less: Common stock acquired by ESOP(1) (7,820) (9,200) (10,580) (12,167)
Common stock acquired by
Recognition Plan(2) (3,910) (4,600) (5,290) (6,084)
------ ------ ------ ------
Pro forma stockholders' equity $178,302 $193,362 $208,423 $225,744
======== ======== ======== ========
Stockholders' equity per share(6):
Historical $5.12 $4.35 $3.78 $3.29
Estimated net proceeds(3) 5.26 5.27 5.28 5.28
Less: Common Stock acquired by ESOP(1) (0.43) (0.43) (0.43) (0.43)
Common Stock acquired by
Recognition Plan(2) (0.21) (0.21) (0.21) (0.21)
----- ----- ----- -----
Pro forma stockholders' equity per
share(4)(5)(7) $9.74 $8.98 $8.42 $7.93
===== ===== ===== =====
Offering price as a percent of pro forma
stockholders equity per share(4) 102.67% 111.36% 118.76% 126.10%
</TABLE>
41
<PAGE>
- ----------
(1) It is assumed that up to 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares are expected to be borrowed by the ESOP from the net proceeds from
the Conversion retained by Harbor Florida. The Bank intends to make
contributions to the ESOP in amounts at least equal to the principal and
interest requirement of the debt. The Bank's payment of the ESOP debt is
based upon equal installments of principal and interest over a 15-year
period. However, assuming Harbor Florida makes the ESOP loan, interest
income earned by Harbor Florida on the ESOP debt will offset the interest
paid by the Bank. The amount of ESOP debt, which is equivalent to the cost
of unallocated common stock held by the ESOP, is reflected as a reduction
of stockholders' equity. In the event that the ESOP were to receive a loan
from an independent third party, both ESOP expense and earnings on the
proceeds retained by Harbor Florida would be expected to increase.
For purposes of this table, the purchase price of $10.00 per share was
utilized to calculate ESOP expense. Harbor Florida intends to record
compensation expense related to the ESOP in accordance with American
Institute of Certified Public Accountants, Statement of Position 93-6 ("SOP
93-6"). As a result, to the extent the value of the Common Stock
appreciates over time, compensation expense related to the ESOP will
increase. SOP 93-6 also requires that, for the earnings per share
computations for leveraged ESOPs, outstanding shares include only such
shares as have been committed to be released to participants. See
"MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan."
(2) Assuming the receipt of shareholder approval at an annual or special
meeting of shareholders to be held at least six months following the
consummation of the Conversion, the Bank and Harbor Florida intend to
implement the Recognition Plan. Assuming such approval, the Recognition
Plan will eventually purchase an amount of shares equal to 4% of the shares
of Conversion Stock issued in the Offerings for issuance to directors,
officers and employees of Harbor Florida and the Bank. Such shares may be
purchased from authorized and unissued shares or on the open market. Harbor
Florida currently intends that the shares be purchased on the open market
at the assumed purchase price of $10.00, and that the estimated net
conversion proceeds have been reduced for the purchase of the shares in
determining estimated proceeds available for investment. The Common Stock
to be purchased by the Recognition Plan represents unearned compensation
and is, accordingly, reflected as a reduction to pro forma stockholders'
equity. As shares of the Common Stock granted pursuant to the Recognition
Plan vest over five years, an expense will be recognized as well as a
corresponding reversal in the reduction in capital. In the event that
authorized but unissued shares are issued in connection with the
Recognition Plan as opposed to acquired in the open market, the interests
of existing shareholders will be diluted. Assuming that 11,500,000 shares
of Common Stock are issued in the Conversion and that all awards under the
Recognition Plan are from authorized but unissued shares, Harbor Florida
estimates that the per share book value for the Common Stock would be
increased $0.03 per share, or 0.4% and earnings per share would be diluted
$0.02 per share, or 3.8% on a pro forma basis as of September 30, 1996.
(3) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. For purposes of
calculating pro forma net income, proceeds attributable to purchases by the
ESOP, which purchases are to be funded by Harbor Florida, have been
deducted from net proceeds.
(4) Historical pro forma per share amounts have been computed as if the shares
of Common Stock indicated had been outstanding at the beginning of the
periods or on the dates shown, but without any adjustment of historical net
income or historical equity to reflect the investment of the estimated net
proceeds of the sale of shares in the Conversion as described above. All
ESOP and Recognition Plan shares have been
42
<PAGE>
considered outstanding for purposes of computing book value per share. Pro
forma share amounts have been computed by dividing the pro forma net income
or stockholders' equity (book value) by the number of shares indicated.
(5) "Book value" represents the difference between the stated amounts of the
Company's assets (based on historical cost) and liabilities computed in
accordance with generally accepted accounting principles. The amounts shown
do not reflect the effect of the Liquidation Account which will be
established for the benefit of Eligible and Supplemental Eligible Account
Holders in the Conversion, or the federal income tax consequences of the
restoration to income of the Bank's bad debt reserves for income tax
purposes which would be required in the unlikely event of liquidation. See
"THE CONVERSION -- Effects of Conversion" and "REGULATION -- Federal and
State Taxation." The amounts shown for book value do not represent fair
market values or amounts, if any, distributable to stockholders in the
unlikely event of liquidation.
(6) The retained earnings of the Bank will be substantially restricted after
the Conversion. See "DIVIDEND POLICY" and "REGULATION" -- Capital
Requirements."
(7) The number of shares used in the EPS calculation reflect historical shares
as adjusted for the Exchange Distribution, shares issued in the Offerings,
and incremental shares related to existing stock options as adjusted for
the Exchange Distribution considered for EPS purposes under the Treasury
stock method. No effect has been given in the stockholders' equity tables
to the issuance of additional shares of Common Stock pursuant to existing
and proposed stock option plans.
HARBOR FLORIDA BANCORP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
The consolidated condensed statements of earnings of Harbor Florida
Bancorp, Inc., its wholly owned subsidiary, Harbor Federal Savings Bank, and the
Bank's subsidiaries for the years ended September 30, 1996, 1995 and 1994 have
been derived from the consolidated financial statements audited by KPMG Peat
Marwick LLP, independent certified public accountants, whose report thereon
appears elsewhere herein. The condensed statement of earnings for the nine month
periods ending June 30, 1997 and 1996 are unaudited, and in the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the results for the unaudited periods have
been made. The results of the operations for the nine month periods ended June
30, 1997 and 1996 are not necessarily indicative of results that may be expected
for a fiscal year. The condensed statements of earnings should be read in
conjunction with the audited consolidated financial statements and notes thereto
contained herein beginning on page F-1.
43
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended June 30, Years Ended September 30
------------------------- ----------------------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $51,026 $43,484 $59,751 $51,050 $46,088
Investment securities 2,835 1,731 2,462 2,352 2,106
Mortgage-backed securities 7,354 7,661 10,155 9,613 6,247
Other 1,590 1,595 1,989 1,869 1,643
----- ----- ----- ----- -----
Total interest income 62,805 54,471 74,357 64,884 56,084
------ ------ ------ ------ ------
Interest expense 33,382 28,653 39,114 33,280 26,276
------ ------ ------ ------ ------
Net interest income 29,423 25,818 35,243 31,604 29,808
Provision for (recovery
of) loan losses 456 (149) (76) 460 1,553
--- ---- --- --- -----
Net interest income
after provision for
(recovery of) loan
losses 28,967 25,967 35,319 31,144 28,255
------ ------ ------ ------ ------
Other income:
Other fees and service
changes 2,478 2,085 2,797 2,566 2,521
Income (loss) from
real estate operations 23 (181) (301) (40) 1,250
Gain (loss) on sale of
mortgage loans 135 (67) (40) 91 118
Other 259 304 429 290 180
--- --- --- --- ---
Total other income 2,895 2,141 2,885 2,907 4,069
----- ----- ----- ----- -----
Other expenses 15,706 14,651 24,132 18,198 17,866
------ ------ ------ ------ ------
Income from continuing
operations before
income taxes, extraordinary
item and cumulative effect
of change in accounting
principles 16,156 13,457 14,072 15,853 14,458
Income tax expense 6,339 5,207 5,432 5,958 5,254
----- ----- ----- ----- -----
Income before
extraordinary
item and cumulative
effect of change in
accounting principles 9,817 8,250 8,640 9,895 9,204
Extraordinary item -
Extinguishment of FHLB
advances, net of
income tax benefit --- --- --- --- (1,342)
Cumulative effect of
change in accounting
principles --- --- --- --- 1,935
----- ----- ----- ----- -----
Net income $ 9,817 $ 8,250 $ 8,640 $ 9,895 $ 9,797
======= ======= ======= ======= =======
</TABLE>
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of the Bank's financial condition and
results of operations is intended to provide assistance and understanding of the
Bank's financial condition and results of operations. The information in this
section should be read with the financial statements and the notes to financial
statements beginning at page F-1. The Bank's results of operations are primarily
dependent on its net interest income. Net interest income is a function of the
balances of loans and investments outstanding in any one period, the yields
earned on such loans and investments and the interest paid on deposits and
borrowed funds that were outstanding in that same period. The Bank's noninterest
income consists primarily of fees and service charges, gains on sale of mortgage
loans, and, depending on the period, real estate operations which have either
generated income or losses. The results of operations are also significantly
impacted by the amount of provisions for loan losses which, in turn, is
dependent upon the adequacy of the loan loss allowance. The noninterest expenses
consist primarily of employee compensation and benefits, occupancy expenses,
professional fees and federal deposit insurance premiums. Its results of
operations are affected by general economic and competitive conditions,
including changes in prevailing interest rates and the policies of regulatory
agencies.
Asset and Liability Management
The Bank attempts to manage its assets and liabilities in a manner that
stabilizes net interest income and net economic value under a broad range of
interest rate environments. This is accomplished by matching maturity and
repricing periods on loans and investments to maturity and repricing periods on
deposits and borrowings.
In addition, the Bank monitors interest rate risk exposure with the use of
computerized simulation models. The computerized models simulate the effect of
rising and falling interest rate levels on the Bank's net interest income and
net economic value. The Bank's Board of Directors reviews the simulation results
on a quarterly basis to ensure that simulated fluctuations of net interest
income and net economic value remain within limits established in the Bank's
interest rate risk management policy.
The Board of Directors has established an asset/liability committee which
consists of the Bank's president and senior bank officers. The committee meets
on a monthly basis to
45
<PAGE>
review loan and deposit pricing and production volumes, interest rate risk
analysis, liquidity and borrowing needs, and a variety of other asset and
liability management topics.
The Bank currently utilizes the following strategies to reduce interest
rate risk: (a) the Bank seeks to originate and hold in portfolio adjustable rate
loans which have annual interest rate adjustments; (b) the Bank sells a portion
of newly originated 30 year fixed rate mortgage loans, currently $100,000 to
$200,000 per month; (c) the Bank seeks to lengthen the maturities of deposits
when deemed cost effective through the pricing and promotion of certificates of
deposits; (d) the Bank seeks to attract low cost checking and transaction
accounts which tend to be less interest rate sensitive when interest rates rise;
and (e) the Bank has utilized long term Federal Home Loan Bank ("FHLB") advances
to fund the origination of fixed rate loans. Harbor Federal refinanced a portion
of its outstanding FHLB advances in the first quarter of the fiscal year ended
September 30, 1994, thereby incurring a prepayment penalty of $1.3 million (net
of income tax benefit of $810,000), in order to lengthen the maturity of its
liabilities at favorable rates. The Bank also maintains a high level of liquid
assets consisting of shorter-term investments which are expected to increase in
yield as interest rates rise.
Interest Rate Sensitivity Analysis
The Bank measures its interest rate sensitivity by using the computer
modeling techniques described above. However, in order to encourage savings
associations such as the Bank to reduce interest rate risk, in 1993 the OTS
adopted a rule which would incorporate an interest rate risk ("IRR") component
into its risk-based capital rules. The IRR component is a dollar amount that
would be deducted from regulatory capital for the purpose of calculating an
institution's risk-based capital requirement. The IRR component of regulatory
capital is measured in terms of sensitivity of net portfolio value ("NPV") to a
hypothetical change in interest rates. NPV is the difference between estimated
future incoming and outgoing cash flows, discounted to present value, for
assets, liabilities and off-balance sheet contracts. An institution's IRR would
be measured as the change to its NPV as a result of a hypothetical 200 basis
point instantaneous change in market interest rates. Under the OTS rule, a
calculated change in NPV of more than 2% of the estimated market of an
institution's assets would require the institution to deduct from its risk-based
capital 50% of that excess change. In March 1995, the OTS announced that
application of the revised rule was being suspended until further notice.
The following table presents the Bank's NPV as of June 30, 1997, as
calculated by the OTS, based on information provided by the Bank.
46
<PAGE>
NET PORTFOLIO VALUE AT JUNE 30, 1997 NPV AS % OF PV OF ASSETS
------------------------------------ ------------------------
Change in Rates $ Amount $ Change % Change NPV Ratio Change
- --------------- -------- -------- -------- --------- ------
(Dollars in thousands)
+400 bp $ 55,758 $(66,566) (54)% 5.30% (534)bp
+300 bp 74,167 (48,157) (39) 6.88 (375)
+200 bp 92,284 (30,040) (25) 8.36 (228)
+100 bp 108,992 (13,332) (11) 9.66 (98)
Static 122,324 10.64
-100 bp 129,402 7,078 6 11.10 46
-200 bp 129,198 6,874 6 11.00 36
-300 bp 128,221 5,897 5 10.84 20
-400 bp 130,451 8,127 7 10.92 29
Based on the information above, the Bank believes that it would have been
in compliance with the risk-based capital requirements of the regulations, as of
June 30, 1997, if the regulation had been effective on that date. As such, a 200
basis point increase in interest rates would result in a 25% or $30.04 million
decline in NPV, and the Bank would have been required to deduct $3.52 million
from total capital for purposes of calculating the Bank's risk-based capital.
After such deduction, the Bank would continue to be well capitalized. As of June
30, 1997, without considering the effect of the IRR component, the Bank had
$85.7 million of risk-based capital, which exceeded the OTS minimum requirements
by $39.3 million.
Future interest rates or their effects on NPV or net interest income are
not predictable. Nevertheless, the Bank's management does not expect current
interest rates to have a material adverse effect on the Bank's NPV or net
interest income in the near future. Computations of prospective effects of
hypothetical interest rate changes are based on numerous assumptions, including
relative levels of market interest rates, prepayments, and deposit run-offs, and
should not be relied upon as indicative of actual results. Certain shortcomings
are inherent in such computations. Although certain assets and liabilities may
have similar maturity or periods of repricing, they may react at different times
and in different degrees to changes in the market interest rates. The interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while rates on other types of assets and
liabilities may lag behind changes in market interest rates. Certain assets,
such as adjustable rate mortgages, generally have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
In the event of a change in interest rates, prepayments and early withdrawal
levels could deviate significantly from those assumed in making calculations set
forth above. Additionally, an increased credit risk may result as the ability of
many borrowers to service their debt may decrease in the event of an interest
rate increase.
47
<PAGE>
Analysis of Net Interest Income
The Bank's earnings have historically depended primarily upon the Bank's
net interest income, which is the difference between interest income earned on
its loans and investments ("interest-earning assets") and interest paid on its
deposits and any borrowed funds ("interest-bearing liabilities"). Net interest
income is affected by (i) the difference between rates of interest earned on the
Bank's interest-earning assets and rates paid on its interest-bearing
liabilities ("interest rate spread") and (ii) the relative amounts of its
interest-earning assets and interest-bearing liabilities.
The following tables present an analysis of certain aspects of the Bank's
operations during the recent periods indicated. The first table presents the
average balances of, and the interest and dividends earned or paid on, each
major class of interest-earning assets and interest-bearing liabilities. No tax
equivalent adjustments were made. Average balances represent daily average
balances. The yields and costs include fees which are considered adjustments to
yields.
48
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended June 30,(1)
--------------------------------------------------------------------------
At June 30, 1997 1997 1996
---------------- ---- ----
Average Interest Average Interest
Balance Yield/Rate Balance and Dividends Yield/Rate Balance and Dividends Yield/Rate
------- ---------- ------- ------------- ---------- ------- ------------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets: (2)
Federal Funds sold $ 10,250 5.59% $ 8,057 $ 322 5.27% $ 13,539 $ 539 5.24%
Interest-bearing deposits 15,039 5.56 31,295 1,268 5.34 25,439 1,056 5.45
Investment securities 70,088 6.02 62,140 2,835 6.10 37,615 1,731 6.15
Mortgage-backed securities 156,559 6.68 149,398 7,354 6.56 153,157 7,661 6.67
Mortgage loans 731,670 8.41 712,095 44,537 8.34 598,256 37,996 8.47
Other loans 98,654 9.50 93,163 6,489 9.31 77,445 5,488 9.47
------ ---- ------ ----- ---- ------ ----- ----
Total interest-earning assets 1,082,260 8.02 1,056,148 62,805 7.93 905,451 54,471 8.02
Total noninterest earning assets 34,458 29,485 23,575
------ ------ ------
Total assets $1,116,718 $1,085,633 $929,026
========== ========== ========
Liabilities and Stockholders'
Equity:
Interest-bearing liabilities
Deposits:
Transaction accounts $ 138,666 1.30% $138,561 $ 1,433 1.38% $114,170 $ 1,225 1.43%
Passbook savings 77,467 1.73 77,936 1,023 1.76 80,028 1,145 1.91
Official checks 6,098 --- 5,787 --- 0.00 6,719 --- 0.00
Certificate savings 682,673 5.47 656,187 26,485 5.40 553,230 22,854 5.52
------- ---- ------- ------ ---- ------- ------ ----
Total deposits 904,904 4.48 878,471 28,941 4.40 754,147 25,224 4.47
FHLB advances 100,000 6.02 98,059 4,397 6.00 73,303 3,364 6.13
Other borrowings 449 8.79 599 44 9.51 894 65 9.52
--- ---- --- -- ---- --- -- ----
Total interest-bearing
liabilities 1,005,353 4.64 977,129 33,382 4.57 828,344 28,653 4.62
Noninterest-bearing liabilities 17,659 19,461 19,565
------ ------ ------
Total liabilities 1,023,012 996,590 847,909
Stockholders' equity 93,706 89,043 81,117
------ ------ ------
Total liabilities and
stockholders' equity $1,116,718 $1,085,633 $929,026
Net interest income (interest
rate spread) (3) 3.38 $29,423 3.36 $25,818 3.40
---- ------- ---- -------
Net interest-earning assets (net $76,907 3.71 $79,019 3.70 $77,107 3.79
======= ---- ======= ------- ---- ======= ------- ====
interest margin) (4)
Ratio of average interest-earning
assets to average interest-bearing
liabilities 107.65 108.09 109.34
------ ------ ======
- ----------
</TABLE>
(1) Yields and rates have been annualized for comparative purposes. The Bank
reverses accrued interest to loans on nonaccrual status. Such interest is
recorded as income when collected.
(2) Average balances and rates include nonaccruing loans.
(3) Interest rate spread represents the difference between the weighted average
rates earned on interest-earning assets and the weighted average interest
rates paid on interest-bearing liabilities.
(4) Net yield on average interest-earning assets represents net interest income
as a percentage of average interest-earning assets.
----------------------
49
<PAGE>
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Average Interest and Yield/ Average Interest and Yield/ Average Interest and Yield/
Balance Dividends Rate Balance Dividends Rate Balance Dividends Rate
------- --------- ---- ------- --------- ---- ------- --------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets(1):
Federal funds sold $ 12,679 $ 669 5.28% $ 8,224 $ 457 5.56% $ 18,028 $ 657 3.64%
Interest-bearing deposits 24,062 1,320 5.49 24,899 1,412 5.67 27,350 986 3.61
Investment securities 39,825 2,462 6.18 43,375 2,352 5.42 46,753 2,106 4.50
Mortgage-backed securities 152,895 10,155 6.64 147,482 9,613 6.52 103,096 6,247 6.06
Mortgage loans 620,166 52,237 8.42 542,127 44,883 8.28 511,774 41,189 8.05
Other loans 79,875 7,514 9.41 65,308 6,167 9.44 53,894 4,899 9.09
------ ----- ---- ------ ----- ---- ------ ----- ----
Total interest-earning assets 929,502 74,357 8.00 831,415 64,884 7.80 760,895 56,084 7.37
Total noninterest earning assets 24,481 20,174 25,222
------ ------ ------
Total assets $953,983 $851,589 $786,117
======== ======== ========
Liabilities and Stockholders'
Equity:
Interest-bearing liabilities
Deposits:
Transaction accounts $118,398 $ 1,724 1.46% $108,558 $ 1,782 1.64% $118,804 $ 1,923 1.62%
Passbook savings 79,617 1,506 1.89 85,615 1,718 2.01 96,805 1,934 2.00
Official checks 6,400 --- .00 4,250 ---- .00 4,455 ---- .00
Certificate savings 570,518 31,210 5.47 500,941 26,127 5.22 445,276 19,567 4.39
------- ------ ---- ------- ------ ---- ------- ------ ----
Total deposits 774,933 34,440 4.44 699,364 29,627 4.24 665,340 23,424 3.52
FHLB advances 75,096 4,593 6.12 58,178 3,546 6.10 45,000 2,773 6.16
Other borrowings 857 81 9.47 1,160 107 9.27 1,165 79 6.70
--- -- ---- ----- --- ---- ----- -- ----
Total interest-bearing
liabilities 850,886 39,114 4.60 758,702 33,280 4.39 711,505 26,276 3.69
------ ------ ------
Noninterest-bearing
liabilities 20,863 20,167 16,461
------ ------ ------
Total liabilities 871,749 778,869 727,966
Stockholders' equity 82,234 72,720 58,151
------ ------ ------
Total liabilities and
stockholders' equity $953,983 $851,589 $786,117
======== ======== ========
Net interest income/interest
rate spread(2) $35,243 3.40 $31,604 3.42 $29,808 3.68
======= ==== ======= ==== ======= ====
Net interest-earning assets/net
interest margin (3) $ 78,616 3.79 $ 72,713 3.80 $ 49,390 3.92
======== ==== ======== ==== ======== ====
Interest-earning assets to
interest-bearing liabilities 109.24 109.58 106.94
- ----------
</TABLE>
(1) Average balances and rates include nonaccruing loans.
(2) Interest rate spread represents the difference between weighted average
interest rates earned on interest-earning assets and the weighted average
interest rates paid on interest-bearing liabilities.
(3) Net yield on average interest-earning assets represents net interest income
as a percentage of average interest-earning assets.
50
<PAGE>
Rate/Volume Analysis
The relationship between the volume and rates of the Bank's
interest-earning assets and interest-bearing liabilities influences the Bank's
net interest income. The following table reflects the sensitivity of the Bank's
interest income and interest expense to changes in volume and in prevailing
interest rates. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on effects attributable
to: (1) changes in volume (changes in volume multiplied by old rate); (2)
changes in rate (changes in rate multiplied by old volume); and (3) net change.
Changes attributable to the combined impact of volume and rates have been
allocated proportionately to changes due to volume and changes due to rate.
51
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended June 30, Years Ended September 30,
Increase (Decrease) Increase (Decrease)
----------------------------- -----------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995 1995 vs. 1994
Volume Rate Net Volume Rate Net Volume Rate Net
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest-bearing
deposits $12 $(18) ($6) $ 194 $(74) $120 $(684) $910 $226
Investment securities 1,098 6 1,104 (202) 312 110 (166) 412 246
Mortgage-backed
securities (185) (122) (307) 360 182 542 2,893 473 3,366
Mortgage loans 7,165 (624) 6,541 6,681 673 7,354 2,524 1,170 3,694
Nonmortgage loans:
Commercial loans 15 (85) (70) 46 (110) (64) 14 177 191
Consumer loans 1,067 5 1,072 1,305 106 1,411 1,021 56 1,077
----- ---- ----- ----- --- ----- ----- -- -----
Total interest income 9,172 (838) 8,334 8,384 1,089 9,473 5,602 3,198 8,800
===== ==== ===== ===== ===== ===== ===== ===== =====
Interest expense
Deposits:
Transaction accounts $251 $(43) $208 $144 $ (202) $ (58) $ (165) $ 24 $ (141)
Passbook savings (29) (93) (122) (114) (98) (212) (225) 8 (217)
Certificate savings 4,135 (504) 3,631 3,806 1,277 5,083 2,903 3,657 6,560
----- ---- ----- ----- ----- ----- ----- ----- -----
Total deposits 4,357 (640) 3,717 3,836 977 4,813 2,513 3,689 6,202
FHLB advances 1,107 (74) 1,033 1,035 12 1,047 803 (31) 772
Other borrowings (19) (2) (21) (26) ---- (26) 11 19 30
--- --- --- --- ---- --- --- -- --
Total interest expense 5,445 (716) 4,729 4,845 989 5,834 3,327 3,677 7,004
Net interest income $3,727 $(122) $3,605 $3,539 $100 $3,639 $2,275 $ (479) $1,796
====== ===== ====== ====== ==== ====== ====== ====== ======
</TABLE>
Years Ended September 30,
Increase (Decrease)
------------------------------------
1994 vs. 1993
Volume Rate Net
------ ---- ---
Interest Income:
Interest-bearing
deposits $532 $192 $724
Investment securities 624 (71) 553
Mortgage-backed
securities 656 (526) 130
Mortgage loans 1,381 (2,270) (889)
Nonmortgage loans:
Commercial loans (446) 255 (191)
Consumer loans 445 (362) 83
--- ---- --
Total interest income 3,192 (2,782) 410
===== ====== ===
Interest expense
Deposits:
Transaction accounts $ 82 $ (128) $ (46)
Passbook savings (8) (292) (300)
Certificate savings 111 (1,231) (1,120)
--- ------ ------
Total deposits 185 (1,651) (1,466)
FHLB advances 1,139 (494) 645
Other borrowings 19 (173) (154)
--- ---- ----
Total interest expense 1,343 (2,318) (975)
===== ====== ====
52
<PAGE>
Comparison of Operating Results of Nine Months Ended June 30, 1997 to 1996
General. Net income for the nine months ended June 30, 1997 increased 19.0%
to $9.8 million or $1.96 per share, compared to $8.3 million or $1.67 per share
for the same period last year. This increase was due primarily to the growth in
earning assets. The acquisition of Treasure Coast Bank on June 1, 1996,
increased total assets by $75 million, net loans by $62 million and deposits by
$70 million.
Net Interest Income. For the nine months ended June 30, 1997, net interest
income was $29.4 million compared to $25.8 million in the comparable period in
1996. This increase was primarily the result of an increase in average
interest-earning assets to $1.06 billion for the nine months ended June 30,
1997, compared to $905.9 million for the comparable period in 1996, partially
offset by a decline of 4 basis points in the net interest margin. The net
interest margin was 3.36% for the nine months ended June 30, 1997, compared to
3.40% for the comparable period in 1996. The increase in average
interest-earning assets was primarily due to the growth in loans.
Provision for Loan Losses. The provision for loan losses is charged to
operations to bring the total allowance for loan losses to a level considered
appropriate by management based on historical experience, volume and type of
lending conducted by the Bank, industry standards, the levels and status of past
due and non-performing loans, the general economic conditions of the Bank's
lending area and other factors affecting collectibility of the Bank's loan
portfolio. For the nine months ended June 30, 1997, the provision for loan
losses was $456,000 compared to a credit of $149,000 in the comparable period in
1996. The credit to the provision for the nine months ended June 30, 1996, was
primarily due to a reduction in classified loans. The allowance for loan losses
was $11.4 million and $11.0 million for June 30, 1997 and September 30, 1996,
respectively. The allowance was 1.4% of total loans at both June 30, 1997 and
September 30, 1996; 109.0% and 129.4% of classified loans at June 30, 1997 and
September 30, 1996, respectively; and was 511.8% and 507.3% of nonperforming
loans at June 30, 1997 and September 30, 1996, respectively. While the Bank's
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions.
Other Income. Other income increased to $2.9 million for the nine months
ended June 30, 1997, from $2.1 million for the comparable period in 1996, due
primarily to an increase of $393,000 in other fees and service charges, an
increase of $204,000 in income from real estate operations and an increase of
$202,000 in gain on sale of mortgage loans. Other fees and service charges,
primarily from fees and service charges on deposit products, were $2.5 million
and $2.1 million for the nine months ended June 30, 1997 and 1996, respectively.
This increase was primarily due to the growth in deposits. Income from real
estate operations was $23,000 for the nine months ended June 30, 1997, compared
to a loss of $181,000 in the comparable period in 1996. Gain on sale of mortgage
loans was $135,000 for
53
<PAGE>
the nine months ended June 30, 1997, compared to a loss of $67,000 in the
comparable period in 1996.
Other Expense. For the nine months ended June 30, 1997, other expense was
$15.7 million compared to $14.7 million in the comparable period in 1996. The
change was due primarily to an increase of $917,000 in compensation and benefits
and an increase of $600,000 in other expense partially offset by a decrease of
$625,000 in SAIF deposit insurance premiums. The increase in compensation and
benefits is due primarily to additional staff required to support the growth in
loans and deposits. The increase in other expense is primarily due to an
increase of $153,000 in amortization of goodwill, an increase of $118,000 in
advertising and promotion, an increase of $69,000 in data processing services
and $52,000 in filing fees relating to the organization of the mid-tier holding
company. The decrease in SAIF deposit insurance premiums is due to lower
assessment rates resulting from The Deposit Insurance Act of 1996.
Income Taxes. For the nine months ended June 30, 1997, income tax expense
was $6.3 million compared to $5.2 million for the comparable period in 1996. The
effective tax rate remained constant at 39% for both the nine months ended June
30, 1997 and 1996.
Year Ended September 30, 1996 Compared to Year Ended September 30, 1995
General. Net income for the year ended September 30, 1996, excluding the
one-time SAIF special assessment of $2.8 million after tax, increased 16.0% to
$11.5 million or $2.32 per share, compared to $9.9 million or $2.03 per share
for the year ended September 30, 1995. Including the one-time SAIF special
assessment, net income for the year ended September 30, 1996 was $8.6 million,
or $1.75 per share. Net interest income increased 11.5% to $35.2 million for the
year ended September 30, 1996 compared to $31.6 million for the year ended
September 30, 1995. This increase was due to an increase in interest income of
$9.4 million and an increase in interest expense of $5.8 million. Other income
remained constant at $2.9 million for both of the years ended September 30, 1996
and 1995. Other expenses increased to $24.1 million for the year ended September
30, 1996 from $18.2 million for the year ended September 30, 1995, due primarily
to the one-time SAIF special assessment of $4.5 million.
Interest Income. Total interest income increased to $74.3 million for the
year ended September 30, 1996 from $64.9 million for the year ended September
30, 1995, as a result of an increase in average interest-earning assets and an
increase in the average interest rate. Average interest-earning assets increased
to $929.5 million for the year ended September 30, 1996 from $831.4 million for
the year ended September 30, 1995. The average rate earned on interest-earning
assets increased to 8.00% for the year ended September 30, 1996 from 7.80% for
the year ended September 30, 1995, an increase of 20 basis points. Interest
income on
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loans increased $8.7 million to $59.8 million for the year ended September 30,
1996 from $51.1 million for the year ended September 30, 1995. This increase was
a result of a $92.6 million increase in the average balance to $700.0 million in
1996 from $607.4 million in 1995 and an increase of 14 basis points in the
average yield to 8.54% in 1996 from 8.40% in 1995. The increase in the average
balance of total loans was mainly due to significant growth in the residential
loan portfolio resulting from high levels of loan originations and the
acquisition of $62 million of loans from Treasure Coast Bank, FSB. Interest
income on mortgage-backed securities increased $541,000 to $10.2 million for the
year ended September 30, 1996 from $9.6 million for the year ended September 30,
1995. This increase was primarily the result of a $5.4 million increase in the
average balance to $152.9 million in 1996 from $147.5 million in 1995. The
increase in the average balance of mortgage-backed securities was primarily due
to the purchase of adjustable and seven-year balloon securities with the
proceeds from maturing investment securities and proceeds from new FHLB
advances.
Interest Expense. Total interest expense increased to $39.1 million for the
year ended September 30, 1996 from $33.3 million for the year ended September
30, 1995, as a result of an increase in average interest-bearing liabilities and
an increase in the average rate paid. Average interest-bearing liabilities
increased to $850.9 million for the year ended September 30, 1996 from $758.7
million for the year ended September 30, 1995. The average interest rate paid on
interest-bearing liabilities was 4.60% for the year ended September 30, 1996
compared to 4.39% for the year ended September 30, 1995, an increase of 21 basis
points. Interest expense on deposits increased $4.8 million to $34.4 million for
the year ended September 30, 1996 from $29.6 million for the year ended
September 30, 1995. This increase was a result of an increase of $75.6 million
in the average balance to $775.0 million in 1996 from $699.4 million in 1995 and
an increase of 20 basis points in the average rate to 4.44% in 1996 from 4.24%
in 1995. The increase in the average balance of deposits reflects the
acquisition of $70 million of deposits from Treasure Coast Bank, FSB. Interest
expense on FHLB advances and other borrowings increased $1.0 million to $4.7
million for the year ended September 30, 1996 from $3.7 million for the year
ended September 30, 1995. This increase was the result of an increase of $16.6
million in the average balance to $75.9 million in 1996 from $59.3 million in
1995.
Provision for Loan Losses. The provision for loan losses was a credit of
$76,000 for the year ended September 30, 1996 compared to an expense of $460,000
for the year ended September 30, 1995. The credit to the provision for the year
ended September 30, 1996 was primarily due to a reduction in classified loans.
The allowance for loan losses was at $11.0 million and $ 10.1 million for
September 30, 1996 and 1995, respectively. The allowance for loan losses at
September 30, 1996 includes $885,000 of allowances acquired in the Treasure
Coast Bank acquisition. The allowance was 1.4% and 1.6% of total loans at
September 30,
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1996 and 1995, respectively, and was 129.4% and 57.6% of classified loans at
September 30, 1996 and 1995, respectively. The Bank had net recoveries of
$125,000 and $188,000 for the years ended September 30, 1996 and 1995,
respectively.
Other Income. Other income remained constant at $2.9 million for both the
years ended September 30, 1996 and 1995. Losses from real estate operations were
$301,000 for the year ended September 30, 1996 compared to $40,000 for the year
ended September 30, 1995. Other income, primarily from fees and service charges
on deposit products was $2.8 million and $2.6 million for the years ended
September 30, 1996 and 1995, respectively.
Other Expense. Other expense increased by $5.9 million to $24.1 million for
the year ended September 30, 1996 from $18.2 million for the year ended
September 30, 1995. The increase was primarily due to an expense for the
one-time SAIF special assessment of $4.5 million. Payment of the SAIF assessment
on deposits formerly held by Treasure Coast was charged to goodwill. Other
changes included an increase of $642,000 in compensation and benefits, due
primarily to wage increases, and a $341,000 increase in occupancy expense.
Income Tax Expense. Income tax expense decreased by $526,000 to $5.4
million for the year ended September 30, 1996 from $5.9 million for the year
ended September 30, 1995, due primarily to the $1.7 million tax effect of the
one-time SAIF special assessment. The effective tax rates were 39% and 38% for
the years ended September 30, 1996 and 1995, respectively.
Year Ended September 30, 1995 Compared to Year Ended September 30, 1994
General. Net income for the year ended September 30, 1995 increased 1.0% to
$9.9 million, or $2.03 per share, compared to $9.8 million for the year ended
September 30, 1994. Net income for the year ended September 30, 1994 included
two nonrecurring items that added a net of $593,000 to that year's earnings. Net
interest income increased 6.0% to $31.6 million for the year ended September 30,
1995 compared to $29.8 million for the year ended September 30, 1994. This
increase was due to an increase in interest income of $8.8 million and an
increase in interest expense of $7 million. Other income decreased by $1.2
million to $2.9 million for the year ended September 30, 1995 from $4.1 million
for the year ended September 30, 1994, primarily due to a decrease in income
from real estate operations of $1.3 million. Other expenses increased to $18.2
million for the year ended September 30, 1995 from $17.9 million for the year
ended September 30, 1994 as a result of an increase of $615,000 in compensation
and benefits and a decrease of $438,000 in professional fees.
Interest Income. Total interest income increased to $64.9 million for the
year ended September 30, 1995 from $56.1 million for the year ended September
30, 1994, as a result of an increase in average interest-earning assets and an
increase in the average interest rate. Average interest-earning assets increased
to $831.4 million for the year ended September 30,
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<PAGE>
1995 from $760.9 million for the year ended September 30, 1994. The average rate
earned on interest-earning assets increased to 7.80% for the year ended
September 30, 1995 from 7.37% for the year ended September 30, 1994, an increase
of 43 basis points. Interest income on loans increased $5 million to $51.1
million for the year ended September 30, 1995 from $46.1 million for the year
ended September 30, 1994. This increase was a result of a $41.8 million increase
in the average balance to $607.4 million in 1995 from $565.7 million in 1994 and
an increase of 25 basis points in the average yield to 8.40% in 1995 from 8.15%
in 1994. The increase in the average balance of total loans was mainly due to
significant growth in the residential and consumer loan portfolios resulting
from high levels of loan originations and lower levels of loan refinancings. The
increase in the yield on total loans was primarily the result of adjustable rate
mortgages repricing upward and the origination of loans at higher interest
rates. Interest income on mortgage-backed securities increased $3.4 million to
$9.6 million for the year ended September 30, 1995 from $6.2 million for the
year ended September 30, 1994. This increase was primarily the result of a $44.4
million increase in the average balance to $147.5 million in 1995 from $103.1
million in 1994. The increase in the average balance of mortgage-backed
securities was primarily due to the purchase of adjustable and five and
seven-year balloon securities with the proceeds from maturing investments
securities and proceeds from new FHLB advances.
Interest Expense. Total interest expense increased to $33.3 million for the
year ended September 30, 1995, from $26.3 million for the year ended September
30, 1994, as a result of an increase in the average rate paid and an increase in
average interest-bearing liabilities. The average interest rate paid on
interest-bearing liabilities was 4.39% for the year ended September 30, 1995
compared to 3.69% for the year ended September 30, 1994, an increase of 70 basis
points. Average interest-bearing liabilities increased to $758.7 million for the
year ended September 30, 1995 from $711.5 million for the year ended September
30, 1994. Interest expense on deposits increased $6.2 million to $ 29.6 million
for the year ended September 30, 1995 from $23.4 million for the year ended
September 30, 1994. This increase was a result of an increase of 72 basis points
in the average rate to 4.24% in 1995 from 3.52% in 1994 and a $34 million
increase in the average balance to $699.4 million in 1995 from $665.4 million in
1994.
Provision for Loan Losses. The provision for loan losses was $460,000 for
the year ended September 30, 1995 compared to $1.6 million for the year ended
September 30, 1994. For the year ended September 30, 1994, management decided to
increase the level of general valuation allowances for classified loans as a
result of a change in general valuation policies. The allowance for loan losses
was at $10.1 million and $9.4 million for September 30, 1995 and 1994,
respectively. The allowance was 1.6% of total loans at both September 30, 1995
and 1994, and was 57.6% and 57.4% of classified loans at September 30, 1995 and
1994, respectively. The Bank had net recoveries of $188,000 and $577,000 for the
years ended September 30, 1995 and 1994, respectively.
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Other Income. Other income decreased to $2.9 million for the year ended
September 30, 1995 from $4.1 million for the year ended September 30, 1994, due
primarily to a decrease of $1.3 million in income from real estate operations.
Income from real estate operations was a loss of $40,000 for the year ended
September 30, 1995 compared to income of $1.2 million for the year ended
September 30, 1994. The income for the year ended September 30, 1994 resulted
primarily from the sale of three real estate owned properties. Other income,
primarily from fees and service charges on deposit products was $2.6 million and
$2.5 million for the years ended September 30, 1995 and 1994, respectively.
Other Expense. Other expense increased by $331,000 to $18.2 million for the
year ended September 30, 1995 from $17.9 million for the year ended September
30, 1994. The change was primarily due to an increase of $615,000 in
compensation and benefits, due primarily to the amortization of stock benefit
plans and wage increases, and a $438,000 decrease in professional fees. The
decrease in professional fees was due primarily to fees paid in 1994 to a
consulting firm for a profit improvement and operating efficiency study.
Income Tax Expense. Income tax expense increased $704,000 to $5.9 million
for the year ended September 30, 1995 from $5.2 million for the year ended
September 30, 1994. The effective tax rates were 38% and 36% for the years ended
September 30, 1995 and 1994, respectively. The lower effective tax rate for 1994
is primarily due to the effect of allowable bad debt deductions.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which varies from time to time, is
currently 5% of deposits and short-term borrowings. The Bank's liquidity ratio
was 18.07%, 18.79%, and 16.06% at June 30, 1997, September 30, 1996 and
September 30, 1995, respectively. It is the Bank's policy to maintain average
monthly levels of liquid assets at least 50 basis points higher than the minimum
requirement, primarily as a part of its asset and liability management strategy
of increasing its levels of rate-sensitive interest-earning assets. At June 30,
1997, the Bank had federal funds, cash and investments which exceeded the
minimum regulatory requirement. In addition, the Bank had certain investments in
mortgage-backed securities aggregating $156.6 million which also qualify as
liquid assets under OTS regulations. The Bank intends to hold such investments
in mortgage-backed securities until maturity. However, such investments may be
used as collateral for borrowing as such need arises. The Bank's total liquidity
position as of June 30, 1997 was $166.5 million, which was $120.5 million in
excess of the minimum requirement of $46.0 million. The Bank's short term
liquidity position at that date amounted to $63.5 million which was $9.2 million
in excess of the minimum requirement of $54.3 million.
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The Bank's primary sources of funds are deposits, amortization and
prepayment of loans and mortgage-backed securities, maturities of investment
securities and other short-term investments, and earnings and funds provided
from operations. The Bank will consider increasing its borrowings from the FHLB
of Atlanta from time to time to hedge against future increases in prevailing
deposit account interest rates. In addition, the Bank held unpledged fixed and
adjustable rate mortgage-backed securities totaling $154.0 million at June 30,
1997 that could be used as collateral under repurchase transactions with
securities dealers. Repurchase transactions serve as secured borrowings and
provide a source of short-term liquidity for the Bank.
Net cash provided by the Bank's operating activities (i.e., cash items
affecting net income) for the nine months ended June 30, 1997, was $10.0
million. Net cash provided by the Bank's operating activities was $10.2 million,
$11.1 million and $9.5 million for the years ended September 30, 1996, 1995 and
1994, respectively.
Net cash used by the Bank's investing activities (i.e., cash receipts,
primarily from its investment securities, mortgage-backed securities, and loan
portfolios) for the nine months ended June 30, 1997, was $66.0 million. Net cash
used by the Bank's investing activities was $86.2 million, $85.9 million and
$45.3 million for the years ended September 30, 1996 1995 and 1994,
respectively.
Net cash provided by the Bank's financing activities (i.e., cash receipts
primarily from net increases in deposits and net FHLB advances) for the nine
months ended June 30, 1997, was $52.2 million. Net cash provided by the Bank's
financing activities was $86.0 million, $66.1 million and $40.0 million for the
years ended September 30, 1996, 1995 and 1994, respectively. The increase in
1996 was principally due to a $13.5 million increase in deposits and a $10.0
million increase in FHLB advances.
The Bank's liquid assets consist primarily of investment securities,
federal funds and cash. At June 30, 1997 the Bank had liquid assets of $166.5
million, with loan commitments of $27.4 million (consisting of unused lines of
credit to homebuilders and residential and commercial loan commitments), letters
of credit of $824,000, unfunded loans in process of $28.7 million (the latter
consisting primarily of residential loans in process), and $10.0 million in
adjustable rate mortgage-backed securities.
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying notes presented
elsewhere in this Prospectus have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") which generally requires the measurement
of financial position
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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 Bank's
operations. As a result, interest rates have a greater impact on the Bank'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 prices
of goods and services.
Impact of New Accounting Standards
Accounting for Certain Investments in Debt and Equity Securities. On
November 15, 1995, the Financial Accounting Standards Board (the "FASB") issued
Special Report No. 155-B, A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities, (the "Special
Report"). Pursuant to the Special Report, the Bank was permitted to conduct a
one-time reassessment of the classifications of all securities held at that
time. Any reclassifications from the held-to-maturity category made in
conjunction with that reassessment would not call into question an enterprise's
intent to hold other debt securities to maturity in the future. The Bank
undertook such a reassessment and, effective December 31, 1995, all investment
securities were reclassified as available for sale. On the effective date of the
reclassification, the securities transferred had a carrying value of $25.8
million and an estimated fair value of $26.0 million, resulting in a net
increase to stockholders' equity for the net unrealized appreciation of
$126,000, after deducting applicable income taxes of $76,000.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. In June 1996, the FASB issued Statement of
Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("Statement 125").
Statement 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on a
financial-components approach that focuses on control. Statement 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996 and is to be prospectively
applied. Upon adoption, Statement 125 did not have a material impact on the
Bank's financial position and results of operations.
Accounting for Stock-Based Compensation. In October, 1995, the FASB issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement 123"). The adoption date of Statement 123 varies
depending upon the various provisions of the statement. Statement 123
established financial accounting and reporting standards for stock-based
employee compensation plans. The statement defines a "fair value based method"
of accounting for employee stock option or similar equity instruments and
encourages all entities to adopt that method of accounting for all of their
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employee stock compensation plans. However, Statement 123 also allows an entity
to continue to measure compensation costs for those plans using the "intrinsic
value based method" of accounting which the Bank currently uses. Management has
determined that it will continue to use the method of accounting prescribed by
APB No. 25, "Accounting for Stock Issued to Employees." The Bank will present
required pro forma amounts and disclosures under Statement 123 beginning with
the fiscal year ending September 30, 1997.
Earnings Per Share. In February, 1997, the FASB issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement 128").
Statement 128 is effective for financial statements issued for periods ending
after December 15, 1997. Statement 128 establishes standards for computing and
presenting earnings per share ("EPS"), simplifies the standards previously found
in APB No. 15, "Earnings Per Share", and makes them comparable to international
EPS standards. The Bank will begin disclosing EPS in accordance with Statement
128 beginning with the quarter ended December 31, 1997.
Reporting Comprehensive Income. In June, 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("Statement 130"). Statement 130 is effective for fiscal years beginning after
December 15, 1997. Statement 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. Statement 130 requires that all items recognized under
accounting standards as components of comprehensive income be reported in a
financial statement in equal prominence with other financial statements. Such
statement will be presented by the Bank beginning with the quarter ended
December 31, 1998.
Disclosures About Segments of an Enterprise and Related Information. In
June, 1997, the FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Statement 131 is effective for periods beginning after
December 15, 1997. Statement 131 establishes standards for the way that public
business enterprises report information about operating segments, based on how
the enterprise defines such segments. The Bank is required to report operating
segment information, to the extent such segments are defined, beginning with the
year ended September 30, 1999.
BUSINESS OF HARBOR FLORIDA BANCORP, INC.
Harbor Florida Bancorp, Inc. was formed in December, 1996 to serve as the
Mid-Tier Holding Company for the Bank. The primary purpose for creation of
Harbor Florida was to facilitate capital management through stock repurchases.
Harbor Florida's stock is currently owned by the Mutual Holding Company and the
Public Stockholders. It has not engaged in any business other than holding 100%
of the Bank's common stock and has not, to date,
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repurchased any stock. After the Conversion, it will continue to own 100% of the
Bank's stock and 100% of its Common Stock will be held by the public. When the
Bank announced the creation of Harbor Florida, on October 23, 1996, management
intended to use the mid-tier holding company structure to facilitate stock
repurchases from time to time as part of its capital management strategy. On
June 25, 1997, when the Mid-Tier Reorganization was consummated, Harbor Florida
announced its intention to purchase Public Harbor Florida Shares in the open
market. Subsequent to June 25, 1997, management considered repurchasing Public
Harbor Florida Shares, and in this regard considered, among other things, market
conditions, capital needs, securities regulation restrictions on the timing of
repurchases, and alternative capital expenditures, and ultimately decided not to
repurchase Public Harbor Florida Shares.
Reorganization Into Harbor Florida Bancorp
Harbor Florida is a Delaware corporation which began its activities on June
25, 1997. Harbor Florida was created under a new regulation promulgated by the
OTS which allowed mutual holding companies such as Harbor Financial to create
mid-tier holding companies. The primary purpose for creation of mid-tier holding
companies was as a capital management tool to enable the repurchases stock
without any adverse tax consequences, while maintaining the mutual holding
company structure. The mid-tier Reorganization was structured as a tax free
reorganization as follows: (i) Harbor Florida, a Delaware corporation, chartered
a wholly owned interim federal stock savings bank known as Interim; (ii) Interim
was then merged with and into the Bank with the Bank as the surviving entity. As
a result of the merger, the Bank became a wholly owned subsidiary of Harbor
Florida and the shareholders of the Bank became shareholders of Harbor Florida
with the same aggregate percentage ownership interest as their aggregate
ownership of the Bank prior to the reorganization.
OTS Conditions of Approval. The OTS approval of the mid-tier Reorganization
that created Harbor Florida, and resulted in the Bank becoming the wholly owned
subsidiary of Harbor Florida, was accompanied by certain conditions imposed on
Harbor Florida while it continued to operate in a structure with majority
ownership of its shares held by the Mutual Holding Company. The material
conditions of the OTS approval were as follows:
(i) No later than one year from the date of consummation of the
acquisition, or June 25, 1998, Harbor Florida was required to obtain a
federal charter from the OTS and to submit bylaws acceptable to the
Director, Corporate Activities, of the OTS.
(ii) Harbor Florida was made subject to the provisions of the Mutual
Holding Company Regulations pertaining to minority stock issuances as
if it were
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a former mutual savings association that reorganized into a mutual
holding company structure;
(iii) Harbor Florida was made subject to the same restrictions (including,
but not limited to, the activities limitations) that the Mutual
Holding Company is subject to under Section 10(o)(5) of the HOLA and
12 C.F.R. ss. ss. 575.11 and 575.12, as well as any other pertinent
statutory and regulatory provisions, e.g. that its permissible
activities would be those authorized for mutual holding companies;
(iv) Harbor Florida is required to hold all of the issued and outstanding
common stock of the Bank, and the Bank was not permitted to issue any
other class of equity security;
(v) Harbor Florida and the Bank must obtain approval from the OTS prior to
issuing any securities;
(vi) Harbor Florida was subject to the provisions of 12 C.F.R. Part 552,
pertaining to amendments of charters and bylaws as if Harbor Florida
were a federal stock savings association;
(vii) Harbor Florida was required to cease any activity, reverse any
action, or amend any provisions of its charter or bylaws, to which the
OTS objects as being contrary to the MHC Regulations; and
(viii) If the Mutual Holding Company undertakes a mutual-to-stock
conversion, OTS policies regarding purchases of stock in conversions
would apply to any Public Stockholders.
The OTS conditions are based upon the continued operation of Harbor Florida
as part of a structure in which a mutual holding company is present. Upon the
completion of the Conversion, Harbor Financial MHC will convert to an interim
federal stock savings association and merge into the Company. Accordingly, the
restrictions on the activities in which Harbor Florida may engage, (i.e., the
requirement to eliminate Harbor Florida's Delaware charter and adopt a federal
charter, and the prohibition against issuance of any other class of security),
would not be applicable.
Instead, since Harbor Florida will own only one savings association, and
will no longer operate in a mutual holding company structure, it generally will
not be restricted as to the types of business activities in which it may engage
provided that the Bank retains a specific amount of its assets in
housing-related investments. After the Conversion, Harbor Florida will not
conduct any active business and does not intend to employ any persons other than
officers,
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but will utilize the Bank's support staff from time to time. The office of
Harbor Florida is located at 100 S. Second Street, Fort Pierce, FL 34950 and its
telephone number is (561) 461-2414.
BUSINESS OF HARBOR FEDERAL SAVINGS BANK
General
Harbor Federal Savings Bank ("Bank") is engaged in the business of
attracting deposits primarily from the communities it serves and using these and
other funds to originate primarily one-to-four family first mortgage loans for
retention in its portfolio. The Bank's principal sources of funds are deposits
and principal and interest payments on loans. Its principal source of income is
interest received from loans and investment and mortgage-backed securities, and
its principal expenses are interest paid on deposit accounts and employee
compensation and benefits.
On June 1, 1996, the Bank acquired all of the outstanding common stock of
Treasure Coast Bank, F.S.B. ("Treasure Coast"), a Florida based federal savings
association, for approximately $6.8 million in cash. The acquisition was
accounted for using the purchase method. Treasure Coast had assets of
approximately $75 million. The Treasure Coast acquisition added 1 branch to the
Bank's branch network. The results of operations of Treasure Coast from June 1,
1996 to September 30, 1996 are included in the consolidated financial statements
of the Bank.
Market Area
The Bank serves communities in six growing and diverse Florida counties.
Its headquarters is in Fort Pierce, Florida, located on the eastern coast of
Florida between Stuart and Daytona Beach. In addition to its headquarters, it
has fourteen branch offices in St. Lucie, Indian River and Martin counties,
located on Florida's "Treasure Coast." This area is characterized by both a
large retirement and vacation home population and a significant agricultural
economy, primarily citrus crops. The Bank has four branch offices located in
Brevard County, which encompasses the "Space Coast" of the state. Brevard County
has a greater industrial base fueled primarily by companies related to NASA and
the John F. Kennedy Space Center. Prominent electronics concerns such as Harris
Corporation are also major employers in this area. The Bank also has one branch
office in Okeechobee County, an agricultural area, and three branch offices in
Volusia County, where tourism and a large retirement population predominate.
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Lending Activities
General. The Bank's principal lending activity has historically been, and
will continue to be for the foreseeable future, the origination of one-to-four
family residential mortgage loans. Although the Bank sells some conforming
loans, primarily to the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"), and has, on rare occasions,
purchased whole loans and loan participations, it focuses primarily on the
origination of loans and retains them in its portfolio for investment. See " --
One to Four Family Permanent Residential Mortgage Loans." The Bank also
originates a substantial amount of one-to-four family residential construction
and consumer loans, and, on a limited basis, consumer installment, commercial
real estate and commercial business loans. Substantially all of the Bank's
mortgage loans are secured by property in its market area and most of its
nonmortgage loans are made to borrowers in its market area.
The Bank offers both fixed-rate and adjustable rate mortgage ("ARM") loans.
The Bank has sought to increase its origination of ARM loans to reduce its
interest rate risk. However, the Bank's ability to originate ARM loans has been
limited by borrower preference for fixed-rate loans in many instances,
particularly in low interest rate environments.
Loan and Mortgage - Backed Securities Portfolio Composition. The following
table sets forth a summary of the composition of the Bank's loan and
mortgage-backed securities portfolio by type of loan.
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<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------------------
June 30, 1997 1996 1995 1994
------------- ---- ---- ----
(Dollars in Thousands)
Percent of Percent of Percent of Percent of
Amount Total Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans
Construction 1 - 4 Family $ 41,417 4.82% $ 43,994 5.46% $ 40,634 6.07% $ 38,473 6.28%
Permanent 1 - 4 Family 620,066 72.16 584,297 72.49 487,480 72.84 456,880 74.60
Multifamily 14,457 1.68 17,804 2.21 14,916 2.23 15,384 2.51
Nonresidential 53,006 6.17 41,970 5.21 31,980 4.78 25,378 4.14
Land 31,881 3.71 29,034 3.60 20,460 3.06 16,995 2.77
------ ---- ------ ---- ------ ---- ------ ----
Total Mortgage Loans 760,827 88.54 717,099 88.97 595,470 88.98 553,110 90.30
Other Loans
Commercial Nonmortgage 11,446 1.33 8,199 1.02 8,468 1.27 8,135 1.33
Home Improvement 20,670 2.40 20,679 2.56 19,198 2.87 14,823 2.42
Manufactured Housing 16,046 1.87 15,784 1.96 15,045 2.25 13,461 2.19
Other Consumer (1) 50,320 5.86 44,265 5.49 31,049 4.63 23,017 3.76
------ ---- ------ ---- ------ ---- ------ ----
Total Other Loans 98,482 11.46 88,927 11.03 73,760 11.02 59,436 9.70
------ ----- ------ ----- ------ ----- ------ ----
Total Loans Receivable 859,309 100.00% 806,026 100.00% 669,230 100.00% 612,546 100.00%
====== ====== ====== ======
Less:
Loans in process 28,727 26,788 24,321 22,652
Deferred loan fees and
discounts 3,385 3,203 3,519 4,054
Allowance for loan
losses 11,408 11,016 10,083 9,434
------ ------ ------ -----
Subtotal 43,520 41,007 37,923 36,140
------ ------ ------ ------
Total Loans Receivable, Net 815,789 765,019 631,307 576,406
------- ------- ------- -------
Loans Held for Sale 3,090 4,870 1,009 25
----- ----- ----- --
Mortgage-Backed
Securities 156,559 153,293 164,759 120,099
------- ------- ------- -------
Total $975,438 $923,182 $797,075 $696,530
======== ======== ======== ========
</TABLE>
September 30,
---------------------------------------------
(Dollars in Thousands)
1993 1992
---- ----
Percent of Percent of
Amount Total Amount Total
------ ----- ------ -----
Mortgage Loans
Construction 1 - 4 Family $44,250 7.57% $27,357 4.91%
Permanent 1 - 4 Family 428,524 73.36 413,173 74.18
Multifamily 16,386 2.80 11,813 2.12
Nonresidential 23,615 4.04 26,022 4.67
Land 19,077 3.27 23,655 4.25
------ ---- ------ ----
Total Mortgage Loans 531,852 91.04 502,030 90.13
Other Loans
Commercial Nonmortgage 10,356 1.77 14,244 2.56
Home Improvement 11,574 1.98 11,367 2.04
Manufactured Housing 13,064 2.24 12,558 2.26
Other Consumer (1) 17,322 2.97 16,780 3.01
------ ---- ------ ----
Total Other Loans 52,316 8.96 54,949 9.87
------ ---- ------ ----
Total Loans Receivable 584,168 100.00% 556,979 100.00%
====== ======
Less:
Loans in process 25,548 15,915
Deferred loan fees and
discounts 4,616 4,041
Allowance for loan
losses 7,305 6,029
----- -----
Subtotal 37,469 25,985
------ ------
Total Loans Receivable, Net 546,699 530,994
------- -------
Loans Held for Sale 679 151
--- ---
Mortgage-Backed
Securities 89,535 97,201
------ ------
Total $636,913 $628,346
======== ========
(1) Includes home equity and other second mortgage loans.
66
<PAGE>
---------------
The following table shows the maturity or period to repricing of the Bank's
loan and mortgage-backed securities portfolios at June 30, 1997. Loans that have
adjustable rates are shown as being due in the period in which the interest
rates are next subject to change. The table does not include prepayments or
scheduled principal amortization. Prepayments and scheduled principal
amortization on loans totaled $117.5 million, $143.5 million, $99.4 million, and
$144.4 million for the nine months ended June 30, 1997 and fiscal years 1996,
1995 and 1994, respectively. Loans having no stated maturity and no schedule of
repayments (including delinquent loans), and demand loans are reported as due in
1997.
<TABLE>
<CAPTION>
One Three Five Ten through
Within through through through twenty Beyond
one year three years five years ten years years twenty years Total
-------- ----------- ---------- --------- ----- ------------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Permanent 1 - 4 family $207,957 $27,353 $43,271 $ 66,571 $138,460 $156,163 $639,775
Other 42,147 11,937 8,600 14,831 15,180 686 93,381
Other Loans:
Consumer 23,802 12,288 22,606 23,769 4,434 24 86,923
Commercial 6,198 431 1,302 1,193 171 2,126 11,421
Nonperforming Loans (1) 2,227 0 0 0 0 0 2,227
Mortgage-Backed Securities 47,990 32,612 21,556 35,217 17,911 1,273 156,559
------ ------ ------ ------ ------ ----- -------
Sub-Total $330,321 $84,621 $97,335 $141,581 $176,156 $160,272 $990,286
======== ======= ======= ======== ======== ======== ========
Discount on Loans Purchased (102)
Deferred Loan Origination
Costs and Commitment Fees (3,301)
Allowance for Loan Losses (11,445)
-------
Total (2)(3) $975,438
========
- ----------
</TABLE>
(1) All nonperforming loans are reported as due within one year regardless of
the actual maturity term.
(2) Amounts reported do not include principal repayment or prepayment
assumptions.
(3) Amounts include loans held for sale of $3.1 million as of June 30, 1997.
--------------
67
<PAGE>
The following table sets forth the amount of fixed-rate and adjustable-rate
loans at June 30, 1997 due after June 30, 1998.
Adjustable
Fixed Rate Rate Total
---------- ---------- -----
(In thousands)
Mortgage loans:
Permanent 1 - 4 family $321,209 $110,609 $431,818
Other 38,004 13,230 51,234
Other loans:
Consumer 63,121 0 63,121
Commercial 5,223 0 5,223
-------- -------- --------
Total loans 427,557 123,839 551,396
Mortgage-backed securities 108,569 0 108,569
-------- -------- --------
Total $536,126 $123,839 $659,965
======== ======== ========
------------------------------
One-to-Four Family Permanent Residential Mortgage Loans. The Bank's primary
lending activities focus on the origination of one-to-four family residential
mortgage loans. The Bank generally does not originate one-to-four family
residential loans on properties outside of its market area. At June 30, 1997,
72.16% of the Bank's total loan portfolio, or $620.1 million consisted of
one-to-four family loans and over 95% of such loans were collateralized by
properties located in the Bank's market area.
The Bank's fixed rate loans generally are originated and underwritten
according to standards that permit sales in the secondary market. However, the
decision to sell depends on a number of factors including the yield and the term
of the loan, market conditions, and the Bank's current portfolio position. The
Bank sells a portion of newly originated 30 year fixed rate mortgage loans,
currently $100,000 to $200,000 per month. In addition, the Bank sells loans
under the single family Mortgage Revenue Bond Programs through local County
Housing Finance Authorities. The servicing on these loans is also released.
The Bank currently offers one-to-four family residential mortgage loans
with fixed, adjustable or a combination of fixed/adjustable interest rates.
Originations of fixed rate mortgage loans versus ARM loans are monitored on an
ongoing basis and are affected significantly by the level of market interest
rates, customer preference, the Bank's interest rate gap position, and loan
products offered by the Bank's competitors. In a low interest rate environment,
borrowers typically prefer fixed rate loans to ARM loans, and even if
management's strategy is to emphasize ARM loans, market conditions may be such
that there is greater demand for fixed rate mortgage loans.
The Bank generates residential mortgage loan activity through local
advertising, its existing customers and referrals from local real estate brokers
and home builders. All loans
68
<PAGE>
are originated by Bank loan officers, none of whom have underwriting authority.
Independent loan brokers are not used.
Residential loans are authorized and approved under central authority by
experienced underwriters. Underwriters have individual authority to approve
loans up to the maximum amount of $250,000. Residential mortgage loans in excess
of this amount are approved by Management individually up to $500,000 or by
committee if above $500,000. The Bank also has direct endorsement authority from
the Federal Housing Authority ("FHA") to allow for internal approval of FHA
insured loans. FHA loans are approved under central authority by an underwriter
with a "Direct Endorsement" designation from the FHA. The Bank's underwriting
standards are intended to ensure that borrowers are sufficiently credit worthy,
and all of the Bank's lending is subject to written underwriting policies and
guidelines approved by the Bank's Board of Directors. Detailed loan applications
are designed to determine the borrower's ability to repay the loan and certain
information solicited in these applications is verified through the use of
credit reports, financial statements and other confirmations. The Bank obtains
an appraisal of substantially all of the proposed security property in
connection with residential mortgage loans. Additionally, title insurance is
required for all mortgage loans, except home equity loans of $50,000 or less.
The types, amounts, terms of and security for conventional loans (those not
insured or guaranteed by the U.S. government or agencies thereof, or state
housing agency) originated by the Bank are significantly prescribed by federal
regulation. OTS regulations limit the amount which the Bank can lend up to
specified percentages of the value of the real property securing the loan, as
determined by an appraisal at the time the loan is originated (referred to as
"loan-to-value ratios"). The Bank makes one-to-four family home loans and other
residential real estate loans with loan-to-value ratios generally of up to 80%
of the appraised value of the security property. In certain circumstances
loan-to-value ratios exceed 80%, in which case private mortgage insurance is
generally required. A substantial part of the Bank's loan originations are made
to borrowers to finance second homes for vacation use or for use as a rental
property. Such loans may be considered to have a higher credit risk than loans
to finance a primary residence.
One-to-Four Family Residential Construction Loans. A part of the Bank's
loan originations are to finance the construction of one-to-four family homes in
the Bank's market area. At June 30, 1997 the Bank had $41.4 million in such
loans, representing 4.82% of total loans. It is the Bank's policy to disburse
loan proceeds as construction progresses and as inspections warrant.
A portion of these loans are made directly to the individual who will
ultimately own and occupy the home. Of these, the vast majority are structured
at origination to guarantee the permanent financing to the Bank as well. As a
result, although in recent years the origination
69
<PAGE>
of these construction loans to individuals is second in volume only to the
origination of traditional loans to finance the purchase or refinance of an
existing home, the significance of this type of lending to the Bank is not
evident from the amount of these loans in its portfolio at any given time
because these construction loans to individuals usually "roll" into permanent
financing.
Approximately one-half of the Bank's one-to-four family construction loans
are to builders. In most instances these loans are also structured to guarantee
permanent financing by the Bank.
Consumer Loans. The Bank originates consumer loans as an essential element
in its retail-oriented strategy. Secured consumer loans include automobile,
manufactured housing, boat and truck loans, home equity and home improvement
loans as well as loans secured by the borrower's deposit accounts with the Bank.
The loans for manufactured housing are generally originated within quality,
retirement lifestyle communities spread throughout the six county market area
that feature amenities such as full service clubhouse facilities, swimming
pools, and in a number of cases, golf courses. These loans are subject to the
normal underwriting standards of the Bank. Loans are made on either a fixed-rate
or adjustable-rate basis, with terms generally up to 20 years. A limited amount
of unsecured consumer loans are also originated. At June 30, 1997
consumer-oriented loans accounted for $87.0, or 10.13% of the Bank's total loan
portfolio.
Non-Residential and Land Mortgage Loans. In the late 1980's the Bank
curtailed its lending in non-residential mortgages with the exception of loans
to finance the sale of the Bank's real estate acquired through foreclosure. In
recent years, the Bank re-entered this market and made a total of $14.8 million,
$12.9 million and $10.7 million and $4.8 million of non-residential mortgage
loans in the nine months ended June 30, 1997 and for the fiscal years ended
September 30, 1996, 1995 and 1994, respectively. At June 30, 1997,
nonresidential loans constituted 6.17% of the Bank's total loan portfolio.
Origination of these loans plays a subordinate role to the origination of
residential mortgage and consumer-related loans. Non-residential mortgage loans
are offered on properties within the Bank's primary market area using both fixed
or adjustable rate programs.
Loans secured by non-residential real estate generally carry larger
balances and involve a greater degree of risk than one-to-four family
residential mortgage loans. This increased risk is a result of several factors,
including the concentration of principal in a limited number of loans and
borrowers, the effects of general economic conditions on income-producing
properties, and the increased difficulty of evaluating and monitoring these
loans. Furthermore, the repayment of loans secured by non-residential property
is typically dependent upon the successful operation of the related real estate
project. If the cash flow from the
70
<PAGE>
project is reduced, the borrower's ability to repay the loan may be impaired.
See " -- Delinquent, Nonperforming and Classified Assets."
The Bank also originates developed building lot loans ("lot loans") secured
by individual improved lots for future residential construction. Lot loans are
offered with either a fixed or adjustable interest rate and with a maximum term
of up to 15 years. At June 30, 1997 these loans accounted for $14.9 million, or
1.73% of the Bank's total loan portfolio.
Other Loans. The balance of the Bank's lending consists of multi-family
mortgage and commercial non-mortgage loans. At June 30, 1997 these loans
represented $14.5 million, or 1.68% and $11.4 million, or 1.33%, respectively,
of the Bank's total loan portfolio. The multi-family mortgage loans are secured
primarily by apartment complexes. These loans are subject to the same lending
limits as apply to the Bank's commercial real estate lending. The commercial
non-mortgage loans represent primarily equipment and other business loans to
professionals such as physicians and attorneys. These loans are an integral part
of the Bank's strategy of seeking synergy between its various deposit and loan
products and as a service to existing customers.
Origination and Sale of Loans
From time to time the Bank has sold mortgage loans, primarily to the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation. Historically, the Bank has not purchased significant amounts of
loans, particularly in light of its past policy to control asset growth.
The Bank sells a portion of newly originated 30 year fixed rate mortgage
loans, in an amount currently between $100,000 to $200,000 per month. In
addition, the Bank sells loans under the single family Mortgage Revenue Bond
Programs through local County Housing Finance Authorities. The servicing on
these loans is also released. The purpose of selling a portion of fixed rate
loans from current production is to reduce interest rate risk by limiting the
growth of longer term fixed rate loans in the portfolio and to generate service
fee income over time.
71
<PAGE>
The following table shows total loan origination activity including
mortgage-backed securities, during the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
June 30, Years Ended September 30,
--------------------------- --------------------------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Mortgage loans (gross):
At beginning of period $722,173 $596,478 $596,478 $553,135 $532,531
Mortgage loans originated:
Construction 1-4 Family 45,965 43,521 59,000 51,998 58,600
Permanent 1-4 Family 59,503 66,553 85,853 51,334 76,911
Multi-family 1,390 2,748 2,935 158 2,880
Nonresidential 14,763 7,999 12,941 10,700 4,848
Land 8,564 11,994 13,384 11,812 5,593
----- ------ ------ ------ -----
Total mortgage loans originated(1) 130,185 132,815 174,113 126,002 148,832
Mortgage loans acquired (2) --- 60,482 60,482 --- ----
Mortgage loans sold (3) (5,854) (3,396) (4,653) (9,037) (11,440)
Principal repayments (80,504) (73,949) (101,359) (72,310) (115,141)
Mortgage loans transferred to
real estate owned (1,995) (1,489) (2,626) (1,312) (1,647)
------ ------ ------ ------ ------
At end of period $764,005 $710,941 $722,435 $596,478 $553,135
======== ======== ======== ======== ========
Other loans (gross):
At beginning of period $ 88,927 $ 73,760 $ 73,760 $ 59,436 $ 52,316
Other loans originated 46,801 38,797 52,702 40,838 36,228
Loans acquired --- 4,468 4,468 --- ---
Principal repayments (37,246) (31,587) (42,003) (26,514) (29,108)
------- ------- ------- ------- -------
At end of period $ 98,482 $ 85,438 $ 88,927 $ 73,760 $ 59,436
======== ======== ======== ======== ========
Mortgage-backed securities
(gross):
At beginning of period $ 153,293 $164,759 $ 164,759 $120,099 $ 89,535
Mortgage-backed securities
purchased 31,843 19,430 29,265 65,609 64,166
Principal repayments (28,577) (31,726) (40,731) (20,949) (33,602)
------- ------- ------- ------- -------
At end of period $ 156,559 $ 152,463 $ 153,293 $164,759 $120,099
========= ========= ========= ======== ========
- ----------
</TABLE>
(1) Loans originated represent loans closed, however all loans may not be fully
disbursed at time of closing.
(2) Represents loans acquired in connection with the acquisition of Treasure
Coast Bank, F.S.B. in 1996.
(3) Includes $3 million commercial land participation loan sold in 1995.
---------------------
Mortgage-backed Securities
A substantial part of the Bank's business involves investments in
mortgage-backed securities issued or guaranteed by an agency of the United
States government. Historically, the Bank's mortgage-backed securities portfolio
has consisted primarily of pass-through mortgage participation certificates
issued by FHLMC and FNMA. These pass-through certificates represent a
participation interest in a pool of single-family mortgages, the principal and
interest payments on which are passed from the loans' originators, through the
FHLMC and FNMA that pools and packages the participation interests into the form
of securities, to investors such as the Bank. The FHLMC and FNMA guarantees the
payment of principal and interest. The underlying pool of mortgages can consist
of either fixed-rate or adjustable-rate
73
<PAGE>
loans. At June 30, 1997, the Bank's portfolio of mortgage-backed securities
consisted entirely of FHLMC and FNMA participation certificates. Of the $156.6
million in mortgage-backed securities at that date, approximately 27%
represented adjustable-rate securities and 73% represented fixed-rate securities
with anticipated maturity dates from 3 months to 29 years.
Delinquent, Nonperforming and Classified Assets
Delinquent Loans. All delinquent loan results are reviewed monthly by the
Bank's Board of Directors. The Bank believes it has an effective process and
policy in dealing with delinquent loans.
Residential delinquencies are handled by the Loan Collections Department.
This department begins collections efforts on residential loans when a loan
appears on the 15-day delinquent list. Borrowers are sent a notice to accelerate
the debt when the debt is 45 days delinquent. If the delinquent account has not
been corrected, foreclosure proceedings are begun generally at the 75th day of
delinquency. At June 30, 1997, residential loans delinquent 90 days and longer
represented .17% of the total residential loan portfolio.
