As filed with the Securities and Exchange Commission on November 10, 1997
Registration No. 333-37275
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
Amendment No. 1 to
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------------------------
HARBOR FLORIDA BANCSHARES, INC.
(Name of registrant issuer in its charter)
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<CAPTION>
Delaware 6035 Applied For
<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 Banshares, 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
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]
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<CAPTION>
CALCULATION OF REGISTRATION FEE (1)
==================================================================================================================
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 0.001 15,208,750 $10.00 $152,087,500 $52,444(3)
per share
- ------------------------------------------------------------------------------------------------------------------
Common Stock, par value 13,269,256 $10.00 $132,692,560 $45,756
$0.001 per share
==================================================================================================================
</TABLE>
(1) The filing fee for the Conversion Stock was paid when the initial
Registration Statement was filed. The fee for the Exchange Shares was not
paid, as Harbor Florida Bancorp, Inc. had previously registered these
shares on Form S-4. Harbor Florida Bancshares, Inc. is a newly formed
Delaware corporation. Therefore, the fee for the Exchange Share is paid
herewith.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Previously paid.
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
Bancshares
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 BANCSHARES, INC.
From 18,303,444 (minimum) to 24,763,483 Shares of Common Stock
(anticipated maximum)
$10.00 Per Share Purchase Price
Harbor Florida Bancshares, Inc. ("Bancshares" or the "Company"), a
Delaware corporation, is offering up to 24,763,483 shares (which may be
increased to 28,478,006 shares under certain circumstances described below) of
its common stock, par value $.001 per share (the "Common Stock"), in connection
with (i) the Exchange described herein to be effected in connection with the
Conversion of Harbor Financial, M.H.C. (the "Mutual Holding Company") and the
Reorganization in which Harbor Florida Bancorp, Inc. ("Bancorp") and the Mutual
Holding Company will be merged into Harbor Federal Savings Bank (the "Bank")
with the result that Bancshares will become the holding company of the Bank and
(ii) the Offerings described herein.
The Offerings. In addition to the 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, Bancorp
and Bancshares (the "Primary Parties") to reject such orders in whole or in
part, and the other limitations described herein, Bancshares is offering the
shares of Conversion Stock not subscribed for in the Subscription Offering, if
any, for sale to stockholders of Bancorp as of October 31, 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, Bancshares 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
Bancshares, with preference given to natural persons residing in the Bank's
Local Community. The Primary Parties 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 &
<PAGE>
Co., Inc. ("FBR" or the "Agent") 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."
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. The latest possible
extension date under the rules of the OTS is 24 months from the date of the
approval of the Plan of Conversion and Reorganization or December _____, 1999.
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 Exchange. Pursuant to a Plan of Conversion and Plan of Merger (the
"Plan" or "Plan of Conversion") adopted by the Primary Parties, the Mutual
Holding Company will be converted to an interim federal stock association and
merged into the Bank 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 of Bancorp ("Bancorp
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 (the "Public Bancorp
Shares" held by the "Public Stockholders"), will receive Common Stock in an
Exchange (the "Exchange Shares") pursuant to a ratio (the "Exchange Ratio") 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 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 Bancorp 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)
----------
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.
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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.
(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 financials
following commencement of the Offerings. See "THE CONVERSION -- Stock
Pricing and Number of Shares To Be Issued."
iii
<PAGE>
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 Bancorp, 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 Bancorp, 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 Bancorp 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
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
Exchange Ratio is expected to range from 3.6826 to 4.9824, resulting in a range
of 8,528,444 Exchange Shares to 11,538,483 Exchange Shares to be issued in the
Conversion. The 24,763,483 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 11,538,483 shares of Exchange Shares
(subject to adjustment up to 13,269,256 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,
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." 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.
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
iv
<PAGE>
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, when combined with Exchange Shares, $500,000
(or 50,000 shares) divided by the price at which the shares are sold (the
"Actual Purchase Price"). The Actual Purchase Price will be $10. 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
together with any associate or group of persons acting in concert shall not
exceed such number of shares of Conversion Stock as shall equal, when combined
with Exchange Shares, $4,750,000 (or 475,000 shares) divided by the Actual
Purchase Price of $10 per share except for the Tax Qualified Employee Benefit
Plans which in the aggregate may subscribe for 10% of the Conversion Stock.
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 Bancorp Common Stock or common stock or be
limited in receiving Exchange Shares even if their ownership of Company shares
when converted into 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 Bancorp in the manner set
forth herein. See "THE CONVERSION -- Required Approvals."
Market for Common Stock. The Public Bancorp 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 Bancshares 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 Bancorp Share was $47.75 on
August 26, 1997, the most recent day in which trading of Public Bancorp Shares
occurred preceding the announcement of the Conversion and was _________ on
November 13, 1997, the date of this Prospectus.
This Prospectus contains forward-looking statements which reflect the
Primary Parties' views regarding future events and financial performance. Actual
results could differ materially from those projected in the forward-looking
v
<PAGE>
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. The Primary Parties undertake no
obligation to publicly update or revise any forward looking statements, whether
as a result of new information, future events or otherwise unless such update is
deemed material to the Public Stockholders. 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 Bancorp and the Mutual Holding Company, and the
Consolidated Financial Statements of Bancorp and the Notes thereto, appearing
elsewhere in this Prospectus.
HARBOR FLORIDA BANCSHARES, INC.
Harbor Florida Bancshares, Inc. is a newly created Delaware
corporation, organized in November 1997. It was organized at the direction of
the Board of Directors of the Bank to acquire and hold all of the Bank Common
Stock and to facilitate the conversion. Bancshares has not engaged in any
significant business to date. Bancshares will apply to the OTS for authority to
acquire 100% of the Bank Common Stock and become a savings and loan holding
company. After the Conversion, Bancshares will be 100% publicly owned and serve
as a holding company of the Bank. Its Common Stock will be registered with the
Securities and Exchange Commission (the "SEC") under Section 12(g) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act.").
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 the
Bancorp Common Stock is held by the Mutual Holding Company. The other 46.59% of
the Bancorp Common Stock is held by the Public Stockholders. Bancorp has no
other business or activities other than acting as the holding company of Harbor
Federal Savings Bank. Pursuant to the Conversion and Reorganization, Bancorp
will cease to exist and its successor, Bancshares, will be 100% publicly owned.
Bancshares will own 100% of Harbor Federal Savings Bank.
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
1
<PAGE>
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 Bancorp Common Stock. This resulted in
the Bank becoming the 100% owned subsidiary of Bancorp.
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.
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 Bancorp Common
Stock, which represents 53.41% of the shares of Bancorp 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 merge into the Bank with the Bank 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 by
the Bank. The Bank will then be acquired by Bancshares and become a wholly owned
subsidiary of Bancshares. See "THE CONVERSION -- Liquidation Rights" and " --
Effect on Liquidation Rights."
THE CONVERSION
Purposes of the Conversion
In their decision to pursue the Conversion, the Primary Parties
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 Primary Parties 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
Bancshares' 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 Bancorp; and (5) recent consolidations in the Florida market and the
2
<PAGE>
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 Bancorp and the Mutual
Holding Company adopted the Plan which has subsequently been amended by the Bank
and Bancshares. Pursuant to the Plan, (i) Bancorp will convert first into a
federal stock holding company and then into an interim federal stock savings
bank. Following its conversion into an interim federal stock savings bank, it
will merge into the Bank with the Bank as the survivor; (ii) the Mutual Holding
Company will convert to an interim federal stock savings institution and merge
with and into the Bank, pursuant to which the Mutual Holding Company will cease
to exist and the 2,654,369 shares or 53.41% of the outstanding Bancorp Common
Stock held by the Mutual Holding Company will be cancelled. The Bank will then
be acquired by a newly created Delaware chartered holding company, Bancshares,
and become a wholly owned subsidiary of Bancshares. The outstanding Public
Bancorp Shares, which amounted to 2,315,871 shares or 46.59% of the outstanding
Bancorp Common Stock at June 30, 1997, will be converted into the Exchange
Shares pursuant to the 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 Exchange Shares) (which is approximately
equal to the percentage of Bancorp 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 Exchange Shares, and (b)
any shares of Conversion Stock purchased by Bancorp'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:
3
<PAGE>
CURRENT ORGANIZATIONAL STRUCTURE
Harbor Financial, Holders of Public
M.H.C. Bancorp Shares
53.41% 46.59%
Harbor Florida
Bancorp, Inc.
100%
Harbor Federal
Savings Bank
The following diagrams reflect the Conversion and Reorganization,
including (i) the merger of Bancorp into the Bank following its conversion into
a federal stock holding company and then into an interim federal stock savings
bank; (ii) the merger of the Mutual Holding Company (following its conversion
into an interim federal stock savings association) with and into the Bank, with
the Bank as the surviving entity; (iii) the creation of Bancshares as a
subsidiary of the Bank and a federal interim association subsidiary as a
subsidiary of Bancshares; (iv) the merger of a federal interim association
subsidiary of Bancshares into the Bank with the Bank and Bancshares as the
surviving entities with Bancshares as the owner of 100% of the Bank's Common
Stock; and (v) the offering of Conversion Stock by Bancshares. The diagram
assumes that there are no fractional shares and does not give effect to
purchases of Conversion Stock by holders of Public Bancorp Shares or the
exercise of outstanding stock options. In addition to shares of Common Stock to
be issued pursuant to the Exchange, Bancshares is offering shares of Conversion
Stock in the Offerings as part of the Conversion. See "-- The Offerings" below
and "THE CONVERSION -- The Offerings."
4
<PAGE>
REORGANIZATION - STAGE 1
MHC/Interim Bank Public
#1 Shareholders
53.41% 46.59%
Harbor Florida
Bancorp/Interim Bank #2
Harbor Federal
Savings Bank
100%
Harbor Florida
Bancshares
(Interim 1)
100%
Interim
FSB
(Interim 2)
5
<PAGE>
REORGANIZATION - STAGE 2
Purchasers of Public Shareholders
Conversion Stock
53.41% 46.59%
Harbor Florida
Bancshares
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 October
31, 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 Bancorp 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 Public
Stockholders at the Stockholders' Meeting. The Mutual Holding Company intends to
vote its shares of Bancorp 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
Bancorp Common Stock, which shares can also be expected to be voted in favor of
the Plan at the Stockholders' Meeting.
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
6
<PAGE>
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 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
7
<PAGE>
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.
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.
8
<PAGE>
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, when combined with Exchange Shares, $500,000 divided by the Actual
Purchase Price. 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 Exchange Shares equals $4,750,000
divided by the Actual Purchase Price. Directors and officers may not purchase in
the aggregate, when combined with Exchange Shares, 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 Exchange Shares
even if their ownership of Company shares, when converted into Exchange Shares,
would exceed an applicable limitation.
Stock Pricing, 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, Bancorp, Bancshares 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
Bancorp Shares will continue to hold the same aggregate percentage ownership
interest in the Company as they held in Bancorp (before giving effect to any
shares of Common Stock purchased by the Public Stockholders in the Offerings or
9
<PAGE>
the ESOP) before the payment of cash in lieu of issuing fractional Exchange
Shares, the Appraisal was multiplied by 53.41% (which represents the Mutual
Holding Company's percentage interest in Bancorp 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
Bancorp 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 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 Exchange Shares, so that upon consummation of the Conversion, the Conversion
Stock and the Exchange Shares will represent approximately 53.41% and 46.59%,
respectively, of the Company's total outstanding shares. See "PRO FORMA DATA,"
"RISK FACTORS -- Possible Dilutive Effect of Issuance of Additional Shares" and
"THE CONVERSION -- Stock Pricing, Exchange Ratio and Number of Shares to be
Issued."
10
<PAGE>
Based on the 2,315,871 Public Bancorp 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 Exchange Ratio is expected to
result in the distribution of approximately 8,528,444 Exchange Shares to
11,538,483 Exchange Shares for each Public Bancorp Share. The Exchange Ratio
will be affected if any stock options to purchase shares of Bancorp 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 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 Bancorp Common Stock outstanding, which had an
average exercise price of $11.71 per share. Bancorp has no plans to grant
additional stock options prior to the consummation of the Conversion.
Upon consummation of the Conversion, holders of Public Bancorp Shares
in certificate form (other than the Mutual Holding Company) will receive a
transmittal letter with instruction on delivery of certificates for exchange.
See "THE CONVERSION -- Delivery and Exchange of Certificates." Upon surrender of
such certificates to an agent appointed by Bancshares (the "Exchange Agent") the
Public Stockholder will be entitled to receive in exchange therefore a
certificate or certificates representing the number of full shares of Common
Stock to which he or she is entitled based on the Exchange Ratio. The Exchange
Agent will provide each stockholder of record a letter of transmittal with
instructions for the exchange of shares. Holders of Bancorp Common Stock should
not forward shares to the Bank or Exchange Agent until they have received
instructions from the Exchange Agent.
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 Exchange Shares to be
issued in the Conversion, (ii) the percentage of the total Common Stock
represented by the Conversion Stock and the Exchange Shares, and (iii) the
Exchange Ratio. The table assumes there is no cash paid in lieu of issuing
fractional Exchange Shares.
11
<PAGE>
<TABLE>
<CAPTION>
Conversion Stock Total Shares
to be Issued(1) Exchange Shares(1) of Common
--------------------- ---------------------- Stock to be Exchange
Amount Percent Amount Percent Outstanding Ratio
------ ------- ------ ------- ----------- -----
<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 Bancorp
Common Stock at June 30, 1997 are not exercised prior to consummation of
the Conversion.
Comparison Of Shareholder Rights. Pursuant to the Plan, Bancshares
will become the stock holding company for the Bank. Bancorp will cease to exist.
Therefore, the Certificate of Incorporation and Bylaws of Bancshares and
Delaware corporate law will govern stockholder rights after the Conversion. Both
Bancshares and Bancorp are Delaware corporations. The Certificate of
Incorporation of Bancshares is substantially similar to that of Bancorp.
Differences in the Certificate of Incorporation are related primarily to issues
related to the Reorganization. See "COMPARISON OF STOCKHOLDERS' RIGHTS."
Benefits of Conversion to Directors and Officers
Bancshares does not intend to enter into any new employment agreements.
Mr. Brown has an Employment Agreement with the Bank. See "MANAGEMENT OF THE BANK
- -- Employment Agreements." However, Bancshares will also enter into certain
change in control agreements with the other members of the senior management of
the Bank, Messrs. Bluestone, Bebber, Hankle, and Fort. Under the terms of the
Change in Control Agreements (the "Agreements"), each would receive payment
equal to one year of salary plus continuation of benefit programs if terminated
(other than for cause) following a change in control as defined in the
Agreements. For a termination occurring in 1997, the total payments required to
be paid to Messrs. Bebber, Bluestone, Fort and Hankle would be $467,500. See
"MANAGEMENT OF THE BANK -- Change in Control Agreements." Bancshares currently
12
<PAGE>
intends to adopt certain stock benefit plans for the benefit of directors and
employees of Bancshares 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 Bancshares, either from Bancshares 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.
These shares will be issued at no cost to the recipients. Recipients will,
however, be required to pay both federal and applicable state taxes on the value
of Common Stock received pursuant to the Recognition Plan. Bancshares 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, Bancshares 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 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 Bancshares, 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 Bancshares
with funds contributed by Bancshares, 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, Bancshares 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
Bancshares. See "USE OF PROCEEDS." In the event that there are insufficient
13
<PAGE>
shares available to fill the ESOP's order due to an oversubscription by Eligible
Account Holders, the offering range will be increased above the maximum and the
ESOP shall have a priority right to purchase any shares exceeding the maximum of
the Offering Valuation Range, up to an aggregate of 8% of the conversion 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 Bancorp 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 Bancorp Common Stock.
These plans will continue in existence after the Conversion as plans of
Bancshares. See "MANAGEMENT OF THE BANK -- Benefit Plans" and "THE CONVERSION --
Effects of the Conversion," " -- Effect on Existing Option Plans."
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." Bancshares plans to
contribute to the Bank 50% of the net proceeds from the Offerings and retain the
remainder of the net proceeds. Bancshares 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 Bancshares 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 Bancshares 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
14
<PAGE>
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, Bancorp 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 35(cent) per quarter for
the quarter ended March 31, 1997. Following the consummation of the Conversion,
the Board of Directors of Bancshares 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 Bancorp 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 $0.08078 per share per quarter. 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, Bancorp intends to continue paying its regular
quarterly cash dividend. For a period of one year following the completion of
the conversion, Bancshares will not pay any dividends that would be treated for
tax purposes as a return of capital nor take any actions or propose such
dividends. 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.
15
<PAGE>
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 Bancorp. 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 Bancorp 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.