Commercial delinquent accounts are processed by the Problem Asset and
Lending Departments. For commercial accounts classified as Substandard, as
defined below, or worse, the Problem Asset Department has jurisdiction over the
collection efforts. As with residential delinquent loans, any commercial loans
90 days past due or where the collection of the interest or full principal is
considered doubtful are placed on a non-accrual basis.
If a collection action is instituted on a consumer or commercial loan, the
Bank, in compliance with the loan documents and the law, may repossess and sell
the collateral security for the loan through private sales or through judicially
ordered sales when necessary. Should the sale result in a deficiency owing to
the Bank, the borrowers generally are pursued where such action is deemed
appropriate, including recourse based on personal loan guarantees by the
borrower's principals.
73
<PAGE>
The following table shows the Bank's loans delinquent 90 days or more at
the dates indicated.
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------------------
June 30, 1997 1996 1995 1994
------------------- ---- ---- ----
(Dollars in thousands)
Number Amount Number Amount Number Amount Number Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Construction and land 1 $ 133 2 $ 98 2 $ 89 0 $ ---
Permanent 1 - 4 family 22 1,106 23 1,196 36 2,205 22 777
Other mortgage 1 111 2 423 0 --- 1 800
- --- - --- - - ---
Total mortgage loans 24 1,350 27 1,717 38 2,294 23 1,577
Other loans 5 113 9 132 7 70 7 109
- --- - --- - -- - ---
Total loans 29 $1,463 36 $1,849 45 $2,364 30 $1,686
== ====== == ====== == ====== == ======
Delinquent loans to
total loans... .18% .24% .37% .28%
</TABLE>
As of June 30, 1997, September 30, 1996, 1995 and 1994, $764,000, $323,000,
$1.2 million, and $1.2 million, respectively, of loans were on nonaccrual status
which were not 90 days past due.
Nonperforming Assets. The Bank also places emphasis on improving asset
quality. The Bank's nonperforming assets as a percentage of total assets have
decreased from .85% at September 30, 1994 to .50% at September 30, 1996. At June
30, 1997, such ratio was .46%.
Loans 90 days past due are generally placed on non-accrual status. The Bank
ceases to accrue interest on a loan once it is placed on non-accrual status, and
interest accrued but unpaid at that time is charged against interest income.
Additionally, any loan where it appears evident that the collection of interest
is in doubt is also placed on a non-accrual status. Non-accrual loans of
$500,000 or more are reviewed monthly by the Board of Directors. All loans on
non-accrual status, other than those evaluated collectively for impairment, are
considered to be impaired loans for purposes of Statement 114. Impaired loans
having a recorded investment value of approximately $1.0 million at June 30,
1997 have been recognized in conformity with Statement 114, as amended by
Statement 118. The average recorded investment in impaired loans during the nine
months ended June 30, 1997 was approximately $809,000. The total allowance for
loan losses related to these loans was approximately $25,000 on June 30, 1997.
Interest income on impaired loans of approximately $26,000 was recognized for
cash payments received in the nine months ended June 30, 1997.
74
<PAGE>
If a foreclosure action is instituted on a real estate-secured loan and the
loan is not reinstated, paid in full, refinanced, or deeded back to the Bank,
the property is sold at a foreclosure sale at which the Bank may be the buyer.
Thereafter, such acquired property is listed in the Bank's real estate owned
("REO") account or that of a subsidiary, until the property is sold. The Bank
carries REO at the lower of cost or fair value less cost to dispose. The Bank
also finances the sales of REO properties. Should the foreclosure sale not
produce sufficient proceeds to pay the loan balance and court costs, the Bank's
attorneys, where appropriate, may pursue the collection of a deficiency judgment
against the responsible borrower.
It is the Bank's policy to try to liquidate its holdings in REO or
subsidiaries on a timely basis while considering both market conditions and the
cost of carrying REO properties. Upon acquisition the Bank records all REO at
the lower of its fair value (less estimated costs to dispose), or cost. The fair
value is based upon the most recent appraisal and management's evaluation. If
the fair value of the asset is less than the loan balance outstanding, the
difference is charged against the Bank's loan loss allowance prior to
transferring the asset to REO. Administration of REO property is handled by the
Problem Asset Department which is responsible for the sale of all residential
and commercial properties. In those instances where the property may be located
outside the Bank's market area or where the property, due to its nature,
requires certain expertise (i.e., hotels, apartment complexes), outside
management firms may be utilized.
75
<PAGE>
At the dates indicated, nonperforming assets in the Bank's portfolio were
as follows:
<TABLE>
<CAPTION>
September 30,
June 30, -------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual mortgage loans:
Delinquent less than 90 days $741 $ 323 $1,153 $1,175 $ 292 $ 0
Delinquent 90 days or more 1,350 1,717 2,294 1,577 1,095 2,243
----- ----- ----- ----- ----- -----
Total 2,091 2,040 3,447 2,752 1,387 2,243
----- ----- ----- ----- ----- -----
Non-accrual other loans:
Delinquent less than 90 days 23 --- --- --- 181 1,304
Delinquent 90 days or more 113 132 70 109 1,916 148
--- --- -- --- ----- ---
Total 136 132 70 109 2,097 1,452
--- --- -- --- ----- -----
Total non-accrual loans 2,227 2,172 3,517 2,861 3,484 3,695
Accruing loans 90 days or more
delinquent --- --- --- --- 0 0
Total nonperforming loans 2,227 2,172 3,517 2,861 3,484 3,695
===== ===== ===== ===== ===== =====
Other nonperforming assets:
Real estate owned 3,620 4,830 4,643 4,530 10,990 20,618
In-substance foreclosures --- --- --- 1,488 6,957 6,955
----- ----- ----- ----- ----- -----
Total 3,620 4,830 4,643 6,018 17,947 27,573
Less allowance for losses (724) (1,712) (1,857) (2,008) (4,792) (4,091)
---- ------ ------ ------ ------ ------
Total 2,896 3,118 2,786 4,010 13,155 23,482
----- ----- ----- ----- ------ ------
Total nonperforming assets $5,123 $5,290 $6,303 $6,871 $16,639 $27,177
====== ====== ====== ====== ======= =======
Nonperforming loans to total net
loans 0.27% 0.28% 0.56% 0.50% 0.64% .70%
Total nonperforming assets to
total assets 0.46% 0.50% 0.71% 0.85% 2.19% 3.72%
</TABLE>
For the nine months ended June 30, 1997 interest income of $111,000 would
have been recorded on loans accounted for on a non-accrual basis if the loans
had been current throughout the period. No interest income was actually included
in net income regarding non-accrual loans during the same period.
The Bank's policy requires that a general allowance be maintained on all
REO. The Bank's periodic provisions to its allowance for losses on REO are
included in income (losses) from real estate operations on its consolidated
statements of earnings.
Management evaluates each REO property on no less than a quarterly basis to
assure that the net carrying value of the property on the Bank's books is no
greater than the fair market value less estimated costs to dispose. When
necessary, the property is written down or specific allowances are established
to reduce the carrying value.
76
<PAGE>
<TABLE>
<CAPTION>
REO Allowances
--------------
Nine Months Ended June 30, Years Ended September 30,
-------------------------- -------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance $1,712 $1,857 $1,857 $2,008 $4,792
Provision for (recovery of)
losses (20) 67 117 35 (579)
Allowances for losses on REO
acquired --- 21 21 --- ---
Charge-offs (968) (243) (283) (186) (2,205)
---- ---- ---- ---- ------
Ending balance $724 $1,702 $1,712 $1,857 $2,008
==== ====== ====== ====== ======
</TABLE>
Not included in the preceding table are gains, (losses) or recoveries on
the sale of real estate owned of $93,000, ($39,000), $180,000 and $1.1 million
for the nine months ended June 30, 1997 and for the years ended September 30,
1996, 1995 and 1994, respectively.
Classified Assets. Under OTS regulations, problem assets of insured
institutions are classified as either "substandard," "doubtful" or "loss." An
asset is considered "substandard" if the current net worth and paying capacity
of the obligor and/or the value of the collateral pledged are no longer adequate
to support the loan. "Substandard" assets are characterized by the "distinct
possibility" that the insured institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. In
addition to the classification of assets as "substandard," "doubtful," or
"loss," the OTS regulations also require that assets that do not currently
expose the Bank to a sufficient degree of risk to warrant one of the three
foregoing classifications but which do possess credit deficiencies or potential
weaknesses deserving management's close attention must be designated "special
mention."
In part owing to the Bank's efforts beginning in the late 1980s to improve
its asset quality, the Bank's classified assets as a percentage of total assets
has decreased from 2.67% at September 30, 1994 to 1.17% at September 30, 1996.
At June 30, 1997, this percentage was 1.26%.
When an insured institution classifies problem assets as either substandard
or doubtful, it is required to establish allowances for loan losses in an amount
considered appropriate by management. See "-- Allowance for Loan Losses."
Additionally, the institution establishes general allowances to recognize the
inherent risk associated with lending activities, but which,
77
<PAGE>
unlike specific allowances, have not been allocated to particular problem
assets. When an insured institution classifies problem assets as "loss," it is
required either to establish a specific allowance for losses equal to 100% of
the amount of the asset so classified or to charge-off such amount. An
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the OTS, which can
order the establishment of additional general or specific loss allowances.
The following table presents the Bank's classified assets at the dates
indicated.
September 30,
-------------------------------------
June 30, 1997 1996 1995 1994
------------- ---- ---- ----
(In thousands)
Substandard:
Real Estate
Owned $ 3,620 $ 3,897 $ 3,483 $ 5,011
Loans 10,345 8,150 16,119 14,805
------ ----- ------ ------
Total Substandard 13,965 12,047 19,602 19,816
Doubtful 0 192 930 1,265
Loss 117 174 698 494
--- --- --- ---
$14,082 $12,413 $21,230 $21,575
======= ======= ======= =======
---------------
Allowance for Loan Losses
Provisions for loan losses are charged to operations as an allowance for
loan losses; recognized loan losses (recoveries) are then charged (credited) to
the allowance. The Bank evaluates the outstanding loan portfolio with respect to
the adequacy of the allowance for loan losses at least quarterly.
Management's policy is to provide for estimated losses on the Bank's loan
portfolio based on management's evaluation of the probable losses (existing and
inherent). Such evaluations are made for all major loans on which full
collectibility of interest and/or principal may not be reasonably assured. The
factors which the Bank considers are the estimated value of the underlying
collateral, the management of the borrower, and current operating results,
trends and cash flow. In addition to analyzing individual loans, management also
analyzes on a regular basis its asset classification and recent loss experience
on other loans to help insure that prudent general allowances are maintained on
one-to-four family loans, automobile loans and home equity loans.
78
<PAGE>
The following tables set forth an analysis of the Bank's allowance for loan
losses at the dates indicated.
<TABLE>
<CAPTION>
Nine Months Ended June 30, Years Ended September 30,
---------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period $11,016 $10,083 $10,083 $9,434 $7,305 $6,029 $4,899
Provision for (recovery
of) loan losses 456 (149) (76) 460 1,552 1,889 2,755
Allowance for loan losses
acquired (1) --- 885 885 --- --- --- ---
Charge-offs:
Residential (132) (59) (137) (109) (88) (165) (243)
Commercial real estate --- 1 --- (145) --- (987) (410)
Consumer (49) (20) (48) (130) (47) (29) (1,133)
Other (3) (1) (180) --- --- (29) (448)
--- --- ----- --- --- ---- -----
Total charge-offs (184) (79) (365) (384) (135) (1,210) (2,234)
---- --- ---- ---- ---- ------ ------
Recoveries:
Residential 41 143 149 117 87 103 109
Commercial real estate 2 85 86 270 499 134 286
Consumer 48 66 79 133 38 139 82
Other 29 17 175 53 88 221 132
-- -- --- -- -- --- ---
Total recoveries 120 311 489 573 712 597 609
--- --- --- --- --- --- ---
Balance at end of period $11,408 $11,051 $11,016 $10,083 $9,434 $7,305 $6,029
Allowance for loan losses
to total loans 1.40% 1.47% 1.44% 1.60% 1.64% 1.34% 1.13%
Allowance for loan losses
to total non-performing loans 511.78% 407.46% 507.25% 286.70% 329.74% 209.67% 163.17%
Allowance for loan losses
and allowance for REO to
total nonperforming assets 207.49% 170.18% 181.78% 146.32% 128.86% 56.45% 32.37%
Net charge-offs to average
loans outstanding during
the period 0.01% (0.03)% (0.02)% (0.03)% (0.10)% 0.11% 0.29%
- ----------
</TABLE>
(1) Represents allowance acquired in conjunction with acquisition of Treasure
Coast Bank, F.S.B. in 1996.
79
<PAGE>
The following table presents an allocation of the entire allowance for
loan losses among various loan classifications and sets forth the percentage of
loans in each category to total loans. The allowance shown in the table should
not be interpreted as an indication that charge-offs in future periods will
occur in these amounts or proportions or that the analysis indicates future
charge-off trends.
<TABLE>
<CAPTION>
September 30,
-------------
June 30, 1997 1996 1995 1994
------------- ---- ---- ----
Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1)
------ ---------- ------ ---------- ------ ---------- ------ ----------
Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance at end of
period applicable to:
Residential $1,449 76.98% $ 1,410 77.95% $ 1,228 78.91% $1,065 80.88%
Commercial Real Estate 4,462 11.56 4,133 11.02 4,654 10.07 4,120 9.42
Unallocated 3,485 0.00 3,538 0.00 2,463 0.00 2,860 0.00
----- ---- ----- ---- ----- ---- ----- ----
Total Mortgage Loans $ 9,396 88.54 $ 9,081 88.97 $ 8,345 88.98 $8,045 90.30
Consumer 1,413 10.13 1,223 10.01 967 9.75 787 8.37
Other 599 1.33 712 1.02 771 1.27 602 1.33
--- ---- --- ---- --- ---- --- ----
Total $11,408 100.00% $11,016 100.00% $10,083 100.00% $9,434 100.00%
======= ====== ======= ====== ======= ====== ====== ======
- ----------
(1) Percent of loans in each category of total loans at the dates indicated.
</TABLE>
80
<PAGE>
Investment Activities
The Bank invests primarily in overnight funds, U.S. Government and
agency obligations, and FHLB of Atlanta capital stock. The Bank does not invest
in derivatives, collateralized mortgage obligations or other hedging
instruments.
The table below summarizes the carrying value and estimated market
value of the Bank's portfolio of investment securities at the dates indicated.
81
<PAGE>
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------------------
June 30, 1997 1996 1995 1994
------------- ---- ---- ----
Carrying Market Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value Value Value
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
U.S. Treasury notes $17,954 $17,954 $23,347 $23,347 $ --- $ --- $ --- $ ---
FHLB notes 29,452 29,452 10,031 10,031 --- --- --- ---
Other securities 87 87 115 115 --- --- --- ---
-- -- --- --- --- --- --- ---
Total $47,493 $47,493 $33,493 $33,493 $ --- $ --- $ --- $ ---
======= ======= ======= ======= ====== ====== ==== ====
Held to maturity:
U.S. Treasury notes $ --- $ --- $ --- $ --- $ 15,028 $ 14,970 $35,065 $34,578
FHLB notes 15,000 14,994 20,000 20,016 10,000 10,159 5,021 4,936
Other securities --- --- --- --- 158 158 200 200
--- --- --- --- --- --- --- ---
Total $15,000 $14,994 $20,000 $20,016 $ 25,186 $ 25,287 $40,286 $39,714
======= ======= ======= ======= ========= ========= ======= =======
FHLB stock $ 7,595 $ 7,595 $ 7,158 $ 7,158 $ 6,064 $ 6,064 $ 5,358 $ 5,358
</TABLE>
September 30,
------------------------------------------------
1993 1992
---- ----
Carrying Market Carrying Market
Value Value Value Value
----- ----- ----- -----
Available for sale:
U.S. Treasury notes $ --- $ --- $ --- $ ---
FHLB notes --- --- --- ---
Other securities --- --- --- ---
--- --- --- ---
Total $ --- $ --- $ --- $ ---
==== ==== ==== ====
Held to maturity:
U.S. Treasury notes $40,036 $40,251 $ 9,986 $10,203
FHLB notes 5,044 5,056 9,888 9,927
Other securities 442 442 619 619
--- --- --- ---
Total $45,522 $45,749 $20,493 $20,749
======= ======= ======= =======
FHLB stock $ 5,225 $ 5,225 $ 5,206 $ 5,206
82
<PAGE>
On November 15, 1995, the FASB issued the Special Report pursuant to which
the Bank was permitted to conduct a one-time reassessment of the classifications
of all securities held at that time. Any reclassifications from the
held-to-maturity category made in conjunction with that reassessment would not
call into question an enterprise's intent to hold other debt securities to
maturity in the future. The Bank undertook such a reassessment and, effective
December 31, 1995, all investment securities were reclassified as available for
sale. On the effective date of the reclassification, the securities transferred
had a carrying value of $25.8 million and an estimated fair value of $26.0
million, resulting in a net increase to stockholders' equity for the net
unrealized appreciation of $126,000, after deducting applicable income taxes of
$76,000.
The table below presents the contractual maturities and weighted average
yields of investment securities at June 30, 1997, excluding FHLB stock:
83
<PAGE>
<TABLE>
<CAPTION>
One Year or Less One to Five Years More Than Five Years Total Investment Securities
---------------- ----------------- -------------------- ---------------------------
(Dollars in thousands)
Average
Weighted Weighted Weighted Remaining Weighted
Carrying Average Carrying Average Carrying Average Years to Carrying Market Average
Value Yield Value Yield Value Yield Maturity Value Value Yield
----- ----- ----- ----- ----- ----- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
notes............ $17,954 5.41% $ 0 0.00% $0 0.00% .5 $17,954 $17,954 5.41%
FHLB notes......... 0 0.00 44,452 6.07 0 0.00 1.5 44,452 44,446 6.07
Other securities... 0 0.00 87 10.00 0 0.00 1.8 87 87 10.00
</TABLE>
84
<PAGE>
Sources of Funds
Deposits. The Bank offers a number of different deposit accounts, including
regular savings, interest-bearing checking or NOW accounts, non-interest
checking, money market deposit, term certificate accounts and individual
retirement accounts.
The Bank has twenty-two branch offices in addition to its home office in
Fort Pierce. The Bank's strategy has been to have conveniently located offices
in growth markets as one of its main methods of attracting funds. The Bank's
deposits primarily are obtained from areas surrounding its offices. Certificate
accounts in excess of $100,000 are not actively solicited nor are brokers used
to obtain deposits.
The Bank had a decline in deposit balances for several years prior to 1993.
This was a strategy that the Bank used to improve its capital ratios. Much of
the decline was accomplished by the closing of less profitable branches. With
the Bank's improved capital position in the beginning of 1993, it made an effort
to stabilize deposits and increase account balances. As part of this strategy,
the Bank has upgraded a number of branch facilities and moved from leased
storefronts to full service free-standing offices.
Management believes that demand and passbook accounts are less sensitive to
changes in interest rates than other types of accounts, such as certificates of
deposit. As of June 30, 1997, the Bank had 23.88% of its deposits in passbook
and demand accounts and 75.45% in certificates of deposit. Due to the recent low
interest rate environment, the Bank has also been pricing its certificates of
deposit to encourage lengthening of maturities. When management determines the
levels of its deposit rates, consideration is given to local competition, U.S.
Treasury securities offerings, and anticipated funding requirements.
85
<PAGE>
The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average interest rates on each
category of deposits presented. Management does not believe that the use of
period-end balances instead of average monthly balances produces any material
difference in the information presented:
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------------------
June 30, 1997 1996 1995
------------- ---- ----
Weighted Weighted Weighted
Average Average Average
Nominal Nominal Nominal
Amount Percent Rate Amount Percent Rate Amount Percent Rate
------ ------- ---- ------ ------- ---- ------ ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand accounts:
Non-interest
bearing demand $40,119 4.43% N/A $ 33,613 3.95% N/A $ 21,001 2.91% N/A
NOW accounts 53,121 5.87 1.40% 54,806 6.43 1.51% 44,814 6.22 1.57%
Money market
accounts 45,425 5.02 2.51 42,561 5.00 2.58 36,863 5.11 2.37
------ ---- ---- ------ ---- ---- ------ ---- ----
Subtotal $138,665 15.32 1.36 $130,980 15.38 1.46 $102,678 14.24 1.53
Savings accounts:
Passbook 77,467 8.56 1.73 77,305 9.07 1.78 80,720 11.20 1.97
Certificates of 682,674 75.45 5.46 636,907 74.77 5.37 531,601 73.73 5.60
deposit
Official checks 6,098 .67 N/A 6,661 .78 N/A 5,982 .83 N/A
----- --- ----- --- ----- ---
Total deposits $904,904 100.00% 4.47% $851,853 100.00% 4.41% $720,981 100.00% 4.57%
======== ====== ==== ======== ====== ==== ======== ====== ====
</TABLE>
September 30,
-------------------------------------------
1994
----
Weighted
Average
Nominal
Amount Percent Rate
------ ------- ----
(Dollars in thousands)
Demand accounts:
Non-interest
bearing demand $ 19,285 2.86% N/A
NOW accounts 47,861 7.10 1.57%
Money market
accounts 46,550 6.91 2.42
------ ---- ----
Subtotal $113,696 16.87 1.65
Savings accounts:
Passbook 92,855 13.78 2.02
Certificates of 463,254 68.75 4.55
deposit
Official checks 4,025 .60 N/A
----- ---
Total deposits $673,830 100.00% 3.69%
======== ====== ====
86
<PAGE>
The following table presents, by various categories, information concerning
the amounts and maturities of the Bank's time deposits on the dates indicated.
<TABLE>
<CAPTION>
September 30
June 30, ---------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
0.00 - 3.00% $ 121 $ 307 $ 199 $ 254
3.01 - 4.00% 6 1 4,360 179,914
4.01 - 5.00% 89,474 155,121 100,834 147,838
5.01 - 6.00% 545,431 378,999 234,126 76,038
6.01 - 7.00% 47,219 101,780 182,299 43,350
7.01 - 8.00% 423 603 9,174 13,135
8.01 - 9.00% --- 3 61 2,152
Over 9.01% --- --- 548 573
Premiums on deposits acquired --- 93 --- ---
Total Certificate Accounts $682,674 $636,907 $531,601 $463,254
</TABLE>
At June 30, 1997, the Bank had certificates of deposit in amounts of
$100,000 or more maturing as follows:
Amount
Maturity Period (In thousands)
- --------------- --------------
3 Months or Less 12,300
Over 3 to 6 Months 13,436
Over 6 to 12 Months 15,295
Over 12 Months 20,509
--------
Total $61,540
87
<PAGE>
The following table contains information regarding deposit account activity
for the periods shown.
<TABLE>
<CAPTION>
Nine Months Ended June 30, Years Ended September 30,
-------------------------- -------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net increase (decrease)
before interest
credited $ 27,798 $21,932 $ 30,644 $ 21,118 $ 2,217
Interest credited 25,253 22,113 30,035 26,033 20,521
Deposits acquired --- 70,193 70,193 --- ---
------ ------ ------ ------
Deposit account
increase (decrease) $53,051 $114,238 $130,872 $47,151 $22,738
======= ======== ======== ======= =======
Weighted average cost
of deposits during
the period 4.40% 4.47% 4.44% 4.24% 3.52%
Weighted average cost
of deposits at end
of period 4.45% 4.38% 4.41% 4.57% 3.69%
</TABLE>
Borrowings. The Bank is a member of the Federal Home Loan Bank of Atlanta
("FHLB of Atlanta"). The FHLB of Atlanta offers various fixed rate and variable
rate advances to its members. Requests for advances with an original term to
maturity of five years or less may be approved for any sound business purpose in
which the member is authorized to engage. Requests for advances with original
maturity in excess of five years may be approved only for the purpose of
enabling that member to provide funds for residential housing finance. The FHLB
of Atlanta underwrites each advance request based on factors such as adequacy
and stability of capital position, quality and composition of assets, liquidity
management, level of borrowings from all sources and other such factors.
Pursuant to a collateral agreement with the FHLB, advances are secured by all
stock in the FHLB and a blanket floating lien that requires the Bank to maintain
qualifying first mortgage loans as pledged collateral in an amount equal to,
when discounted at 75% of the unpaid principal balances, the advances.
In addition to advances from the FHLB of Atlanta, the Bank has also
borrowed funds from Northwest Bank to fund its Employee Stock Ownership Plan. At
June 30, 1997, the Bank had $449,000 in that obligation outstanding, which
matures in December, 1998. From time to time the Bank has also entered into
sales of securities under agreements to repurchase. At June 30, 1997 no such
agreements were outstanding.
88
<PAGE>
The following table sets forth information regarding the Bank's borrowing
at and for the periods indicated:
<TABLE>
<CAPTION>
At or for the Nine
Months Ended June 30, At or for the Year Ended September 30,
------------------------- ---------------------------------------------------
1997 1996 1996 1995 1994
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
FHLB Advances:
Average Balance $98,059 $73,303 $75,096 $58,178 $45,000
Maximum balance at any month-end 105,000 75,000 95,000 85,000 45,000
Balance at period end 100,000 75,000 95,000 65,000 45,000
Weighted average interest rate during
the period 6.00% 6.13% 6.12% 6.10% 6.16%
Weighted average interest rate at period end 6.00% 6.11% 6.02% 6.10% 6.12%
Other Borrowings:
Average Balance $599 $894 $ 857 $ 1,160 $ 1,165
Maximum balance at any month-end 674 974 974 1,273 1,498
Balance at period end 449 749 674 974 1,273
Weighted average interest rate during
the period 9.51% 9.52% 9.47% 9.27% 6.70%
Weighted average interest rate at period end 8.75% 8.50% 8.50% 9.00% 8.00%
Total Borrowings:
Average Balance $98,658 $74,197 $75,953 $59,338 $46,165
Maximum balance at any month-end 105,674 75,974 95,974 86,273 46,498
Balance at period end 100,449 75,749 95,674 65,974 46,273
Weighted average interest rate during
the period 6.02% 6.17% 6.15% 6.16% 6.18%
Weighted average interest rate at period end 6.01% 6.13% 6.04% 6.14% 6.17%
</TABLE>
89
<PAGE>
---------------
Subsidiaries
Federal associations generally may invest up to 2% of their assets in
service corporations plus an additional 1% of assets for community purposes. In
addition, federal associations such as the Bank may invest up to 50% of their
regulatory capital in conforming loans to service corporations. In addition to
investments in service corporations, federal associations are permitted to
invest an unlimited amount in operating subsidiaries engaged solely in
activities in which a federal association may directly engage.
The Bank has two active subsidiary corporations. Appraisal Analysts, Inc.
provides real estate appraisal services to the Bank as well as third parties. H.
F. Development Company, Inc. serve as repositories of selected REO properties
held for disposition. See " -- Delinquent, Nonperforming and Classified Assets."
The Bank also has inactive subsidiaries, one of which is discussed below:
CFD, Inc. One of the Bank's wholly-owned subsidiaries is CFD, Inc. CFD,
Inc. is a Florida corporation which, in September 1991, filed a Chapter 7
bankruptcy in the Southern District of Florida. Until filing in the bankruptcy
court CFD, Inc. had been engaged in land development and sales of land using
land installment sale contracts. CFD, Inc. became a subsidiary of the Bank in
1985 as a result of the restructuring of certain nonperforming loans made by the
Bank to CFD, Inc. and the transfer of CFD, Inc. stock and other assets to the
Bank as a result of the restructuring of the debt.
CFD, Inc. began land development operations in Sebring, Florida and Lake
Placid, Florida in the early 1960's through a predecessor corporation, Highlands
County Title and Guaranty Land Company ("Highlands Guaranty"). At that time it
had no business relationship or affiliation with the Bank. Between 1983 and
1985, the Bank extended loans to CFD, Inc. which aggregated approximately $20
million. The various loans to CFD, Inc. were subsequently consolidated into a
single loan and the Bank obtained a first mortgage on all land under
development.
The Bank assumed ownership of CFD, Inc. in 1985 as part of a restructuring.
CFD, Inc. filed for bankruptcy in September of 1991. The bankruptcy process is
still underway although it is nearing conclusion. All of the assets of CFD, Inc.
have been transferred to the bankruptcy trustee for liquidation. In connection
with the bankruptcy proceeding, the Bank is both a secured and unsecured
creditor of CFD, Inc. During the fiscal year 1996, the Bank received a $150,000
distribution from the bankruptcy trustee. The Bank believes that it is unlikely
that it will recover any significant amounts at the conclusion of the
bankruptcy.
The State of Florida has administratively dissolved CFD, Inc..
90
<PAGE>
Competition
The Bank encounters strong competition both in attracting deposits and in
originating real estate and consumer loans. Its most direct competition for
deposits has come historically from commercial banks, brokerage houses, other
savings associations and credit unions in its market area. The Bank expects
continued strong competition from such financial institutions in the foreseeable
future. The Bank's market area includes branches of a number of commercial banks
that are substantially larger than the Bank in terms of statewide deposits.
Recently, one of the nation's largest commercial banks announced the acquisition
of Florida's largest bank. The acquisition, upon completion, is expected to
intensify competition in the Bank's market area and in many other parts of
Florida. There may, however, be additional opportunities to purchase branches in
Florida as a result of such consolidation. The Bank competes for savings by
offering depositors a high level of personal service, convenient locations and a
competitive interest rate.
The competition for real estate and other loans comes principally from
commercial banks, mortgage banking companies and other savings associations.
Lending competition has increased substantially in recent years, as a result of
the large number of institutions seeking to benefit from the growth in the
Bank's market area.
The Bank competes for loans primarily through the interest rates and loan
fees it charges, the types of loans it offers, and the efficiency and quality of
services it provides borrowers, real estate brokers, and builders. Factors that
affect competition include general and local economic conditions, current
interest rate levels and volatility of the mortgage markets. Based on total
assets, as of June 30, 1997, the Bank was the largest savings institution
headquartered in the six county area served by the Bank.
Employees
At June 30, 1997, the Bank had a total of 293 full-time employees and 53
part-time employees, none of whom were represented by a collective bargaining
unit. The Bank considers its relations with its employees to be good.
91
<PAGE>
Properties
The Bank conducts its business from its headquarters in Fort Pierce and
through 22 branch offices. These offices are located in Brevard, Indian River,
Martin, Okeechobee, St. Lucie, and Volusia counties, Florida. The net book value
at June 30, 1997 of the Bank's offices was $10.1 million. The following table
sets forth information regarding the Bank's offices.
<TABLE>
<CAPTION>
Year Lease
Location Opened Owned/Leased Expiration Date
-------- ------ ------------ ---------------
<S> <C> <C> <C>
ST. LUCIE COUNTY
MAIN OFFICE 1934 OWNED
100 SOUTH SECOND STREET
FORT PIERCE, FL 34950
VIRGINIA AVENUE 1968 OWNED
500 VIRGINIA AVENUE
FORT PIERCE, FL 34982
PSL MAIN 1975 OWNED
7181 SOUTH U.S. #1
PORT ST. LUCIE, FL 34952
H.F. CENTER 1981 OWNED
2400 S.E. MIDPORT RD.
PORT ST. LUCIE, FL 34952
LAKEWOOD PARK 1981 OWNED
5100 TURNPIKE FEEDER RD.
FORT PIERCE, FL 34950
DARWIN SQUARE 1991 LEASED 11/30/97
3251 S.W. PSL BLVD.
PORT ST. LUCIE, FL 34953
ORANGE BLOSSOM 1984 OWNED
4156 OKEECHOBEE ROAD
FORT PIERCE, FL 34947
ST. LUCIE WEST 1993 OWNED
1376 S.W. ST. LUCIE WEST
BLVD.
PORT ST. LUCIE, FL 34986
</TABLE>
92
<PAGE>
<TABLE>
<CAPTION>
Year Lease
Location Opened Owned/Leased Expiration Date
-------- ------ ------------ ---------------
<S> <C> <C> <C>
INDIAN RIVER
VERO MAIN 1978 OWNED
655 21st STREET
VERO BEACH, FL 32960
CAUSEWAY 1981 OWNED
1700 S.A1A
VERO BEACH, FL 32963
INDIAN RIVER MALL 1997 OWNED
6080 20th STREET
VERO BEACH, FL 32966
SEBASTIAN 1979 OWNED
13397 U.S. HIGHWAY #1
SEBASTIAN, FL 32958
MARTIN COUNTY
PALM CITY 1978 LEASED 07/26/05
1251 S.W. 27TH STREET
PALM CITY, FL 34990
EAST OCEAN 1981 OWNED
1500 E. OCEAN BLVD.
STUART, FL 34996
STUART MAIN 1996 LEASED 08/15/99
789 S. FEDERAL HWY.
STUART, FL 34994
BREVARD COUNTY
PALM BAY 1981 OWNED
5245 BABCOCK ST., N.E.
PALM BAY, FL 32905
INDIALANTIC 1981 OWNED
305 5th AVENUE
INDIALANTIC, FL 32903
WEST MELBOURNE 1982 OWNED
2950 W. NEW HAVEN AVENUE
MELBOURNE, FL 32904
</TABLE>
93
<PAGE>
<TABLE>
<CAPTION>
Year Lease
Location Opened Owned/Leased Expiration Date
-------- ------ ------------ ---------------
<S> <C> <C> <C>
VIERA 1995 OWNED
100 CAPRON TRAIL
MELBOURNE, FL 32940
OKEECHOBEE COUNTY
OKEECHOBEE 1980 OWNED
2801 HIGHWAY #441 SOUTH
OKEECHOBEE, FL 34974
VOLUSIA COUNTY
NEW SMYRNA 1988 LEASED 9/30/99
REGIONAL SHOPPING CENTER
1940 STATE ROAD #44
NEW SMYRNA BEACH, FL 32069
PORT ORANGE 1983 OWNED
4035 NOVA ROAD
PORT ORANGE, FL 32127
ORMOND BEACH 1984 OWNED
75 N. NOVA ROAD
ORMOND BEACH, FL 32174
</TABLE>
All leases are anticipated to renew upon their expiration.
The Bank uses a data processing service located in Orlando, Florida for
record keeping activities. The data processor specializes in servicing savings
associations. The Bank has used this company since 1969 with a current contract
that expires in 2000. All data processing equipment that is used internally by
the Bank is owned by the Bank. The net book value of such data processing
equipment and related software as of June 30, 1997 was $925,000.
Legal Proceedings
There are various claims and lawsuits in which the Bank is periodically
involved incident to the Bank's business. In the opinion of management, no
material loss is anticipated from any such pending claims or lawsuits. The most
significant of these lawsuits is described below.
The Bank and certain other entities are defendants in a class action
lawsuit which was filed in May, 1991. The plaintiffs in the litigation are
purchasers of parcels of developed and undeveloped land from General Development
Corporation ("GDC") who allege that GDC, through fraudulent means, induced them
to buy land at inflated values. The Bank is a
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defendant in this matter along with a number of other financial institutions,
purchasers of loans in the secondary market, broker dealers, an insurance
company and numerous other individuals and companies. The involvement of the
Bank arises from its purchase from GDC of land sales contracts originated by
GDC. The Bank, along with the other defendants, filed a motion to dismiss the
case which was granted. The plaintiffs filed an appeal with the Third Circuit
Court of Appeals which remanded the case to the District Court for
reconsideration. The District Court entered its order dismissing the case again.
The plaintiffs filed a motion requesting the District Court to amend
the dismissal order to permit the plaintiffs to file another amended complaint.
The District Court denied the plaintiff's motion. The plaintiffs appealed that
order to the Third Circuit and both sides were directed to submit supplementary
briefs. Management believes that the position of the plaintiffs is without
merit.
REGULATION
General
The Bank is a federally chartered savings association, the deposits of
which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, the Bank is subject to broad federal
regulation and oversight extending to all its operations. The Bank is a member
of the FHLB of Atlanta and is subject to certain limited regulation by the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"). Harbor
Florida, as the mid-tier holding company of the Bank, is also regulated by the
OTS. Specifically, the OTS has ruled that Harbor Florida has the same powers and
limitations as the Mutual Holding Company. After the Conversion, Harbor Florida
will be a savings and loan holding company. As the savings and loan holding
company of the Bank, it is subject to federal regulation and oversight. The
purpose of the regulation of Harbor Florida and other holding companies is to
protect subsidiary savings associations. The Bank is a member of the SAIF, which
together with the BIF are the two deposit insurance funds administered by the
FDIC, and the deposits of the Bank are insured by the FDIC. As a result, the
FDIC has certain regulatory and examination authority over the Bank.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. Being subject to this authority, the Bank is required to file
periodic reports with the OTS and is
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subject to periodic examinations by the OTS and the FDIC. The last OTS
examination of the Bank was as of January 21, 1997. When these examinations are
conducted by the OTS and the FDIC, the examiners may require Harbor Florida to
provide for higher general or specific loan loss reserves. All savings
associations, including the Bank, are subject to a semi-annual assessment, based
upon their total assets, to fund the operations of the OTS. The Bank's OTS
assessment for the fiscal year ended September 30, 1996, was $190,000.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including the Bank, Harbor Florida and
the Mutual Holding Company. This enforcement authority includes, among other
things, the ability to assess civil money penalties, to issue cease-and-desist
or removal orders and to initiate injunctive actions. In general, these
enforcement actions may be initiated for violations of laws or regulations and
unsafe or unsound practices. Other actions or inactions may provide the basis
for enforcement action, including misleading or untimely reports filed with the
OTS. Except under certain circumstances, public disclosure of final enforcement
actions by the OTS is required.
In addition, the investment, lending and branching authority of the Bank is
prescribed by federal law and it is prohibited from engaging in any activities
not permitted by such laws. For instance, no savings institution may invest in
non-investment grade corporate debt securities. In addition, the permissible
level of investment by federal associations in loans secured by non-residential
real property may not exceed 400% of total capital, except with approval of the
OTS. Federal savings associations are also generally authorized to branch
nationwide. The Bank is in compliance with the noted restrictions.
The Bank's general permissible lending limit for loans-to-one-borrower is
equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
June 30, 1997, the Bank's lending limit under this restriction was $13.4
million. The Bank is in compliance with the loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan.
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Insurance of Accounts and Regulation by the FDIC
The Bank is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC insured institutions. It also
may prohibit any FDIC insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the SAIF or the BIF.
The FDIC also has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6%, and a risk-based capital ratio of at least 10%), and considered
healthy, pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier I risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual basis,
if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
In order to equalize the deposit insurance premium schedules for BIF and
SAIF insured institutions, the FDIC imposed a one-time special assessment on all
SAIF-assessable deposits pursuant to federal legislation passed on September 30,
1996. The Bank's special assessment, which was $4,552,000, was paid in November
1996, but accrued as of September 30, 1996. Effective January 1, 1997, the
premium schedule for BIF and SAIF insured institutions ranged from 0 to 27 basis
points. However, SAIF insured institutions are required to pay a Financing
Corporation (FICO) assessment, in order to fund the interest on bonds issued to
resolve thrift failures in the 1980s, equal to 6.48 basis points for each $100
in domestic
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deposits, while BIF-insured institutions pay an assessment equal to 1.52 basis
points for each $100 in domestic deposits. The assessment is expected to be
reduced to 2.43 basis points no later than January 1, 2000, when BIF insured
institutions fully participate in the assessment. These assessments, which may
be revised based upon the level of BIF and SAIF deposits will continue until the
bonds mature in the year 2017.
Regulatory Capital Requirements
Federally insured savings associations, such as the Bank, are required to
maintain a minimum level of regulatory capital. The OTS has established capital
standards, including a tangible capital requirement, a leverage ratio (or core
capital) requirement, and a risk-based capital requirement applicable to such
savings associations. These capital requirements must be generally as stringent
as the comparable capital requirements for national banks. The OTS is also
authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total tangible assets (as defined by regulation). Tangible capital
generally includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks, or engaged in certain other activities solely as agent for
its customers, are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the Bank's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital.
At June 30, 1997, the Bank had tangible capital of $78.4 million, or 7.04%
of total assets, which is approximately $61.9 million above the minimum
requirement of 1.5% of adjusted total assets in effect on that date. On a pro
forma basis, after giving effect to the sale of the minimum, midpoint and
maximum number of shares of Common Stock offered in the Conversion and
investment of 50% of the net proceeds in assets not excluded for tangible
capital purposes, the Bank would have had tangible capital equal to 10.18%,
10.66%, and 11.14%, respectively, of adjusted total assets at June 30, 1997,
which is $97.5 million, $103.8 million and $110.2 million, respectively, above
the requirement.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets,
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including a limited amount of purchased credit card relationships. As a result
of the prompt corrective action provisions discussed below, however, a savings
association must maintain a core capital ratio of at least 4% to be considered
adequately capitalized unless its supervisory condition is such to allow it to
maintain a 3% ratio.
At June 30, 1997, the Bank had core capital equal to $78.4 million, or
7.04% of adjusted total assets, which is $45.0 million above the minimum
leverage ratio requirement of 3% as in effect on that date. On a pro forma
basis, after giving effect to the sale of the minimum, midpoint and maximum
number of shares of Common Stock offered in the Conversion, and investment of
50% of the net proceeds in assets not excluded from core capital, the Bank would
have had core capital equal to 9.92%, 10.41% and 10.89% respectively, of
adjusted total assets at June 30, 1997, which is $80.1 million, $86.3 million
and $92.6 million, respectively, above the requirement.
The OTS risk-based requirement requires savings associations to have total
capital of at least 8% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by FNMA or FHLMC.
The OTS has adopted a final rule that requires every savings association
with more than normal interest rate risk exposure to deduct from its total
capital, for purposes of determining compliance with such requirement, an amount
equal to 50% of its interest-rate risk exposure multiplied by the present value
of its assets. This exposure is a measure of the potential decline in the net
portfolio value of a savings association, greater than 2% of the present value
of its assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities, and
off-balance sheet contracts. The rule provides for a two quarter lag between
calculating interest rate risk and recognizing any deduction from capital. The
rule will not become effective until the OTS evaluates the process
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by which savings association may appeal an interest rate risk deduction
determination. It is uncertain as to when this evaluation may be completed.
On June 30, 1997, the Bank had total capital of $85.7 million. This amount
was $39.3 million above the 8% requirement in effect on that date. On a pro
forma basis, after giving effect to the sale of the minimum, midpoint and
maximum number of shares of Common Stock offered in the Conversion, the infusion
to the Bank of 50% of the net Conversion proceeds and the investment of those
proceeds in 20% risk-weighted government securities, the Bank would have had
total capital of 20.73%, 21.78% and 22.82%, respectively, of risk-weighted
assets, which is above the current 8% requirement by $75.0 million, $81.4
million and $87.7 million, respectively.
Prompt Corrective Action. The OTS and the FDIC are authorized and, under
certain circumstances, required, to take certain actions against savings
association that fail to meet their capital requirements. The OTS is generally
required to take action to restrict the activities of an "undercapitalized
association" (generally defined to be one with less than either a 4% core
capital ratio, a 4% Tier 1 risked-based capital ratio or an 8% risk-based
capital ratio). Any such association must submit a capital restoration plan and
until such plan is approved by the OTS may not increase its assets, acquire
another institution, establish a branch or engage in any new activities, and
generally may not make capital distributions. The OTS is authorized to impose
the additional restrictions that are applicable to significantly
undercapitalized associations.
As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter into a
limited capital maintenance guarantee with respect to the institution's
achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of an association. An association that becomes "critically
undercapitalized" (i.e., a tangible capital ratio of 2% or less) is subject to
further mandatory restrictions on its activities in addition to those applicable
to significantly undercapitalized savings associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
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The OTS is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the Bank
may have a substantial adverse effect on its operations and profitability.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings association with
respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of an association would
be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. See "THE
CONVERSION -- Effects of the Conversion" and "-- Certain Restrictions on
Purchase or Transfer of Shares After the Conversion."
The OTS utilizes a three-tiered approach to permit savings associations,
based on their capital level and supervisory condition, to make capital
distributions which include dividends, stock redemptions or repurchases,
cash-out mergers and other transactions charged to the capital account. See
"--Regulatory Capital Requirements."
Generally, Tier 1 savings associations, which are savings associations that
before and after the proposed distribution meet their current capital
requirements, may make capital distributions during any calendar year equal to
the greater of 100% of net income for the year-to-date plus 50% of the amount by
which the lesser of the association's tangible, core, or risk-based capital
exceeds its fully phased-in capital requirement for such capital component, as
measured at the beginning of the calendar year, or the amount authorized for a
Tier 2 association. However, a Tier 1 association deemed to be in need of more
than normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association as a result of such a determination. The Bank meets the requirements
for a Tier I association and has not been notified of a need for more than
normal supervision. Tier 2 savings associations, which are savings associations
that before and after the proposed distribution meet their current minimum
capital requirements, may make capital distributions of up to 75% of net income
over the most recent four quarter period.
Tier 3 savings associations (which are savings associations that do not
meet current minimum capital requirements) that propose to make any capital
distribution and Tier 2 savings associations that propose to make a capital
distribution in excess of the noted safe
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harbor level must obtain OTS approval prior to making such distribution. Tier 2
savings associations proposing to make a capital distribution within the safe
harbor provisions and Tier 1 savings associations proposing to make any capital
distribution need only submit written notice to the OTS 30 days prior to such
distribution. The OTS may object to the distribution during that 30-day period
based on safety and soundness concerns. A savings association may not make a
capital distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. See "-
Regulatory Capital Requirements."
Liquidity
All savings associations, including the Bank, are required to maintain an
average daily balance of liquid assets equal to a certain percentage of the sum
of its average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less. For a discussion of what the Bank includes in
liquid assets, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources." This liquid asset
ratio requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings association. At the present
time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time deposits,
certain bankers acceptances and short-term United States Treasury obligations)
currently must constitute at least 1% of the Bank's average daily balance of net
withdrawable deposit accounts and current borrowings. Penalties may be imposed
upon savings associations for violations of either liquid asset ratio
requirement. At June 30, 1997, the Bank was in compliance with both
requirements, with an overall liquid asset ratio of 18.07% and a short-term
liquid assets ratio of 6.89%.
Accounting
An OTS policy statement applicable to all savings association clarifies and
re-emphasizes that the investment activities of a savings association must be in
compliance with approved and documented investment policies and strategies, and
must be accounted for in accordance with GAAP. Under the policy statement,
management must support its classification of and accounting for loans and
securities (i.e., whether held for investment, sale, or trading) with
appropriate documentation. The Bank is in compliance with these amended rules.
The OTS has adopted an amendment to its accounting regulations, which may
be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner
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that best reflects their underlying economic substance and inherent risk and
that financial reports must incorporate any other accounting regulations or
orders prescribed by the OTS.
Qualified Thrift Lender Test
All savings association, including the Bank, are required to meet a QTL
test to avoid certain restrictions on their operations. This test requires a
savings association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. As an alternative, the savings association
may maintain 60% of its assets in those assets specified in Section 7701(a)(19)
of the Internal Revenue Code of 1986, as amended ("Code"). Under either test,
such assets primarily consist of residential housing related loans and
investments. At June 30, 1997, the Bank met the test and has always met the test
since its effectiveness.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, such
an association is immediately ineligible to receive any new FHLB borrowings and
is subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See " -- Company Regulation." Recent changes in federal law have
provided savings associations with a broader array of lending activities that
will enable the Bank to continue to meet the QTL test but place more portfolio
assets in credit card loans, educational loans and commercial loans.
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent
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with the CRA. The CRA requires the OTS, in connection with the examination of
the Bank, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by the Bank. An
unsatisfactory rating may be used as the basis for the denial of an application
by the OTS.
After the Conversion and merger, the federal banking agencies, including
the OTS, have recently revised the CRA regulations and the methodology for
determining an institution's compliance with the CRA. Due to the heightened
attention being given to the CRA in the past few years, the Bank may be required
to devote additional finds for investment and lending in its local community.
The Bank was last examined for CRA compliance on June 9, 1997. At that time it
was rated as having an "outstanding record of meeting community credit needs."
Transactions with Affiliates
Generally, transactions between a savings association or its subsidiaries
and its affiliates are required to be on terms as favorable to the association
as transactions with non-affiliates. In addition, certain of these transactions,
such as loans to an affiliate, are restricted to a percentage of the
association's capital. Affiliates of the Bank include Harbor Florida, the Mutual
Holding Company and any company which is under common control with the Bank. In
addition, a savings association may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the securities
of most affiliates. The OTS has the discretion to treat subsidiaries of savings
association as affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
Company Regulation
Upon completion of the Conversion, Harbor Florida will be a unitary savings
and loan holding company subject to regulatory oversight by the OTS. As such,
Harbor Florida is required to register and file reports with the OTS and is
subject to regulation and examination by the OTS. In addition, the OTS has
enforcement authority over Harbor Florida and its non-savings association
subsidiaries which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association.
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As a unitary savings and loan holding company, the Company generally is not
subject to activity restrictions. If Harbor Florida acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of Harbor Florida and any of its
subsidiaries (other than the Bank or any other SAIF insured savings association)
would become subject to such restrictions unless such other savings associations
each qualify as a QTL and were acquired in a supervisory acquisition.
If the Bank fails the QTL test, the Company must obtain the approval of the
OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition, within
one year of such failure the Company must register as, and will become subject
to, the restrictions applicable to bank holding companies. The activities
authorized for a bank holding company are more limited than are the activities
authorized for a unitary or multiple savings and loan holding company. See "
- --Qualified Thrift Lender Test."
Harbor Florida must obtain approval from the OTS before acquiring control
of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
The stock of Harbor Florida is registered under the Securities and Exchange
Act of 1934 (the "Exchange Act") as administered by the Securities and Exchange
Commission ("SEC"). After the Conversion, the Common Stock of Harbor Florida
will continue to be registered with the SEC under the Exchange Act. Harbor
Florida will continue to be subject to the information, proxy solicitation,
insider trading restrictions and other requirements of the SEC under the
Exchange Act.
Common Stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of Harbor Florida may not be resold
without registration unless resold in accordance with certain resale
restrictions. If Harbor Florida meets specified current public information
requirements, each affiliate of Harbor Florida is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
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Federal Reserve System
The Federal Reserve Board requires all depository institutions to maintain
noninterest bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At June 30,
1997, the Bank was in compliance with these reserve requirements. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy liquidity requirements that may be imposed by the OTS.
See " --Liquidity."
Savings association are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require savings
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System
The Bank is a member of the FHLB of Atlanta, which is one of 12 regional
FHLBs that provide collateralized borrowings (advances) to support the home
financing credit function of savings associations and other stockholder members
such as commercial banks and credit unions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. Each is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. Each makes loans to members (i.e., advances) in accordance with
policies and procedures, established by the board of directors of the FHLB,
which are subject to the oversight of the Federal Housing Finance Board. All
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB. In addition, all long-term advances are required to
provide funds for residential home financing.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Atlanta. At June 30, 1997, the Bank had $7,595,000 in FHLB stock, which
was in compliance with this requirement. In past years, the Bank has received
substantial dividends on its FHLB stock. Over the past five fiscal years such
dividends have averaged 6.48%, and were 7.25% for calendar year 1996.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings association and to contribute to low and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low and moderate income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
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For the year ended September 30, 1996, dividends paid by the FHLB of
Atlanta to the Bank totaled $476,000. The $397,000 dividend for the nine months
ended June 30, 1997 reflects an annualized rate of 7.25%.
Federal and State Taxation
Federal Taxation. Savings associations such as the Bank that met certain
definitional tests relating to the composition of assets and other conditions
prescribed by the Code, are permitted to establish reserves for bad debts and to
make annual additions thereto which may, within specified formula limits, be
taken as a deduction in computing taxable income for federal income tax
purposes. The amount of the bad debt reserve deduction for "nonqualifying loans"
is computed under the experience method. The amount of the bad debt reserve
deduction for "qualifying real property loans" (generally loans secured by
improved real estate) could be computed under either the experience method or
the percentage of taxable income method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an amount
determined under a formula based generally upon the bad debts actually sustained
by the savings association over a period of years.
Since 1987, the percentage of specially-computed taxable income that was
used to compute a savings association's bad debt reserve deduction under the
percentage of taxable income method (the "percentage bad debt deduction") was
8%. The percentage bad debt deduction thus computed was reduced by the amount
permitted as a deduction for non-qualifying loans under the experience method.
The availability of the percentage of taxable income method permitted qualifying
savings association to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction). Under changes in federal tax law enacted
in August 1996, the percentage bad debt deduction has been eliminated for tax
years beginning after December 31, 1995. Accordingly, this method will not be
available to the Bank for its tax years ending September 30, 1997, and
thereafter.
Under the percentage of taxable income method, the percentage bad debt
deduction could not exceed the amount necessary to increase the balance in the
reserve for qualifying real property loans to an amount equal to 6% of such
loans outstanding at the end of the taxable year, or the greater of (i) the
amount deductible under the experience method, or (ii) the amount which, when
added to the bad debt deduction for non-qualifying loans, equals the amount by
which 12% of the amount comprising savings accounts at year-end exceeds the sum
of surplus, undivided profits, and reserves at the beginning of the year.
Through September 30, 1996, the 6% and 12% limitations did not restrict the
percentage bad debt deduction available to the Bank.
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<PAGE>
The federal tax legislation enacted in August 1996 also imposes a
requirement to recapture into taxable income the portion of the qualifying and
non-qualifying loan reserves in excess of the "base-year" balances of such
reserves. For the Bank, the base-year reserves are the balances as of September
30, 1988. Recapture of the excess reserves will occur over a six-year period
which could begin for the Bank as early as the tax year ending September 30,
1997 (commencement of the recapture period may be delayed, however, for up to
two years provided the Bank meets certain residential lending requirements).
This delay of the recapture is not available to the Bank if it converts to a
national bank. The Bank previously established, and will continue to maintain, a
deferred tax liability with respect to its federal tax bad debt reserves in
excess of the base-year balances; accordingly, the legislative changes will have
no effect on total income tax expense for financial reporting purposes.
Also, under the August 1996 legislation, the Bank's base-year federal tax
bad debt reserves are "frozen" and subject to current recapture only in very
limited circumstances. Generally, recapture of all or a portion of the base-year
reserves will be required if the Bank pays a dividend in excess of the greater
of its current or accumulated earnings and profits, redeems any of its stock, or
is liquidated. The Bank has not established a deferred federal tax liability
under SFAS No. 109 for its base-year federal tax bad debt reserves, as it does
not anticipate engaging in any of the transactions that would cause such
reserves to be recaptured.
In addition to the regular income tax, corporations, including savings
association such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including savings association such as
the Bank, are also subject to an environmental tax equal to 0.12% of the excess
of alternative minimum taxable income for the taxable year (determined without
regard to net operating losses and the deduction for the environmental tax) over
$2 million.
The Bank files federal income tax returns on a fiscal year basis using the
accrual method of accounting.
The Bank has not been audited by the IRS recently with respect to federal
income tax returns. In the opinion of management, any examination of still open
returns would not result in a deficiency which could have a material adverse
effect on the financial condition of the Bank.
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<PAGE>
Florida Taxation. Under the laws of the state of Florida, Harbor Florida
and its subsidiaries are subject generally to a 5.5% tax on net income. The tax
may be reduced by credit of up to 65% of the tax due as a result of certain
intangible taxes.
MANAGEMENT OF HARBOR FLORIDA
Directors and Executive Officers
The Board of Directors of Harbor Florida consists of the same individuals
who are the current members of the Board of Directors of the Bank. See
"MANAGEMENT OF THE BANK -- Directors." Each director of Harbor Florida has
served since its incorporation in December of 1996. The directors of Harbor
Florida serve three year staggered terms so approximately one third of the
directors are elected at each annual meeting of the stockholders. The terms of
the current directors of Harbor Florida are the same as their terms as directors
of the Bank. Harbor Florida does not intend to pay its directors a fee for
participation on the Board of Directors of Harbor Florida.
The executive officers of Harbor Florida are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors of Harbor Florida.
The executive officers of Harbor Florida are also the executive officers of the
Bank. It is not anticipated that the executive officers of Harbor Florida
receive any renumeration in their capacity as Harbor Florida executive officers,
nor do they currently. For information regarding compensation of directors and
executive officers of the Bank, see "MANAGEMENT OF THE BANK."
MANAGEMENT OF THE BANK
Directors
The direction and control of the Bank is vested in the Bank's Board of
Directors. The Board of Directors currently consist of seven directors. The
directors are divided into three classes. Approximately one third of the
directors are elected at each annual meeting of stockholders. Because Harbor
Florida owns all of the issued and outstanding shares of the Bank, it, through
its directors, elects directors of the Bank. This will continue after the
Conversion.
109
<PAGE>
The following table sets forth certain information, as of June 30, 1997,
with respect to each director of the Bank.
Director of the New or Current
Name Age Bank Since Term to Expire(*)
---- --- --------------- -----------------
Bruce R. Abernethy, Sr. 62 1983 1999
Richard N. Bird 56 1997 2000
Michael J. Brown, Sr. 56 1977 1998
Richard K. Davis 67 1978 2000
Edward G. Enns 64 1977 1999
Frank H. Fee, III 54 1987 2000
Richard B. Hellstrom 61 1988 1998
- ------------
(*) All terms expire on the date of the Annual Meeting.
The principal occupation for the last five years for each director of the
Bank is set forth below.
Bruce R. Abernethy, Sr. Mr. Abernethy was elected to the Board in 1983.
He served as Executive Vice President of the
Fort Pierce / St. Lucie County Chamber of
Commerce from May 1991 to May 1993. Prior to
that Mr. Abernethy was operations manager for
the Southern Bell Telephone Company. He
currently resides in St.Lucie County, Florida,
and is retired.
Richard N. Bird Mr. Bird is President and principal broker of
Bird Realty Group, Inc., a real estate
brokerage firm specializing in commercial real
estate in Indian River County. He is recently
retired from elected office after serving
sixteen years on the Indian River County
Commission. Mr. Bird assisted Harbor Federal
in forming the Indian River County Advisory
Board and served as a member of that Board in
1996. He conducts his business in Indian River
County, Florida.
110
<PAGE>
Michael J. Brown, Sr. Mr. Brown has served as President and Chief
Executive Officer of Harbor Federal since
1976. He was elected to the Board in 1977.
Prior to joining Harbor Federal, Mr. Brown
was the Chief Financial Officer at University
Federal Savings in Coral Gables, Florida and
Prudential Savings in Clayton, Missouri. Mr.
Brown has served as president of the Chamber
of Commerce and the Rotary Club. He has also
been a member of the Federal Home Loan
Mortgage Corporation Advisory Board.
Richard K. Davis Mr. Davis has served on the Board of Directors
since 1978. He is Chairman of Richard K.
Davis Construction Corp., located in St. Lucie
County, Florida.
Edward G. Enns Mr. Enns has served as a Director since 1977. He
is the owner of the Enns Agency, a property
and casualty insurance agency located in Fort
Pierce, Florida. Mr. Enns is a licensed real
estate sales agent. He is a former County
Commission Chairman of St. Lucie County,
Florida, and presently serves as mayor of the
city of Fort Pierce.
Frank H. Fee, III Mr. Fee has served as a Director since 1987. He
is an attorney and President of the law firm
of Fee & Koblegard, P.A. which does business
under the registered name of Fee, Koblegard &
DeRoss, a general practice law firm located in
Fort Pierce, Florida. Mr.Fee is also President
of Treasure Coast Abstract & Title Insurance
Company, an abstracting and title insuring
agent firm, and is in the business of citrus
and cattle production.
111
<PAGE>
Richard B. Hellstrom Mr. Hellstrom has been a Director since 1988. He
is shareholder and President of Lindahl,
Browning, Ferrari & Hellstrom, Inc., a firm
specializing in civil, environmental and
agricultural engineering. He conducts his
business in St. Lucie County, Florida.
Board Meetings and Committees
The Board of Directors meets twice a month and may have additional special
meetings. During the year ended September 30, 1996, the Board met 26 times. All
Directors who served as directors during that year attended at least 75% of
Board meetings. The standing committees include the following:
Audit Committee. The Audit Committee met three times during the fiscal year
ended September 30, 1996. The Audit Committee reviews the internal audit
department of the Bank as well as selecting the independent auditors for the
Bank. It also has oversight of the Bank's internal control structure and
financial reporting as well as review of the Bank's annual audit plan. This
committee currently consists of Messrs. Bird, Davis, and Fee.
Nominating Committee. The Nominating Committee nominates candidates for
vacancies for the office of director. The Committee met once in fiscal 1996 and
consists of Messrs. Brown, Davis, Fee, and Hellstrom.
Compensation Committee. The Compensation Committee met four (4) times in
fiscal 1996. It reviews and discusses employee performance and prepares
recommendations for annual salary adjustments and bonuses. The Committee also
administers Harbor Florida's and the Bank's stock benefit plans. This committee
consists of Messrs. Abernethy, Enns, and Hellstrom.
Directors' Fees
Directors of the Bank receive a monthly fee of $1,750 for serving on the
Board. Directors Abernethy, Davis and Fee defer their compensation through the
Bank's Directors' Deferred Compensation Plan. In addition, each Director is
covered by a Group Accident and Travel Plan at a cost of $290 per year per
Director. The Chairman of the Board, Edward G. Enns, receives an additional $435
per month and the Vice-Chairman, Bruce R. Abernethy, Sr., receives an additional
$200 per month. The Chairman and Vice-Chairman devote approximately 10% and 8%,
respectively, of their professional time to the affairs of the Bank. President
Brown receives no fees for serving on the Board of Directors.
112
<PAGE>
Director Retirement Plan
The Bank has established a Director Retirement Plan. Under this plan,
non-employee directors who served on the Board of Directors for ten (10) years
and have attained the age of 65 are entitled to receive annually until death a
payment upon retirement equal to 2 1/2% of the average of the annual Board fee
paid such directors for the last three years of service multiplied by his years
of Board services (not to exceed 50% of the three year average fee). In 1996,
the Board discontinued this plan on a prospective basis. Directors who were
elected to the Board after 1996, such as Richard N. Bird, are not eligible to
participate in this plan.
Directors' Unfunded Deferred Compensation Plan
The Unfunded Deferred Compensation Plan for the Directors of the Bank (the
"Directors' Deferred Compensation Plan") provides that a director of the Bank
may elect to defer all or part of his annual director fees to fund the
Directors' Deferred Compensation Plan. The plan also provides that deferred fees
are to earn interest at an annual rate equal to the 30-month certificate of
deposit rate adjusted and compounded quarterly. Amounts deferred under the
Directors' Deferred Compensation Plan are distributed in annual installments
over a ten year period beginning with the first day of the calendar year
immediately following the year in which the director: (i) ceases to be a
director; or (ii) attains the age of 65, having been a participant in the
Directors' Deferred Compensation Plan for a minimum of five years; or (iii)
terminates his participation in the plan. The Directors' Deferred Compensation
Plan also provides methods of distribution in the event of the death of the
participant as well as retirement or removal from the Board of the Bank. The
Directors' Deferred Compensation Plan also holds 20,207, 22,900, and 16,000
shares of Public Harbor Florida Stock for Messrs. Abernethy, Davis and Fee,
respectively. These shares were acquired by the Plan utilizing deferred annual
director fees of Messrs. Abernethy, Davis and Fee.
Executive Compensation
The following table sets forth the compensation paid to Mr. Michael J.
Brown, Sr., President and Chief Executive Officer, Robert W. Bluestone, Senior
Vice President - Retail Banking, David C. Hankle, Senior Vice President - Credit
Administration/Commercial Lending, Don W. Bebber, Senior Vice President and
Chief Financial Officer, and Albert L. Fort, Senior Vice President -
Marketing/Operations. No other executive officer of the Bank served as President
or earned a total salary and bonus in excess of $100,000 during these three
fiscal years.
113
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
All Other
Annual Compensation Long Term Compensation Compensation($)(3)
------------------- ---------------------- ------------------
Restricted
Name and Stock
Principal Position Year(1) Salary($) Bonus($) Awards($)(2) Options(#)
------------------ ------- --------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Brown, Sr. 1996 $235,550 $22,260 $0 2,000 $98,996
President 1995 220,833 25,440 0 0 55,453
1994 212,000 0 160,500 45,800 8,060
Robert W. Bluestone 1996 $121,717 $11,780 $0 500 $10,510
Senior Vice 1995 116,950 11,270 0 0 10,347
President - 1994 112,700 0 52,920 11,940 3,089
Retail Banking
David C. Hankle 1996 $120,717 $11,680 $0 500 $14,194
Senior Vice 1995 115,967 11,180 0 0 14,387
President - 1994 111,800 0 52,920 11,940 6,108
Credit
Administration/
Commercial
Lending
Don W. Bebber 1996 $102,917 $9,500 $0 500 $11,033
Senior Vice 1995 92,500 16,000 0 0 11,047
President- 1994 80,000 0 52,910 11,940 4,622
Chief Financial
Officer
Albert L. Fort 1996 $96,392 $9,485 $0 500 $12,286
Senior Vice 1995 94,242 9,120 0 0 13,514
President- 1994 90,150 0 52,900 11,940 5,995
Marketing/Operations
</TABLE>
- -----------
(1) The Bank's fiscal year ends September 30.
(2) Represents stock awards granted by the Compensation Committee pursuant to
the Harbor Federal Bank Recognition and Retention Plan. The awards were
granted on January 6, 1994, the date of the MHC Reorganization. One third
of the shares granted under the Plan vested on each of January 6, 1995,
January 6, 1996 and January 6, 1997. The value of such shares, when
awarded, was determined by multiplying the number of shares awarded by the
price at which the shares were sold in the Bank's public stock issuance. At
September 30, 1996, Messrs. Brown, Bluestone, Hankle, Bebber and Fort held
5,350, 1,764, 1,764, 1,764 and 1,764 shares of Public Harbor Florida Stock,
respectively, that remain subject to the Harbor Federal Bank Recognition
and Retention Plan. The fair market value of such restricted stock on
September 30, 1996, based on the last sale reported on the NASDAQ National
Market on Monday, September 30, 1996, or $29.625 per share, was
approximately $158,494, $52,259, $52,259, $52,259 and $52,289,
respectively. These shares vested on January 6, 1997.
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<PAGE>
(3) For fiscal 1996 consists of insurance payments of $6,341, $2,499, $4,592,
$4,543 and $4,520 and contributions to the Bank's Employee Stock Ownership
Plan in the equivalent amount of $9,245, $8,011, $7,943, $6,490 and $6,440
for Messrs. Brown, Bluestone, Hankle, Bebber and Fort, respectively.
Additionally, the Bank contributed $1,860, $1,659 and $1,326 to Messrs.
Brown, Hankle and Fort, respectively, pursuant to the Bank's 401(k) Profit
Sharing Plan and Trust. The Bank also contributed $81,550 to fund Mr.
Brown's Supplemental Executive Retirement Plan. Other personal benefits
provided by the Bank have not been listed. The aggregate amount of such
benefits does not exceed the lesser of $50,000, or 10% of each named
executive officers' cash compensation.
----------------------
Option Grants in Last Fiscal Year. The following table provides information
on option grants in fiscal 1996 to Messrs. Brown, Bluestone, Hankle, Bebber and
Fort:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annualized Rates of
Stock Price
Appreciation
Individual Grants for Option Term(1)
-------------------------------------------------------------------------- -------------------------
% of Total
Options
Number of Granted to Exercisable
Date of Options Employees in Price Per Expiration
Name Grant(2) Granted Fiscal Year Share(3) Date 5% 10%
---- -------- ------- ----------- -------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Michael J. Brown, Sr. 1/6/96 2,000 44.44% $27.00 1/7/06 $ 33,960 $86,060
Don W. Bebber 1/6/96 500 11.11 27.00 1/7/06 8,490 21,515
Robert W. Bluestone 1/6/96 500 11.11 27.00 1/7/06 8,490 21,515
David C. Hankle 1/6/96 500 11.11 27.00 1/7/06 8,490 21,515
Albert L. Fort 1/6/96 500 11.11 27.00 1/7/06 8,490 21,515
</TABLE>
- ----------
(1) "Potential Realized Value" is disclosed in response to the Securities and
Exchange commission rules which require such disclosure for illustration
purposes and is based on the difference between the potential market value
of shares issuable upon exercise of such options and the exercise price of
such options. The values disclosed are not intended to be, and should not
be interpreted by stockholders as, representations or projections of future
value of Harbor Florida's common stock or of the stock price. To lend
perspective to the illustrative potential realized value, if Harbor
Florida's stock price increased 5% per year for ten years from its closing
price on Friday, January 5, 1996, $27.00 per share, (disregarding dividends
and assuming for purposes of the calculation a constant number of shares
outstanding)
115
<PAGE>
the stock price at the end of ten years would be $43.98 per share for an
increase of $16.98 per share; and if the stock increased 10% per year over
such period, the ending stock price would be $70.03 per share for an
increase of $43.03 per share. At November 13, 1997, the date of this
Prospectus, the closing price of Harbor Florida Common Stock was
_____________________.
(2) All options granted on January 6, 1996, first become exercisable on January
6, 2001.
(3) The exercise price is equal to the closing price on Friday, January 5,
1996, or $27.00 per share.
-----------------------
Aggregate Option Exercises and Year-End Option Values. The following table
sets forth the number of shares acquired on the exercise of stock options and
the aggregate gains realized on the exercise during fiscal 1996 by Messrs.
Brown, Bebber, Bluestone, Fort and Hankle. The table also sets forth the number
of shares covered by exercisable and unexercisable options held by the named
individuals on September 30, 1996, and the aggregate gains that would have been
realized had these options been exercised on September 30, 1996, even though
these options were not exercised, and the unexercised options could not have
been exercised, on September 30, 1996.
<TABLE>
<CAPTION>
Shares Acquired
On Exercise Number of Shares Value of Unexercised
During Fiscal Value Covered by Unexercised In-The-Money
Name 1996 Realized(1) Options on 9/30/96 Options As Of 9/30/96(2)
---- ---- ----------- ------------------ ------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Brown, Sr. 4,000 $66,063 18,900 22,900 $370,913 $449,413
Don W. Bebber 3,988 60,811 791 7,164 15,523 140,594
Robert W. Bluestone 2,388 39,999 0 7,164 0 140,594
Albert L. Fort 2,388 42,984 0 7,164 0 140,594
David C. Hankle 1,500 24,750 3,276 7,164 64,292 140,594
- ----------
</TABLE>
(1) Equals the difference between the aggregate exercise price of the options
exercised and the aggregate fair market value of the common stock received
upon exercise computed using the price of the last sale of the common stock
on the exercise date, as quoted on the NASDAQ National Market. All options
exercised had an exercise price of $10.00 per share. Mr. Brown exercised
2,500 options on January 25, 1996, when the market price of the common
stock was $25.625 per share and 1,500 options on April 25, 1996, when the
market price of the common stock was $28.00 per share. Mr. Bebber exercised
2,388 options on January 19, 1996, when the market price of the common
stock was $25.75 per share and 1,600 options on July 24, 1996, when the
market price of the
116
<PAGE>
common stock was $24.50 per share. Mr. Bluestone exercised 2,388 options on
January 9, 1996, when the market price of the common stock was $26.75 per
share. Mr. Fort exercised 2,388 options on April 22, 1996, when the market
price of the common stock was $28.00 per share. Mr. Hankle exercised 1,500
options on January 17, 1996, when the market price of the common stock was
$26.50 per share.
(2) Equals the difference between the aggregate exercise price of such options
and the aggregate fair market value of the common stock that will be
received upon exercise, assuming such exercise occurred on Monday,
September 30, 1996, at which date the last sale of the common stock as
quoted on the NASDAQ National Market was at $29.625 per share.
--------------------
Employee Stock Ownership Plan. In 1994, the Bank established the ESOP in
connection with the MHC Reorganization for employees age 21 or older who have at
least one year of credited service with the Bank. Following the creation of
Harbor Florida, investments in the Bank's common stock by the ESOP were
exchanged for Public Harbor Florida Shares.
In January 1994, the ESOP borrowed $1,498,000 from an unaffiliated lender
to purchase 149,800 shares of Bank common stock issued in the MHC
Reorganization. Upon consummation of the Conversion, the Public Harbor Florida
Shares held by the ESOP will be increased pursuant to the Distribution Exchange.
The ESOP is administered by an unaffiliated corporate trustee in
conjunction with the Compensation Committee of the Board (the "Committee"). The
ESOP trustee must vote all allocated shares held by the ESOP in accordance with
the instructions of participating employees. Shares for which employees do not
give instructions will be voted by the ESOP trustee.
As part of the Conversion, it is anticipated that ESOP will borrow funds
from Harbor Florida to purchase up to 8.0% of the Common Stock issued in the
Conversion through the exercise of subscription rights under the Plan of
Conversion. It is anticipated that such loan will equal 100% of the aggregate
purchase price of Conversion Stock purchased by the ESOP and will be at a fixed
interest rate at the prevailing prime rate at the time the loan is made for a
term of fifteen years. Collateral for the loan will be Conversion Stock
purchased by the ESOP. See "PRO FORMA DATA."