16
<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.
17
<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
======== ======== ======== ======== ======== ======== ========
Cash Dividends Per Share(3) ...................... $ 1.05 $ .90 $ 1.20 $ .90 $ .3375 -- --
</TABLE>
- --------------
(1) Income tax benefit of net operating loss carryforward for year 1992.
(2) Extinguishment of FHLB advances for year 1994.
(3) Cash Dividends declared on Public Bancorp Shares only. The Mutual Holding
Company has waived receipt of all dividends since the MHC Reorganization.
18
<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
---- ---- ---- ---- ---- ---- ----
Performance Ratios:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Return on average assets ....................... 1.21% 1.18% 0.91%(2) 1.16% 1.25% 0.77% 1.01%
Return on average stockholders' equity ......... 14.74 13.56 10.51(2) 13.61 16.85 15.14 23.40
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 assets .......... 1.93 2.10 2.53 2.14 2.27 2.29 2.20
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 assets ........... 0.46 0.56 0.50 0.71 0.85 2.19 3.72
Allowance for loan losses to total loans ....... 1.40 1.47 1.44 1.60 1.64 1.34 1.14
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%.
------------------
19
<PAGE>
RECENT DEVELOPMENTS
Selected Consolidated Financial Condition Data
September 30, June 30, September 30,
1997 1997 1996
---- ---- ----
(In thousands)
Total assets ...................... $1,131,024 $1,116,718 $1,057,443
Loans (net)(1) .................... 834,270 815,789 765,019
Federal funds sold ................ 250 10,250 16,075
Investment securities ............. 52,553 62,493 53,493
Mortgage-backed securities ........ 176,854 156,559 153,293
Real estate owned (net) ........... 2,314 2,896 3,118
Deposits .......................... 911,576 904,904 851,853
FHLB advances ..................... 100,000 100,000 95,000
Other borrowings .................. 475 449 674
Stockholders' equity .............. 96,802 93,706 84,832
- ---------------
(1) Excludes loans held for sale of $141,000, $3.1 million and $4.9 million as
of September 30, 1997, June 30, 1997 and September 30, 1996, respectively.
Selected Consolidated Operating Data
Three Months Ended Years Ended
September 30, September 30,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
(In thousands)
Interest income .................. $ 22,009 $ 19,885 $ 84,814 $ 74,357
Interest expense ................. 11,777 10,461 45,159 39,114
-------- -------- -------- --------
Net interest income .............. 10,232 9,424 39,655 35,243
Provision for (recovery
of) loan losses ................. 326 72 782 (76)
-------- -------- -------- --------
Net interest income after
provision for loan losses ....... 9,906 9,352 38,873 35,319
-------- -------- -------- --------
Other income:
Income (loss) from real
estate operations .............. 122 (120) 145 (301)
Gain (loss) on sale of
mortgage loans ................. 53 27 188 (40)
Other .......................... 1,143 837 3,380 3,226
-------- -------- -------- --------
Total other income ............. 1,318 744 4,213 2,885
-------- -------- -------- --------
Other expenses:
Compensation and benefits ...... 3,607 2,744 11,931 10,690
Occupancy ...................... 946 607 3,046 2,632
Professional fees .............. 114 130 599 527
SAIF deposit insurance
premium ....................... 140 5,032 785 6,300
Other .......................... 1,175 968 4,787 3,983
-------- -------- -------- --------
Total other expenses ......... 5,442 9,481 21,148 24,132
-------- -------- -------- --------
Income before income taxes ....... 5,782 615 21,938 14,072
Income tax expense ............... 2,272 225 8,611 5,432
-------- -------- -------- --------
Net income ....................... $ 3,510 $ 390 $ 13,327 $ 8,640
======== ======== ======== ========
20
<PAGE>
Selected Financial Ratios
At or for the Three At or for
Months Ended the Years Ended
September 30,(1) September 30,
------------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
Performance Ratio
Return on average
assets ....................... 1.23% .15%(2) 1.22% .91%(2)
Return on average
stockholders' equity ......... 14.64 1.81(2) 14.72 10.51(2)
Net interest rate spread ....... 3.36 3.40 3.36 3.40
Net yield on average
interest-earning assets ...... 3.75 3.78 3.72 3.79
Noninterest expense to
average assets ............... 1.91 3.67 1.93 2.53
Net interest income to
noninterest expense .......... 1.91 1.00 1.88 1.46
Average interest-earning
assets to average
interest-bearing
liabilities .................. 109.02 109.05 108.33 109.24
Asset Quality Ratios:
Nonperforming assets to
total assets ................. .43 .50 .43 .50
Allowance for loan losses
to total loans ............... 1.40 1.44 1.40 1.44
Allowance for loan losses
to nonperforming loans ....... 453.11 507.25 453.11 507.25
Allowance for losses on
real estate owned to
total real estate owned ...... 19.99 35.45 19.99 35.45
Capital Ratios:
Average stockholders'
equity to average assets ..... 8.42 8.32 8.26 8.62
Stockholders' equity to
assets at period end ......... 8.56 8.02 8.56 8.02
- ---------
(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%.
---------------
21
<PAGE>
Regulatory Capital
September 30, 1997
---------------------------------
Amount Percent of Assets(1)
------ --------------------
(Dollars in thousands)
Tangible Capital:
Capital level ....................... $82,269 7.29%
Requirement ......................... 16,921 1.50
------- -----
Excess .............................. 65,348 5.79
Core capital:
Capital level ....................... 82,269 7.29
Requirement ......................... 33,842 3.00
------- -----
Excess .............................. 48,427 4.29
Risk-based capital:
Capital level ....................... 89,721 15.15
Requirement ......................... 47,371 8.00
------- -----
Excess .............................. 42,350 7.15
- ------------------
(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.
Management's Discussion and Analysis for Recent Developments
Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996
Total assets increased by $14.3 million, or 1.3% to $1.131 billion at
September 30, 1997, as compared to June 30, 1997. Loans, excluding loans held
for sale, increased by $18.5 million, or 2.3% for the three months ended
September 30, 1997 due to increased loan demand offset by loan repayments.
Mortgage-backed securities increased by $20.3 million, or 13.0% for the three
months ended September 30, 1997 due to the purchase of $20 million of seven-year
balloon securities and $10 million of adjustable rate securities offset by $9.7
million of repayments. Investment securities decreased by $9.9 million, or 15.9%
for the three months ended September 30, 1997 due to the purchase of $5.0
million of FHLB Notes offset by the call prior to maturity of $15.0 million of
FHLB Notes. The decrease of $10.0 million in Federal funds sold was used to fund
a portion of the mortgage-backed securities purchased during the three months
ended September 30, 1997. Real estate owned decreased by $582,000, or 20.1% as a
22
<PAGE>
result of sales. Deposits increased by $6.7 million, or .7% as a result of $8.9
million of interest credited and $2.2 million of net cash withdrawals by deposit
customers. Stockholders' equity increased by $3.1 million, or 3.3% for the three
months ended September 30, 1997 primarily due to net income for the quarter.
Net income for three months September 30, 1997, increased 8.7% to $3.5
million or 70 cents per share, compared to $3.2 million or 65 cents per share
for the three months ended September 30, 19l96, excluding the one-time SAIF
special assessment. This increase was due primarily to the growth in earning
assets. Including the one-time SAIF special assessment, net income for the three
months ended September 30, 1996 was $390,000, or 8 cents per share.
Net interest income increased to $10.2 million for the three months
ended September 30, 1997, from $9.4 million for the three months ended September
30, 1996. The increase in net interest income was primarily due to an increase
of $98.5 million in average interest-earning assets for the three months ended
September 30, 1997, compared to the three months ended September 30, 1996. The
Bank's interest rate spread decreased to 3.36% for the three months ended
September 30, 1997 from 3.40% for the three months ended September 30, 1996.
Provision for loan losses increased to $326,000 for the three months ended
September 30, 1997, from $72,000 for the three months ended September 30, 1996.
Other income increased to $1.3 million for the three months ended September 30,
1997, from $744,000 for the three months ended September 30, 1996, due primarily
to an increase of $242,000 in income from real estate operations and a $239,000
gain on the sale of an undeveloped parcel of land. Other expenses decreased to
$5.4 million for the three months ended September 30, 1997, from $9.5 million
for the three months ended September 30, 1996, due primarily to the one-time
SAIF special assessment of $4.6 million before tax. Income tax expense increased
to $2.3 million for the three months ended September 30, 1997, from $225,000 for
the three months ended September 30, 1996, due primarily to the $1.7 million tax
effect of the one-time SAIF special assessment.
Year Ended September 30, 1997 Compared to September 30, 1996
Net income for the year ended September 30, 1997 increased 16.1% to
$13.3 million or $2.66 per share, compared to $11.5 million or $2.32 per share
for the same period last year, excluding the one-time SAIF special assessment.
This increase was due primarily to the growth in earning assets. 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 12.5% to $39.6 million for the year ended
September 30, 1997, compared to $35.2 million for the year ended September 30,
1996. The increase in net interest income was primarily due to an increase of
$137.6 million in average interest-earning assets for the year ended September
30, 1997, compared to the year ended September 30, 1996. The Bank's interest
rate spread decreased to 3.36% for the year ended September 30, 1997 from 3.40%
for the year ended September 30, 1996. Provision for loan losses was $782,000
for the year ended September 30, 1997, compared to a credit of $76,000 for the
23
<PAGE>
year ended September 30, 1996. The provision for the year ended September 30,
1997 was primarily due to an increase in classified commercial real estate
loans. The credit to the provision for the year ended September 30, 1996, was
primarily due to a reduction in classified commercial real estate loans. Other
income increased by $1.3 million to $4.2 million for the year ended September
30, 1997 from $2.9 million for the year ended September 30, 1996, due primarily
to an increase of $512,000 in other fees and service charges, an increase of
$446,000 in income form real estate operations, an increase of $228,000 in gain
on sale of mortgage loans and a $239,000 gain on the sale of an undeveloped
parcel of land. Other expenses decreased by $3.0 million to $21.1 million for
the year ended September 30, 1997 from $24.1 million for the year ended
September 30, 1996. The decrease was primarily due to a decrease of $5.5 million
in SAIF deposit insurance premiums due to the special assessment of $4.5 million
for the year ended September 30, 1996 and a decrease of $1.0 million in premiums
for the year ended September 30, 1997 due to lower assessment rates resulting
from the recapitalization of the SAIF. Other changes included an increase of
$1.2 million in compensation and benefits, an increase of $414,000 in occupancy
expense and an increase of $804,000 in other expense. Income tax expense
increased by $3.2 million to $8.6 million for the year ended September 30, 1997
from $5.4 million for the year ended September 30, 1996, due primarily to the
$1.7 million tax effect of the one-time SAIF special assessment included in
1996. The effective tax rates were 39% for both the years ended September 30,
1997 and 1996.
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 Bancshares' 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 Bancshares to a third party. See
"BUSINESS OF HARBOR FLORIDA BANCSHARES"
24
<PAGE>
Also due to Bancshares' intention to remain independent, certain
provisions in Bancshares' Certificate of Incorporation and Bylaws may assist
Bancshares 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 Bancshares' 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.
Price of Common Stock Following the Conversion
Since the MHC Reorganization and public stock issuance on January 6,
1994, Bancorp's Common Stock and its predecessor the Bank's common stock has
generally increased in value. The Bank Shares (which were exchanged for Bancorp
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 Bancorp
Shares was __________. There can be no assurance that the Conversion Stock will
appreciate in value as has the Public Bancorp Shares. Additionally, there can be
no assurance that the Common Stock will appreciate after the Conversion. The
Boards of Directors of the Primary Parties have 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 Bancorp Shares which were also initially sold at $10 per share as shares
of the Bank.
Competition
The Bank is headquartered in the City of Fort Pierce, and has 22 branch
offices located within six counties on Florida's central east coast. The Bank
operates in a highly competitive market and experiences strong competition in
its local market area in both originating loans and attracting deposits. As of
March 31, 1997, the Bank's market share of deposits within the six counties
totaled 6.12%, while the largest competitor held 20.8%. The Bank's market will
likely undergo significant consolidation when this competitor merges with one of
the nation's largest financial institutions, currently scheduled for the end of
1997.
25
<PAGE>
Most of the Bank's mortgages are secured by properties located within
its six county market, with the predominance of its lending in one to four
family residential mortgages. The State of Florida has a substantial number of
financial institutions, many of which have a state-wide or regional presence,
and in some cases, a national presence. All of these institutions are
competitors of the Bank, to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings bank, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks, savings and loan associations and credit unions, many of
which are significantly larger than the Bank and, therefore, have greater
financial and marketing resources than the Bank. The Bank also faces additional
competition for deposits from short-term money market funds, other corporate and
government securities funds and from other financial institutions such as
brokerage firms and insurance companies. In order to deal with the various
competitive factors, the Bank recognizes its need to monitor competition and
modify its products and services as necessary and possible, taking into
consideration the financial 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.
Certain Anti-Takeover Provisions
Certain provisions of Bancshares' 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 Bancshares in
maintaining its status as an independent publicly owned corporation and may have
certain anti-takeover effects.
26
<PAGE>
Certificate of Incorporation and Bylaws of Bancshares. Bancshares
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. These provisions are the same as those currently
in the Certificate of Incorporation and Bylaws of Bancorp.
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 Bancshares 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 Bancshares. Any person violating this restriction may not vote
the Bank's securities in excess of 10%.
These provisions in Bancshares' and the Bank's governing instruments
may discourage potential proxy contests and other takeover attempts by making
Bancshares less attractive to a potential acquiror, particularly those takeover
attempts which have not been negotiated with the Board of Directors of
Bancshares 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 Bancshares' 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 Bancshares 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 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 Bancshares' Board of Directors or exert a
controlling influence on the operations of the Bank or the Company.
27
<PAGE>
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 Bancshares expect to beneficially
own approximately 1,614,585 shares or 7.5% 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, Bancshares 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. Bancshares 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 Bancorp 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
Bancshares 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.
Return on Equity
As a result of the Bank's high capital levels and the additional
capital that will be raised by Bancshares in the Conversion and Reorganization,
Bancshares' ability to leverage the net proceeds from the Conversion and
Reorganization 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.
28
<PAGE>
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 and Reorganization 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 the ability of Bancshares to
engage in diversified activities would be more limited and could affect 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 Bancshares or existing stockholders of
Bancorp 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 Bancshares 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 Bancshares' consolidated
stockholders' equity and net earnings. See "CAPITALIZATION" and "PRO FORMA
DATA."
29
<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. 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 Bancshares, 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 Bancshares' Stock Option Plan is implemented, Bancshares 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 and Reorganization, 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 and Reorganization include Exchange Shares to be issued to
Public Stockholders for their Public Bancorp Shares. As a result, certain
holders of Public Bancorp Shares may be limited in their ability to purchase
Conversion Stock in the Offerings. For example, a Public Stockholder which
acquires Exchange Shares in an amount equal to $500,000 or a Public Shareholder
and his Associates or a group acting in concert which acquires Exchange Shares
in an amount equal to $4.75 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 Exchange Shares, his ownership percentage would exceed
a purchase limitation. See "THE CONVERSION -- Limitations on Conversion Stock
Purchases and Ownership."
30
<PAGE>
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 and Reorganization 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 Bank has received an opinion of Peabody & Brown that, subject to
certain assumptions stated therein, that the mergers constituting the Conversion
will qualify under the Internal Revenue Code of 1986 as reorganizations where no
gain or loss will be recognized to the Primary Parties. In addition, 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, these opinions are not
binding on the Internal Revenue Service ("IRS"). Accordingly, if the IRS were to
successfully assert that the mergers constituting the Conversion either were
part of a step transaction without independent economic significance and
business purpose or that the transactions circumvented the repeal of the
"General Utilities" doctrine, the mergers would not qualify as tax-free
reorganizations resulting in taxable gain to the parties to the transaction. 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 BANCSHARES, INC.
Harbor Florida Bancshares, Inc. ("Bancshares") was organized in
November of 1997 at the direction of the Board of Directors of the Bank for the
purpose of holding all of the capital stock of the Bank in order to facilitate
the Conversion and Reorganization. The Mutual Holding Company and Bancorp are
presently subject to regulation by the OTS. After the Conversion, Bancshares
will be subject to OTS regulations. Bancshares will apply to the OTS for
31
<PAGE>
authority to acquire 100% of the Bank Common Stock and become the savings and
loan holding company of the Bank. See "REGULATION -- Company Regulation." Upon
consummation of the Conversion, Bancshares will have no significant assets other
than all of the outstanding shares of Bank Common Stock, an outstanding loan to
the ESOP, and a portion of the net proceeds of the Offering retained by the
Company. Bancshares will have no significant liabilities. See "USE OF PROCEEDS."
Initially, the management of Bancshares and the Bank will be substantially
similar. Bancshares will neither own nor lease any property but will instead use
the premises, equipment and furniture of the Bank. At present time Bancshares
does not intend to employ any persons other than executive officers who are also
executive officers of the Bank. Bancshares will utilize the support staff of the
Bank from time to time. Additional employees will be hired as appropriate to the
extent that Bancshares expands or changes its future business activities.
Management believes that the holding company structure will provide
Bancshares 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. Although there are no current arrangements, understandings or
agreements regarding such opportunities or transactions, Bancshares will be in a
position after the Conversion subject to regulatory limitations and Bancshares'
financial position to take advantage of any such acquisition and expansion
opportunities that may arise. The initial activities of Bancshares are
anticipated to be funded by the proceeds to be retained by Bancshares from the
Conversion and earnings thereon as well as dividends from the Bank. See "USE OF
PROCEEDS" and "DIVIDEND POLICY."
After the completion of the Conversion, Bancshares is expected to
conduct business initially as a unitary thrift holding company. See "BUSINESS OF
HARBOR FLORIDA BANCSHARES, INC." Bancshares' 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 FLORIDA BANCORP, INC.
Harbor Florida Bancorp, Inc. ("Bancorp") 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. Bancorp acquired all of the
outstanding stock of the Bank in a one-for-one stock exchange consummated on
June 25, 1997. Bancorp 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 the Conversion and Reorganization Bancorp will cease to exist and
Bancshares will be the holding company for the Bank.
Bancorp'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.
32
<PAGE>
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
Bancorp, 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 Bancorp. 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 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:
33
<PAGE>
Emphasis on Traditional Lending and Investment Activities. Management
believes that Bancshares 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 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 Bancshares 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."
34
<PAGE>
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 Bancorp Common Stock, which represent 53.41% of the shares of Bancorp 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 the Bank, with the Bank being
the surviving entity.
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.
Bancshares 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
anticipates that after the loan to the ESOP and after contributing 50% of the
funds raised in the Conversion to the Bank, it will have approximately $55.5
million to invest, initially in short interest-bearing deposits and short and
intermediate term securities, assuming sale of the 13,225,000 shares of Common
Stock. 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
35
<PAGE>
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 Bancshares 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. The Bank does, however, continually
evaluate additional branching opportunities that will complement existing
operations or support expansion into new markets. The Bank owns certain vacant
land in its market area which may be used for branch expansion in 1998. No
assurance can be given, however, that such expansion will occur during 1998. In
addition, subject to applicable regulatory limitations, the net proceeds also
may be used to repurchase shares of Common Stock, although Bancshares 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.
In addition, a portion of the proceeds may be used to fund open market
purchases of Common Stock for the Recognition Plan if such plan is approved by
shareholders. The estimated cost of such plans is dependent upon the price paid
for the shares in the open market. If Common Stock equal to 4% at the maximum of
the Offering Range, or 529,000 shares, was purchased for the Recognition Plan at
$10 per share, the cost would be $5.3 million. See "MANAGEMENT OF HARBOR FEDERAL
SAVINGS BANK -- Recognition Plan."
DIVIDEND POLICY
Upon completion of the Conversion, the Board of Directors of Bancshares
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 Bancshares 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 Bancorp Shares outstanding before
consummation of the Conversion. Based upon the Offering Price Range, the
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
$0.09504, $0.08078, $0.07025 and $0.06109 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
Bancshares, investment opportunities available to Bancshares or the Bank,
capital requirements, regulatory limitations, Bancshares' 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. Bancshares 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.
36
<PAGE>
Dividends from Bancshares after the Conversion will depend, in part,
upon receipt of dividends from the Bank, because Bancshares 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 Bancshares,
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. However,
for a period of one year following the completion of the Conversion, the Bank
will not pay any dividends that would be treated for tax purposes as a return of
capital nor take any actions to pursue or propose such dividends.
Any payment of dividends by the Bank to Bancshares 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, Bancshares 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 Bancshares and
earnings thereon. Bancshares is subject, however, to the requirements of
Delaware law.
MARKET FOR COMMON STOCK
There is an established market for the Bancorp Common Stock, which is
currently listed on the NASDAQ National Market under the symbol "HARB." Bancorp
Common Stock had five (5) market makers as of October 31, 1997. It is expected
that the Bancshares Common Stock, which will be received after the Conversion
and Reorganization in the form of Exchange Shares, will be more liquid after the
Conversion than the Bancorp 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 Bancshares 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
37
<PAGE>
being able, as principal, to effect transactions in reasonable quantities at
those quoted prices, subject to various securities laws and other regulatory
requirements.
At September 30, 1997, there were 4,970,240 shares of Bancorp Common
Stock outstanding, including 2,315,871 Public Bancorp 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 Bancorp 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.
Quarter Ended High Low Dividends 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
September 30, 1997 59.375 54.00 .35
The closing price of Bancorp Common Stock on September 30, 1997 was $56.00. On
November 13, 1997, the date of this Prospectus, the closing price of Bancorp's
Common Stock was $____________.
38
<PAGE>
CAPITALIZATION
The following table presents Bancorp's and its consolidated
subsidiaries', including the Bank's, historical capitalization including
deposits at June 30, 1997 and the pro forma consolidated capitalization of
Bancshares after giving effect to the Conversion based upon the sale of the
indicated number of shares at $10 per share and upon the other assumptions set
forth under "PRO FORMA DATA."
39
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Consolidated Capitalization
at June 30, 1997 Based Upon The Sale Of:
----------------------------------------
Minimum as
Minimum Midpoint Maximum adjusted(1)
Historical 9,775,000 shares 11,500,000 shares 13,225,000 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 $.001
per share, 10,000,000 shares
authorized; none issued ............... -- -- -- -- --
Common stock, par value $.001 per
share, 70,000,000
shares authorized; shares to
be issued as reflected(3)(4)(7) ....... 5 18 22 22 29
Additional paid-in capital(3) ........... 26,595 122,908 140,034 157,162 176,860
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>
40
<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 Bancorp Shares outstanding at June
30, 1997 are exchanged for 8,528,444, 10,033,464, 11,538,483 and 13,269,256
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
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 by
the Bank 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) The par value of Bancorp Common Stock is $.01 per share. The par value of
Bancshares Common Stock is $.001 per share.
-------------
41
<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.
42
<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
Historical (Minimum of (Midpoint of
at June 30, 1997(1) Offering Range) Offering Range)
------------------------ ----------------------- ------------------------
Percent Percent Percent
of of of
Amount Assets(1) Amount(2) Assets(1) Amount(2) Assets(1)
------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
GAAP capital(3) ....... $ 81,706 7.32% $118,139 10.18% $124,634 10.66%
Tangible capital ...... $ 78,386 7.04% $114,819 9.92% $121,314 10.41%
Tangible requirement .. 16,701 1.50 17,365 1.50 17,483 1.50
-------- ------- -------- ----- -------- -----
Excess ................ $ 61,685 5.54% $ 97,454 8.42% $103,831 8.91%
======== ======= ======== ===== ======== =====
Core Capital .......... $ 78,386 7.04% $114,819 9.92 $121,314 10.41%
Core requirement ...... 33,402 3.00 34,730 3.00 34,966 3.00
-------- ------- -------- ----- -------- -----
Excess ................ $ 44,984 4.04% $ 80,090 6.92% $ 86,348 7.41%
======== ======= ======== ===== ======== =====
Total risk-based
capital(4) ........... $ 85,688 14.77% $122,121 20.73% $128,616 21.78%
Risk-based requirement 46,416 8.00 47,124 8.00 47,250 8.00
-------- ------ -------- ----- -------- -----
Excess ............... $ 39,272 6.77% $ 74,997 12.73% $ 81,366 13.78%
======== ====== ======== ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
Pro Forma at June 30, 1997 Based Upon Sale
at $10.00 Per Share
--------------------------------------------------------
(Dollars in thousands)
13,225,000 Shares 15,208,750 Shares
(Maximum of (15% above Maximum
Offering Range) Offering Range)
------------------------ ------------------------
Percent Percent
of of
Amount(2) Assets(1) Amount(2) Assets(1)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
GAAP capital(3) ....... $131,130 11.14% $138,599 11.69%
Tangible capital ...... $127,810 10.89% $135,279 11.44%
Tangible requirement .. 17,601 1.50 17,737 1.50
-------- ----- -------- -----
Excess ................ $110,209 9.39% $117,542 9.94%
======== ===== ======== =====
Core Capital .......... $127,810 10.89% $135,279 11.44%
Core requirement ...... 35,202 3.00 35,474 3.00
-------- ----- -------- -----
Excess ................ $ 92,608 7.89% $ 99,805 8.44%
======== ===== ======== =====
Total risk-based
capital(4)............ $135,112 22.82% $142,581 24.00%
Risk-based requirement. 47,376 8.00 47,521 8.00
-------- ----- -------- -----
Excess................. $ 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.
43
<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 Exchange Shares issued) at the
beginning of the respective periods and the net proceeds had been invested at
the one year Treasury Bill Rate which was 5.82% and 5.69% for the nine months
ended June 30, 1997 and for the year ended 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," Bancshares
intends to retain 50% of the net proceeds from the Offerings. Bancshares 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
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 effect to the Recognition Plan, which is expected
44
<PAGE>
to be adopted by Bancshares 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) Bancshares' 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.
45
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended September 30, 1996
-------------------------------------------------------------------------
Maximum As
Minimum Midpoint Maximum Adjusted
9,755,000 11,500,000 13,225,000 15,208,750
Shares Shares Shares Shares
$10.00 per $10.00 per $10.00 per $10.00 per
share share share 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 ................. 2,922 3,422 3,962 4,560
Pro forma ESOP adjustments(1) .................... (316) (372) (428) (492)
Pro forma Recognition Plan adjustments(2) ........ (475) (558) (642) (739)
------------ ------------ ------------ ------------
Pro forma net income ............................... $ 10,711 $ 11,152 $ 11,532 $ 11,969
============ ============ ============ ============
Per share income:
Historical net income ........................... $ 0.48 $ 0.41 $ 0.36 $ 0.31
Pro forma income on net proceeds ................ 0.17 0.17 0.17 0.17
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 ..................... $ 0.60 $ 0.53 $ 0.48 $ 0.43
============ ============ ============ ============
Number of shares used in per share
income calculations(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>
46
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months Ended June 30, 1997
---------------------------------------------------------------------------
Maximum As
Minimum Midpoint Maximum Adjusted
9,755,000 11,500,000 13,225,000 15,208,750
Shares Shares Shares Shares
$10.00 per $10.00 per $10.00 per $10.00 per
share share share 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 ................. 2,241 2,640 3,039 3,498
Pro forma ESOP adjustments(1) .................... (237) (279) (321) (369)
Pro forma Recognition Plan adjustments(2) ........ (356) (419) (482) (554)
------------ ------------ ------------ ------------
Pro forma net income ............................... $ 11,465 $ 11,759 $ 12,053 $ 12,392
============ ============ ============ ============
Per share income:
Historical net income ........................... $ 0.55 $ 0.47 $ 0.41 $ 0.34
Pro forma income on net proceeds ................ 0.12 0.12 0.12 0.12
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 ..................... $ 0.64 $ 0.56 $ 0.50 $ 0.43
============ ============ ============ ============
Number of shares used in per share
income calculations(7): .......................... 17,907,412 21,067,547 24,277,680 27,881,827
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>
47
<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 Bancshares. 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 Bancshares makes the ESOP loan, interest income
earned by Bancshares 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 Bancshares would be expected to increase.
For purposes of this table, the purchase price of $10.00 per share was
utilized to calculate ESOP expense. Bancshares 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 Bancshares 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 Bancshares and the Bank. Such shares may be
purchased from authorized and unissued shares or on the open market.
Bancshares 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, Bancshares
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 Bancshares, have been deducted
from net proceeds.
(4) Historical pro forma equity 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 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.
48
<PAGE>
(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 by the Bank 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 "REGULATION -- Capital Requirements." Dividends will
also be restricted in that the Bank may not declare a dividend that would
be a return of capital for one year after the Conversion. See "DIVIDEND
POLICY." Direct costs beyond estimated offering expenses related to the
sale of Common Stock, if the Offerings are completed, will be recorded as a
reduction in proceeds and applied to paid in capital. If the Conversion is
not consummated, such costs will be charged to expenses. At June 30, 1997
no such costs had been incurred. The Common Stock of Bancshares is being
offered in the Conversion. At the Conversion, the Bank will establish a
liquidation account, which will also act as a restriction on earnings. See
"THE CONVERSION -- Liquidation Account."
(7) The number of shares used in the per share income calculations 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.
49
<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 .............. 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 ................. 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>
50
<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.
Business Strategy
The Bank's current business strategy has been to operate as a
well-capitalized/well-reserved independent community savings bank dedicated to
providing quality service at competitive prices. Generally, the Bank has sought
to implement this strategy by maintaining a substantial part of its assets in
loans secured by one-to-four family residential real estate located in the
Bank's market area, consumer loans, home equity loans, mortgage-backed
securities and U.S. Government and agency obligations.
While management intends to continue emphasizing these objectives, the
additional capital will allow the Bank to modify the existing operating strategy
in order to achieve greater growth and profitability. Specifically, the Bank
intends to: (i) increase its percentage of commercial and consumer loans and
commercial deposits accounts, among other products; and (ii) expand the Bank's
market area through its branch network and through its lending and deposit
services. By seeking to broaden the range of its products and services offered,
the Bank believes it will offset the declining margins in the competitive market
for one-to-four-family loans.
51
<PAGE>
Management believes that the increased diversification of the Bank's
loan portfolio may expose it to a higher degree of credit risk than is involved
in the Bank's one-to-four-family residential mortgage lending activity. As a
consequence of management's lending strategy, the Bank may, in future periods,
depending upon conditions at that time, increase the level of its provision for
loan losses as well as its provision for losses on real estate owned ("REO").
Highlights of the Bank's business strategy are as follows:
Community-Oriented Institution. The Bank is the largest savings
institution headquartered in Fort Pierce, Florida. The Bank is committed to
meeting the financial needs of the community in which it operates. Management
believes that the Bank is large enough to provide a full range of personal and
business financial services, and yet is small enough to be able to provide such
services in a personalized and efficient manner. Management believes that the
Bank can be more effective in servicing its customers than many of its non-local
competitors because of the Bank's ability to quickly and effectively provide
senior management responses to customer needs and inquiries. The Bank intends to
maintain its community orientation by continuing to emphasize traditional
deposit and loan products, primarily single-family residential mortgages.
Emphasis on Residential Mortgage Lending. Since its inception, the Bank
has been a portfolio lender. The Bank has emphasized and will continue to
emphasize the origination of mortgage loans secured by one-to-four-family
residential properties located in its six-county market area. Such mortgage
loans generally have less credit risk than loans collateralized by multifamily
or commercial real estate. At June 30, 1997, one-to-four-family residential
mortgage loans totaled $620.1 million, or 72.2% of the Bank's loan portfolio.
Generally, the yield on mortgage loans originated by the Bank is greater than
that of mortgage securities purchased by the Bank. In the future, the Bank is
considering expanding its lending programs to include commercial loans in an
effort to satisfy a perceived need within its market area and increase its loan
portfolio. To accomplish this, the Bank may hire additional personnel
experienced in commercial lending and may focus marketing efforts on smaller
businesses operating in the Bank's market areas.
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.
52
<PAGE>
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 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.
Market Rate 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.
53
<PAGE>
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.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
+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
</TABLE>
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.
54
<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.
55
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended June 30,(1)
-----------------------------------------------------------------
1997 1996
------------------------------- --------------------------------
At June 30, 1997 Interest Interest
--------------------- Average and Average and
Balance Yield/Rate Balance Dividends Yield/Rate Balance Dividends Yield/Rate
------- ---------- ------- --------- ---------- ------- --------- ----------
(Dollars in thousands)
Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 interest
margin)(4) ................ $ 76,907 3.71 $ 79,019 3.70 $ 77,107 3.79
========== ---- ========== ---- ======== ----
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.
56
<PAGE>
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ------------------------------- ------------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate Balance Dividends Rate
------- --------- ---- ------- --------- ---- ------- --------- ----
(Dollars in thousands)
Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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.
57
<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.