GAAP requires that any third party borrowing by the ESOP be reflected as a
liability on Harbor Florida's statement of financial condition. Since the ESOP
is borrowing from Harbor Florida, such obligation is not treated as a liability,
but will be excluded from the shareholders' equity. However, should the ESOP
purchase new shares of Common Stock from Harbor Florida, per share shareholders'
equity and per share net earnings would decrease because of the increase in the
number of outstanding shares.
117
<PAGE>
Common stock purchased by the ESOP with the proceeds of the loan are held
in a loan suspense account and returned on a prorated basis as debt service
payments are made. Discretionary contributions to the ESOP and shares released
from the suspense account will be allocated among ESOP participants on the basis
of participants compensation as it relates to total participant compensation.
Employees are fully vested upon completion of five years of service. Credit that
is given for past service will be reallocated among remaining participating
employees and may reduce the amount contributed to the ESOP. Benefits may be
payable upon retirement, early retirement, disability, death or separation from
service.
The ESOP is subject to the requirements of ERISA and the regulation of IRS
and the Department of Labor.
Other Stock Benefit Plans. Harbor Florida intends to adopt certain stock
benefit plans following consummation of the Conversion. Moreover, existing stock
benefit plans of the Bank will be continued after the Conversion with the effect
that shares of Common Stock will be issuable pursuant thereto.
Stock Option Plan. The Board of Directors of Harbor Florida currently
intends to adopt the Stock Option Plan (the "1998 Plan") and may submit the 1998
Plan to stockholders at an annual or special meeting of stockholders to be held
at least six months following the consummation of the Conversion.
The 1998 Plan will be designed to attract and retain qualified personnel in
key positions, provide directors, officers and key employees with a proprietary
interest in Harbor Florida as an incentive to contribute to the success of
Harbor Florida, and reward key employees for outstanding performance and the
attainment of targeted goals. Options granted under the 1998 Plan may be either
options that qualify under the Code as "incentive stock options" (options that
afford preferable tax treatment to recipients upon compliance with certain
restrictions and that do not normally result in tax deductions to the employer),
or options that do not so qualify. The exercise price of stock options granted
under the 1998 Plan is required to be a least equal to the fair market value per
share of the stock on the date of grant. All grants will be made in
consideration of past and future services rendered to the Bank, and in an amount
deemed appropriate to encourage the continued retention of the officers and
directors who are considered necessary for the continued success of the Bank.
The 1998 Plan may provide for the grant of stock appreciation rights
("SARs") at any time, whether or not the participant then holds stock options,
granting the right to receive the excess of the market value of the shares
represented by the SARs on the date exercised over the exercise price. SARs
generally will be subject to the same terms and conditions and exercisable to
the same extent as stock options. In addition, SARs generally result in greater
expense to a company's income statement than do options, accounted for under the
intrinsic value method, that are issued at the then-current market value.
118
<PAGE>
Limited SARs may be granted at the time of, and must be related to, the
grant of a stock option or SAR. The exercise of one will reduce to that extent
the number of shares represented by the other. Limited SARs will be exercisable
only for the 45 days following the expiration of the tender or exchange offer,
during which period the related stock option or SAR will be exercisable.
However, no SAR or Limited SAR will be exercisable by a 10% beneficial owner,
director or senior officer within six months of the date of its grant. Harbor
Florida has no present intention to grant any SARs or Limited SARs.
The 1998 Plan will be administered the Harbor Florida's Compensation
Committee which will consist of at least two non-employee directors. The Harbor
Florida's Compensation Committee will select the recipients and terms of awards
made pursuant to the 1998 Plan. Assuming the 1998 Plan is submitted to
stockholders prior to one year following the consummation of the Conversion, OTS
regulations limited the amount of shares that may be awarded pursuant to such
stock-based plans to each individual officer, each non-employee director, and
all non-employee directors as a group to 25%, 5%, and 30%, respectively, of the
total shares reserved for issuance under each such stock-based plan. In
addition, all options would be required to vest in five equal annual
installments, commencing one year from the date of grant, subject to the
continued service of the holder of such option.
The 1998 Plan is intended to be funded either with shares purchased in the
open market or with authorized but unissued shares of Common Stock. The use of
authorized but unissued shares to fund the 1998 Plan could dilute the holdings
of stockholders who purchase Conversion Stock in the Offerings. See "PRO FORMA
DATA."
Recognition Plan. Harbor Florida intends to establish the Recognition Plan
in order to provide employees with a proprietary interest in Harbor Florida in a
manner designed to encourage such persons to remain with Harbor Florida and the
Bank. The Recognition Plan may be subject to ratification by stockholders at a
meeting to be held not earlier than six months after the completion of the
Conversion. Harbor Florida will contribute funds to the Recognition Plan to
enable it to acquire in the open market or from authorized but unissued shares
(with the decision between open market or authorized but unissued shares based
on the Harbor Florida future stock price, alternative investment opportunities
and capital needs), following stockholder ratification of such plan, an amount
of stock equal to 4.0% of the shares of Conversion Stock issued in the
Conversion.
The Compensation Committee of the Board of Directors of Harbor Florida,
will administer the proposed Recognition Plan. Under the anticipated terms of
the proposed Recognition Plan, awards ("Awards") can be granted to key employees
in the form of shares of Common Stock held by the Recognition Plan. Awards are
non-transferable and non-assignable. In the event the Recognition Plan is
submitted to a vote of stockholders prior to
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one year following consummation of the Conversion, OTS regulations limit the
amount of shares that may be awarded pursuant to such stock-based plans to each
individual officer, each non-employee director and all non-employee directors as
a group to 25%, 5% and 30%, respectively, of the total shares reserved for
issuance under each such stock-based plan.
Pension Plan. The Bank provides a noncontributory, defined benefit pension
plan through the Financial Institutions Retirement Fund of White Plains, New
York (the "Pension Plan") which covers all salaried employees who have one year
of service with Harbor Federal and have attained twenty-one years of age. An
employee is 100% vested in the Pension Plan when he/she completes five years of
employment at the Bank. Employees who reach the age of sixty-five (65) are also
100% vested in the Pension Plan, regardless of completed years of employment.
The following table illustrates the annual pension benefits at age 65 under
the most advantageous plan provisions available at various levels of average
annual salary and years of service.
<TABLE>
<CAPTION>
Average
Salary 5 10 15 20 25 30 35
------ - -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
$ 20,000 $ 2,000 $ 4,000 $ 6,000 $ 8,000 $ 10,000 $ 12,000 $ 14,000
$ 40,000 $ 4,000 $ 8,000 $12,000 $16,000 $ 20,000 $ 24,000 $ 28,000
$ 60,000 $ 6,000 $12,000 $18,000 $24,000 $ 30,000 $ 36,000 $ 42,000
$ 80,000 $ 8,000 $16,000 $24,000 $32,000 $ 40,000 $ 48,000 $ 56,000
$100,000 $10,000 $20,000 $30,000 $40,000 $ 50,000 $ 60,000 $ 70,000
$125,000 $12,500 $25,000 $37,500 $50,000 $ 62,500 $ 75,000 $ 87,500
$150,000 $15,000 $30,000 $45,000 $60,000 $ 75,000 $ 90,000 $105,000
</TABLE>
Normal retirement benefits under the Pension Plan are based on retirement
at or after age sixty-five (65), with the amount of the benefit dependent on
years of service as well as average annual salary for the five (5) consecutive
years of highest salary during service. However, the maximum annual compensation
which may be taken into account under the Internal Revenue Code of 1986, as
amended, for calculating contributions under qualified defined benefit plans is
currently $150,000.
As of September 30, 1996, Messrs. Brown, , Bebber, Bluestone, Fort and
Hankle have 20, 20, 18, 12 and 10 credited years of service, respectively, under
the Pension Plan. All
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benefits are computed as a straight-life annuity and are not subject to
deduction for Social Security.
Supplemental Executive Retirement Program. On September 13, 1995, the Board
of Directors approved a Supplemental Executive Retirement Plan ("SERP") for
President Brown. The SERP became effective on that date. The SERP will pay Mr.
Brown an annual retirement benefit at age 65 of 75% of his final five year
average earnings, less the amount payable from the Pension Plan and less the
amount expected to be paid as a Social Security benefit. The SERP benefit will
accrue evenly over Mr. Brown's career so that if Mr. Brown retires or otherwise
terminates his employment before attaining age 65, his benefit will be reduced
on a pro rata basis. In addition, if Mr. Brown receives his benefit before age
65, such benefit will be subject to a reduction of 3% multiplied by the number
of years prior to age 65 that his benefit commences. The SERP is administered by
the Compensation Committee. Payments by Harbor Federal to fund the SERP were
$81,550 in fiscal 1996.
Employment Agreement. The Board of Directors entered into a three-year
employment agreement with President Brown effective January 6, 1994. On November
27, 1996, the Board voted to approve an extension of this agreement effective
January 6, 1997, with a new initial term to continue through January 6, 2000.
During the term of the agreement, Mr. Brown's salary is equal to the initial
salary plus any increases which the Board of Directors may authorize from time
to time. The agreement also provides for reimbursement of reasonable business
expenses, participation in the employee benefit programs of Harbor Federal and
in certain other perquisites.
In the event the Bank terminates President Brown's employment without
cause, he will receive a severance payment equal to his salary, and will
continue to participate in the employee benefit programs of the Bank, for the
balance of the term of the agreement. Mr. Brown's agreement with the Bank also
provides for certain payments in the event of a change of control under the Bank
Change in Control Act of 1978, a merger or consolidation, voluntary dissolution,
or transfer of all of the Bank's of Harbor Florida's assets and liabilities. The
employment agreement, while not specifically excluding from its coverage the
events encompassed by the Conversion, has been interpreted by the Board of
Directors and Mr. Brown as excluding these events. Accordingly, the Conversion
would not provide Mr. Brown with any of the benefits which would normally be
available to him in the event that Harbor Florida or the Bank was acquired by an
unaffiliated third party acquiror. Should one of these events occur, the Bank's
agreement with Mr. Brown would be assumed by any acquiring or merging entity.
Further, in the one-year period following one of these events, the agreement
provides Mr. Brown with certain protection against termination other than for
cause and against a material diminution in his duties or reporting
responsibilities under the presumption that such a change would amount to an
involuntary termination of President Brown's employment with the Bank. Should
one of the enumerated events occur, Mr. Brown would be
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entitled to a severance benefit of three times his base salary plus the amount
of bonuses received during the twelve month period preceding the involuntary
termination plus the cost of all benefits which Mr. Brown was entitled to in the
twelve-month period preceding the involuntary termination, plus, at his
election, the excess of the fair value of shares subject to options held by him
over their exercise price, which would then be cancelled. Total amounts paid to
Mr. Brown under this provision of the agreement with the Bank will not exceed an
amount which is $100 less than three times the base amount paid to Mr. Brown as
the term "base amount" is defined in Section 280G(b)(3) of the Internal Revenue
Code of 1986. Any payments under the agreement are also conditioned upon their
conformity with the "golden parachute" provisions of Section 18(k) of the FDI
Act. Under the employment agreement of Mr. Brown, the events set forth in the
Plan of Reorganization are not deemed events which would require payments to Mr.
Brown, and would not be affected by the Plan of Reorganization.
Change In Control Agreements. Upon consummation of the Conversion, Harbor
Florida will enter into Change in Control Agreements with each of Messrs.
Bluestone, Bebber, Hankle and Fort. These agreements will provide that, should
the officer be terminated by Harbor Florida or the Bank within one year
following a change in control of Harbor Florida to the Bank (other than
termination for cause as defined these agreements), he will receive one year's
salary and continue to participate in the employee benefit programs of Harbor
Florida and the Bank for three months following his termination. These
agreements will have an initial three year term and may be extended by the Board
of Directors.
Certain Transactions. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") requires that all loans or extensions of
credit to executive officers and directors must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not involve
more than the normal risk of repayment or present other unfavorable features. In
addition, loans made to a director or an executive officer that exceeded, in the
aggregate, an amount equal to the greater of $25,000 or 5% of the Bank's capital
and surplus, or in any event $500,000, must be approved in advance by a majority
of the disinterested members of the Board of Directors.
Frank H. Fee, III, a director of Harbor Florida and the Bank, is also a
director, stockholder and the President of the law firm of Fee & Koblegard, P.A.
which does business under the registered firm name of Fee, Koblegard & DeRoss.
In the year ended September 30, 1996, the Bank paid this firm $125,045 in
monthly retainers and extraordinary fees for general legal services, document
preparation and review and litigation services.
Richard K. Davis, a director of the Bank and Harbor Florida, is also
chairman of Richard K. Davis Construction Corp. In the year ended September 30,
1996, the Bank paid
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this firm a total of $76,887 for a roof on a new branch facility and re-roofing
of an existing branch facility. Additionally, Richard K. Davis Construction
Corporation is currently constructing a new office and drive-in facility for the
Bank. This contract, worth $905,499, was awarded on June 25, 1997. The contract
was put out for competitive bid. The contract was awarded to Richard K. Davis
Construction Corporation because it submitted the lowest bid for the contract.
Prior to Richard N. Bird's nomination, and subsequent election, to the
Board of Directors, Bird Realty Group, Inc. entered into a listing agreement
with the Bank on property known as St. Lucie Crossroads. The listing agreement,
which expires December 16, 1997, provides for a 3% commission. The total listing
price is $3,895,000. The commission could be up to 6% of the selling price if
Bird Realty also becomes the selling broker.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee consists of Directors Abernethy, Enns, and Hellstrom,
none of whom have ever been an officer or employee of Harbor Florida. None of
the above are members of a compensation committee of the Board of Directors of
any company other than Harbor Florida and the Bank.
Section 16(a) Beneficial Ownership Reporting Compliances
To the knowledge of the Board and based upon a review of Forms 3 and 4 and
amendments thereto furnished to the Bank pursuant to Rule 16a-3(e) during the
fiscal year ended September 30, 1996, no person who is a director, officer or
beneficial owner of 10% of Harbor Florida common stock failed to file on a
timely basis reports required by Section 16(a) of the Securities Exchange Act.
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BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as of June 30, l997, with
respect to ownership of Harbor Florida's Common Stock by: (i) Harbor Financial,
M.H.C.; (ii) the Bank's Employee Stock Ownership Plan; (iii) the executive
officers and directors of the Bank; and (iv) all the directors and executive
officers of the Bank as a group. The Boards of Directors of the Mutual Holding
Company and Harbor Florida, as well as both the companies' executive officers,
are identical to those of the Bank. Except for those listed below, and based on
the absence of any filings under Regulation 13D-G with the Securities and
Exchange Commission, the Bank has no knowledge of any person (including any
"group" as that term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended) who owns beneficially more than 5% of the Common Stock.
<TABLE>
<CAPTION>
Common Stock
Beneficially Owned(1)
---------------------
Name Title Number(2) Percent
---- ----- --------- -------
<S> <C> <C> <C>
Harbor Financial, M.H.C. N/A 2,654,369 53.41%
Harbor Federal's Employee
Stock Ownership Plan N/A 157,436 3.17
Bruce R. Abernethy, Sr. Vice Chairman of the Board 54,473(3)(12) 1.10
Richard N. Bird Director 16,889(8) *
Michael J. Brown, Sr. Director, President and Chief
Executive Officer 86,316(4) 1.74
Richard K. Davis Director 46,112(3)(5) *
Edward G. Enns Chairman of the Board 16,251(6) *
Frank H. Fee III Director 56,542(3)(13) 1.14
Richard B. Hellstrom Director 22,790(7) *
Don W. Bebber Senior Vice President 15,255(9) *
Robert W. Bluestone Senior Vice President 43,556 *
Albert L. Fort Senior Vice President 18,291(10) *
David C. Hankle Senior Vice President 33,856(11) *
Directors and Executive
Officers as a group (11
persons) N/A 410,331 8.26
</TABLE>
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<PAGE>
- ----------
(1) Except as otherwise noted, all beneficial ownership is direct and each
beneficial owner exercises sole voting and investment power over the
shares.
(2) Reflects information provided by these persons, filings made by these
persons with the Securities and Exchange Commission, and other information
known to Harbor Florida.
(3) Includes 20,207, 22,900 and 16,000 shares, respectively, held by the
Directors' Deferred Compensation Plan for the benefit of Messrs. Abernethy,
Davis and Fee.
(4) Includes 590 shares held by spouse and currently exercisable options to
purchase 22,000 shares. Mr. Brown disclaims beneficial ownership of 200
shares held in trust for the benefit of his grandson.
(5) Includes 10,922 shares held by Richard K. Davis Construction Corporation
Profit Sharing Fund. Does not include 1,750 shares owned by Nancy D. Davis,
spouse. Richard K. Davis disclaims beneficial ownership of the 1,750 shares
held by Nancy D. Davis.
(6) Includes 4,202 shares held by spouse and currently exercisable options to
purchase 6,134 shares.
(7) Includes 2,000 shares held by spouse.
(8) Includes 3,490 shares held by spouse.
(9) Includes 300 shares held by spouse and currently exercisable options to
purchase 3,176 shares.
(10) Includes 373 shares held by spouse, 50 shares held by son and currently
exercisable options to purchase 2,388 shares.
(11) Includes 1,400 shares held by spouse, 3,800 shares held as custodian for
minor children and currently exercisable options to purchase 4,664 shares.
(12) Includes 506 shares held by spouse and currently exercisable options to
purchase 9,850 shares.
(13) Includes 500 shares held by spouse.
* Represents less than 1% of outstanding shares.
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<PAGE>
PROPOSED SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, for each of Harbor Florida's and the Bank's
directors and executive officers, and for all of the directors and executive
officers as a group, (1) the number of Distribution Exchange Shares to be held
upon consummation of the Conversion, based upon their beneficial ownership of
Harbor Florida Common Stock as of June 30, 1997, (2) the proposed purchases of
Conversion Stock, assuming sufficient shares are available to satisfy their
subscriptions, and (3) the total amount of Common Stock to be held upon
consummation of the Conversion, in each case assuming that 11,500,000 shares of
Conversion Stock are sold, which is the midpoint of the Offering Price Range.
<TABLE>
<CAPTION>
Proposed Purchase of Total Common Stock
Conversion Stock to be Held
---------------- ----------
Number of
Distribution
Exchange Shares
to be Number of Number of Percentage of
Name Held (1)(2) Amount Shares Shares Total
---- ----------- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Bruce R. Abernethy 236,004
Richard N. Bird 73,172
Michael J. Brown, 373,964
Sr.
Richard K. Davis 199,780
Edward G. Enns 70,407
Frank H. Fee III 244,968
Richard B. 98,738
Hellstrom
Don W. Bebber 66,092
Robert W. Bluestone 188,706
Albert L. Fort 79,246
David C. Hankle 146,681
All directors and
executive officers
as a group (11 1,777,759
persons)
</TABLE>
- ----------
(1) Includes shares which may be received upon the exercise of outstanding
exercisable stock options. Distribution Exchange Ratio is 4.3325 at the
Midpoint of the Offering Price Range.
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<PAGE>
(2) Excludes stock options and awards to be granted under Harbor Florida's 1998
Stock Option Plan and Recognition Plan if such plans are approved by
stockholders at an annual or special meeting of shareholders at least six
months following the Conversion. See "MANAGEMENT OF THE BANK -- Proposed
Benefit Plans."
THE CONVERSION
The Boards of Directors of the Mutual Holding Company, the Bank and the
Company have approved the Plan of Conversion, as has the OTS, subject to
approval by the members of the Mutual Holding Company and the stockholders of
the Company entitled to vote on the matter and the satisfaction of certain other
conditions. Such OTS approval, however, does not constitute a recommendation or
endorsement of the Plan by such agency.
General
The Boards of Directors of the Mutual Holding Company and Harbor Florida
adopted the plan as of September 24, 1997. The Plan has been approved by the
OTS, subject to, among other things, approval of the Plan by the Members of the
Mutual Holding Company and the Public Stockholders of the Company. The Members'
Meeting and the Stockholders' Meeting have been called for this purpose on
December ___, 1997.
The following is a brief summary of pertinent aspects of the Plan and the
Conversion. The summary is qualified in its entirety by reference to the
provisions of the Plan, which is available for inspection at each branch office
of the Bank and at certain offices of the OTS. The Plan also is filed as an
exhibit to the Registration Statement of which this Prospectus is a part, copies
of which may be obtained from the SEC. See "ADDITIONAL INFORMATION."
Purposes of the Conversion
The Mutual Holding Company, as a federally chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the Conversion, the Company will be structured in the form used
by holding companies of commercial banks, many business entities and a growing
number of savings institutions. An important distinction between the mutual
holding company form of organization and the fully public form is that, by
federal law, a mutual holding company must always own over 50% of the common
stock of its savings institution subsidiary. Only a minority of the subsidiary's
outstanding stock can be sold to investors. If the Bank had undertaken a full
conversion to public ownership in 1994, a much greater amount of Bank Common
Stock would have been offered, resulting in more stock offering proceeds than
management believes could have been effectively deployed at that time.
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The Company is a Delaware corporation and is the holding company for the
Bank owning 100% of the Bank's Common Stock. The Company's shares are owned by
the Mutual Holding Company (53.41%) and the Public Stockholders (46.59%).
Through the Conversion, the Company will complete the transition to full
public ownership. The stock holding company form of organization will provide
the Company with the ability to diversify the Company's and the Bank's business
activities through acquisition of or mergers with both stock savings
institutions and commercial banks, as well as other companies. There has been
significant consolidation in Florida where the Bank conducts its operations, and
although there are no current arrangements, understanding or agreements
regarding any such opportunities, the Company will be in a position (subject to
regulatory limitations and the Company's financial position) to take advantage
of any such opportunities that may arise because of the increase in its capital
after the Conversion.
The Conversion will be important to the future growth and performance of
the Company and the Bank by providing a larger capital base to support the
operations of the Bank and the Company and by enhancing their future access to
capital markets, ability to diversify into other financial services related
activities, and ability to provide services to the public. The Conversion will
result in increased funds being available for lending purposes, greater
resources for expansion of services, and better opportunities for attracting and
retaining qualified personnel. Although the Company currently has the ability to
raise additional capital through the sale of additional shares of Company Common
Stock, that ability is limited by the mutual holding company structure which,
among other things, requires that the Mutual Holding Company always hold a
majority of the outstanding shares of Bank Common Stock.
The Conversion also will result in an increase in the number of outstanding
shares of Common Stock following the Conversion, as compared to the number of
outstanding shares of Public Company Shares prior to the Conversion, which will
increase the likelihood of the development of an active and liquid trading
market for the Common Stock. See "MARKET FOR COMMON STOCK."
In light of the foregoing, the Boards of Directors of the Company and the
Mutual Holding Company believe that the Conversion is in the best interests of
such companies and their respective stockholders and members.
Description of the Conversion
On September 24, 1997, the Boards of Directors of the Company and the
Mutual Holding Company adopted the Plan. Pursuant to the Plan, the Mutual
Holding Company will convert to an interim Federal stock savings bank and
simultaneously will merge with and into
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<PAGE>
Harbor Florida, pursuant to which the Mutual Holding Company will cease to exist
and the shares of Harbor Florida Common Stock held by the Mutual Holding Company
will be canceled. As a result of the merger of the Mutual Holding Company with
and into Harbor Florida, the Public Harbor Florida Shares will be deemed the
Distribution Exchange Shares pursuant to the Distribution Exchange Ratio, which
will result in the holders of such shares owning in the aggregate approximately
the same percentage of the Common Stock to be outstanding upon the completion of
the Conversion (i.e., the Conversion Stock and the Distribution Exchange Shares)
as the percentage of Company Common Stock owned by them in the aggregate
immediately prior to consummation of the Conversion, but before giving effect to
(a) the payment of cash in lieu of issuing fractional Distribution Exchange
Shares and (b) any shares of Conversion Stock purchased by the Bank's
stockholders in the Offerings or the ESOP thereafter.
Pursuant to OTS regulations, consummation of the Conversion (including the
offering of Conversion Stock in the Offerings, as described below) is
conditioned upon the approval of the Plan by (1) the OTS, (2) at least a
majority of the total number of votes eligible to be cast by Members of the
Mutual Holding Company at the Members' Meeting, and (3) holders of at least two
thirds of the shares of the outstanding Company Common Stock at the
Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Conversion on the approval of the Plan by at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders at
the Stockholders' Meeting.
Effects of the Conversion
General. Prior to the Conversion, each depositor in the Bank has both a
deposit account in the Bank and a pro rata ownership interest in the net worth
of the Mutual Holding Company based upon the balance in his account, which
interest may only be realized in the event of a liquidation of the Mutual
Holding Company. However, this ownership interest is tied to the depositor's
account and has no tangible market value separate from such deposit account. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the Mutual Holding Company, which is lost to the extent that the balance in
the account is reduced.
Consequently, the depositors of the Bank normally have no way to realize
the value of their ownership interest in the Mutual Holding Company, which has
realizable value only in the unlikely event that the Mutual Holding Company is
liquidated. In such event, the depositors of record at that time, as owners,
would share pro rata in any residual surplus and reserves of the Mutual Holding
Company after other claims are paid.
Upon consummation of the Conversion and the Offerings, additional permanent
nonwithdrawable capital stock will be created which will represent the ownership
of the
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<PAGE>
consolidated net worth of the Company. The Common Stock of the Company is
separate and apart from deposit accounts and cannot be and is not insured by the
FDIC or any other governmental agency. Certificates are issued to evidence
ownership of the permanent stock. The stock certificates are transferable, and
therefore, the stock may be sold or traded if a purchaser is available with no
effect on any account the seller may hold in the Bank.
Continuity. While the Conversion is being accomplished, the normal business
of the Bank of accepting deposits and making loans will continue without
interruption. The Bank will continue to be subject to regulation by the OTS and
the FDIC. After the Conversion, the Bank will continue to provide services for
depositors and borrowers under current policies by its present management and
staff.
The directors and officers of the Bank and the Company at the time of the
Conversion will continue to serve as directors and officers of the Bank after
the Conversion. The directors and executive officers of the Company consist of
individuals currently serving as directors and executive officers of the Mutual
Holding Company and the Bank, and they generally will retain their positions in
the Company after the Conversion.
Effect on Public Bank Shares. Upon consummation of the Conversion, the
Public Harbor Florida Shares shall be increased based upon the Distribution
Exchange Ratio without any further action on the part of the holder thereof. See
"Delivery and Exchange of Certificates." The increase in Public Harbor Florida
Shares will enable Public Harbor Florida Stockholders to own the same percentage
of Harbor Florida shares as they owned prior to the Conversion and the Offering.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank at
the time of the Conversion will automatically continue as a depositor after the
Conversion, and each such deposit account will remain the same with respect to
deposit balance, interest rate and other terms, except to the extent that funds
in the account are withdrawn to purchase Conversion Stock to be issued in the
Offerings. Each such account will continue to be insured by the FDIC to the same
extent as before the Conversion. Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
Effects on Loans. No loan outstanding from the Bank will be affected by the
Conversion, and the amount, interest rate, maturity and security for each loan
will remain as they were contractually fixed prior to the Conversion.
Effect on Voting Rights of Members. At present, all depositors and certain
borrowers of the Bank are members of, and have voting rights in, the Mutual
Holding Company as to all matters requiring membership action. Upon completion
of the Conversion and merger of the Mutual Holding Company into the Bank,
depositors and borrowers will
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<PAGE>
cease to be members and will no longer be entitled to vote at meetings of the
Mutual Holding Company. The reorganization which created the Company vested all
voting rights in the Company as the sole stockholder of the Bank. With the
merger of the Mutual Holding Company in the Company, exclusive voting rights
with respect to the Company will be vested in the holders of Common Stock.
Tax Effects. Consummation of the Conversion is conditioned on prior receipt
by the Primary Parties of rulings or opinions with regard to federal and Florida
income taxation which indicate that the adoption and implementation of the Plan
of Conversion set forth herein will not be taxable for federal or Florida income
tax purposes to the Primary Parties or the Bank's Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members, except as discussed
below. See " -- Tax Aspects" below and "RISK FACTORS."
Effect on Liquidation Rights. If the Mutual Holding Company were to
liquidate, all claims of the Mutual Holding Company's creditors would be paid
first. Thereafter, if there were any assets remaining, members of the Mutual
Holding Company would receive such remaining assets, pro rata, based upon the
deposit balances in their deposit accounts at the Bank immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after the
Conversion, all claims of creditors (including those of depositors, to the
extent of the deposit balances) also would be paid first, followed by
distribution of the "liquidation account" to certain depositors (see " --
Liquidation Rights" below), with any assets remaining thereafter distributed to
the Company as the holder of the Bank's capital stock. Pursuant to the rules and
regulations of the OTS, a merger, consolidation, sale of bulk assets or similar
combination or transaction with another insured savings institution would not be
considered a liquidation for this purpose and, in such a transaction, the
liquidation account would be required to be assumed by the surviving
institution.
Effect on Existing Option Plans. Under the Mid-Tier Reorganization, the
Option Plan and the Directors' Option Plan remained benefit plans of the Bank
with shares of Common Stock of Harbor Florida. As of June 30, 1997, 99.8% of the
options available for grant under these plans had been granted but options for
137,486 shares had not yet been exercised.
The Offerings
Subscription Offering. In accordance with the Plan of Conversion, rights to
subscribe for the purchase of Conversion Stock have been granted under the Plan
of Conversion to the following persons in the following order of descending
priority: (1) Eligible Account Holders; (2) the ESOP; (3) Supplemental Eligible
Account Holders; and (4) Other Members. All subscriptions received will be
subject to the availability of Conversion Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription Offering
and to the
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<PAGE>
maximum and minimum purchase limitations set forth in the Plan of Conversion and
as described below under "-- Limitations on Conversion Stock Purchases and
Ownership."
Priority 1: Eligible Account Holders (First Priority). Each Eligible
Account Holder will receive, without payment therefor, first priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of (i) the maximum purchase limitation established
for the Offerings, (ii) one-tenth of 1% of the total offering of shares of
Conversion Stock in the Subscription Offering, or (iii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Conversion Stock offered in the Subscription Offering by a
fraction, of which the numerator is the amount of the Qualifying Deposits of the
Eligible Account Holder and the denominator is the total amount of all
Qualifying Deposits of all Eligible Account Holders, subject to the overall
purchase limitations and the overall ownership limitation. See "-- Limitations
on Conversion Stock Purchases and Ownership."
If there are not sufficient shares available to satisfy all subscriptions
of Eligible Account Holders, shares first may be allocated so as to permit each
subscribing Eligible Account Holder to purchase a number of shares sufficient to
make his total allocation equal to the lesser of the number of shares subscribed
for or 100 shares. Thereafter, unallocated shares may be allocated to
subscribing Eligible Account Holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective eligible deposits bear to the
total amount of eligible deposits of all subscribing Eligible Account Holders
whose subscriptions remain unfilled, provided that no fractional shares shall be
issued. The subscription rights of Eligible Account Holders who are also
directors or officers of the Mutual Holding Company, the Company or the Bank and
their associates will be subordinated to the subscription rights of other
Eligible Account Holders to the extent attributable to increased deposits in the
year preceding July 31, 1996.
Priority 2: ESOP (Second Priority). The ESOP will receive, without payment
therefore, second priority, nontransferable subscription rights to purchase, in
the aggregate, up to 10% of the Conversion Stock within the Estimated Price
Range, including any increase in the number of shares of Conversion Stock after
the date hereof as a result of an increase of up to 15% in the maximum of the
Estimated Price Range. The ESOP currently intends to purchase 8% of the shares
of Conversion Stock, or 920,000 shares based on the midpoint of the Estimated
Price Range. Subscriptions by the ESOP will not be aggregated with shares of
Conversion Stock purchased directly by or which are otherwise attributable to
any other participants in the Offerings, including subscriptions of any of the
Bank's directors, officers, employees or associates thereof. See "MANAGEMENT OF
THE BANK -- Employee Stock Ownership Plan."
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In the event that there are insufficient shares for the ESOP to purchase 8%
of the Conversion Stock within the Estimated Price Range, the Company may issue
additional shares of Conversion Stock directly to the ESOP at the Purchase Price
to satisfy the ESOP's order to purchase such amount of Conversion Stock in the
Offerings and/or the ESOP may purchase shares of Common Stock in the open
market. Purchases of additional shares of Common Stock from the Company would
dilute the interests of other stockholders. See " -- Limitations on Conversion
Stock Purchases and Ownership" and "RISK FACTORS -- Possible Dilutive Effect of
Issuance of Additional Shares."
Priority 3: Supplemental Eligible Account Holders (Third Priority). Each
Supplemental Eligible Account Holder will receive, without payment therefor,
third priority, nontransferable subscription rights to subscribe for in the
Subscription Offering up to the greater of (i) the maximum purchase limitation
established for the Offerings, (ii) one-tenth of 1% of the total offering of
shares of Conversion Stock in the Subscription Offering, or (iii) 15 times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock offered in the Subscription Offering
by a fraction, of which the numerator is the amount of the Qualifying Deposits
of the Supplemental Eligible Account Holder and the denominator is the total
amount of all Qualifying Deposits of all Supplemental Eligible Account Holders,
subject to the overall purchase limitation, the overall ownership limitations,
and the availability of shares of Conversion Stock for purchase after taking
into account the shares of Conversion Stock purchased by Eligible Account
Holders and the ESOP. See " -- Limitations on Conversion Stock Purchases and
Ownership."
If there are not sufficient shares available to satisfy all subscriptions
of Supplemental Eligible Account Holders, shares first will be allocated so as
to permit each subscribing Supplemental Eligible Account Holder to purchase a
number of shares sufficient to make his total allocation equal to the lesser of
the number of shares subscribed for or 100 shares. Thereafter, unallocated
shares will be allocated to subscribing Supplemental Eligible Account Holders
whose subscriptions remain unfilled in the proportion that the amounts of their
respective eligible deposits bear to the total amount of eligible deposits of
all such subscribing Supplemental Eligible Account Holders whose subscriptions
remain unfilled, provided that no fractional shares shall be issued.
Priority 4: Other Members (Fourth Priority). To the extent that there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, the ESOP and Supplemental Eligible Account Holders, each Other
Member will receive, without payment therefor, fourth priority, nontransferable
subscription rights to subscribe for Conversion Stock in the Subscription
Offering up to the greater of (i) the maximum purchase limitation established
for the Offerings or (ii) one-tenth of 1% of the total offering of shares of
Conversion Stock in the Subscription Offering, in each case subject to the
overall purchase limitation, the overall ownership limitation, and the
availability of shares of Conversion
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Stock for purchase after taking into account the shares of Conversion Stock
purchased by Eligible Account Holders, the ESOP, and Supplemental Eligible
Account Holders. See " -- Limitations on Conversion Stock Purchases and
Ownership."
If sufficient shares are not available to satisfy all subscriptions of
Other Members, available shares will first be allocated to the remaining
subscribing Other Members so as to permit each subscribing Other Member to
purchase a number of shares sufficient to make his allocation equal to the
lesser of the number of shares subscribed for or 100 shares. Thereafter, any
remaining shares will be allocated among subscribing Other Members on a pro rata
basis in the proportion that each such Other Member's subscription bears to the
total subscriptions of all subscribing Other Members, provided that no
fractional shares shall be issued.
Expiration Date for the Subscription Offering. The Subscription Offering
will expire at 12:00 noon, Florida Time, on December __, 1997, unless extended
for up to 45 days or such additional periods by the Primary Parties with the
approval of the OTS. Such extensions may not be extended by ___________, 1998.
Subscription rights that have not been exercised prior to the Expiration Date
will become void.
The Primary Parties will not execute orders until at least the minimum
number of shares of Conversion Stock (9,775,000 shares) have been subscribed for
or otherwise sold. If all shares have not been subscribed for or sold within 45
days after the Expiration Date, unless such period is extended with the consent
of the OTS, all funds delivered to the Company and the Bank pursuant to the
Subscription Offering will be returned promptly to the subscribers with interest
and all withdrawal authorizations will be canceled. If an extension beyond the
45-day period following the Expiration Date is granted, the Primary Parties will
notify subscribers of the extension of time and of any rights of subscribers to
modify or rescind their subscriptions.
Eligible Public Stockholders Offering. To the extent that there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, the ESOP, Supplemental Eligible Account Holders and Other
Members, each Public Stockholder as of the Stockholder Voting Record Date,
______________, 1997 ("Eligible Public Stockholders"), may submit orders for
Conversion Stock in the Offerings up to the maximum purchase limitation
established for the Community Offering, subject to the overall purchase and
ownership limitations and the availability of shares of Conversion Stock for
purchase after taking into account the shares of Conversion Stock purchased by
Eligible Account Holders, the ESOP and Supplemental Eligible Account Holders.
See " -- Limitations on Conversion Stock Purchases and Ownership."
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In the event the Eligible Public Stockholders as of the Stockholder Voting
Record Date submit orders for a number of shares which, when added to the shares
subscribed for by Eligible Account Holders, the ESOP, Supplemental Eligible
Account Holders, Other Members and directors, officers and employees of the
Mutual Holding Company and the Bank, is in excess of the total number of shares
of Conversion Stock offered in the Offerings, available shares will be allocated
among Eligible Public Stockholders as of the Stockholder Voting Record Date
whose orders are accepted on a pro rata basis in the same proportion as each
Eligible Public Stockholder's order bears to the total orders of all Eligible
Public Stockholders, provided that no fractional shares shall be issued.
The opportunity to submit orders for shares of Conversion Stock in the
Eligible Public Stockholders Offering category is subject to the right of the
Primary Parties, in their sole discretion, to accept or reject any such orders
in whole or in part for any reason either at the time of receipt of an order or
as soon as practicable following the completion of the Eligible Public
Stockholders Offering. It should be noted that Eligible Public Stockholders do
not have subscription rights with respect to the Conversion.
Community Offering. To the extent that shares remain available for purchase
after satisfaction of all subscriptions by Eligible Account Holders, the ESOP,
Supplemental Eligible Account Holders, and Other Members and orders of Eligible
Public Stockholders, the Primary Parties have determined to offer shares
pursuant to the Plan to certain members of the general public, with preference
given to the natural persons residing in the Local Community. Individually, such
persons may purchase $500,000 of Conversion Stock, subject to overall purchase
and ownership limitations. Together, with any associate or group of persons
acting in concert, such persons may purchase $750,000 of Conversion Stock,
subject to the overall purchase and ownership limitations. See " -- Limitations
on Conversion Stock Purchases and Ownership." This amount may be increased at
the sole discretion of the Primary Parties. The opportunity to submit orders for
shares of Conversion Stock in the Community Offering category is subject to the
right of the Primary Parties, in their sole discretion, to accept or reject any
such orders in whole or in part for any reason either at the time of receipt of
an order or as soon as practicable following the completion of the Community
Offering.
If there are not sufficient shares available to fill the orders of the
Subscribers in the Community Offering, available shares of stock will be
allocated first to each such Subscriber whose order is accepted by the Primary
Parties, in an amount equal to the lesser of 100 shares or the number of shares
ordered by each such Subscriber, if possible. Thereafter, unallocated shares
will be allocated among the Subscribers whose orders remain unsatisfied in the
same proportion that the unfilled order of each bears to the total unfilled
orders of all such Subscribers whose order remains unsatisfied. If the orders of
such Subscribers are filled, and there are shares remaining, shares will be
allocated to other members of the general public
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who submit orders in the Community Offering applying the same allocation
described above for such Subscribers.
Limitations on Conversion Stock Purchases and Ownership
The Plan includes the following limitations on the number of shares of
Conversion Stock that may be purchased:
(1) No less than 25 shares of Conversion Stock may be purchased, to
the extent such shares are available;
(2) The number of shares of Conversion Stock which may be purchased by
any person (or persons through a single account) in the Subscription
Offering shall not exceed such number of shares of Conversion Stock that
shall equal $500,000 divided by the $10 purchase price in the subscription
Offering, except for the ESOP, which in the aggregate may subscribe for up
to 10% of the Conversion Stock.
(3) The number of shares of Conversion Stock which may be purchased by
any person, in the Subscription Offering, Eligible Public Stockholders'
Offering or the Community Offering combined shall not exceed such number of
shares of Conversion Stock that shall equal $500,000 divided by the $10
purchase price in the Offerings.
(4) The number of shares of Conversion Stock which may be subscribed
for or purchased in all categories in the Conversion by any person together
with any associate or group of persons acting in concert shall not exceed
$750,000 divided by the $10 purchase price.
(5) Except for Tax-Qualified Employee Stock Benefit Plans, the maximum
amount of Conversion Stock that may be purchased in all categories in the
Conversion by any person (or persons through a single account) together
with any associate or group of persons acting in concert shall not exceed
such number of shares that, when combined with Distribution Exchange
Shares, exceed $7.5 million of Common Stock divided by the $10 purchase
price upon completion of the Conversion.
(6) No more than 25% of the total number of shares sold in the
Offerings may be purchased by directors and officers of the Mutual Holding
Company, the Company and the Bank and their associates in the aggregate,
excluding purchases by the ESOP.
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Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Mutual Holding Company or the Stockholders of the Company, the purchase
limitations in (2), (3) and (4) above may be decreased, or increased, up to a
maximum of 5% of the total shares of Conversion Stock to be issued in the
Conversion, at the sole discretion of the Primary Parties. If such amounts are
increased, subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Primary Parties may be, given the
opportunity to increase their subscriptions up to the then applicable limit.
In the event of an increase in the total number of shares of Conversion
Stock offered in the Conversion due to an increase in the maximum of the
Estimated Price Range of up to 15% (the "Adjusted Maximum"), the new total
number of shares will be allocated in the following order of priority in
accordance with the Plan: (i) to fill the ESOP's order of up to a total of 8.0%
of the Adjusted Maximum number of shares (the Board of Directors has determined
to purchase 8%); (ii) in the event that there is an oversubscription by Eligible
Account holders to fill their unfulfilled subscriptions; (iii) in the event that
there is an oversubscription by Supplemental Eligible Account Holders to fill
their unfulfilled subscriptions; (iv) in the event that there is an
oversubscription by Other Members to fill their unfulfilled subscriptions; (v)
in the event that there is an oversubscription by Eligible Public Stockholders,
to fill their unfulfilled subscriptions; and (vi) to fill unfulfilled
subscriptions in the Community Offerings.
The term "associate," when used to indicate a relationship with any person,
is defined to mean (i) a corporation or organization (other than the Mutual
Holding Company, the Company, a majority-owned subsidiary of the Company or the
Bank) of which such person is a director, officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of equity
securities, (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity, provided, however, that such term shall not
include any tax qualified employee stock benefit plan of the Company or the Bank
in which such person has a substantial beneficial interest or serves as a
trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of
such person, or any relative of such spouse, who has the same home as such
person or who is a director or officer of the Company or the Bank or any of the
subsidiaries of the foregoing.
The term "resident" as used herein means any person who, on the date
designated for that category of subscriber in the Plan, maintained a bona fide
residence within the Local Community and has manifested or intent to remain
within the Local Community for a period of time. The designated dates for
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members are July 31, 1996, September 30, 1997, and ____________, 1997,
respectively. To the extent the person is a corporation or other business
entity, the principal place of business or headquarters shall be within the
Local Community. To the
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extent the person is a personal benefit plan, the circumstances of the
beneficiary shall apply with respect to this definition. In the case of all
other benefit plans, the circumstances of the trustee shall be examined for
purposes of this definition. The Company may utilize deposit or loan records of
the Bank or such other evidence provided to it to make a determination as to
whether a person is a bona fide resident of the Local Community. Subscribers in
the Community Offering who are natural persons also will have a purchase
preference if they are residents of the Local Community. In all cases, however,
such determination shall be in the sole discretion of the Bank and shall be
determined on a case-by-case basis without regard to prior determinations.
Stock Pricing and Number of Shares to be Issued
The Plan of Conversion requires that the aggregate purchase price of the
Conversion Stock must be based on the appraised pro forma market value of the
Mutual Holding Company, the Company and the Bank on a consolidated basis, as
determined on the basis of an independent valuation. The Primary Parties have
retained RP Financial to make such a valuation. For its services in making such
an appraisal and any expenses incurred in connection therewith, RP Financial
will receive a maximum of $35,000 plus out of pocket expenses. The Primary
Parties have agreed to indemnify RP Financial and its employees and affiliates
against certain losses (including any losses in connection with claims under the
federal securities laws) arising out of its services as appraiser, except where
RP Financial's liability results from its negligence or bad faith.
The Independent Valuation has been prepared by RP Financial in reliance
upon the information contained in this Prospectus, including the financial
statements. RP Financial also considered the following factors, among others:
the present and projected operating results and financial condition of the
Primary Parties and the economic and demographic conditions in the Company's and
existing market area: certain historical, financial and other information
relating to the Company and Bank; a comparative evaluation of the operating and
financial statistics of the Company with those of other similarly situated
publicly traded companies located in Florida and other regions of the United
States; the aggregate size of the offering of the Conversion Stock; the impact
of the Conversion on the Bank's net worth and earnings potential; the proposed
dividend policy of the Company and the Bank; and the trading market for the
Company's Common Stock and securities of comparable companies and general
conditions in the market for such securities.
On the basis of the foregoing, RP Financial has advised the Primary Parties
in its opinion the estimated pro forma market value of the Bank and the Mutual
Holding Company on a combined basis was $215,334,463 as of September 19, 1997.
Because the holders of the Public Bank Shares are to hold the same aggregate
percentage ownership interest in the Company as they held in the Bank just prior
to consummation of the Conversion (before
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giving effect to the payment of cash in lieu of issuing fractional Distribution
Exchange Shares and any shares of Conversion Stock purchased the Company's
stockholders in the Offering or issued to the ESOP thereafter) the Appraisal was
multiplied by 53.41%, which is the Mutual Holding Company's percentage interest
in the Bank. The resulting amount $115,000,000 is the midpoint of the dollar
amount of the Conversion Stock to be offered in the Offerings. In accordance
with OTS regulations, the minimum and maximum of the valuation were set at 15%
below and above the midpoint respectively, resulting in a range of $97,750,000
to $132,250,000 (the "Estimated Price Range"). The Boards of Directors of the
Primary Parties determined that the Conversion Stock would be sold at $10.00 per
share, resulting in a range of 9,775,000 to 13,225,000 shares of Conversion
Stock being offered. Upon consummation of the Conversion, the Conversion Stock
and Distribution Exchange Shares will represent approximately 53.41% and 46.59%,
respectively, of the Company's total outstanding shares.
The Boards of Directors of the Primary Parties reviewed RP Financial's
appraisal report, including the methodology and the assumptions used by RP
Financial, and determined that the Estimated Price Range was reasonable and
adequate. However, the Boards of Directors of the Primary Parties are relying
upon the expertise, experience and independence of RP Financial, and are not
qualified to determine the appropriateness of the assumptions or the
methodology.
The MHC Regulations provide that in a conversion of the Mutual Holding
Company to stock form, the Public Stockholders will be entitled to exchange
their Public Harbor Florida Shares for Exchange Distribution Shares, provided
the Bank and the Mutual Holding Company demonstrate to the satisfaction of the
OTS that the basis for exchange is fair and reasonable, The Boards of Directors
of the Bank and the Company have determined that each Public Company Share will
on the Effective Date be converted into the right to receive a number of
Exchange Distribution Shares determined pursuant to the Distribution Exchange
Ratio that ensures that after the Conversion, Public Stockholders will own the
same aggregate percentage of Common Stock as they currently own of the Bank
Common Stock (before giving effect to the payment of cash in lieu of issuing
fractional Distribution Exchange Shares and any shares of Conversion Stock
purchased by the Company's stockholders in the Offerings or issued to the ESOP
thereafter). Based upon such formula and the Estimated Price Range, the
Distribution Exchange Ratio ranged from a minimum of 3.6826 to a maximum of
4.9824 Distribution Exchange Shares for each Public Harbor Florida Share, with a
midpoint of 4.3325. Based upon these Exchange Ratios, the Company expects to
issue between 6,212,573 and 9,222,612 Distribution Exchange Shares to Public
Stockholders. The Estimated Price Range and the Distribution Exchange Ratio may
be amended with the approval of the OTS, if required, or if necessitated by
subsequent developments in the financial condition of any of the Primary Parties
or market conditions generally. In the event the Appraisal is updated to below
$183,034,447 or above $284,780,065, such Appraisal will be filed with the SEC by
post-effective amendment.
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Based upon current market and financial conditions and recent practices and
policies of the OTS, in the event the Company receives orders for Conversion
Stock in excess of $132,250,000 (the maximum of the Estimated Price Range) and
up to $152,087,500 (the maximum of the Estimated Price Range, as adjusted by
15%) the Company may be required by the OTS to accept all such orders. No
assurances, however, can be made that the Company will receive orders for
Conversion Stock in excess of the maximum of the Estimated Price Range or that,
if such orders are received that all such orders will be accepted because the
Company's final valuation and number of shares to be issued are subject to the
receipt of an updated Appraisal from RP Financial which reflects such an
increase in the valuation and the approval of such increase by the OTS. There is
no obligation or understanding on the part of management to take and/or pay for
any shares of Conversion Stock in order to complete the Offerings.
RP Financial's valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing such shares. RP
Financial did not independently verify the financial statements and other
information provided by the Bank and the Mutual Holding Company, nor did RP
Financial value independently the assets or liabilities of the Company or the
Bank. The valuation considers the Company, the Bank and the Mutual Holding
Company as going concerns and should not be considered as indication of the
liquidation value of the Company, the Bank and the Mutual Holding Company.
Moreover, because such valuation is necessarily based upon the estimates and
projections of a number of matters, all of which are subject to change from time
to time, no assurance can be given that persons purchasing Conversion Stock or
receiving Distribution Exchange Shares in the Conversion will thereafter be able
to sell such shares at prices at or above the purchase price per share in the
Offerings.
No sale of shares of Conversion Stock or issuance of Distribution Exchange
Shares may be consummated unless, prior to such consummation, RP Financial
confirms that nothing of a material nature has occurred which, taking into
account all relevant factors, would cause it to conclude that the aggregate
Purchase Price is materially incompatible with the estimate of the pro forma
market value the Mutual Holding Company, the Company and the Bank on combined
basis. If such is not the case, a new Estimated Price Range may be set, a new
Exchange Ratio may be determined based upon the new Estimated Price Range, a new
Subscription, Eligible Public Stockholders, Community Offerings may be held or
such other action may be taken as the Primary Parties shall determine and the
OTS may permit or require.
Depending upon market or financial conditions following the commencement of
the Subscription Offering, the total number of shares of Conversion Stock to be
sold in the
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Offerings may be increased or decreased without a resolicitation of subscribers,
provided that the product of the total number of shares times the $10.00
purchase price is not below the minimum or more than 15% above the maximum of
the Estimated Price Range (exclusive of a number of shares equal to up to an
additional 10.0% of the Conversion Stock that may be issued to the ESOP out of
authorized but unissued shares of Common Stock to the extent such shares are not
purchased in the Offerings due to an oversubscription). In the event market or
financial conditions change so as to cause the aggregate purchase price of the
shares to be below the minimum of the Estimated Price Range or more than 15%
above the maximum of such range (exclusive of additional shares that may be
issued to the ESOP), purchasers will be resolicited (i.e., permitted to continue
their orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
subscription funds will be promptly refunded with interest at the Bank's
passbook rate of interest, or be permitted to modify or rescind their
subscriptions).
An increase in the number of shares of Conversion Stock, either as a result
of an increase in the Appraisal of the estimated pro forma market value or due
to the purchase by the ESOP of authorized but unissued shares (see "THE
CONVERSION -- Subscription Offering," " -- Priority 2: ESOP (Second Priority)"),
would decrease a subscriber's ownership interest and the Company's pro forma net
income and stockholders' equity on a per share basis while increasing pro forma
net income and stockholders' equity on an aggregate basis. A decrease in the
number of shares of Conversion Stock would increase both a subscriber's
ownership interest and the Company's pro forma net income and stockholders'
equity on a per share basis while decreasing pro forma net income and
stockholders' equity on an aggregate basis. See "RISK FACTORS -- Possible
Dilutive Effect of Issuance of Additional Shares" and "PRO FORMA DATA."
The Appraisal (including the appraisal report of RP Financial as of
September 19, 1997) has been filed as an exhibit to this Registration Statement
and Application for Conversion of which this Prospectus is a part and is
available for inspection in the manner set forth under "Additional Information."
The Distribution Exchange Ratio
The Boards of Directors of the Bank, the Mutual Holding Company and Harbor
Florida have determined that each Public Harbor Florida Share will, upon
consummation of the Conversion, automatically become the right to receive a
number of shares of Common Stock determined pursuant to the Distribution
Exchange Ratio that ensures that after the Conversion and before giving effect
to Eligible Public Stockholders' purchases in the Offerings and receipt of cash
in lieu of fractional shares or issuances to the ESOP, Public Stockholders will
own an aggregate percentage of the Common Stock that is identical to the Public
Stockholders' current ownership of the Common Stock.
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To determine the Distribution Exchange Ratio, the adjusted Public
Stockholder's ownership interest was multiplied by the number of shares to be
issued in the Conversion, and the result was divided by the number of Public
Harbor Florida Shares outstanding (2,315,871 shares, as of June 30, 1997).
The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Price Range, the following: (i) the
total number of shares of Conversion Stock and Distribution Exchange Shares to
be issued in the Conversion, (ii) the percentage of the total Common Stock
represented by the Conversion Stock and the Distribution Exchange Shares, and
(iii) the Distribution Exchange Ratio. The table assumes that there is no cash
paid in lieu of issuing fractional Distribution Exchange Shares.
<TABLE>
<CAPTION>
Total Shares
of Common
Conversion Stock Distribution Exchange Stock to be Distribution
to be Issued(1) Shares (1)(2) Outstanding Exchange Ratio(2)
--------------- ------------- ----------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Minimum 9,775,000 53.41% 8,528,444 46.59% 18,303,444 3.6826
Midpoint 11,500,000 53.41 10,033,464 46.59 21,533,464 4.3325
Maximum 13,225,000 53.41 11,538,483 46.59 24,763,483 4.9824
15% Above Maximum 15,208,750 53.41 13,269,256 46.59 28,478,006 5.7297
-----------------
</TABLE>
(1) Assumes that outstanding options to purchase 134,786 shares of Harbor
Florida Common Stock at June 30, 1997 are not exercised prior to
consummation of the Conversion.
(2) Includes shares of stock held prior to the issuance of additional
certificates representing additional shares of Common Stock.
---------------
The final Distribution Exchange Ratio will be determined based upon the
number of shares issued in the Offerings and the number of shares of Public
Harbor Florida Shares held by Public Stockholders just prior to consummation of
the Conversion and it will not be based upon the market value of the Harbor
Florida Shares. At the minimum, midpoint and maximum of the Estimated Price
Range, a holder of one Public Harbor Florida Share will receive an additional
2.6826, 3.3325, and 3.9824 shares of Common Stock, respectively (which have a
calculated equivalent estimated value of $26.83, $33.32 and $39.82 per share
based on the Purchase Price of Conversion Stock in the Offerings and the
aforementioned Distribution Exchange Ratios). However, there can be no assurance
as to the actual market value of a share of Common Stock after the Conversion or
that such shares can be sold at or
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above the $10.00 per share. Any increase or decrease in the number of shares of
Conversion Stock will result in a corresponding change in the number of
Distribution Exchange Shares, so that upon consummation of the Conversion the
Conversion Stock and the Distribution Exchange Shares will represent
approximately 53.41% and 46.59%, respectively, of the Company's total
outstanding shares of Common Stock.
Persons in Nonqualified States or Foreign Countries
The Primary Parties will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for the Common Stock pursuant to the Plan reside. However, no person
will be offered or allowed to purchase any Common Stock under the Plan if such
person resides in a foreign country or in a state of the United States with
respect to which any of the following apply: (i) a small number of persons
otherwise eligible to subscribe for shares under the Plan reside in such state
or foreign country; (ii) the granting of subscription rights or offering or
selling shares of Common Stock to such persons would require the Bank, Harbor
Florida or its employees to register, under the securities laws of such state or
foreign country, as a broker or dealer or to register or otherwise qualify its
securities for sale in such state or foreign country; or (iii) such registration
or qualification would be impracticable for reasons of cost or otherwise. No
payments will be made in lieu of the granting of subscription rights to any such
person.
Marketing Arrangements
The Primary Parties have engaged the Agent as a financial advisor and
marketing agent in connection with the Offerings, and the Agent has agreed to
use its best efforts to solicit subscriptions and purchase orders for shares of
Conversion Stock in the Offerings. The Agent is a member of National Association
of Securities Dealers, Inc. (the "NASD") and a broker-dealer which is registered
with the SEC. The Agent will provide various services including, but not limited
to (1) training and educating the Bank's employees who will be performing
certain ministerial functions in the Offerings regarding the mechanics and
regulatory requirements of the stock sales process; (2) coordinating the
Company's sales efforts; (3) soliciting orders for Conversion Stock; and (4)
assisting in the solicitation of proxies of Members and Stockholders for use at
the Members' Meeting and the Stockholders' Meeting, respectively. Based upon
negotiations between the Primary Parties and the Agent, the Agent will receive
(i) an advisory and management fee of $50,000 which will be subtracted from the
Agent's total fee in (ii) and (iii) below; (ii) a marketing fee equal to .75% of
the aggregate Purchase Price of Conversion Stock sold in the Subscription
Offering and the Eligible Public Stockholders Offering, except as set forth
below; and (iii) a marketing fee of .75% of the aggregate Purchase Price of
Conversion Stock sold in the Community Offering. No fees will be paid to the
Agent on subscriptions by any director, officer or employee or members of their
immediate families or by the ESOP. The Agent also will be reimbursed for its
reasonable
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out-of-pocket expenses (including legal fees and expenses) which are estimated
to be approximately $70,000. The Primary Parties have agreed to indemnify the
Agent for reasonable costs and expenses (including legal fees) incurred in
connection with certain claims or litigation arising out of or based upon untrue
statements or omissions contained in the offering material for the Common Stock,
including certain liabilities under the Securities Act.
Directors and executive officers of the Primary Parties may participate in
the solicitation of offers to purchase Conversion Stock. Other employees of the
Bank may participate in the Offerings in ministerial capacities or providing
clerical work in effecting a sales transaction. Such other employees have been
instructed not to solicit offers to purchase Conversion Stock or provide advice
regarding the purchase of Conversion Stock. Questions of prospective purchasers
will be directed to executive officers or registered representatives. The
Company will rely on Rule 3a4-1 under the Exchange Act, and sales of Conversion
Stock will be conducted within the requirements of Rule 3a4-1, so as to permit
officers, directors and employees to participate in the sale of Conversion
Stock. No officer, director or employee of the Primary Parties will be
compensated in connection with such person's solicitations or other
participation in the Offerings or the Distribution Exchange by the payment of
commissions or other remuneration based either directly or indirectly on
transactions in the Conversion Stock and Distribution Exchange Shares,
respectively.
Procedure for Purchasing Shares in the Offerings.
To help ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no Prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery of the Prospectus in accordance with Rule
15c2-8. Order forms will only be distributed with a Prospectus.
To purchase shares in the Offerings, an executed order form with the
required payment for each share subscribed for, or with appropriate
authorization for withdrawal from a deposit account at the Bank (which may be
given by completing the appropriate blanks on the order form), must be received
by the Bank at any of its offices by 12 noon, Florida Time, on the Expiration
Date. Order forms which are not received by such time or are executed
defectively or are received without full payment (or appropriate withdrawal
instructions) are not required to be accepted. The Bank is not required to
accept orders submitted on facsimilied order forms. The Primary Parties have the
right to waive or permit the correction of incomplete or improperly executed
forms, but do not represent that they will do so. The waiver of an irregularity
on an order form, the allowance by the Primary Parties of a correction of an
incomplete or improperly executed order form, or the acceptance of an order
after 12 noon on the Expiration date in no way obligates the Primary Parties to
waive an irregularity, allow a
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correction, or accept an order with respect to any other order form. The
interpretation by the Primary Parties of the acceptability of an order form will
be final. Once received, an executed order form may not be modified, amended or
rescinded without the consent of the Primary Parties, unless the Offerings have
not been completed within 45 days after the end of the Subscription, Eligible
Public Stockholders, and Community Offerings, unless such period has been
extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the Eligibility
Record Date ( July 31, 1996) or the Supplemental Eligibility Record Date
(September 30, 1997) must list on the order form all accounts in which they have
an ownership interest at the applicable eligibility date, giving all names in
each account and the account numbers.
Payment for subscriptions and orders may be made (i) in cash if delivered
in person at any office of the Bank, (ii) by check or money order, or (iii) by
authorization of withdrawal from certificate of deposit accounts or IRAs
maintained with the Bank. The Primary Parties, in their sole discretion, may
elect not to accept payment for shares of Conversion Stock by wired funds and
there shall be no liability for failure to accept such payment. Funds will be
deposited in a segregated account at the Bank and interest will be paid on funds
made by cash, check or money order at the Bank's passbook rate of interest from
the date payment is received until completion or termination of the Conversion.
If payment is made by authorization of withdrawal from certificate accounts, the
funds authorized to be withdrawn from a Bank deposit account may continue to
accrue interest at the contractual rates until completion or termination of the
Conversion, but a hold will be placed on such funds, thereby making them
unavailable to the depositor until completion or termination of the Conversion.
If a subscriber authorizes the Bank to withdraw the aggregate amount of the
purchase price from a deposit account, the Bank will do so as of the effective
date of the Conversion. The Bank may waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization, the certificate
will be canceled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the passbook rate.
The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes, but rather may pay for such shares of Conversion Stock
subscribed for upon consummation of the Offerings, provided that there is in
force from the time of its subscription until such time, a loan commitment from
an unrelated financial institution or the Company to lend to the ESOP, at such
time, the aggregate purchase price of the shares for which it subscribed.
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Owners of self-directed Individual Retirement Accounts ("IRAs") may use the
assets of such IRAs to purchase shares of Conversion Stock in the Offerings,
provided that such IRAs are not maintained at the Bank. Persons with
self-directed IRAs maintained at the Bank must have their accounts transferred
to an unaffiliated institution or broker to purchase shares of Conversion Stock
in the Offerings. In addition, ERISA provisions and IRS regulations require that
officers, directors, and 10% stockholders who use self-directed IRA funds to
purchase shares of Conversion Stock in the Subscription and Community Offerings
make such purchases for the exclusive benefit of the IRAs. Any interested
parties wishing to use IRA funds for stock purchases are advised to contact the
Stock Information Center for additional information.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the rules and regulations of the OTS, no person with
subscription rights may transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of the subscription rights issued
under the Plan or the shares of Conversion Stock to be issued upon their
exercise. Such rights may be exercised only by the person to whom they are
granted and only for such person's account. Each person exercising such
subscription rights will be required to certify that such person is purchasing
shares solely for such person's own account and that such person has no
agreement or understanding regarding the sale or transfer of such shares.
Federal regulations also prohibit any person from offering or making an
announcement of an offer or intent to make an offer to purchase such
subscription rights or shares of Conversion Stock prior to the completion of the
Conversion.
The Primary Parties will pursue any and all legal and equitable remedies in
the event they become aware of the transfer of subscription rights and will not
honor orders known by them to involve the transfer of such rights.
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Bank would receive his
pro rata share of any assets of the Mutual Holding Company remaining after
payment of claims of all creditors. Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account was to the total value of all deposit accounts in the Bank at the time
of liquidation. After the Conversion, each depositor, in the event of a complete
liquidation of the Bank, would have a claim as a creditor of the same general
priority as the claims of all other general creditors of the Bank. However,
except as described below, this claim would be solely in the amount of the
balance in the deposit account plus accrued interest. A depositor would not have
an interest in the value of assets of the Bank, or the Company, above that
amount.
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The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the amount of any dividends waived by the Mutual Holding Company plus the
greater of 100% of the Bank's retained earnings of $34.5 million at September
30, 1992, the date of the latest balance sheet contained in the final offering
circular utilized in the Bank's initial public offering in the MHC
Reorganization, or (2) 53.41% of the Bank's total stockholders' equity as
reflected in its latest balance sheet contained in the final Prospectus utilized
in the Offerings. As of the date of this Prospectus, the initial balance of the
liquidation account would be $____ million. Each Eligible Account Holder and
Supplemental Eligible Account Holder, if such person were to continue to
maintain such person's deposit account at the Bank, would be entitled, upon a
complete liquidation of the Bank after the Conversion, to an interest in the
liquidation account prior to any payment to the Company as the sole stockholder
of the Bank. Each Eligible Account Holder and Supplemental Eligible Account
Holder would have an initial interest in such liquidation account for each
deposit account, including passbook accounts, transaction accounts such as
checking accounts, money market deposit accounts and certificates of deposit,
held in the Bank at the close of business on July 31, 1996 or September 30,
1997, as the case may be. Each Eligible Account Holder and Supplemental Eligible
Account Holder will have a pro rata interest in the total liquidation account
for each of such person's deposit accounts based on the proportion that the
balance of each such deposit account on the December 31, 1993 eligibility record
date (or the September 30, 1995 supplemental eligibility record date, as the
case may be) bore to the balance of all deposit accounts in the Bank on such
date.
If, however, on any September 30 annual closing date of the Bank,
commencing September 30, 1996 for Eligible Account Holders and September 30,
1997 for Supplemental Eligible Account Holders, the amount in any deposit
account is less than the amount in such deposit account on July 31, 1996, or
September 30, 1997, as the case may be, or any other annual closing date, then
the interest in the liquidation account relating to such deposit account would
be reduced by the proportion of any such reduction, and such interest will cease
to exist if such deposit account is closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase in
the related deposit account. Any assets remaining after the above liquidation
rights of Eligible Account Holders and Supplemental Eligible Account Holders are
satisfied would be distributed to the Company as the sole stockholder of the
Bank.
Tax Aspects
Consummation of the Conversion is expressly conditioned upon prior receipt
of either a ruling from the IRS or an opinion of counsel with respect to federal
tax effects of the transaction, and either a ruling or an opinion with respect
to Florida tax laws, to the effect that
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consummation of the transactions contemplated hereby will not result in a
taxable reorganization under the provisions of the applicable codes or otherwise
result in any material adverse tax consequences to the Mutual Holding Company,
the Bank, the Company or to account holders receiving subscription rights,
except to the extent, if any, that subscription rights are deemed to have fair
market value on the date such rights are issued. This condition may not be
waived by the Primary Parties.
Peabody & Brown, Washington, D.C., has issued an opinion to the Company and
the Bank to the effect that for federal income tax purposes: [TO COME]
Furthermore, Dean, Mead, Egerton, Bloodworth, Capouano & Bogarth, P.A.,
Orlando, Florida, has issued an opinion to the Company and the Bank to the
effect that the income tax consequences of the Conversion are substantially the
same under Florida law as they are under the Code.
In the opinion of RP Financial, which opinion is not binding on the IRS,
the subscription rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration, and afford the recipients the right only to purchase the
Conversion Stock at a price equal to its estimated fair market value, which will
be the same price as the Purchase Price for the unsubscribed shares of
Conversion Stock. If the subscription rights granted to eligible subscribers are
deemed to have an ascertainable value, receipt of such rights likely would be
taxable only to those eligible subscribers who exercise the subscription rights
(either as a capital gain or ordinary income) in an amount equal to such value,
and the Primary Parties could recognize gain on such distribution. Eligible
subscribers are encouraged to consult with their own tax advisor as to the tax
consequences in the event that such subscription rights are deemed to have an
ascertainable value.
Unlike private rulings, an opinion is not binding on the IRS and the IRS
could disagree with the conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding. Management does not believe the fact that
the IRS has placed this transaction into a "no rule" area will result in the IRS
treating the Conversion and the Reorganization any differently from similar
transactions already completed for which the IRS has issued private letter
rulings. If the IRS determines that the tax effects of the transaction are to be
treated differently from that presented in the tax opinion, the Mutual Holding
Company and the Bank may be subject to adverse tax consequences as a result of
the Conversion.
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Delivery and Exchange of Certificates
Conversion Stock. Certificates representing Conversion Stock issued in
connection with the Offerings will be mailed by the Company's transfer agent for
the Common Stock to the persons entitled thereto at the addresses of such
persons appearing on the stock order form for Conversion Stock as soon as
practicable following consummation of the Conversion. Any certificates returned
as undeliverable will be held by the Company until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable law.
Until certificates for Conversion Stock are available and delivered to
subscribers, subscribers may not be able to sell such shares.
Distribution Exchange Shares. After consummation of the Conversion, each
holder of a certificate or certificates theretofore evidencing issued and
outstanding shares of Company Common Stock, or Bank Common Stock, which was held
prior to the Mid-Tier Reorganization and currently represents an equivalent
number of shares of Public Harbor Florida Shares on the transfer book of Harbor
Florida (other than the Mutual Holding Company), shall be entitled to receive a
certificate or certificates representing the number of full shares of Common
Stock which, when added to the number of shares of Public Harbor Florida Shares
held, will represent the same percentage ownership of Public Harbor Florida
Shares held prior to the Conversion. The Transfer Agent shall promptly mail to
each such holder of record of Public Harbor Florida Shares immediately prior to
the consummation of the Conversion, a letter advising the holder of the
procedures by which additional shares of Common Stock, pursuant to the
Distribution Exchange Ratio, will be delivered. The Company's stockholders need
not forward any Company Common Stock certificates to the Bank or the Transfer
Agent.
Required Approvals
Various approvals of the OTS are required in order to consummate the
Conversion. The OTS has approved the Plan of Conversion, subject to approval by
the Mutual Holding Company's Members and the Company's Stockholders. In
addition, consummation of the Conversion is subject to OTS approval of the
applications with respect to the merger of the Mutual Holding Company (following
its conversion to an interim Federal stock savings bank) into the Company, with
the Company being the surviving entity. Applications for these approvals have
been filed and are currently pending. There can be no assurances that the
requisite OTS approvals will be received in a timely manner, in which event the
consummation of the Conversion may be delayed beyond the expiration of the
Offerings.
Pursuant to OTS regulations, the Plan of Conversion also must be approved
by (1) at least a majority of the total number of votes eligible to be cast by
Members of the Mutual Holding Company at the Members' Meeting, and (2) holders
of at least two-thirds of the
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outstanding Company Stock at the Stockholders' Meeting. In addition, the Primary
Parties have conditioned the consummation of the Conversion on the approval of
the Plan by at least a majority of the votes cast, in person or by proxy, by the
Public Stockholders at the Stockholders' Meeting.
Interpretation and Amendment of the Plan
To the extent permitted by law, all interpretations of the Plan by the
Primary Parties will be final; however, such interpretations shall have no
binding effect on the OTS. The Plan provides that, if deemed necessary or
desirable by the Board of Directors, the Plan may be substantively amended by
the Board of Directors as a result of comments from the OTS or otherwise, prior
to the solicitation of proxies from the members of the Mutual Holding Company
and at any time thereafter with the concurrence of the OTS, except that in the
event that the regulations under which the Plan was adopted are liberalized
subsequent to the approval of the Plan by the OTS and the members of the Mutual
Holding Company at the special meeting of members, the Board of Directors may
amend the Plan to conform to the regulations without further approval of the OTS
or the members, to the extent permitted by law. An amendment to the Plan that
would result in a material adverse change in the terms of the Conversion would
require a resolicitation. In the event of a resolicitation, subscriptions for
which a confirmation or modification was not received would be rescinded. Any
amendment to the Plan regarding preferences to the Local Community will not be
deemed to be a material change.
Certain Restrictions on Purchase or Transfer of Shares After the Conversion
All shares of Conversion Stock purchased in connection with the Conversion
by a director or an executive officer of the Primary Parties will be subject to
a restriction that the shares may not be sold for a period of one year following
the Conversion, except in the event of the death of such director or executive
officer or pursuant to a merger or similar transaction approved by the OTS. Each
certificate for restricted shares will bear a legend giving notice of this
restriction on transfer, and appropriate stop-transfer instructions will be
issued to the Company's transfer agent. Any shares of Common Stock issued within
this one-year period as a stock dividend, stock split or otherwise with respect
to such restricted stock will be subject to the same restrictions. The directors
and executive officers of the Company will also be subject to the insider
trading rules promulgated pursuant to the Exchange Act.
Purchases of Conversion Stock of the Company by directors, executive
officers and their associates during the three-year period following completion
of the Conversion may be made only through a broker or dealer registered with
the SEC, except with the prior written approval of the OTS. This restriction
does not apply, however, to negotiated transactions involving more than 10% of
the Company's outstanding Common Stock or to the purchase of
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Common Stock pursuant to any tax-qualified employee stock benefit plan, such as
the ESOP, or by any non-tax-qualified employee stock benefit plan.