58
<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 ......... 1,098 6 1,104 (202) 312 110 (166) 412 246
securities
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 ...................... 624 (71) 553
securities
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)
------- ------- -------
Net interest income ............... $ 1,849 $ (464) $ 1,385
======= ======= =======
59
<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, F.S.B. 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. The average
balance of total loans increased $129.6 million to $805.3 million for the nine
months ended June 30, 1997 compared to $675.7 million for the comparable period
in 1996. This increase was principally due to growth in the residential loan
portfolio resulting from high levels of loan originations and the acquisition of
$62 million of loans as a result of the acquisition of Treasure Coast Bank,
F.S.B.
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, a difference of $605,000. The increase in the provision for loan losses
for the period ended June 30, 1997 as compared to the prior period was primarily
due to an increase in the provision of $530,000 related to an increase in the
volume of commercial real estate and consumer loans during the period, an
increase in the provision of $360,000 related to downgrades of certain
commercial real estate loans within pass grades, an increase in the provision of
$60,000 related to net charge-offs during the period, and other minor increases.
This was partially offset by a decrease in the provision of $400,000 due to a
decrease in the level of adversely 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.
60
<PAGE>
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 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.
61
<PAGE>
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 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, F.S.B. 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, F.S.B. 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, a difference of $536,000. The
credit to the provision for loan losses for the year ended September 30, 1996
62
<PAGE>
was principally comprised of a credit to the provision of $1.7 million related
to a decrease in the level of classified assets compared to the prior year and
$100,000 of additional net recoveries on loans during the year. This was
partially offset by a charge to the provision of approximately $1.6 million due
to growth primarily in the commercial real estate and consumer portfolios (which
excludes loan growth associated with the acquisition of Treasure Coast) and due
to the Bank's perception and the inherent risk of loans originated for these
portfolios during the period, as well as the additional inherent risk of loans
acquired as a result of the acquisition of Treasure Coast, and $200,000 related
to downgrades of certain commercial real estate loans within pass grades. In
1995 the provision of $460,000 resulted primarily from a $1.1 million charge to
the provision due to growth in the commercial real estate portfolio and increase
allowance levels provided on more recent originations, and a charge to the
provision of $30,000 due to an increase in the level of classified assets. Such
charges were reduced by a reduction of approximately $500,000 related to
upgrades of loans within pass grades and $190,000 in net loan recoveries during
the period. 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, 1996 and 1995, respectively, and was 129.4% and 57.6% of
classified loans at 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.
63
<PAGE>
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, 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.
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<PAGE>
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, a decrease of approximately $1.1 million. . In 1995
the provision of $460,000 resulted primarily from a $1.1 million charge to the
provision due to growth in the commercial real estate portfolio, increased
allowance levels provided on more recent originations and a charge to the
provision of $30,000 due to an increase in the level of classified assets. Such
charges were reduced by a reduction of approximately $500,000 related to
upgrades of loans within pass grades and $190,000 in net loan recoveries during
the period. The provision for loan losses of $1.6 million for the year ended
September 30, 1994 was primarily the result of a charge for $900,000 related to
the increased level of classified commercial real estate loans in 1994 and
management's perception of the inherent risk of loans originated for the
portfolio during that period as evidenced by the higher level of classified
assets and a charge for $300,000 related to a change in the estimated loss
factor applied to doubtful commercial real estate loans based on the Bank's
recent history. 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.
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.
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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.
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.
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<PAGE>
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 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
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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
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.
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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.
Year 2000 Considerations
The Bank's Year 2000 Action Plan (the "Action Plan") was presented to
the Board of Directors on June 25, 1997. The Action Plan was developed using the
guidelines outlined in the Federal Financial Institutions Examination Council's
"The Effect of Year 2000 on Computer Systems" and is scheduled for completion by
December 31, 1998, with only final testing remaining. The Systems Corporate
Steering Committee is responsible for the Year 2000 Action Plan with the Board
of Directors receiving Year 2000 Executive Progress Reports on a quarterly
basis.
An OTS off-site examination was conducted on September 30, 1997 and
based upon the examination results, the Bank was progressing satisfactorily
towards completing the Action Plan requirements.
Based upon current findings, the Bank budgeted $712,600 for Capital
Equipment in Fiscal 1998 relating to Year 2000 software and hardware issues.
BUSINESS OF HARBOR FLORIDA BANCSHARES, INC.
Harbor Florida Bancshares, Inc. ("Bancshares") was organized in
November of 1997 at the direction of the Board of Directors of the Bank for the
purpose of holding all of the capital stock of the Bank and in order to
facilitate the Conversion and Reorganization. It will apply to the OTS for
authority to acquire 100% of the Bank Common Stock and become the savings and
loan holding company for the Bank. Upon consummation of the Conversion and
Reorganization, Bancshares will own only one savings association, the Bank, and
will initially be a unitary savings and loan holding company. It will have no
significant assets other than all of the outstanding common shares of Bank
Common Stock, a loan to the ESOP and the portion of net proceeds from the
Offerings retained by the Company. It will have no significant liabilities. See
"USE OF PROCEEDS." Initially, the management of Bancshares and the Bank will be
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substantially similar and Bancshares will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Bank. At the
present time, Bancshares does not intend to employ any persons other than
executive officers who are executive officers of the Bank. Bancshares will
utilize the support staff of the Bank from time to time. Additional employees
will be hired as appropriate to the extent Bancshares expands or changes its
business in the future.
Management believes that the stock holding company structure will
provide Bancshares with additional flexibility to diversify, its business
activities through existing and newly formed subsidiaries or through
acquisitions of or mergers with other financial institutions and financial
services related companies. Although there are no current arrangements,
understandings, or agreements regarding any opportunities or transactions, the
Company will be in a position after the Conversion, subject to regulatory
limitations and Bancshares' financial position, to take advantage of any such
acquisition or expansion opportunities that arise. The initial activities of
Bancshares are anticipated to be funded by the proceeds to be retained by it and
the earnings thereon as well as dividends from the Bank.
Bancshares' executive office is located at home office of the Bank at
100 S. Second Street, Fort Pierce, FL 34950 and its telephone number is (561)
461-2414.
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
Bancorp was to facilitate capital management through stock repurchases.
Bancorp'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, repurchased any stock. Pursuant to the
Conversion and Reorganization, Bancorp will adopt a Federal stock charter and be
merged into the Bank, with the Bank as the surviving entity.
When the Bank announced the creation of Bancorp, 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, Bancorp
announced its intention to purchase Public Bancorp Shares in the open market.
Subsequent to June 25, 1997, management considered repurchasing Public Bancorp
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 Bancorp Shares.
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Reorganization Into Harbor Florida Bancshares
Bancorp is a Delaware corporation which began its activities on June
25, 1997. Bancorp was created under a new regulation promulgated by the OTS
which allowed mutual holding companies such as the Mutual Holding Company 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) Bancorp, 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 Bancorp and
the shareholders of the Bank became shareholders of Bancorp 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 Bancorp, and resulted in the Bank becoming the
wholly owned subsidiary of Bancorp, was accompanied by certain conditions
imposed on Bancorp 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, Bancorp was required to obtain a
federal charter from the OTS and to submit bylaws acceptable to
the Director, Corporate Activities, of the OTS.
(ii) Bancorp was made subject to the provisions of the Mutual Holding
Company Regulations pertaining to minority stock issuances as if
it were a former mutual savings association that reorganized into
a mutual holding company structure;
(iii) Bancorp 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) Bancorp 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;
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(v) Bancorp and the Bank must obtain approval from the OTS prior to
issuing any securities;
(vi) Bancorp was subject to the provisions of 12 C.F.R. Part 552,
pertaining to amendments of charters and bylaws as if Bancorp
were a federal stock savings association;
(vii) Bancorp 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 Bancorp 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 Bank with the Bank being
the surviving entity. Further, Bancorp will also cease to exist and Bancshares
will become the holding company for the Bank. Accordingly, the restrictions on
the activities which Bancorp may engage, (i.e., the requirement to eliminate
Bancorp's Delaware charter and adopt a federal charter, and the prohibition
against issuance of any other class of security), would not be applicable.
The office of Bancorp is located at the main office of the Bank at 100
S. Second Street, Fort Pierce, FL 34950 and its telephone number is (561)
461-2414.
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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.
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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.
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
------ ---- ------ ----- ------ ----- ------ -----
Mortgage Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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,
--------------------------------------------
1993 1992
------------------ --------------------
(Dollars in Thousands)
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.
75
<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>
Ten
One Three Five through
Within through through through twenty Beyond
one year three years five years ten years years twenty years Total
-------- ----------- ---------- --------- ----- ------------ -----
(In thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C>
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 ................. (3,301)
Fees ................................. (11,445)
-------
Allowance for Loan Losses .............. $ 975,438
=========
Total(2)(3)
</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.
--------------
The following table sets forth the amount of fixed-rate and
adjustable-rate loans at June 30, 1997 due after June 30, 1998.
76
<PAGE>
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 are originated by Bank loan officers, none of whom
have underwriting authority. Independent loan brokers are not used.
77
<PAGE>
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 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.
78
<PAGE>
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 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.
79
<PAGE>
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.
The following table shows total loan origination activity including
mortgage-backed securities, during the periods indicated.
80
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
June 30, Years Ended September 30,
-------------------- ---------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
Mortgage loans (gross):
<S> <C> <C> <C> <C>
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 loans. At June 30, 1997, the Bank's
81
<PAGE>
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, $43.0 million or 27% represented adjustable-rate securities and
$113.6 million or 73% represented fixed-rate securities with anticipated
maturity dates from 3 months to 29 years.
Adjustable-rate mortgage-backed securities ("ARM Securities") have
periodic adjustments in the coupons based on the underlying mortgages. These
periodic coupon adjustments are subject to annual and lifetime caps. The caps
serve as a limit to the amount that the coupon will change during any coupon
reset period. As interest rates on the mortgages underlying the ARM Securities
are reset periodically (one to 12 months), the yields on these securities will
gradually adjust to reflect changes in market rates. Management believes that
the adjustable-rate feature of ARM Securities will help to reduce sharp
fluctuations in security value that result from normal changes in interest
rates.
During periods of declining interest rates, the coupon on ARM
Securities may adjust downward, resulting in lower yields and reduced income
from these securities. Thus, ARM Securities may have less potential for capital
appreciation as compared to fixed-rate debt securities. During periods of rising
interest rates, the coupon on ARM Securities may not fully adjust upward in
conjunction with changes in market rates due to annual or lifetime coupon
adjustment caps. This could result in ARM Securities that depreciate in value
similar to long-term, fixed-rate mortgage securities in a rising interest rate
environment.
The Bank's fixed-rate mortgage-backed securities consist of both
long-term and balloon securities. The long-term securities have original
maturity terms of ten, fifteen and thirty years. The balloon securities have
principal and interest amortization based on a thirty-year maturity schedule
with final principal balloon payments due in five years or seven years from the
date of the security. Balloon mortgage-backed securities are held in the
portfolio as a means of reducing the average life of the fixed-rate portfolio. A
shorter average portfolio life will help reduce the interest rate risk
associated with these investments. As of June 30, 1997, long-term, fixed-rate
mortgage-backed securities amounted to $28.9 million and five-year and
seven-year balloon mortgage-backed securities amounted to $58.6 million and
$26.1 million, respectively.
During periods of declining interest rates, fixed-rate mortgage-backed
securities may have accelerated principal reductions due to increased
refinancing activity on the underlying mortgage loans. The reinvestment of the
accelerated principal reductions at lower prevailing rates could result in lower
overall portfolio yields and income. During periods of rising interest rates,
fixed-rate mortgage-backed securities will tend to depreciate in value. Thus,
total returns on fixed-rate mortgage-backed securities are expected to decline
as market interest rates rise.
If the Bank purchases mortgage-backed securities at a premium,
accelerated principal repayments may result in some loss of principal investment
to the extent of the premium paid. Conversely, if mortgage-backed securities are
purchased at a discount, accelerated principal reductions will increase current
and total returns.
82
<PAGE>
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.
The following table shows the Bank's loans delinquent 90 days or more
at the dates indicated.
83
<PAGE>
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------------
June 30, 1997 1996 1995 1994
----------------- ------------------ ---------------- -----------------
(Dollars in thousands)
Number Amount Number Amount Number Amount Number Amount
------ ------ ------ ------ ------ ------ ------ ------
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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.
84
<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.
At the dates indicated, nonperforming assets in the Bank's portfolio
were as follows:
85
<PAGE>
<TABLE>
<CAPTION>
September 30,
June 30, ---------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Non-accrual mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
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.
86
<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."
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,
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.
87
<PAGE>
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. Management
periodically evaluates the allowance percentages utilized for general allowance
purposes based upon delinquencies, charge-off, underwriting, and other trends.
The Bank segregates the loan portfolio for loan loss purposes into the
following broad segments: (i) Commercial Real Estate; (ii) Residential Real
Estate; (iii) Commercial Business; and (iv) Consumer.
Further, the Bank provides for a general allowance for losses inherent
in the portfolio by the above categories, which consists of two components: (i)
general loss percentages based on historical analyses; and (ii) a supplemental
portion of the allowance for inherent losses which probably exist as of the
88
<PAGE>
evaluation date even though they might not have been identified by the more
objective processes used for the portion of the allowance described above. This
is due to the risk of error and/or inherent imprecision in the process. This
portion of the allowance is particularly subjective and requires judgments based
on qualitative factors which do not lend themselves to exact mathematical
calculations, such as trends in delinquencies and nonaccruals; migration trends
in the portfolio; trends in volume, terms and portfolio mix; new credit products
and/or changes in the geographic distribution of those products; changes in
lending policies and procedures; loan review reports on the efficacy of the risk
identification process; changes in the outlook for local, regional and national
economic conditions; concentrations of credit; and peer group comparisons.
Specific allowances are provided in the event that the specific
collateral analysis on each classified loan indicates that the probable loss
upon liquidation of collateral would be in excess of the general allocation. The
provision for loan loss is debited or credited in order to state the allowance
for loan losses to the required level as determined above.
The following tables set forth an analysis of the Bank's allowance for
loan losses at the dates indicated.
89
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
June 30, Years Ended September 30,
--------------------- --------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<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 non-performing 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%
Classified loans to total
net loans .............................. 1.28% 1.55% 1.11% 2.78% 2.85% 2.92% 2.69%
</TABLE>
- ------------
(1) Represents allowance acquired in conjunction with acquisition of Treasure
Coast Bank, F.S.B. in 1996.
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.
90
<PAGE>
<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 ....................... $ 2,086 76.98% $ 2,077 77.95% $ 1,625 78.91% $ 1,528 80.88%
Commercial Real Estate ............ 6,425 11.56 6,088 11.02 6,158 10.07 5,912 9.42
Consumer .......................... 2,035 10.13 1,802 10.01 1,280 9.75 1,129 8.37
Commercial Business ............... 862 1.33 1,049 1.02 1,020 1.27 865 1.33
------- ------ ------- ------ ------- ------ ------- ------
Total ......................... $11,408 100.00% $11,016 100.00% $10,083 100.00% $ 9,434 100.00%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
- --------
(1) Percent of loans in each category of total loans at the dates indicated.
91
<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.
92
<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
----- ----- ----- ----- ----- ----- ----- -----
Available for sale:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
93
<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:
94
<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>
95
<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.
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:
96
<PAGE>
<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)
Demand accounts:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 deposit .... 682,674 75.45 5.46 636,907 74.77 5.37 531,601 73.73 5.60
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 deposit .... 463,254 68.75 4.55
Official checks ............ 4,025 .60 N/A
-------- ------ ----
Total deposits ............. $673,830 100.00% 3.69%
======== ====== ====
97
<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
The following table contains information regarding deposit account
activity for the periods shown.
98
<PAGE>
<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.
As of June 30, 1997, the Bank had $100 million of outstanding FHLB
advances. Of this amount, $70 million have remaining maturity dates of three
years or longer. The remaining $30 million of FHLB advances are short-term, with
maturity dates of six months or less. The bank has used the short-term FHLB
advances as funding for investment securities that are classified as "Available
for Sale." Management expects that the Bank's short-term advances will be
renewed at similar rates and terms. However, in the event that interest rates
rise in the near term, management would have the option of renewing the advances
at higher rates or selling the investments and using the proceeds to pay off the
short term FHLB advances. This could result in higher borrowing costs or
possibly losses on the sale of investment securities.
99
<PAGE>
As of June 30, 1997, the Bank had a total credit limit of $157 million
and an availability limit of $57 million with the Federal Home Loan Bank of
Atlanta.
In addition to FHLB Advances, the Bank had $153.8 million of unpledged
mortgage-backed securities at June 30, 1997. These unpledged mortgage-backed
securities could be used as collateral under reverse repurchase transactions
with various security dealers. Such borrowing transactions could provide
additional cash and liquidity to the Bank in the event of sudden or unforeseen
deposit withdrawals.
The Bank recognizes the maturity characteristics of its time deposit
portfolio. Management believes that unused FHLB advances and other borrowing
sources would provide sufficient funding for potential deposit withdrawals.
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.
100
<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)
FHLB Advances:
<S> <C> <C> <C> <C> <C>
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>
101
<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..
102
<PAGE>
Competition
The Bank is headquartered in the City of Fort Pierce, Florida and has
22 branch offices located within six counties on Florida's east central coast.
The Bank encounters strong competition both in attracting deposits and in
originating real estate and consumer loans.
The Bank's sources of deposits are primarily derived from St. Lucie,
Martin, Indian River, Brevard, Okeechobee and Volusia Counties. The six county
market area contains a population of approximately 1.3 million residents, and
includes a broad cross-section of demographic and economic characteristics. Like
the rest of the state of Florida, the region has experienced relatively strong
growth in recent years, with population growth well above national averages.
Sections of the market area contain concentrations of developed areas
(residential and industrial), agricultural areas (citrus and cattle), and
vacation/resort areas (along the coastline). The relatively rapid development
and strong population growth has resulted in relatively large increases in new
housing in recent years.
As of March 31, 1997, the Bank's market share of deposits within the
six counties totaled 6.12% while its largest competitor held 20.8%. During the
fiscal years ended September 30, 1995 and September 30, 1996, the Bank recorded
growth in total deposits. The Bank experienced deposit growth in all of its
market area counties except Okeechobee County. This growth amounted to a 12.9%
increase in deposits from September 30, 1994 to September 30, 1996. This
increase in deposits includes the acquisition of Treasure Coast Bank, F.S.B.
during June 1996, which added approximately $64 million to the Bank's overall
funding base. Excluding these acquired deposits, the Bank's deposits increased
at a rate of approximately 8% over this time period. However, the market will
undergo significant consolidation when the Bank's largest competitor merges with
one of the nation's largest financial institutions. This transaction is
currently scheduled to close at the end of 1997.
Most of the Bank's mortgages are secured by properties located within
its six county market, with a predominance of its lending in the one to four
family residential mortgages. The State of Florida has a substantial number of
financial institutions, many of which have a state-wide or regional presence,
and in some cases, a national presence, all of which are competitors of the Bank
to varying degrees. The Bank's competition for loans comes principally from
commercial banks, savings banks, savings and loan associations, credit unions,
mortgage banking companies and insurance companies. Its most direct competition
for deposits has historically come from commercial banks, savings bank, savings
and loan associations and credit unions, many of which are significantly larger
than the Bank and, therefore, have greater financial and marketing resources
than those of the Bank. The Bank faces additional competition for deposits from
short-term money market funds, other corporate and government securities funds
and from other financial institutions such as brokerage firms and insurance
companies.
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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.
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.
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Year Lease
Location Opened Owned/Leased Expiration Date
-------- ------ ------------ ---------------
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
INDIAN RIVER
- ------------
VERO MAIN 1978 OWNED
655 21st STREET
VERO BEACH, FL 32960
CAUSEWAY 1981 OWNED
1700 S.A1A
VERO BEACH, FL 32963
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Year Lease
Location Opened Owned/Leased Expiration Date
-------- ------ ------------ ---------------
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
VIERA 1995 OWNED
100 CAPRON TRAIL
MELBOURNE, FL 32940
OKEECHOBEE COUNTY
- -----------------
OKEECHOBEE 1980 OWNED
2801 HIGHWAY #441 SOUTH
OKEECHOBEE, FL 34974
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Year Lease
Location Opened Owned/Leased Expiration Date
-------- ------ ------------ ---------------
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
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.
Rolo v. General Development Corporation, et al., Case No. 90-4420. The
Bank and certain other entities are defendants in a class action lawsuit which
was filed in May, 1991. The case was filed in the District Court for the
District of New Jersey. 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 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. Management also believes that a negative outcome to the case, although
unlikely, would not have a material adverse effect on the Bank.
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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 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, Bancshares 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
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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.
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
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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 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.
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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, 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
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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 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
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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.
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
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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 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
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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 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
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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 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 Bancshares, the Mutual
Holding Company and any company which is under common control with the Bank. In
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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 and Reorganization, Bancshares will
be a unitary savings and loan holding company subject to regulatory oversight by
the OTS. As such, Bancshares 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 Bancshares 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.
As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If Bancshares acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of Bancshares 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."
Bancshares 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.
117
<PAGE>
Federal Securities Law
The stock of Bancshares is registered under the Securities and Exchange
Act of 1934 (the "Exchange Act") as administered by the Securities and Exchange
Commission ("SEC"). The stock of Bancorp is currently registered under the
Exchange Act. After the Conversion and Reorganization, the Common Stock of
Bancshares will be registered with the SEC under the Exchange Act. Bancshares
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 Bancshares may not be resold without
registration unless resold in accordance with certain resale restrictions.
Further, affiliates may not sell Common Stock (excluding Exchange Shares) for
one year following the Conversion. Thereafter, if Bancshares meets specified
current public information requirements, each affiliate of Bancshares is able to
sell in the public market, without registration, a limited number of shares in
any three-month period.
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.
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<PAGE>
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.
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%.
119
<PAGE>
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.
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,
120
<PAGE>
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.
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.
121
<PAGE>
MANAGEMENT OF HARBOR FLORIDA BANCSHARES
Directors and Executive Officers
The Board of Directors of Bancshares consists of the same individuals
who are the current members of the Board of Directors of the Bank. Upon the
completion of the Conversion and Reorganization, the directors of Bancorp will
become directors of Bancshares. See "MANAGEMENT OF THE BANK -- Directors." Each
director of Bancorp has served since its incorporation in November of 1997. The
directors of Bancorp 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 Bancorp and those of Bancshares, upon
completion of the Conversion and Reorganization, are the same as their terms as
directors of the Bank. Bancshares does not intend to pay its directors a fee for
participation on the Board of Directors of Bancshares.
The executive officers of Bancshares will be 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 Bancshares. The
executive officers of Bancshares are also the executive officers of the Bank. It
is not anticipated that the executive officers of Bancshares receive any
renumeration in their capacity as Bancshares executive officers, nor do they
currently receive renumeration as officers of Bancorp. 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 Bancorp
currently 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 and Reorganization after Bancorp ceases to exist and Bancshares owns
all of the issued and outstanding shares of the Bank.
122
<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 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.
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.
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<PAGE>
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.
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.
124
<PAGE>
Executive Officers Who Are Not Directors
The following executive officers do not serve on the Board of
Directors. Apart from the Change in Control Agreements to be entered into upon
consummation of the Conversion, there are no other arrangements or
understandings between the Bank or Bancshares and any persons pursuant to which
such person serves as an executive officer. Except as otherwise noted, they have
been employed by the Bank for the last five years.
Don W. Bebber Mr. Bebber is a Senior Vice President and Chief
Financial Officer. He began working for the Bank in
1982 as Controller and as Treasurer in 1986. He assumed
his present position in 1990.
Robert W. Bluestone Mr. Bluestone has been Senior Vice President for Retail
Banking since 1988. Prior to that he worked for the
Bank as Assistant Vice President beginning in 1976, as
Vice President of Savings and Marketing in 1978, and as
Senior Vice President of Retail Banking in 1981 until
he assumed his present position.
Albert L. Fort Mr. Fort is Senior Vice President of Marketing and
Operations. Since joining the Bank in 1983, Mr. Fort
has also served as Vice President of Savings and Vice
President of Savings/Marketing. Before joining the
Bank, Mr. Fort held positions with two other savings
associations.
David C. Hankle Mr. Hankle is currently Senior Vice President of Credit
Administration and Commercial Lending and has held that
position since 1989. Prior to this he served as Senior
Vice President for Banking from 1985 to 1989.
125
<PAGE>
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 the fiscal year ended
September 30, 1996 attended at least 75% of Board meetings. All committee
members attended at least 75% of the meetings of their respective committees.
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.
126
<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 $100,000 during these three
fiscal years.
127
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------- -----------------------------------------
Restricted All Other
Name and Stock Compensaton
Principal Position Year(1) Salary($) Bonus($) Awards($)(2) Options(#) ($)(3)
------------------ ------- --------- -------- ------------ ---------- ------
<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 President- 1995 116,950 11,270 0 0 10,347
Retail Banking 1994 112,700 0 52,920 11,940 3,089
David C. Hankle 1996 $120,717 $ 11,680 $ 0 500 $ 14,194
Senior Vice President- 1995 115,967 11,180 0 0 14,387
Credit Administration/ 1994 111,800 0 52,920 11,940 6,108
Commercial Lending
Don W. Bebber 1996 $102,917 $ 9,500 $ 0 500 $ 11,033
Senior Vice President- 1995 92,500 16,000 0 0 11,047
Chief Financial Officer 1994 80,000 0 52,910 11,940 4,622
Albert L. Fort 1996 $ 96,392 $ 9,485 $ 0 500 $ 12,286
Senior Vice President- 1995 94,242 9,120 0 0 13,514
Marketing/Operations 1994 90,150 0 52,900 11,940 5,995
</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 Bancorp 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.
(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.
----------------------
128
<PAGE>
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 Bancorp's Common Stock or Bancshares' Common Stock or of the stock
price. To lend perspective to the illustrative potential realized value, if
Bancorp'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) 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 Bancorp's Common Stock was
_____________.
129
<PAGE>
(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 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.
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<PAGE>
(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 Bancshares 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 Bancshares' statement of financial condition. Since the ESOP
is borrowing from Bancshares, such obligation is eliminated in consolidation.
However, the cost of unallocated shares are treated as a reduction of
shareholders' equity. However, should the ESOP purchase new shares of Common
Stock from Bancshares, per share shareholders' equity and per share net earnings
would decrease because of the increase in the number of outstanding shares.
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
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<PAGE>
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. Bancshares 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 Bancshares 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 Bancshares as an incentive to contribute to the success
of Bancshares, 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.
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,
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<PAGE>
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.
Bancshares has no present intention to grant any SARs or Limited SARs.
The 1998 Plan will be administered the Bancshares' Compensation
Committee which will consist of at least two non-employee directors. The
Bancshares' 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. Bancshares intends to establish the Recognition Plan
in order to provide employees and non-employee directors with a proprietary
interest in Bancshares in a manner designed to encourage such persons to remain
with Bancshares 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. Bancshares 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 Bancshares 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 (the "Compensation
Committee" of Bancshares will administer the proposed Recognition Plan. Under
the anticipated terms of the proposed Recognition Plan, awards ("Awards") can be
granted to key employees and non-employee directors 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 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.
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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 benefits are computed as a straight-life annuity and are
not subject to deduction for Social Security.
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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 Bancshares' 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 Bancshares 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 entitled to a severance
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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,
Bancshares 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 Bancshares or the Bank within one year following a
change in control of Bancshares or 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 Bancshares and the Bank for
three months following his termination. The aggregate payments under these
agreements, presuming a termination not for cause, are dependent upon the
employees' salary and level of benefits at the time of a change in control. If
all four (4) senior vice presidents were terminated not for cause during fiscal
1997, the total payment would be $467,500. 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 Bancorp 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 Bancorp, is also chairman
of Richard K. Davis Construction Corp. In the year ended September 30, 1996, the
Bank paid 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,
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<PAGE>
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 of the Bank and Bancorp, 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 the Bank or Bancorp. None
of the above are members of a compensation committee of the Board of Directors
of any company other than Bancorp 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 Bancorp Common Stock failed to file on a timely
basis reports required by Section 16(a) of the Securities Exchange Act.
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<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as of October 31, l997, with
respect to ownership of Bancorp'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, Bancorp
and Bancshares, 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 53.31%
Harbor Federal's Employee
Stock Ownership Plan N/A 154,841 3.11
Bruce R. Abernethy, Sr. Vice Chairman of the Board 55,816(3)(12) 1.12
Richard N. Bird Director 17,089(8) *
Michael J. Brown, Sr. Director, President and Chief
Executive Officer 86,916(4) 1.75
Richard K. Davis Director 46,112(3)(5) *
Edward G. Enns Chairman of the Board 16,251(6) *
Frank H. Fee III Director 56,742(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 44,556 *
Albert L. Fort Senior Vice President 17,291(10) *
David C. Hankle Senior Vice President 33,856(11) *
Directors and Executive
Officers as a group (11
persons) N/A 412,674 8.29%
</TABLE>
- -----------
(1) Except as otherwise noted, all beneficial ownership is direct and each
beneficial owner exercises sole voting and investment power over the
shares.
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(2) Reflects information provided by these persons, filings made by these
persons with the Securities and Exchange Commission, and other information
known to Bancorp.
(3) Includes 21,350, 22,900 and 16,200 shares, respectively, held by the
Directors' Deferred 16,200 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 and 50 shares held by son.
(11) Includes 1,400 shares held by spouse and 3,800 shares held as custodian for
minor children
(12) Includes 706 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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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 Exchange Shares to be held upon
consummation of the Conversion, based upon their beneficial ownership of Bancorp
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. The purchase limit of
$500,000 includes shares received as Exchange Shares. Accordingly, pursuant to
the policies and regulations of the OTS, none of the Directors except Edward G.
Enns, or senior management will be permitted to purchase stock in the
Conversion. See "THE CONVERSION -- Purchase Limitations."
<TABLE>
<CAPTION>
Proposed Purchase of Total Common Stock
Conversion Stock to be Held
--------------------------------------------------- ----------------------
Number of
Exchange Shares Number of Number of Percentage
Name to be Held(1)(2) Amount Shares Shares of Total
---- ---------------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Bruce R. Abernethy ........................... 199,148 -- -- 199,148 *
Richard N. Bird .............................. 74,038 -- -- 74,038 *
Michael J. Brown, Sr ......................... 281,249 -- -- 281,249 1.31%
Richard K. Davis ............................. 199,780 -- -- 199,780 *
Edward G. Enns ............................... 43,832 $ 50,000 5,000 49,832 *
Frank H. Fee III ............................. 245,835 -- -- 245,835 1.14%
Richard B. Hellstrom ......................... 98,738 -- -- 98,738 *
Don W. Bebber ................................ 52,332 -- -- 52,332 *
Robert W. Bluestone .......................... 193,039 -- -- 193,039 *
Albert L. Fort ............................... 74,913 -- -- 74,913 *
David C. Hankle .............................. 146,681 -- -- 146,681 *
All directors and
executive officers
as a group (11 persons) ...................... 1,609,585 $ 50,000 5,000 1,614,585 7.5%
</TABLE>
- ---------
(1) Excludes shares which may be received upon the exercise of outstanding
exercisable stock options. Exchange Ratio is 4.3325 at the Midpoint of the
Offering Price Range.
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(2) Excludes stock options and awards to be granted under Bancshares' 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."
* Less than one percent
THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Primary Parties have approved the Plan
of Conversion and Reorganization, 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, Bancorp and the
Bank adopted the Plan as of September 24, 1997. An amendment to the Plan was
adopted by the Boards of the Mutual Holding Company, Bancorp, the Bank and
Bancshares on November 5, 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 Bancorp. The Members' Meeting and
the Stockholders' Meeting have been called for this purpose on December 22,
1997.
The following is a brief summary of pertinent aspects of the Plan and
the Conversion and Reorganization. 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."
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Purposes of the Conversion and Reorganization
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, Bancshares 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.
Bancorp is a Delaware corporation and is the current holding company
for the Bank owning 100% of the Bank's Common Stock. Bancorp's shares are owned
by the Mutual Holding Company (53.41%) and the Public Stockholders (46.59%).
Following the Conversion and Reorganization, Bancorp will cease to exist and
Bancshares will own 100% of the Bank's Common Stock.
Through the Conversion, Bancshares will become the stock holding company
of the Bank, which will complete the transition to full public ownership. The
stock holding company form of organization will provide Bancshares with the
ability to diversify Bancshares' 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, Bancshares will be in a position (subject to regulatory
limitations and Bancshares' financial position) to take advantage of any such
opportunities that may arise because of the increase in its capital after the
Conversion and Reorganization.
The Conversion and Reorganization will be important to the future
growth and performance of Bancshares and the Bank by providing a larger capital
base to support the operations of the Bank and Bancshares 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 and Reorganization 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 Bancorp
currently has the ability to raise additional capital through the sale of
additional shares of Bancorp 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 Bancorp
Common Stock.
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The Conversion and Reorganization 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 Bancorp 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 Primary
Parties believe that the Conversion is in the best interests of such companies
and their respective stockholders and members.