Pursuant to OTS regulations, the Company will generally be prohibited from
repurchasing any shares of Common Stock within one year following consummation
of the Conversion. During the second and third years following consummation of
the Conversion, the Company may not repurchase any shares of its Common Stock
other than pursuant to (i) an offer to all stockholders on a pro rata basis that
is approved by the OTS; (ii) the repurchase of qualifying shares of a director,
if any; (iii) purchases in the open market by a tax-qualified or
non-tax-qualified employee stock benefit plan in an amount reasonable and
appropriate to fund the plan; or (iv) purchases that are part of an open-market
program not involving more than 5% of its outstanding capital stock during a 12
month period, if the repurchases do not cause the Bank to become
undercapitalized and the Bank provides to the Regional Director of the OTS no
later than 10 days prior to the commencement of a repurchase program Written
notice containing a full description of the program to be undertaken and such
program is not disapproved by the Regional Director. However, the Regional
Director has authority to permit repurchases during the first year following
consummation of the Conversion and to permit repurchases in excess of 5% during
the second and third years upon the establishment of exceptional circumstances.
COMPARISON OF STOCKHOLDERS' RIGHTS
General. Harbor Florida, currently the Bank's Mid-Tier Holding Company, is
currently a Delaware corporation. After the Conversion, Harbor Florida will
continue to serve as the holding company of the Bank but Harbor Financial,
M.H.C. will have no ownership interest in Harbor Florida. After the
Reorganization, all of Harbor Florida's stock will be held by the public. The
rights of shareholders will not change as a result of the Conversion.
Authorized Capital Stock. Harbor Florida's authorized capital stock
currently consists of 13,000,000 shares of Common Stock, par value $.0l per
share and 1,000,000 shares of Preferred Stock, par value $.0l per share. As of
the Conversion, upon approval of Harbor Florida's stockholders, Harbor Florida's
Certificate of Incorporation will be amended to authorize _________ shares of
Common Stock and 1,000,000 shares of Preferred Stock.
Amendment Of Certificate. Pursuant to the Plan, Harbor Florida is seeking
the authority to amend its Certificate of Incorporation to increase its
authorized capital stock as indicated above. This amendment is necessary in
order for Harbor Florida to have sufficient shares to sell Conversion Stock in
the Offering as well as to deliver stock pursuant to the Distribution Exchange.
This amendment will not be voted on separately by the stockholders
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of Harbor Florida but pursuant to the approval of the Plan. Harbor Florida
believes that under Delaware law the Mutual Holding Company would be permitted
to vote its shares to amend the Certificate of Incorporation. Therefore, the
passage of such amendment would be assured if voted separately.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
A number of provisions of the Company's Certificate of Incorporation and
bylaws deal with matters of corporate governance and certain rights of
shareholders. These provisions allow the Board of Directors flexibility to
analyze and consider corporate transactions in order to maximize benefits to
shareholders. However, they may also serve to prevent individual shareholders
from participating in a transaction if the Board does not deem the transaction
to be beneficial to shareholders, even if individual shareholders desire to do
so. The following discussion is a general summary of certain provisions of the
Company's Certificate of Incorporation and Bylaws and certain other statutory
and regulatory provisions relating to stock ownership and transfers, the Board
of Directors and business combinations, which might be deemed to have a
potential "anti-takeover" effect. Such provisions may have the effect of
rendering the removal of the current Board of Directors of the Company more
difficult. The following description of certain of the provisions of the
Certificate of Incorporation and bylaws of the Company is necessarily general
and reference should be made in each case to such Certificate of Incorporation
and bylaws, which are incorporated herein by reference. See "ADDITIONAL
INFORMATION" for instructions on how to obtain a copy of these documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. In addition, for a period of five years from
the completion of the Conversion, no person may directly or indirectly offer to
acquire or acquire the beneficial ownership of more than 10% of any class of
equity securities of the Company. Beneficial ownership is determined pursuant to
Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the benefit plans of the Board or directors,
officers and employees of the Bank or the Company as a group or shares that are
subject to a revocable proxy and that are not otherwise beneficially owned, or
deemed by the Company to be beneficially owned, by such person and his
affiliates. The
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Certificate of Incorporation of the Company further provides that this provision
limiting voting rights may only be amended upon the vote of 66 2/3% of the
outstanding shares of voting stock (after giving effect to the limitation on
voting rights).
Board of Directors. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the whole
number of members of the Board. Each class shall serve a staggered term, with
approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation and bylaws provide that the
size of the Board shall be determined by a majority of the directors. The
Certificate of Incorporation and the bylaws provide that any vacancy occurring
in the Board, including a vacancy resulting from death, resignation, retirement,
disqualification, removal from office or other cause, shall be filled for the
remainder of the unexpired term exclusively by a majority vote of the directors
then in office. The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
shareholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of the
Company. The Certificate of Incorporation of the Company provides that a
director may be removed from the Board of Directors prior to the expiration of
his term only for cause, upon the vote of 66 2/3% of the outstanding shares of
voting stock.
In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders' choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of shareholders of the Company may be called
only by the Board of Directors of the Company. The Certificate of Incorporation
also provides that any action required or permitted to be taken by the
shareholders of the Company may be taken only at an annual or special meeting
and prohibits shareholder action by written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation currently authorizes
the issuance of 13,000,000 shares of Common Stock and 1,000,000 shares of
preferred stock. The Certificate of Incorporation will be amended by
shareholders at a shareholders' meeting in order to permit the creation of
additional shares for sale at the Offering Price. See "DESCRIPTION OF CAPITAL
STOCK OF HARBOR FLORIDA." The shares of Common Stock and preferred stock were
authorized in an amount greater than that to be issued pursuant to the
Conversion to provide the Company's Board of Directors with as much flexibility
as possible to effect, among other transactions, financings, acquisitions, stock
dividends, stock splits and employee stock options. However, these additional
authorized shares may also be
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used by the Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The Board of Directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the Board has the power, to the extent consistent with its fiduciary duty, to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
The Company's Board of Directors currently has no plans for the issuance of
additional shares upon the exercise of stock options.
Shareholder Vote Required to Approve Business Combinations with Principal
Shareholders. The Certificate of Incorporation requires the approval of the
holders of at least 66 2/3% of the Company's outstanding shares of voting stock
to approve certain "Business Combinations," as defined therein, and related
transactions. Under Delaware law, absent this provision, Business Combinations,
including mergers, consolidations and sales of all or substantially all of the
assets of a corporation must, subject to certain exceptions, be approved by the
vote of the holders of only a majority of the outstanding shares of Common Stock
of the Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 66 2/3% approval of shareholders is required in
connection with any transaction involving an Interested Shareholder (as defined
below) except (i) in cases where the proposed transaction has been approved in
advance by a majority of those members of the Company's Board of Directors who
are unaffiliated with the Interested Shareholder and were directors prior to the
time when the Interested Shareholder became an Interested Shareholder or (ii) if
the proposed transaction meets certain conditions set forth therein which are
designed to afford the shareholders a fair price in consideration for their
shares in which case, if a shareholder vote is required, approval of only a
majority of the outstanding shares of voting stock would be sufficient. The term
"Interested Shareholder" is defined to include any individual, corporation,
partnership or other entity (other than the Company or its subsidiary) which
owns beneficially or controls, directly or indirectly, 15% or more of the
outstanding shares of voting stock of the Company. This provision of the
Certificate of Incorporation applies to any "Business Combination," which is
defined to include (i) any merger or consolidation of the Company or any of its
subsidiaries with or into any Interested Shareholder or Affiliate (as defined in
the Certificate of Incorporation) of an Interested Shareholder; (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition to or with any
Interested Shareholder or Affiliate of 10% or more of the assets of the Company
or combined assets of the Company and its subsidiary; (iii) the issuance or
transfer to any Interested Shareholder or its Affiliate by the Company (or any
subsidiary) of any securities of the Company in exchange for any assets, cash or
securities the value of which equals or exceeds 10% of the fair market value of
the Common Stock of the Company; (iv) the adoption of any plan for the
liquidation or dissolution of the Company proposed by or on behalf of any
Interested Shareholder or Affiliate thereof; and (v) any reclassification of
securities, recapitalization, merger or
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consolidation of the Company which has the effect of increasing the
proportionate share of Common Stock or any class of equity or convertible
securities of the Company owned directly or indirectly by an Interested
Shareholder or Affiliate thereof.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock; provided, however, that an affirmative vote of at least 66 2/3% of
the outstanding voting stock entitled to vote (after giving effect to the
provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including those provisions
limiting voting rights, relating to approval of certain business combinations,
calling special meetings, the number and classification of directors, director
and officer indemnification by the Company and amendment of the Company's bylaws
and Certificate of Incorporation. The Company's bylaws may be amended by its
Board of Directors, or by the vote of a majority of the shares present in person
or by proxy and entitled to a vote at any annual or special meeting except for
those instances where the Certificate of Incorporation requires a vote of 66
2/3% of the total votes eligible to be voted at a duly constituted meeting of
shareholders for amendment.
Certain Bylaw Provisions. The Bylaws of the Company also require a
shareholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a shareholder meeting to give at least
120 days advance notice to the Secretary of the Company. The notice provision
requires a shareholder who desires to raise new business to provide certain
information to the Company concerning the nature of the new business, the
shareholder and the shareholder's interest in the business matter. Similarly, a
shareholder wishing to nominate any person for election as a director must
provide the Company with certain information concerning the nominee and the
proposing shareholder.
Benefit Plans. In addition to the provisions of the Company's certificate
and bylaws described above, certain benefit plans of ours adopted in connection
with the Conversion contain provisions which also may discourage hostile
takeover attempts which the boards of directors might conclude are not in the
best interests for us or our stockholders. For a description of the benefit
plans and the provisions of such plans relating to changes in control, see
"MANAGEMENT OF HARBOR FEDERAL -- Other Stock Benefit Plans" and " -- Stock
Option Plan
Regulatory Restrictions. A federal regulation prohibits any person prior to
the completion of a conversion from transferring, or entering into any agreement
or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of
155
<PAGE>
an offer or intent to make an offer, to purchase such subscription rights or
stock. For three years following conversion, OTS regulations prohibit any
person, without the prior approval of the OTS, from acquiring or making an offer
to acquire more than 10% of the stock of any converted savings institution if
such person is, or after consummation of such acquisition would be, the
beneficial owner of more than 10% of such stock. In the event that any person,
directly or indirectly, violates this regulation, the securities beneficially
owned by such person in excess of 10% shall not be counted as shares entitled to
vote and shall not be voted by any person or counted as voting shares in
connection with any matter submitted to a vote of stockholders.
Federal law provides that no company, "directly or indirectly or acting in
concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. In addition, any
company that acquires such control becomes a "savings and loan holding company"
subject to registration, examination and regulation as a savings and loan
holding company. Control in this context means ownership of, control of, or
holding proxies representing more than 25% of the voting shares of a savings
association or the power to control in any manner the election of a majority of
the directors of such institution.
Federal law also provides that no "person," acting directly or indirectly
or through or in concert with one or more other persons, may acquire control of
a savings association unless at least 60 days prior written notice has been
given to the OTS and the OTS has not objected to the proposed acquisition.
Control is defined for this purpose as the power, directly or indirectly, to
direct the management or policies of a savings association or to vote more than
25% of any class of voting securities of a savings association. Under federal
law (as well as the regulations referred to below) the term "savings
association" includes state-chartered and federally chartered SAIF-insured
institutions, federally chartered savings and loans and savings banks whose
accounts are insured by the FDIC and holding companies thereof.
Federal regulations require that, prior to obtaining control of an insured
institution, a person, other than a company, must give 60 days notice to the OTS
and have received no OTS objection to such acquisition of control, and a company
must apply for and receive OTS approval of the acquisition. In this
circumstance, control involves a 25% voting stock test, control in any manner of
the election of a majority of the institution's directors, or a determination by
the OTS that the acquiror has the power to direct, or directly or indirectly to
exercise a controlling influence over, the management or policies of the
institution. Acquisition of more than 10% of an institution's voting stock, if
the acquiror also is subject to any one of either "control factors," constitutes
a rebuttable determination of control under the regulations. The determination
of control may be rebutted by submission to the OTS, prior to the acquisition of
stock or the occurrence of any other circumstances giving rise to such
determination, of a statement setting forth facts and circumstances which would
support a
156
<PAGE>
finding that no control relationship will exist and containing certain
undertakings. The regulations provide that persons or companies which acquire
beneficial ownership exceeding 10% or more of any class of a savings
association's stock after the effective date of the regulations must file with
the OTS a certification that the holder is not in control of such institution,
is not subject to a rebuttable determination of control and will take no action
which would result in a determination or rebuttable determination of control
without prior notice to or approval of the OTS, as applicable.
Delaware Corporate Law
In addition, the state of Delaware has a statute designed to provide
Delaware corporations such as the Company with additional protection against
hostile takeovers. The takeover statute, which is codified in Section 203 of the
Delaware General Corporation Law ("Section 203"), is intended to discourage
certain takeover practices by impeding the ability of a hostile acquiror to
engage in certain transactions with the target company.
In general Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Shareholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Shareholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Shareholder, the Board of Directors approved either the business
combination or the transaction which resulted in the shareholder becoming an
Interested Shareholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Shareholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Shareholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Shareholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
157
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF HARBOR FLORIDA
Harbor Florida currently is authorized to issue 13,000,000 shares of the
Common Stock, $.01 par value per share, and 1,000,000 shares of serial preferred
stock, $.01 par value per share. Pursuant to the Conversion, Harbor Florida will
seek stockholder approval to amend its Certificate of Incorporation to increase
the amount of authorized shares to _________ of Common Stock, par value $.01 per
share, and 1,000,000 shares of Preferred Stock, par value $.01 per share,
subject to approval of its stockholders of an amendment to its Certificate of
Incorporation to authorize additional shares of common and preferred stock. The
Company currently expects to issue up to _________ shares of Common Stock in the
Conversion, in addition to the Public Harbor Florida shares to be provided to
shareholders in the Distribution Exchange. Therefore, after the Conversion, the
Company expects to have _________ shares outstanding .
Dividends. The Company can pay dividends if and when declared by its Board
of Directors. See "DIVIDEND POLICY" and "REGULATION." The holders of Common
Stock of the Company will be entitled to receive and share equally in such
dividends as may be declared by the Board of Directors of the Company out of
funds legally available therefor. If the Company issues preferred stock, the
holders thereof may have a priority over the holders of the Common Stock with
respect to dividends.
The Company does not intend to issue any shares of serial preferred stock
in the Conversion, nor are there any present plans to issue such preferred stock
following the Conversion. The aggregate par value of the issued shares will
constitute the capital account of the Company. The balance of the purchase price
will be recorded for accounting purposes as additional paid-in capital. See
"CAPITALIZATION." The capital stock of the Company will represent
nonwithdrawable capital and will not be insured by us, the FDIC, or any other
government agency.
Common Stock
Voting Rights. Each share of the Common Stock will have the same relative
rights and will be identical in all respects with every other share of the
Common Stock. The holders of the Common Stock will possess exclusive voting
rights in the Company, except to the extent that shares of serial preferred
stock issued in the future may have voting rights, if any. Each holder of the
Common Stock will be entitled to only one vote for each share held of record on
all matters submitted to a vote of holders of the Common Stock and will not be
permitted to cumulate their votes in the election of the Company's directors.
158
<PAGE>
Each share of the Company's Common Stock will have the same relative rights
as, and will be identical in all respects with, each other share of Common
Stock. Upon payment of the purchase price for the Common Stock all such stock
will be duly authorized, fully paid and nonassessable.
Liquidation. In the unlikely event of the complete liquidation or
dissolution of the Company, the holders of the Common Stock will be entitled to
receive all assets of the Company available for distribution in cash or in kind,
after payment or provision for payment of (i) all debts and liabilities of the
Company (including all deposits with us and accrued interest thereon); (ii) any
accrued dividend claims; (iii) liquidation preferences of any serial preferred
stock which may be issued in the future; and (iv) any interests in the
liquidation account established upon the Conversion for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders who continue to have
their deposits with the Bank.
Restrictions on Acquisition of the Common Stock. See "RESTRICTIONS ON
ACQUISITION OF THE COMPANY" for a discussion of the limitations on acquisition
of shares of the Common Stock.
Other Characteristics. Holders of the Common Stock will not have preemptive
rights with respect to any additional shares of the Common Stock which may be
issued. Therefore, the Board of Directors may sell shares of capital stock of
the Company without first offering such shares to existing stockholders of the
Company. The Common Stock is not subject to call for redemption.
Issuance of Additional Shares. Except as disclosed herein, the Company has
no present plans, proposals, arrangements or understandings to issue additional
authorized shares of the Common Stock. In the future, the authorized but
unissued and unreserved shares of the Common Stock will be available for general
corporate purposes, including, but not limited to, possible issuance: (i) as
stock dividends; (ii) in connection with mergers or acquisitions; (iii) under a
cash dividend reinvestment or stock purchase plan; (iv) in a public or private
offering; or (v) under employee benefit plans. See "RISK FACTORS -- Possible
Dilutive Effect of 1997 Stock Options and Effect of Purchases by the Recognition
Plan and ESOP" and "PRO FORMA DATA." Normally no stockholder approval would be
required for the issuance of these shares, except as described herein or as
otherwise required to approve a transaction in which additional authorized
shares of the Common Stock are to be issued.
For additional information, see "REGULATION -- Limitations on Dividends and
Other Capital Distributions" with respect to restrictions on the payment of cash
dividends; and "RESTRICTIONS ON ACQUISITION OF THE COMPANY" for information
regarding restrictions on acquiring Common Stock of the Company.
159
<PAGE>
Serial Preferred Stock
None of the 1,000,000 authorized shares of serial preferred stock of the
Company will be issued in the Conversion. After the Conversion is completed, the
Board of Directors of the Company will be authorized to issue serial preferred
stock and to fix and state voting powers, designations, preferences or other
special rights of such shares and the qualifications, limitations and
restrictions thereof, subject to regulatory approval but without stockholder
approval. If and when issued, the serial preferred stock is likely to rank prior
to the Common Stock as to dividend rights, liquidation preferences, or both, and
may have full or limited voting rights. The Board of Directors, without
stockholder approval, can issue serial preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of the Common Stock. The Board of Directors has no present intention to issue
any of the serial preferred stock.
LEGAL AND TAX MATTERS
The legality of the Common Stock will be passed upon for Harbor Florida by
Peabody & Brown, Washington, D.C. Certain legal matters for FBR will be passed
upon by Luse Lehman Gorman Pomerenk & Schick, A Professional Corporation,
Washington, D.C. The federal income tax consequences of the Conversion have been
passed upon by Peabody & Brown, Washington, D.C. The Florida income tax
consequences of the Conversion have been passed upon by Dean, Mead, Egerton,
Bloodworth, Capouano & Bogarth, P.A., Orlando, Florida.
EXPERTS
The financial statements of Harbor Florida as of and for the years ended
September 30, 1996, 1995, and 1994 included in this Prospectus have been audited
by KPMG Peat Marwick LLP, independent auditors, as set forth in their report
appearing herein, and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
RP Financial has consented to the publication herein of a summary of its
letters to Harbor Florida setting forth its opinion as to the estimated pro
forma market value of us in the converted form and its opinion setting forth the
value of subscription rights and to the use of its name and statements with
respect to it appearing in this Prospectus.
160
<PAGE>
REGISTRATION REQUIREMENTS
The Common Stock of Harbor Florida is currently registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Harbor Florida is subject to the information, proxy solicitation, insider
trading restrictions, tender offer rules, periodic reporting and other
requirements of the SEC under the Exchange Act. Harbor Florida may not
deregister the Common Stock under the Exchange Act for a period of at least
three years following the Conversion.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended, with respect to the Conversion Stock and
Distribution Exchange Shares offered hereby. As permitted by the rules and
regulations of the SEC, this Prospectus does not contain all the information set
forth in the Registration Statement. Such information can be examined without
charge at the public reference facilities of the SEC located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. The SEC maintains a World Wide Web
site on the Internet that contains reports, proxy and information statements and
other information regarding registrants such as the Company that file
electronically with the SEC. The address of such site is: http://www.sec.gov.
The statements contained in this Prospectus as to the contents of any contract
or other document filed as an exhibit to the Registration Statement describe all
material provisions of such contracts or other documents. Nevertheless, such
statements are, of necessity, brief descriptions thereof and are not necessarily
complete; each such statement is qualified by reference to such contract or
document.
The Mutual Holding Company has filed an Application for Conversion with the
OTS with respect to the Conversion. This Prospectus omits certain information
contained in that application. The application may be examined at the principal
office of the OTS, 1700 G Street, N.W., Washington, D.C. 20552, and OTS
Southeast Regional Office, 1475 Peachtree Street, N.E., Atlanta, GA 30309.
161
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
----
Independent Auditor's Report ........................................... F-2
Consolidated Statement of Financial Condition- ......................... F-3
September 30, 1996 and 1995
Consolidated Statements of Earnings-Years ended ........................ F-4
September 1996, 1995, 1994
Consolidated Statements of Stockholders' Equity ........................ F-5
Years ended September 30, 1996, 1995, 1994
Consolidated statement of Cash Flows-Years ended ....................... F-6
September 30, 1996, 1995, 1994
Notes to Consolidated Financial Statements ............................. F-8
Condensed Consolidated Statement of Financial Condition as of .......... F-31
June 30, 1997 and September 30, 1996 (Unaudited)
Condensed Consolidated Statements of Earnings for the Three ............ F-32
Months and Nine Months ended June 30, 1997 and 1996 (Unaudited)
Condensed Consolidated Statements of Stockholders' Equity for the ...... F-33
Nine Months ended June 30, 1997 and 1996 (Unaudited)
Condensed Consolidated Statement of Cash Flows for the ................. F-34
Nine Months ended June 30, 1997 and 1996 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited) ....... F-36
All schedules are omitted as they are not required or are not applicable or the
required information is shown in the applicable consolidated financial
statements or notes thereto.
F-1
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Independent Auditors' Report
Board of Directors
Harbor Florida Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial condition
of Harbor Florida Bancorp, Inc., (formerly Harbor Federal Savings Bank) and
subsidiaries as of September 30, 1996 and 1995, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended September 30, 1996. These consolidated
financial statements are the responsibility of Harbor Florida Bancorp, Inc.'s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects' the financial position of Harbor Florida
Bancorp, Inc. and subsidiaries at September 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1996 in conformity with generally accepted accounting
principles.
As discussed in note l(k) to the consolidated financial statements, Harbor
Florida Bancorp, Inc. changed its method of accounting for income taxes as of
October 1, 1993.
KPMG Peat Marwick LLP
West Palm Beach, Florida
October 18, 1996
F-2
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
- ------ ---- ----
<S> <C> <C>
Cash and amounts due from depository institutions $ 16,136,775 $ 9,843,954
Interest-bearing deposits in other banks ........ 16,349,594 15,985,695
Federal funds sold .............................. 16,075,000 12,825,000
Investment securities held to maturity (estimated
market value of $20,016,000 in 1996 and
$25,287,000 in 1995) ........................... 20,000,000 25,185,668
Investment securities available for sale
(estimated market value of $33,493,152) ........ 33,493,152 --
Mortgage-backed securities held to maturity
(estimated market value of $153,288,000 in
1996 and $165,762,000 in 1995) ................. 153,293,273 164,758,626
Loans held for sale (estimated market value
of $4,870,000 in 1996 and $1,016,000 in 1995) .. 4,869,766 1,008,500
Loans, net ...................................... 765,018,807 631,306,902
Accrued interest receivable ..................... 6,621,687 6,000,768
Real estate owned ............................... 3,117,982 2,786,204
Premises and equipment, net ..................... 10,543,318 9,835,510
Federal Home Loan Bank stock, at cost ........... 7,157,700 6,063,700
Goodwill ........................................ 3,586,879 --
Other assets .................................... 1,179,197 969,083
--------------- ---------------
Total assets ................................. $ 1,057,443,130 $ 886,569,610
=============== ===============
Liabilities and Stockholders' Equity
Liabilities:
Deposits ....................................... $ 851,853,160 $ 720,981,096
Short-term borrowings .......................... 25,000,000 --
Long-term debt ................................. 70,674,100 65,973,700
Advance payments by borrowers for
taxes and insurance ........................... 15,211,607 16,750,146
Income taxes payable ........................... 962,013 493,231
Other liabilities .............................. 8,910,584 4,871,671
--------------- ---------------
Total liabilities ............................ 972,611,464 809,069,844
--------------- ---------------
Commitments and contingencies
Stockholders' equity
Preferred stock; $.01 par value; authorized
1,000,000 shares; none issued and outstanding . -- --
Common stock; $.01 par value; authorized
13,000,000 shares; issued and outstanding,
4,934,454 shares in 1996 and 4,910,991
shares in 1995 ................................ 49,345 49,110
Paid-in capital ................................ 25,339,119 24,455,043
Retained earnings, substantially restricted .... 60,893,032 54,671,820
Common stock purchased by:
Employee stock ownership plan (ESOP) ......... (674,100) (973,700)
Recognition and retention plans (RRP) ........ (53,511) (267,507)
Deferred compensation plan ................... (673,216) (435,000)
Unrealized loss on investment
securities available for sale, net .......... (49,003) --
--------------- ---------------
Total stockholders' equity ................ 84,831,666 77,499,766
--------------- ---------------
Total liabilities and stockholders'
equity ................................... $ 1,057,443,130 $ 886,569,610
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Interest income:
<S> <C> <C> <C>
Loans ........................... $ 59,750,657 $ 51,049,832 $ 46,087,599
Investment securities ........... 2,462,195 2,352,053 2,106,045
Mortgage-backed securities ...... 10,154,491 9,613,284 6,246,656
Other ........................... 1,989,314 1,869,306 1,643,190
------------ ------------ ------------
Total interest income ......... 74,356,657 64,884,475 56,083,490
------------ ------------ ------------
Interest expense:
Deposits ........................ 34,439,716 29,627,122 23,424,108
Other ........................... 4,674,281 3,653,509 2,851,588
------------ ------------ ------------
Total interest expense ........ 39,113,997 33,280,631 26,275,696
------------ ------------ ------------
Net interest income ........... 35,242,660 31,603,844 29,807,794
Provision for (recovery of)
loan losses ..................... (76,386) 459,845 1,552,767
------------ ------------ ------------
Net interest income
after provision for
(recovery of) loan losses ...... 35,319,046 31,143,999 28,255,027
------------ ------------ ------------
Other income:
Other fees and service charges ... 2,796,807 2,565,572 2,521,290
Income (losses) from real
estate operations ............... (300,996) (40,050) 1,250,128
Gain (loss) on sale of
mortgage loans .................. (39,747) 91,595 117,508
Other ............................ 429,009 289,869 180,164
------------ ------------ ------------
Total other income .......... 2,885,073 2,906,986 4,069,090
------------ ------------ ------------
Other expenses:
Compensation and employee
benefits ...................... 10,690,298 10,048,016 9,433,456
Occupancy ....................... 2,631,854 2,291,170 2,353,464
Professional fees ............... 526,998 699,475 1,137,254
SAIF deposit insurance
premiums ...................... 6,300,486 1,555,816 1,671,632
Other ........................... 3,982,267 3,603,692 3,271,018
------------ ------------ ------------
Total other expenses ......... 24,131,903 18,198,169 17,866,824
------------ ------------ ------------
Income from continuing
operations before income
taxes, extraordinary
item and cumulative
effect of change in
accounting principle ........ 14,072,216 15,852,816 14,457,293
Income tax expense ................ 5,432,000 5,958,000 5,254,000
------------ ------------ ------------
Income before extraordinary
item and cumulative effect
of change in accounting
principle .................. 8,640,216 9,894,816 9,203,293
Extraordinary item - Extinguishment
of FHLB advances, net of income
tax benefit ...................... -- -- (1,341,943)
Cumulative effect of change
in accounting principle .......... -- -- 1,935,427
------------ ------------ ------------
Net income ................. $ 8,640,216 $ 9,894,816 $ 9,796,777
============ ============ ============
Net income per share ....... $ 1.75 $ 2.03 $ 1.43
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HARBOR FLORIDA INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Unrealized
stock gain (loss) on
Common Common purchased investment
stock stock by deferred securities
Common Paid-in Retained purchased purchased compensation available for
stock capital earnings by ESOP by RRP's plan sale, net Total
----- ------- -------- ------- -------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 ... -- -- 40,229,606 -- -- -- -- $ 40,229,606
Net income ...................... -- -- 9,796,777 -- -- -- -- 9,796,777
Net proceeds on common
stock issued in stock
conversion ..................... 22,398 21,239,092 -- (1,498,000) (642,000) (435,000) -- 18,686,490
Stock issued to mutual
holding company ................ 26,544 2,627,825 (2,654,369) -- -- -- -- --
Cash retained by mutual
holding company ................ -- -- (500,000) -- -- -- -- (500,000)
Amortization of award of
ESOP and RRP's ................. -- 108,386 -- 224,700 160,497 -- -- 493,583
Dividends paid .................. -- -- (455,814) -- -- -- -- (455,814)
-------- ------------ ------------ ---------- ---------- --------- --------- ------------
Balance at September 30, 1994 ... $48,942 23,975,303 46,416,200 (1,273,300) (481,503) (435,000) -- $ 68,250,642
Net income ...................... -- -- 9,894,816 -- -- -- -- 9,894,816
Stock options exercised ......... 168 167,742 -- -- -- -- -- 167,910
Amortization of award
of ESOP and RRP's .............. -- 263,681 -- 299,600 213,996 -- -- 777,277
Tax benefit of RRP's ............ -- 48,317 -- -- -- -- -- 48,317
Dividends paid .................. -- -- (1,639,196) -- -- -- -- (1,639,196)
-------- ------------ ------------ ---------- ---------- --------- --------- ------------
Balance at September 30, 1995 ... $49,110 24,455,043 54,671,820 (973,700) (267,507) (435,000) -- $ 77,499,766
Net income ...................... -- -- 8,640,216 -- -- -- -- 8,640,216
Stock options exercised ......... 235 234,395 -- -- -- -- -- 234,630
Amortization of award
of ESOP and RRP's .............. -- 482,318 -- 299,600 213,996 -- -- 995,914
Tax benefit of RRP's ............ -- 136,898 -- -- -- -- -- 136,898
Dividends paid .................. -- -- (2,419,004) -- -- -- -- (2,419,004)
Unrealized gain on securities
available for sale, net ........ -- -- -- -- -- -- 125,991 125,991
Change in unrealized gain
(loss) on securities
available for sale, net ........ -- -- -- -- -- -- (174,994) (174,994)
Tax benefit of nonqualified
stock options .................. -- 30,465 -- -- -- -- -- 30,465
Stock purchased by deferred
compensation plan .............. -- -- -- -- -- (238,216) -- (238,216)
-------- ------------ ------------ ---------- ---------- --------- --------- ------------
Balance at September 30, 1996 ... $49,345 25,339,119 60,893,032 (674,100) (53,511) (673,216) (49,003) $ 84,831,666
======== ============ ============ ========== ========== ========= ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash provided by operating activities:
Income before extraordinary item
and cumulative effect of change in
accounting principle ........................ $ 8,640,216 $ 9,894,816 $ 9,203,293
Adjustments to reconcile to net cash
provided by operating activities:
Prepayment penalty on extinguishment of
FHLB advances, net of tax ................. -- -- (1,341,943)
Cumulative effect of change in accounting
for income taxes .......................... -- -- 1,935,427
Amortization of stock benefit plans ........ 995,914 777,277 493,583
Tax benefit of stock plans credited
to capital ................................ 167,363 48,317 --
Originations of loans held for sale ........ (8,554,149) (9,928,978) (11,322,35)
Proceeds from sale of loans held for sale .. 4,692,883 8,945,773 11,439,865
Purchases of investment securities
held for sale ............................. -- -- (15,000,000)
Proceeds from sale of investment securities
held for sale ............................. -- -- 14,963,809
Depreciation and amortization .............. 1,104,041 1,016,975 1,045,333
Deferred income tax provision (benefit) .... (1,365,000) 1,559,000 (1,205,115)
Increase in deferred loan fees and costs ... 1,047,051 880,472 1,328,000
Amortization of deferred loan fees and costs (972,744) (1,090,687) (1,731,648)
Amortization of goodwill ................... 71,320 -- --
Net accretion of other purchase
accounting adjustments .................... (19,593) -- --
(Gain) loss on sale of real estate owned .... 38,713 (179,937) (1,062,243)
Accretion of discount on purchased loans .... (23,368) (258,247) (130,765)
Increase in accrued interest receivable ..... (183,437) (1,277,310) (138,497)
Provision for (recovery of) loan losses ..... (76,386) 459,845 1,552,767
Provision for (recovery of) losses on real
estate owned ............................... 116,509 35,254 (579,170)
Net decrease in refundable
income taxes ............................... -- -- 79,827
(Increase) decrease in other assets .......... (143,176) 70,080 492,606
Increase (decrease) in income taxes payable .. 468,782 266,822 (317,591)
Increase (decrease) in other liabilities ..... 4,177,857 (164,971) (45,510)
FHLB stock dividend .......................... -- -- (132,400)
------------ ------------ ------------
Net cash provided by operating activities 10,182,796 11,054,501 9,527,271
------------ ------------ ------------
Cash used by investing activities:
Net increase in loans ........................ (72,973,136) (55,545,463) (25,569,366)
Purchase of mortgage-backed securities ....... (29,264,738) (65,608,939) (64,166,319)
Proceeds from principal repayments of
mortgage-backed securities .................. 40,067,420 20,780,417 33,431,834
Purchase of investment securities held
to maturity ................................. (20,000,000) (10,000,000) (5,076,242)
Proceeds from maturities of investment
securities held to maturity ................. -- 25,042,207 10,283,000
</TABLE>
F-6
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Proceeds from sale of investment
securities available for sale ..................... 6,744,955 -- --
Proceeds from maturities of investment securities
available for sale ................................ 10,595,180 -- --
Purchase of investment securities available for sale (17,939,375) -- --
Proceeds from sale of real estate owned ............ 1,433,772 2,021,683 6,166,372
Purchase of premises and equipment ................. (1,422,634) (2,020,219) (379,562)
Proceeds from sale of premises and equipment ....... 1,590,459 180,092 10,305
FHLB stock purchased ............................... (619,100) (706,200) --
Purchase of Treasure Coast, net of cash acquired ... (4,451,190) -- --
------------ ------------ ------------
Net cash used by investing activities .......... (86,238,387) (85,856,422) (45,299,978)
------------ ------------ ------------
Cash provided by financing activities:
Net increase in deposits .......................... 60,679,513 47,151,634 22,736,685
Net proceeds from short-term borrowings ........... 15,000,000 -- --
Repayments of long-term borrowings ................ (299,600) (299,600) (16,214,700)
Net proceeds from long-term borrowings ............ 15,000,000 20,000,000 16,498,000
Net proceeds from issuance of common stock ........ -- -- 18,186,490
Increase (decrease) in advance payments by
borrowers for taxes and insurance ................ (1,995,012) 697,743 (752,394)
Stock dividend paid ............................... (2,419,004) (1,639,196) (455,814)
Common stock options exercised .................... 234,630 167,910 --
Purchase of common stock by deferred
compensation plan ................................ (238,216) -- --
------------ ------------ ------------
Net cash provided by financing activities ....... 85,962,311 66,078,491 39,998,267
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents ............................... 9,906,720 (8,723,430) 4,225,560
Cash and cash equivalents - beginning of year ..... 38,654,649 47,378,079 43,152,519
------------ ------------ ------------
Cash and cash equivalents - end of year ........... $ 48,561,369 $ 38,654,649 $ 47,378,079
============ ============ ============
Supplemental disclosures:
Cash paid for:
Interest ........................................ $ 39,324,435 $ 33,228,476 $ 26,263,357
============ ============ ============
Taxes ........................................... 6,160,629 4,114,000 3,952,000
============ ============ ============
Noncash investing and financing
activities:
Additions to real estate acquired
in settlement of loans through
foreclosure .................................... 2,878,707 1,311,944 1,647,287
============ ============ ============
Sale of real estate owned financed
by Savings Bank ................................ 1,043,663 658,376 6,268,005
============ ============ ============
Transfer of investment securities
from held for sale to available
for sale ....................................... 26,011,000 -- --
============ ============ ============
Change in unrealized gain (loss)
on securities available for sale ............... (78,568) -- --
============ ============ ============
Change in deferred taxes related
to securities available for sale ............... 29,565 -- --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) Reorganization
On January 6, 1994, Harbor Federal Savings and Loan Association was
reorganized into a federal mutual holding company, Harbor Financial,
MHC (the "Holding Company"). In connection with the reorganization,
the Holding Company retained $500,000 for operating capital, and
substantially all of the assets and liabilities of Harbor Federal
Savings and Loan Association were transferred to Harbor Federal
Savings Bank and its subsidiaries (the "Savings Bank"). The Holding
Company is chartered and regulated by the Office of Thrift
Supervision.
Simultaneously with the reorganization into a mutual holding company,
the Savings Bank sold shares of common stock which represent a
minority interest in the Savings Bank to officers, directors,
employees, and certain depositors of the Savings Bank. The remaining
shares are owned by Harbor Financial, MHC, the mutual holding company
of the Savings Bank. The reorganization and minority stock offering
were completed on January 6, 1994. The Savings Bank sold 2,239,831
shares at $10 per share for a total of $22.4 million, which
represented a minority ownership of 45.8% of the Savings Bank at that
time. The net proceeds of the stock offering, after reflecting
conversion expenses of approximately $1.1 million, were $21.3 million.
The net proceeds less the $500,000 retained by the Holding Company
were added to the Savings Bank's general funds to be used for general
corporate purposes.
On June 25, 1997, the Savings Bank completed its reorganization into
the two-tier form of mutual holding company ownership. Pursuant to the
reorganization, the Savings Bank is now the wholly owned subsidiary of
Harbor Florida Bancorp, Inc. (the "Bancorp"), a Delaware corporation.
Bancorp is the majority owned subsidiary of Harbor Financial, M.H.C.
Pursuant to the reorganization each share of the Savings Bank's
outstanding common stock was automatically converted into one share of
Bancorp common stock. The transaction was accounted for in a manner
similar to a pooling of interests. The consolidated financial
statements for prior periods have been restated to reflect the change
in the par value of Bancorp common stock from $1.00 to $.01 per share.
(b) Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Harbor Federal Savings Bank and its wholly-owned
subsidiaries. In consolidation, all significant intercompany accounts
and transactions have been eliminated.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the statement of financial condition
and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance
for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for loan losses
and real estate owned, management obtains independent appraisals for
significant properties.
As of September 30, 1996, substantially all of the Savings Bank's
loans and investment in real estate owned are secured by real estate
in the counties in which the Savings Bank has branch facilities: St.
Lucie, Indian River, Brevard, Martin and Volusia Counties, Florida.
Accordingly, the ultimate collectibility of a substantial portion of
the Savings Bank's loan portfolio and the recovery of a substantial
portion of the carrying amount of real estate owned are susceptible to
changes in market conditions in the above counties. Management
believes that the allowances for losses on loans and real estate owned
are adequate. While management uses available information to recognize
losses on loans and real estate owned, future additions to the
allowances may be necessary based on changes in economic conditions,
particularly in the above counties. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review
F-8
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
the Savings Bank's allowances for losses on loans and real estate
owned. Such agencies may require the Savings Bank to recognize
additions to the allowances based on their judgments about information
available to them at the time of their examination.
(c) Loan Origination and Commitment Fees and Related Costs
Loan fees and certain direct loan origination costs are deferred, and
the net fee or cost is recognized in income using the interest method
over the contractual life of the loans. Commitment fees and costs
relating to commitments whose likelihood of exercise is remote are
recognized over the commitment period on a straight-line basis. If the
commitment is subsequently exercised during the commitment period, the
remaining unamortized commitment fee at the time of exercise is
recognized over the life of the loan as an adjustment of yield.
(d) Mortgage Loan Interest Income
The Savings Bank reverses accrued interest related to loans which are
90 days or more delinquent or placed on nonaccrual status. Such
interest is recorded as income when collected. Amortization of net
deferred loan fees and accretion of discounts are discontinued for
loans that are 90 days or more delinquent.
(e) Investment and Mortgage-Backed Securities
Bonds, notes, and other debt securities for which the Savings Bank has
the positive intent and ability to hold to maturity are reported at
cost, adjusted for premiums and discounts that are recognized in
interest income using the interest method over the period to maturity.
Available-for-sale securities consist of bonds, notes, other debt
securities and certain equity securities not classified as trading
securities nor as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of
stockholders' equity until realized.
Gains and losses on the sale of available-for-sale securities are
determined using the specific-identification method.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than
temporary result in write-downs of the individual securities to their
fair value. The related write-downs are included in earnings as
realized losses.
On November 15, 1995, the FASB issued Special Report No. 155-B A Guide
to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities, (the "Special Report").
Pursuant to the Special Report, the Savings Bank was permitted to
conduct a one-time reassessment of the classification of all
securities held at that time. Any reclassifications from the
held-to-maturity category made in conjunction with that reassessment
would not call into question an enterprise's intent to hold other debt
securities to maturity in the future. The Savings Bank undertook such
a reassessment and, effective December 31, 1995, all investment
securities were reclassified as available for sale. On the effective
date of the reclassification, the securities transferred had a
carrying value of $25.8 million and an estimated fair value of $26.0
million, resulting in a net increase to stockholders' equity for the
net unrealized appreciation of $126,000, after deducting applicable
income taxes of $76,000.
Prior to October 1, 1994, investment and mortgage-backed securities
were carried at cost, adjusted for premiums and discounts that were
recognized in interest income using the interest method over the
period to maturity.
At September 30, 1996 and 1995, the Savings Bank had no commitments to
sell investment or mortgage-backed securities.
(f) Loans Receivable
Loans receivable are stated at unpaid principal balances, less loans
in process, the allowance for loan losses and net deferred loan
origination fees and discounts.
F-9
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Discounts on mortgage loans are amortized to income using the interest
method over the remaining period to contractual maturity.
A provision for loan losses is charged to operations based on
management's periodic evaluation of the adequacy of the allowance for
loan losses. Such evaluation is based upon a review of all significant
loans on which full collectibility may not be reasonably assured and
considers among other factors, the estimated fair value of the
underlying collateral on the loan, adverse situations which may affect
the borrower's ability to repay, known and unknown inherent risks in
the portfolio, actual loan loss history and current economic
conditions. Regulatory examiners may require the Savings Bank to
recognize additions to the allowance based upon their judgments about
information available to them at the time of their examination.
In May 1993, FASB issued Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan"
("Statement 114"), as amended, which prescribes the recognition
criterion for loan impairment and the measurement methods for certain
impaired loans and loans whose terms are modified in troubled debt
restructurings (a "restructured loan"). Statement 114 is effective as
of October 1, 1995 for the Savings Bank.
Statement 1l4 is applicable to all creditors and all loans, except
those large groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment. A loan is impaired when it is
"probable" that a creditor will be unable to collect all amounts due,
both principal and interest, according to the contractual terms of the
loan agreement. When a loan is impaired, the Savings Bank may measure
impairment based on (a) the present value of the expected future cash
flows of the impaired loan discounted at the loan's original effective
interest rate, ((b)) the observable market price of the impaired loan,
or (c) the fair value of the collateral of a collateral-dependent
loan. Creditors can select the measurement method on a loan-by-loan
basis, except for collateral dependent loans for which foreclosure is
probable must be measured at the fair value of the collateral. A
creditor in a troubled debt restructuring involving a restructured
loan should measure impairment by discounting the total expected
future cash flows at the loan's original effective rate of interest.
Management implemented the provisions of Statement 114 on October 1,
1995. The implementation of Statement 114 did not have a material
effect on the financial condition or results of operations of the
Savings Bank, upon adoption.
(g) Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary
market, comprised of 1-4 family residential loans, are carried at the
lower of cost or estimated market value, in the aggregate. Net
unrealized losses are recognized through a valuation allowance by
charges to income.
In May 1995 the FASB issued Statement of Financial Accounting
Standards Statement No. 122, "Accounting for Mortgage Servicing
Rights" ("Statement 122") which eliminated the accounting distinction
between rights to service mortgage loans for others that are acquired
through loan origination activities and those acquired through
purchase transactions. Statement 122 requires an entity to recognize
as separate assets rights to service mortgage loans for others,
however those servicing rights are acquired. Statement 122 requires
the periodic evaluation of capitalized mortgage servicing rights for
impairment based on fair value. On October 1, 1996, this statement was
implemented prospectively. The impact of Statement 122 upon
implementation was not significant to the Bank's financial condition
or results of operations upon adoption.
(h) Real Estate Owned
Real estate properties acquired through, or in lieu of, loan
foreclosure are to be sold and are initially recorded at fair value at
the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and
the real estate is carried at the lower of carrying amount or fair
value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in income (losses)
from real estate operations.
F-10
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(i) Premises and Equipment
Premises and equipment are carried at cost less accumulated
depreciation. Depreciation of premises and equipment is provided on
the straight-line method over the estimated useful lives of the
related assets. Estimated lives are three to fifty years for buildings
and improvements and three to ten years for furniture and equipment.
Leasehold improvements are amortized on the straight-line method over
the shorter of the remaining term of the related leases or their
estimated useful lives.
Maintenance and repairs are charged to expense as incurred and
improvements are capitalized. The cost and accumulated depreciation
relating to premises and equipment retired or otherwise disposed of
are eliminated from the accounts and any resulting gains or losses are
credited or charged to income.
(j) Goodwill
Goodwill is being amortized on a straight-line basis over its
estimated useful life of 15 years. Goodwill is evaluated by management
for impairment whenever events or changes in circumstances indicate
that the carrying amount of goodwill may not be recoverable based on
facts and circumstances related to the value of net assets acquired
that gave rise to the goodwill.
(k) Income Taxes
Effective October 1, 1993, the Savings Bank adopted the provisions of
the Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes" ("Statement 109"), and reported the
cumulative effect of the change in method of accounting for income
taxes in the 1994 consolidated statement of earnings. Statement 109
requires a change from the deferred method to the asset and liability
method of accounting for income taxes. Under the asset and liability
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 basis of existing assets and
liabilities. Under Statement 109, the effect on deferred taxes of a
change in tax rates is recognized in income in the period that
includes the enactment date.
The tax bad debt reserve method currently available to thrift
institutions was repealed for the Savings Bank for the year beginning
October 1, 1996. As a result the Savings Bank must change from the
reserve method to the specific charge-off method to compute its bad
debt deduction.
The Savings Bank is required generally to recapture into income for
tax purposes the portion of its bad debt reserves (other than the
supplemental reserve) that exceeds its base year reserves (i.e., its
tax reserves for the last tax year beginning before 1988). For
financial statement purposes, the Savings Bank has previously provided
deferred taxes on the amount of the bad debt reserve in excess of the
base year. Such reserves subject to recapture and base year reserves
were approximately $7.1 million and $14.5 million at September 30,
1996, respectively. If the current amount of outstanding loans for tax
purposes is lower than the amount of loans outstanding at the end of
the base year, the base year reserves will be reduced proportionately.
This will result in a "contracted" base year reserve and will increase
the amount of reserve recapture for tax purposes, and will increase
the tax expense for financial statement purposes, since deferred taxes
have not been provided on the tax bad debt base year reserve for
financial statement purposes.
The recapture amount resulting from the change in the method of
accounting for its bad debt reserves generally will be taken into
taxable income ratably (on a straight-line basis) over a six-year
period. If the Savings Bank meets a "residential loan requirement", as
defined for a tax year beginning in 1996 or 1997, the recapture of the
reserves will be suspended for such tax year.
Certain events, as defined, will still trigger a recapture of the base
year reserve. However, the base year will not be recaptured if a
thrift converts to a bank charter or is merged into a bank. The base
year reserves also remain subject to income tax penalty provisions
which, in general, require recapture upon certain stock redemptions
of, and excess distributions to, shareholders.
F-11
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(l) Pension Plan
The Savings Bank's policy is to fund pension costs as they accrue
based on normal cost.
(m) Statement of Cash Flows
Cash equivalents include amounts due from banks, interest-bearing
deposits in other banks and Federal funds sold. For purposes of cash
flows, the Savings Bank considers all highly liquid debt instruments
with original maturities when purchased of three months or less to be
cash equivalents.
(n) Net Income Per Share
Net income per share totaled $1.75 and $2.03 based upon 4,947,108 and
4,880,054 weighted average number of common and common equivalent
shares outstanding during the years ended September 30, 1996 and 1995,
respectively. Net income per share totaled $1.43 based upon 4,732,756
weighted average number of common shares outstanding from January 6,
1994 (date of the initial public offering) to September 30, 1994. Net
income for the period October 1, 1993 to December 31,1993, totaling
$3,007,000 has been excluded from the calculation of net income per
share. Net income for the period January 1,1994 to January 6,1994 is
insignificant.
(o) Reclassification
Amounts included in the 1995 and 1994 consolidated financial
statements have been reclassified in order to conform to the 1996
presentation.
(p) New Accounting Pronouncements
On October 23, 1995, the FASB issued Statement No. 123, "Accounting
for Stock-Based Compensation" ("Statement 123"). This Statement
applies to all transactions in which an entity acquires goods or
services by issuing equity instruments or by incurring liabilities
where the payment amounts are based on the entity's common stock
price. The Statement covers transactions with employees and
nonemployees and is applicable to both public and nonpublic entities.
Entities are allowed (1) to continue to use the Accounting Principles
Board Opinion No. 25 method ("APB 25"), or (2) to adopt the Statement
123 fair value based method. Once the method is adopted, an entity
cannot change the method and the method selected applies to all of an
entity's compensation plans and transactions. For entities not
adopting the Statement 123 fair value based method, Statement 123
requires pro forma net income and earnings per share information as if
the fair value based method has been adopted. For entities not
adopting the fair value based method, the disclosure requirements of
Statement 123, including the pro forma information, are effective for
financial statements for fiscal years beginning after December 15,
1995 (fiscal year ended September 30, 1997 for the Savings Bank). The
pro forma disclosures are to include all awards granted in fiscal
years that begin after December 15, 1994 (fiscal year ended September
30, 1996 for the Savings Bank). However, the disclosures, including
the pro forma net income and earnings per share disclosures, for the
fiscal year beginning after December 15, 1994 (fiscal year ended
September 30, 1996 for the Savings Bank) will not be included in that
year's financial statements but will be included in the following
year-end (fiscal year ended September 30, 1997 for the Savings Bank)
financial statements if the first fiscal year is presented for
comparative purposes. Management has determined that the Savings Bank
will continue to account for stock-based compensation under the APB 25
method and will disclose the pro forma impact of Statement 123 in
future years' financial statements.
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125 ("Statement 125"), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."
Statement 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of
liabilities based on a financial-components approach that focuses on
control. Statement 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
December 31, 1996 and is to be prospectively applied. The impact of
adoption of Statement 125 on financial position and results of
operations was not material.
F-12
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Investment and Mortgage-Backed Securities
The amortized cost and estimated market value of investment and
mortgage-backed securities as of September 30, 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
Available for sale:
<S> <C> <C> <C> <C>
Treasury note ................ $ 23,456,568 -- $ 109,568 $ 23,347,000
FHLB note .................... 10,000,000 31,000 -- 10,031,000
Other securities ............. 115,152 -- -- 115,152
------------ ------------ ------------ ------------
33,571,720 31,000 109,568 33,493,152
------------ ------------ ------------ ------------
Held to maturity:
FHLB notes ................... 20,000,000 16,000 -- 20,016,000
------------ ------------ ------------ ------------
FHLMC mortgage-backed securities 114,072,043 -- 333,043 113,739,000
FNMA mortgage-backed securities 39,221,230 327,770 -- 39,549,000
------------ ------------ ------------ ------------
153,293,273 327,770 333,043 153,288,000
------------ ------------ ------------ ------------
$206,864,993 $ 374,770 $ 442,611 $206,797,152
============ ============ ============ ============
</TABLE>
The amortized cost and estimated market value of investment and
mortgage-backed securities as of September 30, 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
Held to maturity:
<S> <C> <C> <C> <C>
Treasury notes ............... $ 15,027,621 -- $ 57,621 $ 14,970,000
FHLB notes ................... 10,000,000 159,000 -- 10,159,000
Other securities ............. 158,047 -- 47 158,000
------------ ------------ ------------ ------------
25,198,668 159,000 57,668 25,287,000
FHLMC mortgage-backed securities 128,677,832 363,168 -- 129,041,000
FNMA mortgage-backed securities 36,080,794 640,206 -- 36,721,000
------------ ------------ ------------ ------------
164,758,626 1,003,374 -- 165,762,000
------------ ------------ ------------ ------------
$189,944,294 $ 1,162,374 $ 57,668 $191,049,000
============ ============ ============ ============
</TABLE>
F-13
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The amortized cost and estimated market value of debt securities at
September 30, 1996 and September 30, 1995 by contractual maturity are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
1996 1995
--------------------------- --------------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
---- ----- ---- -----
Available for sale:
<S> <C> <C> <C> <C>
Due in one year or less ....... $ 15,504,525 $ 15,539,000 -- --
Due in one to five years ...... 17,952,043 17,839,000 -- --
Other securities .............. 115,152 115,000 -- --
------------ ------------ ------------ ------------
33,571,720 33,493,000 -- --
------------ ------------ ------------ ------------
Held to maturity:
Due in one year or less ....... -- -- $ 9,995,467 $ 9,932,000
Due in one to five years ...... 20,000,000 20,016,000 15,032,154 15,197,000
Other securities .............. -- -- 158,047 158,000
------------ ------------ ------------ ------------
20,000 000 20,016,000 25,185,668 25,287,000
------------ ------------ ------------ ------------
FHLMC mortgage-backed securities 114,072,043 113,739,000 128,677,832 129,041,000
FNMA mortgage-backed securities . 39,221,230 39,549,000 36,080,794 36,721,000
------------ ------------ ------------ ------------
153,293,273 153,288,000 164,758,626 165,762,000
------------ ------------ ------------ ------------
$206,864,993 $206,797,000 $189,944,294 $191,049,000
============ ============ ============ ============
</TABLE>
During 1996, gross realized gains and gross realized losses on available
for sale securities were $19,000 and $0, respectively. As of September 30,
1996, the Savings Bank had pledged mortgage-backed securities with a market
value of $609,000 and a carrying value of $608,000 to collateralized the
public funds on deposit. The Savings Bank had also pledged mortgage-backed
securities with market value of $2,386,000 and a carrying value of
$2,368,000 to collateralize treasury, tax and loan accounts.
F-14
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Loans
Loans are summarized below:
1996 1995
---- ----
Mortgage loans:
Construction 1-4 family .................. $ 43,994,406 $ 40,633,556
Permanent 1-4 family ..................... 584,591,705 487,480,266
Multi-family ............................. 17,803,854 14,916,137
Nonresidential ........................... 41,970,343 31,980,096
Land ..................................... 29,033,519 20,459,738
------------ ------------
Total mortgage loans ................... 717,393,827 595,469,793
------------ ------------
Other loans:
Commercial nonmortgage ................... 8,199,057 8,468,185
Home improvement ......................... 20,678,953 19,198,687
Manufactured housing ..................... 15,783,991 15,044,712
Other consumer ........................... 44,264,945 31,049,028
------------ ------------
Total other loans ...................... 88,926,946 73,760,612
------------ ------------
Total loans receivable ................. 806,320,773 669,230,405
------------ ------------
Less:
Loan in process .......................... 26,787,344 24,321,300
Deferred loan fees and discounts ......... 3,498,189 3,519,613
Allowance for loan losses ................ 11,016,433 10,082,590
------------ ------------
41,301,966 37,923,503
------------ ------------
Total loans receivable, net ............ $765,018,807 $631,306,902
============ ============
Weighted average yield ..................... 8.54% 8.40%
==== ====
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Beginning balance ..................... $ 10,082,590 $ 9,434,360 $ 7,305,038
Provision for (recovery of) loan losses (76,386) 459,845 1,552,767
Allowance for loan losses acquired .... 885,159 -- --
Charge-offs ........................... (364,554) (384,191) (134,861)
Recoveries ............................ 489,624 572,576 711,416
------------ ------------ ------------
Ending balance ........................ $ 11,016,433 $ 10,082,590 $ 9,434,360
============ ============ ============
</TABLE>
At September 30, 1996, 1995 and 1994, loans with unpaid principal balances
of approximately $2,172,000, $3,517,000 and $2,861,000, respectively, were
ninety days or more contractually delinquent or on nonaccrual status.
Interest income relating to nonaccrual loans not recognized for the years
ended September 30, 1996, 1995 and 1994 totaled approximately $140,000,
$231,000 and $133,000, respectively.
F-15
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
All loans on non-accrual status, other than those evaluated collectively
for impairment, are considered to be impaired loans for purposes of
Statement 114. Impairment of loans having recorded investments of
approximately $646,000 at September 30, 1996 have been recognized in
conformity with Statement 114, as amended by Statement 118. The average
recorded investment in impaired loans during the year ended September 30,
1996 was approximately $706,000. The total allowance for loan losses
related to these loans was approximately $67,000 on September 30, 1996.
Interest income on impaired loans of approximately $15,000 was recognized
for cash payments received in the year ended September 30, 1996.
As of September 30, 1996 and 1995, $2,081,000 and $2,295,000, respectively,
of loans were in the process of foreclosure.
As of September 30, 1996 and 1995, mortgage loans which had been sold on a
recourse basis had outstanding principal balances of $4,424,000 and
$5,788,000, respectively.
Accrued interest receivable is summarized below:
1996 1995
---- ----
Loans .................................... $4,624,713 $3,905,325
Investment securities .................... 676,538 698,126
Mortgage-backed securities ............... 1,189,994 1,286,509
FHLB stock dividends ..................... 130,442 110,808
---------- ----------
$6,621,687 $6,000,768
========== ==========
The Savings Bank is a party to financial instruments in the normal course
of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of
credit. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the statements
of condition. The contract or notional amounts of these instruments reflect
the extent of involvement the Savings Bank has in particular classes of
financial instruments. The Savings Bank uses the same credit policies in
making commitments as it does for on-balance sheet instruments. The Savings
Bank controls the credit risk of these transactions through credit
approvals, limits, and monitoring procedures. Such commitments are
agreements to lend to a customer as long as there is no violation of
conditions established in the contract. Commitments generally have fixed
expiration dates or other termination clauses. Standby letters of credit
are conditional commitments issued by the Savings 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. The Savings Bank holds collateral
supporting those commitments for which collateral is deemed necessary.
Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements.
Outstanding mortgage loan commitments (excluding loans in process), which
generally expire in 60 days, amounted to approximately $7,871,000
($4,296,000 fixed rate, interest rates from 6.65% to 10.5%) as of September
30, 1996. In addition, as of September 30, 1996, the Savings Bank had
determined that $13,802,000 may be lent to certain home builders on a
variable rate and home-by-home basis, subject to underwriting and product
approval by the Savings Bank.
F-16
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Loan Servicing
Mortgage loans, including those underlying pass through securities,
serviced for others are not included in the accompanying consolidated
financial statements. The unpaid principal balances of these loans are
summarized as follows:
1996 1995 1994
---- ---- ----
FHLMC ....................... $30,168,717 $39,252,344 $47,945,608
FNMA ........................ 33,521,382 33,960,731 34,278,377
Other investors ............. 3,547,402 3,872,541 1,050,230
----------- ----------- -----------
$67,237,501 $77,085,616 $83,274,215
=========== =========== ===========
At September 30, 1996, and 1995, collection of principal and interest to be
remitted to FHLMC and FNMA and advance payment for taxes and insurance
relating to FNMA serviced loans are reflected in the consolidated
statements of financial condition as advance deposits by borrowers for
taxes and insurance.
(5) Real Estate Owned
Real estate owned includes the following:
1996 1995
---- ----
Real estate acquired in satisfaction of loans .... $ 4,829,983 $ 4,643,700
Allowsance for losses ............................ (1,712,001) (1,857,496)
----------- -----------
$ 3,117,982 $ 2,786,204
=========== ===========
Activity in the allowance for losses on real estate owned is as follows:
1996 1995 1994
---- ---- ----
Beginning balance .............. $ 1,857,496 $ 2,008,308 $ 4,791,590
Provision for (recovery of)
losses(a) ..................... 116,510 35,252 (579,170)
Allowance for losses on REO
acquired ...................... 21,400 -- --
Charge-offs .................... (283,405) (186,065) (2,204,112)
----------- ----------- -----------
Ending balance ................. $ 1,712,001 $ 1,857,496 $ 2,008,308
=========== =========== ===========
(a) Recovery of losses in the year ended September 30, 1994 represents a
reversal of the allowance for real estate losses provided in previous
years.
Provisions for losses on real estate owned are included in income (losses)
from real estate operations in the consolidated statements of earnings.
Legal and consulting fees relating to real estate operations are real
estate owned are included in professional fees in the consolidated
statements of earnings.
F-17
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Premises and Equipment
Premises and equipment are summarized as follows:
1996 1995
---- ----
Land ............................................. $ 3,817,741 $ 3,558,600
Buildings and leasehold improvements ............. 7,656,560 6,990,380
Funiture, fixtures and equipment ................. 7,518,037 7,161,364
----------- -----------
18,992,338 17,710,344
Less accumulated depreciation and amortization ... 8,449,020 7,874,834
----------- -----------
$10,543,318 $ 9,835,510
=========== ===========
Depreciation expense for the year ended September 30, 1996, 1995 and 1994
totaled $902,000, $729,000 and $746,000, respectively.
(7) Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ -------------------------------
Period-end Period-end
Amount stated rate Amount stated rate
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Commercial checking ............ $ 19,652,853 $ 11,228,340
Noninterest-bearning personal
checking accounts ............ 13,960,479 9,773,049
NOW ............................ 54,805,708 1.51% 44,813,668 1.57%
Passbook ....................... 77,304,473 1.78% 80,719,698 1.97%
Money market checking .......... 1,624,853 1.32% 1,838,098 1.56%
Money market investment ........ 40,936,135 2.63% 35,025,140 2.41%
Official checks ................ 6,661,276 5,981,754
------------ ------------
214,945,777 189,379,747
------------ -------------
Certificate accounts:
2.01 - 3.00% ................. 307,361 199,113
3.01 - 4.00% ................. 1,072 4,360,211
4.01 - 5.00% ................. 155,120,767 100,834,150
5.01 - 6.00% ................. 378,998,992 234,126,279
6.01 - 7.00% ................. 101,780,068 182,298,599
7.01 - 8.00% ................. 602,953 9,173,612
8.01 - 9.00% ................. 3,347 61,466
9.01 - 10.00% ................ -- 547,919
Premiums on deposits purchased 92,823 --
------------ ------------
636,907,383 531,601,349
------------ ------------
$851,853,160 $720,981,096
============ =============
Weighted average interest rate . 4.41% 4.57%
============ =============
</TABLE>
F-18
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Maturities of outstanding certificates of deposit are summarized as
follows:
1996 1995
---- ----
Less than one year ................... $438,167,526 $332,818,671
One to three years ................... 159,085,437 150,756,316
Over three years ..................... 39,654,420 48,026,362
------------ ------------
$636,907,383 $531,601,349
============ ============
The aggregate amount of certificates of deposit in excess of $100,000 was
approximately $39,359,000 and $21,958,000 at September 30, 1996 and 1995,
respectively.
Interest expense on deposits is summarized as follows:
1996 1995 1994
---- ---- ----
Passbook accounts ................. $ 1,505,971 $ 1,717,650 $ 1,934,132
NOW, money market checking,
and money market investment
accounts ........................ 1,723,778 1,782,550 1,923,313
Certificate accounts .............. 31,209,967 26,126,922 19,566,663
----------- ----------- -----------
$34,439,716 $29,627,122 $23,424,108
=========== =========== ===========
Early withdrawal penalties for the years ended September 30, 1996, 1995 and
1994 aggregqated $173,560, $229,633 and $123,677, respectively, and are
netted against interest on certificate accounts.
Accrued interest payable of $145,831 and $356,269 at September 30, 1996 and
1995, respectively, is included in other liabilities.
(8) Short-Term Borrowings
At September 30, 1996, short-term borrowings were comprised of $25 million
in advances from the Federal Home Loan Bank (FHLB) due at various dates
through February, 1997, with fixed terms and fixed interest rates of 5.58%
to 5.94%.
Information concerning short-term borrowings is summarized as follows:
1996 1995
---- ----
Average balance during the year .............. $ 5,997,268 $ 6,767,123
Average interest rate during the year ........ 5.87% 6.18%
Maximum month-end balance during the year .... 25,000,000 20,000,000
F-19
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Long-Term Debt
Long-term debt is summarized as follows:
1996 1995
---- ----
Advances from the Federal Home Loan Bank
(FHLB), due at various dates through December,
2005, with fixed terms and fixed interest
rates of 5.86% to 6.5% ............................. $70,000,000 $65,000,000
ESOP loan, maturing through December, 1998
with a variable interest rate of prime plus .25%,
8.5% at September 30, 1996 ....................... 674,100 973,700
----------- -----------
$70,674,100 $65,973,700
=========== ===========
Pursuant to a collateral agreement with the FHLB, advances are secured by
all stock in the FHLB and a blanket floating lien that requires the Savings
Bank to maintain qualifying first mortgage loans as pledged collateral in
an amount equal to, when discounted at 75% of the unpaid principal
balances, the advances.
At September, 1996 and 1995, the FHLB advances and the ESOP loan have
fiscal year maturity dates as follows:
1996 1995
------------------------ ------------------------
Weighted Weighted
Year ending September 30, Amount average rate Amount average rate
- ------------------------- ------ ------------ ------ ------------
1996 -- -- $ 299,600 9.00%
1997 299,600 8.50% 10,299,600 6.03%
1998 299,600 8.50% 299,600 9.00%
1999 74,900 8.50% 74,900 9.00%
2000 10,000,000 6.17% 10,000,000 6.17%
2001 and after 60,000,000 6.04% 45,000,0000 6.12%
----------- ---- ----------- ----
$70,674,100 6.14% $65,973,700 6.14%
=========== ==== =========== ====
In October 1993, the Savings Bank refinanced $15 million of FHLB advances
to take advantage of the low interest rate environment at that time. A
prepayment penalty of approximately $1,342,000 (net of icome tax benefit of
approximately $810,000) was charged to earnigns as an extraordinary loss in
1994.
Other interest expense is summarized as follows:
1996 1995 1994
---- ---- ----
Advances from the FHLB ......... $4,593,100 $3,545,994 $2,773,350
ESOP loan ...................... 75,789 104,920 74,550
Other .......................... 5,392 2,595 3,688
---------- ---------- ----------
$4,674,281 $3,653,509 $2,851,588
========== ========== ==========
F-20
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Income Taxes
Income tax expense (benefit) on income from continuing operations is
summarized as follows:
1996 1995 1994
---- ---- ----
Current:
Federal ............ $ 5,832,000 $ 3,766,000 $ 3,892,000
State .............. 965,000 633,000 632,000
----------- ----------- -----------
6,797,000 4,399,000 4,524,000
----------- ----------- -----------
Deferred:
Federal ............ (1,170,000) 1,334,000 579,000
State .............. (195,000) 225,000 151,000
----------- ----------- -----------
(1,365,000) 1,559,000 730,000
----------- ----------- -----------
$ 5,432,000 $ 5,958,000 $ 5,254,000
=========== =========== ===========
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at September 30, 1996 and 1995 are as
follows:
1996 1995 1994
---- ---- ----
Deferred tax assets:
SAIF special assessment ......... $ 1,929,000 -- --
Allowance for bad debts ......... 1,440,000 1,652,000 1,695,000
Valuation of real estate owned .. 704,000 656,000 2,119,000
Deferred compensation ........... 681,000 632,000 620,000
Other ........................... 100,000 37,000 22,000
----------- ----------- -----------
4,854,000 2,977,000 4,456,000
Less valuation allowance ........ (250,000) (250,000) (250,000)
----------- ----------- -----------
Total deferred tax assets ..... 4,604,000 2,727,000 4,206,000
----------- ----------- -----------
Deferred tax liability:
Net deferred loan fees and costs 3,333,000 3,320,000 3,162,000
FHLB stock dividend ............. 840,000 820,000 820,000
Premises and equipment
depreciation difference ........ 355,000 316,000 336,000
Purchase accounting adjustments . 350,000 -- --
Cash to accrual adjustment ...... 132,000 -- --
Installment sales ............... 128,000 275,000 319,000
Other ........................... 16,000 51,000 64,000
----------- ----------- -----------
Total deferred tax liability .. 5,154,000 4,782,000 4,701,000
----------- ----------- -----------
Net deferred tax liability .... $ 550,000 $ 2,055,000 $ 495,000
=========== =========== ===========
F-21
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income tax expense on income from continuing operations is different than
the amount computed by applying the United States Federal income tax rate
of 34% to income from continuing operations before income taxes because of
the following:
1996 1995 1994
---- ---- ----
Statutory Federal income tax rate ...................... 34.0% 34.0% 34%
State income tax (net of Federal income tax benefit) ... 3.6 3.6 3
Other .................................................. 1.0 -- (1)
---- ---- ---
Effective tax expense rate ............................. 38.6% 37.6% 36%
==== ==== ===
Deferred income taxes payable of approximately $550,000 and $2,055,000 at
September 30, 1996 and 1995, respectively, are included in other
liabilities. Included in deferred income taxes payable at September 30,
1996 is a net deferred tax asset of approximately $110,000 acquired from
Treasure Coast Bank, FSB (see note 17).
Retained earnings at September 30, 1996 includes approximately $14,500,000
(base year tax bad debt reserve) for which no deferred Federal and state
income tax liability has been recognized. These amounts represent an
allocation of income to bad debt deductions for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt
losses or adjustments arising from carryback of net operating losses would
create income for tax purposes only, which would be subject to the then
current corporate income tax rate. The unrecorded deferred income tax
liability on the above amounts was approximately $5,500,000 at September
30, 1996.
(11) Regulatory Matters
The Savings Bank is subject to various regulatory capital requirements
administered by the 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 Savings Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Savings Bank must meet specific capital guidelines
that involve quantitative measures of the Savings Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Savings Bank's capital amounts and
classification 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 Savings Bank to maintain minimum amounts and ratios (set forth
in the cable below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to adjusted tangible assets (as defined). Management believes,
as of September 30, 1996, that the Savings Bank meets all capital adequacy
requirements to which it is subject.
As of September 30, 1996, the most recent notification from the Office of
Thrift Supervision categorized the Savings Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized the Savings Bank must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that management
believes have changed the institution's category.
F-22
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Savings Bank's actual capital amounts and ratios are also presented in
the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------------------ ------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1996
Total Capital
(to risk weighted assets) ............ $87,890 16.13% $43,593 >8.0% $54,492 >10.0%
- -
Tier I Capital
(to risk weighted assets) ............ 81,030 14.87% 21,797 >4.0% 32,695 >6.0%
- -
Tier I Capital
(to adjusted tangible assets) ........ 81,030 7.69% 31,609 >3.0% 52,682 >5.0%
- -
Tangible Capital
(to adjusted tangible assets) ........ $81,030 7.69% 15,805 >1.50% n/a n/a
-
As of September 30, 1995
Total Capital
(to risk weighted assets) ........... 83,273 18.17% 36,654 >8.0% 45,818 >10.0%
- -
Tier I Capital
(to risk weighted assets) ........... 77,500 16.91% 18,327 >4.0% 27,491 >6.0%
- -
Tier I Capital
(to adjusted tangible assets) ....... 77,500 8.74% 26,597 >3.0% 44,328 >5.0%
- -
Tangible Capital
(to adjusted tangible assets) ....... 77,500 8.74% 26,597 >1.50% n/a n/a
-
</TABLE>
At September 30, 1996, $4,777,864 of retained earnings is restricted
relating to the dividends on the Savings Bank's shares owned by the Holding
Company which have been waived. The dividend waived was approved by the OTS
and is available only to the Holding Company and will be accrued only when
the payment of such amount is probable.
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Bank would
receive his pro rata share of any assets of the Mutual Holding Company
remaining after payment of claims of all creditors. Each depositor's pro
rata share of such remaining assets would be in the same proportion as the
value of his deposit account was to the total value of all deposit accounts
in the Bank at the time of liquidation.
The Certificate of Incorporation of the Company provides that in no event
shall any record owner of any outstanding Common Stock which is benefically
owned, directly or indirectly, by a person who beneficially owns in excess
of 10% of the then outstanding shares of Common Stock (the "Limit") be
entitled or permitted to any vote in respect of the shares held in excess
of the Limit.
The Company has authorized but not issued preferred stock, subject to
regulatory restrictions and determination of rights and preferences to be
determined by the Board of Directors.
On September 30, 1996, President Clinton signed The Deposit Insurance Funds
Act of 1996, which is intended to recapitalize the Savings Association
Insurance Fund ("SAIF") and substantially bridge the assessment rate
disparity existing between ("SAIF") and Bank Insurance Fund insured
institutions. The new law subjects institutions with SAIF-assessable
deposits, including the Savings Bank, to a one-time assessment of 65.7
basis points of assessable deposits as of March 31, 1995, and provides for,
among other things, a sharing of FICO bond obligation fundings by banks and
thrifts and the eventual merger of the Bank Insurance Fund with the
("SAIF") The new law remains to be implemented-by the Federal Deposit
Insurance Corporation ("FDIC"), and the FDIC's interpretation
F-23
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
of the new law may affect actual amounts paid by depository institutions,
including the Savings Bank. At this time, the Savings Bank's one-time
assessment resulted in a pre-tax charge of approximately $4,552,000, which
was payable on November 27,1996 and, under provisions of the new law, may
be treated for tax purposes as a fully deductible "ordinary and necessary
business expense" when paid. Results of operations for the year ended
September 30, 1996 include a charge for this one-time assessment.