Description of the Conversion and Reorganization
On September 24, 1997, the Boards of Directors of Bancorp, the Bank,
and the Mutual Holding Company adopted the Plan. It was subsequently amended and
adopted on November 5, 1997. Pursuant to the Plan, Bancorp will become a federal
holding company, then convert to an interim federal stock savings bank and merge
with and into the Bank with the Bank as the survivor. Next, the Mutual Holding
Company will convert to an interim Federal stock savings bank and merge with and
into the Bank, pursuant to which the Mutual Holding Company will cease to exist
and the shares of Bancorp 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 the Bank, the Public Bancorp Shares will become, through an exchange,
Exchange Shares pursuant to the 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 and
Reorganization (i.e., the Conversion Stock and the Exchange Shares) as the
percentage of Bancorp Common Stock owned by them in the aggregate immediately
prior to consummation of the Conversion and Reorganization, but before giving
effect to (a) the payment of cash in lieu of issuing fractional Exchange Shares
and (b) any shares of Conversion Stock purchased by the Public Stockholders in
the Offerings or the ESOP thereafter.
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization (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 Bancorp 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.
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Effects of the Conversion and Reorganization
General. Prior to the Conversion and Reorganization, 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 Reorganization and the
Offerings, additional permanent nonwithdrawable capital stock will be created
which will represent the ownership of the consolidated net worth of the Company.
The Common Stock of Bancshares 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 and Reorganization 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 and Reorganization 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 Bancorp Shares. Upon consummation of the Conversion
and Reorganization, the Public Bancorp Shares shall be exchanged for shares of
Bancshares based upon the Exchange Ratio . See "Delivery and Exchange of
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Certificates." The increase in Public Bancorp Shares will enable Public Bancorp
Stockholders to own the same percentage of Bancshares Common Stock as they owned
of Bancorp prior to the Conversion and Reorganization and the Offering.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank
at the time of the Conversion and Reorganization 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 Reorganization and merger of Bancorp and the
Mutual Holding Company into the Bank and the acquisition of the Bank by
Bancshares, depositors and borrowers will cease to be members and will no longer
be entitled to vote at meetings of the Mutual Holding Company. The
reorganization which created Bancorp vested all voting rights in Bancorp as the
sole stockholder of the Bank. With the merger of the Mutual Holding Company and
Bancorp into the Bank and the acquisition of Bancshares of all of the Bank's
shares, exclusive voting rights with respect to Bancshares will be vested in the
holders of Common Stock.
Tax Effects. Consummation of the Conversion and Reorganization 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 and Reorganization 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
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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 Bancorp Common Stock. After the Conversion and Reorganization,
they would become benefit plans of Bancshares. 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 and
Reorganization, 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 maximum and minimum purchase limitations
set forth in the Plan of Conversion and as described below under "-- Limitations
on Conversion Stock Purchases and Ownership." All purchase amounts described
below except Priority 2 are purchase amounts combined with Exchange Shares
received by stockholders.
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
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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."
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."
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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 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
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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,
October 31, 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."
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, when combined with Exchange Shares,
$500,000 of Conversion Stock, subject to overall purchase and ownership
limitations. See " -- Limitations on Conversion Stock Purchases and Ownership."
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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. All purchases in the
Community Offering will be combined with Exchange Shares for purposes of
complying with the purchase limitations in the Plan of Conversion and
Reorganization.
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 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 in the Subscription Offering shall not exceed
such number of shares of Conversion Stock that, when combined with
Exchange Shares, 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, when
combined with Exchange Shares, equal $500,000 divided by the $10
purchase price in the Offerings.
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(4) 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 together with any associate
or group of persons acting in concert shall not exceed such number of
shares that, when combined with Exchange Shares, exceed $4.75 million
of Common Stock divided by the $10 purchase price upon completion of
the Conversion.
(5) No more than 25% of the total number of shares sold in the
Offerings, when combined with Exchange Shares, may be purchased by
directors and officers of the Primary Parties and the Bank and their
associates in the aggregate, excluding purchases by the ESOP.
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 Bancorp or Bancshares, 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 and Reorganization 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, Bancorp or Bancshares, a majority-owned subsidiary of
Bancorp or Bancshares 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
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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 Bancshares 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 Bancorp, Bancshares 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 October 31, 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, the circumstances of the trustee shall be
examined for purposes of this definition. The Primary Parties 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 and Reorganization 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, Bancorp, Bancshares 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
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Primary Parties and the economic and demographic conditions in the Bank's
existing market area: certain historical, financial and other information
relating to Bancorp, Bancshares and the Bank; a comparative evaluation of the
operating and financial statistics of Bancorp 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 and Reorganization on the Bank's net worth and earnings
potential; the proposed dividend policy of Bancshares and the Bank; and the
trading market for Bancorp'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 Bancorp Shares are to hold the same
aggregate percentage ownership interest in Bancshares as they held in Bancorp
just prior to consummation of the Conversion (before giving effect to the
payment of cash in lieu of issuing fractional Exchange Shares and any shares of
Conversion Stock purchased Bancorp'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 Bancorp. 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 Exchange
Shares will represent approximately 53.41% and 46.59%, respectively, of
Bancshares' 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 Bancorp Shares for Exchange Shares, provided the Primary Parties
demonstrate to the satisfaction of the OTS that the basis for exchange is fair
and reasonable, The Boards of Directors of the Primary Parties have determined
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that each Public Bancorp Share will on the Effective Date be converted into the
right to receive a number of Exchange Shares determined pursuant to the 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 Bancorp
Common Stock (before giving effect to the payment of cash in lieu of issuing
fractional Exchange Shares and any shares of Conversion Stock purchased by
Bancorp's stockholders in the Offerings or issued to the ESOP thereafter). Based
upon such formula and the Estimated Price Range, the Exchange Ratio ranged from
a minimum of 3.6826 to a maximum of 4.9824 Exchange Shares for each Public
Bancorp Share, with a midpoint of 4.3325. Based upon these Exchange Ratios,
Bancshares expects to issue between 8,528,444 and 11,538,483 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.
Based upon current market and financial conditions and recent practices
and policies of the OTS, in the event Bancshares 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
Bancshares' 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 Primary Parties, nor did RP Financial value
independently the assets or liabilities of Bancorp or the Bank. The valuation
considers the Primary Parties as going concerns and should not be considered as
indication of the liquidation value of Bancorp, Bancshares, 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 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 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
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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, Bancshares 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 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. 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, 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,
would decrease a subscriber's ownership interest and Bancshares' 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 Bancshares' 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."
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The Exchange Ratio
The Boards of Directors of the Primary Parties have determined that
each Public Bancorp Share will, upon consummation of the Conversion and
Reorganization, automatically become the right to receive a number of shares of
Common Stock determined pursuant to the Exchange Ratio that ensures that after
the Conversion and Reorganization 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 Bancorp Common Stock.
To determine the Exchange Ratio, the 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 Bancorp 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 Exchange Shares to be
issued in the Conversion, (ii) the percentage of the total Common Stock
represented by the Conversion Stock and the Exchange Shares, and (iii) the
Exchange Ratio. The table assumes that there is no cash paid in lieu of issuing
fractional Exchange Shares.
<TABLE>
<CAPTION>
Convertsion Stock Exchange Total Shares
to be Issued(1) Shares of Common
--------------------------- --------------------------- Stock to be Exchange
Amount Percent Amount Percent Outstanding Ratio
------ ------- ------ ------- ----------- -----
<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.
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---------------
The final Exchange Ratio will be determined based upon the number of
shares issued in the Offerings and the number of shares of Public Bancorp Shares
held by Public Stockholders just prior to consummation of the Conversion and it
will not be based upon the market value of the Bancorp Common Stock. At the
minimum, midpoint and maximum of the Estimated Price Range, a holder of one
Public Bancorp Share will receive 3.6826, 4.3325 and 4.9824 shares of Common
Stock, respectively (which have a calculated equivalent estimated value of
$36.83, $43.32 and $49.82 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 and Reorganization or that such shares can be
sold at or 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 Exchange Shares, so that upon consummation of the Conversion and
Reorganization the Conversion Stock and the 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, Bancorp,
Bancshares or their 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 Friedman, Billings, Ramsey & Co., Inc.
("FBR" or 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
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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 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. Bancshares
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 Exchange by the payment of commissions or
other remuneration based either directly or indirectly on transactions in the
Conversion Stock and 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
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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 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.
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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.
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
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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 Bancshares, above that
amount.
The Plan provides for the establishment by the Bank, 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. Upon consummation of the Conversion, the Bank will amend its
Federal stock charter to provide a special liquidation account. As of the date
of this Prospectus, the initial balance of the liquidation account would be
$38.7 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 and Reorganization, 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.
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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 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, Bancshares 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. ("Counsel"), has issued an opinion to
the Company and the Bank to the effect that, subject to certain assumptions
stated therein, for federal income tax purposes:
1. Assuming the transactions qualify as statutory mergers, each
merger required by the Plan qualifies as a reorganization within
the meaning of Section 368(a)(1)(A) of the Code. The Mutual
Holding Company, Bancorp and the Bank will be a party to a
"reorganization" as defined in Section 368(b) of the Code.
2. Interim Bank 1 and Interim Bank 2 will recognize no gain or loss
pursuant to the Conversion.
3. No gain or loss will be recognized by the Bank upon the receipt
of the assets of Interim Bank 1 and Interim Bank 2 pursuant to
the Conversion.
4. Assuming the transactions qualify as statutory mergers,
reorganization of Bancshares as the Holding Company of the Bank
qualifies as a reorganization within the meaning of Section
368(a)(1)(A) of the Code. Therefore, the Bank, Bancshares, and
Interim will each be a party to a reorganization as defined in
Section 368(b) of the Code.
5. No gain or loss will be recognized by Interim upon the transfer
of its assets to the Bank pursuant to the Conversion.
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6. No gain or loss will be recognized by the Bank upon the receipt
of the assets of Interim.
7. No gain or loss will be recognized by Bancshares upon the receipt
of Bank Common Stock solely in exchange for Common Stock.
8. No gain or loss will be recognized by the Public Stockholders
upon the receipt of Common Stock.
9. The basis of the Common Stock to be received by the Public
Stockholders will be the same as the basis of the Bancorp
surrendered before giving effect to any payment of cash in lieu
of fractional shares.
10. The holding period of the Common Stock to be received by the
Public Stockholders will include the holding period of the Common
Stock, provided that the Common Stock was held as a capital asset
on the date of the exchange.
11. No gain or loss will be recognized by Bancshares upon the sale of
Common Stock to investors.
12. The Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members will recognize gain, if any, upon the
issuance to them of: (i) withdrawable savings accounts in the
Bank following the Conversion, (ii) Bank Liquidation Accounts,
and (iii) nontransferable subscription rights to purchase
Conversion Stock, but only to the extent of the value, if any, of
the subscription rights.
13. The tax basis to the holders of Conversion Stock purchased in the
offerings will be the amount paid therefor, and the holding
period for such shares will begin on the date of consummation of
the offerings if purchased through the exercise of subscription
rights. If purchased in the Community Offering or Public
Stockholder Offering (as such terms are defined in the Plan), the
holding period for such stock will begin on the day after the
date of purchase.
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.
It is possible that the IRS could assert that the overall plan of the
transactions contemplated by the Plan is the maintenance of the Bank's holding
company structure and the merger of MHC into Bank. If so, the IRS could argue
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that the "step transaction" doctrine should be applied and the transitory
elimination of the holding company structure in Merger 1 and the re-creation of
the holding company structure in Merger 3 should be ignored for tax purposes. If
the IRS were successful with such an assertion, the transaction would be treated
as a direct merger of MHC into Bank which may not qualify as a tax free
reorganization, resulting in taxable gain to the parties to the transaction.
However, case law and the IRS's pronouncements indicate that if two or
more transactions carried out pursuant to an overall plan have economic
significance independent of each other, the transactions generally will not be
stepped together. The IRS's most significant pronouncement regarding independent
economic significance is Rev. Rul. 79-250. In that ruling, the IRS will respect
the transaction if each step demonstrates independent economic significance, is
not subject to attack as a sham, and was undertaken for valid business purposes
and not mere avoidance of taxes.
Counsel notes that the parties to Merger 2 maintain a separate and
distinct business purpose for consummating Merger 2 (e.g., allowing for the
conversion of the MHC from mutual to stock form). Immediately after the
consummation of Merger 2, the Bank will no longer be controlled by the MHC but
will instead be controlled by its public stockholders. The facts indicate that
the merger of MHC with and into the Bank will result in a real and substantial
change in the form of ownership of the Bank that is sufficient to conclude that
Merger 2 comports with the underlying purposes and assumptions of a
reorganization under Section 368(a)(1)(A) of the Code.
In addition, Counsel believes that, because the various steps
contemplated by the Plan were necessitated by the requirements of the Office of
Thrift Supervision, each of Merger 1, Merger 2 and Merger 3 has a business
purpose and independent significance and, as a result, the step transaction
should not be applied to this transaction.
The IRS is currently also reviewing the question of whether certain downstream
mergers of a parent corporation into its subsidiary, known as inversion
transactions, where a parent and its subsidiary reverse positions, which
otherwise qualify for tax-free treatment nevertheless should be treated as
taxable transactions. Counsel does not believe that the transactions undertaken
pursuant to the Plan should be so treated. Counsel's opinions, however, are not
binding upon the IRS, and there can be no assurance that the IRS will not assert
a contradictory position.
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
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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 Primary Parties
may be subject to adverse tax consequences as a result of the Conversion.
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.
Exchange Shares. After consummation of the Conversion, each holder of a
certificate or certificates theretofore evidencing issued and outstanding shares
of Bancorp 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 Bancorp Shares on the transfer book of Bancorp (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 multiplied by
the Exchange Ratio, will represent the same percentage ownership of Public
Bancorp Shares as held prior to the Conversion and Reorganization. The Transfer
or Exchange Agent shall promptly mail to each such holder of record of Public
Bancorp Shares immediately prior to the consummation of the Conversion, a letter
of transmittal advising the holder of the procedures by which Exchange Shares,
pursuant to the Exchange Ratio, will be delivered. The Company's stockholders
need not forward any Bancorp Common Stock certificates to the Bank or the
Transfer Agent until they receive a transmittal letter.
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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 Bancorp'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) and Bancorp (following its
adoption of a Federal stock charter) into the Bank, with the Bank 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 outstanding Bancorp 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.
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 and
Reorganization
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
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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 Bancshares' transfer agent. Any shares of Conversion 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 Bancshares will also be subject to the
insider trading rules promulgated pursuant to the Exchange Act.
Purchases of Conversion Stock of Bancshares 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
Bancshares' outstanding Common Stock or to the purchase of 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, Bancshares 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, Bancshares 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
IN BANCORP AND BANCSHARES
General. The Conversion and Reorganization involve the elimination of
the Mutual Holding Company and Bancorp, and the substitution of another newly
organized company also chartered in Delaware. The resulting structure will be
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more conventional in nature in that Bancshares will be the only entity with a
direct ownership interest in the Bank. Further, no mutual holding company will
be present. The Primary Parties were unable to maintain Bancorp as the owner of
the Bank because of certain regulations and policies of the OTS which prohibited
the merger of the Mutual Holding Company into Bancorp in a conversion and
reorganization. Bancshares, a Delaware corporation and holding company for the
Bank, will operate under a charter nearly identical to that of Bancorp. The
material differences are described below.
Authorized Capital Stock and Par Value. Bancorp'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.
Bancshares' Certificate of Incorporation authorizes 70,000,000 shares of Common
Stock, par value $.001 per share and 10,000,000 shares of Preferred Stock, par
value $.001 per share.
Removal of Mutual Holding Company Provisions. Certain sections of
Bancorp's Certificate of Incorporation provide for limitations concerning voting
rights. These limitations are also found in Bancshares' Certificate of
Incorporation. See "RESTRICTIONS ON ACQUISITION OF THE COMPANY -- Limitation of
Voting Rights." However, Bancorp's Certificate of Incorporation allows the
Mutual Holding Company to exceed these limits. This qualification is not
included in Bancshares' Certificate of Incorporation as the Mutual Holding
Company will not exist after the Conversion.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
A number of provisions of Bancshares' 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
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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
Bancshares' 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. The
provisions discussed below are identical to those of Bancorp unless otherwise
noted.
Limitation on Voting Rights. The Certificate of Incorporation of
Bancshares 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 Bancshares. 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 Bancshares as a group or shares that are
subject to a revocable proxy and that are not otherwise beneficially owned, or
deemed by Bancshares to be beneficially owned, by such person and his
affiliates. The Certificate of Incorporation of Bancshares 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 Bancshares will be
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. Bancshares' 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,
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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 Bancshares. The Certificate of Incorporation of Bancshares 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 Bancshares. 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 of Bancshares
authorizes the issuance of 70,000,000 shares of Common Stock and 10,000,000
shares of preferred stock. See `DESCRIPTION OF CAPITAL STOCK OF BANCSHARES." The
shares of Common Stock and preferred stock were required to be increased to
enable sufficient common stock to be available to effect the transmittal of
Exchange Shares at the $10 Actual Purchase Price. The additional shares also
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 used by the Board of Directors consistent with its fiduciary
duty to deter future attempts to gain control of Bancshares. 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. Bancshares' Board of Directors currently has
no plans for the issuance of additional shares upon the exercise of stock
options.