Additionally, the Savings Bank recorded a pre-tax charge of approximately
$450,000 related to the application of this assessment to deposits held by
Treasure Coast (see note 17) at March 31, 1995. Such charge was reflected
as a cost of the acquisition of Treasure Coast.
(12) Commitments and Contingencies
As of September 30,1996, the Savings Bank had irrevocable letters of credit
aggregating approximately $407,000.
The Savings Bank and certain other entities are defendants in a class
action lawsuit which was filed in May 1991. The plaintiffs in the
litigation are purchasers of parcels of developed and undeveloped land from
General Development Corporation ("GDC") who allege that GDC, through
fraudulent means, induced them to buy land at inflated values. The Savings
Bank is a defendant in this matter along with a number of other financial
institutions, purchasers of loans in the secondary market, broker dealers,
an insurance company and numerous other individuals and companies. The
involvement of the Savings Bank arises from its purchase from GDC of land
sales contracts originated by GDC. The Savings Bank, along with the other
defendants, filed a motion to dismiss the case which was granted. The
plaintiffs filed an appeal with the Third Circuit Court of Appeals which
remanded the case to the District Court for reconsideration. The District
Court entered its order dismissing the case again.
The plaintiffs filed a motion requesting the District Court to amend the
dismissal order to permit the plaintiffs to file another amended complaint.
The District Court denied the plaintiff's motion. The plaintiffs appealed
that order to the Third Circuit and both sides were directed to submit
supplementary briefs. Management believes that the position of the
plaintiffs is without merit.
The Savings Bank and subsidiaries are defendants in certain other claims
and legal actions arising in the ordinary course of business. In the
opinion of management, after consultation with legal counsel, the ultimate
disposition of these matters is not expected to have a material adverse
effect on the consolidated financial statements of the Savings Bank and
subsidiaries.
(13) Related Party Transactions
Directors and officers of the Savings Bank had transactions with the
Savings Bank in the ordinary course of business. Loan transactions were
made on substantially the same terms as those prevailing at the time for
comparable loans to other persons, did not involve more than normal risk of
collectibility, and are performing as agreed.
The summary of changes in the related party loans follows:
1996 1995 1994
---- ---- ----
Outstanding loans - beginning
of year ......................... $ 1,477,780 $ 1,385,500 $ 1,748,906
New loans ......................... 841,642 176,370 955,752
Repayments ........................ (533,517) (84,090) (1,319,158)
----------- ----------- -----------
Outstanding balance - end
of year ......................... $ 1,785,905 $ 1,477,780 $ 1,385,500
=========== =========== ===========
The Savings Bank paid $125,045, $158,628 and $129,253 of legal fees in the
years ended September 30, 1996, 1995 and 1994, respectively, to a law firm
in which a director of the Savings Bank is a partner.
F-24
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Other Expense
Other expense consists of the following:
1996 1995 1994
---- ---- ----
Data processing ............. $1,092,202 $ 994,351 $ 880,112
Advertising ................. 735,168 621,552 506,381
Postage ..................... 293,632 252,241 262,847
Insurance ................... 213,901 216,186 208,856
Telephone ................... 265,139 252,078 209,238
OTS assessment .............. 189,901 170,722 161,747
Other ....................... 1,192,324 1,096,562 1,041,837
---------- ---------- ----------
$3,982,267 $3,603,692 $3,271,018
========== ========== ==========
(15) Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Amounts Due From Depository Institutions. lnterest-Bearing Assets
in Other Banks and Federal Funds Sold - The carrying amount of these assets
is a reasonable estimate of their fair value.
Investment Securities and Mortgage-Backed Securities Held to Maturity -
Fair value equals quoted market price, if available. If a quoted market
price is not available, fair value is estimated using quoted market prices
for similar securities.
Investment Securities Available for Sale - Fair value equals carrying
value.
Loans - The fair value of loans is estimated by discounting future cash
flows using the current rate at which similar loans would be made to
borrowers with similar credit ratings for the same remaining maturities.
Deposits - The fair value of demand deposits, interest-bearing checking
accounts, savings and money market deposits is the amount payable on demand
at the reporting date. The fair value of certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining maturities.
Short and Long Term Advances from the FHLB - Rates currently available to
the Savings Bank for FHLB advances with similar terms and remaining
maturities are used to estimate the fair value of FHLB advances.
ESOP Loan - The carrying amount of the ESOP loan is a reasonable estimate
of fair market value.
Commitments to Extend Credit and Standby Letters of Credit - The fair value
of commitments is insignificant.
F-25
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The estimated fair values of the Savings Bank's financial instruments at
September 30, 1996 and 1995 are as follows (in thousands):
1996 1995
---- ----
Carrying Fair Carrying Fair
amount value amount value
------ ----- ------ -----
Assets:
Cash and amounts due from
depository institutions .... $ 16,137 $ 16,137 $ 9,844 $ 9,844
Interest-bearing deposits in
other banks ................ 16,350 16,350 15,986 615,986
Federal funds sold .......... 16,075 16,075 12,825 12,825
Investment securities held
to maturity ................ 20,000 20,016 25,186 25,287
Investment securities
available for sale ......... 33,493 33,493 -- --
Mortgage-backed securities .. 153,293 153,288 164,759 165,762
Loans held for sale ......... 4,870 4,870 1,009 1,016
Loans ....................... 776,035 776,346 641,388 653,148
Less allowance for loan
losses ..................... (11,016) -- (10,082) --
--------- --------- --------- ---------
Loans, net ................ 765,019 776,346 631,306 653,148
--------- --------- --------- ---------
Liabilities:
Commercial checking,
noninterest-bearing
personal, NOW, passbook,
money market accounts
end official checks ........ 214,946 214,946 189,380 189,380
Certificate accounts ........ 636,907 638,592 531,601 536,157
FHLB advances ............... 95,000 91,882 65,000 63,104
ESOP loan ................... 674 674 974 974
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Savings Bank's entire holdings of a
particular financial instrument. Because no market exists for a portion of
the Savings Bank's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
(16) Benefit Plans
The Savings Bank has a noncontributory-defined benefit pension plan
covering all employees who have attained one year of service and 21 years
of age. Pension expense was $7,400, $8,500 and $8,900, respectively, for
the years ended September 30, 1996, 1995 and 1994. The plan is a
multi-employer plan. Separate actuarial valuations are not made for each
employer nor are plan assets so segregated. The assumed average rate of
return used in determining the actuarial present value of accumulated plan
benefits was 7.5%. The date of the most recent actuarial evaluation is June
30, 1995.
F-26
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Savings Bank has a deferred compensation plan for Directors (the
"Directors' Deferred Compensation Plan") who may elect to defer all or part
of their annual director fees to fund the Directors' Deferred Compensation
Plan. The plan provides that deferred fees are to earn interest at an
annual rate equal to the 30-month certificate of deposit rate, adjusted and
compounded quarterly. At September 30, 1996 and 1995, deferred directors
fees included in other liabilities aggregated $309,790 and $533,138,
respectively.
The Savings Bank also has a retirement plan for non employee (the "Plan").
The annual basic benefit under the Plan is based on a percentage of the
average three years director's fees preceding the termination of service
multiplied by the number of years of service, not to exceed 50% of the
average annual director's fees. During the year ended September 30, 1993, a
$547,000 charge to earnings was made for the above defined retirement
benefits. During the years ended September 30, 1996 and 1995, the charge to
earnings relating to the Plan was insignificant. Directors may elect to
have their deferred compensation balance invested in shares of the Savings
Bank's common stock. When the Savings Bank purchases common stock in the
open market to fund such investment, these purchases are reflected as a
reduction in stockholders' equity. Such purchases were approximately
$238,000 and $435,000 in 1996 and 1994, respectively. No shares were
purchased in 1995.
As part of the reorganization to the stock form of ownership, the Savings
Bank's Employee Stock Ownership Plan ("ESOP") purchased 149,800 shares of
the Savings Bank's common stock at $10 per share, or $1,498,000, which was
funded by a loan from an unaffiliated lender. The Savings Bank makes
scheduled cash contributions to the ESOP sufficient to service the amount
borrowed. For the years ended September 30, 1996 and 1995, total
contributions to the ESOP, which were used to fund principal and interest
payments on the ESOP debt, totaled approximately $375,000 and $405,000,
respectively. At September 30, 1996, there were 65,194 allocated shares,
22,470 shares committed to be released, and 67,410 suspense shares held by
the ESOP. Total compensation expense charged to earnings in the years ended
September 30, 1996 and 1995, totaled $766,499 and $661,026, respectively.
Additionally, the Savings Bank's Recognition and Retention Plans ("RRP")
purchased 64,200 shares at $10 per share totaling $642,000. The funds used
to acquire the RRP shares were contributed by the Savings Bank. The
purchase price of $642,000 will be amortized as compensation expense
ratably over the participants' vestingI period of three years.
The Savings Bank has adopted stock option plans for the benefit of
directors, officers, and other key employees of the Savings Bank. The
number of shares of common stock reserved for issuance under the stock
option plans is equal to 214,000 shares (170,106 shares outstanding at
September 30, 1996), or 9.6% of the total number of common shares issued in
the minority offering pursuant to the Savings Bank's reorganization to the
stock form of ownership. The stock option exercise price was the fair value
at the date of the grant. The stock options are exercisable in equal
installments at prices of $10.00 to $27.00 per share over varying periods
not to exceed 10 years, depending upon the individual's position in the
Savings Bank. At September 30, 1996, 40,254 shares of the stock options had
been exercised, and 34,913 shares of the stock options were exercisable.
The weighted average exercise price of stock options outstanding at
September 30, 1996 was $10.73, and the weighted average remaining exercise
period on such options was approximately six years.
The Harbor Federal Savings Bank 401(k) Profit Sharing Plan and Trust (the
"401(k) Plan") covers all eligible employees of the Savings Bank age 21 and
over. An eligible employee may elect to contribute to the 401(k) Plan in
the form of deferrals of between 1% and 15% of the total compensation that
would otherwise be payable to the employee. Employee contributions are
fully vested and nonforfeitable at all times. The 401(k) Plan permits
contributions by the Savings Bank. The Savings Bank intends initially to
make matching contributions of 25% of the first 6% to of each participant's
contributions. For the years ended September 30, 1996 and 1995, the Savings
Bank's matching contribution totaled approximately $75,000 and $72,000,
respectively.
F-27
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Acquisition of Treasure Coast
On June 1, 1996, the Savings Bank acquired all of the outstanding common
stock of Treasure Coast Bank, FSB ("Treasure Coast"), a Florida based
savings bank, for approximately $6.8 million in cash. The acquisition was
accounted for using the purchase method. Treasure Coast had assets of
approximately $75 million. The Treasure Coast acquisition added 1 branch to
the Savings Bank's branch network. The results of operations of Treasure
Coast from June 1, 1996 to September 30, 1996 are included in the
consolidated financial statements of the Savings Bank.
The fair value of assets acquired and liabilities assumed in conjunction
with the acquisition of Treasure Coast was as follows:
(In Thousands)
--------------
Cash ..................................................... $ 2,315
Investments .............................................. 7,039
Mortgage-backed securities ............................... 287
Loans receivable, net .................................... 62,575
Accrued interest receivable .............................. 437
Real estate owned ........................................ 86
Property and equipment ................................... 1,778
Goodwill ................................................. 3,365
Other assets ............................................. 542
-------
Fair value of assets acquired ............................ 78,424
-------
Deposits ................................................. 70,239
Other liabilities ........................................ 1,712
-------
Fair value of liabilities assumed ........................ 71,951
-------
Acquisition costs ........................................ 293
-------
Purchase of Treasure Coast ............................... 6,766
Cash acquired ............................................ 2,315
-------
Purchase of Treasure Coast, net of cash acquired ......... $ 4,451
=======
The following table indicates the estimated net decrease in earnings
resulting from the net amortization/accretion of the adjustments, including
goodwill, resulting from the use of the purchase method of accounting
during each of the years 1997 through 2001. The amounts (in thousands)
assume no sales or dispositions of the related assets or liabilities.
Net Decrease
of
Years Ending September 30, Net Earnings
-------------------------- ------------
1997 ............................. (232)
1998 ............................. (325)
1999 ............................. (325)
2000 ............................. (298)
2001 ............................. (245)
Thereafter ....................... (2,364)
Adjustments to fair value are being amortized on a straight-line basis,
which approximates the level yield method, over the estimated average term
of four years for loans, and one year for deposits. Goodwill does not
qualify for amortization for tax purposes. Goodwill is being amortized on a
straight-line basis over its estimated useful life of 15 years. Goodwill as
of September 30, 1996 is $3.6 million.
F-28
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following is pro forma information for the years ended September 30,
1996 and 1995 as if the Treasure Coast purchase was consummated on October
1, 1995 and 1994, respectively (in thousands, except for per share data),
after giving effect to certain adjustments, including amortization of
goodwill and other purchase accounting adjustments, and interest income
assumed foregone on the funding of the acquisition:
For the Year Ended For the Year Ended
September 30, 1996 September 30, 1995
--------------------- ---------------------
Historical Pro forma Historical Pro forma
---------- --------- ---------- ---------
(Unaudited) (Unaudited)
Interest income ............... $ 74,357 $ 77,840 $ 64,885 $ 69,855
Interest expense .............. 39,114 41,214 33,281 36,411
Provision for (recovery of)
loan losses .................. (76) 510 460 536
Net interest income after
provision for loan losses .... 35,319 36,116 631,144 32,908
Net income .................... 8,640 7,971 9,895 9,748
Net income per share .......... $ 1.75 $ 1.61 $ 2.03 $ 2.00
These pro forma results may not be representative of the actual results
that would have occurred or may occur in the future.
(18) Quarterly Results of Operations (Unaudited)
The quarterly results of operations for the years ended September 30,1996
and 1995 are as follows (in thousands):
For the Three Months Ended Fiscal 1996
----------------------------------------------
September 30 June 30 March 31 December 31
------------ ------- -------- -----------
Total interest income ............ $ 19,885 $ 18,618 $ 18,221 $ 17,632
Total interest expense ........... 10,461 9,754 9,471 9,428
-------- -------- -------- --------
Net interest income ............ 9,424 8,864 8,750 8,204
Provision for (recovery
of) loan losses ................. 72 (19) 28 (158)
-------- -------- -------- --------
Net interest income after
provision for loan losses ....... 9,352 8,883 8,722 8,362
Total other income ............... 744 562 827 752
Total other expenses ............. 9,481 4,857 5,057 4,737
-------- -------- -------- --------
Income before extraordinary
items and before
income taxes .................... $ 615 $ 4,588 $ 4,492 $ 4,377
======== ======== ======== ========
Net income ....................... $ 390 $ 2,807 $ 2,736 $ 2,707
======== ======== ======== ========
Net income per share(1) .......... $ 0.08 $ 0.57 $ 0.55 $ 0.55
======== ======== ======== ========
F-29
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Three Months Ended Fiscal 1995
------------------------------------------------
September 30 June 30 March 31 December 31
------------ ------- -------- -----------
Total interest income ......... $ 17,348 $ 16,709 $ 15,635 $ 15,191
Total interest expense ........ 9,325 8,913 7,806 7,236
-------- -------- -------- --------
Net interest income ......... 8,023 7,796 7,829 7,955
Provision for (recovery
of) loan losses .............. 333 (227) 203 150
-------- -------- -------- --------
Net interest income
after provision for
loan losses ................. 7,690 8,023 7,626 7,805
Total other income ............ 846 678 691 692
Total other expenses .......... 4,519 4,546 4,447 4,687
-------- -------- -------- --------
Income before
extraordinary items end
before income taxes ......... $ 4,017 $ 4,155 $ 3,870 $ 3,810
======== ======== ======== ========
Net income .................... $ 2,592 $ 2,573 $ 2,399 $ 2,330
======== ======== ======== ========
Net income per share (2) ...... $ .53 $ .53 $ .49 $ .48
======== ======== ======== ========
- -----------
(1) Earnings per share was computed by dividing net income by the weighted
average number of shares of common stock outstanding during the quarters
ended September 30, June 30 and March 31, 1996 and December 31, 1995.
Adjustments have been made, where material, to give effect to the shares
that would be outstanding, assuming the exercise of dilutive stock options,
all of which are considered common stock equivalents.
(2) Earnings per share was computed by dividing net income by the weighted
average number of shares of common stock outstanding during the quarters
ended September 30, June 30, March 31, 1995 and December 31, 1994.
Adjustments have been made, where material, to give effect to the shares
that would be outstanding, assuming the exercise of dilutive stock options,
all of which are considered common stock equivalents.
F-30
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands)
June 30, 1997 September 30, 1996
------------- ------------------
Assets (Unaudited)
Cash and amounts due from depository institutions $ 19,472 $ 16,137
Interest-bearing deposits in other banks 15,039 16,350
Federal funds sold 10,250 16,075
Investment securities held to maturity 15,000 20,000
Investment securities available for sale 47,493 33,493
Mortgage-backed securities held to maturity 156,559 153,293
Loans held for sale 3,090 4,870
Loans, net 815,789 765,019
Accrued interest receivable 7,106 6,621
Real estate 2,896 3,118
Premises and equipment 12,248 10,543
Federal Home Loan Bank stock 7,595 7,158
Goodwill 3,100 3,587
Other assets 1,081 1,179
-------- --------
Total $1,116,718 $1,057,443
========= ==========
Liabilities and Stockholders' Equity
Deposits $ 904,904 $ 851,853
Short-term borrowings 30,000 25,000
Long-term debt 70,449 70,674
Advance payments by borrowers for taxes
and insurance 11,610 15,212
Income taxes payable 919 962
Other liabilities 5,130 8,910
----- -----
Total liabilities 1,023,012 972,611
--------- -------
Preferred stock ($.01 par value; authorized
1,000,000 shares; none issued and outstanding) --- ---
Common stock ($.01 par value; authorized
13,000,000 shares; issued and outstanding
4,970,240 shares at June 30, 1997 and
4,934,454 shares at September 30, 1996) 50 49
Paid-in capital 26,550 25,339
Retained earnings, substantially restricted 68,484 60,893
Common stock purchased by:
Employee stock ownership plan (ESOP) (449) (674)
Recognition and retention plans (RRP) --- ( 53)
Deferred compensation plan (886) (673)
Unrealized loss on investment securities
available for sale, net (43) (49)
--- ---
Total stockholders' equity 93,706 84,832
------ ------
Total $ 1,116,718 $ 1,057,443
=========== ===========
See accompanying notes to condensed consolidated financial statements.
F-31
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Dollars in thousands except per share data)
(Unaudited)
Three Months Nine Months
Ended Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
Interest income:
Loans $17,465 $15,060 $51,026 $43,484
Investment securities 1,055 677 2,835 1,731
Mortgage-backed securities 2,532 2,418 7,354 7,661
Other 502 463 1,590 1,595
--- --- ----- -----
Total interest income 21,554 18,618 62,805 54,471
------ ------ ------ ------
Interest expense:
Deposits 9,940 8,598 28,941 25,224
Other 1,507 1,156 4,441 3,429
----- ----- ----- -----
Total interest expense 11,447 9,754 33,382 28,653
------ ----- ------ ------
Net interest income 10,107 8,864 29,423 25,818
Provision for (recovery of) loan losses 205 (19) 456 (149)
--- --- --- ----
Net interest income after provision
for (recovery of) loan losses 9,902 8,883 28,967 25,967
----- ----- ------ ------
Other income:
Other fees and service charges 788 694 2,478 2,085
Income (losses) from real estate
operations 68 (199) 23 (181)
Gain (loss) on sale of mortgage loans 98 (63) 135 (67)
Other 87 130 259 304
-- --- --- ---
Total other income 1,041 562 2,895 2,141
----- --- ----- -----
Other expenses:
Compensation and employee benefits 2,968 2,710 8,864 7,947
Occupancy 715 798 2,100 2,025
Professional fees 223 3 485 397
SAIF deposit insurance premium 138 437 645 1,270
Other 1,274 909 3,612 3,012
----- --- ----- -----
Total other expense 5,318 4,857 15,706 14,651
----- ----- ------ ------
Income before income taxes 5,625 4,588 16,156 13,457
Income tax expense 2,209 1,781 6,339 5,207
----- ----- ----- -----
Net income $ 3,416 $ 2,807 $ 9,817 $ 8,250
======= ======= ======= =======
Net income per share primary
and fully diluted $ 0.68 $ 0.57 $ 1.96 $ 1.67
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
F-32
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common stock Unrealized
Common Common purchased by gain (loss)
stock stock deferred on securities
Common Paid-in Retained purchased purchased compensation available
stock capital earnings by ESOP by RRP's plan for sale, net Total
----- ------- -------- ------- -------- ---- ------------- -----
Nine Months Ended June 30, 1996
- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 $ 49 $ 24,455 $ 54,672 $ (974) $ (267) $ (435) $ - $ 77,500
Stock options exercised - 219 - - - - - 219
Net income - - 8,250 - - - - 8,250
Amortization of award
of ESOP and RRP's - 360 - 225 160 - - 745
Tax benefit of RRP's - 137 - - - - - 137
Dividends paid - - (1,769 ) - - - - (1,769)
Unrealized gain on securities
available for sale, net - - - - - - 126 126
Change in unrealized gain (loss)
on securities available for
sale, net - - - - - - ( 177) (177)
Tax benefit of non-qualified
stock options - 31 - - - - - 31
------ ------ ------ ------ ------ ------ ------ ------
Balance at June 30, 1996 $ 49 $ 25,202 $ 61,153 $ (749) $ (107) $ (435) $ (51) $ 85,062
====== ======== ======== ====== ====== ====== ======= ========
Nine Months Ended June 30, 1997
Balance at September 30, 1996 $ 49 $ 25,339 $ 60,893 $ (674) $ (53) $ (673) $ (49) $ 84,832
Stock options exercised 1 357 - - - - - 358
Net income - - 9,817 - - - - 9,817
Amortization of award
of ESOP and RRP's - 562 - 225 53 - - 840
Tax benefit of RRP's - 193 - - - - - 193
Dividends paid - - (2,226 ) - - - - (2,226)
Change in unrealized gain (loss)
on securities available for
sale, net - - - - - - 6 6
Tax benefit of non-qualified
stock options - 99 - - - - - 99
Stock purchased by deferred
compensation plan - - - - - (213) - (213)
------ ------ ------ ------ ------ ------ ------ ------
Balance at June 30, 1997 $ 50 $ 26,550 $ 68,484 $ (449) $ 0 $ (886) $ (43) $ 93,706
====== ======== ======== ====== ===== ====== ======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-33
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine months ended
June 30,
--------
1997 1996
---- ----
Cash provided by operating activities:
Net income $ 9,817 $ 8,250
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of stock benefit plans 840 745
Tax benefit of stock plans credited to capital 292 168
Originations of loans held for sale (3,939) (6,621)
Proceeds from sale of loans held for sale 5,719 3,463
Depreciation and amortization 820 833
Deferred income tax provision 1,787 408
Increase in deferred loan fees and costs 830 802
Amortization of deferred loan fees and costs (668) (735)
Amortization of goodwill 180 27
Net accretion of other purchase accounting
adjustments (32) (5)
Gain on sale of real estate owned (95) (7)
Accretion of discount on purchased loans (12) (17)
Increase in accrued interest receivable (484) (49)
Provision for (recovery of) loan losses 456 (149)
Provision for (recovery of) losses on real estate
owned (20) 67
(Increase) decrease in other assets 98 (32)
Decrease in income taxes payable (43) (15)
Decrease in other liabilities (5,573) (376)
------ ----
Net cash provided by operating activities 9,973 6,757
----- -----
Cash used by investing activities:
Net increase in loans (52,686) (58,455)
Purchase of mortgage-backed securities (31,843) (19,430)
Proceeds from principal repayments of
mortgage-backed securities 28,438 31,108
Proceeds from maturities of investment securities
held to maturity 20,000 15,876
Purchase of investment securities held to maturity (15,000) (17,939)
Proceeds from maturities of investment securities
available for sale1 15,528 --
Proceeds from sale of investment securities available
for sale --- 906
Purchase of investment securities available for
sale (29,500) --
Proceeds from sale of real estate owned 1,587 751
Purchase of premises and equipment (2,404) (1,271)
Proceeds from sale of premises and equipment 1 8
FHLB stock purchase (437) (619)
Purchase of Treasure Coast Bank, net of cash acquired --- (4,451)
Other 306 --
--- ---
Net cash used by investing activities (66,010) (53,516)
------- -------
(Continued)
F-34
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
(Continued)
Nine months ended
June 30,
--------
1997 1996
---- ----
Cash provided by financing activities:
Net increase in deposits 53,143 44,010
Net increase (decrease) in short-term borrowings 5,000 (5,000)
Repayments of long-term borrowings (225) (225)
Net proceeds from long-term borrowings --- 15,000
Decrease in advance payments by borrowers for
taxes and insurance (3,601) (5,381)
Stock dividend paid (2,226) (1,769)
Common stock options exercised 358 219
Purchase of common stock by deferred compensation
plan (213) --
---- ---
Net cash provided by financing activities 52,236 46,854
------ ------
Net increase (decrease) in cash and cash
equivalents (3,801) 95
Cash and cash equivalents - beginning of period 48,562 38,655
------ ------
Cash and cash equivalents - end of period $ 44,761 $ 38,750
======== ========
Supplemental disclosures:
Cash paid for:
Interest $ 33,388 $28,842
======== =======
Taxes 4,303 4,647
===== =====
Noncash investing and financing activities:
Additions to real estate acquired in settlement
of loans through foreclosure 2,200 1,853
===== =====
Sale of real estate owned financed by the Bank 950 834
=== ===
Transfer of investment securities from held to
maturity to available for sale --- 26,011
=== ======
Change in unrealized gain (loss) on securities
available for sale 10 (82)
== ===
Change in deferred taxes related to securities
available for sale (4) 31
== ==
See accompanying notes to condensed consolidated financial statements.
F-35
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Unaudited
1). BASIS OF PRESENTATION
The unaudited condensed consolidated interim financial statements for Harbor
Florida Bancorp, Inc. ("Bancorp") and its subsidiary Harbor Federal Savings Bank
("Bank") (collectively "Company") reflect all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management, are necessary to
present fairly Bancorp's consolidated financial condition and the consolidated
results of operations and cash flows for interim periods. The results for
interim periods are not necessarily indicative of trends or results to be
expected for the full year. These condensed consolidated interim financial
statements and notes should be read in conjunction with the Bank's Annual Report
on Form 10-K for the year ended September 30, 1996.
On June 25, 1997, the Bank completed its reorganization into the two-tier form
of mutual holding company ownership. Pursuant to the reorganization, the Bank is
now the wholly owned subsidiary of Bancorp, a Delaware corporation. Bancorp is
the majority owned subsidiary of Harbor Financial, M.H.C. Pursuant to the
reorganization each share of the Bank's outstanding common stock was
automatically converted into one share of Bancorp common stock. The consolidated
financial statements for prior periods have been restated to reflect the change
in the par value of Bancorp common stock from $1.00 to $.01 per share. Certain
conditions were imposed upon Bancorp by the OTS as part of the reorganization,
including requirements to obtain a federal charter, provisions related to
minority stock issuances and other regulatory requirements.
The reorganization was accounted for in a manner similar to a pooling of
interest and did not result in any significant accounting adjustments.
Bancorp conducts no business other than holding the common stock of the Bank.
Consequently, its net income is derived from the Bank.
The Company does not purchase, sell or utilize off-balance sheet derivative
financial instruments or derivative commodity instruments.
In October, 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement 123"). The adoption date of Statement 123 varies
depending upon the various provisions of the statement. Statement 123
established financial accounting and reporting standards for stock-based
employee compensation plans. The statement defines a "fair value based method"
of accounting for employee stock option or similar equity instruments and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, Statement 123 also allows an entity
to continue to measure compensation costs for those plans using the "intrinsic
value based method" of accounting which Bancorp currently uses. Management has
determined that it will continue to use the method of accounting prescribed by
APB No. 25, "Accounting for Stock Issued to Employees". Bancorp will present
required proforma amounts and disclosures under Statement 123 beginning with the
fiscal year ending September 30, 1997.
In February, 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("Statement 128"). Statement 128 is effective for
financial statements issued for periods ending after December 15, 1997.
Statement 128 establishes standards for computing and presenting earnings per
share ("EPS"), simplifies the standards previously found in APB No. 15,
"Earnings Per Share", and makes them comparable to international EPS standards.
Bancorp will begin disclosing EPS in accordance with Statement 128 beginning
with the quarter ended December 31, 1997.
In June, 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("Statement 130"). Statement 130 is
effective for fiscal years beginning after December 15, 1997. Statement 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Statement 130
requires all items be recognized under accounting standards as compo- of
comprehensive income reported in a financial statement displayed with equal
prominence as other financial statements. Such statement will be presented by
Bancorp beginning with the quarter ended December 31,1998.
F-36
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Unaudited
In June, 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Statement 131 is effective for periods beginning after
December 15, 1997. Statement 131 establishes standards for the way that public
business enterprises report information about operating segments, based on how
the enterprise defines such segments. Bancorp is required to report operating
segment information, to the extent such segments are defined, beginning with the
year ended September 30, 1999.
2). NET INCOME PER SHARE
Net income per share was computed by dividing net income by the weighted average
number of shares of common stock outstanding during the three months ended June
30, 1997 and 1996. Adjustments have been made, where material, to give effect to
the shares that would be outstanding, assuming the exercise of dilutive stock
options, all of which are considered common stock equivalents.
Quarter Ended
June 30,
--------
1997 1996
---- ----
Net income $3,415,861 $2,806,597
========== ==========
Weighted average common shares outstanding 4,919,152 4,850,758
Common stock equivalents due to dilutive
effect of stock options 94,192 103,713
------ -------
Total weighted average common shares and
equivalents outstanding for primary
earnings per share computation 5,013,344 4,954,471
========= =========
Primary earnings per share $ 0.68 $ 0.57
========== ==========
Weighted average common shares outstanding 5,013,344 4,954,471
Additional dilutive shares using the higher
of end of period market value versus
average market value for the period
utilizing the treasury stock method
regarding stock option 8,112 0
----- ---
Total weighted average common shares and
equivalents outstanding for fully diluted
earnings per share computation 5,021,456 4,954,471
========= =========
Fully diluted earnings per share $ 0.68 $ 0.57
========== ==========
F-37
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Unaudited
3). INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market value of investment and mortgage-backed
securities as of June 30, 1997 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(Dollars in thousands)
Available for sale:
Treasury notes $ 17,954 $ --- $ --- $ 17,954
FHLB notes 29,452 --- --- 29,452
Other securities 87 --- --- 87
--- --- --- --
47,493 --- --- 47,493
------ --- --- ------
Held to maturity:
FHLB notes 15,000 --- 6 14,994
------ --- --- ------
FHLMC mortgage-backed securities
FNMA mortgage-backed securities 94,483 329 --- 94,812
62,076 573 --- 62,649
------ --- --- ------
156,559 902 --- 157,461
------- --- --- -------
$219,052 $ 902 $ 6 $219,948
======== ======= ======= ========
The amortized cost and estimated market value of investment and mortgage-backed
securities as of September 30, 1996 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(Dollars in thousands)
Available for sale:
Treasury notes $ 23,457 $ --- $ 110 $ 23,347
FHLB notes 10,000 31 --- 10,031
Other securities 115 --- --- l15
--- --- --- --
33,572 31 110 33,493
------ -- --- ------
Held to maturity:
FHLB notes 20,000 16 --- 20,016
------ --- --- ------
FHLMC mortgage-backed securities 114,072 --- 333 113,739
FNMA mortgage-backed securities 39,221 328 --- 39,549
------ --- --- ------
153,293 328 333 153,288
------- --- --- -------
$206,865 $ 375 $ 443 $206,797
======== ====== ====== ========
F-38
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Unaudited
The amortized cost and estimated market value of debt securities at June 30,
1997 and September 30, 1996 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
June 30, 1997 September 30, 1996
------------- ------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
---- ----- ---- -----
(Dollars in thousands)
Available for sale:
Due in one year or less $ 17,954 $ 17,954 $15,505 $ 15,539
Due in one to five years 29,452 29,452 17,952 17,839
Other securities 87 87 115 115
-- -- --- ---
47,493 47,493 33,572 33,493
------ ------ ------ ------
Held to maturity:
Due in one year or less --- --- --- ---
Due in one to five years 15,000 14,994 20,000 20,016
Other securities --- --- --- ---
--- --- --- ---
15,000 14,994 20,000 20,016
FHLMC mortgage-backed securities 94,483 94,812 114,072 113,739
FNMA mortgage-backed securities 62,076 62,649 39,221 39,549
------ ------ ------ ------
156,559 157,461 153,293 153,288
------- ------- ------- -------
$219,052 $219,948 $206,865 $206,797
======== ======== ======== ========
As of June 30, 1997 the Bank had pledged mortgage-backed securities with a
market value of $506,000 and a carrying value of $497,000 to collateralize the
public funds on deposit. The Bank had also pledged mortgage-backed securities
with a market value of $2,130,000 and a carrying value of $2,095,000 to
collateralize Treasury, tax and loan accounts.
F-39
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Unaudited
4). LOANS
Loans are summarized below:
June 30, September 30,
1997 1996
---- ----
(Dollars in thousands)
Mortgage loans:
Construction 1-4 family $ 41,417 $ 43,994
Permanent 1-4 family 620,066 584,592
Multi-family 14,457 17,804
Nonresidential 53,006 41,970
Land 31,881 29,034
------ ------
Total mortgage loans 760,827 717,394
------- -------
Other loans:
Commercial nonmortgage 11,446 8,199
Home improvement 20,670 20,679
Manufactured housing 16,046 15,784
Other consumer 50,320 44,265
------ ------
Total other loans 98,482 88,927
------ ------
Total loans receivable 859,309 806,321
------- -------
Less:
Loans in process 28,727 26,788
Deferred loan fees and discounts 3,385 3,498
Allowance for loan losses 11,408 11,016
------ ------
43,520 41,302
------ ------
Total loans receivable, net $815,789 $765,019
-------- --------
An analysis of the allowance for loan losses follows:
Three Months Nine Months
Ended June 30, Ended June 30,
-------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in thousands)
Beginning balance $ 11,280 $ 10,085 $ 11,016 $ 10,083
Provision for (recovery of) loan
losses 205 (19) 456 (149)
Allowance for loan losses acquired 0 885 0 885
Charge-offs (112) (10) (184) (79)
Recoveries 35 110 120 311
-- --- --- ---
Ending balance $ 11,408 $ 11,051 $ 11,408 $ 11,051
======== ======== ======== ========
F-40
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Unaudited
At June 30, 1997 and September 30, 1996, loans with unpaid principal balances of
approximately $2,227,000 and $2,172,000, respectively, were 90 days or more
contractually delinquent or on nonaccrual status. As of June 30, 1997 and
September 30, 1996, $1,853,000 and $2,081,000, respectively, of these loans were
in the process of foreclosure.
As of June 30, 1997 and September 30, 1996, mortgage loans which had been sold
on a recourse basis had outstanding principal balances of $3,562,000 and
$4,424,000, respectively.
5). REAL ESTATE OWNED
Real estate owned includes the following:
June 30, September 30,
1997 1996
---- ----
(Dollars in thousands)
Real estate acquired in satisfaction of loans $ 3,620 $ 4,830
Allowance for losses (724) (1,712)
---- ------
$ 2,896 $ 3,118
======= =======
Activity in the allowance for losses on real estate owned is as follows:
Three Months Nine Months
Ended June 30, Ended June 30,
-------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in thousands)
Beginning balance $ 763 $ 1,509 $ 1,712 $ 1,857
Provision for (recovery of) losses (16) 180 (20) 67
Allowance for losses acquired 0 21 0 21
Charge-offs (23) (8) (968) (243)
--- -- ---- ----
Ending balance $ 724 $ 1,702 $ 724 $ 1,702
====== ======= ======= =======
Provision for losses on real estate owned is included in income (losses) from
real estate operations in the consolidated statements of earnings.
Legal and consulting fees relating to real estate operations and real estate
owned are included in professional fees on the consolidated statements of
earnings.
6). PROPOSED STOCK OFFERING
On August 27, 1997, the Company announced that the Board of Directors of their
Mutual Holding Company, Harbor Financial, M.H.C., has determined to convert the
Mutual Holding Company to a capital stock corporation. Upon completion of the
Conversion, the Mutual Holding Company will cease to exist. Pursuant to The Plan
of Conversion, shares previously held by the Mutual Holding Company will be
sold. The remaining shares will be sold in subscription and community offerings.
The Conversion is expected to be completed in the Fourth Calendar Quarter of
1997.
Pursuant to OTS regulations, certain restrictions will be imposed upon
directors, executive officers and their associates and the Company with respect
to stock purchases for a period following completion of the Conversion.
F-41
<PAGE>
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Holding
Company. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Holding Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the registered securities to which it
relates. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy such securities in any circumstances or jurisdictions in
which such offer or solicitation is unlawful.
TABLE OF CONTENTS
SUMMARY......................................................1
HARBOR FLORIDA BANCORP, INC..................................1
HARBOR FEDERAL SAVINGS BANK..................................1
HARBOR FINANCIAL, M.H.C......................................2
THE CONVERSION...............................................2
SELECTED CONSOLIDATED FINANCIAL DATA........................13
RECENT DEVELOPMENTS.........................................17
RISK FACTORS................................................20
HARBOR FLORIDA BANCORP, INC.................................26
HARBOR FEDERAL SAVINGS BANK.................................27
HARBOR FINANCIAL, M.H.C.....................................29
HARBOR FINANCIAL, M.H.C.....................................29
USE OF PROCEEDS.............................................30
DIVIDEND POLICY.............................................30
MARKET FOR COMMON STOCK.....................................31
CAPITALIZATION..............................................32
CAPITALIZATION..............................................32
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE.................36
PRO FORMA DATA..............................................38
HARBOR FLORIDA BANCORP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS..............43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............45
BUSINESS OF HARBOR FLORIDA BANCORP, INC.....................61
BUSINESS OF HARBOR FEDERAL SAVINGS BANK.....................63
REGULATION..................................................94
MANAGEMENT OF HARBOR FLORIDA...............................107
MANAGEMENT OF THE BANK.....................................108
BENEFICIAL OWNERSHIP OF COMMON STOCK.......................121
PROPOSED SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS.125
THE CONVERSION.............................................126
COMPARISON OF STOCKHOLDERS' RIGHTS.........................149
RESTRICTIONS ON ACQUISITION OF THE COMPANY.................149
DESCRIPTION OF CAPITAL STOCK OF HARBOR FLORIDA.............155
LEGAL AND TAX MATTERS......................................157
EXPERTS....................................................157
REGISTRATION REQUIREMENTS..................................158
ADDITIONAL INFORMATION.....................................158
Until the later of __________________1997, or 25 days after
commencement of the Offering all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Underwriting Fees and Expenses........................$793,500
Legal Fees and Expenses................................160,000
Printing, Postage and Mailing..........................260,000
Accounting Fees and Expenses............................80,000
Appraisal and Business Plan Fees and Expenses...........35,000
Blue Sky Filing Fees and Expenses
(including legal counsel)..............................10,000
Federal Filing Fees (OTS and SEC).......................59,000
Conversion Agent Fees...................................10,000
Stock Certificates.......................................5,000
Transfer Agent...........................................3,000
Other Expenses..........................................50,000
Total...............................................$1,465,500
Item 14. Indemnification of Directors and Officers
Article VI of the Harbor Florida's Bylaws sets forth circumstances under
which directors, officers, employees and agents may be indemnified against
liability which they may incur in their capacities as follows:
ARTICLE VI
Indemnification
SECTION 1. Indemnification of Directors, Officers and Employees.
The Corporation shall indemnify to the full extent authorized by law any
Director or officer made or threatened to be made a party to an action, suit or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a Director or officer
of the Corporation or is or was serving, at the request of the Corporation, as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise.
The Corporation may, at the discretion of the Board of Directors, indemnify
to the full extent authorized by law any employee or agent made or threatened to
be made a party to an action, suit or proceeding, whether criminal, civil,
administrative or investigative by reason of the fact that he, his testator or
intestate is or was an employee or agent of the Corporation or is
<PAGE>
or was serving at the request of the Corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
SECTION 2. Expenses Advanced.
Expenses incurred with respect to any claim, action or proceeding of the
character, actual or threatened, described in Section 1 of this Article VI, may
be advanced by the Corporation prior to the final disposition thereof upon
receipt of an undertaking by such person to repay the amount so advanced if and.
to the extent it shall ultimately be determined by a court of competent
jurisdiction that he was not entitled to indemnification under this Bylaw.
SECTION 3. Automatic Conformity to Law.
The intention of this Bylaw is to provide indemnification with the broadest
and most inclusive coverage permitted by law (a) at the time of the act or
omission to be indemnified against, or (b) so permitted at the time of carrying
out such indemnification, whichever of (a) or (b) may be broader or more
inclusive and permitted by law to be applicable. If the indemnification
permitted by law at this present time, or at any future time, shall be broader
or more inclusive than the provisions of this Bylaw, then indemnification shall
nevertheless extend to the broadest and most inclusive permitted by law at any
time and this Bylaw shall be deemed to have been amended accordingly. If any
provision or portion of this Article shall be found, in any action, suit or
proceeding, to be invalid or ineffective, the validity and effect of the
remaining parts shall not be affected.
Item 15. Recent Sales of Unregistered Securities.
Not applicable.
Item 16. Exhibits:
The exhibits schedules filed as a part of this registration statement are
as follows:
1.1 Engagement Letter with Friedman, Billings, Ramsey & Co., Inc.
* 1.2 Agency Agreement with Friedman, Billings, Ramsey & Co., Inc.
2. Plan of Conversion
3.1 Certificate of Incorporation of Harbor Florida Bancorp, Inc.
(Incorporated by reference to Exhibit 3(a) of the Registration
Statement on Form S-4 filed December 20, 1996.
II-2
<PAGE>
3.2 Bylaws of Harbor Florida Bancorp, Inc.(Incorporated by reference to
Exhibit 3(b) of the Registration Statement on Form S-4 filed
December 20, 1996.
* 4 Form of Stock Certificate of Harbor Florida Bancorp, Inc.
* 5.1 Opinion of Peabody & Brown regarding legality of securities being
registered
* 8.1 Federal Tax Opinion of Peabody & Brown
* 8.2 Florida Tax Opinion of Dean, Mead, Egerton, Bloodworth, Capouano &
Bozarth, P.A.
8.3 Opinion of RP Financial, LC as to the value of subscription rights
for tax purposes
* 10.1 Change in Control Agreements
23.1 Consents of Peabody & Brown
23.2 Consent of KPMG Peat Marwick, LLP
23.3 Consent of RP Financial, LC
24 Power of Attorney (reference is made to the signature page)
* 99.1 Proposed Stock Order Form and Form of Certification
99.2 Proxy Statement for Special Meeting of Members of Harbor Financial
M.H.C.
99.3 Proxy Statement for Special Meeting of Stockholders of Harbor
Florida Bancorp, Inc.
* 99.4 Miscellaneous Solicitation and Marketing Materials
* 99.5 Appraisal Report, without exhibits
* To be filed by amendment.
II-3
<PAGE>
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 ("Securities Act").
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii)Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
such post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such
II-4
<PAGE>
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant has duly authorized this registration statement to be signed on its
behalf by the undersigned, in the City of Ft. Pierce, State of Florida, on
October 3, 1997.
HARBOR FLORIDA BANCORP, INC.
By: /s/
-------------------------------------
Michael J. Brown, Sr.
Director, President and Chief
Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned Directors of Harbor Florida Bancorp, Inc. hereby
severally constitute and appoint Michael J. Brown, Sr., with full power of
substitution, our true and lawful attorney and agent, to do any and all things
in our names in the capacities indicated below which said Michael J. Brown, Sr.,
may deem necessary or advisable to enable Harbor Florida Bancorp, Inc. to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with the
registration of Harbor Florida Bancorp, Inc. common stock, including
specifically, but not limited to, power and authority to sign for us in our
names in the capacities indicated below, the registration statement and any and
all amendments (including post-effective amendments) thereto; and we hereby
ratify and confirm all that said Michael J. Brown, Sr. shall do or cause to be
done by virtue thereof.
II-6
<PAGE>
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signatures Title Date
- ---------- ----- ----
/s/ 9/29/97
- ----------------------------- President, Chief Executive -------
Michael J. Brown, Sr. Officer and Director
/s/ 9/29/97
- ----------------------------- Senior Vice President -------
Don W. Bebber Chief Financial Officer
/s/ Chairman 10/1/97
- ----------------------------- -------
Edward G. Enns
/s/ Vice Chairman 10/2/97
- ----------------------------- -------
Bruce R. Abernethy, Sr.
/s/ Director 9/29/97
- ----------------------------- -------
Richard N. Bird
/s/ Director 9/29/97
- ----------------------------- -------
Richard B. Hellstrom
/s/ Director 10/2/97
- ----------------------------- -------
Richard K. Davis
/s/ Director 9/29/97
- ----------------------------- -------
Frank N. Fee III
<PAGE>
As filed with the Securities and Exchange Commission on October 3, 1997.
Registration No. 333-____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
EXHIBITS
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
Harbor Florida Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Exhibit 1.1
[FRIEDMAN, BILLINGS, RAMSEY & CO. INC. LETTERHEAD]
September 8, 1997
Board of Directors
Attn: Michael J. Brown, Sr.
President & Chief Executive Officer
Harbor Federal Savings Bank
100 S. Second Street
Fort Pierce, FL 34950
RE: Reorganization and Plan of Conversion Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Friedman,
Billings, Ramsey and Co., Inc. ("FBR") and Harbor Federal Savings Bank ("Harbor
Federal"), concerning our Investment Banking Services in connection with the
Plan of Conversion and Plan of Reorganization (the "Plan") in connection with
the reorganization of Harbor Federal Savings Bank and Harbor Florida Bancorp,
Inc. from the mutual holding company format into the stock holding company
structure.
FBR is prepared to assist Harbor Federal in connection with the offering of its
shares of common stock during the Subscription Offering and Community Offering
as such terms are defined in the Plan. The specific terms of the services
contemplated hereunder shall be set forth in a definitive sales agency agreement
(the "Agreement") between FBR and Harbor Federal to be executed prior to mailing
of the Offering material. The price of the shares during the Subscription
Offering and Community Offering will be the price established by Harbor Federal
Board of Directors, based upon an independent appraisal as approved by the
appropriate regulatory authorities, provided such price is mutually acceptable
to FBR and Harbor Federal.
In connection with the Subscription Offering and Community Offering, FBR will
render the following services:
1. Act as the Financial Advisor to Harbor Federal
2. Create marketing materials and formulate a marketing plan
3. Conduct training for all Directors and Employees
concerning the reorganization and stock offering
4. Manage Stock Center and staff with FBR personnel
5. Assist Harbor Federal and Attorneys with listing on
Nasdaq
<PAGE>
After the Offering, FBR intends to become a Market Maker and continue coverage
of Harbor Federal through after market support and research.
At the appropriate time, FBR, in conjunction with its counsel, will conduct an
examination of the relevant documents and records of Harbor Federal as FBR deems
necessary and appropriate. Harbor Federal will make all documents, records and
other information deemed necessary by FBR or its counsel available to them upon
request.
For its services hereunder, FBR will receive the following compensation and
reimbursement from Harbor Federal:
1. A management fee of $50,000 payable as follows, $25,000 upon the
signing of this letter and $25,000 upon receiving OTS approval of the
Plan Application. Should the Plan be terminated for any reason not
attributable to the action or inaction of FBR, FBR shall have earned
and be entitled to be paid fees accruing through the stage at which
point the termination occurred.
2. A marketing fee of 0.75% of the aggregate Purchase Price of Common
Stock sold in the Subscription Offering and Community Offering,
excluding those shares purchased by Harbor Federal officers, directors,
or employees (or members of their immediate families) or by any ESOP,
charitable foundation, tax-qualified or stock compensation plans
(except IRA's) or similar plan created by Harbor Federal for some or
all of its directors or employees. The management fee of $50,000 will
be subtracted from the marketing fee.
3. The foregoing commissions are to be payable to FBR at closing as
defined in the agreement to be entered into between FBR and Harbor
Federal.
4. FBR shall be reimbursed for allocable expenses incurred by them,
including legal fees, not to exceed $50,000, whether or not the
Agreement is consummated. These expenses shall not exceed $70,000.
It is further understood that Harbor Federal will pay all other expenses of the
Plan including but not limited to its attorneys' fees, NASD filing fees, filing
and registration fees and fees of either FBR's attorneys or the attorneys
relating to any required state securities law filings, telephone charges, air
freight, supplies, conversion agent charges, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
For purpose of FBR's obligation to file certain documents and to make certain
representations to the NASD in connection with the Plan, Harbor Federal warrants
that: (a) Harbor Federal has not privately placed any securities within the last
18 months; (b) there have been no material dealings within the last 12 months
between Harbor Federal and any NASD member or any person related to or
associated with any such member; (c) none of the officers or directors of Harbor
Federal has any affiliation with the NASD; (d) except as contemplated by this
engagement letter with FBR, Harbor Federal has no financial or management
consulting contracts outstanding with any other person; (e) Harbor Federal has
not granted FBR a right of first refusal with respect to the underwriting of any
future offering of Harbor Federal stock; and (f) there has been no intermediary
between FBR and Harbor Federal in connection
<PAGE>
with the public offering of Harbor Federal shares, and no person is being
compensated in any manner for providing such services.
Harbor Federal agrees to indemnify and hold harmless FBR and its affiliates (as
defined in Rule 405 under the Securities Act of 1933, as amended) and their
respective directors, officers, employees, agents and controlling persons (FBR
and each such person being an "Indemnified Party") from and against any and all
losses, claims, damages and liabilities (or actions, including shareholder
actions, in respect thereof), joint or several, to which such Indemnified Party
may become subject under any applicable federal or state law, or otherwise,
which are related to or result from the performance by FBR of the services
contemplated by, or the engagement of FBR pursuant to, this letter agreement and
will promptly reimburse any Indemnified Party for all reasonable expenses
(including reasonable counsel fees and expenses) as they are incurred in
connection with the investigation of, preparation for or defense arising
therefrom, whether or not such Indemnified Party is a party and whether or not
such claim, action or proceeding is initiated or brought by Harbor Federal.
Harbor Federal will not be liable to any Indemnified Party under the foregoing
indemnification and reimbursement provisions, (i) for any settlement by an
Indemnified Party effected without its prior written consent; or (ii) to the
extent that any loss, claim, damage or liability is found in a final judgment by
a court to have resulted primarily from FBR's gross negligence or willful
misconduct. FBR shall repay to Harbor Federal any amounts paid by Harbor Federal
for reimbursement of FBR's and any Indemnified Party's expenses in the event
that such expenses were incurred in relation to an act or omission with respect
to which it is finally determined that FBR has acted in gross negligence or with
willful misconduct. Harbor Federal also agrees that no Indemnified Party shall
have any liability (whether direct or indirect, in contract or tort or
otherwise) to Harbor Federal or its security holders or creditors related to or
arising out of the engagement of FBR pursuant to, or the performance by FBR of
the services contemplated by, this letter agreement except to the extent that
any loss, claim, damage or liability is found in a final judgment by a court to
have resulted primarily from FBR's gross negligence or willful misconduct.
Promptly after receipt by an Indemnified Party of notice of any intention or
threat to commence an action, suit or proceeding or notice of the commencement
of any action, suit or proceeding, such Indemnified Party will, if a claim in
respect thereof is to be made against Harbor Federal pursuant hereto, promptly
notify Harbor Federal in writing of the same. In case any such action is brought
against any Indemnified Party and such Indemnified Party notifies Harbor Federal
of the commencement thereof, Harbor Federal may elect to assume the defense
thereof, with counsel reasonably satisfactory to such Indemnified Party, and an
Indemnified Party may retain counsel to participate in the defense of any such
action; provided, however, that in no event shall Harbor Federal be required to
pay fees and expenses for more than one firm of attorneys representing
Indemnified Parties.
If the indemnification provided for in this letter agreement is for any reason
held unenforceable by an Indemnified Party, Harbor Federal agrees to contribute
to the losses, claims, damages and liabilities for which such indemnification is
held unenforceable (i) in such proportion as is appropriate to reflect the
relative benefits to Harbor Federal, on the one hand, and FBR on the other hand,
(ii) if (but only if) the allocation provided for in clause (i) is for any
reason unenforceable, in such proportion as is appropriate to reflect not only
the relative benefits referred to tin clause (i) but also the relative fault of
Harbor Federal, on the one hand, and FBR, on the other hand, as well as any
other relevant equitable considerations. Each of the parties hereto (on its own
behalf and, to the extent permitted by applicable law, on behalf of its
stockholders) waives all right to trial by jury in any action, proceeding or
<PAGE>
counteraction (whether based upon contract, or otherwise) related to or arising
out of our engagement pursuant to, or the performance by us of the services
contemplated by, this Letter Agreement.
This letter is merely a statement of intent and is not a binding legal agreement
except as to the compensation and reimbursement paragraphs numbered 1-4 above
and the indemnity described above. While FBR and Harbor Federal agree in
principle to the contents hereof and the purpose to proceed promptly, and in
good faith, to work out the arrangements with respect to the proposed offering,
and legal obligations between FBR and Harbor Federal shall be only as set forth
in a duly executed Agreement. The indemnification provision described above will
be superseded by the indemnification provisions of the Agreement entered into by
Harbor Federal and FBR. Such Agreement shall be in the form and content
satisfactory to, among other things, there being in FBR's opinion no material
adverse change in the condition or obligations of Harbor Federal or no market
conditions which might render the sale of the shares by Harbor Federal hereby
contemplated inadvisable.
The validity and interpretation of this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Virginia (excluding the conflicts of laws rules).
Please acknowledge your agreement to the foregoing by signing below and
returning to FBR one copy of this letter along with a payment of $25,000. This
proposal is open for your acceptance for a period of thirty (30) days from the
date hereof.
Very truly yours,
/s/ J. Rock Tonkel, Jr. /s/ Richard A. Buckner
By: J. Rock Tonkel, Jr. Richard A. Buckner
Title: Managing Director Senior Vice President
Date: September 8, 1997
Agreed and Accepted to this 10th day of September, 1997.
Harbor Federal Savings Bank
By: Michael Brown
Title: President
Exhibit 2
PLAN OF CONVERSION
of
HARBOR FINANCIAL, M.H.C.
and
AGREEMENT AND PLAN OF MERGER
between
HARBOR FINANCIAL, M.H.C.
and
HARBOR FLORIDA BANCORP, INC.
SEPTEMBER 24, 1997
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TABLE OF CONTENTS
Section Page
- ------- ----
1. INTRODUCTION......................................................... 1
2. DEFINITIONS.......................................................... 3
3. GENERAL PROCEDURE FOR CONVERSION..................................... 10
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF
CONVERSION STOCK................................................. 11
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS
(FIRST PRIORITY).................................................. 13
6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE
STOCK BENEFIT PLANS (SECOND PRIORITY)............................. 15
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS (THIRD PRIORITY).......................................... 15
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)............... 16
9. PUBLIC STOCKHOLDERS OFFERING......................................... 16
10. COMMUNITY OFFERING AND OTHER OFFERINGS................................ 17
11. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF
CONVERSION STOCK................................................... 18
12. TIMING OF SUBSCRIPTION OFFERING., MANNER OF EXERCISING
SUBSCRIPTION RIGHTS AND ORDER FORMS................................ 20
13. PAYMENT FOR CONVERSION STOCK.......................................... 23
14. ACCOUNTHOLDERS IN NONQUALIFIED STATES OR FOREIGN
COUNTRIES.......................................................... 24
15. VOTING RIGHTS OF STOCKHOLDERS......................................... 24
16. LIQUIDATION ACCOUNT................................................... 25
17. TRANSFER OF DEPOSIT ACCOUNTS.......................................... 26
18. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION,
MARKET MAKING AND STOCK EXCHANGE LISTING........................... 27
19. DIRECTORS AND OFFICERS OF THE BANK.................................... 27
20. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS
FOLLOWING THE CONVERSION........................................... 27
21. RESTRICTIONS ON TRANSFER OF STOCK..................................... 27
22. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY........... 28
23. TAX RULINGS OR OPTIONS................................................ 29
24. STOCK COMPENSATION PLANS.............................................. 29
25. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK......................... 29
26. PAYMENT OF FEES TO BROKERS............................................ 30
27. EFFECTIVE DATE........................................................ 30
28. AMENDMENT OR TERMINATION OF THE PLAN.................................. 30
29. INTERPRETATION OF THE PLAN............................................ 31
ANNEX A - PLAN OF MERGER BETWEEN THE MUTUAL HOLDING COMPANY
AND THE HOLDING COMPANY............................................ A-1
i
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1. INTRODUCTION
For purposes of this section, all capitalized terms have the meaning
ascribed to them in Section 2.
On January 6, 1994, Harbor Federal Savings Bank, a federally chartered
mutual savings institution reorganized into the mutual holding company form of
organization and consummated a sale of stock to its members. To accomplish this
transaction, the Bank organized a federally chartered, stock savings bank as a
wholly owned subsidiary. The mutual Bank then transferred substantially all of
its assets and liabilities to the stock Bank in exchange for 4,894,200 shares of
Bank Common Stock, and reorganized itself into a federally chartered mutual
holding company known as Harbor Financial, M.H.C. and sold 2,239,831 shares of
Bank Common Stock to directors, employees and members of the Bank. On June 25,
1997, the Bank completed a reorganization in which the Bank became a wholly
owned subsidiary of a stock middle tier holding company known as Harbor Florida
Bancorp, Inc. ("Holding Company"). Shareholders of the Bank became, as a result
of the reorganization, shareholders of the Holding Company. As of, June 30,
1997, the Mutual Holding Company and the Public Stockholders own an aggregate of
53.4 and 46.6% of the outstanding Holding Company Common Stock, respectively.
The Boards of Directors of the Mutual Holding Company and the Holding
Company believe that a conversion of the Mutual Holding Company to stock form
pursuant to this Plan of Conversion is in the best interests of the Mutual
Holding Company and the Bank, as well as the best interests of their respective
Members and Stockholders. The Boards of Directors determined that this Plan of
Conversion equitably provides for the interests of Members through the granting
of subscription rights and the establishment of a liquidation account. The
Conversion will result in the raising of additional capital for the Bank and the
Holding Company and should result in a more active and liquid market for the
Holding Company Common Stock than currently exists, although there can be no
assurances that this will be the case. The Conversion is designed to enable the
Bank and Holding Company to compete more effectively in a market which is
undergoing consolidation.
If the Bank had undertaken a standard conversion involving the formation of
a stock holding company in 1994, applicable OTS regulations would have required
a greater amount of Bank Common Stock to be sold than resulted in the amount of
net proceeds raised in the Bank's initial public offering undertaken with the
mutual holding company reorganization. In addition, if a standard conversion had
been conducted in 1994, management of the Bank believes that it would have been
difficult to profitably invest the larger amount of capital that would have been
raised, when compared to the amount of net proceeds raised in the Bank's initial
public offering. A standard conversion in 1994 also would have immediately
eliminated all aspects of the mutual form of organization and possibly have
subjected the Association to
1
<PAGE>
greater interference from stockholders and from an unwanted acquisition or other
change in control of the Bank.
Subsequent to the formation of the Mutual Holding Company, there have been
certain changes in the policies of the OTS relating to mutual holding companies.
In addition, market conditions for the stocks of savings institutions and their
holding companies have improved. The Bank and the Holding Company have also
gained experience in being a company required to meet the filing requirements of
the Securities and Exchange Act of 1934 and in conducting stockholder meetings
and other stockholder matters, such as communications, press releases, NASD
matters and dividend payments. In light of the foregoing, the Boards of
Directors of the Mutual Holding Company and the Holding Company believe that it
is in the best interests of such companies and their respective Members and
Stockholders to reorganize into the stock form of organization at this time, and
that the most feasible way to do so is through the Conversion and Merger.
The Bank formed the Holding Company which became the holding company for
the Bank pursuant to a reorganization completed in June of 1997. In the current
transaction, as described in more detail herein, the Mutual Holding Company will
convert to an interim federal stock savings association and will simultaneously
merge with and into the Holding Company pursuant to the Plan of Merger included
as Annex A hereto, pursuant to which the Mutual Holding Company will cease to
exist and a liquidation account will be established for the benefit of depositor
Members as of specified dates. Stock of the Holding Company held by Public
Shareholders shall be automatically converted into the right to receive
additional shares of Holding Company stock based on a Distribution Exchange
Ratio plus cash in lieu of any fractional share interest.
In connection with the Conversion, the Holding Company will offer shares of
Conversion Stock in the Offerings as provided herein. Shares of Conversion Stock
will be offered in a Subscription Offering in descending order of priority to
Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders, Other Members and Public Stockholders.
Any shares of Conversion Stock remaining unsold after the Subscription Offering
will be offered for sale to the public through a Community Offering as
determined by the Boards of Directors of the Holding Company.
The Conversion is intended to provide support to the Bank's lending and
investment activities and thereby enhance the Bank's capabilities to serve the
borrowing and other financial needs of the communities it serves.
This Plan was adopted by the Boards of Directors of the Mutual Holding
Company, the Holding Company and the Bank on September 24, 1997.
2
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This Plan is subject to the approval of the OTS and must be adopted by (1)
at least a majority of the total number of votes eligible to be cast by Voting
Members of the Mutual Holding Company at the Special Meeting and (2) holders of
at least two-thirds of the outstanding Holding Company Common Stock at the
Stockholders' Meeting. In addition, the Primary parties have conditioned the
consummation of the Conversion on the approval of the Plan by at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders at
the Stockholders' Meeting.
After the Conversion, the Bank will continue to be regulated by the OTS, as
its chartering authority, and by the FDIC, which insures the Bank's deposits. In
addition, the Bank will continue to be a member of the Federal Home Loan Bank
System, and all insured savings deposits will continue to be insured by the FDIC
up to the maximum provided by law.
2. DEFINITIONS
As used in this Plan, the terms set forth below have the following meaning:
Actual Purchase Price means the price per share at which the Conversion
Stock is ultimately sold by the Holding Company in the Offerings in accordance
with the terms hereof.
Affiliate means a Person who, directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
Person specified.
Associate, when used to indicate a relationship with any Person, means (i)
a corporation or organization (other than the Mutual Holding Company, the Bank,
a majority-owned subsidiary of the Bank or the Holding Company) of which such
Person is a director, officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, (ii) any
trust or other estate in which such Person has a substantial beneficial interest
or as to which such Person serves as trustee or in a similar fiduciary capacity,
provided, however, that such term shall not include any Tax-Qualified Employee
Stock Benefit Plan of the Holding Company or the Bank in which such Person has a
substantial beneficial interest or serves as a. trustee or in a similar
fiduciary capacity, and (iii) any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person or who is a
director or officer of the a Holding Company or the Bank or any of the
subsidiaries of the foregoing.
Bank means Harbor Federal Savings Bank in its mutual or stock form or
Harbor Federal Savings Bank following consummation of the Conversion, as the
context of the reference indicates.
Bank Common Stock means the common stock of the Bank, par value $1.00 per
share, which stock is not and will not be insured by the FDIC or any other
governmental authority.
3
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Code means the Internal Revenue Code of 1986, as amended.
Community Offering means the offering for sale by the Holding Company of
any shares of Conversion Stock not subscribed for in the Subscription Offering
to (i) natural persons residing in the Local Community, and (ii) such other
Persons within or without the State of Florida as may be selected by the Holding
Company within its sole discretion.
Control (including the terms "controlling," "controlled by," and "under
common control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Conversion means (i) the conversion of the Mutual Holding Company to an
interim federal stock savings association and the subsequent merger, pursuant to
which the Mutual Holding Company will cease to exist, and (ii) the issuance of
Conversion Stock by the Holding Company in the Offerings as provided herein,
which will increase the number of shares of a Holding Company Common Stock
outstanding (subject to approval by Holding Company Shareholders) and the
capitalization of the Holding Company and the Bank.
Conversion Stock means the Holding Company Common Stock to be issued and
sold in the Offerings pursuant to the Plan of Conversion.
Deposit Account means savings and demand accounts, including passbook
accounts, money market deposit accounts and negotiable order of withdrawal
accounts, and certificates of deposit and other authorized accounts of the Bank
held by a Member.
Director, Officer and Employee means the terms as applied respectively to
any person who is a director. officer or employee of the Mutual Holding Company,
the Bank, the Holding Company or any subsidiary thereof.
Distribution Exchange Ratio means the rate at which shares of the Holding
Company held by the Public Stockholders will be increased in connection with the
Holding Company Merger. The exact rate shall be determined by the Mutual Holding
Company and the Holding Company in order to ensure that upon consummation of the
Conversion the Public Stockholders will own in the aggregate approximately the
same percentage of the Holding Company Common Stock to be outstanding upon
completion of the Conversion as the percentage of Holding Company Common Stock
owned by them in the aggregate on the Effective Date, before giving effect to
(a) cash paid in lieu of any fractional interests of Holding Company Common
Stock and (b) any shares of Conversion Stock purchased by the Public
Stockholders in the Offerings or tax-qualified employee stock benefit plans
thereafter.
4
<PAGE>
Distribution Exchange Shares means the additional shares of Holding Company
Common Stock to be issued to the Public Stockholders in connection with the
Holding Company Merger with the MHC.
Eligible Account Holder means any Person holding a Qualifying Deposit on
the Eligibility Record Date for purposes of determining subscription rights and
establishing subaccount balances in the liquidation account to be established
pursuant to the provision herein.
Eligibility Record Date means the date for determining Qualifying Deposits
of Eligible Account Holders and is the close of business on July 31, 1996.
Estimated Price Range means the range of the estimated aggregate pro forma
market value of the Conversion Stock to be issued in the Offerings, as
determined by the Independent Appraiser in accordance with Section 4 hereof.
FDIC means the Federal Deposit Insurance Corporation or any successor
thereto.
Holding Company means Harbor Florida Bancorp, Inc., a corporation organized
under the laws of the State of Delaware. Upon completion of the June 1997
Reorganization, the Holding Company held all of the outstanding capital stock of
the Bank.
Holding Company Common Stock means the Common Stock of the Holding Company,
par value $0.01 per share, which stock cannot and will not be insured by the
FDIC or any other governmental authority.
Independent Appraiser means the independent investment banking or financial
consulting firm retained by the Holding Company and the Bank to prepare an
appraisal of the estimated pro forma market value of the Conversion Stock.
Initial Purchase Price means the price per share to be paid initially by
Participants for shares of Conversion Stock subscribed for in the Subscription
Offering and by Persons for shares of Conversion Stock ordered in the Community
Offering.
Interim means an interim federal stock savings association, which will be
formed as a result of the conversion of Harbor Financial, M.H.C. into the stock
form of organization.
Local Community means all counties in which the Bank has its home office or
a branch office.
Member means any Person qualifying as a member of the Mutual Holding
Company in accordance with its mutual charter and bylaws and the laws of the
United States.
5
<PAGE>
MHC Merger means the merger of Interim with and into the Holding Company
pursuant to the Plan of Merger included as Annex A hereto.
Mid-Tier Holding Company - Harbor Florida Bancorp, or Holding Company, a
Delaware chartered corporation which owns 100% of the common stock of Harbor
Federal Savings Bank.
Mutual Holding Company means Harbor Financial, M.H.C. (an owner of 53.4% of
the common stock of Holding Company) prior to the MHC's conversion into an
interim federal stock savings association.
Offerings means the Subscription Offering, the Public Stockholders Offering
and the Community Offering.
Officer means the president, all senior vice-presidents, secretary,
treasurer or principal financial officer, comptroller or principal accounting
officer and any other person performing similar functions with respect to any
organization whether incorporated or unincorporated.
Order Form means the form or forms provided by the Holding Company,
containing all such terms and provisions as set forth herein, to a Participant
or other Person by which Conversion Stock may be ordered in the Offerings.
Other Member means a Voting Member who is not an Eligible Account Holder or
a Supplemental Eligible Account Holder.
OTS means the Office of Thrift Supervision or any successor thereto.
Participant means any Eligible Account Holder, Tax-Qualified Employee Stock
Benefit Plan, Supplemental Eligible Account Holder and Other Member.
Person means an individual, a corporation, a partnership, an association, a
joint stock company, a trust, an unincorporated organization or a government or
any political subdivision thereof.
Plan of Conversion and Plan of Merger means this Plan of Conversion and the
Plan of Merger as adopted by the Boards of Directors of the Mutual Holding
Company, the Holding Company, and the Bank and any amendment hereto approved as
provided herein. The Board of Directors of the Holding Company shall adopt this
Plan as soon as practicable following its organization.
6
<PAGE>
Primary Parties means the Mutual Holding Company, the Holding Company, and
the Bank.
Prospectus means the one or more documents to be used in offering the
Conversion Stock in the Offerings.
Public Stockholders mean those Persons who own shares of Bank Common Stock,
excluding the Mutual Holding Company, as of the Stockholder Voting Record Date.
Public Stockholders Offering means the offering for sale by the Holding
Company of any shares of Conversion Stock not subscribed for in the Subscription
Offering to Public Stockholders, at the sole discretion of the bank and the
Holding Company.
Qualifying Deposit means the aggregate balance of all Deposit Accounts in
the Bank of (i) an Eligible Account Holder at the close of business on the
Eligibility Record Date, provided such aggregate balance is not less than $50,
and (ii) a Supplemental Eligible Account Holder at the close of business on the
Supplemental Eligibility Record Date, provided such aggregate balance is not
less than $50.
Resident means any person who, on the date designated for that category of
subscriber in the Plan, maintained a bona fide residence within the Local
Community . The designated dates for Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members are July 31, 1996, September 30, 1997
and __________________, 1997, respectively. To the extent the person is a
corporation or other business entity, the principal place of business or
headquarters shall be within the Local Community. To the extent the person is a
personal benefit plan, the circumstances of the beneficiary shall apply with
respect to this definition. In the case of all other benefit plans,
circumstances of the trustee shall be examined for purposes of this definition.
The Bank may utilize deposit or loan records or such other evidence provided to
it to make a determination as to whether a person is a bona fide resident of the
Local Community. Subscribers in the Community Offering who are natural persons
will have a purchase preference if they were residents of the Local Community on
the date of the Prospectus. In all cases, however, such determination shall be
in the sole discretion of the Bank and Holding Company.
SEC means the Securities and Exchange Commission.
Special Meeting means the Special Meeting of Members of the Mutual Holding
Company and Public Stockholders called for the purpose of submitting this Plan
to the Members for their approval, and matters related to stockholders including
any adjournments of such meeting.
7
<PAGE>
Stockholders means those Persons who own shares of the Holding Company
Common Stock.
Stockholders' Meeting means the annual or special meeting of Stockholders
of the Holding Company called for the purpose of submitting this Plan to the
Stockholders for their approval, including any adjournments of such meeting.
Stockholder Voting Record Date means the date for determining the Public
Stockholders of the Bank eligible to vote at the Stockholders' Meeting.
Subscription Offering means the offering of the Conversion Stock to
Participants.
Subscription Rights means nontransferable rights to subscribe for
Conversion Stock granted to Participants pursuant to the terms of this Plan.
Supplemental Eligible Account Holder means any Person and their Associates.
holding a Qualifying Deposit at the close of business on the Supplemental
Eligibility Record Date.
Supplemental Eligibility Record Date, if applicable, means the date for
determining Qualifying Deposits of Supplemental Eligible Account Holders and
shall be required if the Eligibility Record Date is more than 15 months prior to
the date of the latest amendment to the Application for Conversion filed by the
Mutual Holding Company prior to approval of such application by the OTS. If
applicable, the Supplemental Eligibility Record Date shall be the last day of
the calendar quarter preceding OTS approval of the Application for Conversion
submitted by the Mutual Holding Company pursuant to this Plan of Conversion.
Tax-Qualified Employee Stock Benefit Plan means any defined benefit plan or
defined contribution plan, such as an employee stock ownership plan, stock bonus
plan, profit-sharing plan or other plan, which is established for the benefit of
the employees of the Holding Company and the Bank and which, with its related
trust, meets the requirements to be "qualified" under Section 401 of the Code as
from time to time in effect. A "Non-Tax-Qualified Employee Stock Benefit Plan"
is any defined benefit plan or defined contribution stock benefit plan which is
not so qualified.
Voting Member means a Person who at the close of business on the Voting
Record Date is entitled to vote as a Member of the Mutual Holding Company in
accordance with its mutual charter and bylaws.
Voting Record Date means the date or dates for determining the eligibility
of Members to vote at the Special Meeting
8
<PAGE>
3. GENERAL PROCEDURE FOR CONVERSION
A. An application for the Conversion, including the Plan of Conversion and
all other requisite material (the "Application for Conversion"), shall be
submitted to the OTS for approval. The Mutual Holding Company and the Holding
Company also will cause notice of the adoption of the Plan by the Boards of
Directors of the Mutual Holding Company and the Holding Company to be given by
publication in a newspaper having general circulation in each community in which
an office of the Bank is located; and will cause copies of the Plan to be made
available at each office of the Mutual Holding Company and the Bank for
inspection by Members and Stockholders. The Mutual Holding Company and the Bank
will post the notice of the filing of the Application for Conversion in each of
their offices and will again cause to be published, in accordance with the
requirements of applicable regulations of the OTS, a notice of the filing with
the OTS of an application to convert the Mutual Holding Company from mutual to
stock form.
B. Promptly following receipt of requisite approval of the OTS, this Plan
will be submitted to the Members for their consideration and approval at the
Special Meeting. The Mutual Holding Company may, at its option, mail to all
Members as of the Voting Record Date, at their last known address appearing on
the records of the Mutual Holding Company and the Holding Company, a proxy
statement in either long or summary form describing the Plan which will be
submitted to a vote of the Members at the Special Meeting. The Holding Company
also shall mail to all such Members (as well as other Participants) either a
Prospectus and Order Form for the purchase of Conversion Stock or a letter
informing them of their right to receive a Prospectus and Order Form and a
postage prepaid card to request such materials, subject to the provisions
herein. The Plan must be approved by the affirmative vote of at least a majority
of the total number of votes eligible to be cast by Voting Members at the
Special Meeting.
C. Subscription Rights to purchase shares of Conversion Stock will be
issued without payment therefor to Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders and Other Members.
D. The Holding Company shall file preliminary proxy materials with the OTS
and SEC in order to seek the approval of the Plan by its Stockholders. Promptly
following clearance of such proxy materials by the OTS and the SEC and the
receipt of any other requisite approval of the OTS, the Holding Company will
mail definitive proxy materials to all Stockholders as of the Stockholder Voting
Record Date, at their last known address appearing on the records of the Holding
Company, for their consideration and approval of this Plan at the Stockholders'
Meeting. The Plan must be approved by the holders of at least two-thirds of the
outstanding Holding Company Common Stock as of the Voting Record Date. In
addition, the Primary Parties have conditioned the consummation of the
Conversion on the approval of
9
<PAGE>
the Plan by at least a majority of the votes cast, in person or by proxy, by the
Public Stockholders as of the Stockholder Voting Record Date at the
Stockholders' Meeting.
E. The Conversion Stock shall be first offered for sale in a Subscription
Offering to Eligible Account Holders, Tax-Qualified Employee Stock Benefit
Plans, Supplemental Eligible Account Holders and Other Members. It is
anticipated that any shares of Conversion Stock remaining unsold after the
Subscription Offering will be sold first through the Public Stockholders
Offering and then through a Community Offering Community. The purchase price per
share for the Conversion Stock shall be a uniform price determined in accordance
with the provisions herein. The Holding Company shall contribute to the Bank an
amount of the net proceeds received by the Holding Company from the sale of
Conversion Stock as shall be determined by the Boards of Directors of the
Holding Company, and the Bank and as shall be approved by the OTS.
F. The Effective Date of the Conversion shall be the date set forth in
Section 27 hereof. Upon the effective date, the following transactions shall
occur:
(i) The Mutual Holding Company shall convert into an interim federal
stock savings association, Interim, and Interim shall simultaneously merge
with and into the Holding Company in the MHC Merger, with the Holding
Company being the surviving institution. As a result of the MHC Merger, (a)
the shares of Holding Company Common Stock currently held by the Mutual
Holding Company shall be canceled and (b) Members of the Mutual Holding
Company will be granted interests in the liquidation account to be
established pursuant to Section 16 hereof.
(ii) The Holding Company shall sell the Conversion Stock in the
Offerings, as provided herein.
G. The Primary parties may retain and pay for the services of financial and
other advisors and investment bankers to assist in connection with any or all
aspects of the Conversion, including in connection with the Offerings, the
payment of fees to brokers and investment bankers for assisting Persons in
completing and/or submitting Order Forms. All fees, expenses, retainers and
similar items shall be reasonable.
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
A. The aggregate price at which shares of Conversion Stock shall be sold in
the Offerings shall be based on a pro forma valuation of the aggregate market
value of the Conversion Stock prepared by the Independent Appraiser. The
valuation shall be based on financial information relating to the Primary
Parties, market, financial and economic conditions, a comparison of the Primary
Parties with selected publicly held financial
10
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institutions and holding companies and with comparable financial institutions
and holding companies and such other factors as the Independent Appraiser may
deem to be important. The valuation shall be stated in terms of an Estimated
Price Range, the maximum of which shall generally be no more than 15% above the
average of the minimum and maximum of such price range and the minimum of which
shall generally be no more than 15% below such average. The valuation shall be
updated during the Conversion as market and financial conditions warrant and as
may be required by the OTS.
B. Based upon the independent valuation, the Boards of Directors of the
Primary Parties shall fix the Initial Purchase Price and the number (or range)
of shares of Conversion Stock ("Offering Range") to be offered in the
Subscription Offering, Public Stockholders Offering and Community Offering, if
applicable. The Actual Purchase Price and the total number of shares of
Conversion Stock to be issued in the Offerings shall be determined by the Boards
of Directors of the Primary Parties upon conclusion of the Offerings in
consultation with the Independent Appraiser and any financial advisor or
investment banker retained by the Primary Parties in connection therewith.
C. Subject to the approval of the OTS, the Estimated Price Range may be
increased or decreased to reflect market, financial and economic conditions
prior to completion of the Conversion, and under such circumstances the Primary
Parties may correspondingly increase or decrease the total number of shares of
Conversion Stock to be issued in the Conversion to reflect any such change.
Notwithstanding anything to the contrary contained in this Plan, no
resolicitation of subscribers shall be required and subscribers shall not be
permitted to modify or cancel their subscriptions unless the gross proceeds from
the sale of the Conversion Stock issued in the Conversion are less than the
minimum or (excluding purchases, if any, by the Holding Company's Tax-Qualified
Employee Stock Benefit Plans) more than 15% above the maximum of the Estimated
Price Range set forth in the Prospectus. In the event of an increase in the
total number of shares offered in the Conversion due to an increase in the
Estimated Price Range, the priority of share allocation shall be as set forth in
this Plan, provided, however, that such priority will have no effect whatsoever
on the ability of the Tax Qualified Employee Stock Benefit Plans to purchase
additional shares pursuant to Section 4.D.
D. (i) In the event that Tax-Qualified Employee Stock Benefit Plans are
unable to purchase the number of shares subscribed for by such Tax-Qualified
Employee Stock Benefit Plans due to an oversubscription for shares of Conversion
Stock pursuant to Section 5 hereof, Tax-Qualified Employee Stock Benefit Plans
may purchase from the Holding Company, and the Holding Company may sell to the
Tax-Qualified Employee Stock Benefit Plans, such additional shares ("Additional
Shares") of Holding Company Common Stock necessary to fill the subscriptions of
the Tax-Qualified Employee Stock Benefit Plans, provided that such Additional
Shares may not exceed 10% of the total numbers of shares of Conversion Stock
sold in the Conversion. The sale of Additional Shares, if necessary, will occur
contemporaneously with the sale of the Conversion Stock. The sale of Additional
Shares to
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Tax-Qualified Employee Stock Benefit Plans by the Holding Company is conditioned
upon receipt by the Holding Company of a letter from the Independent Appraiser
to the effect that such sale would not have a material effect on the Conversion
or the Actual Purchase Price and the approval of the OTS. The ability of the
Tax-Qualified Employee Stock Benefit Plans to purchase up to an additional 10%
of the total number of shares of Conversion Stock sold in the Conversion shall
not be affected or limited in any manner by the priorities or purchase
limitations otherwise set forth in this Plan of Conversion.
(ii) Notwithstanding anything to the contrary contained in this Plan, if
the final valuation of the Conversion Stock exceeds the maximum of the Estimated
Price Range, up to 10% of the total number of shares of Conversion Stock sold in
the Conversion may be sold to Tax-Qualified Stock Benefit Plans prior to filling
any other orders for Conversion Stock from such shares in excess of the
Estimated Price Range.
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights equal to the greater of (i) the maximum
purchase limitation established for the Community Offering, (ii) one-tenth of 1%
of the total offering of shares of Conversion Stock in the Subscription
Offering, and (iii) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Conversion Stock offered
in the Subscription Offering by a fraction, of which the numerator is the amount
of the Qualifying Deposit of the Eligible Account Holder and the denominator is
the total amount of all Qualifying Deposits of all Eligible Account Holders,
subject to Section 14 hereof.
B. In the event of an oversubscription for shares of Conversion Stock
pursuant to the provisions herein, available shares shall be allocated among
subscribing Eligible Account Holders so as to permit, to the extent possible, to
purchase a number of shares which will make his or her total allocation equal to
the lesser of the number of shares subscribed for or 100 shares. Any available
shares remaining after each subscribing Eligible Account Holder has been
allocated the lesser of the number subscribed for or 100 shares shall be
allocated among the subscribing Eligible Account Holders in the proportion which
the Qualifying Deposit of each such subscribing Eligible Account Holder bears to
the total Qualifying Deposits of all such subscribing Eligible Account Holders,
provided that no fractional shares shall be issued. Subscription Rights of
Eligible Account Holders who are also Directors or Officers and their Associates
shall be subordinated to those of other Eligible Account Holders to the extent
that they are attributable to increased deposits during the one-year period
preceding the Eligibility Record Date.
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6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS
(SECOND PRIORITY)
Notwithstanding the purchase limitations discussed below, Tax-Qualified
Employee Stock Benefit Plans of the Holding Company and the Bank shall receive,
without payment, nontransferable Subscription Rights to purchase in the
aggregate up to 10% of the Conversion Stock, including first priority to
purchase any shares of Conversion Stock to be issued in the Conversion as a
result of an increase in the Estimated Price Range after commencement of the
Subscription Offering and prior to completion of the Conversion. Consistent with
applicable laws and regulations and policies and practices of the OTS,
Tax-Qualified Employee Stock Benefit Plans may use funds contributed by the
Holding Company or the Bank and/or borrowed from an independent financial
institution to exercise such Subscription Rights, and the Holding Company and
the Bank may make scheduled discretionary contributions thereto, provided that
such contributions do not cause the Holding Company or the Bank to fail to meet
any applicable regulatory capital requirement.
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application for Conversion
filed prior to OTS approval, then, and only in that event, a Supplemental
Eligibility Record Date shall be set and each Supplemental Eligible Account
Holder, shall, subject to the further limitations of Section 11 hereof, receive,
without payment, nontransferable Subscription Rights to purchase up to the
greater of (i) the maximum purchase limitation established for the Community
Offering, (ii) one-tenth of 1% of the total offering of shares of Conversion
Stock in the Subscription Offering, and (iii) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Conversion Stock offered in the Subscription Offering by a fraction, of which
the numerator is the amount of the Qualifying Deposits of the Supplemental
Eligible Account Holder and the denominator is the total amount of all
Qualifying Deposits of all Supplemental Eligible Account Holders, subject to
Section 14 hereof and the availability of shares of Conversion Stock for
purchase after taking into account the shares of Conversion Stock purchased by
Eligible Account Holders and Tax-Qualified Employee Stock Benefit Plans though
the exercise of Subscription Rights under Sections 5 and 6 hereof.
B. In the event of an oversubscription for shares of Conversion Stock,
available shares shall be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares which will make his total
allocation equal to the lesser of the number of shares subscribed for or 100
shares. Any available shares remaining after each subscribing Supplemental
Eligible Account Holder has been allocated the lesser of the number subscribed
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for or 100 shares shall be allocated among the subscribing Supplemental Eligible
Account Holders in the proportion which the Qualifying Deposit of each such
subscribing Supplemental Eligible Account Holder bears to the total Qualifying
Deposits of all such subscribing Supplemental Eligible Account Holders, provided
that no fractional shares shall be issued.
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member, as of the Voting Record Date ("Other Members"),
shall, subject to the further limitations of Section 11, hereof, receive without
payment, Subscription Rights to purchase up to the greater of (i) the maximum
purchase limitation established for the Community Offering and (ii) one-tenth of
1% of the total offering of shares of Conversion Stock in the Subscription
Offering, in each case subject to Section 14 hereof and the availability of
shares of Conversion Stock for purchase after taking into account the shares of
Conversion Stock purchased by Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans, and Supplemental Eligible Account Holders, if any, through
the exercise of Subscription Rights under Sections 5, 6 and 7 hereof.
B. If, pursuant to this Section, Other Members subscribe for a number of
shares of Conversion Stock in excess of the total number of shares of Conversion
Stock remaining, available shares shall be allocated among subscribing Other
Members shares so as to permit each such Other Member, to the extent possible,
to purchase a number of shares which will make his total allocations equal to
the lesser of the number of shares subscribed for or 100 shares. Any remaining
shares after each subscribing Other Member has been allocated the lesser of the
number subscribed for or 100 shares shall be allocated among subscribing Other
Members on a pro rata basis in the same proportion as each such Other Member's
subscription bears to the total subscriptions of all such subscribing Other
Members, provided that no fractional shares shall be issued.
9. PUBLIC STOCKHOLDERS OFFERING
A. If less than the total number of shares of Conversion Stock are sold in
the Subscription Offering, all remaining shares of Conversion Stock shall,
subject to the further limitations of Section 11 hereof, be sold to Public
Stockholders as of the Stockholder Voting Record Date in an amount up to the
greater of (i) the maximum purchase limitation established for the Community
Offering and (ii) one tenth of 1% of the total offering of shares of Conversion
Stock in the Subscription Offering, in each case subject to Section 14 hereof
and the availability of shares of Conversion Stock for purchase after taking
into account the shares of Conversion Stock purchased by Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members. The ability of Public Stockholders to
purchase stock in the Public Stockholders Offering is subject to the right of
the Primary Parties in their absolute discretion to accept or reject in whole or
in part all orders in the Public Stockholders Offering.
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B. If, pursuant to this Section, Public Stockholders as of the Stockholder
Voting Record Date subscribe for a number of shares of Conversion Stock in
excess of the total number of shares of Conversion Stock remaining, available
shares shall be allocated among subscribing Public Stockholders as of the
Stockholder Voting Record Date in an equitable manner as determined by the Board
of Directors, provided that no fractional shares shall be issued.
10. COMMUNITY OFFERING AND OTHER OFFERINGS
A. If less than the total number of shares of Conversion Stock are sold in
the Subscription Offering and Public Stockholders Offering, it is anticipated
that all remaining shares of Conversion Stock shall, if practicable, be sold in
a Community Offering. Subject to the requirements set forth herein, the manner
in which the Conversion Stock is sold in the Community Offering shall have as
the objective the achievement of the widest possible distribution of such stock,
subject to the right of the Primary Parties, in their absolute discretion, to
accept or reject in whole or in part all orders in the Community Offering.
B. In the event of a Community Offering, all shares of Conversion Stock
which are not subscribed for in the Subscription Offering and Public
Stockholders Offering shall be offered for sale by means of a direct community
marketing program, which may provide for the use of brokers, dealers or
investment banking firms experienced in the sale of financial institution
securities. Any available shares in excess of those not subscribed for in the
Subscription Offering will be available for purchase by members of the general
public to whom a Prospectus is delivered by the Holding Company or on its
behalf, with preference given to natural persons who are Residents of the Local
Community ("Preferred Subscribers").
C. A Prospectus and Order Form shall be furnished to such Persons as the
Primary Parties may select in connection with the Community Offering, and each
order for Conversion Stock in the Community Offering shall be subject to the
absolute right of the Primary Parties to accept or reject any such order in
whole or in part either at the time of receipt of an order or as soon as
practicable following completion of the Community Offering. Available shares
will be allocated first to each Preferred Subscriber whose order is accepted in
an amount equal to the lesser of 100 shares or the number of shares subscribed
for by each such Preferred Subscriber, if possible. Thereafter, unallocated
shares shall be allocated among the Preferred Subscribers whose accepted orders
remain unsatisfied in an equitable manner as determined by the Board of
Directors. If there are any shares remaining after all accepted orders by
Preferred Subscribers have been satisfied, any remaining shares shall be
allocated to other members of the general public who place orders in the
Community Offering, applying the same allocation described above for Preferred
Subscribers.
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D. The amount of Conversion Stock that any Person may purchase in the
Community Offering shall (subject to the further limitations of Section 11
hereof) not exceed the number of shares of Conversion Stock as shall equal
$500,000 divided by the Actual Purchase Price, provided, however, that this
amount may be decreased or increased by up to 5%, subject to any required
regulatory approval but without the further approval of Members of the Mutual
Holding Company or the Stockholders of the Holding Company. The Primary Parties
may commence the Community Offering concurrently with, at any time during, or as
soon as practicable after the end of, the Subscription Offering and Public
Stockholders Offering, and the Community Offering must be completed within 45
days after the completion of the Subscription Offering and Public Stockholders
Offering, unless extended by the Primary Parties with any required regulatory
approval.
E. In the event that any insignificant residue of shares of Conversion
Stock is not sold in the Subscription Offering or Community Offering, the
Primary Parties shall use their best efforts to obtain other purchasers for such
shares in such manner and upon such conditions as may be satisfactory to the
OTS.
11. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION STOCK
The following limitations shall apply to all purchases of Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be purchased
by any Person in the First Priority, Third Priority and Fourth Priority in the
Subscription Offering, any Person in the Public Stockholders Offering and any
person in the Community Offering shall not exceed the number of shares of
Conversion Stock as shall equal $500,000 divided by the Actual Purchase Price.
B. The maximum number of shares of Conversion Stock which may be subscribed
for or purchased in all categories in the Conversion by any Person (or persons
through a single account) together with any Associate or group of persons Acting
in Concert shall not exceed such number of shares of Conversion Stock as shall
equal $750,000 divided by the Actual Purchase Price, except for Tax-Qualified
Employee Stock Benefit Plans, which in the aggregate may subscribe for up to 10%
of the Conversion Stock.
C. Except for the Tax-Qualified Employee Stock Benefit Plans, the maximum
number of shares of Conversion Stock which may be purchased in all categories in
the Conversion by any Person (or persons through a single account) together with
any Associate or group of persons Acting in Concert shall not exceed such number
of shares that when combined with Distribution Exchange Shares shall equal
$3,000,000 divided by the Actual Purchase Price per share.
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D. The number of shares of Conversion Stock which Directors and Officers
and their Associates may purchase in the aggregate in the Offering shall not
exceed 25% of the total number of shares of Conversion Stock sold in the
Offerings, including any shares which may be issued in the event of an increase
in the maximum of the Estimated Price Range to reflect changes in market,
financial and economic conditions after commencement of the Subscription
Offering and prior to completion of the Offerings.
E. No Person may purchase fewer than 25 shares of Conversion Stock in the
Offerings, to the extent such shares are available; provided, however, that if
the Actual Purchase Price is greater than $20.00 per share, such minimum number
of shares shall be adjusted so that the aggregate Actual Purchase Price for such
minimum shares will not exceed $500.00.
F. For purposes of the foregoing limitations and the determination of
Subscription Rights, (i) Directors, Officers and Employees shall not be deemed
to be Associates or a group acting in concert solely as a result of their
capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock
Benefit Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purposes of determining compliance with the
limitations set forth in this Section, and (iii) Distribution Exchange Shares
shall be valued at the Actual Purchase Price.
G. Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Mutual Holding Company or the Stockholders of the Holding Company, the
Primary Parties may increase or decrease any of the individual or aggregate
purchase limitations set forth herein to a percentage which does not exceed 5%
of the maximum purchase amount set forth herein whether prior to, during or
after the Subscription Offering or Community Offering. In the event that an
individual purchase limitation is increased after commencement of the
Subscription Offering or any other offering, the Primary Parties shall permit
any Person who subscribed for the maximum number of shares of Conversion Stock
to purchase an additional number of shares, so that such Person shall be
permitted to subscribe for the then maximum number of shares permitted to be
subscribed for by such Person, subject to the rights and preferences of any
Person who has priority Subscription Rights. In the event that an individual
purchase limitation is decreased after commencement of the Subscription Offering
or any other offering, the orders of any Person who subscribed for more than the
new purchase limitation shall be decreased by the minimum amount necessary so
that such Person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such Person.
H. The Primary Parties shall have the right to take all such action as they
may, in their sole discretion, deem necessary, appropriate or advisable in order
to monitor and enforce the terms, conditions, limitations and restrictions
contained in this Section and elsewhere
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in this Plan and the terms, conditions and representations contained in the
Order Form, including, but not limited to, the absolute right (subject only to
any necessary regulatory approvals or concurrences) to reject, limit or revoke
acceptance of any subscription or order and to delay, terminate or refuse to
consummate any sale of Conversion Stock which they believe might violate, or is
designed to, or is any part of a plan to, evade or circumvent such terms,
conditions, limitations, restrictions and representations. Any such action shall
be final, conclusive and binding on all persons, and the Primary Parties and
their respective Boards shall be free from any liability to any Person on
account of any such action.
I. Notwithstanding anything to the contrary contained in this Plan, the
Public Stockholders will not have to sell any Holding Company Common Stock or to
be limited in receiving Distribution Exchange Shares even if their ownership of
Holding Company Common Stock when converted into Distribution Exchange Shares
would exceed an applicable purchase limitation.
12. TIMING OF SUBSCRIPTION OFFERING, MANNER OF EXERCISING SUBSCRIPTION RIGHTS
AND ORDER FORMS
A. The Subscription Offering may be commenced concurrently with or at any
time after the mailing to Voting Members of the Mutual Holding Company and
Stockholders of the Holding Company of the proxy statement(s) to be used in
connection with the Special Meeting and the Stockholders' Meeting. The
Subscription Offering may be closed before the Special Meeting and the
Stockholders' Meeting, provided that the offer and sale of the Conversion Stock
shall be conditioned upon the approval of the Plan by the Voting Members of the
Mutual Holding Company and the Stockholders of the Bank at the Special Meeting
and the Stockholders' Meeting, respectively.
B. The exact timing of the commencement of the Subscription Offering shall
be determined by the Primary Parties in consultation with the Independent
Appraiser and any financial or advisory or investment banking firm retained by
them in connection with the Conversion. The Primary Parties may consider a
number of factors, including, but not limited to, their current and projected
future earnings, local and national economic conditions, and the prevailing
market for stocks in general and stocks of financial institutions in particular.
The Primary Parties shall have the right to withdraw, terminate, suspend, delay,
revoke or modify any such Subscription Offering, at any time and from time to
time, as they in their sole discretion may determine, without liability to any
Person, subject to compliance with applicable securities laws and any necessary
regulatory approval or concurrence.
C. The Primary Parties shall, promptly after the SEC has declared the
Registration Statement, which includes the Prospectus, effective and all
required regulatory approvals have been obtained, distribute or make available
the Prospectus, together with Order Forms for the purchase of Conversion Stock,
to all Participants for the purpose of enabling them to exercise their
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<PAGE>
respective Subscription Rights, subject to Section 14 hereof. The Primary
Parties may elect to mail a Prospectus and Order Form only to those Participants
who request such materials by returning a postage-paid card to the Primary
Parties by a date specified in the letter informing them of their Subscription
Rights. Under such circumstances, the Subscription Offering shall not be closed
until the expiration of 30 days after the mailing by the Primary Parties of the
postage-paid card to Participants.
D. A single Order Form for all Deposit Accounts maintained with the Bank by
an Eligible Account Holder and any Supplemental Eligible Account Holder may be
furnished, notwithstanding the number of Deposit Accounts maintained with the
Bank on the Eligibility Record Date and Supplemental Eligibility Record Date.
respectively.
E. The recipient of an Order Form shall have no less than 20 days and no
more than 45 days from the date of mailing of the Order Form (with the exact
termination date to be set forth on the Order Form) to properly complete and
execute the Order Form and deliver it to the Primary Parties. The Primary
Parties may extend such period by such amount of time as they determine is
appropriate. Failure of any Participant to deliver a properly executed Order
Form to the Primary Parties, along with payment (or authorization for payment by
withdrawal) for the shares of Conversion Stock subscribed for, within time
limits prescribed, shall be deemed a waiver and release by such person of any
rights to subscribe for shares of Conversion Stock. Each Participant shall be
required to confirm to the Primary Parties by executing an Order Form that such
Person has fully complied with all of the terms, conditions, limitations and
restrictions in the Plan.
F. The Primary Parties shall have the absolute right, in their sole
discretion and without liability to any Participant or other Person, to reject
any Order Form, including, but not limited to, any Order Form that is (i)
improperly completed or executed; (ii) not timely received; (iii) transmitted
via facsimile; (iv) not accompanied by the proper payment (or authorization of
withdrawal for payment) or, in the case of institutional investors in the
Community Offering, not accompanied by an irrevocable order together with a
legally binding commitment to pay the full amount of the purchase price prior to
48 hours before the completion of the Offerings; or (v) submitted by a Person
whose representations the Primary Parties believe to be false or who they
otherwise believe, either alone, or acting in concert with others, is violating,
evading or circumventing, or intends to violate, evade or circumvent, the terms
and conditions of the Plan. The Primary Parties may, but will not be required
to, waive any irregularity on any Order Form or may require the submission of
corrected Order Forms or the remittance of full payment for shares of Conversion
Stock by such date as they may specify. The interpretation of the Primary
Parties of the terms and conditions of the Order Forms shall be final and
conclusive.
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13. PAYMENT FOR CONVERSION STOCK
A. Payment for shares of Conversion Stock subscribed for by Participants in
the Subscription Offering and payment for shares of Conversion Stock ordered by
Persons in the Stockholders Offering and Community Offering shall be equal to
the Initial Purchase Price multiplied by the number of shares which are being
subscribed for or ordered, respectively. Such payment may be made in cash, if
delivered in person, or by check or money order at the time the Order Form is
delivered to the Primary Parties. Wire transfers of funds may be accepted in the
sole discretion of the Primary Parties and there shall be no liability for
failing to accept such funds. In addition, the Primary Parties may elect to
provide Participants and/or other Persons who have a Deposit Account with the
Bank the opportunity to pay for shares of Conversion Stock by authorizing the
Bank to withdraw from such Deposit Account an amount equal to the aggregate
Purchase Price of such shares. If the Actual Purchase Price is less than the
Initial Purchase Price, the Primary Parties shall refund the difference to all
Participants and other Persons, unless the Primary Parties choose to provide
Participants and other Persons the opportunity on the Order Form to elect to
have such difference applied to the purchase of additional whole shares of
Conversion Stock. If the Actual Purchase Price is more than the Initial Purchase
Price, the Primary Parties shall reduce the number of shares of Conversion Stock
ordered by Participants and other Persons and refund any remaining amount which
is attributable to a fractional share interest, unless the Primary Parties
choose to provide Participants and other Persons the opportunity to increase the
Actual Purchase Price submitted to them.
B. Consistent with applicable laws and regulations and policies and
practices of the OTS, payment for shares of Conversion Stock subscribed for by
Tax-Qualified Employee Stock Benefit Plans may be made with funds contributed by
the Holding Company, and/or the Bank and/or funds obtained pursuant to a loan
from an unrelated financial institution pursuant to a loan commitment which is
in force from the time that any such plan submits an Order Form until the
closing of the transactions contemplated hereby.
C. If a Participant or other Person authorizes the Bank to withdraw the
amount of the Initial Purchase Price from his or her Deposit Account, the Bank
shall have the right to make such withdrawal or to freeze funds equal to the
aggregate Initial Purchase Price upon receipt of the Order Form. Notwithstanding
any regulatory provisions regarding penalties for early withdrawals from
certificate accounts, the Bank intends to allow payment by means of withdrawal
from certificate accounts without the assessment of such penalties. In the case
of an early withdrawal of only a portion of such account, the certificate
evidencing such account shall be canceled if any applicable minimum balance
requirement ceases to be met. In such case, the remaining balance will earn
interest at the regular passbook rate. However, where any applicable minimum
balance is maintained in such certificate account, the rate of return on the
balance of the certificate account shall remain the same as prior to such early
withdrawal. This waiver of the early withdrawal penalty applies only to
withdrawals made in connection
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with the purchase of Conversion Stock and is entirely within the discretion of
the Primary Parties.
D. The Bank shall pay interest, at not less than the passbook rate, for all
amounts paid in cash, by check or money order to purchase shares of Conversion
Stock in the Subscription Offering and the Community Offering from the date
payment is received until the date the Conversion is completed or terminated.
E. The Bank shall not knowingly loan funds or otherwise extend credit to
any Participant or other Person to purchase Conversion Stock.
F. Each share of Conversion Stock shall be non-assessable upon payment in
full of the Actual Purchase Price.
14. ACCOUNTHOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES
The Primary Parties shall make reasonable efforts to comply with the
securities laws of all jurisdictions in the United States in which Participants
reside. However, no Participant will be offered or receive any Conversion Stock
under the Plan if such Participant resides in a foreign country or resides in a
jurisdiction of the United States with respect to which any of the following
apply; (a) there are few Participants otherwise eligible to subscribe for shares
under this Plan who reside in such jurisdiction; (b) the granting of
Subscription Rights or the offer or sale of shares of Conversion Stock to such
Participants would require any of the Primary Parties or their respective
Directors and Officers, under the laws of such jurisdiction, to register as a
broker-dealer, salesman or selling agent or to register or otherwise qualify the
Conversion Stock for sale in such jurisdiction, or any of the Primary Parties
would be required to qualify as a foreign corporation or file a consent to
service of process in such jurisdiction; and (c) such registration,
qualification or filing in the judgment of the Primary Parties would be
impracticable or unduly burdensome for reasons of cost or otherwise.
15. VOTING RIGHTS OF STOCKHOLDERS
Following consummation of the Conversion, voting rights with respect to the
Bank shall be held and exercised exclusively by the Holding Company as holder of
all of the Bank's outstanding voting capital stock, and voting rights with
respect to the Holding Company shall be held and exercised exclusively by the
holders of the Holding Company's voting capital stock.
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16. LIQUIDATION ACCOUNT
A. At the time of the MHC Merger, a liquidation account shall be
established in an amount equal to the amount of the dividends from Bank Common
Stock waived by the Mutual Holding Company plus the greater of (i) $38,728,073,
which is equal to 100% of the retained earnings of the Bank as of June 30, 1993,
the date of the latest statement of financial condition contained in the final
offering circular utilized in the Bank's initial public offering, or (ii) 53.4%
of the Bank's total stockholders' equity as reflected in its latest statement of
financial condition contained in the final Prospectus utilized in the
Conversion. The function of the liquidation account will be to preserve the
rights of certain holders of Deposit Accounts in the association who maintain
such accounts in the Bank following the Conversion to a priority for
distributions in the unlikely event of a liquidation of the Bank subsequent to
the Conversion.
B. The liquidation account shall be maintained for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders, if any, who maintain
their Deposit Accounts in the Bank after the Conversion. Each such account
holder will, with respect to each Deposit Account held, have a related inchoate
interest in a portion of the liquidation account balance, which interest will be
referred to in this Section 16 as the "subaccount balance." All Deposit Accounts
which have the same social security number will be aggregated for purposes of
determining the initial subaccount balance with respect to such Deposit
Accounts, except as provided in this Section.
C. In the event of a complete liquidation of the Bank subsequent to the
Conversion (and only in such event), each Eligible Account Holder and
Supplemental Eligible Account Holder, if any, shall be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current subaccount balances for Deposit Accounts then held (adjusted as
described below) before any liquidation distribution may be made with respect to
the capital stock of the Bank. No merger, consolidation, sale of bulk assets or
similar combination transaction with another FDIC-insured institution in which
the Bank is not the surviving entity shall be considered a complete liquidation
for this purpose. In any merger or consolidation transaction, the liquidation
account shall be assumed by the surviving entity.
D. The initial subaccount balance for a Deposit Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder, if any, shall be
determined by multiplying the opening balance in the liquidation account by a
fraction, of which the numerator is the amount of the Qualifying Deposits of
such account holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders, if any. For Deposit Accounts in existence at both the Eligibility
Record Date and the Supplemental Eligibility Record Date, if any, separate
initial subaccount balances shall be determined on the basis of the Qualifying
Deposits in such Deposit Accounts on each such record date. Initial subaccount
balances shall not be increased, and shall be subject to downward adjustment as
provided below.
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E. If the aggregate deposit balance in the Deposit Account(s) of any
Eligible Account Holder or Supplemental Eligible Account Holder, if any, at the
close of business on any annual closing date and the Supplemental Eligibility
Record Date for Eligible Account Holders and subsequent to the Eligibility
Record Date for Supplemental Eligible Account Holders, is less than the lesser
of (a) the aggregate deposit balance in such Deposit Account(s) at the close of
business on any other annual closing date subsequent to such record dates or (b)
the aggregate deposit balance in such Deposit Account(s) as of the Eligibility
Record Date or the Supplemental Eligibility Record Date, the subaccount balance
for such Deposit Accounts(s) shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of such a downward adjustment, the subaccount balance shall not be
subsequently increased, notwithstanding any subsequent increase in the deposit
balance of the related Deposit Account(s). The subaccount balance of an Eligible
Account Holder or Supplemental Eligible Account Holder, if any, will be reduced
to zero if the Account Holder ceases to maintain a Deposit Account at the Bank
that has the same social security number as appeared on his Deposit Account(s)
at the Eligibility Record Date or, if applicable, the Supplemental Eligibility
Record Date.
F. Subsequent to the Conversion, the Bank may not pay cash dividends
generally on deposit accounts and/or capital stock of the Bank, if such dividend
or repurchase would reduce the Bank's regulatory capital below the aggregate
amount of the then current subaccount balances for Deposit Accounts then held;
otherwise, the existence of the liquidation account shall not operate to
restrict the use or application of any of the net worth accounts of the Bank.
G. For purposes of this Section, a Deposit Account includes a
predecessor/successor account which is held by an Account Holder with the same
social security number.
17. TRANSFER OF DEPOSIT ACCOUNTS
Each Deposit Account in the Bank at the time of the consummation of the
Conversion shall become, without further action by the holder, a Deposit Account
in the Bank equivalent in withdrawable amount to the withdrawal value (as
adjusted to give effect to any withdrawal made for the purchase of Conversion
Stock), and subject to the same terms and conditions (except as to voting and
liquidation rights) as such Deposit Account in the Bank immediately preceding
consummation of the Conversion. Holders of Deposit Accounts in the Bank shall
not, as such holders, have any voting rights.
23
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18. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION, MARKET MAKING AND STOCK
EXCHANGE LISTING
In connection with the Conversion, the Holding Company shall have
registered its Common Stock pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as amended, and undertaken not to deregister such stock for a
period of three years thereafter. The Holding Company also shall use its best
efforts to (i) encourage and assist a market maker to establish and maintain a
market for its Common Stock and (ii) list the Holding Company Common Stock on a
national or regional securities exchange or to have quotations for such stock
disseminated on the National Association of Securities Dealers Automated
Quotation System.
19. DIRECTORS AND OFFICERS OF THE BANK
Each person serving as a Director or Officer of the Bank or the Holding
Company at the time of the Conversion shall continue to serve as a Director or
Officer of the Bank for the balance of the term for which the person was elected
prior to the Conversion, and until a successor is elected and qualified.
20. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE
CONVERSION
For a period of three years following the Conversion, the Directors and
Officers of the Holding Company, the Bank and their Associates may not purchase,
without the prior written approval of the OTS, Holding Company Common Stock
except from a broker-dealer registered with the SEC. This prohibition shall not
apply, however, to (i) a negotiated transaction arrived at by direct negotiation
between buyer and seller and involving more than 1% of the outstanding Holding
Company Common Stock and (ii) purchases of stock made by and held by any
Tax-Qualified Employee Stock Benefit Plan (and purchases of stock made by and
held by any Non-Tax-Qualified Employee Stock Benefit Plan following the receipt
of stockholder approval of such plan) which may attributable to individual
officers or directors.
The foregoing restriction on purchases of Holding Company Common Stock
shall be in addition to any restrictions that may be imposed by federal and
state securities laws.
21. RESTRICTIONS ON TRANSFER OF STOCK
All shares of the Conversion Stock which are purchased by Persons other
than Directors and Officers shall be transferable without restriction, except in
connection with a transaction prohibited by Section 22 of this Plan. Shares of
Conversion Stock purchased by Directors and Officers of the Holding Company, the
Holding Company and the Bank on original issue from the Holding Company (by
subscription or otherwise) shall be subject to the
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restriction that such shares shall not be sold or otherwise disposed of for
value for a period of one year following the date of purchase, except for any
disposition of such shares following the death of the original purchaser or
pursuant to any merger or similar transaction approved by the OTS. The shares of
Conversion Stock issued by the Holding Company to Directors and Officers shall
bear the following legend giving appropriate notice of such one-year
restriction.
The shares of stock evidenced by this Certificate are restricted as to
transfer for a period of one year from the date of this Certificate
pursuant to Part 563b of the Rules and Regulations of the Office of Thrift
Supervision. These shares may not be transferred during such one-year
period without a legal opinion of counsel for the Company that said
transfer is permissible under the provisions of applicable law and
regulation. This restrictive legend shall be deemed null and void after one
year from the date of this Certificate.
In addition, the Holding Company shall give appropriate instructions to the
transfer agent for the Holding Company Common Stock with respect to the
applicable restrictions relating to the transfer of restricted stock. Any shares
issued at a later date as a stock dividend, stock split or otherwise with
respect to any such restricted stock shall be subject to the same holding period
restrictions as may then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
22. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY
The articles of incorporation of the Holding Company shall prohibit any
Person together with Associates or group of Persons acting in concert from
offering to acquire or acquiring, directly or indirectly, beneficial ownership
of more than 10% of any class of equity securities of the Holding Company, or of
securities convertible into more than 10% of any such class, for five years
following completion of the Conversion. The articles of incorporation of the
Holding Company also shall provide that all equity securities beneficially owned
by any Person in excess of 10% of any class of equity securities during such
five-year period shall be considered "excess shares," and that excess shares
shall not be counted as shares entitled to vote and shall not be voted by any
Person or counted as voting shares in connection with any matters submitted to
the stockholders for a vote. The foregoing restrictions shall not apply to (i)
any offer with a view toward public resale made exclusively to the Holding
Company by underwriters or a selling group acting on this behalf, (ii) the
purchase of shares by a Tax-Qualified Employee Stock Benefit Plan established
for the benefit of the employees of the Holding Company and its subsidiaries
which is exempt from approval requirements under 12 C. F. R. ss.574.3(c)(1)(vi)
or any successor thereto, and (iii) any offer
25
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or acquisition approved in advance by the affirmative vote of two-thirds of the
entire Board of Directors of the Holding Company. Directors, Officers or
Employees of the Holding Company or the Bank or any subsidiary thereof shall not
be deemed to be Associates or a group acting in concert with respect to their
individual acquisition of any class of equity securities of the Holding Company
solely as a result of their capacities as such.
23. TAX RULINGS OR OPINIONS
Consummation of the Conversion is conditioned upon prior receipt by the
Primary Parties of either a ruling or an opinion of counsel, a tax advisor with
respect to federal tax laws, and either a ruling or an opinion of counsel or tax
advisor with respect to Florida tax laws, to the effect that consummation of the
transactions contemplated hereby will not result in a taxable reorganization
under the provisions of the applicable codes or otherwise result in any material
adverse tax consequences to the Primary Parties or to account holders receiving
Subscription Rights before or after the Conversion, except in each case to the
extent, if any, that Subscription Rights are deemed to have fair market value on
the date such rights are issued.
24. STOCK COMPENSATION PLANS
A. The Holding Company is authorized to adopt Tax-Qualified Employee Stock
Benefit Plans in connection with the Conversion, including without limitation an
employee stock ownership plan.
B. The Holding Company is also authorized to adopt stock option plans,
restricted stock grant plans and other Non-Tax-Qualified Employee Stock Benefit
Plans, provided that no stock options shall be granted, and no shares of
Conversion Stock shall be purchased, pursuant to any of such plans prior to the
earlier of (i) the one-year anniversary of the consummation of the Conversion or
(ii) the receipt of stockholder approval of such plans at either the annual or
special meeting of stockholders of the Holding Company to be held not earlier
than six months after the completion of the Conversion.
C. Existing as well as any newly created Tax-Qualified Employee Stock
Benefit Plans may purchase shares of Conversion Stock in the Offerings, to the
extent permitted by the terms of such benefit plans and this Plan.
25. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK
A. Except as may otherwise may be permitted by the OTS, the Holding Company
may not repurchase any shares of its capital stock during the first year
following consummation of the Conversion. During the second and third years
following consummation of the Conversion, the Holding Company may not repurchase
any of its capital stock from any
26
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person, other than pursuant to (i) an offer to repurchase made by the Holding
Company on a pro rata basis to all of its stockholders and which is approved by
the OTS, (ii) the repurchase of qualifying shares of a director, if any, (iii)
purchases in the open market by a Tax-Qualified or Non-Tax-Qualified Employee
Stock Benefit Plan in an amount reasonable and appropriate to fund the plan, or
(iv) a repurchase program approved by the OTS.
B. The Bank may not declare or pay a cash dividend on, or repurchase any
of, its capital stock if the effect thereof would cause the regulatory capital
of the Bank to be reduced below the amount required for the liquidation account.
Any dividend declared or paid on, or repurchase of, the Bank's capital stock
also shall be in compliance with Section 563.134 of the Regulations, or any
successor thereto.
C. Notwithstanding anything to the contrary set forth herein, the Holding
Company may repurchase its capital stock to the extent and subject to the
requirements set forth in Section 563b.3(g)(3) of the Regulations, or any
successor thereto, or as otherwise may be approved by the OTS.
26. PAYMENT OF FEES TO BROKERS
The Primary Parties may elect to offer to pay fees on a per share basis to
securities brokers who assist purchasers of Conversion Stock in the Offerings.
27. EFFECTIVE DATE
The Effective Date of the Conversion shall be the date upon which the last
of the following actions occurs: (i) the filing of Articles of Combination with
the OTS with respect to the MHC Merger, (ii) the closing of the issuance of the
shares of Conversion Stock in the Offerings. The filing of Articles of
Combination relating to the MHC Merger and the closing of the issuance of shares
of Conversion Stock in the Offerings shall not occur until all requisite
regulatory, Member and Stockholder approvals have been obtained, all applicable
waiting periods have expired and sufficient subscriptions and orders for the
Conversion Stock have been received. It is intended that the closing of the MHC
Merger, and the sale of shares of Conversion Stock in the Offerings shall occur
consecutively and substantially simultaneously.
28. AMENDMENT OR TERMINATION OF THE PLAN
If deemed necessary or desirable by the Boards of Directors of the Primary
Parties, this Plan may be substantively amended, as a result of comments from
regulatory authorities or otherwise, at any time prior to the solicitation of
proxies from members and Stockholders to vote on the Plan and at any time
thereafter with the concurrence of the OTS. Any amendment to this Plan made
after approval by the Members and Stockholders with the concurrence of the OTS
shall not necessitate further approval by the Members or Stockholders unless
otherwise
27
<PAGE>
required by the OTS. This Plan shall terminate if the sale of all shares of
Conversion Stock is not completed within 24 months from the date of the Special
Meeting. Prior to the earlier of the Special Meeting and the Stockholders'
Meeting, this Plan may be terminated by the Boards of Directors of the Primary
Parties without approval of the OTS; after the Special Meeting or the
Stockholder's Meeting, the Boards of Directors may terminate this Plan only with
the approval of the OTS.
29. INTERPRETATION OF THE PLAN
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of each of the Boards of Directors of the
Primary Parties shall be final, subject to the authority of the OTS.
28
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ANNEX A
PLAN OF MERGER
PLAN OF MERGER, dated as of September 24, 1997 ("Plan of Merger") by and
between Harbor Florida Bancorp, Inc. (the "Holding Company") and Harbor
Financial, M.H.C. ("Mutual Holding Company"). Unless otherwise noted, defined
terms shall have the same meaning as those set forth in the Plan of Conversion
and Plan of Reorganization of the Mutual Holding Company between Holding Company
and the Mutual Holding Company (of which this Plan of Merger is an Annex
thereto).
WITNESSETH:
WHEREAS, the Mutual Holding Company, through a reorganization and
conversion, owned 53.4% of the Common Stock of Harbor Federal Savings Bank (the
"Bank");
WHEREAS, on June 25, 1997, the Bank effected an additional reorganization
as a result of which the Bank became a wholly owned subsidiary of Holding
Company and the Holding Company became the owner of 100% of the common stock of
the Bank;
WHEREAS, Holding Company now has 53.4% of its shares of common stock owned
by the Mutual Holding Company and 46.6% of its shares held by the public (the
"Minority Shareholders");
WHEREAS, the Board of Directors of the Mutual Holding Company has
determined that it is in the best interests of the Mutual Holding Company and
its members to convert from the mutual to stock form of organization;
WHEREAS, the Bank is wholly owned by Holding Company;
WHEREAS, the conversion of the Mutual Holding Company to stock form will be
facilitated by causing the Mutual Holding Company to convert from the mutual
form to a federal interim stock savings bank to be known as "Interim Savings
Capital" ("Interim") and simultaneously merge with the Holding Company, a
Delaware corporation; and
WHEREAS, immediately upon completion of the Conversion, the Mutual Holding
Company and the existing minority stockholders of the Holding Company will
supplement their current shares of Holding Company Common Stock with shares of
common stock of the Holding Company based upon a Distribution Exchange or
Conversion Ratio established in accordance with the independent appraisal of the
Bank upon merger with Interim, and the remaining shares will be sold in
subscription and community offerings, giving priority subscription rights as set
forth in the Plan in accordance with OTS conversion regulations.
A-1
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and in accordance with federal law, the Holding
Company and the Mutual Holding Company hereby agree that, subject to the
conditions hereinafter set forth, the Mutual Holding Company shall convert from
the mutual form to a federal interim stock savings bank, and Interim shall then
be merged with and into the Holding Company with the Holding Company as the
surviving entity. The terms and conditions of such merger shall be as follows:
1. Regulatory Approvals. The merger shall not become effective until
receipt of approval of the OTS and any other agency having jurisdiction
over the merger, if any.
2. Identity and Name of Resulting Bank. The resulting savings bank in
the Merger shall be the Bank.
3. Offices of Resulting Bank. The home office of the Bank shall be the
Bank's office located at 100 S. Second Street, Fort Pierce, Florida. The
locations of the branch offices of the Bank shall be those of the Bank in
existence on the date of this Plan of Merger. In addition, the Bank shall
operate branch offices at such additional locations as may be approved by
the OTS.
4. The Bank's Federal Charter and Bylaws. The federal stock charter
and bylaws of the Bank as in effect immediately prior to the effectiveness
of the Merger shall be amended as necessary to accomplish the Merger.
5. Effective Date. The effective date of the Conversion ("Effective
Date") shall be the date as soon as practicable after the issuance and/or
execution by the OTS and any other federal or state regulatory agencies, of
all approvals, certificates and documents as may be required in order to
cause the Conversion to become effective.
6. Bank Stockholder Approval. The affirmative vote of the holders of
two-thirds of the outstanding Holding Company Common Stock and at least a
majority of such Holding Company Common Stock not held by the Mutual
Holding Company voting at a meeting of the Holding Company stockholders
shall be required to approve this Plan of Merger.
7. Mutual Holding Company Approval. The approval of a majority of the
members of the Mutual Holding Company, as of a specified date shall be
required to approve this Plan of Merger.
8. Cancellation of Holding Company Common Stock held by the Mutual
Holding Company and Member Interests; Liquidation Account.
A-2
<PAGE>
(a) On the Effective Date, (i) the ownership interest in each
share of Holding Company Common Stock issued and outstanding
immediately prior to the Effective Date and held by the Mutual Holding
Company shall, by virtue of the Reorganization and without any action
on the part of the holder thereof, be canceled, (ii) the interests in
the Mutual Holding Company of any person, firm or entity who or which
qualified as a member of the Mutual Holding Company in accordance with
its mutual charter and bylaws and the laws of the United States prior
to the Mutual Holding Company's conversion from mutual to stock form
(the "Members") shall, by virtue of the Merger and without any action
on the part of the holder thereof, be canceled, and (iii) a
liquidation account shall be established on behalf of each depositor
member of the Mutual Holding Company, as defined in the Plan, in
accordance with Section 16 of the Plan.
(b) At or after the Effective Date and prior to the Merger, each
certificate or certificates theretofore evidencing issued and
outstanding shares of Holding Company Common Stock, other than any
such certificate or certificates owned by the Mutual Holding Company,
which ownership interest shall be extinguished, shall continue to
represent issued and outstanding shares of Bank Common Stock.
9. Dissenting Shares. No Member of the Mutual Holding Company or
stockholder of the Holding Company shall have any dissenter or appraisal
rights in connection with the Conversion.
10. Deposits of the Bank. All deposit accounts of the Bank shall be
and will continue without change in their respective terms, interest rates,
maturities, minimum required balances or withdrawal values. After the
Effective Date, the resulting savings bank will continue to issue deposit
accounts on the same basis as immediately prior to the Effective Date.
11. Effect of Conversion. Upon the Effective Date of the Conversion,
all assets and property (real, personal and mixed, tangible and intangible,
chooses in action, rights and credits) then owned by the Bank, the Holding
Company or the Mutual Holding Company or which would inure to either of
them, shall immediately by operation of law and without any conveyance,
transfer or further action, become the property of the Holding Company (or
the Bank as the case may be), which shall have, hold and enjoy them in its
own right as fully and to the same extent as they were possessed, held and
enjoyed by the Bank, the Holding Company and the Mutual Holding Company
immediately prior to the Effective Date of the Conversion.
12. Directors and Executive Officers. The persons who are the current
officers and directors of the Holding Company will be the directors and
officers of the Holding Company and such terms or positions will be
unchanged.
A-3
<PAGE>
13. Abandonment of Plan of Merger. This Plan of Merger may be
abandoned by either the Holding Company or the Mutual Holding Company at
any time before the Effective Date in the manner set forth in Section 28 of
the Plan.
14. Amendment of this Plan of Merger. This Plan of Merger may be
amended or modified at any time by mutual agreement of the Boards of
Directors of the Holding Company and the Mutual Holding Company in the
manner set forth in Section 28 of the Plan.
15. Governing Law. This Plan of Merger is made pursuant to, and shall
be construed and be governed by, the laws of the United States, and the
rules and regulations promulgated thereunder, including without limitation,
the rules and regulations of the OTS.
16. All Terms Included. This Plan of Merger sets forth all terms,
conditions, agreements and understandings of the Holding Company and the
Mutual Holding Company with respect to the Conversion.
17. Counterparts. This Plan of Merger may be executed in several
identical counterparts, each of which when executed by the Parties and
delivered shall be an original, but all of which together shall constitute
a single instrument. In making proof of this Plan of Merger, it shall not
be necessary to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be
executed by their duly authorized officers as of the date first above written.
HARBOR FINANCIAL, M.H.C.
Attest: By:______________________________
______________________ Michael J. Brown, Sr.
Secretary
HARBOR FLORIDA BANCORP, INC.
Attest: By:______________________________
______________________ Michael J. Brown, Sr.
Secretary
A-4
Exhibit 8.3
[RP FINANCIAL, LC. LETTERHEAD]
October 2, 1997
Board of Directors
Harbor Federal Savings Bank
Harbor Financial, M.H.C.
Harbor Florida Bancorp, Inc.
100 South Second Street
Fort Pierce, Florida 34950
Re: Plan of Conversion: Subscription Rights
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion (the "Plan") adopted by the
Boards of Directors of yHarbor Florida Bancorp, Inc. (the "Holding Company") and
Harbor Financial, M.H.C. (the "Mutual Holding Company"). Pursuant to the Plan,
the Holding Company will offer and sell the Conversion Stock.
We understand that "subscription rights" to purchase shares of the
Conversion Stock are to be issued to (i) Eligible Account Holders; (ii) the
ESOP; (iii) Supplemental Eligible Account Holders; and, (iv) Other Members,
collectively referred to as the "Recipients". Based solely upon our observation
that the subscription rights will be available to such recipients without cost,
will be legally non-transferable and of short duration, and will afford the
Recipients the right only to purchase shares of Conversion Stock at the same
price as will be paid by members of the general public in the Community Offering
and Syndicated Community Offering, but without undertaking any independent
investigation of state or federal law or the position of the Internal Revenue
Service with respect to this issue, we are of the belief that:
(1) the subscription rights will have no ascertainable market value; and,
(2) the price at which the subscription rights are exercisable will not be
more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Company's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Conversion Stock in the conversion
will thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Sincerely,
/s/ James J. Oren
James J. Oren
Vice President
Exhibit 23.1
CONSENT OF PEABODY & BROWN
The Boards of Directors
Harbor Financial, M.H.C.
Harbor Florida Bancorp, Inc.
We hereby consent to the use of our firm's name in the Form AC and Form
S-1, Registration Statement, and Amendments thereto as filed with the Office of
Thrift Supervision and the Securities and Exchange Commission by Harbor
Financial, M.H.C. and Harbor Florida Bancorp, Inc., respectively, and to the
references to our opinion therein under the heading "Legal and Tax Matters."
/s/ Peabody & Brown
Peabody & Brown
Washington, D.C.
October 2, 1997
Exhibit 23.2
Accountants' Consent
The Board of Directors
Harbor Florida Bancorp, Inc.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus. Our report refers to a
change in the method of accounting for income taxes as of October 1, 1993.
/s/ KPMG Peat Marwick L.L.P.
----------------------------
KPMG Peat Marwick L.L.P.
West Palm Beach, Florida
October 2, 1997
Exhibit 23.3
[RP FINANCIAL, LC. LETTERHEAD]
October 2, 1997
Board of Directors
Harbor Federal Savings Bank
Harbor Financial, M.H.C.
Harbor Florida Bancorp, Inc.
100 South Second Street
Fort Pierce, Florida 34950
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion of Harbor Financial, M.H.C., the mutual holding company for Harbor
Florida Bancorp, Inc., Fort Pierce, Florida and any amendments thereto, in the
Form S-1 Registration Statement and any amendments thereto. We also hereby
consent to the inclusion of, summary of and references to our Appraisal Report
and our statement concerning subscription rights in such filings including the
Prospectus of Harbor Florida Bancorp, Inc.
Sincerely,
RP FINANCIAL, LC.
/s/ James J. Oren
James J. Oren
Vice President
Exhibit 99.2
NOTICE OF SPECIAL MEETING OF MEMBERS
HARBOR FINANCIAL M.H.C.
100 S. Second Street
Fort Pierce, Florida 34950
(561) 461-2414
NOTICE OF SPECIAL MEETING OF MEMBERS
To Be Held on December ____, 1997
NOTICE IS HEREBY GIVEN that a special meeting ("Special Meeting") of the
members of Harbor Financial M.H.C. (the "Mutual Holding Company") will be held
at _________________________ located at ________________________ Fort Pierce,
Florida on December ____, 1997 at ________, Florida time, to consider and vote
upon:
1. The approval of the Plan of Conversion of the Mutual Holding Company
and Agreement and Plan of Reorganization between the Mutual Holding
Company and Harbor Florida Bancorp, Inc. (the "Plan" or "Plan of
Conversion"), and
2. Such other business as may properly come before the Special Meeting or
any adjournment thereof. Except with respect to procedural matters
incident to the conduct of the meeting, management is not aware of any
other such business.
The Board of Directors has fixed _________ ___, 1997 as the voting record
date for the determination of members entitled to notice of and to vote at the
Special Meeting and at any adjournment thereof. Only those members of the Mutual
Holding Company of record as of the close of business on that date will be
entitled to vote at the Special Meeting or at any such adjournment.
BY ORDER OF THE BOARD OF DIRECTORS
Michael J. Brown, Sr.
President and Chief Executive Officer
Fort Pierce, Florida
November ____, 1997
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THE BOARD OF DIRECTORS RECOMMENDS THAT YOU SIGN, DATE AND MARK THE ENCLOSED
PROXY CARD IN FAVOR OF THE ADOPTION OF THE PLAN AND RETURN IT PROMPTLY IN THE
ENCLOSED SELF-ADDRESSED STAMPED ENVELOPE. PROXY CARDS MUST BE RECEIVED PRIOR TO
THE COMMENCEMENT OF THE SPECIAL MEETING. RETURNING PROXY CARDS WILL NOT PREVENT
YOU FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL MEETING.
YOUR VOTE IS IMPORTANT. NOT VOTING WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE PLAN. VOTING ON THE PLAN DOES NOT REQUIRE YOU TO PURCHASE STOCK IN
THE OFFERINGS.
2
<PAGE>
HARBOR FINANCIAL M.H.C.
---------------
PROXY STATEMENT
---------------
SPECIAL MEETING OF MEMBERS
To Be Held On December ___,1997
INTRODUCTION
This Proxy Statement is being furnished to you in connection with the
solicitation by the Board of Directors of Harbor Financial M.H.C. (the "Mutual
Holding Company") of proxies to be voted at the Special Meeting of Members of
the Mutual Holding Company (the "Special Meeting") to be held on December __,
1997 at ___________________________ located at ___________________________ Fort
Pierce, Florida at ____, Florida time, and at any adjournments thereof. This
Special Meeting is being held for the purpose of considering and voting upon a
Plan of Conversion of the Mutual Holding Company and Agreement and Plan of
Reorganization ("Plan" or the "Plan of Conversion") between the Mutual Holding
Company and Harbor Florida Bancorp Inc. ("Harbor Florida"), pursuant to which
the Mutual Holding Company will convert into a interim federal stock savings
bank and simultaneously will merge with and into Harbor Florida pursuant to
which the Mutual Holding Company will cease to exist and the shares of Common
Stock held by the Mutual Holding Company will be canceled. As a result of the
merger of the Mutual Holding Company with and into Harbor Florida all shares of
Harbor Florida Common Stock except those held by the Mutual Holding Company
defined as (the "Public Harbor Florida Shares") will be deemed to be
Distribution Exchange Shares pursuant to the Distribution Exchange Ratio, as
defined in the Prospectus, which will result in the holders of such shares
owning in the aggregate approximately the same percentage of Common Stock to be
outstanding upon the completion of the conversion as the percentage of Public
Harbor Florida Shares owned by them in the aggregate immediately prior to the
consummation of the conversion. Additionally Harbor Florida will offer by means
of a Prospectus shares of its Common Stock to the public. The offer and sale of
the Common Stock and the conversion of the Mutual Holding Company are referred
to herein as the "Conversion".
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Voting in favor of the Plan of Conversion will not obligate any person to
purchase Common Stock. Common Stock is being offered only by the Prospectus,
which is available upon request. See "How to Obtain Additional Information."
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
Depositors of Harbor Federal Savings Bank (the "Bank") are members of the
Mutual Holding Company under its current Charter (the "Members"). All of the
Members as of the close of business on ________________ (the "Voting Record
Date") who continue to be Members on the date of the Special Meeting or any
adjournment thereof will be entitled to vote on the Plan of Conversion. If there
are not sufficient votes for approval of the Plan at the time of the Special
Meeting, the Special Meeting may be adjourned to permit further solicitation of
proxies.
At the Special Meeting, each depositor Member will be entitled to cast one
vote for every $100.00, or fraction thereof, of the total withdrawal value of
all of his accounts in the Bank as of the Voting Record Date up to a maximum of
1,000 votes. Additionally, each borrower member of the Mutual Holding Company as
of both January 6, 1994, and the Voting Record Date, who continues to be a
borrower as of the date of the Special Meeting will be entitled to cast one vote
as a borrower member, in addition to any votes he or she may be entitled to cast
as a depositor. As of the Voting Record Date, the Bank had approximately
_________ deposit accounts, the holders of which are entitled to cast a total of
approximately ___________ votes at the Special Meeting.
Pursuant to Office of Thrift Supervision ("OTS") regulations, consummation
of the Conversion is conditioned upon the approval of the Plan by the OTS, as
well as (1) the approval of the holders of at least a majority of the total
number of votes eligible to be cast by the Members as of the close of business
on the Voting Record Date at the Special Meeting, and (2) the approval of the
holders of at least two-thirds of the shares of the outstanding Common Stock
held by the Mutual Holding Company and the holders of the Public Harbor Florida
Shares (the "Public Stockholders") (collectively, the "Stockholders") as of the
Voting Record Date at a Special Meeting of Stockholders called for the purpose
of considering the Plan (the "Stockholders' Meeting"). In addition, the Mutual
Holding Company, and Harbor Florida (the "Primary Parties") have conditioned the
consummation of the Conversion on the approval of the Plan by the holders of at
least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Stockholders' Meeting. The Mutual Holding Company intends to
vote its shares of Harbor Florida Common Stock, which amount to 53.41% of the
outstanding shares, in favor of the Plan at the Stockholder's Meeting.
This Proxy Statement and related materials are first being mailed to
Members on or about November ___, 1997.
4
<PAGE>
PROXIES
The Board of Directors of the Mutual Holding Company is soliciting the
proxy which accompanies this Proxy Statement for use at the Special Meeting.
Each proxy solicited hereby, if properly executed, duly returned before the
Special Meeting, and not revoked prior to or at the Special Meeting, will be
voted at the Special Meeting in accordance with the Member's instructions
indicated thereon. If no contrary instructions are given on the proxy, the
proxy, if signed, will be voted in favor of the Plan of Conversion. If you do
not return a proxy or vote at the meeting, it will have the same effect as a
vote against the Plan of the Conversion. If any other matters properly come
before the Special Meeting, the persons named as proxies will vote upon such
matters according to their discretion. Except with respect to procedural matters
incident to the conduct of the meeting, no additional matters are expected to
come before the Special Meeting.
Any Member giving a proxy may revoke it at any time before it is voted by
delivering to the Secretary of the Mutual Holding Company either a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
voting in person at the Special Meeting. Proxies are being solicited only for
use at the Special Meeting and any and all adjournments thereof and will not be
used for any other meeting.
Proxies may be solicited by officers, directors and employees of the Mutual
Holding Company personally, by telephone or further correspondence without
additional compensation.
Deposits held in a trust or other fiduciary capacity may be voted by the
trustee or other fiduciary to whom voting rights are delegated under the trust
instrument or other governing document or applicable law. In the case of
individual retirement accounts and Keogh trusts established at the Bank, the
beneficiary may direct the trustee's vote on the Plan of Conversion by returning
a completed proxy card to the Mutual Holding Company. For retirement accounts
and Keogh trusts, if no proxy card is returned, the trustee will vote in favor
of approval of the Plan of Conversion on behalf of such beneficiary.
The Board of Directors urges you to mark, sign, date and return the
enclosed proxy card in the enclosed postage-paid envelope as soon as possible,
even if you do not intend to purchase Conversion Stock. This will ensure that
your vote will be counted.
5
<PAGE>
INCORPORATION OF INFORMATION BY REFERENCE
The accompanying Prospectus of Harbor Florida is incorporated herein by
reference. The Prospectus sets forth a description of the Plan of Conversion and
the related offering of common stock by the Company under the caption "THE
CONVERSION." Such caption also describes the effects of the Conversion on the
stockholders of Harbor Florida and the members of the Mutual Holding Company,
including the tax consequences of the Conversion and the establishment of a
liquidation account for the benefit of certain depositors of Harbor Federal
Savings Bank (the "Bank").
Information regarding Harbor Florida, the Bank and the Mutual Holding
Company are set forth in the Prospectus under the captions "Harbor Florida
Bancorp, Inc.," "Harbor Federal Savings Bank" and "Harbor Financial M.H.C.,"
respectively, as well as under the caption "Summary." The Prospectus also
describes the business and financial condition of the Bank under the captions
"Business of the Bank" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The historical financial statements of
Harbor Florida and the Bank are included in the Prospectus. Information
regarding the use of proceeds of the Offerings conducted in connection with the
Conversion, the historical capitalization of the Bank and the pro forma
capitalization of Harbor Florida, and other pro forma data are set forth in the
Prospectus under the captions "Use of Proceeds," "Capitalization" and "Pro Forma
Data," respectively.
The Prospectus sets forth certain information as to the Harbor Florida
Common Stock beneficially owned by (i) the only persons or entities who or which
were known to Harbor Florida to be the beneficial owner of more than 5% of the
issued and outstanding Harbor Florida Common Stock, (ii) the directors and
executive officers of Harbor Florida, and (iii) all directors and executive
officers of Harbor Florida as a group. See "Beneficial Ownership of Capital
Stock" in the Prospectus.
6
<PAGE>
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with or
without conditions, or disapproves a plan of conversion may obtain review of
such action by filing in the court of appeals of the United States for the
circuit in which the principal office or residence of such person is located, or
in the United States Court of Appeals for the District of Columbia, a written
petition praying that the final action of the OTS be modified, terminated or set
aside. Such petition must be filed within 30 days after the publication of
notice of such final action in the Federal Register, or 30 days after the
mailing by the applicant of the notice to members as provided for in 12 C.F.R.
s.563b.6(c), whichever is later. The further procedure for review is as follows:
A copy of the petition is forthwith transmitted to the OTS by the clerk of the
court and thereupon the OTS files in the court the record in proceeding, as
provided in Section 2112 of Title 28 of the United States Code. Upon the filing
of the petition, the court has jurisdiction, which upon the filing of the record
is exclusive, to affirm, modify, terminate, or set aside in whole or in part,
the final action of the OTS. Review of such proceedings is as provided in
Chapter 7 of Title 5 of the United States Code. The judgment and decree of the
court is final, except that they are subject to review by the Supreme Court upon
certiorari as provided in Section 1254 of Title 28 of the United States Code.
REGISTRATION REQUIREMENTS
The Common Stock is registered under the Securities Exchange Act of 1934,
as amended ("Exchange Act"). It will remain so registered in connection with the
Conversion. Harbor Florida has agreed not to deregister such shares for a period
of three years following the Conversion. The proxy rules, tender offer rules,
insider reporting requirements and trading restrictions, annual and periodic
reporting and other requirements of the Exchange Act are applicable to Harbor
Florida. Harbor Florida will continue to furnish its stockholders with annual
reports containing audited financial statements as promptly as practicable after
the end of each fiscal year.
HOW TO OBTAIN ADDITIONAL INFORMATION
You may obtain a copy of the Plan of Conversion, as well as the Certificate
of Incorporation and Bylaws of Harbor Florida, from any office of the Bank or in
writing from the Mutual Holding Company. Any such requests should be directed to
Harbor Financial M.H.C., 100 S. Second Street, Fort Pierce, Florida 34950,
Attention: Secretary. So that you have sufficient time to receive and review the
requested materials, it is recommended that any such requests be sent so that
they are received by the Mutual Holding Company by November ___, 1997.
7
<PAGE>
AVAILABLE INFORMATION
The Mutual Holding Company has filed with the OTS an Application for
Conversion pursuant to which it will reorganize in accordance with the terms of
the Plan. This Proxy Statement and the Prospectus omit certain information
contained in such Application. The Application may be inspected at the offices
of the OTS, 1700 G Street, N.W., Washington, D.C. 20552, and at the Northeast
Regional Office of the OTS located at 10 Exchange Place, 18th Floor, Jersey
City, New Jersey 07302.
The Company has filed with the Securities and Exchange Commission ("SEC") a
Registration Statement on Form S-1 (File No. 333-_________) ("Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
Conversion Stock and Exchange Shares being offered in the Offerings. This Proxy
Statement and the Prospectus do not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. Such information may be inspected at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and copies may be obtained at prescribed
rates from the Public Reference Section of the SEC at the same address. The SEC
maintains a World Wide Web site on the Internet that contains reports, proxy and
information statements and other information regarding registrants such as
Harbor Florida that file electronically with the SEC. The address of such site
is: http://www.sec.gov. The statements contained in this Prospectus as to the
contents of any contract or other document filed as an exhibit to the
Registration Statement describe all material provisions of such contracts or
other documents. Nevertheless, such statements are, of necessity, brief
descriptions thereof and are not necessarily complete; each such statement is
qualified by reference to such contract or document.
------------------------
PLEASE REMEMBER TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN
THE ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR IMPORTANT VOTE WILL BE COUNTED
AT THE SPECIAL MEETING.
------------------------
8
<PAGE>
THIS PROXY STATEMENT IS NEITHER AN OFFER TO SELL NOR THE SOLICITATION OF
ANY OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
9
<PAGE>
EXHIBIT A
10
<PAGE>
PLAN OF CONVERSION
of
HARBOR FINANCIAL, M.H.C.
and
AGREEMENT AND PLAN OF MERGER
between
HARBOR FINANCIAL, M.H.C.
and
HARBOR FLORIDA BANCORP, INC.
SEPTEMBER 24, 1997
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
1. INTRODUCTION.......................................................... 1
2. DEFINITIONS........................................................... 3
3. GENERAL PROCEDURE FOR CONVERSION...................................... 10
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF
CONVERSION STOCK.................................................. 11
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS
(FIRST PRIORITY)................................................... 13
6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE
STOCK BENEFIT PLANS (SECOND PRIORITY).............................. 15
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS (THIRD PRIORITY)........................................... 15
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)................ 16
9. PUBLIC STOCKHOLDERS OFFERING.......................................... 16
10. COMMUNITY OFFERING AND OTHER OFFERINGS................................. 17
11. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF
CONVERSION STOCK.................................................... 18
12. TIMING OF SUBSCRIPTION OFFERING., MANNER OF EXERCISING
SUBSCRIPTION RIGHTS AND ORDER FORMS................................. 20
13. PAYMENT FOR CONVERSION STOCK........................................... 23
14. ACCOUNTHOLDERS IN NONQUALIFIED STATES OR FOREIGN
COUNTRIES........................................................... 24
15. VOTING RIGHTS OF STOCKHOLDERS.......................................... 24
16. LIQUIDATION ACCOUNT.................................................... 25
17. TRANSFER OF DEPOSIT ACCOUNTS........................................... 26
18. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION,
MARKET MAKING AND STOCK EXCHANGE LISTING............................ 27
19. DIRECTORS AND OFFICERS OF THE BANK..................................... 27
20. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS
FOLLOWING THE CONVERSION............................................ 27
21. RESTRICTIONS ON TRANSFER OF STOCK...................................... 27
22. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY............ 28
23. TAX RULINGS OR OPTIONS................................................. 29
24. STOCK COMPENSATION PLANS............................................... 29
25. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK.......................... 29
26. PAYMENT OF FEES TO BROKERS............................................. 30
27. EFFECTIVE DATE......................................................... 30
28. AMENDMENT OR TERMINATION OF THE PLAN................................... 30
29. INTERPRETATION OF THE PLAN............................................. 31
ANNEX A - PLAN OF MERGER BETWEEN THE MUTUAL HOLDING COMPANY
AND THE HOLDING COMPANY............................................. A-1
i
<PAGE>
1. INTRODUCTION
For purposes of this section, all capitalized terms have the meaning
ascribed to them in Section 2.
On January 6, 1994, Harbor Federal Savings Bank, a federally chartered
mutual savings institution reorganized into the mutual holding company form of
organization and consummated a sale of stock to its members. To accomplish this
transaction, the Bank organized a federally chartered, stock savings bank as a
wholly owned subsidiary. The mutual Bank then transferred substantially all of
its assets and liabilities to the stock Bank in exchange for 4,894,200 shares of
Bank Common Stock, and reorganized itself into a federally chartered mutual
holding company known as Harbor Financial, M.H.C. and sold 2,239,831 shares of
Bank Common Stock to directors, employees and members of the Bank. On June 25,
1997, the Bank completed a reorganization in which the Bank became a wholly
owned subsidiary of a stock middle tier holding company known as Harbor Florida
Bancorp, Inc. ("Holding Company"). Shareholders of the Bank became, as a result
of the reorganization, shareholders of the Holding Company. As of, June 30,
1997, the Mutual Holding Company and the Public Stockholders own an aggregate of
53.4 and 46.6% of the outstanding Holding Company Common Stock, respectively.
The Boards of Directors of the Mutual Holding Company and the Holding
Company believe that a conversion of the Mutual Holding Company to stock form
pursuant to this Plan of Conversion is in the best interests of the Mutual
Holding Company and the Bank, as well as the best interests of their respective
Members and Stockholders. The Boards of Directors determined that this Plan of
Conversion equitably provides for the interests of Members through the granting
of subscription rights and the establishment of a liquidation account. The
Conversion will result in the raising of additional capital for the Bank and the
Holding Company and should result in a more active and liquid market for the
Holding Company Common Stock than currently exists, although there can be no
assurances that this will be the case. The Conversion is designed to enable the
Bank and Holding Company to compete more effectively in a market which is
undergoing consolidation.
If the Bank had undertaken a standard conversion involving the formation of
a stock holding company in 1994, applicable OTS regulations would have required
a greater amount of Bank Common Stock to be sold than resulted in the amount of
net proceeds raised in the Bank's initial public offering undertaken with the
mutual holding company reorganization. In addition, if a standard conversion had
been conducted in 1994, management of the Bank believes that it would have been
difficult to profitably invest the larger amount of capital that would have been
raised, when compared to the amount of net proceeds raised in the Bank's initial
public offering. A standard conversion in 1994 also would have immediately
eliminated all aspects of the mutual form of organization and possibly have
subjected the Association to
1
<PAGE>
greater interference from stockholders and from an unwanted acquisition or other
change in control of the Bank.