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Shareholder Vote Required to Approve Business Combinations with
Principal Shareholders. The Certificate of Incorporation of Bancshares 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 Bancshares 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 Bancshares or its subsidiary) which owns beneficially or controls,
directly or indirectly, 15% or more of the outstanding shares of voting stock of
Bancshares. 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 Bancshares (or any subsidiary) of any
securities of Bancshares 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 Bancshares; (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 consolidation of Bancshares which has the effect of
increasing the proportionate share of Common Stock or any class of equity or
convertible securities of Bancshares owned directly or indirectly by an
Interested Shareholder or Affiliate thereof.
Amendment of Certificate of Incorporation and Bylaws. Amendments to
Bancshares' 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
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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 Bancshares' bylaws
and Certificate of Incorporation. Bancshares' 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 Bancshares 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 Bancshares 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 Bancshares with certain information concerning the nominee and the
proposing shareholder.
Benefit Plans. In addition to the provisions of Bancshares' 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 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
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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 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
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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.
DESCRIPTION OF CAPITAL STOCK OF BANCSHARES
Bancshares is authorized to issue 70,000,000 shares of the Common
Stock, $.001 par value per share, and 10,000,000 shares of serial preferred
stock, $.001 par value per share. Bancshares currently expects to issue up to
24,763,483 shares of Common Stock in the Conversion including shares to be
provided to shareholders in the Exchange.
Therefore, after the Conversion and Reorganization, the Company expects to have
24,763,483 shares outstanding .
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Dividends. Bancshares can pay dividends if and when declared by its
Board of Directors. See "DIVIDEND POLICY" and "REGULATION." The holders of
Common Stock of Bancshares will be entitled to receive and share equally in such
dividends as may be declared by the Board of Directors of Bancshares out of
funds legally available therefor. If Bancshares issues preferred stock, the
holders thereof may have a priority over the holders of the Common Stock with
respect to dividends.
Bancshares 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 Bancshares will represent
nonwithdrawable capital and will not be insured by Bancshares, the FDIC, or any
other government agency.
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Common Stock
Voting Rights. Each share of Bancshares 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 Bancshares, 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 Bancshares' directors.
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 Bancshares, 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 Bancshares 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, Bancshares
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:
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(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.
Serial Preferred Stock
None of the 10,000,000 authorized shares of serial preferred stock of
Bancshares will be issued in the Conversion. After the Conversion is completed,
the Board of Directors of Bancshares 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 Bancshares 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.
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EXPERTS
The financial statements of Bancshares 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.
REGISTRATION REQUIREMENTS
Bancorp Common Stock of Bancorp is currently registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Bancorp 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. After the Conversion the Common
Stock will be so registered and Bancshares will be subject to the same
requirements. Bancshares may not deregister the Common Stock under the Exchange
Act for a period of at least three years following the Conversion. The Common
Stock of Bancshares will be registered pursuant to Section 12(g) of the Exchange
Act and will be subject to the same information, proxy solicitation, insider
trading restrictions, tender offer rules, and period reporting requirements of
the SEC under the Exchange Act as Bancshares.
ADDITIONAL INFORMATION
Bancshares has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended, with respect to the Conversion Stock and
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.,
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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. Bancshares will file an application with
OTS to become a savings and loan holding company. This Prospectus omits certain
information contained in this application. These applications 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.
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HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statement
Page
----
Independent Auditor's Report ............................................ F-2
Consolidated Statement of Financial Condition - June 30,
1997 (unaudited) and September 30, 1996 and 1995 ..................... F-3
Consolidated Statements of Earnings - Nine months ended
June 30, 1997 and 1996 (unaudited) and the Years ended
September 30, 1996, 1995 and 1994 .................................... F-4
Consolidated Statements of Stockholders' Equity - Nine months
ended June 30, 1997 and 1996 (unaudited) and the Years
ended September 30, 1996, 1995 and 1994 .............................. F-5
Consolidated Statement of Cash Flows - Nine months ended
June 30, 1997 and 1996 (unaudited) and the Years ended
September 30, 1996, 1995 and 1994 .................................... F-7
Notes to the Consolidated Financial Statements (unaudited) .............. F-10
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.
Harbor Financial, M.H.C has limited assets and liabilities, other than the stock
of Harbor Florida Bancorp, Inc. Accordingly, the financial statements of Harbor
Financial, M.H.C. are omitted due to immateriality.
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 1(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
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30,
June 30, ------------------------------
1997 1996 1995
---- ---- ----
Assets (unaudited)
- ------
<S> <C> <C> <C>
Cash and amounts due from depository institutions ............................ $ 19,472 $ 16,137 $ 9,844
Interest-bearing deposits in other banks ..................................... 15,039 16,350 15,986
Federal funds sold ........................................................... 10,250 16,075 12,825
Investment securities held to maturity (estimated market value
of $14,994 in 1997, $20,016 in 1996 and $25,287 in 1995) .................. 15,000 20,000 25,186
Investment securities available for sale (estimated market value
of $47,493 in 1997 and $33,493 in 1996) ................................... 47,493 33,493 --
Mortgage-backed securities held to maturity (estimated market
value of $157,461 in 1997, $153,288 in 1996 and $165,762
in 1995) .................................................................. 156,559 153,293 164,759
Loans held for sale (estimated market value of $3,090 in 1997,
$4,870 in 1996, and $1,016 in 1995) ....................................... 3,090 4,870 1,009
Loans, net ................................................................... 815,789 765,019 631,306
Accrued interest receivable .................................................. 7,106 6,621 6,001
Real estate owned ............................................................ 2,896 3,118 2,786
Premises and equipment ....................................................... 12,248 10,543 9,835
Federal Home Loan Bank stock ................................................. 7,595 7,158 6,064
Goodwill ..................................................................... 3,100 3,587 --
Other assets ................................................................. 1,081 1,179 969
----------- ----------- -----------
Total assets ................................................... $ 1,116,718 $ 1,057,443 $ 886,570
=========== =========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits .................................................................. $ 904,904 $ 851,853 $ 720,981
Short-term borrowings ..................................................... 30,000 25,000 --
Long-term debt ............................................................ 70,449 70,674 65,974
Advance payments by borrowers for taxes and insurance ..................... 11,610 15,212 16,750
Income taxes payable ...................................................... 919 962 493
Other liabilities ......................................................... 5,130 8,910 4,872
----------- ----------- -----------
Total liabilities .............................................. 1,023,012 972,611 809,070
----------- ----------- -----------
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 4,970,240 shares at June 30, 1997,
4,934,454 shares at September 30, 1996 and 4,910,991 shares
at September 30, 1995 ................................................. 50 49 49
Paid-in capital ........................................................... 26,550 25,339 24,455
Retained earnings, substantially restricted ............................... 68,484 60,893 54,672
Common stock purchased by:
Employee stock ownership plan (ESOP) .................................. (449) (674) (973)
Recognition and retention plans (RRP) ................................. -- (53) (268)
Deferred compensation plan ............................................ (886) (673) (435)
Net unrealized loss on investment securities available for
sale, net of income tax ............................................... (43) (49) --
----------- ----------- -----------
Total stockholders' equity ....................................... 93,706 84,832 77,500
----------- ----------- -----------
Total liabilities and stockholders' equity ....................... $ 1,116,718 $ 1,057,443 $ 886,570
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Nine months ended
June 30 Years ended September 30,
-------------------- ---------------------------------------
1997 1996 1996 1995 1994
Interest income: (unaudited)
<S> <C> <C> <C> <C> <C>
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:
Deposits .............................................. 28,941 25,224 34,440 29,627 23,424
Other ................................................. 4,441 3,429 4,674 3,653 2,852
-------- -------- -------- -------- --------
Total 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 ........... 967
(recovery of) loan losses .................... 28,967 25, 35,319 31,144 28,255
-------- -------- -------- -------- --------
Other income:
Other fees and service charges ........................ 2,478 2,085 2,797 2,566 2,521
Income (losses) 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:
Compensation and employee benefits .................... 8,864 7,947 10,690 10,048 9,433
Occupancy ............................................. 2,100 2,025 2,632 2,291 2,353
Professional fees ..................................... 485 397 527 699 1,137
SAIF deposit insurance premium ........................ 645 1,270 6,300 1,556 1,672
Other ................................................. 3,612 3,012 3,983 3,604 3,271
-------- -------- -------- -------- --------
Total other expense ............................... 15,706 14,651 24,132 18,198 17,866
-------- -------- -------- -------- --------
Income before income taxes ........................ 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
principle ............................................. 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
principle ............................................. -- -- -- -- 1,935
-------- -------- -------- -------- --------
Net income ........................................ $ 9,817 $ 8,250 $ 8,640 $ 9,895 $ 9,797
======== ======== ======== ======== ========
Net income per share .............................. $ 1.96 $ 1.67 $ 1.75 $ 2.03 $ 1.43
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common stock Unrealized
Common Common purchased by gain (loss) on
stock stock deferred securities
Common Paid-in Retained purchased by purchased compensation available
stock capital earnings ESOP by RRP's plan for sale, net Total
----- ------- -------- ---- -------- ------------ ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended
June 30, 1996 (unaudited)
Balance at September 30, 1995 $ 49 $ 24,455 $ 54,672 $ (974) $ (267) $ (435) $ -- $ 77,500
Net income .................. -- -- 8,250 -- -- -- -- 8,250
Stock options exercised ..... -- 219 -- -- -- -- -- 219
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 (unaudited)
Balance at September 30, 1996 $ 49 $ 25,339 $ 60,893 $ (674) $ (53) $ (673) $ (49) $ 84,832
Net income .................. -- -- 9,817 -- -- -- -- 9,817
Stock options exercised ..... 1 357 -- -- -- -- -- 358
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) $ -- $ (886) $ (43) $ 93,706
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
Years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common stock Unrealized
Common Common purchased by gain (loss) on
stock stock deferred securities
Common Paid-in Retained purchased by purchased compensation available
stock capital earnings ESOP by RRP's plan for sale, net Total
----- ------- -------- ------------ -------- -------------- --------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 .. -- -- 40,230 -- -- -- -- $40,230
Net income ..................... -- -- 9,797 -- -- -- -- 9,797
New proceeds on common
stock issued in stock
conversion ................... 22 21,239 -- (1,498) (642) (435) -- 18,686
Stock issued to Mutual Holding
Company ...................... 27 2,628 (2,655) -- -- -- -- --
Cash retained by mutual
holding company .............. -- -- (500) -- -- -- -- (500)
Amortization of award of ESOP
and RRP's .................... -- 108 -- 225 161 -- -- 494
Dividends paid ............... -- -- (456) -- -- -- -- (456)
-------- -------- -------- -------- -------- -------- -------- -------
Balance at September 30, 1994 .. $ 49 $ 23,975 $ 46,416 $ (1,273) $ (481) $ (435) $ -- $68,251
Net income ..................... -- -- 9,895 -- -- -- -- 9,895
Stock options exercised ........ -- 168 -- -- -- -- -- 168
Amortization of award of ESOP
and RRP's .................... -- 264 -- 299 214 -- -- 777
Tax benefit of RRP's ........... -- 48 -- -- -- -- -- 48
Dividends paid ................. -- -- (1,639) -- -- -- -- (1,639)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1995 .. $ 49 $ 24,455 $ 54,672 $ (974) $ (267) $ (435) $ -- $77,500
Net income ..................... -- -- 8,640 -- -- -- -- 8,640
Stock options exercised ........ -- 234 -- -- -- -- -- 234
Amortization of award of ESOP
and RRP's .................... -- 482 -- 300 214 -- -- 996
Tax benefit of RRP's ........... -- 137 -- -- -- -- -- 137
Dividends paid ................. -- -- (2,419) -- -- -- -- (2,419)
Unrealized gain on securities
available for sale, net ...... -- -- -- -- -- -- 126 126
Change in unrealized gain
(loss) on securities available
for sale, net ................ -- -- -- -- -- -- (175) (175)
Tax benefit of non-qualified
stock options ................ -- 31 -- -- -- -- -- 31
Stock purchased by deferred
compensation plan ........... -- -- -- -- -- (238) -- (238)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1996 .. $ 49 $ 25,339 $ 60,893 $ (674) $ (53) $ (673) $ (49) $84,832
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
June 30 Year ended September 30,
----------------------- --------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash provided by operating activities:
Income before extraordinary item and
cumulative effect of change in
accounting principle ................................. $ 9,817 $ 8,250 $ 8,640 $ 9,895 $ 9,203
Adjustments to reconcile net income to
net cash provided by operating
activities:
Prepayment penalty on
extinguishment of FHLB
advances, net of tax .............................. -- -- -- -- (1,342)
Cumulative effect of change in
accounting for income taxes ....................... -- -- -- -- 1,935
Amortization of stock benefit plans ................ 840 745 996 777 494
Tax benefit of stock plans credited to
capital ........................................... 292 168 168 48 --
Originations of loans held for sale ................ (3,939) (6,621) (8,554) (9,929) (11,322)
Proceeds from sale of loans held for
sale .............................................. 5,719 3,463 4,693 8,945 11,440
Purchases of investment securities
held for sale ..................................... -- -- -- -- (15,000)
Proceeds from sale of investment
securities held for sale .......................... -- -- -- -- 14,964
Depreciation and amortization ...................... 820 833 1,104 1,017 1,045
Deferred income tax provision
(benefit) ......................................... 1,787 408 (1,365) 1,559 (1,205)
Increase in deferred loan fees and
costs ............................................. 830 802 1,047 881 1,328
Amortization of deferred loan fees
and costs ......................................... (668) (735) (973) (1,090) (1,732)
Amortization of goodwill ........................... 180 27 71 -- --
Net accretion of other purchase
accounting adjustments ............................ (32) (5) (20) -- --
(Gain) loss on sale of real estate
owned ............................................. (95) (7) 39 (180) (1,062)
Accretion of discount on purchased
loans ............................................. (12) (17) (24) (258) (131)
FHLB stock dividend ................................ -- -- -- -- (132)
Increase in accrued interest receivable ............ (484) (49) (184) (1,277) (138)
Provision for (recovery of) loan
losses ............................................ 456 (149) (76) 460 1,553
Provision for (recovery of) losses on
real estate owned ................................. (20) 67 117 35 (579)
Net decrease in refundable income
taxes ............................................. -- -- -- -- 80
(Increase) decrease in other assets ................ 98 (32) (143) 70 493
Increase (decrease) in income taxes
payable ........................................... (43) (15) 469 267 (318)
Increase (decrease) in other liabilities ........... (5,573) (376) 4,178 (165) (46)
-------- -------- -------- -------- --------
</TABLE>
F-7
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
June 30 Year ended September 30,
----------------------- ----------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities ..................................... 9,973 6,757 10,183 11,055 9,528
------- ------- ------- ------- -------
Cash used by investing activities:
Net increase in loans ............................ (52,686) (58,455) (72,973) (55,545) (25,569)
Purchase of mortgage-backed securities ........... (31,843) (19,430) (29,265) (65,609) (64,166)
Proceeds from principal repayments of
mortgage-backed securities ...................... 28,438 31,108 40,068 20,780 33,432
Proceeds from maturities of investment
securities held to maturity ..................... 20,000 15,876 -- 25,042 10,283
Purchase of investment securities held
to maturity ..................................... (15,000) (17,939) (20,000) (10,000) (5,076)
Proceeds from maturities of investment
securities available for sale ................... 15,528 -- 10,595 -- --
Proceeds from sale of investment
securities available for sale ................... -- 906 6,745 -- --
Purchase of investment securities
available for sale .............................. (29,500) -- (17,939) -- --
Proceeds from sale of real estate owned .......... 1,587 751 1,434 2,022 6,166
Purchase of premises and equipment ............... (2,404) (1,271) (1,423) (2,020) (380)
Proceeds from sale of premises and
equipment ....................................... 1 8 1,590 180 10
FHLB stock purchase .............................. (437) (619) (619) (706) --
Purchase of Treasure Coast Bank, net
of cash acquired ................................ -- (4,451) (4,451) -- --
------- ------- ------- ------- -------
Other ............................................ 306 -- -- -- --
------- ------- ------- ------- -------
Net cash used by investing activities ............ (66,010) (53,516) (86,238) (85,856) (45,300)
------- ------- ------- ------- -------
Cash provided by financing activities:
Net increase in deposits ......................... 53,143 44,010 60,679 47,152 22,737
Net proceeds from short-term
borrowings ...................................... 5,000 (5,000) 15,000 -- (16,215)
Repayments of long-term borrowings ............... (225) (225) (300) (300) 16,498
Net proceeds from long-term
borrowings ...................................... -- 15,000 15,000 20,000 18,186
Increase (decrease) in advance payments
by borrowers for taxes and insurance ............ (3,601) (5,381) (1,995) 697 (752)
Stock dividend paid .............................. (2,226) (1,769) (2,419) (1,639) (456)
Common stock options exercised ................... 358 219 235 168 --
Purchase of common stock by deferred
compensation plan ............................... (213) -- (238) -- --
------- ------- ------- ------- -------
Net cash provided by financing
activities ..................................... 52,236 46,854 85,962 66,078 39,998
------- ------- ------- ------- -------
</TABLE>
F-8
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
June 30 Year ended September 30,
----------------------- --------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net increase (decrease) in cash and
cash equivalents .............................. (3,801) 95 9,907 (8,723) 4,226
Cash and cash equivalents - beginning of
period ............................................. 48,562 38,655 38,655 47,378 43,153
-------- -------- -------- -------- --------
Cash and cash equivalents - end of period ........... $ 44,761 $ 38,750 $ 48,562 $ 38,655 $ 47,379
======== ======== ======== ======== ========
Supplemental disclosures:
$ 33,388 $ 28,842 $ 39,324 $ 33,228 $ 26,263
Cash paid for:
Interest
Taxes .......................................... 4,303 4,647 6,161 4,114 3,952
Noncash investing and financing
activities:
Additions to real estate acquired in
settlement of loans through
foreclosure .................................. 2,200 1,853 2,879 1,312 1,647
Sale of real estate owned financed by
the Bank ..................................... 950 834 1,044 658 6,268
Transfer of investment securities
from held to maturity to available
for sale ..................................... -- 26,011 26,011 -- --
Change in unrealized gain (loss) on
securities available for sale ................ 10 (82) (79) -- --
Change in deferred taxes related to
securities available for sale ................ (4) 31 29 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997 and 1996 (unaudited) and September 30, 1996, 1995, and 1994
(1) Summary of Significant Accounting Policies
(a) Reorganization
On June 25, 1997, Harbor Federal Savings Bank ("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
Harbor Florida Bancorp, Inc. ( the "Company") a Delaware corporation. The
Company 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 the Company's common stock. The
reorganization was accounted for in a manner similar to a pooling of interests
and did not result in any significant accounting adjustments. The consolidated
financial statements for prior periods have been restated to reflect the change
in the par value of the Company common stock from $1.00 to $.01 per share.