Subsequent to the formation of the Mutual Holding Company, there have been
certain changes in the policies of the OTS relating to mutual holding companies.
In addition, market conditions for the stocks of savings institutions and their
holding companies have improved. The Bank and the Holding Company have also
gained experience in being a company required to meet the filing requirements of
the Securities and Exchange Act of 1934 and in conducting stockholder meetings
and other stockholder matters, such as communications, press releases, NASD
matters and dividend payments. In light of the foregoing, the Boards of
Directors of the Mutual Holding Company and the Holding Company believe that it
is in the best interests of such companies and their respective Members and
Stockholders to reorganize into the stock form of organization at this time, and
that the most feasible way to do so is through the Conversion and Merger.
The Bank formed the Holding Company which became the holding company for
the Bank pursuant to a reorganization completed in June of 1997. In the current
transaction, as described in more detail herein, the Mutual Holding Company will
convert to an interim federal stock savings association and will simultaneously
merge with and into the Holding Company pursuant to the Plan of Merger included
as Annex A hereto, pursuant to which the Mutual Holding Company will cease to
exist and a liquidation account will be established for the benefit of depositor
Members as of specified dates. Stock of the Holding Company held by Public
Shareholders shall be automatically converted into the right to receive
additional shares of Holding Company stock based on a Distribution Exchange
Ratio plus cash in lieu of any fractional share interest.
In connection with the Conversion, the Holding Company will offer shares of
Conversion Stock in the Offerings as provided herein. Shares of Conversion Stock
will be offered in a Subscription Offering in descending order of priority to
Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders, Other Members and Public Stockholders.
Any shares of Conversion Stock remaining unsold after the Subscription Offering
will be offered for sale to the public through a Community Offering as
determined by the Boards of Directors of the Holding Company.
The Conversion is intended to provide support to the Bank's lending and
investment activities and thereby enhance the Bank's capabilities to serve the
borrowing and other financial needs of the communities it serves.
This Plan was adopted by the Boards of Directors of the Mutual Holding
Company, the Holding Company and the Bank on September 24, 1997.
2
<PAGE>
This Plan is subject to the approval of the OTS and must be adopted by (1)
at least a majority of the total number of votes eligible to be cast by Voting
Members of the Mutual Holding Company at the Special Meeting and (2) holders of
at least two-thirds of the outstanding Holding Company Common Stock at the
Stockholders' Meeting. In addition, the Primary parties have conditioned the
consummation of the Conversion on the approval of the Plan by at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders at
the Stockholders' Meeting.
After the Conversion, the Bank will continue to be regulated by the OTS, as
its chartering authority, and by the FDIC, which insures the Bank's deposits. In
addition, the Bank will continue to be a member of the Federal Home Loan Bank
System, and all insured savings deposits will continue to be insured by the FDIC
up to the maximum provided by law.
2. DEFINITIONS
As used in this Plan, the terms set forth below have the following meaning:
Actual Purchase Price means the price per share at which the Conversion
Stock is ultimately sold by the Holding Company in the Offerings in accordance
with the terms hereof.
Affiliate means a Person who, directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
Person specified.
Associate, when used to indicate a relationship with any Person, means (i)
a corporation or organization (other than the Mutual Holding Company, the Bank,
a majority-owned subsidiary of the Bank or the Holding Company) of which such
Person is a director, officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, (ii) any
trust or other estate in which such Person has a substantial beneficial interest
or as to which such Person serves as trustee or in a similar fiduciary capacity,
provided, however, that such term shall not include any Tax-Qualified Employee
Stock Benefit Plan of the Holding Company or the Bank in which such Person has a
substantial beneficial interest or serves as a. trustee or in a similar
fiduciary capacity, and (iii) any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person or who is a
director or officer of the a Holding Company or the Bank or any of the
subsidiaries of the foregoing.
Bank means Harbor Federal Savings Bank in its mutual or stock form or
Harbor Federal Savings Bank following consummation of the Conversion, as the
context of the reference indicates.
Bank Common Stock means the common stock of the Bank, par value $1.00 per
share, which stock is not and will not be insured by the FDIC or any other
governmental authority.
3
<PAGE>
Code means the Internal Revenue Code of 1986, as amended.
Community Offering means the offering for sale by the Holding Company of
any shares of Conversion Stock not subscribed for in the Subscription Offering
to (i) natural persons residing in the Local Community, and (ii) such other
Persons within or without the State of Florida as may be selected by the Holding
Company within its sole discretion.
Control (including the terms "controlling," "controlled by," and "under
common control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Conversion means (i) the conversion of the Mutual Holding Company to an
interim federal stock savings association and the subsequent merger, pursuant to
which the Mutual Holding Company will cease to exist, and (ii) the issuance of
Conversion Stock by the Holding Company in the Offerings as provided herein,
which will increase the number of shares of a Holding Company Common Stock
outstanding (subject to approval by Holding Company Shareholders) and the
capitalization of the Holding Company and the Bank.
Conversion Stock means the Holding Company Common Stock to be issued and
sold in the Offerings pursuant to the Plan of Conversion.
Deposit Account means savings and demand accounts, including passbook
accounts, money market deposit accounts and negotiable order of withdrawal
accounts, and certificates of deposit and other authorized accounts of the Bank
held by a Member.
Director, Officer and Employee means the terms as applied respectively to
any person who is a director. officer or employee of the Mutual Holding Company,
the Bank, the Holding Company or any subsidiary thereof.
Distribution Exchange Ratio means the rate at which shares of the Holding
Company held by the Public Stockholders will be increased in connection with the
Holding Company Merger. The exact rate shall be determined by the Mutual Holding
Company and the Holding Company in order to ensure that upon consummation of the
Conversion the Public Stockholders will own in the aggregate approximately the
same percentage of the Holding Company Common Stock to be outstanding upon
completion of the Conversion as the percentage of Holding Company Common Stock
owned by them in the aggregate on the Effective Date, before giving effect to
(a) cash paid in lieu of any fractional interests of Holding Company Common
Stock and (b) any shares of Conversion Stock purchased by the Public
Stockholders in the Offerings or tax-qualified employee stock benefit plans
thereafter.
4
<PAGE>
Distribution Exchange Shares means the additional shares of Holding Company
Common Stock to be issued to the Public Stockholders in connection with the
Holding Company Merger with the MHC.
Eligible Account Holder means any Person holding a Qualifying Deposit on
the Eligibility Record Date for purposes of determining subscription rights and
establishing subaccount balances in the liquidation account to be established
pursuant to the provision herein.
Eligibility Record Date means the date for determining Qualifying Deposits
of Eligible Account Holders and is the close of business on July 31, 1996.
Estimated Price Range means the range of the estimated aggregate pro forma
market value of the Conversion Stock to be issued in the Offerings, as
determined by the Independent Appraiser in accordance with Section 4 hereof.
FDIC means the Federal Deposit Insurance Corporation or any successor
thereto.
Holding Company means Harbor Florida Bancorp, Inc., a corporation organized
under the laws of the State of Delaware. Upon completion of the June 1997
Reorganization, the Holding Company held all of the outstanding capital stock of
the Bank.
Holding Company Common Stock means the Common Stock of the Holding Company,
par value $0.01 per share, which stock cannot and will not be insured by the
FDIC or any other governmental authority.
Independent Appraiser means the independent investment banking or financial
consulting firm retained by the Holding Company and the Bank to prepare an
appraisal of the estimated pro forma market value of the Conversion Stock.
Initial Purchase Price means the price per share to be paid initially by
Participants for shares of Conversion Stock subscribed for in the Subscription
Offering and by Persons for shares of Conversion Stock ordered in the Community
Offering.
Interim means an interim federal stock savings association, which will be
formed as a result of the conversion of Harbor Financial, M.H.C. into the stock
form of organization.
Local Community means all counties in which the Bank has its home office or
a branch office.
Member means any Person qualifying as a member of the Mutual Holding
Company in accordance with its mutual charter and bylaws and the laws of the
United States.
5
<PAGE>
MHC Merger means the merger of Interim with and into the Holding Company
pursuant to the Plan of Merger included as Annex A hereto.
Mid-Tier Holding Company - Harbor Florida Bancorp, or Holding Company, a
Delaware chartered corporation which owns 100% of the common stock of Harbor
Federal Savings Bank.
Mutual Holding Company means Harbor Financial, M.H.C. (an owner of 53.4% of
the common stock of Holding Company) prior to the MHC's conversion into an
interim federal stock savings association.
Offerings means the Subscription Offering, the Public Stockholders Offering
and the Community Offering.
Officer means the president, all senior vice-presidents, secretary,
treasurer or principal financial officer, comptroller or principal accounting
officer and any other person performing similar functions with respect to any
organization whether incorporated or unincorporated.
Order Form means the form or forms provided by the Holding Company,
containing all such terms and provisions as set forth herein, to a Participant
or other Person by which Conversion Stock may be ordered in the Offerings.
Other Member means a Voting Member who is not an Eligible Account Holder or
a Supplemental Eligible Account Holder.
OTS means the Office of Thrift Supervision or any successor thereto.
Participant means any Eligible Account Holder, Tax-Qualified Employee Stock
Benefit Plan, Supplemental Eligible Account Holder and Other Member.
Person means an individual, a corporation, a partnership, an association, a
joint stock company, a trust, an unincorporated organization or a government or
any political subdivision thereof.
Plan of Conversion and Plan of Merger means this Plan of Conversion and the
Plan of Merger as adopted by the Boards of Directors of the Mutual Holding
Company, the Holding Company, and the Bank and any amendment hereto approved as
provided herein. The Board of Directors of the Holding Company shall adopt this
Plan as soon as practicable following its organization.
6
<PAGE>
Primary Parties means the Mutual Holding Company, the Holding Company, and
the Bank.
Prospectus means the one or more documents to be used in offering the
Conversion Stock in the Offerings.
Public Stockholders mean those Persons who own shares of Bank Common Stock,
excluding the Mutual Holding Company, as of the Stockholder Voting Record Date.
Public Stockholders Offering means the offering for sale by the Holding
Company of any shares of Conversion Stock not subscribed for in the Subscription
Offering to Public Stockholders, at the sole discretion of the bank and the
Holding Company.
Qualifying Deposit means the aggregate balance of all Deposit Accounts in
the Bank of (i) an Eligible Account Holder at the close of business on the
Eligibility Record Date, provided such aggregate balance is not less than $50,
and (ii) a Supplemental Eligible Account Holder at the close of business on the
Supplemental Eligibility Record Date, provided such aggregate balance is not
less than $50.
Resident means any person who, on the date designated for that category of
subscriber in the Plan, maintained a bona fide residence within the Local
Community . The designated dates for Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members are July 31, 1996, September 30, 1997
and __________________, 1997, respectively. To the extent the person is a
corporation or other business entity, the principal place of business or
headquarters shall be within the Local Community. To the extent the person is a
personal benefit plan, the circumstances of the beneficiary shall apply with
respect to this definition. In the case of all other benefit plans,
circumstances of the trustee shall be examined for purposes of this definition.
The Bank may utilize deposit or loan records or such other evidence provided to
it to make a determination as to whether a person is a bona fide resident of the
Local Community. Subscribers in the Community Offering who are natural persons
will have a purchase preference if they were residents of the Local Community on
the date of the Prospectus. In all cases, however, such determination shall be
in the sole discretion of the Bank and Holding Company.
SEC means the Securities and Exchange Commission.
Special Meeting means the Special Meeting of Members of the Mutual Holding
Company and Public Stockholders called for the purpose of submitting this Plan
to the Members for their approval, and matters related to stockholders including
any adjournments of such meeting.
7
<PAGE>
Stockholders means those Persons who own shares of the Holding Company
Common Stock.
Stockholders' Meeting means the annual or special meeting of Stockholders
of the Holding Company called for the purpose of submitting this Plan to the
Stockholders for their approval, including any adjournments of such meeting.
Stockholder Voting Record Date means the date for determining the Public
Stockholders of the Bank eligible to vote at the Stockholders' Meeting.
Subscription Offering means the offering of the Conversion Stock to
Participants.
Subscription Rights means nontransferable rights to subscribe for
Conversion Stock granted to Participants pursuant to the terms of this Plan.
Supplemental Eligible Account Holder means any Person and their Associates.
holding a Qualifying Deposit at the close of business on the Supplemental
Eligibility Record Date.
Supplemental Eligibility Record Date, if applicable, means the date for
determining Qualifying Deposits of Supplemental Eligible Account Holders and
shall be required if the Eligibility Record Date is more than 15 months prior to
the date of the latest amendment to the Application for Conversion filed by the
Mutual Holding Company prior to approval of such application by the OTS. If
applicable, the Supplemental Eligibility Record Date shall be the last day of
the calendar quarter preceding OTS approval of the Application for Conversion
submitted by the Mutual Holding Company pursuant to this Plan of Conversion.
Tax-Qualified Employee Stock Benefit Plan means any defined benefit plan or
defined contribution plan, such as an employee stock ownership plan, stock bonus
plan, profit-sharing plan or other plan, which is established for the benefit of
the employees of the Holding Company and the Bank and which, with its related
trust, meets the requirements to be "qualified" under Section 401 of the Code as
from time to time in effect. A "Non-Tax-Qualified Employee Stock Benefit Plan"
is any defined benefit plan or defined contribution stock benefit plan which is
not so qualified.
Voting Member means a Person who at the close of business on the Voting
Record Date is entitled to vote as a Member of the Mutual Holding Company in
accordance with its mutual charter and bylaws.
Voting Record Date means the date or dates for determining the eligibility
of Members to vote at the Special Meeting
8
<PAGE>
3. GENERAL PROCEDURE FOR CONVERSION
A. An application for the Conversion, including the Plan of Conversion and
all other requisite material (the "Application for Conversion"), shall be
submitted to the OTS for approval. The Mutual Holding Company and the Holding
Company also will cause notice of the adoption of the Plan by the Boards of
Directors of the Mutual Holding Company and the Holding Company to be given by
publication in a newspaper having general circulation in each community in which
an office of the Bank is located; and will cause copies of the Plan to be made
available at each office of the Mutual Holding Company and the Bank for
inspection by Members and Stockholders. The Mutual Holding Company and the Bank
will post the notice of the filing of the Application for Conversion in each of
their offices and will again cause to be published, in accordance with the
requirements of applicable regulations of the OTS, a notice of the filing with
the OTS of an application to convert the Mutual Holding Company from mutual to
stock form.
B. Promptly following receipt of requisite approval of the OTS, this Plan
will be submitted to the Members for their consideration and approval at the
Special Meeting. The Mutual Holding Company may, at its option, mail to all
Members as of the Voting Record Date, at their last known address appearing on
the records of the Mutual Holding Company and the Holding Company, a proxy
statement in either long or summary form describing the Plan which will be
submitted to a vote of the Members at the Special Meeting. The Holding Company
also shall mail to all such Members (as well as other Participants) either a
Prospectus and Order Form for the purchase of Conversion Stock or a letter
informing them of their right to receive a Prospectus and Order Form and a
postage prepaid card to request such materials, subject to the provisions
herein. The Plan must be approved by the affirmative vote of at least a majority
of the total number of votes eligible to be cast by Voting Members at the
Special Meeting.
C. Subscription Rights to purchase shares of Conversion Stock will be
issued without payment therefor to Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders and Other Members.
D. The Holding Company shall file preliminary proxy materials with the OTS
and SEC in order to seek the approval of the Plan by its Stockholders. Promptly
following clearance of such proxy materials by the OTS and the SEC and the
receipt of any other requisite approval of the OTS, the Holding Company will
mail definitive proxy materials to all Stockholders as of the Stockholder Voting
Record Date, at their last known address appearing on the records of the Holding
Company, for their consideration and approval of this Plan at the Stockholders'
Meeting. The Plan must be approved by the holders of at least two-thirds of the
outstanding Holding Company Common Stock as of the Voting Record Date. In
addition, the Primary Parties have conditioned the consummation of the
Conversion on the approval of
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the Plan by at least a majority of the votes cast, in person or by proxy, by the
Public Stockholders as of the Stockholder Voting Record Date at the
Stockholders' Meeting.
E. The Conversion Stock shall be first offered for sale in a Subscription
Offering to Eligible Account Holders, Tax-Qualified Employee Stock Benefit
Plans, Supplemental Eligible Account Holders and Other Members. It is
anticipated that any shares of Conversion Stock remaining unsold after the
Subscription Offering will be sold first through the Public Stockholders
Offering and then through a Community Offering Community. The purchase price per
share for the Conversion Stock shall be a uniform price determined in accordance
with the provisions herein. The Holding Company shall contribute to the Bank an
amount of the net proceeds received by the Holding Company from the sale of
Conversion Stock as shall be determined by the Boards of Directors of the
Holding Company, and the Bank and as shall be approved by the OTS.
F. The Effective Date of the Conversion shall be the date set forth in
Section 27 hereof. Upon the effective date, the following transactions shall
occur:
(i) The Mutual Holding Company shall convert into an interim federal
stock savings association, Interim, and Interim shall simultaneously merge
with and into the Holding Company in the MHC Merger, with the Holding
Company being the surviving institution. As a result of the MHC Merger, (a)
the shares of Holding Company Common Stock currently held by the Mutual
Holding Company shall be canceled and (b) Members of the Mutual Holding
Company will be granted interests in the liquidation account to be
established pursuant to Section 16 hereof.
(ii) The Holding Company shall sell the Conversion Stock in the
Offerings, as provided herein.
G. The Primary parties may retain and pay for the services of financial and
other advisors and investment bankers to assist in connection with any or all
aspects of the Conversion, including in connection with the Offerings, the
payment of fees to brokers and investment bankers for assisting Persons in
completing and/or submitting Order Forms. All fees, expenses, retainers and
similar items shall be reasonable.
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
A. The aggregate price at which shares of Conversion Stock shall be sold in
the Offerings shall be based on a pro forma valuation of the aggregate market
value of the Conversion Stock prepared by the Independent Appraiser. The
valuation shall be based on financial information relating to the Primary
Parties, market, financial and economic conditions, a comparison of the Primary
Parties with selected publicly held financial
10
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institutions and holding companies and with comparable financial institutions
and holding companies and such other factors as the Independent Appraiser may
deem to be important. The valuation shall be stated in terms of an Estimated
Price Range, the maximum of which shall generally be no more than 15% above the
average of the minimum and maximum of such price range and the minimum of which
shall generally be no more than 15% below such average. The valuation shall be
updated during the Conversion as market and financial conditions warrant and as
may be required by the OTS.
B. Based upon the independent valuation, the Boards of Directors of the
Primary Parties shall fix the Initial Purchase Price and the number (or range)
of shares of Conversion Stock ("Offering Range") to be offered in the
Subscription Offering, Public Stockholders Offering and Community Offering, if
applicable. The Actual Purchase Price and the total number of shares of
Conversion Stock to be issued in the Offerings shall be determined by the Boards
of Directors of the Primary Parties upon conclusion of the Offerings in
consultation with the Independent Appraiser and any financial advisor or
investment banker retained by the Primary Parties in connection therewith.
C. Subject to the approval of the OTS, the Estimated Price Range may be
increased or decreased to reflect market, financial and economic conditions
prior to completion of the Conversion, and under such circumstances the Primary
Parties may correspondingly increase or decrease the total number of shares of
Conversion Stock to be issued in the Conversion to reflect any such change.
Notwithstanding anything to the contrary contained in this Plan, no
resolicitation of subscribers shall be required and subscribers shall not be
permitted to modify or cancel their subscriptions unless the gross proceeds from
the sale of the Conversion Stock issued in the Conversion are less than the
minimum or (excluding purchases, if any, by the Holding Company's Tax-Qualified
Employee Stock Benefit Plans) more than 15% above the maximum of the Estimated
Price Range set forth in the Prospectus. In the event of an increase in the
total number of shares offered in the Conversion due to an increase in the
Estimated Price Range, the priority of share allocation shall be as set forth in
this Plan, provided, however, that such priority will have no effect whatsoever
on the ability of the Tax Qualified Employee Stock Benefit Plans to purchase
additional shares pursuant to Section 4.D.
D. (i) In the event that Tax-Qualified Employee Stock Benefit Plans are
unable to purchase the number of shares subscribed for by such Tax-Qualified
Employee Stock Benefit Plans due to an oversubscription for shares of Conversion
Stock pursuant to Section 5 hereof, Tax-Qualified Employee Stock Benefit Plans
may purchase from the Holding Company, and the Holding Company may sell to the
Tax-Qualified Employee Stock Benefit Plans, such additional shares ("Additional
Shares") of Holding Company Common Stock necessary to fill the subscriptions of
the Tax-Qualified Employee Stock Benefit Plans, provided that such Additional
Shares may not exceed 10% of the total numbers of shares of Conversion Stock
sold in the Conversion. The sale of Additional Shares, if necessary, will occur
contemporaneously with the sale of the Conversion Stock. The sale of Additional
Shares to
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Tax-Qualified Employee Stock Benefit Plans by the Holding Company is conditioned
upon receipt by the Holding Company of a letter from the Independent Appraiser
to the effect that such sale would not have a material effect on the Conversion
or the Actual Purchase Price and the approval of the OTS. The ability of the
Tax-Qualified Employee Stock Benefit Plans to purchase up to an additional 10%
of the total number of shares of Conversion Stock sold in the Conversion shall
not be affected or limited in any manner by the priorities or purchase
limitations otherwise set forth in this Plan of Conversion.
(ii) Notwithstanding anything to the contrary contained in this Plan, if
the final valuation of the Conversion Stock exceeds the maximum of the Estimated
Price Range, up to 10% of the total number of shares of Conversion Stock sold in
the Conversion may be sold to Tax-Qualified Stock Benefit Plans prior to filling
any other orders for Conversion Stock from such shares in excess of the
Estimated Price Range.
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights equal to the greater of (i) the maximum
purchase limitation established for the Community Offering, (ii) one-tenth of 1%
of the total offering of shares of Conversion Stock in the Subscription
Offering, and (iii) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Conversion Stock offered
in the Subscription Offering by a fraction, of which the numerator is the amount
of the Qualifying Deposit of the Eligible Account Holder and the denominator is
the total amount of all Qualifying Deposits of all Eligible Account Holders,
subject to Section 14 hereof.
B. In the event of an oversubscription for shares of Conversion Stock
pursuant to the provisions herein, available shares shall be allocated among
subscribing Eligible Account Holders so as to permit, to the extent possible, to
purchase a number of shares which will make his or her total allocation equal to
the lesser of the number of shares subscribed for or 100 shares. Any available
shares remaining after each subscribing Eligible Account Holder has been
allocated the lesser of the number subscribed for or 100 shares shall be
allocated among the subscribing Eligible Account Holders in the proportion which
the Qualifying Deposit of each such subscribing Eligible Account Holder bears to
the total Qualifying Deposits of all such subscribing Eligible Account Holders,
provided that no fractional shares shall be issued. Subscription Rights of
Eligible Account Holders who are also Directors or Officers and their Associates
shall be subordinated to those of other Eligible Account Holders to the extent
that they are attributable to increased deposits during the one-year period
preceding the Eligibility Record Date.
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6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS
(SECOND PRIORITY)
Notwithstanding the purchase limitations discussed below, Tax-Qualified
Employee Stock Benefit Plans of the Holding Company and the Bank shall receive,
without payment, nontransferable Subscription Rights to purchase in the
aggregate up to 10% of the Conversion Stock, including first priority to
purchase any shares of Conversion Stock to be issued in the Conversion as a
result of an increase in the Estimated Price Range after commencement of the
Subscription Offering and prior to completion of the Conversion. Consistent with
applicable laws and regulations and policies and practices of the OTS,
Tax-Qualified Employee Stock Benefit Plans may use funds contributed by the
Holding Company or the Bank and/or borrowed from an independent financial
institution to exercise such Subscription Rights, and the Holding Company and
the Bank may make scheduled discretionary contributions thereto, provided that
such contributions do not cause the Holding Company or the Bank to fail to meet
any applicable regulatory capital requirement.
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application for Conversion
filed prior to OTS approval, then, and only in that event, a Supplemental
Eligibility Record Date shall be set and each Supplemental Eligible Account
Holder, shall, subject to the further limitations of Section 11 hereof, receive,
without payment, nontransferable Subscription Rights to purchase up to the
greater of (i) the maximum purchase limitation established for the Community
Offering, (ii) one-tenth of 1% of the total offering of shares of Conversion
Stock in the Subscription Offering, and (iii) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Conversion Stock offered in the Subscription Offering by a fraction, of which
the numerator is the amount of the Qualifying Deposits of the Supplemental
Eligible Account Holder and the denominator is the total amount of all
Qualifying Deposits of all Supplemental Eligible Account Holders, subject to
Section 14 hereof and the availability of shares of Conversion Stock for
purchase after taking into account the shares of Conversion Stock purchased by
Eligible Account Holders and Tax-Qualified Employee Stock Benefit Plans though
the exercise of Subscription Rights under Sections 5 and 6 hereof.
B. In the event of an oversubscription for shares of Conversion Stock,
available shares shall be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares which will make his total
allocation equal to the lesser of the number of shares subscribed
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<PAGE>
for or 100 shares. Any available shares remaining after each subscribing
Supplemental Eligible Account Holder has been allocated the lesser of the number
subscribed for or 100 shares shall be allocated among the subscribing
Supplemental Eligible Account Holders in the proportion which the Qualifying
Deposit of each such subscribing Supplemental Eligible Account Holder bears to
the total Qualifying Deposits of all such subscribing Supplemental Eligible
Account Holders, provided that no fractional shares shall be issued.
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member, as of the Voting Record Date ("Other Members"),
shall, subject to the further limitations of Section 11, hereof, receive without
payment, Subscription Rights to purchase up to the greater of (i) the maximum
purchase limitation established for the Community Offering and (ii) one-tenth of
1% of the total offering of shares of Conversion Stock in the Subscription
Offering, in each case subject to Section 14 hereof and the availability of
shares of Conversion Stock for purchase after taking into account the shares of
Conversion Stock purchased by Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans, and Supplemental Eligible Account Holders, if any, through
the exercise of Subscription Rights under Sections 5, 6 and 7 hereof.
B. If, pursuant to this Section, Other Members subscribe for a number of
shares of Conversion Stock in excess of the total number of shares of Conversion
Stock remaining, available shares shall be allocated among subscribing Other
Members shares so as to permit each such Other Member, to the extent possible,
to purchase a number of shares which will make his total allocations equal to
the lesser of the number of shares subscribed for or 100 shares. Any remaining
shares after each subscribing Other Member has been allocated the lesser of the
number subscribed for or 100 shares shall be allocated among subscribing Other
Members on a pro rata basis in the same proportion as each such Other Member's
subscription bears to the total subscriptions of all such subscribing Other
Members, provided that no fractional shares shall be issued.
9. PUBLIC STOCKHOLDERS OFFERING
A. If less than the total number of shares of Conversion Stock are sold in
the Subscription Offering, all remaining shares of Conversion Stock shall,
subject to the further limitations of Section 11 hereof, be sold to Public
Stockholders as of the Stockholder Voting Record Date in an amount up to the
greater of (i) the maximum purchase limitation established for the Community
Offering and (ii) one tenth of 1% of the total offering of shares of Conversion
Stock in the Subscription Offering, in each case subject to Section 14 hereof
and the availability of shares of Conversion Stock for purchase after taking
into account the shares of Conversion Stock purchased by Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members. The ability of Public Stockholders to
purchase stock in the Public Stockholders Offering is subject to the right of
the Primary Parties in their absolute discretion to accept or reject in whole or
in part all orders in the Public Stockholders Offering.
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B. If, pursuant to this Section, Public Stockholders as of the Stockholder
Voting Record Date subscribe for a number of shares of Conversion Stock in
excess of the total number of shares of Conversion Stock remaining, available
shares shall be allocated among subscribing Public Stockholders as of the
Stockholder Voting Record Date in an equitable manner as determined by the Board
of Directors, provided that no fractional shares shall be issued.
10. COMMUNITY OFFERING AND OTHER OFFERINGS
A. If less than the total number of shares of Conversion Stock are sold in
the Subscription Offering and Public Stockholders Offering, it is anticipated
that all remaining shares of Conversion Stock shall, if practicable, be sold in
a Community Offering. Subject to the requirements set forth herein, the manner
in which the Conversion Stock is sold in the Community Offering shall have as
the objective the achievement of the widest possible distribution of such stock,
subject to the right of the Primary Parties, in their absolute discretion, to
accept or reject in whole or in part all orders in the Community Offering.
B. In the event of a Community Offering, all shares of Conversion Stock
which are not subscribed for in the Subscription Offering and Public
Stockholders Offering shall be offered for sale by means of a direct community
marketing program, which may provide for the use of brokers, dealers or
investment banking firms experienced in the sale of financial institution
securities. Any available shares in excess of those not subscribed for in the
Subscription Offering will be available for purchase by members of the general
public to whom a Prospectus is delivered by the Holding Company or on its
behalf, with preference given to natural persons who are Residents of the Local
Community ("Preferred Subscribers").
C. A Prospectus and Order Form shall be furnished to such Persons as the
Primary Parties may select in connection with the Community Offering, and each
order for Conversion Stock in the Community Offering shall be subject to the
absolute right of the Primary Parties to accept or reject any such order in
whole or in part either at the time of receipt of an order or as soon as
practicable following completion of the Community Offering. Available shares
will be allocated first to each Preferred Subscriber whose order is accepted in
an amount equal to the lesser of 100 shares or the number of shares subscribed
for by each such Preferred Subscriber, if possible. Thereafter, unallocated
shares shall be allocated among the Preferred Subscribers whose accepted orders
remain unsatisfied in an equitable manner as determined by the Board of
Directors. If there are any shares remaining after all accepted orders by
Preferred Subscribers have been satisfied, any remaining shares shall be
allocated to other members of the general public who place orders in the
Community Offering, applying the same allocation described above for Preferred
Subscribers.
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D. The amount of Conversion Stock that any Person may purchase in the
Community Offering shall (subject to the further limitations of Section 11
hereof) not exceed the number of shares of Conversion Stock as shall equal
$500,000 divided by the Actual Purchase Price, provided, however, that this
amount may be decreased or increased by up to 5%, subject to any required
regulatory approval but without the further approval of Members of the Mutual
Holding Company or the Stockholders of the Holding Company. The Primary Parties
may commence the Community Offering concurrently with, at any time during, or as
soon as practicable after the end of, the Subscription Offering and Public
Stockholders Offering, and the Community Offering must be completed within 45
days after the completion of the Subscription Offering and Public Stockholders
Offering, unless extended by the Primary Parties with any required regulatory
approval.
E. In the event that any insignificant residue of shares of Conversion
Stock is not sold in the Subscription Offering or Community Offering, the
Primary Parties shall use their best efforts to obtain other purchasers for such
shares in such manner and upon such conditions as may be satisfactory to the
OTS.
11. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION STOCK
The following limitations shall apply to all purchases of Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be purchased
by any Person in the First Priority, Third Priority and Fourth Priority in the
Subscription Offering, any Person in the Public Stockholders Offering and any
person in the Community Offering shall not exceed the number of shares of
Conversion Stock as shall equal $500,000 divided by the Actual Purchase Price.
B. The maximum number of shares of Conversion Stock which may be subscribed
for or purchased in all categories in the Conversion by any Person (or persons
through a single account) together with any Associate or group of persons Acting
in Concert shall not exceed such number of shares of Conversion Stock as shall
equal $750,000 divided by the Actual Purchase Price, except for Tax-Qualified
Employee Stock Benefit Plans, which in the aggregate may subscribe for up to 10%
of the Conversion Stock.
C. Except for the Tax-Qualified Employee Stock Benefit Plans, the maximum
number of shares of Conversion Stock which may be purchased in all categories in
the Conversion by any Person (or persons through a single account) together with
any Associate or group of persons Acting in Concert shall not exceed such number
of shares that when combined with Distribution Exchange Shares shall equal
$3,000,000 divided by the Actual Purchase Price per share.
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D. The number of shares of Conversion Stock which Directors and Officers
and their Associates may purchase in the aggregate in the Offering shall not
exceed 25% of the total number of shares of Conversion Stock sold in the
Offerings, including any shares which may be issued in the event of an increase
in the maximum of the Estimated Price Range to reflect changes in market,
financial and economic conditions after commencement of the Subscription
Offering and prior to completion of the Offerings.
E. No Person may purchase fewer than 25 shares of Conversion Stock in the
Offerings, to the extent such shares are available; provided, however, that if
the Actual Purchase Price is greater than $20.00 per share, such minimum number
of shares shall be adjusted so that the aggregate Actual Purchase Price for such
minimum shares will not exceed $500.00.
F. For purposes of the foregoing limitations and the determination of
Subscription Rights, (i) Directors, Officers and Employees shall not be deemed
to be Associates or a group acting in concert solely as a result of their
capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock
Benefit Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purposes of determining compliance with the
limitations set forth in this Section, and (iii) Distribution Exchange Shares
shall be valued at the Actual Purchase Price.
G. Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Mutual Holding Company or the Stockholders of the Holding Company, the
Primary Parties may increase or decrease any of the individual or aggregate
purchase limitations set forth herein to a percentage which does not exceed 5%
of the maximum purchase amount set forth herein whether prior to, during or
after the Subscription Offering or Community Offering. In the event that an
individual purchase limitation is increased after commencement of the
Subscription Offering or any other offering, the Primary Parties shall permit
any Person who subscribed for the maximum number of shares of Conversion Stock
to purchase an additional number of shares, so that such Person shall be
permitted to subscribe for the then maximum number of shares permitted to be
subscribed for by such Person, subject to the rights and preferences of any
Person who has priority Subscription Rights. In the event that an individual
purchase limitation is decreased after commencement of the Subscription Offering
or any other offering, the orders of any Person who subscribed for more than the
new purchase limitation shall be decreased by the minimum amount necessary so
that such Person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such Person.
H. The Primary Parties shall have the right to take all such action as they
may, in their sole discretion, deem necessary, appropriate or advisable in order
to monitor and enforce the terms, conditions, limitations and restrictions
contained in this Section and elsewhere in
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this Plan and the terms, conditions and representations contained in the Order
Form, including, but not limited to, the absolute right (subject only to any
necessary regulatory approvals or concurrences) to reject, limit or revoke
acceptance of any subscription or order and to delay, terminate or refuse to
consummate any sale of Conversion Stock which they believe might violate, or is
designed to, or is any part of a plan to, evade or circumvent such terms,
conditions, limitations, restrictions and representations. Any such action shall
be final, conclusive and binding on all persons, and the Primary Parties and
their respective Boards shall be free from any liability to any Person on
account of any such action.
I. Notwithstanding anything to the contrary contained in this Plan, the
Public Stockholders will not have to sell any Holding Company Common Stock or to
be limited in receiving Distribution Exchange Shares even if their ownership of
Holding Company Common Stock when converted into Distribution Exchange Shares
would exceed an applicable purchase limitation.
12. TIMING OF SUBSCRIPTION OFFERING, MANNER OF EXERCISING SUBSCRIPTION RIGHTS
AND ORDER FORMS
A. The Subscription Offering may be commenced concurrently with or at any
time after the mailing to Voting Members of the Mutual Holding Company and
Stockholders of the Holding Company of the proxy statement(s) to be used in
connection with the Special Meeting and the Stockholders' Meeting. The
Subscription Offering may be closed before the Special Meeting and the
Stockholders' Meeting, provided that the offer and sale of the Conversion Stock
shall be conditioned upon the approval of the Plan by the Voting Members of the
Mutual Holding Company and the Stockholders of the Bank at the Special Meeting
and the Stockholders' Meeting, respectively.
B. The exact timing of the commencement of the Subscription Offering shall
be determined by the Primary Parties in consultation with the Independent
Appraiser and any financial or advisory or investment banking firm retained by
them in connection with the Conversion. The Primary Parties may consider a
number of factors, including, but not limited to, their current and projected
future earnings, local and national economic conditions, and the prevailing
market for stocks in general and stocks of financial institutions in particular.
The Primary Parties shall have the right to withdraw, terminate, suspend, delay,
revoke or modify any such Subscription Offering, at any time and from time to
time, as they in their sole discretion may determine, without liability to any
Person, subject to compliance with applicable securities laws and any necessary
regulatory approval or concurrence.
C. The Primary Parties shall, promptly after the SEC has declared the
Registration Statement, which includes the Prospectus, effective and all
required regulatory approvals have been obtained, distribute or make available
the Prospectus, together with Order Forms for the purchase of Conversion Stock,
to all Participants for the purpose of enabling them to exercise their
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respective Subscription Rights, subject to Section 14 hereof. The Primary
Parties may elect to mail a Prospectus and Order Form only to those Participants
who request such materials by returning a postage-paid card to the Primary
Parties by a date specified in the letter informing them of their Subscription
Rights. Under such circumstances, the Subscription Offering shall not be closed
until the expiration of 30 days after the mailing by the Primary Parties of the
postage-paid card to Participants.
D. A single Order Form for all Deposit Accounts maintained with the Bank by
an Eligible Account Holder and any Supplemental Eligible Account Holder may be
furnished, notwithstanding the number of Deposit Accounts maintained with the
Bank on the Eligibility Record Date and Supplemental Eligibility Record Date.
respectively.
E. The recipient of an Order Form shall have no less than 20 days and no
more than 45 days from the date of mailing of the Order Form (with the exact
termination date to be set forth on the Order Form) to properly complete and
execute the Order Form and deliver it to the Primary Parties. The Primary
Parties may extend such period by such amount of time as they determine is
appropriate. Failure of any Participant to deliver a properly executed Order
Form to the Primary Parties, along with payment (or authorization for payment by
withdrawal) for the shares of Conversion Stock subscribed for, within time
limits prescribed, shall be deemed a waiver and release by such person of any
rights to subscribe for shares of Conversion Stock. Each Participant shall be
required to confirm to the Primary Parties by executing an Order Form that such
Person has fully complied with all of the terms, conditions, limitations and
restrictions in the Plan.
F. The Primary Parties shall have the absolute right, in their sole
discretion and without liability to any Participant or other Person, to reject
any Order Form, including, but not limited to, any Order Form that is (i)
improperly completed or executed; (ii) not timely received; (iii) transmitted
via facsimile; (iv) not accompanied by the proper payment (or authorization of
withdrawal for payment) or, in the case of institutional investors in the
Community Offering, not accompanied by an irrevocable order together with a
legally binding commitment to pay the full amount of the purchase price prior to
48 hours before the completion of the Offerings; or (v) submitted by a Person
whose representations the Primary Parties believe to be false or who they
otherwise believe, either alone, or acting in concert with others, is violating,
evading or circumventing, or intends to violate, evade or circumvent, the terms
and conditions of the Plan. The Primary Parties may, but will not be required
to, waive any irregularity on any Order Form or may require the submission of
corrected Order Forms or the remittance of full payment for shares of Conversion
Stock by such date as they may specify. The interpretation of the Primary
Parties of the terms and conditions of the Order Forms shall be final and
conclusive.
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13. PAYMENT FOR CONVERSION STOCK
A. Payment for shares of Conversion Stock subscribed for by Participants in
the Subscription Offering and payment for shares of Conversion Stock ordered by
Persons in the Stockholders Offering and Community Offering shall be equal to
the Initial Purchase Price multiplied by the number of shares which are being
subscribed for or ordered, respectively. Such payment may be made in cash, if
delivered in person, or by check or money order at the time the Order Form is
delivered to the Primary Parties. Wire transfers of funds may be accepted in the
sole discretion of the Primary Parties and there shall be no liability for
failing to accept such funds. In addition, the Primary Parties may elect to
provide Participants and/or other Persons who have a Deposit Account with the
Bank the opportunity to pay for shares of Conversion Stock by authorizing the
Bank to withdraw from such Deposit Account an amount equal to the aggregate
Purchase Price of such shares. If the Actual Purchase Price is less than the
Initial Purchase Price, the Primary Parties shall refund the difference to all
Participants and other Persons, unless the Primary Parties choose to provide
Participants and other Persons the opportunity on the Order Form to elect to
have such difference applied to the purchase of additional whole shares of
Conversion Stock. If the Actual Purchase Price is more than the Initial Purchase
Price, the Primary Parties shall reduce the number of shares of Conversion Stock
ordered by Participants and other Persons and refund any remaining amount which
is attributable to a fractional share interest, unless the Primary Parties
choose to provide Participants and other Persons the opportunity to increase the
Actual Purchase Price submitted to them.
B. Consistent with applicable laws and regulations and policies and
practices of the OTS, payment for shares of Conversion Stock subscribed for by
Tax-Qualified Employee Stock Benefit Plans may be made with funds contributed by
the Holding Company, and/or the Bank and/or funds obtained pursuant to a loan
from an unrelated financial institution pursuant to a loan commitment which is
in force from the time that any such plan submits an Order Form until the
closing of the transactions contemplated hereby.
C. If a Participant or other Person authorizes the Bank to withdraw the
amount of the Initial Purchase Price from his or her Deposit Account, the Bank
shall have the right to make such withdrawal or to freeze funds equal to the
aggregate Initial Purchase Price upon receipt of the Order Form. Notwithstanding
any regulatory provisions regarding penalties for early withdrawals from
certificate accounts, the Bank intends to allow payment by means of withdrawal
from certificate accounts without the assessment of such penalties. In the case
of an early withdrawal of only a portion of such account, the certificate
evidencing such account shall be canceled if any applicable minimum balance
requirement ceases to be met. In such case, the remaining balance will earn
interest at the regular passbook rate. However, where any applicable minimum
balance is maintained in such certificate account, the rate of return on the
balance of the certificate account shall remain the same as prior to such early
withdrawal. This waiver of the early withdrawal penalty applies only to
withdrawals made in connection
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with the purchase of Conversion Stock and is entirely within the discretion of
the Primary Parties.
D. The Bank shall pay interest, at not less than the passbook rate, for all
amounts paid in cash, by check or money order to purchase shares of Conversion
Stock in the Subscription Offering and the Community Offering from the date
payment is received until the date the Conversion is completed or terminated.
E. The Bank shall not knowingly loan funds or otherwise extend credit to
any Participant or other Person to purchase Conversion Stock.
F. Each share of Conversion Stock shall be non-assessable upon payment in
full of the Actual Purchase Price.
14. ACCOUNTHOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES
The Primary Parties shall make reasonable efforts to comply with the
securities laws of all jurisdictions in the United States in which Participants
reside. However, no Participant will be offered or receive any Conversion Stock
under the Plan if such Participant resides in a foreign country or resides in a
jurisdiction of the United States with respect to which any of the following
apply; (a) there are few Participants otherwise eligible to subscribe for shares
under this Plan who reside in such jurisdiction; (b) the granting of
Subscription Rights or the offer or sale of shares of Conversion Stock to such
Participants would require any of the Primary Parties or their respective
Directors and Officers, under the laws of such jurisdiction, to register as a
broker-dealer, salesman or selling agent or to register or otherwise qualify the
Conversion Stock for sale in such jurisdiction, or any of the Primary Parties
would be required to qualify as a foreign corporation or file a consent to
service of process in such jurisdiction; and (c) such registration,
qualification or filing in the judgment of the Primary Parties would be
impracticable or unduly burdensome for reasons of cost or otherwise.
15. VOTING RIGHTS OF STOCKHOLDERS
Following consummation of the Conversion, voting rights with respect to the
Bank shall be held and exercised exclusively by the Holding Company as holder of
all of the Bank's outstanding voting capital stock, and voting rights with
respect to the Holding Company shall be held and exercised exclusively by the
holders of the Holding Company's voting capital stock.
21
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16. LIQUIDATION ACCOUNT
A. At the time of the MHC Merger, a liquidation account shall be
established in an amount equal to the amount of the dividends from Bank Common
Stock waived by the Mutual Holding Company plus the greater of (i) $38,728,073,
which is equal to 100% of the retained earnings of the Bank as of June 30, 1993,
the date of the latest statement of financial condition contained in the final
offering circular utilized in the Bank's initial public offering, or (ii) 53.4%
of the Bank's total stockholders' equity as reflected in its latest statement of
financial condition contained in the final Prospectus utilized in the
Conversion. The function of the liquidation account will be to preserve the
rights of certain holders of Deposit Accounts in the association who maintain
such accounts in the Bank following the Conversion to a priority for
distributions in the unlikely event of a liquidation of the Bank subsequent to
the Conversion.
B. The liquidation account shall be maintained for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders, if any, who maintain
their Deposit Accounts in the Bank after the Conversion. Each such account
holder will, with respect to each Deposit Account held, have a related inchoate
interest in a portion of the liquidation account balance, which interest will be
referred to in this Section 16 as the "subaccount balance." All Deposit Accounts
which have the same social security number will be aggregated for purposes of
determining the initial subaccount balance with respect to such Deposit
Accounts, except as provided in this Section.
C. In the event of a complete liquidation of the Bank subsequent to the
Conversion (and only in such event), each Eligible Account Holder and
Supplemental Eligible Account Holder, if any, shall be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current subaccount balances for Deposit Accounts then held (adjusted as
described below) before any liquidation distribution may be made with respect to
the capital stock of the Bank. No merger, consolidation, sale of bulk assets or
similar combination transaction with another FDIC-insured institution in which
the Bank is not the surviving entity shall be considered a complete liquidation
for this purpose. In any merger or consolidation transaction, the liquidation
account shall be assumed by the surviving entity.
D. The initial subaccount balance for a Deposit Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder, if any, shall be
determined by multiplying the opening balance in the liquidation account by a
fraction, of which the numerator is the amount of the Qualifying Deposits of
such account holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders, if any. For Deposit Accounts in existence at both the Eligibility
Record Date and the Supplemental Eligibility Record Date, if any, separate
initial subaccount balances shall be determined on the basis of the Qualifying
Deposits in such Deposit Accounts on each such record date. Initial subaccount
balances shall not be increased, and shall be subject to downward adjustment as
provided below.
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E. If the aggregate deposit balance in the Deposit Account(s) of any
Eligible Account Holder or Supplemental Eligible Account Holder, if any, at the
close of business on any annual closing date and the Supplemental Eligibility
Record Date for Eligible Account Holders and subsequent to the Eligibility
Record Date for Supplemental Eligible Account Holders, is less than the lesser
of (a) the aggregate deposit balance in such Deposit Account(s) at the close of
business on any other annual closing date subsequent to such record dates or (b)
the aggregate deposit balance in such Deposit Account(s) as of the Eligibility
Record Date or the Supplemental Eligibility Record Date, the subaccount balance
for such Deposit Accounts(s) shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of such a downward adjustment, the subaccount balance shall not be
subsequently increased, notwithstanding any subsequent increase in the deposit
balance of the related Deposit Account(s). The subaccount balance of an Eligible
Account Holder or Supplemental Eligible Account Holder, if any, will be reduced
to zero if the Account Holder ceases to maintain a Deposit Account at the Bank
that has the same social security number as appeared on his Deposit Account(s)
at the Eligibility Record Date or, if applicable, the Supplemental Eligibility
Record Date.
F. Subsequent to the Conversion, the Bank may not pay cash dividends
generally on deposit accounts and/or capital stock of the Bank, if such dividend
or repurchase would reduce the Bank's regulatory capital below the aggregate
amount of the then current subaccount balances for Deposit Accounts then held;
otherwise, the existence of the liquidation account shall not operate to
restrict the use or application of any of the net worth accounts of the Bank.
G. For purposes of this Section, a Deposit Account includes a
predecessor/successor account which is held by an Account Holder with the same
social security number.
17. TRANSFER OF DEPOSIT ACCOUNTS
Each Deposit Account in the Bank at the time of the consummation of the
Conversion shall become, without further action by the holder, a Deposit Account
in the Bank equivalent in withdrawable amount to the withdrawal value (as
adjusted to give effect to any withdrawal made for the purchase of Conversion
Stock), and subject to the same terms and conditions (except as to voting and
liquidation rights) as such Deposit Account in the Bank immediately preceding
consummation of the Conversion. Holders of Deposit Accounts in the Bank shall
not, as such holders, have any voting rights.
23
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18. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION, MARKET MAKING AND STOCK
EXCHANGE LISTING
In connection with the Conversion, the Holding Company shall have
registered its Common Stock pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as amended, and undertaken not to deregister such stock for a
period of three years thereafter. The Holding Company also shall use its best
efforts to (i) encourage and assist a market maker to establish and maintain a
market for its Common Stock and (ii) list the Holding Company Common Stock on a
national or regional securities exchange or to have quotations for such stock
disseminated on the National Association of Securities Dealers Automated
Quotation System.
19. DIRECTORS AND OFFICERS OF THE BANK
Each person serving as a Director or Officer of the Bank or the Holding
Company at the time of the Conversion shall continue to serve as a Director or
Officer of the Bank for the balance of the term for which the person was elected
prior to the Conversion, and until a successor is elected and qualified.
20. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE
CONVERSION
For a period of three years following the Conversion, the Directors and
Officers of the Holding Company, the Bank and their Associates may not purchase,
without the prior written approval of the OTS, Holding Company Common Stock
except from a broker-dealer registered with the SEC. This prohibition shall not
apply, however, to (i) a negotiated transaction arrived at by direct negotiation
between buyer and seller and involving more than 1% of the outstanding Holding
Company Common Stock and (ii) purchases of stock made by and held by any
Tax-Qualified Employee Stock Benefit Plan (and purchases of stock made by and
held by any Non-Tax-Qualified Employee Stock Benefit Plan following the receipt
of stockholder approval of such plan) which may attributable to individual
officers or directors.
The foregoing restriction on purchases of Holding Company Common Stock
shall be in addition to any restrictions that may be imposed by federal and
state securities laws.
21. RESTRICTIONS ON TRANSFER OF STOCK
All shares of the Conversion Stock which are purchased by Persons other
than Directors and Officers shall be transferable without restriction, except in
connection with a transaction prohibited by Section 22 of this Plan. Shares of
Conversion Stock purchased by Directors and Officers of the Holding Company, the
Holding Company and the Bank on original issue from the Holding Company (by
subscription or otherwise) shall be subject to the
24
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restriction that such shares shall not be sold or otherwise disposed of for
value for a period of one year following the date of purchase, except for any
disposition of such shares following the death of the original purchaser or
pursuant to any merger or similar transaction approved by the OTS. The shares of
Conversion Stock issued by the Holding Company to Directors and Officers shall
bear the following legend giving appropriate notice of such one-year
restriction.
The shares of stock evidenced by this Certificate are restricted as to
transfer for a period of one year from the date of this Certificate
pursuant to Part 563b of the Rules and Regulations of the Office of Thrift
Supervision. These shares may not be transferred during such one-year
period without a legal opinion of counsel for the Company that said
transfer is permissible under the provisions of applicable law and
regulation. This restrictive legend shall be deemed null and void after one
year from the date of this Certificate.
In addition, the Holding Company shall give appropriate instructions to the
transfer agent for the Holding Company Common Stock with respect to the
applicable restrictions relating to the transfer of restricted stock. Any shares
issued at a later date as a stock dividend, stock split or otherwise with
respect to any such restricted stock shall be subject to the same holding period
restrictions as may then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
22. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY
The articles of incorporation of the Holding Company shall prohibit any
Person together with Associates or group of Persons acting in concert from
offering to acquire or acquiring, directly or indirectly, beneficial ownership
of more than 10% of any class of equity securities of the Holding Company, or of
securities convertible into more than 10% of any such class, for five years
following completion of the Conversion. The articles of incorporation of the
Holding Company also shall provide that all equity securities beneficially owned
by any Person in excess of 10% of any class of equity securities during such
five-year period shall be considered "excess shares," and that excess shares
shall not be counted as shares entitled to vote and shall not be voted by any
Person or counted as voting shares in connection with any matters submitted to
the stockholders for a vote. The foregoing restrictions shall not apply to (i)
any offer with a view toward public resale made exclusively to the Holding
Company by underwriters or a selling group acting on this behalf, (ii) the
purchase of shares by a Tax-Qualified Employee Stock Benefit Plan established
for the benefit of the employees of the Holding Company and its subsidiaries
which is exempt from approval requirements under 12 C. F. R. ss.574.3(c)(1)(vi)
or any successor thereto, and (iii) any offer
25
<PAGE>
or acquisition approved in advance by the affirmative vote of two-thirds of the
entire Board of Directors of the Holding Company. Directors, Officers or
Employees of the Holding Company or the Bank or any subsidiary thereof shall not
be deemed to be Associates or a group acting in concert with respect to their
individual acquisition of any class of equity securities of the Holding Company
solely as a result of their capacities as such.
23. TAX RULINGS OR OPINIONS
Consummation of the Conversion is conditioned upon prior receipt by the
Primary Parties of either a ruling or an opinion of counsel, a tax advisor with
respect to federal tax laws, and either a ruling or an opinion of counsel or tax
advisor with respect to Florida tax laws, to the effect that consummation of the
transactions contemplated hereby will not result in a taxable reorganization
under the provisions of the applicable codes or otherwise result in any material
adverse tax consequences to the Primary Parties or to account holders receiving
Subscription Rights before or after the Conversion, except in each case to the
extent, if any, that Subscription Rights are deemed to have fair market value on
the date such rights are issued.
24. STOCK COMPENSATION PLANS
A. The Holding Company is authorized to adopt Tax-Qualified Employee Stock
Benefit Plans in connection with the Conversion, including without limitation an
employee stock ownership plan.
B. The Holding Company is also authorized to adopt stock option plans,
restricted stock grant plans and other Non-Tax-Qualified Employee Stock Benefit
Plans, provided that no stock options shall be granted, and no shares of
Conversion Stock shall be purchased, pursuant to any of such plans prior to the
earlier of (i) the one-year anniversary of the consummation of the Conversion or
(ii) the receipt of stockholder approval of such plans at either the annual or
special meeting of stockholders of the Holding Company to be held not earlier
than six months after the completion of the Conversion.
C. Existing as well as any newly created Tax-Qualified Employee Stock
Benefit Plans may purchase shares of Conversion Stock in the Offerings, to the
extent permitted by the terms of such benefit plans and this Plan.
25. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK
A. Except as may otherwise may be permitted by the OTS, the Holding Company
may not repurchase any shares of its capital stock during the first year
following consummation of the Conversion. During the second and third years
following consummation of the Conversion, the Holding Company may not repurchase
any of its capital stock from any
26
<PAGE>
person, other than pursuant to (i) an offer to repurchase made by the Holding
Company on a pro rata basis to all of its stockholders and which is approved by
the OTS, (ii) the repurchase of qualifying shares of a director, if any, (iii)
purchases in the open market by a Tax-Qualified or Non-Tax-Qualified Employee
Stock Benefit Plan in an amount reasonable and appropriate to fund the plan, or
(iv) a repurchase program approved by the OTS.
B. The Bank may not declare or pay a cash dividend on, or repurchase any
of, its capital stock if the effect thereof would cause the regulatory capital
of the Bank to be reduced below the amount required for the liquidation account.
Any dividend declared or paid on, or repurchase of, the Bank's capital stock
also shall be in compliance with Section 563.134 of the Regulations, or any
successor thereto.
C. Notwithstanding anything to the contrary set forth herein, the Holding
Company may repurchase its capital stock to the extent and subject to the
requirements set forth in Section 563b.3(g)(3) of the Regulations, or any
successor thereto, or as otherwise may be approved by the OTS.
26. PAYMENT OF FEES TO BROKERS
The Primary Parties may elect to offer to pay fees on a per share basis to
securities brokers who assist purchasers of Conversion Stock in the Offerings.
27. EFFECTIVE DATE
The Effective Date of the Conversion shall be the date upon which the last
of the following actions occurs: (i) the filing of Articles of Combination with
the OTS with respect to the MHC Merger, (ii) the closing of the issuance of the
shares of Conversion Stock in the Offerings. The filing of Articles of
Combination relating to the MHC Merger and the closing of the issuance of shares
of Conversion Stock in the Offerings shall not occur until all requisite
regulatory, Member and Stockholder approvals have been obtained, all applicable
waiting periods have expired and sufficient subscriptions and orders for the
Conversion Stock have been received. It is intended that the closing of the MHC
Merger, and the sale of shares of Conversion Stock in the Offerings shall occur
consecutively and substantially simultaneously.
28. AMENDMENT OR TERMINATION OF THE PLAN
If deemed necessary or desirable by the Boards of Directors of the Primary
Parties, this Plan may be substantively amended, as a result of comments from
regulatory authorities or otherwise, at any time prior to the solicitation of
proxies from members and Stockholders to vote on the Plan and at any time
thereafter with the concurrence of the OTS. Any amendment to this Plan made
after approval by the Members and Stockholders with the concurrence of the OTS
shall not necessitate further approval by the Members or Stockholders unless
otherwise
27
<PAGE>
required by the OTS. This Plan shall terminate if the sale of all shares of
Conversion Stock is not completed within 24 months from the date of the Special
Meeting. Prior to the earlier of the Special Meeting and the Stockholders'
Meeting, this Plan may be terminated by the Boards of Directors of the Primary
Parties without approval of the OTS; after the Special Meeting or the
Stockholder's Meeting, the Boards of Directors may terminate this Plan only with
the approval of the OTS.
29. INTERPRETATION OF THE PLAN
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of each of the Boards of Directors of the
Primary Parties shall be final, subject to the authority of the OTS.
28
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ANNEX A
PLAN OF MERGER
PLAN OF MERGER, dated as of September 24, 1997 ("Plan of Merger") by
and between Harbor Florida Bancorp, Inc. (the "Holding Company") and Harbor
Financial, M.H.C. ("Mutual Holding Company"). Unless otherwise noted, defined
terms shall have the same meaning as those set forth in the Plan of Conversion
and Plan of Reorganization of the Mutual Holding Company between Holding Company
and the Mutual Holding Company (of which this Plan of Merger is an Annex
thereto).
WITNESSETH:
WHEREAS, the Mutual Holding Company, through a reorganization and
conversion, owned 53.4% of the Common Stock of Harbor Federal Savings Bank (the
"Bank");
WHEREAS, on June 25, 1997, the Bank effected an additional
reorganization as a result of which the Bank became a wholly owned subsidiary of
Holding Company and the Holding Company became the owner of 100% of the common
stock of the Bank;
WHEREAS, Holding Company now has 53.4% of its shares of common stock
owned by the Mutual Holding Company and 46.6% of its shares held by the public
(the "Minority Shareholders");
WHEREAS, the Board of Directors of the Mutual Holding Company has
determined that it is in the best interests of the Mutual Holding Company and
its members to convert from the mutual to stock form of organization;
WHEREAS, the Bank is wholly owned by Holding Company;
WHEREAS, the conversion of the Mutual Holding Company to stock form
will be facilitated by causing the Mutual Holding Company to convert from the
mutual form to a federal interim stock savings bank to be known as "Interim
Savings Capital" ("Interim") and simultaneously merge with the Holding Company,
a Delaware corporation; and
WHEREAS, immediately upon completion of the Conversion, the Mutual
Holding Company and the existing minority stockholders of the Holding Company
will supplement their current shares of Holding Company Common Stock with shares
of common stock of the Holding Company based upon a Distribution Exchange or
Conversion Ratio established in accordance with the independent appraisal of the
Bank upon merger with Interim, and the remaining shares will be sold in
subscription and community offerings, giving priority subscription rights as set
forth in the Plan in accordance with OTS conversion regulations.
A-1
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and in accordance with federal law, the Holding
Company and the Mutual Holding Company hereby agree that, subject to the
conditions hereinafter set forth, the Mutual Holding Company shall convert from
the mutual form to a federal interim stock savings bank, and Interim shall then
be merged with and into the Holding Company with the Holding Company as the
surviving entity. The terms and conditions of such merger shall be as follows:
1. Regulatory Approvals. The merger shall not become effective until
receipt of approval of the OTS and any other agency having jurisdiction over the
merger, if any.
2. Identity and Name of Resulting Bank. The resulting savings bank in
the Merger shall be the Bank.
3. Offices of Resulting Bank. The home office of the Bank shall be the
Bank's office located at 100 S. Second Street, Fort Pierce, Florida. The
locations of the branch offices of the Bank shall be those of the Bank in
existence on the date of this Plan of Merger. In addition, the Bank shall
operate branch offices at such additional locations as may be approved by the
OTS.
4. The Bank's Federal Charter and Bylaws. The federal stock charter and
bylaws of the Bank as in effect immediately prior to the effectiveness of the
Merger shall be amended as necessary to accomplish the Merger.
5. Effective Date. The effective date of the Conversion ("Effective
Date") shall be the date as soon as practicable after the issuance and/or
execution by the OTS and any other federal or state regulatory agencies, of all
approvals, certificates and documents as may be required in order to cause the
Conversion to become effective.
6. Bank Stockholder Approval. The affirmative vote of the holders of
two-thirds of the outstanding Holding Company Common Stock and at least a
majority of such Holding Company Common Stock not held by the Mutual Holding
Company voting at a meeting of the Holding Company stockholders shall be
required to approve this Plan of Merger.
7. Mutual Holding Company Approval. The approval of a majority of the
members of the Mutual Holding Company, as of a specified date shall be required
to approve this Plan of Merger.
8. Cancellation of Holding Company Common Stock held by the Mutual
Holding Company and Member Interests; Liquidation Account.
A-2
<PAGE>
(a) On the Effective Date, (i) the ownership interest in each share of
Holding Company Common Stock issued and outstanding immediately prior to
the Effective Date and held by the Mutual Holding Company shall, by virtue
of the Reorganization and without any action on the part of the holder
thereof, be canceled, (ii) the interests in the Mutual Holding Company of
any person, firm or entity who or which qualified as a member of the Mutual
Holding Company in accordance with its mutual charter and bylaws and the
laws of the United States prior to the Mutual Holding Company's conversion
from mutual to stock form (the "Members") shall, by virtue of the Merger
and without any action on the part of the holder thereof, be canceled, and
(iii) a liquidation account shall be established on behalf of each
depositor member of the Mutual Holding Company, as defined in the Plan, in
accordance with Section 16 of the Plan.
(b) At or after the Effective Date and prior to the Merger, each
certificate or certificates theretofore evidencing issued and outstanding
shares of Holding Company Common Stock, other than any such certificate or
certificates owned by the Mutual Holding Company, which ownership interest
shall be extinguished, shall continue to represent issued and outstanding
shares of Bank Common Stock.
9. Dissenting Shares. No Member of the Mutual Holding Company or
stockholder of the Holding Company shall have any dissenter or appraisal rights
in connection with the Conversion.
10. Deposits of the Bank. All deposit accounts of the Bank shall be and
will continue without change in their respective terms, interest rates,
maturities, minimum required balances or withdrawal values. After the Effective
Date, the resulting savings bank will continue to issue deposit accounts on the
same basis as immediately prior to the Effective Date.
11. Effect of Conversion. Upon the Effective Date of the Conversion, all
assets and property (real, personal and mixed, tangible and intangible, chooses
in action, rights and credits) then owned by the Bank, the Holding Company or
the Mutual Holding Company or which would inure to either of them, shall
immediately by operation of law and without any conveyance, transfer or further
action, become the property of the Holding Company (or the Bank as the case may
be), which shall have, hold and enjoy them in its own right as fully and to the
same extent as they were possessed, held and enjoyed by the Bank, the Holding
Company and the Mutual Holding Company immediately prior to the Effective Date
of the Conversion.
12. Directors and Executive Officers. The persons who are the current
officers and directors of the Holding Company will be the directors and officers
of the Holding Company and such terms or positions will be unchanged.
A-3
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13. Abandonment of Plan of Merger. This Plan of Merger may be abandoned
by either the Holding Company or the Mutual Holding Company at any time before
the Effective Date in the manner set forth in Section 28 of the Plan.
14. Amendment of this Plan of Merger. This Plan of Merger may be
amended or modified at any time by mutual agreement of the Boards of Directors
of the Holding Company and the Mutual Holding Company in the manner set forth in
Section 28 of the Plan.
15. Governing Law. This Plan of Merger is made pursuant to, and shall
be construed and be governed by, the laws of the United States, and the rules
and regulations promulgated thereunder, including without limitation, the rules
and regulations of the OTS.
16. All Terms Included. This Plan of Merger sets forth all terms,
conditions, agreements and understandings of the Holding Company and the Mutual
Holding Company with respect to the Conversion.
17. Counterparts. This Plan of Merger may be executed in several
identical counterparts, each of which when executed by the Parties and delivered
shall be an original, but all of which together shall constitute a single
instrument. In making proof of this Plan of Merger, it shall not be necessary to
produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be
executed by their duly authorized officers as of the date first above written.
HARBOR FINANCIAL, M.H.C.
Attest: By:____________________________
______________________ Michael J. Brown, Sr.
Secretary
HARBOR FLORIDA BANCORP, INC.
Attest: By:____________________________
______________________ Michael J. Brown, Sr.
Secretary
A-4
Exhibit 99.3
HARBOR FLORIDA BANCORP, INC.
100 S. Second Street
Fort Pierce, Florida 34950
(561) 461-2414
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER ______, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Harbor
Florida Bancorp, Inc. ("Harbor Florida") will be held at
________________________ located at _______________________, on December
____________ at ________ Florida time, for the following purposes, as more
completely set forth in the accompanying Proxy Statement:
1 . To approve and adopt the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan" or "Plan of Conversion"), pursuant to which (i)
Harbor Financial M.H.C. ("the Mutual Holding Company") will convert into a
interim federal stock savings bank and simultaneously will merge with and into
Harbor Florida Bancorp, Inc. ("Harbor Florida"), pursuant to which the Mutual
Holding Company will cease to exist and the shares of common stock of Harbor
Florida held by the Mutual Holding Company will be canceled. As a result of the
merger of the Mutual Holding Company with and into Harbor Florida all
stockholders of Harbor Florida except the Mutual Holding Company (the "Public
Stockholders") will receive a distribution of shares of common stock pursuant to
the distribution exchange ratio, as defined in the Prospectus, which will result
in the holders of such shares owning in the aggregate approximately the same
percentage of common stock to be outstanding upon completion of the conversion.
In addition, Harbor Florida is offering additional shares of its common stock
for sale by means of a Prospectus. The sale of such stock and the conversion are
referred to herein as the "Conversion".
2. To consider and vote upon a proposal to adopt and approve an amendment
to Harbor Florida Bancorp, Inc.'s certificate of incorporation to increase the
authorized number of shares of common stock from 13,000,000 to __________.
3. To transact such other business as may properly come before the meeting.
Except with respect to procedural matters incident to the conduct of the
meeting, management of Harbor Florida is not aware of any matters other than
those set forth above which may properly come before the meeting.
Pursuant to Delaware law, stockholders of Harbor Florida do not have
dissenters' rights or appraisal rights in connection with the Conversion.
The Board of Directors of Harbor Florida has fixed November ____, 1997 as
the voting record date for the determination of stockholders entitled to notice
of and to vote at the
<PAGE>
Special Meeting. Only those stockholders of record as of the close of business
on the date will be entitled to vote at the Special Meeting or at any such
adjournment.
BY ORDER OF THE BOARD OF DIRECTORS
Michael J. Brown
President & CEO
November ___, 1997
Fort Pierce, Florida
YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE SPECIAL MEETING YOU MAY
VOTE EITHER IN PERSON OR BY YOUR PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN
WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF. PROXIES MUST BE
RECEIVED PRIOR TO THE COMMENCEMENT OF THE MEETING.
YOUR VOTE IS VERY IMPORTANT. VOTING ON THE PLAN OR THE AMENDMENT OF THE
CERTIFICATE OF INCORPORATION DOES NOT REQUIRE YOU TO PURCHASE STOCK IN THE
OFFERINGS.
2
<PAGE>
HARBOR FLORIDA BANCORP, INC.
---------------
PROXY STATEMENT
---------------
SPECIAL MEETING OF STOCKHOLDERS
This Proxy Statement is being furnished to the holders of the common stock,
par value $0.01 per share ("Common Stock"), of Harbor Florida Bancorp, Inc.
("Harbor Florida"), in connection with the solicitation of proxies by the Board
of Directors for use at its Special Meeting of Stockholders ("Special Meeting")
to be held at _________________________ located at ______________________ Fort
Pierce, Florida, on December _____, 1997, at ______, Florida time, and at any
adjournment thereof, for the purposes set forth in the Notice of Special Meeting
of Stockholders. This Proxy Statement is first being mailed to stockholders on
or about November ____, 1997.
Each proxy solicited hereby, if properly signed and returned to Harbor
Florida and not revoked prior to its use, will be voted in accordance with the
instructions indicated on the proxies. If no contrary instructions are given,
each signed proxy received will be voted in favor of the Plan of Conversion and
in favor of the amendment of the Certificate of Incorporation and, in the
discretion of the proxy holder, as to any other matter which may properly come
before the Special Meeting. Only proxies that are returned can be counted and
voted at the Special Meeting.
A Harbor Florida stockholder who has given a proxy may revoke it at any
time prior to its exercise at the Special Meeting by (i) giving written notice
of revocation to the Secretary of Harbor Florida, (ii) properly submitting to
Harbor Florida a duly-executed proxy bearing a later date, or (iii) attending
the Special Meeting and voting in person. All written notices of revocation and
other communications with respect to revocation of proxies should be addressed
as follows: Harbor Florida Bancorp, Inc., 100 S. Second Street, Fort Pierce,
Florida 34950, Attention: Secretary. Proxies solicited hereby may be exercised
only at the Special Meeting and any adjournment thereof and will not be used for
any other meeting.
VOTING SECURITIES AND REQUIRED VOTE
Pursuant to Office of Thrift Supervision ("OTS") regulations, consummation
of the Conversion is conditioned upon the approval of the Plan by the OTS, as
well as (1) the approval of the holders of at least a majority of the total
number of votes eligible to be cast by the members of the Harbor Financial
M.H.C. (the "Members") as of the close of business on
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<PAGE>
the voting record date at a special meeting of Members called for the purpose of
considering the Plan (the "Members' Meeting"), and (2) the approval of the
holders of at least two-thirds of the shares of the outstanding Common Stock
held by the stockholders as of the voting record date at the Special Meeting. In
addition, Harbor Florida and the Mutual Holding Company (the "Primary Parties")
have conditioned the consummation of the Conversion on the approval of the Plan
by the holders of at least a majority of the votes cast, in person or by proxy,
by the holders of Common Stock excluding the Mutual Holding Company (the "Public
Stockholders") at the Special Meeting.
The affirmative vote of the holders of record of a majority of the
outstanding shares of Harbor Florida entitled to vote is necessary to amend the
Certificate of Incorporation. The Mutual Holding Company intends to vote its
shares of Common Stock, which amount to approximately 53.41% of the outstanding
shares, in favor of the Plan and to amend the Certificate of Incorporation at
the Special Meeting. In addition, as of June 30, 1997, directors and executive
officers of Harbor Florida as a group (persons) beneficially owned 410,331
shares (including exercisable stock options) or 8.26% of the outstanding Common
Stock, which shares can also be expected to be voted in favor of the Plan and
the amendment of the Certificate of Incorporation at the Special Meeting.
Only holders of record Common Stock at the close of business on November
____, 1997 (the "Voting Record Date") will be entitled to notice of and to vote
at the Special Meeting. On the Voting Record Date, there were 4,934,454 shares
of Common Stock issued and outstanding and Harbor Florida had no other class of
equity securities outstanding. Each share of Common Stock is entitled to cast
one vote at the Special Meeting on all matters properly presented at the Special
Meeting.
The presence in person or by proxy of at least a majority of the issued and
outstanding shares of Common Stock entitled to vote is necessary to constitute a
quorum at the Special Meeting. Shares as to which the "ABSTAIN" box has been
marked on the proxy and any shares held by brokers in street name for customers
which are present at the Special Meeting and are not voted in the absence of
instructions from the customers ("broker non-votes") will be counted as present
for determining if a quorum is present. Because adoption of the Plan of
Conversion must be approved by the holders of at least two-thirds of the
outstanding Common Stock, and the amendment of the Certificate of Incorporation
must be approved by the holders of at least a majority of the outstanding Common
Stock, abstentions and broker non-votes will have the same effect as a vote
against both proposals. The Plan also conditions consummation of the Conversion
on the approval of the Plan by at least a majority of the votes cast, in person
or by proxy, at the Special Meeting by the Public Stockholders. Abstentions and
broker non-votes will have no effect on the required vote of the Public
Stockholders.
4
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AMENDMENT OF CERTIFICATE OF INCORPORATION
Harbor Florida is seeking shareholder approval to amend its Certificate of
Incorporation. Currently the certificate authorizes 13,000,000 shares of Common
Stock and 1,000,000 shares of preferred stock. The offerings contemplate the
sale of approximately 25,000,000 shares of Common Stock. Accordingly, Harbor
Florida intends to amend the certificate to authorize ________ shares of Common
Stock. Unless such amendment is approved, Harbor Florida will not have
sufficient shares to undertake the offering at the offering price of $10.00
pursuant to the Conversion. The Mutual Holding Company intends to vote its
shares in favor of such a proposal. Passage is therefore assured. The Board of
Directors believes that the amendment of Harbor Florida's Certificate, which is
a precondition to the offerings, is in the best interest of shareholders in that
it will increase capital, enhance Harbor Florida's competitive position and
provide the ability to expand under appropriate conditions. See "The Conversion
- -- Purposes of the Conversion," and "Business Of Harbor Federal Savings Bank --
Competition" in the Prospectus.
INCORPORATION OF INFORMATION BY REFERENCE
The accompanying Prospectus of Harbor Florida is incorporated herein by
reference. The Prospectus sets forth a description of the Plan of Conversion and
the related offering of common stock by the Company under the caption "THE
CONVERSION." Such caption also describes the effects of the Conversion on the
stockholders of Harbor Florida and the members of the Mutual Holding Company,
including the tax consequences of the Conversion and the establishment of a
liquidation account for the benefit of certain depositors of Harbor Federal
Savings Bank (the "Bank").
Information regarding Harbor Florida, the Bank and the Mutual Holding
Company are set forth in the Prospectus under the captions "Harbor Florida
Bancorp, Inc.," "Harbor Federal Savings Bank" and "Harbor Financial M.H.C.,"
respectively, as well as under the caption "Summary." The Prospectus also
describes the business and financial condition of the Bank under the captions
"Business of the Bank" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The historical financial statements of
Harbor Florida and the Bank are included in the Prospectus. Information
regarding the use of proceeds of the Offerings conducted in connection with the
Conversion, the historical capitalization of the Bank and the pro forma
capitalization of Harbor Florida, and other pro forma data are set forth in the
Prospectus under the captions "Use of Proceeds," "Capitalization" and "Pro Forma
Data," respectively.
The Prospectus sets forth certain information as to the Harbor Florida
Common Stock beneficially owned by (i) the only persons or entities who or which
were known to Harbor Florida to be the beneficial owner of more than 5% of the
issued and outstanding Harbor Florida Common Stock, (ii) the directors and
executive officers of Harbor Florida, and (iii) all
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<PAGE>
directors and executive officers of Harbor Florida as a group. See "Beneficial
Ownership of Capital Stock" in the Prospectus.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wished to have included in the proxy
solicitation materials to be used in connection with the next annual meeting of
stockholders of Harbor Florida which is expected to be held in January 1997, if
the Conversion is not consummated, must have been received at the main office of
Harbor Florida no later than September 19, 1997.
OTHER MATTERS
Each proxy solicited hereby also confers discretionary authority on the
Board of Directors of Harbor Florida to vote the proxy upon such other matters
as may properly come before the Special Meeting. Management is not aware of any
business that may properly come before the Special Meeting other than those
matters described above in this Proxy Statement. However, if any other matters
should properly come before the Special Meeting, it is intended that the proxies
solicited hereby will be voted with respect to those other matters in accordance
with the judgment of the persons voting the proxies.
The cost of solicitation of proxies will be borne by Harbor Florida. Harbor
Florida will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of the Harbor Florida Common Stock. In addition to
solicitations by mail, directors, officers and employees of Harbor Florida may
solicit proxies personally or by telephone without additional compensation.
A copy of the Plan of Conversion is attached hereto as Exhibit A. You may
obtain a copy of the Certificate Incorporation and Bylaws of Harbor Florida in
writing from the Bank. Any such requests should be directed to Harbor Florida
Bancorp, Inc., 100 S. Second Street, Fort Pierce, Florida 34950, Attention:
Secretary. So that you have sufficient time to receive and review the requested
materials, it is recommended that any such requests be sent so that they are
received by Harbor Florida by November ____, 1997.
YOUR VOTE IS IMPORTANT! THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE PLAN OF CONVERSION AND THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION. WE
URGE YOU TO MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT TODAY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
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EXHIBIT A
7
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PLAN OF CONVERSION
of
HARBOR FINANCIAL, M.H.C.
and
AGREEMENT AND PLAN OF MERGER
between
HARBOR FINANCIAL, M.H.C.
and
HARBOR FLORIDA BANCORP, INC.
SEPTEMBER 24, 1997
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
1. INTRODUCTION.............................................................1
2. DEFINITIONS..............................................................3
3. GENERAL PROCEDURE FOR CONVERSION........................................10
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF
CONVERSION STOCK....................................................11
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS
(FIRST PRIORITY).....................................................13
6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE
STOCK BENEFIT PLANS (SECOND PRIORITY)................................15
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS (THIRD PRIORITY).............................................15
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)..................16
9. PUBLIC STOCKHOLDERS OFFERING............................................16
10. COMMUNITY OFFERING AND OTHER OFFERINGS...................................17
11. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF
CONVERSION STOCK......................................................18
12. TIMING OF SUBSCRIPTION OFFERING., MANNER OF EXERCISING
SUBSCRIPTION RIGHTS AND ORDER FORMS...................................20
13. PAYMENT FOR CONVERSION STOCK.............................................23
14. ACCOUNTHOLDERS IN NONQUALIFIED STATES OR FOREIGN
COUNTRIES.............................................................24
15. VOTING RIGHTS OF STOCKHOLDERS............................................24
16. LIQUIDATION ACCOUNT......................................................25
17. TRANSFER OF DEPOSIT ACCOUNTS.............................................26
18. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION,
MARKET MAKING AND STOCK EXCHANGE LISTING..............................27
19. DIRECTORS AND OFFICERS OF THE BANK.......................................27
20. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS
FOLLOWING THE CONVERSION..............................................27
21. RESTRICTIONS ON TRANSFER OF STOCK........................................27
22. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY..............28
23. TAX RULINGS OR OPTIONS...................................................29
24. STOCK COMPENSATION PLANS.................................................29
25. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK............................29
26. PAYMENT OF FEES TO BROKERS...............................................30
27. EFFECTIVE DATE...........................................................30
28. AMENDMENT OR TERMINATION OF THE PLAN.....................................30
29. INTERPRETATION OF THE PLAN...............................................31
ANNEX A - PLAN OF MERGER BETWEEN THE MUTUAL HOLDING COMPANY
AND THE HOLDING COMPANY..............................................A-1
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<PAGE>
1. INTRODUCTION
For purposes of this section, all capitalized terms have the meaning
ascribed to them in Section 2.
On January 6, 1994, Harbor Federal Savings Bank, a federally chartered
mutual savings institution reorganized into the mutual holding company form of
organization and consummated a sale of stock to its members. To accomplish this
transaction, the Bank organized a federally chartered, stock savings bank as a
wholly owned subsidiary. The mutual Bank then transferred substantially all of
its assets and liabilities to the stock Bank in exchange for 4,894,200 shares of
Bank Common Stock, and reorganized itself into a federally chartered mutual
holding company known as Harbor Financial, M.H.C. and sold 2,239,831 shares of
Bank Common Stock to directors, employees and members of the Bank. On June 25,
1997, the Bank completed a reorganization in which the Bank became a wholly
owned subsidiary of a stock middle tier holding company known as Harbor Florida
Bancorp, Inc. ("Holding Company"). Shareholders of the Bank became, as a result
of the reorganization, shareholders of the Holding Company. As of, June 30,
1997, the Mutual Holding Company and the Public Stockholders own an aggregate of
53.4 and 46.6% of the outstanding Holding Company Common Stock, respectively.
The Boards of Directors of the Mutual Holding Company and the Holding
Company believe that a conversion of the Mutual Holding Company to stock form
pursuant to this Plan of Conversion is in the best interests of the Mutual
Holding Company and the Bank, as well as the best interests of their respective
Members and Stockholders. The Boards of Directors determined that this Plan of
Conversion equitably provides for the interests of Members through the granting
of subscription rights and the establishment of a liquidation account. The
Conversion will result in the raising of additional capital for the Bank and the
Holding Company and should result in a more active and liquid market for the
Holding Company Common Stock than currently exists, although there can be no
assurances that this will be the case. The Conversion is designed to enable the
Bank and Holding Company to compete more effectively in a market which is
undergoing consolidation.
If the Bank had undertaken a standard conversion involving the formation of
a stock holding company in 1994, applicable OTS regulations would have required
a greater amount of Bank Common Stock to be sold than resulted in the amount of
net proceeds raised in the Bank's initial public offering undertaken with the
mutual holding company reorganization. In addition, if a standard conversion had
been conducted in 1994, management of the Bank believes that it would have been
difficult to profitably invest the larger amount of capital that would have been
raised, when compared to the amount of net proceeds raised in the Bank's initial
public offering. A standard conversion in 1994 also would have immediately
eliminated all aspects of the mutual form of organization and possibly have
subjected the Association to greater interference from stockholders and from an
unwanted acquisition or other change in control of the Bank.
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<PAGE>
Subsequent to the formation of the Mutual Holding Company, there have
been certain changes in the policies of the OTS relating to mutual holding
companies. In addition, market conditions for the stocks of savings institutions
and their holding companies have improved. The Bank and the Holding Company have
also gained experience in being a company required to meet the filing
requirements of the Securities and Exchange Act of 1934 and in conducting
stockholder meetings and other stockholder matters, such as communications,
press releases, NASD matters and dividend payments. In light of the foregoing,
the Boards of Directors of the Mutual Holding Company and the Holding Company
believe that it is in the best interests of such companies and their respective
Members and Stockholders to reorganize into the stock form of organization at
this time, and that the most feasible way to do so is through the Conversion and
Merger.
The Bank formed the Holding Company which became the holding company
for the Bank pursuant to a reorganization completed in June of 1997. In the
current transaction, as described in more detail herein, the Mutual Holding
Company will convert to an interim federal stock savings association and will
simultaneously merge with and into the Holding Company pursuant to the Plan of
Merger included as Annex A hereto, pursuant to which the Mutual Holding Company
will cease to exist and a liquidation account will be established for the
benefit of depositor Members as of specified dates. Stock of the Holding Company
held by Public Shareholders shall be automatically converted into the right to
receive additional shares of Holding Company stock based on a Distribution
Exchange Ratio plus cash in lieu of any fractional share interest.
In connection with the Conversion, the Holding Company will offer
shares of Conversion Stock in the Offerings as provided herein. Shares of
Conversion Stock will be offered in a Subscription Offering in descending order
of priority to Eligible Account Holders, Tax-Qualified Employee Stock Benefit
Plans, Supplemental Eligible Account Holders, Other Members and Public
Stockholders. Any shares of Conversion Stock remaining unsold after the
Subscription Offering will be offered for sale to the public through a Community
Offering as determined by the Boards of Directors of the Holding Company.
The Conversion is intended to provide support to the Bank's lending and
investment activities and thereby enhance the Bank's capabilities to serve the
borrowing and other financial needs of the communities it serves.
This Plan was adopted by the Boards of Directors of the Mutual Holding
Company, the Holding Company and the Bank on September 24, 1997.
2
<PAGE>
This Plan is subject to the approval of the OTS and must be adopted by (1)
at least a majority of the total number of votes eligible to be cast by Voting
Members of the Mutual Holding Company at the Special Meeting and (2) holders of
at least two-thirds of the outstanding Holding Company Common Stock at the
Stockholders' Meeting. In addition, the Primary parties have conditioned the
consummation of the Conversion on the approval of the Plan by at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders at
the Stockholders' Meeting.
After the Conversion, the Bank will continue to be regulated by the OTS, as
its chartering authority, and by the FDIC, which insures the Bank's deposits. In
addition, the Bank will continue to be a member of the Federal Home Loan Bank
System, and all insured savings deposits will continue to be insured by the FDIC
up to the maximum provided by law.
2. DEFINITIONS
As used in this Plan, the terms set forth below have the following meaning:
Actual Purchase Price means the price per share at which the Conversion
Stock is ultimately sold by the Holding Company in the Offerings in accordance
with the terms hereof.
Affiliate means a Person who, directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
Person specified.
Associate, when used to indicate a relationship with any Person, means (i)
a corporation or organization (other than the Mutual Holding Company, the Bank,
a majority-owned subsidiary of the Bank or the Holding Company) of which such
Person is a director, officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, (ii) any
trust or other estate in which such Person has a substantial beneficial interest
or as to which such Person serves as trustee or in a similar fiduciary capacity,
provided, however, that such term shall not include any Tax-Qualified Employee
Stock Benefit Plan of the Holding Company or the Bank in which such Person has a
substantial beneficial interest or serves as a. trustee or in a similar
fiduciary capacity, and (iii) any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person or who is a
director or officer of the a Holding Company or the Bank or any of the
subsidiaries of the foregoing.
Bank means Harbor Federal Savings Bank in its mutual or stock form or
Harbor Federal Savings Bank following consummation of the Conversion, as the
context of the reference indicates.
Bank Common Stock means the common stock of the Bank, par value $1.00 per
share, which stock is not and will not be insured by the FDIC or any other
governmental authority.
Code means the Internal Revenue Code of 1986, as amended.
3
<PAGE>
Community Offering means the offering for sale by the Holding Company of
any shares of Conversion Stock not subscribed for in the Subscription Offering
to (i) natural persons residing in the Local Community, and (ii) such other
Persons within or without the State of Florida as may be selected by the Holding
Company within its sole discretion.
Control (including the terms "controlling," "controlled by," and "under
common control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Conversion means (i) the conversion of the Mutual Holding Company to an
interim federal stock savings association and the subsequent merger, pursuant to
which the Mutual Holding Company will cease to exist, and (ii) the issuance of
Conversion Stock by the Holding Company in the Offerings as provided herein,
which will increase the number of shares of a Holding Company Common Stock
outstanding (subject to approval by Holding Company Shareholders) and the
capitalization of the Holding Company and the Bank.
Conversion Stock means the Holding Company Common Stock to be issued and
sold in the Offerings pursuant to the Plan of Conversion.
Deposit Account means savings and demand accounts, including passbook
accounts, money market deposit accounts and negotiable order of withdrawal
accounts, and certificates of deposit and other authorized accounts of the Bank
held by a Member.
Director, Officer and Employee means the terms as applied respectively to
any person who is a director. officer or employee of the Mutual Holding Company,
the Bank, the Holding Company or any subsidiary thereof.
Distribution Exchange Ratio means the rate at which shares of the Holding
Company held by the Public Stockholders will be increased in connection with the
Holding Company Merger. The exact rate shall be determined by the Mutual Holding
Company and the Holding Company in order to ensure that upon consummation of the
Conversion the Public Stockholders will own in the aggregate approximately the
same percentage of the Holding Company Common Stock to be outstanding upon
completion of the Conversion as the percentage of Holding Company Common Stock
owned by them in the aggregate on the Effective Date, before giving effect to
(a) cash paid in lieu of any fractional interests of Holding Company Common
Stock and (b) any shares of Conversion Stock purchased by the Public
Stockholders in the Offerings or tax-qualified employee stock benefit plans
thereafter.
4
<PAGE>
Distribution Exchange Shares means the additional shares of Holding Company
Common Stock to be issued to the Public Stockholders in connection with the
Holding Company Merger with the MHC.
Eligible Account Holder means any Person holding a Qualifying Deposit on
the Eligibility Record Date for purposes of determining subscription rights and
establishing subaccount balances in the liquidation account to be established
pursuant to the provision herein.
Eligibility Record Date means the date for determining Qualifying Deposits
of Eligible Account Holders and is the close of business on July 31, 1996.
Estimated Price Range means the range of the estimated aggregate pro forma
market value of the Conversion Stock to be issued in the Offerings, as
determined by the Independent Appraiser in accordance with Section 4 hereof.
FDIC means the Federal Deposit Insurance Corporation or any successor
thereto.
Holding Company means Harbor Florida Bancorp, Inc., a corporation organized
under the laws of the State of Delaware. Upon completion of the June 1997
Reorganization, the Holding Company held all of the outstanding capital stock of
the Bank.
Holding Company Common Stock means the Common Stock of the Holding Company,
par value $0.01 per share, which stock cannot and will not be insured by the
FDIC or any other governmental authority.
Independent Appraiser means the independent investment banking or financial
consulting firm retained by the Holding Company and the Bank to prepare an
appraisal of the estimated pro forma market value of the Conversion Stock.
Initial Purchase Price means the price per share to be paid initially by
Participants for shares of Conversion Stock subscribed for in the Subscription
Offering and by Persons for shares of Conversion Stock ordered in the Community
Offering.
Interim means an interim federal stock savings association, which will be
formed as a result of the conversion of Harbor Financial, M.H.C. into the stock
form of organization.
Local Community means all counties in which the Bank has its home office or
a branch office.
Member means any Person qualifying as a member of the Mutual Holding
Company in accordance with its mutual charter and bylaws and the laws of the
United States.
5
<PAGE>
MHC Merger means the merger of Interim with and into the Holding Company
pursuant to the Plan of Merger included as Annex A hereto.
Mid-Tier Holding Company - Harbor Florida Bancorp, or Holding Company, a
Delaware chartered corporation which owns 100% of the common stock of Harbor
Federal Savings Bank.
Mutual Holding Company means Harbor Financial, M.H.C. (an owner of 53.4% of
the common stock of Holding Company) prior to the MHC's conversion into an
interim federal stock savings association.
Offerings means the Subscription Offering, the Public Stockholders Offering
and the Community Offering.
Officer means the president, all senior vice-presidents, secretary,
treasurer or principal financial officer, comptroller or principal accounting
officer and any other person performing similar functions with respect to any
organization whether incorporated or unincorporated.
Order Form means the form or forms provided by the Holding Company,
containing all such terms and provisions as set forth herein, to a Participant
or other Person by which Conversion Stock may be ordered in the Offerings.
Other Member means a Voting Member who is not an Eligible Account Holder or
a Supplemental Eligible Account Holder.
OTS means the Office of Thrift Supervision or any successor thereto.
Participant means any Eligible Account Holder, Tax-Qualified Employee Stock
Benefit Plan, Supplemental Eligible Account Holder and Other Member.
Person means an individual, a corporation, a partnership, an association, a
joint stock company, a trust, an unincorporated organization or a government or
any political subdivision thereof.
Plan of Conversion and Plan of Merger means this Plan of Conversion and the
Plan of Merger as adopted by the Boards of Directors of the Mutual Holding
Company, the Holding Company, and the Bank and any amendment hereto approved as
provided herein. The Board of Directors of the Holding Company shall adopt this
Plan as soon as practicable following its organization.
6
<PAGE>
Primary Parties means the Mutual Holding Company, the Holding Company, and
the Bank.
Prospectus means the one or more documents to be used in offering the
Conversion Stock in the Offerings.
Public Stockholders mean those Persons who own shares of Bank Common Stock,
excluding the Mutual Holding Company, as of the Stockholder Voting Record Date.
Public Stockholders Offering means the offering for sale by the Holding
Company of any shares of Conversion Stock not subscribed for in the Subscription
Offering to Public Stockholders, at the sole discretion of the bank and the
Holding Company.
Qualifying Deposit means the aggregate balance of all Deposit Accounts in
the Bank of (i) an Eligible Account Holder at the close of business on the
Eligibility Record Date, provided such aggregate balance is not less than $50,
and (ii) a Supplemental Eligible Account Holder at the close of business on the
Supplemental Eligibility Record Date, provided such aggregate balance is not
less than $50.
Resident means any person who, on the date designated for that category of
subscriber in the Plan, maintained a bona fide residence within the Local
Community . The designated dates for Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members are July 31, 1996, September 30, 1997
and __________________, 1997, respectively. To the extent the person is a
corporation or other business entity, the principal place of business or
headquarters shall be within the Local Community. To the extent the person is a
personal benefit plan, the circumstances of the beneficiary shall apply with
respect to this definition. In the case of all other benefit plans,
circumstances of the trustee shall be examined for purposes of this definition.
The Bank may utilize deposit or loan records or such other evidence provided to
it to make a determination as to whether a person is a bona fide resident of the
Local Community. Subscribers in the Community Offering who are natural persons
will have a purchase preference if they were residents of the Local Community on
the date of the Prospectus. In all cases, however, such determination shall be
in the sole discretion of the Bank and Holding Company.
SEC means the Securities and Exchange Commission.
Special Meeting means the Special Meeting of Members of the Mutual Holding
Company and Public Stockholders called for the purpose of submitting this Plan
to the Members for their approval, and matters related to stockholders including
any adjournments of such meeting.
7
<PAGE>
Stockholders means those Persons who own shares of the Holding Company
Common Stock.
Stockholders' Meeting means the annual or special meeting of Stockholders
of the Holding Company called for the purpose of submitting this Plan to the
Stockholders for their approval, including any adjournments of such meeting.
Stockholder Voting Record Date means the date for determining the Public
Stockholders of the Bank eligible to vote at the Stockholders' Meeting.
Subscription Offering means the offering of the Conversion Stock to
Participants.
Subscription Rights means nontransferable rights to subscribe for
Conversion Stock granted to Participants pursuant to the terms of this Plan.
Supplemental Eligible Account Holder means any Person and their Associates.
holding a Qualifying Deposit at the close of business on the Supplemental
Eligibility Record Date.
Supplemental Eligibility Record Date, if applicable, means the date for
determining Qualifying Deposits of Supplemental Eligible Account Holders and
shall be required if the Eligibility Record Date is more than 15 months prior to
the date of the latest amendment to the Application for Conversion filed by the
Mutual Holding Company prior to approval of such application by the OTS. If
applicable, the Supplemental Eligibility Record Date shall be the last day of
the calendar quarter preceding OTS approval of the Application for Conversion
submitted by the Mutual Holding Company pursuant to this Plan of Conversion.
Tax-Qualified Employee Stock Benefit Plan means any defined benefit plan or
defined contribution plan, such as an employee stock ownership plan, stock bonus
plan, profit-sharing plan or other plan, which is established for the benefit of
the employees of the Holding Company and the Bank and which, with its related
trust, meets the requirements to be "qualified" under Section 401 of the Code as
from time to time in effect. A "Non-Tax-Qualified Employee Stock Benefit Plan"
is any defined benefit plan or defined contribution stock benefit plan which is
not so qualified.
Voting Member means a Person who at the close of business on the Voting
Record Date is entitled to vote as a Member of the Mutual Holding Company in
accordance with its mutual charter and bylaws.
Voting Record Date means the date or dates for determining the eligibility
of Members to vote at the Special Meeting
8
<PAGE>
3. GENERAL PROCEDURE FOR CONVERSION
A. An application for the Conversion, including the Plan of Conversion and
all other requisite material (the "Application for Conversion"), shall be
submitted to the OTS for approval. The Mutual Holding Company and the Holding
Company also will cause notice of the adoption of the Plan by the Boards of
Directors of the Mutual Holding Company and the Holding Company to be given by
publication in a newspaper having general circulation in each community in which
an office of the Bank is located; and will cause copies of the Plan to be made
available at each office of the Mutual Holding Company and the Bank for
inspection by Members and Stockholders. The Mutual Holding Company and the Bank
will post the notice of the filing of the Application for Conversion in each of
their offices and will again cause to be published, in accordance with the
requirements of applicable regulations of the OTS, a notice of the filing with
the OTS of an application to convert the Mutual Holding Company from mutual to
stock form.
B. Promptly following receipt of requisite approval of the OTS, this Plan
will be submitted to the Members for their consideration and approval at the
Special Meeting. The Mutual Holding Company may, at its option, mail to all
Members as of the Voting Record Date, at their last known address appearing on
the records of the Mutual Holding Company and the Holding Company, a proxy
statement in either long or summary form describing the Plan which will be
submitted to a vote of the Members at the Special Meeting. The Holding Company
also shall mail to all such Members (as well as other Participants) either a
Prospectus and Order Form for the purchase of Conversion Stock or a letter
informing them of their right to receive a Prospectus and Order Form and a
postage prepaid card to request such materials, subject to the provisions
herein. The Plan must be approved by the affirmative vote of at least a majority
of the total number of votes eligible to be cast by Voting Members at the
Special Meeting.
C. Subscription Rights to purchase shares of Conversion Stock will be
issued without payment therefor to Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders and Other Members.
D. The Holding Company shall file preliminary proxy materials with the OTS
and SEC in order to seek the approval of the Plan by its Stockholders. Promptly
following clearance of such proxy materials by the OTS and the SEC and the
receipt of any other requisite approval of the OTS, the Holding Company will
mail definitive proxy materials to all Stockholders as of the Stockholder Voting
Record Date, at their last known address appearing on the records of the Holding
Company, for their consideration and approval of this Plan at the Stockholders'
Meeting. The Plan must be approved by the holders of at least two-thirds of the
outstanding Holding Company Common Stock as of the Voting Record Date. In
addition, the Primary Parties have conditioned the consummation of the
Conversion on the approval of the Plan by at least a majority of the votes cast,
in person or by proxy, by the Public Stockholders as of the Stockholder Voting
Record Date at the Stockholders' Meeting.
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E. The Conversion Stock shall be first offered for sale in a Subscription
Offering to Eligible Account Holders, Tax-Qualified Employee Stock Benefit
Plans, Supplemental Eligible Account Holders and Other Members. It is
anticipated that any shares of Conversion Stock remaining unsold after the
Subscription Offering will be sold first through the Public Stockholders
Offering and then through a Community Offering Community. The purchase price per
share for the Conversion Stock shall be a uniform price determined in accordance
with the provisions herein. The Holding Company shall contribute to the Bank an
amount of the net proceeds received by the Holding Company from the sale of
Conversion Stock as shall be determined by the Boards of Directors of the
Holding Company, and the Bank and as shall be approved by the OTS.
F. The Effective Date of the Conversion shall be the date set forth in
Section 27 hereof. Upon the effective date, the following transactions shall
occur:
(i) The Mutual Holding Company shall convert into an interim
federal stock savings association, Interim, and Interim shall
simultaneously merge with and into the Holding Company in the MHC
Merger, with the Holding Company being the surviving institution. As a
result of the MHC Merger, (a) the shares of Holding Company Common
Stock currently held by the Mutual Holding Company shall be canceled
and (b) Members of the Mutual Holding Company will be granted interests
in the liquidation account to be established pursuant to Section 16
hereof.
(ii) The Holding Company shall sell the Conversion Stock in
the Offerings, as provided herein.
G. The Primary parties may retain and pay for the services of financial and
other advisors and investment bankers to assist in connection with any or all
aspects of the Conversion, including in connection with the Offerings, the
payment of fees to brokers and investment bankers for assisting Persons in
completing and/or submitting Order Forms. All fees, expenses, retainers and
similar items shall be reasonable.
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
A. The aggregate price at which shares of Conversion Stock shall be sold in
the Offerings shall be based on a pro forma valuation of the aggregate market
value of the Conversion Stock prepared by the Independent Appraiser. The
valuation shall be based on financial information relating to the Primary
Parties, market, financial and economic conditions, a comparison of the Primary
Parties with selected publicly held financial institutions and holding companies
and with comparable financial institutions and holding companies and such other
factors as the Independent Appraiser may deem to be important. The valuation
shall be stated in terms of an Estimated Price Range, the maximum of which shall
generally be no more than 15% above the average of the minimum and maximum of
such price range and the minimum of which shall generally be no more than 15%
below such average. The valuation shall be updated during the Conversion as
market and financial conditions warrant and as may be required by the OTS.
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B. Based upon the independent valuation, the Boards of Directors of the
Primary Parties shall fix the Initial Purchase Price and the number (or range)
of shares of Conversion Stock ("Offering Range") to be offered in the
Subscription Offering, Public Stockholders Offering and Community Offering, if
applicable. The Actual Purchase Price and the total number of shares of
Conversion Stock to be issued in the Offerings shall be determined by the Boards
of Directors of the Primary Parties upon conclusion of the Offerings in
consultation with the Independent Appraiser and any financial advisor or
investment banker retained by the Primary Parties in connection therewith.
C. Subject to the approval of the OTS, the Estimated Price Range may be
increased or decreased to reflect market, financial and economic conditions
prior to completion of the Conversion, and under such circumstances the Primary
Parties may correspondingly increase or decrease the total number of shares of
Conversion Stock to be issued in the Conversion to reflect any such change.
Notwithstanding anything to the contrary contained in this Plan, no
resolicitation of subscribers shall be required and subscribers shall not be
permitted to modify or cancel their subscriptions unless the gross proceeds from
the sale of the Conversion Stock issued in the Conversion are less than the
minimum or (excluding purchases, if any, by the Holding Company's Tax-Qualified
Employee Stock Benefit Plans) more than 15% above the maximum of the Estimated
Price Range set forth in the Prospectus. In the event of an increase in the
total number of shares offered in the Conversion due to an increase in the
Estimated Price Range, the priority of share allocation shall be as set forth in
this Plan, provided, however, that such priority will have no effect whatsoever
on the ability of the Tax Qualified Employee Stock Benefit Plans to purchase
additional shares pursuant to Section 4.D.
D. (i) In the event that Tax-Qualified Employee Stock Benefit Plans are
unable to purchase the number of shares subscribed for by such Tax-Qualified
Employee Stock Benefit Plans due to an oversubscription for shares of Conversion
Stock pursuant to Section 5 hereof, Tax-Qualified Employee Stock Benefit Plans
may purchase from the Holding Company, and the Holding Company may sell to the
Tax-Qualified Employee Stock Benefit Plans, such additional shares ("Additional
Shares") of Holding Company Common Stock necessary to fill the subscriptions of
the Tax-Qualified Employee Stock Benefit Plans, provided that such Additional
Shares may not exceed 10% of the total numbers of shares of Conversion Stock
sold in the Conversion. The sale of Additional Shares, if necessary, will occur
contemporaneously with the sale of the Conversion Stock. The sale of Additional
Shares to Tax-Qualified Employee Stock Benefit Plans by the Holding Company is
conditioned upon receipt by the Holding Company of a letter from the Independent
Appraiser to the effect that such sale would not have a material effect on the
Conversion or the Actual Purchase Price and the approval of the OTS. The ability
of the Tax-Qualified Employee Stock Benefit Plans to purchase up to an
additional 10% of the total number of shares of Conversion Stock sold in the
Conversion shall not be affected or limited in any manner by the priorities or
purchase limitations otherwise set forth in this Plan of Conversion.
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(ii) Notwithstanding anything to the contrary contained in this Plan, if
the final valuation of the Conversion Stock exceeds the maximum of the Estimated
Price Range, up to 10% of the total number of shares of Conversion Stock sold in
the Conversion may be sold to Tax-Qualified Stock Benefit Plans prior to filling
any other orders for Conversion Stock from such shares in excess of the
Estimated Price Range.
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights equal to the greater of (i) the maximum
purchase limitation established for the Community Offering, (ii) one-tenth of 1%
of the total offering of shares of Conversion Stock in the Subscription
Offering, and (iii) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Conversion Stock offered
in the Subscription Offering by a fraction, of which the numerator is the amount
of the Qualifying Deposit of the Eligible Account Holder and the denominator is
the total amount of all Qualifying Deposits of all Eligible Account Holders,
subject to Section 14 hereof.
B. In the event of an oversubscription for shares of Conversion Stock
pursuant to the provisions herein, available shares shall be allocated among
subscribing Eligible Account Holders so as to permit, to the extent possible, to
purchase a number of shares which will make his or her total allocation equal to
the lesser of the number of shares subscribed for or 100 shares. Any available
shares remaining after each subscribing Eligible Account Holder has been
allocated the lesser of the number subscribed for or 100 shares shall be
allocated among the subscribing Eligible Account Holders in the proportion which
the Qualifying Deposit of each such subscribing Eligible Account Holder bears to
the total Qualifying Deposits of all such subscribing Eligible Account Holders,
provided that no fractional shares shall be issued. Subscription Rights of
Eligible Account Holders who are also Directors or Officers and their Associates
shall be subordinated to those of other Eligible Account Holders to the extent
that they are attributable to increased deposits during the one-year period
preceding the Eligibility Record Date.
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6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS
(SECOND PRIORITY)
Notwithstanding the purchase limitations discussed below, Tax-Qualified
Employee Stock Benefit Plans of the Holding Company and the Bank shall receive,
without payment, nontransferable Subscription Rights to purchase in the
aggregate up to 10% of the Conversion Stock, including first priority to
purchase any shares of Conversion Stock to be issued in the Conversion as a
result of an increase in the Estimated Price Range after commencement of the
Subscription Offering and prior to completion of the Conversion. Consistent with
applicable laws and regulations and policies and practices of the OTS,
Tax-Qualified Employee Stock Benefit Plans may use funds contributed by the
Holding Company or the Bank and/or borrowed from an independent financial
institution to exercise such Subscription Rights, and the Holding Company and
the Bank may make scheduled discretionary contributions thereto, provided that
such contributions do not cause the Holding Company or the Bank to fail to meet
any applicable regulatory capital requirement.
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application for Conversion
filed prior to OTS approval, then, and only in that event, a Supplemental
Eligibility Record Date shall be set and each Supplemental Eligible Account
Holder, shall, subject to the further limitations of Section 11 hereof, receive,
without payment, nontransferable Subscription Rights to purchase up to the
greater of (i) the maximum purchase limitation established for the Community
Offering, (ii) one-tenth of 1% of the total offering of shares of Conversion
Stock in the Subscription Offering, and (iii) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Conversion Stock offered in the Subscription Offering by a fraction, of which
the numerator is the amount of the Qualifying Deposits of the Supplemental
Eligible Account Holder and the denominator is the total amount of all
Qualifying Deposits of all Supplemental Eligible Account Holders, subject to
Section 14 hereof and the availability of shares of Conversion Stock for
purchase after taking into account the shares of Conversion Stock purchased by
Eligible Account Holders and Tax-Qualified Employee Stock Benefit Plans though
the exercise of Subscription Rights under Sections 5 and 6 hereof.
B. In the event of an oversubscription for shares of Conversion Stock,
available shares shall be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares which will make his total
allocation equal to the lesser of the number of shares subscribed for or 100
shares. Any available shares remaining after each subscribing Supplemental
Eligible Account Holder has been allocated the lesser of the number subscribed
for or 100 shares shall be allocated among the subscribing Supplemental Eligible
Account Holders in the proportion which the Qualifying Deposit of each such
subscribing Supplemental Eligible Account Holder bears to the total Qualifying
Deposits of all such subscribing Supplemental Eligible Account Holders, provided
that no fractional shares shall be issued.
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8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member, as of the Voting Record Date ("Other Members"),
shall, subject to the further limitations of Section 11, hereof, receive without
payment, Subscription Rights to purchase up to the greater of (i) the maximum
purchase limitation established for the Community Offering and (ii) one-tenth of
1% of the total offering of shares of Conversion Stock in the Subscription
Offering, in each case subject to Section 14 hereof and the availability of
shares of Conversion Stock for purchase after taking into account the shares of
Conversion Stock purchased by Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans, and Supplemental Eligible Account Holders, if any, through
the exercise of Subscription Rights under Sections 5, 6 and 7 hereof.
B. If, pursuant to this Section, Other Members subscribe for a number of
shares of Conversion Stock in excess of the total number of shares of Conversion
Stock remaining, available shares shall be allocated among subscribing Other
Members shares so as to permit each such Other Member, to the extent possible,
to purchase a number of shares which will make his total allocations equal to
the lesser of the number of shares subscribed for or 100 shares. Any remaining
shares after each subscribing Other Member has been allocated the lesser of the
number subscribed for or 100 shares shall be allocated among subscribing Other
Members on a pro rata basis in the same proportion as each such Other Member's
subscription bears to the total subscriptions of all such subscribing Other
Members, provided that no fractional shares shall be issued.
9. PUBLIC STOCKHOLDERS OFFERING
A. If less than the total number of shares of Conversion Stock are sold in
the Subscription Offering, all remaining shares of Conversion Stock shall,
subject to the further limitations of Section 11 hereof, be sold to Public
Stockholders as of the Stockholder Voting Record Date in an amount up to the
greater of (i) the maximum purchase limitation established for the Community
Offering and (ii) one tenth of 1% of the total offering of shares of Conversion
Stock in the Subscription Offering, in each case subject to Section 14 hereof
and the availability of shares of Conversion Stock for purchase after taking
into account the shares of Conversion Stock purchased by Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members. The ability of Public Stockholders to
purchase stock in the Public Stockholders Offering is subject to the right of
the Primary Parties in their absolute discretion to accept or reject in whole or
in part all orders in the Public Stockholders Offering.
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<PAGE>
B. If, pursuant to this Section, Public Stockholders as of the Stockholder
Voting Record Date subscribe for a number of shares of Conversion Stock in
excess of the total number of shares of Conversion Stock remaining, available
shares shall be allocated among subscribing Public Stockholders as of the
Stockholder Voting Record Date in an equitable manner as determined by the Board
of Directors, provided that no fractional shares shall be issued.
10. COMMUNITY OFFERING AND OTHER OFFERINGS
A. If less than the total number of shares of Conversion Stock are sold in
the Subscription Offering and Public Stockholders Offering, it is anticipated
that all remaining shares of Conversion Stock shall, if practicable, be sold in
a Community Offering. Subject to the requirements set forth herein, the manner
in which the Conversion Stock is sold in the Community Offering shall have as
the objective the achievement of the widest possible distribution of such stock,
subject to the right of the Primary Parties, in their absolute discretion, to
accept or reject in whole or in part all orders in the Community Offering.
B. In the event of a Community Offering, all shares of Conversion Stock
which are not subscribed for in the Subscription Offering and Public
Stockholders Offering shall be offered for sale by means of a direct community
marketing program, which may provide for the use of brokers, dealers or
investment banking firms experienced in the sale of financial institution
securities. Any available shares in excess of those not subscribed for in the
Subscription Offering will be available for purchase by members of the general
public to whom a Prospectus is delivered by the Holding Company or on its
behalf, with preference given to natural persons who are Residents of the Local
Community ("Preferred Subscribers").
C. A Prospectus and Order Form shall be furnished to such Persons as the
Primary Parties may select in connection with the Community Offering, and each
order for Conversion Stock in the Community Offering shall be subject to the
absolute right of the Primary Parties to accept or reject any such order in
whole or in part either at the time of receipt of an order or as soon as
practicable following completion of the Community Offering. Available shares
will be allocated first to each Preferred Subscriber whose order is accepted in
an amount equal to the lesser of 100 shares or the number of shares subscribed
for by each such Preferred Subscriber, if possible. Thereafter, unallocated
shares shall be allocated among the Preferred Subscribers whose accepted orders
remain unsatisfied in an equitable manner as determined by the Board of
Directors. If there are any shares remaining after all accepted orders by
Preferred Subscribers have been satisfied, any remaining shares shall be
allocated to other members of the general public who place orders in the
Community Offering, applying the same allocation described above for Preferred
Subscribers.
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<PAGE>
D. The amount of Conversion Stock that any Person may purchase in the
Community Offering shall (subject to the further limitations of Section 11
hereof) not exceed the number of shares of Conversion Stock as shall equal
$500,000 divided by the Actual Purchase Price, provided, however, that this
amount may be decreased or increased by up to 5%, subject to any required
regulatory approval but without the further approval of Members of the Mutual
Holding Company or the Stockholders of the Holding Company. The Primary Parties
may commence the Community Offering concurrently with, at any time during, or as
soon as practicable after the end of, the Subscription Offering and Public
Stockholders Offering, and the Community Offering must be completed within 45
days after the completion of the Subscription Offering and Public Stockholders
Offering, unless extended by the Primary Parties with any required regulatory
approval.
E. In the event that any insignificant residue of shares of Conversion
Stock is not sold in the Subscription Offering or Community Offering, the
Primary Parties shall use their best efforts to obtain other purchasers for such
shares in such manner and upon such conditions as may be satisfactory to the
OTS.
11. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION STOCK
The following limitations shall apply to all purchases of Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be purchased
by any Person in the First Priority, Third Priority and Fourth Priority in the
Subscription Offering, any Person in the Public Stockholders Offering and any
person in the Community Offering shall not exceed the number of shares of
Conversion Stock as shall equal $500,000 divided by the Actual Purchase Price.
B. The maximum number of shares of Conversion Stock which may be subscribed
for or purchased in all categories in the Conversion by any Person (or persons
through a single account) together with any Associate or group of persons Acting
in Concert shall not exceed such number of shares of Conversion Stock as shall
equal $750,000 divided by the Actual Purchase Price, except for Tax-Qualified
Employee Stock Benefit Plans, which in the aggregate may subscribe for up to 10%
of the Conversion Stock.
C. Except for the Tax-Qualified Employee Stock Benefit Plans, the maximum
number of shares of Conversion Stock which may be purchased in all categories in
the Conversion by any Person (or persons through a single account) together with
any Associate or group of persons Acting in Concert shall not exceed such number
of shares that when combined with Distribution Exchange Shares shall equal
$3,000,000 divided by the Actual Purchase Price per share.
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D. The number of shares of Conversion Stock which Directors and Officers
and their Associates may purchase in the aggregate in the Offering shall not
exceed 25% of the total number of shares of Conversion Stock sold in the
Offerings, including any shares which may be issued in the event of an increase
in the maximum of the Estimated Price Range to reflect changes in market,
financial and economic conditions after commencement of the Subscription
Offering and prior to completion of the Offerings.
E. No Person may purchase fewer than 25 shares of Conversion Stock in the
Offerings, to the extent such shares are available; provided, however, that if
the Actual Purchase Price is greater than $20.00 per share, such minimum number
of shares shall be adjusted so that the aggregate Actual Purchase Price for such
minimum shares will not exceed $500.00.
F. For purposes of the foregoing limitations and the determination of
Subscription Rights, (i) Directors, Officers and Employees shall not be deemed
to be Associates or a group acting in concert solely as a result of their
capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock
Benefit Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purposes of determining compliance with the
limitations set forth in this Section, and (iii) Distribution Exchange Shares
shall be valued at the Actual Purchase Price.
G. Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Mutual Holding Company or the Stockholders of the Holding Company, the
Primary Parties may increase or decrease any of the individual or aggregate
purchase limitations set forth herein to a percentage which does not exceed 5%
of the maximum purchase amount set forth herein whether prior to, during or
after the Subscription Offering or Community Offering. In the event that an
individual purchase limitation is increased after commencement of the
Subscription Offering or any other offering, the Primary Parties shall permit
any Person who subscribed for the maximum number of shares of Conversion Stock
to purchase an additional number of shares, so that such Person shall be
permitted to subscribe for the then maximum number of shares permitted to be
subscribed for by such Person, subject to the rights and preferences of any
Person who has priority Subscription Rights. In the event that an individual
purchase limitation is decreased after commencement of the Subscription Offering
or any other offering, the orders of any Person who subscribed for more than the
new purchase limitation shall be decreased by the minimum amount necessary so
that such Person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such Person.
H. The Primary Parties shall have the right to take all such action as they
may, in their sole discretion, deem necessary, appropriate or advisable in order
to monitor and enforce the terms, conditions, limitations and restrictions
contained in this Section and elsewhere in this Plan and the terms, conditions
and representations contained in the Order Form, including, but not limited to,
the absolute right (subject only to any necessary regulatory approvals or
concurrences) to reject, limit or revoke acceptance of any subscription or order
and to delay, terminate or refuse to consummate any sale of Conversion Stock
which they believe might violate, or is designed to, or is any part of a plan
to, evade or circumvent such terms, conditions, limitations, restrictions and
representations. Any such action shall be final, conclusive and binding on all
persons, and the Primary Parties and their respective Boards shall be free from
any liability to any Person on account of any such action.
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I. Notwithstanding anything to the contrary contained in this Plan, the
Public Stockholders will not have to sell any Holding Company Common Stock or to
be limited in receiving Distribution Exchange Shares even if their ownership of
Holding Company Common Stock when converted into Distribution Exchange Shares
would exceed an applicable purchase limitation.
12. TIMING OF SUBSCRIPTION OFFERING, MANNER OF EXERCISING SUBSCRIPTION RIGHTS
AND ORDER FORMS
A. The Subscription Offering may be commenced concurrently with or at any
time after the mailing to Voting Members of the Mutual Holding Company and
Stockholders of the Holding Company of the proxy statement(s) to be used in
connection with the Special Meeting and the Stockholders' Meeting. The
Subscription Offering may be closed before the Special Meeting and the
Stockholders' Meeting, provided that the offer and sale of the Conversion Stock
shall be conditioned upon the approval of the Plan by the Voting Members of the
Mutual Holding Company and the Stockholders of the Bank at the Special Meeting
and the Stockholders' Meeting, respectively.
B. The exact timing of the commencement of the Subscription Offering shall
be determined by the Primary Parties in consultation with the Independent
Appraiser and any financial or advisory or investment banking firm retained by
them in connection with the Conversion. The Primary Parties may consider a
number of factors, including, but not limited to, their current and projected
future earnings, local and national economic conditions, and the prevailing
market for stocks in general and stocks of financial institutions in particular.
The Primary Parties shall have the right to withdraw, terminate, suspend, delay,
revoke or modify any such Subscription Offering, at any time and from time to
time, as they in their sole discretion may determine, without liability to any
Person, subject to compliance with applicable securities laws and any necessary
regulatory approval or concurrence.
C. The Primary Parties shall, promptly after the SEC has declared the
Registration Statement, which includes the Prospectus, effective and all
required regulatory approvals have been obtained, distribute or make available
the Prospectus, together with Order Forms for the purchase of Conversion Stock,
to all Participants for the purpose of enabling them to exercise their
respective Subscription Rights, subject to Section 14 hereof. The Primary
Parties may elect to mail a Prospectus and Order Form only to those Participants
who request such materials by returning a postage-paid card to the Primary
Parties by a date specified in the letter informing them of their Subscription
Rights. Under such circumstances, the Subscription Offering shall not be closed
until the expiration of 30 days after the mailing by the Primary Parties of the
postage-paid card to Participants.
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D. A single Order Form for all Deposit Accounts maintained with the Bank by
an Eligible Account Holder and any Supplemental Eligible Account Holder may be
furnished, notwithstanding the number of Deposit Accounts maintained with the
Bank on the Eligibility Record Date and Supplemental Eligibility Record Date.
respectively.
E. The recipient of an Order Form shall have no less than 20 days and no
more than 45 days from the date of mailing of the Order Form (with the exact
termination date to be set forth on the Order Form) to properly complete and
execute the Order Form and deliver it to the Primary Parties. The Primary
Parties may extend such period by such amount of time as they determine is
appropriate. Failure of any Participant to deliver a properly executed Order
Form to the Primary Parties, along with payment (or authorization for payment by
withdrawal) for the shares of Conversion Stock subscribed for, within time
limits prescribed, shall be deemed a waiver and release by such person of any
rights to subscribe for shares of Conversion Stock. Each Participant shall be
required to confirm to the Primary Parties by executing an Order Form that such
Person has fully complied with all of the terms, conditions, limitations and
restrictions in the Plan.
F. The Primary Parties shall have the absolute right, in their sole
discretion and without liability to any Participant or other Person, to reject
any Order Form, including, but not limited to, any Order Form that is (i)
improperly completed or executed; (ii) not timely received; (iii) transmitted
via facsimile; (iv) not accompanied by the proper payment (or authorization of
withdrawal for payment) or, in the case of institutional investors in the
Community Offering, not accompanied by an irrevocable order together with a
legally binding commitment to pay the full amount of the purchase price prior to
48 hours before the completion of the Offerings; or (v) submitted by a Person
whose representations the Primary Parties believe to be false or who they
otherwise believe, either alone, or acting in concert with others, is violating,
evading or circumventing, or intends to violate, evade or circumvent, the terms
and conditions of the Plan. The Primary Parties may, but will not be required
to, waive any irregularity on any Order Form or may require the submission of
corrected Order Forms or the remittance of full payment for shares of Conversion
Stock by such date as they may specify. The interpretation of the Primary
Parties of the terms and conditions of the Order Forms shall be final and
conclusive.
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13. PAYMENT FOR CONVERSION STOCK
A. Payment for shares of Conversion Stock subscribed for by Participants in
the Subscription Offering and payment for shares of Conversion Stock ordered by
Persons in the Stockholders Offering and Community Offering shall be equal to
the Initial Purchase Price multiplied by the number of shares which are being
subscribed for or ordered, respectively. Such payment may be made in cash, if
delivered in person, or by check or money order at the time the Order Form is
delivered to the Primary Parties. Wire transfers of funds may be accepted in the
sole discretion of the Primary Parties and there shall be no liability for
failing to accept such funds. In addition, the Primary Parties may elect to
provide Participants and/or other Persons who have a Deposit Account with the
Bank the opportunity to pay for shares of Conversion Stock by authorizing the
Bank to withdraw from such Deposit Account an amount equal to the aggregate
Purchase Price of such shares. If the Actual Purchase Price is less than the
Initial Purchase Price, the Primary Parties shall refund the difference to all
Participants and other Persons, unless the Primary Parties choose to provide
Participants and other Persons the opportunity on the Order Form to elect to
have such difference applied to the purchase of additional whole shares of
Conversion Stock. If the Actual Purchase Price is more than the Initial Purchase
Price, the Primary Parties shall reduce the number of shares of Conversion Stock
ordered by Participants and other Persons and refund any remaining amount which
is attributable to a fractional share interest, unless the Primary Parties
choose to provide Participants and other Persons the opportunity to increase the
Actual Purchase Price submitted to them.
B. Consistent with applicable laws and regulations and policies and
practices of the OTS, payment for shares of Conversion Stock subscribed for by
Tax-Qualified Employee Stock Benefit Plans may be made with funds contributed by
the Holding Company, and/or the Bank and/or funds obtained pursuant to a loan
from an unrelated financial institution pursuant to a loan commitment which is
in force from the time that any such plan submits an Order Form until the
closing of the transactions contemplated hereby.
C. If a Participant or other Person authorizes the Bank to withdraw the
amount of the Initial Purchase Price from his or her Deposit Account, the Bank
shall have the right to make such withdrawal or to freeze funds equal to the
aggregate Initial Purchase Price upon receipt of the Order Form. Notwithstanding
any regulatory provisions regarding penalties for early withdrawals from
certificate accounts, the Bank intends to allow payment by means of withdrawal
from certificate accounts without the assessment of such penalties. In the case
of an early withdrawal of only a portion of such account, the certificate
evidencing such account shall be canceled if any applicable minimum balance
requirement ceases to be met. In such case, the remaining balance will earn
interest at the regular passbook rate. However, where any applicable minimum
balance is maintained in such certificate account, the rate of return on the
balance of the certificate account shall remain the same as prior to such early
withdrawal. This waiver of the early withdrawal penalty applies only to
withdrawals made in connection with the purchase of Conversion Stock and is
entirely within the discretion of the Primary Parties.
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D. The Bank shall pay interest, at not less than the passbook rate, for all
amounts paid in cash, by check or money order to purchase shares of Conversion
Stock in the Subscription Offering and the Community Offering from the date
payment is received until the date the Conversion is completed or terminated.
E. The Bank shall not knowingly loan funds or otherwise extend credit to
any Participant or other Person to purchase Conversion Stock.
F. Each share of Conversion Stock shall be non-assessable upon payment in
full of the Actual Purchase Price.
14. ACCOUNTHOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES
The Primary Parties shall make reasonable efforts to comply with the
securities laws of all jurisdictions in the United States in which Participants
reside. However, no Participant will be offered or receive any Conversion Stock
under the Plan if such Participant resides in a foreign country or resides in a
jurisdiction of the United States with respect to which any of the following
apply; (a) there are few Participants otherwise eligible to subscribe for shares
under this Plan who reside in such jurisdiction; (b) the granting of
Subscription Rights or the offer or sale of shares of Conversion Stock to such
Participants would require any of the Primary Parties or their respective
Directors and Officers, under the laws of such jurisdiction, to register as a
broker-dealer, salesman or selling agent or to register or otherwise qualify the
Conversion Stock for sale in such jurisdiction, or any of the Primary Parties
would be required to qualify as a foreign corporation or file a consent to
service of process in such jurisdiction; and (c) such registration,
qualification or filing in the judgment of the Primary Parties would be
impracticable or unduly burdensome for reasons of cost or otherwise.
15. VOTING RIGHTS OF STOCKHOLDERS
Following consummation of the Conversion, voting rights with respect to the
Bank shall be held and exercised exclusively by the Holding Company as holder of
all of the Bank's outstanding voting capital stock, and voting rights with
respect to the Holding Company shall be held and exercised exclusively by the
holders of the Holding Company's voting capital stock.
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16. LIQUIDATION ACCOUNT
A. At the time of the MHC Merger, a liquidation account shall be
established in an amount equal to the amount of the dividends from Bank Common
Stock waived by the Mutual Holding Company plus the greater of (i) $38,728,073,
which is equal to 100% of the retained earnings of the Bank as of June 30, 1993,
the date of the latest statement of financial condition contained in the final
offering circular utilized in the Bank's initial public offering, or (ii) 53.4%
of the Bank's total stockholders' equity as reflected in its latest statement of
financial condition contained in the final Prospectus utilized in the
Conversion. The function of the liquidation account will be to preserve the
rights of certain holders of Deposit Accounts in the association who maintain
such accounts in the Bank following the Conversion to a priority for
distributions in the unlikely event of a liquidation of the Bank subsequent to
the Conversion.
B. The liquidation account shall be maintained for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders, if any, who maintain
their Deposit Accounts in the Bank after the Conversion. Each such account
holder will, with respect to each Deposit Account held, have a related inchoate
interest in a portion of the liquidation account balance, which interest will be
referred to in this Section 16 as the "subaccount balance." All Deposit Accounts
which have the same social security number will be aggregated for purposes of
determining the initial subaccount balance with respect to such Deposit
Accounts, except as provided in this Section.
C. In the event of a complete liquidation of the Bank subsequent to the
Conversion (and only in such event), each Eligible Account Holder and
Supplemental Eligible Account Holder, if any, shall be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current subaccount balances for Deposit Accounts then held (adjusted as
described below) before any liquidation distribution may be made with respect to
the capital stock of the Bank. No merger, consolidation, sale of bulk assets or
similar combination transaction with another FDIC-insured institution in which
the Bank is not the surviving entity shall be considered a complete liquidation
for this purpose. In any merger or consolidation transaction, the liquidation
account shall be assumed by the surviving entity.
D. The initial subaccount balance for a Deposit Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder, if any, shall be
determined by multiplying the opening balance in the liquidation account by a
fraction, of which the numerator is the amount of the Qualifying Deposits of
such account holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders, if any. For Deposit Accounts in existence at both the Eligibility
Record Date and the Supplemental Eligibility Record Date, if any, separate
initial subaccount balances shall be determined on the basis of the Qualifying
Deposits in such Deposit Accounts on each such record date. Initial subaccount
balances shall not be increased, and shall be subject to downward adjustment as
provided below.
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E. If the aggregate deposit balance in the Deposit Account(s) of any
Eligible Account Holder or Supplemental Eligible Account Holder, if any, at the
close of business on any annual closing date and the Supplemental Eligibility
Record Date for Eligible Account Holders and subsequent to the Eligibility
Record Date for Supplemental Eligible Account Holders, is less than the lesser
of (a) the aggregate deposit balance in such Deposit Account(s) at the close of
business on any other annual closing date subsequent to such record dates or (b)
the aggregate deposit balance in such Deposit Account(s) as of the Eligibility
Record Date or the Supplemental Eligibility Record Date, the subaccount balance
for such Deposit Accounts(s) shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of such a downward adjustment, the subaccount balance shall not be
subsequently increased, notwithstanding any subsequent increase in the deposit
balance of the related Deposit Account(s). The subaccount balance of an Eligible
Account Holder or Supplemental Eligible Account Holder, if any, will be reduced
to zero if the Account Holder ceases to maintain a Deposit Account at the Bank
that has the same social security number as appeared on his Deposit Account(s)
at the Eligibility Record Date or, if applicable, the Supplemental Eligibility
Record Date.
F. Subsequent to the Conversion, the Bank may not pay cash dividends
generally on deposit accounts and/or capital stock of the Bank, if such dividend
or repurchase would reduce the Bank's regulatory capital below the aggregate
amount of the then current subaccount balances for Deposit Accounts then held;
otherwise, the existence of the liquidation account shall not operate to
restrict the use or application of any of the net worth accounts of the Bank.
G. For purposes of this Section, a Deposit Account includes a
predecessor/successor account which is held by an Account Holder with the same
social security number.
17. TRANSFER OF DEPOSIT ACCOUNTS
Each Deposit Account in the Bank at the time of the consummation of the
Conversion shall become, without further action by the holder, a Deposit Account
in the Bank equivalent in withdrawable amount to the withdrawal value (as
adjusted to give effect to any withdrawal made for the purchase of Conversion
Stock), and subject to the same terms and conditions (except as to voting and
liquidation rights) as such Deposit Account in the Bank immediately preceding
consummation of the Conversion. Holders of Deposit Accounts in the Bank shall
not, as such holders, have any voting rights.
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18. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION, MARKET MAKING AND STOCK
EXCHANGE LISTING
In connection with the Conversion, the Holding Company shall have
registered its Common Stock pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as amended, and undertaken not to deregister such stock for a
period of three years thereafter. The Holding Company also shall use its best
efforts to (i) encourage and assist a market maker to establish and maintain a
market for its Common Stock and (ii) list the Holding Company Common Stock on a
national or regional securities exchange or to have quotations for such stock
disseminated on the National Association of Securities Dealers Automated
Quotation System.
19. DIRECTORS AND OFFICERS OF THE BANK
Each person serving as a Director or Officer of the Bank or the Holding
Company at the time of the Conversion shall continue to serve as a Director or
Officer of the Bank for the balance of the term for which the person was elected
prior to the Conversion, and until a successor is elected and qualified.
20. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE
CONVERSION
For a period of three years following the Conversion, the Directors and
Officers of the Holding Company, the Bank and their Associates may not purchase,
without the prior written approval of the OTS, Holding Company Common Stock
except from a broker-dealer registered with the SEC. This prohibition shall not
apply, however, to (i) a negotiated transaction arrived at by direct negotiation
between buyer and seller and involving more than 1% of the outstanding Holding
Company Common Stock and (ii) purchases of stock made by and held by any
Tax-Qualified Employee Stock Benefit Plan (and purchases of stock made by and
held by any Non-Tax-Qualified Employee Stock Benefit Plan following the receipt
of stockholder approval of such plan) which may attributable to individual
officers or directors.
The foregoing restriction on purchases of Holding Company Common Stock
shall be in addition to any restrictions that may be imposed by federal and
state securities laws.
21. RESTRICTIONS ON TRANSFER OF STOCK
All shares of the Conversion Stock which are purchased by Persons other
than Directors and Officers shall be transferable without restriction, except in
connection with a transaction prohibited by Section 22 of this Plan. Shares of
Conversion Stock purchased by Directors and Officers of the Holding Company, the
Holding Company and the Bank on original issue from the Holding Company (by
subscription or otherwise) shall be subject to the restriction that such shares
shall not be sold or otherwise disposed of for value for a period of one year
following the date of purchase, except for any disposition of such shares
following the death of the original purchaser or pursuant to any merger or
similar transaction approved by the OTS. The shares of Conversion Stock issued
by the Holding Company to Directors and Officers shall bear the following legend
giving appropriate notice of such one-year restriction.
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The shares of stock evidenced by this Certificate are
restricted as to transfer for a period of one year from the date of
this Certificate pursuant to Part 563b of the Rules and Regulations of
the Office of Thrift Supervision. These shares may not be transferred
during such one-year period without a legal opinion of counsel for the
Company that said transfer is permissible under the provisions of
applicable law and regulation. This restrictive legend shall be deemed
null and void after one year from the date of this Certificate.
In addition, the Holding Company shall give appropriate instructions to the
transfer agent for the Holding Company Common Stock with respect to the
applicable restrictions relating to the transfer of restricted stock. Any shares
issued at a later date as a stock dividend, stock split or otherwise with
respect to any such restricted stock shall be subject to the same holding period
restrictions as may then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
22. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY
The articles of incorporation of the Holding Company shall prohibit any
Person together with Associates or group of Persons acting in concert from
offering to acquire or acquiring, directly or indirectly, beneficial ownership
of more than 10% of any class of equity securities of the Holding Company, or of
securities convertible into more than 10% of any such class, for five years
following completion of the Conversion. The articles of incorporation of the
Holding Company also shall provide that all equity securities beneficially owned
by any Person in excess of 10% of any class of equity securities during such
five-year period shall be considered "excess shares," and that excess shares
shall not be counted as shares entitled to vote and shall not be voted by any
Person or counted as voting shares in connection with any matters submitted to
the stockholders for a vote. The foregoing restrictions shall not apply to (i)
any offer with a view toward public resale made exclusively to the Holding
Company by underwriters or a selling group acting on this behalf, (ii) the
purchase of shares by a Tax-Qualified Employee Stock Benefit Plan established
for the benefit of the employees of the Holding Company and its subsidiaries
which is exempt from approval requirements under 12 C. F. R. ss.574.3(c)(1)(vi)
or any successor thereto, and (iii) any offer or acquisition approved in advance
by the affirmative vote of two-thirds of the entire Board of Directors of the
Holding Company. Directors, Officers or Employees of the Holding Company or the
Bank or any subsidiary thereof shall not be deemed to be Associates or a group
acting in concert with respect to their individual acquisition of any class of
equity securities of the Holding Company solely as a result of their capacities
as such.
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23. TAX RULINGS OR OPINIONS
Consummation of the Conversion is conditioned upon prior receipt by the
Primary Parties of either a ruling or an opinion of counsel, a tax advisor with
respect to federal tax laws, and either a ruling or an opinion of counsel or tax
advisor with respect to Florida tax laws, to the effect that consummation of the
transactions contemplated hereby will not result in a taxable reorganization
under the provisions of the applicable codes or otherwise result in any material
adverse tax consequences to the Primary Parties or to account holders receiving
Subscription Rights before or after the Conversion, except in each case to the
extent, if any, that Subscription Rights are deemed to have fair market value on
the date such rights are issued.
24. STOCK COMPENSATION PLANS
A. The Holding Company is authorized to adopt Tax-Qualified Employee Stock
Benefit Plans in connection with the Conversion, including without limitation an
employee stock ownership plan.
B. The Holding Company is also authorized to adopt stock option plans,
restricted stock grant plans and other Non-Tax-Qualified Employee Stock Benefit
Plans, provided that no stock options shall be granted, and no shares of
Conversion Stock shall be purchased, pursuant to any of such plans prior to the
earlier of (i) the one-year anniversary of the consummation of the Conversion or
(ii) the receipt of stockholder approval of such plans at either the annual or
special meeting of stockholders of the Holding Company to be held not earlier
than six months after the completion of the Conversion.
C. Existing as well as any newly created Tax-Qualified Employee Stock
Benefit Plans may purchase shares of Conversion Stock in the Offerings, to the
extent permitted by the terms of such benefit plans and this Plan.
25. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK
A. Except as may otherwise may be permitted by the OTS, the Holding Company
may not repurchase any shares of its capital stock during the first year
following consummation of the Conversion. During the second and third years
following consummation of the Conversion, the Holding Company may not repurchase
any of its capital stock from any person, other than pursuant to (i) an offer to
repurchase made by the Holding Company on a pro rata basis to all of its
stockholders and which is approved by the OTS, (ii) the repurchase of qualifying
shares of a director, if any, (iii) purchases in the open market by a
Tax-Qualified or Non-Tax-Qualified Employee Stock Benefit Plan in an amount
reasonable and appropriate to fund the plan, or (iv) a repurchase program
approved by the OTS.
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B. The Bank may not declare or pay a cash dividend on, or repurchase any
of, its capital stock if the effect thereof would cause the regulatory capital
of the Bank to be reduced below the amount required for the liquidation account.
Any dividend declared or paid on, or repurchase of, the Bank's capital stock
also shall be in compliance with Section 563.134 of the Regulations, or any
successor thereto.
C. Notwithstanding anything to the contrary set forth herein, the Holding
Company may repurchase its capital stock to the extent and subject to the
requirements set forth in Section 563b.3(g)(3) of the Regulations, or any
successor thereto, or as otherwise may be approved by the OTS.
26. PAYMENT OF FEES TO BROKERS
The Primary Parties may elect to offer to pay fees on a per
share basis to securities brokers who assist purchasers of Conversion
Stock in the Offerings.
27. EFFECTIVE DATE
The Effective Date of the Conversion shall be the date upon which the last
of the following actions occurs: (i) the filing of Articles of Combination with
the OTS with respect to the MHC Merger, (ii) the closing of the issuance of the
shares of Conversion Stock in the Offerings. The filing of Articles of
Combination relating to the MHC Merger and the closing of the issuance of shares
of Conversion Stock in the Offerings shall not occur until all requisite
regulatory, Member and Stockholder approvals have been obtained, all applicable
waiting periods have expired and sufficient subscriptions and orders for the
Conversion Stock have been received. It is intended that the closing of the MHC
Merger, and the sale of shares of Conversion Stock in the Offerings shall occur
consecutively and substantially simultaneously.
28. AMENDMENT OR TERMINATION OF THE PLAN
If deemed necessary or desirable by the Boards of Directors of the Primary
Parties, this Plan may be substantively amended, as a result of comments from
regulatory authorities or otherwise, at any time prior to the solicitation of
proxies from members and Stockholders to vote on the Plan and at any time
thereafter with the concurrence of the OTS. Any amendment to this Plan made
after approval by the Members and Stockholders with the concurrence of the OTS
shall not necessitate further approval by the Members or Stockholders unless
otherwise required by the OTS. This Plan shall terminate if the sale of all
shares of Conversion Stock is not completed within 24 months from the date of
the Special Meeting. Prior to the earlier of the Special Meeting and the
Stockholders' Meeting, this Plan may be terminated by the Boards of Directors of
the Primary Parties without approval of the OTS; after the Special Meeting or
the Stockholder's Meeting, the Boards of Directors may terminate this Plan only
with the approval of the OTS.
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29. INTERPRETATION OF THE PLAN
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of each of the Boards of Directors of the
Primary Parties shall be final, subject to the authority of the OTS.
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ANNEX A
PLAN OF MERGER
PLAN OF MERGER, dated as of September 24, 1997 ("Plan of Merger") by and
between Harbor Florida Bancorp, Inc. (the "Holding Company") and Harbor
Financial, M.H.C. ("Mutual Holding Company"). Unless otherwise noted, defined
terms shall have the same meaning as those set forth in the Plan of Conversion
and Plan of Reorganization of the Mutual Holding Company between Holding Company
and the Mutual Holding Company (of which this Plan of Merger is an Annex
thereto).
WITNESSETH:
WHEREAS, the Mutual Holding Company, through a reorganization and
conversion, owned 53.4% of the Common Stock of Harbor Federal Savings Bank (the
"Bank");
WHEREAS, on June 25, 1997, the Bank effected an additional reorganization
as a result of which the Bank became a wholly owned subsidiary of Holding
Company and the Holding Company became the owner of 100% of the common stock of
the Bank;
WHEREAS, Holding Company now has 53.4% of its shares of common stock owned
by the Mutual Holding Company and 46.6% of its shares held by the public (the
"Minority Shareholders");
WHEREAS, the Board of Directors of the Mutual Holding Company has
determined that it is in the best interests of the Mutual Holding Company and
its members to convert from the mutual to stock form of organization;
WHEREAS, the Bank is wholly owned by Holding Company;
WHEREAS, the conversion of the Mutual Holding Company to stock form will be
facilitated by causing the Mutual Holding Company to convert from the mutual
form to a federal interim stock savings bank to be known as "Interim Savings
Capital" ("Interim") and simultaneously merge with the Holding Company, a
Delaware corporation; and
WHEREAS, immediately upon completion of the Conversion, the Mutual Holding
Company and the existing minority stockholders of the Holding Company will
supplement their current shares of Holding Company Common Stock with shares of
common stock of the Holding Company based upon a Distribution Exchange or
Conversion Ratio established in accordance with the independent appraisal of the
Bank upon merger with Interim, and the remaining shares will be sold in
subscription and community offerings, giving priority subscription rights as set
forth in the Plan in accordance with OTS conversion regulations.
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NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and in accordance with federal law, the Holding
Company and the Mutual Holding Company hereby agree that, subject to the
conditions hereinafter set forth, the Mutual Holding Company shall convert from
the mutual form to a federal interim stock savings bank, and Interim shall then
be merged with and into the Holding Company with the Holding Company as the
surviving entity. The terms and conditions of such merger shall be as follows:
1. Regulatory Approvals. The merger shall not become effective until
receipt of approval of the OTS and any other agency having jurisdiction over the
merger, if any.
2. Identity and Name of Resulting Bank. The resulting savings bank in the
Merger shall be the Bank.
3. Offices of Resulting Bank. The home office of the Bank shall be the
Bank's office located at 100 S. Second Street, Fort Pierce, Florida. The
locations of the branch offices of the Bank shall be those of the Bank in
existence on the date of this Plan of Merger. In addition, the Bank shall
operate branch offices at such additional locations as may be approved by the
OTS.
4. The Bank's Federal Charter and Bylaws. The federal stock charter and
bylaws of the Bank as in effect immediately prior to the effectiveness of the
Merger shall be amended as necessary to accomplish the Merger.
5. Effective Date. The effective date of the Conversion ("Effective Date")
shall be the date as soon as practicable after the issuance and/or execution by
the OTS and any other federal or state regulatory agencies, of all approvals,
certificates and documents as may be required in order to cause the Conversion
to become effective.
6. Bank Stockholder Approval. The affirmative vote of the holders of
two-thirds of the outstanding Holding Company Common Stock and at least a
majority of such Holding Company Common Stock not held by the Mutual Holding
Company voting at a meeting of the Holding Company stockholders shall be
required to approve this Plan of Merger.
7. Mutual Holding Company Approval. The approval of a majority of the
members of the Mutual Holding Company, as of a specified date shall be required
to approve this Plan of Merger.
8. Cancellation of Holding Company Common Stock held by the Mutual Holding
Company and Member Interests; Liquidation Account.
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(a) On the Effective Date, (i) the ownership interest in each share of
Holding Company Common Stock issued and outstanding immediately prior to the
Effective Date and held by the Mutual Holding Company shall, by virtue of the
Reorganization and without any action on the part of the holder thereof, be
canceled, (ii) the interests in the Mutual Holding Company of any person, firm
or entity who or which qualified as a member of the Mutual Holding Company in
accordance with its mutual charter and bylaws and the laws of the United States
prior to the Mutual Holding Company's conversion from mutual to stock form (the
"Members") shall, by virtue of the Merger and without any action on the part of
the holder thereof, be canceled, and (iii) a liquidation account shall be
established on behalf of each depositor member of the Mutual Holding Company, as
defined in the Plan, in accordance with Section 16 of the Plan.
(b) At or after the Effective Date and prior to the Merger, each
certificate or certificates theretofore evidencing issued and outstanding shares
of Holding Company Common Stock, other than any such certificate or certificates
owned by the Mutual Holding Company, which ownership interest shall be
extinguished, shall continue to represent issued and outstanding shares of Bank
Common Stock.
9. Dissenting Shares. No Member of the Mutual Holding Company or
stockholder of the Holding Company shall have any dissenter or appraisal rights
in connection with the Conversion.
10. Deposits of the Bank. All deposit accounts of the Bank shall be and
will continue without change in their respective terms, interest rates,
maturities, minimum required balances or withdrawal values. After the Effective
Date, the resulting savings bank will continue to issue deposit accounts on the
same basis as immediately prior to the Effective Date.
11. Effect of Conversion. Upon the Effective Date of the Conversion, all
assets and property (real, personal and mixed, tangible and intangible, chooses
in action, rights and credits) then owned by the Bank, the Holding Company or
the Mutual Holding Company or which would inure to either of them, shall
immediately by operation of law and without any conveyance, transfer or further
action, become the property of the Holding Company (or the Bank as the case may
be), which shall have, hold and enjoy them in its own right as fully and to the
same extent as they were possessed, held and enjoyed by the Bank, the Holding
Company and the Mutual Holding Company immediately prior to the Effective Date
of the Conversion.
12. Directors and Executive Officers. The persons who are the current
officers and directors of the Holding Company will be the directors and officers
of the Holding Company and such terms or positions will be unchanged.
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13. Abandonment of Plan of Merger. This Plan of Merger may be abandoned by
either the Holding Company or the Mutual Holding Company at any time before the
Effective Date in the manner set forth in Section 28 of the Plan.
14. Amendment of this Plan of Merger. This Plan of Merger may be amended or
modified at any time by mutual agreement of the Boards of Directors of the
Holding Company and the Mutual Holding Company in the manner set forth in
Section 28 of the Plan.
15. Governing Law. This Plan of Merger is made pursuant to, and shall be
construed and be governed by, the laws of the United States, and the rules and
regulations promulgated thereunder, including without limitation, the rules and
regulations of the OTS.
16. All Terms Included. This Plan of Merger sets forth all terms,
conditions, agreements and understandings of the Holding Company and the Mutual
Holding Company with respect to the Conversion.
17. Counterparts. This Plan of Merger may be executed in several identical
counterparts, each of which when executed by the Parties and delivered shall be
an original, but all of which together shall constitute a single instrument. In
making proof of this Plan of Merger, it shall not be necessary to produce or
account for more than one such counterpart.
IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be
executed by their duly authorized officers as of the date first above written.
HARBOR FINANCIAL, M.H.C.
Attest: ______________________ By:______________________
Secretary Michael J. Brown, Sr.
HARBOR FLORIDA BANCORP, INC.
Attest:______________________ By:______________________
Secretary Michael J. Brown, Sr.