Certain conditions were imposed upon the Company 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 Company conducts no business other than holding the common stock of the
Bank. Consequently, its net income is derived from the Bank.
(b) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Harbor Florida Bancorp, Inc. and its wholly-owned subsidiaries. In
consolidation, all significant intercompany accounts and transactions have been
eliminated.
The consolidated financial statements of the Company as of June 30, 1997 and for
the nine months ended June 30, 1997 and 1996 have been prepared by management
without audit and may not be indicative of operations of the Company on an
annualized basis. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) which are necessary for a fair presentation of
results for such interim periods have been made.
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.
F-10
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of June 30, 1997, substantially all of the Company's loans and investment in
real estate owned are secured by real estate in the counties in which the
Company has branch facilities: St. Lucie, Indian River, Brevard, Martin and
Volusia Counties, Florida. Accordingly, the ultimate collectibility of a
substantial portion of the Company'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 the Company's allowances for losses on loans and real estate
owned. Such agencies may require the Company 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 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 Company reverses accrued interest related to loans which are 90 days or more
delinquent or placed on non-accrual status. Such interest is recorded as income
when collected. Amortization of net deferred loans 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 Company 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 Financial Accounting Standards Board (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 Company was permitted to conduct a
one-time reassessment of the classification of all securities held at that time.
Any reclassification 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 Company 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.
F-11
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
The Company does not purchase, sell or utilize off-balance sheet derivative
financial instruments or derivative commodity instruments.
At June 30, 1997 and September 30, 1996 and 1995, the Company 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 allowances for loan losses and net deferred loan origination fees and
discounts.
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 Company to recognize additions
to the allowance based upon their judgments about information available to them
at the time of their examination.
In May 1993, the 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
was effective as of October 1, 1995 for the Company.
Statement 114 is applicable to all creditors and all loans, except those large
groups of smaller-balance homogenous 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 Company
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 loans, 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 Company 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 No.
122, "Accounting for Mortgage Servicing Rights" ("Statement 122") which
eliminated the accounting distinction between rights to service mortgage loans
F-12
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 Company's
financial condition or results of operations upon adoption. Effective January 1,
1997, Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("Statement 125") superseded Statement 122. The impact of Statement 125 was not
significant to the Company's financial position and 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.
(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 Company adopted the provisions of the Statement
of Financial Accounting Standards 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 Company for the year beginning October 1, 1996. As a result,
the Company must change from the reserve method to the specific charge-off
method to compute its bad debt deduction.
The Company 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 Company 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
F-13
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
reserves were approximately $7.1 million and $14.5 million, respectively, at
September 30, 1996 and June 30, 1997. 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 Company 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.
(l) Pension Plan
The Company'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 Company
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 $1.96 and $1.67 based on 4,997,544 and 4,945,763
weighted average number of common and common stock equivalent shares outstanding
for the nine months ended June 30, 1997 and 1996. 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 initial public offering) to September 30, 1994; the impact on net
income per share for such period of the extraordinary item and the cumulative
effect of a change in accounting principle was $ (0.28) and $0.41, respectively.
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 1996, 1995 and 1994 consolidated financial statements
have been reclassified in order to conform to the June 30, 1997 presentation.
F-14
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(p) New Accounting Pronouncements
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 the Company 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 Company will
present required proforma amounts and disclosures under Statement 123 beginning
with the fiscal year ending September 30, 1997.
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 on or
after January 1, 1997 and is to be prospectively applied. Implementation of
Statement 125 did not have a material impact on the financial position or the
results of operations of the Company .
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 Company 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 to be recognized under accounting standards as components of
comprehensive income to be reported in a financial statement with equal
prominence as other financial statements. Such statement will be presented by
the Company beginning with the quarter ended December 31, 1998.
F-15
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 Company is required to report
operating segment information, to the extent such segments are defined,
beginning with the year ended September 30, 1999.
(2) Investment and Mortgage-backed Securities
The amortized cost and estimated market value of investment and mortgage-backed
securities as of June 30, 1997 (unaudited) 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 ................. 94,483 329 -- 94,812
FNMA mortgage-backed
securities ................. 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
---- ----- ------ -----
(In thousands)
Available for sale:
Treasury notes .............. $ 23,457 $ -- $ 110 $ 23,347
FHLB notes .................. 10,000 31 10,031
Other securities ............ 115 -- -- 115
-------- -------- -------- --------
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-16
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The amortized cost and estimated market value of investment and mortgage-backed
securities as of September 30, 1995 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(In thousands)
Held to maturity:
Treasury notes .............. $ 15,028 $ -- $ 58 $ 14,970
FHLB notes .................. 10,000 159 -- 10,159
Other securities ............ 158 -- -- 158
-------- -------- -------- --------
25,186 159 58 25,287
-------- -------- -------- --------
FHLMC mortgage-backed
securities ................. 128,678 363 -- 129,041
FNMA mortgage-backed
securities ................. 36,081 640 -- 36,721
-------- -------- -------- --------
164,759 1,003 -- 165,762
-------- -------- -------- --------
$189,945 $ 1,162 $ 58 $191,049
======== ======== ======== ========
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
--------------------- ---------------------
(unaudited)
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 Company had pledged mortgage-backed securities with a
market value of $506,000 (unaudited) and a carrying value of $497,000
(unaudited) to collateralize the public funds on deposit. As of September 30,
1996, the Company had pledged mortgage-backed securities with a market value of
$609,000 and a carrying value of $608,000 to collateralize the public funds on
deposit. The Company had also pledged mortgage-backed securities with a market
value of $2,130,000 (unaudited) and a carrying value of $2,095,000 (unaudited)
to collateralize Treasury, tax and loan accounts at June 30, 1997. The Company
F-17
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
had pledged mortgage-backed securities with a market value of $2,386,000 and a
carrying value of $2,368,000 to collateralize Treasury, tax and loan accounts at
September 30, 1996.
(3) Loans
Loans are summarized below:
September 30,
June 30 ----------------------
1997 1996 1995
---- ---- ----
(unaudited)
Mortgage loans: (Dollars in thousands)
Construction 1-4 family .............. $ 41,417 $ 43,994 $ 40,634
Permanent 1-4 family ................. 620,066 584,297 487,480
Multi-family ......................... 14,457 17,804 14,916
Nonresidential ....................... 53,006 41,970 31,980
Land ................................. 31,881 29,034 20,460
-------- -------- --------
Total mortgage loans ............. 760,827 717,099 595,470
-------- -------- --------
Other loans:
Commercial nonmortgage ............... 11,446 8,199 8,468
Home improvement ..................... 20,670 20,679 19,198
Manufactured housing ................. 16,046 15,784 15,045
Other consumer ....................... 50,320 44,265 31,049
-------- -------- --------
Total other loans ................ 98,482 88,927 73,760
-------- -------- --------
Total loans receivable ........... 859,309 806,026 669,230
-------- -------- --------
Less:
Loans in process ..................... 28,727 26,788 24,321
Deferred loan fees and discounts ..... 3,385 3,203 3,519
Allowance for loan losses ............ 11,408 11,016 10,083
-------- -------- --------
43,520 41,007 37,923
-------- -------- --------
Total loans receivable, net ...... $815,789 $765,019 631,307
======== ======== ========
Weighted average yield ........... 8.45% 8.54% 8.40%
======== ======== ========
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
June 30, September 30,
------------------- -------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance .............. $ 11,016 $ 10,083 $ 10,083 $ 9,434 $ 7,305
Provision for (recovery of) loan
losses ........................ 456 (149) (76) 460 1,553
Allowance for loan losses
acquired ...................... -- 885 885 -- --
Charge-offs .................... (184) (79) (366) (384) (135)
Recoveries ..................... 120 311 490 573 711
-------- -------- -------- -------- --------
Ending balance ................. $ 11,408 $ 11,051 $ 11,016 $ 10,083 $ 9,434
======== ======== ======== ======== ========
</TABLE>
At June 30, 1997 and September 30, 1996 and 1995 loans with unpaid principal
balances of approximately $2,227,000 (unaudited), $2,172,000 and $3,517,000,
respectively, were 90 days or more contractually delinquent or on nonaccrual
status. Interest income relating to nonaccrual loans not recognized for the nine
months ended
F-18
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997 and 1996 and the years ended September 30, 1996, 1995 and 1994
totaled approximately $87,000 (unaudited), $159,000 (unaudited), $140,000,
$231,000, and $133,000, respectively.
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 $1 million
(unaudited) 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 period ended June 30, 1997 was approximately $809,000
(unaudited) . The total allowance for loan losses related to these loans was
approximately $25,000 (unaudited) on June 30, 1997. Interest income on impaired
loans of approximately $26,000 (unaudited) was recognized for cash payments
received in the nine months ended June 30, 1997.
As of June 30, 1997 and September 30, 1996 and 1995, $1,853,000 (unaudited),
$2,081,000 and $2,295,000, respectively, of loans 90 days or more contractually
delinquent were in the process of foreclosure.
As of June 30, 1997 and September 30, 1996 and 1995, mortgage loans which had
been sold on a recourse basis had outstanding principal balances of $3,562,000
(unaudited), $4,424,000 and $5,788,000, respectively.
Accrued interest receivable is summarized below:
September 30,
June 30, --------------------
1997 1996 1995
---- ---- ----
(unaudited)
(In thousands)
Loans ................................... $5,016 $4,625 3,905
Investment securities ................... 795 676 698
Mortgage-backed securities .............. 1,158 1,190 1,287
FHLB stock dividends .................... 137 130 111
------ ------ ------
$7,106 $6,621 $6,001
====== ====== ======
The Company 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 Company has in particular classes of financial instruments. The
Company uses the same credit policies in making commitments as it does for
on-balance sheet instruments. The Company 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 Company 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 Company 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 $8,878,000 ($2,414,000
fixed rate, interest rates from 6.5% to 8.875%)(unaudited) as of June 30, 1997
and 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 June 30, 1997 and
September 30, 1996, the Company had determined that $17,806,000 (unaudited) and
$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 Company.
F-19
<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:
June 30 September 30,
------------------ ------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
(In thousands)
FHLMC ................... $24,810 $32,207 $30,169 $39,252 $47,946
FNMA .................... 33,232 34,070 33,521 33,961 34,278
Other Investors ......... 3,083 3,105 3,547 3,873 1,050
------- ------- ------- ------- -------
$61,125 $69,382 $67,237 $77,086 $83,274
======= ======= ======= ======= =======
At June 30, 1997 and 1996 and September 30, 1996, 1995 and 1994, 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:
September 30,
June 30 -----------------------
1997 1996 1995
---- ---- ----
(unaudited)
(In thousands)
Real estate acquired in
satisfaction of loans ........... $ 3,620 $ 4,830 $ 4,643
Allowance for losses .............. (724) (1,712) (1,857)
------- ------- -------
$ 2,896 $ 3,118 $ 2,786
======= ======= =======
Activity in the allowance for losses on real estate owned is as follows:
June 30, September 30,
------------------ ------------------------------
1997 1996 1996 1995 1994
(unaudited)
(In thousands)
Beginning balance ....... $ 1,712 $ 1,857 $ 1,857 $ 2,008 $ 4,791
Provision for (recovery
of) losses(a) .......... (20) 67 117 35 (579)
Allowance for losses
acquired ............... -- 21 21 -- --
Charge-offs ............. (968) (243) (283) (186) (2,204)
------- ------- ------- ------- -------
Ending balance .......... $ 724 $ 1,702 $ 1,712 $ 1,857 $ 2,008
======= ======= ======= ======= =======
- -----------
(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.
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.
F-20
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Premises and Equipment
Premises and equipment are summarized as follows:
September 30,
June 30, -----------------------
1997 1996 1995
(unaudited)
(In thousands)
Land ................................. $ 4,832 $ 3,818 $ 3,559
Buildings and leasehold
improvements ....................... 8,474 7,656 6,990
Furniture, fixtures and
equipment .......................... 7,931 7,518 7,161
-------- -------- --------
21,237 18,992 17,710
Less accumulated depreciation
and amortization ................... (8,989) (8,449) (7,875)
-------- -------- --------
$ 12,248 $ 10,543 $ 9,835
======== ======== ========
Depreciation expense for the nine months ended June 30, 1997 and 1996 and the
years ended September 30, 1996, 1995 and 1994 totaled $698,000 (unaudited),
$667,000 (unaudited), $902,000, $729,000, and $746,000, respectively.
F-21
<PAGE>
(7) Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
September 30,
June 30, --------------------------------------------------------
1997 1996 1995
----------------------- ------------------------- --------------------------
(unaudited)
Period-end Period-end Period-end
Amount stated rate Amount stated rate Amount stated rate
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial checking ....................... $ 21,391 $ 19,653 $ 11,228
Noninterest-bearing personal
checking accounts ...................... 18,728 13,961 9,773
NOW ....................................... 53,121 1.40% 54,806 1.51% 44,814 1.57%
Passbook .................................. 77,467 1.73% 77,304 1.78% 80,720 1.97%
Money market checking ..................... 1,486 1.27% 1,625 1.32% 1,838 1.56%
Money market investment ................... 43,939 2.55% 40,936 2.63% 35,025 2.41%
Official checks ........................... 6,098 6,661 5,982
-------- -------- -------
222,230 214,946 189,380
-------- -------- -------
Certificate accounts:
2.01 - 3.00% ....................... 121 307 199
3.01 - 4.00% ....................... 6 1 4,360
4.01 - 5.00% ....................... 89,474 155,121 100,834
5.01 - 6.00% ....................... 545,431 378,999 234,126
6.01 - 7.00% ....................... 47,219 101,780 182,299
7.01 - 8.00% ....................... 423 603 9,174
8.01 - 9.00% ....................... -- 3 61
9.01 - 10.00% ...................... -- -- 548
Premiums on deposits
purchased ........................ -- 93 --
-------- -------- -------
682,674 636,907 531,601
-------- -------- -------
$904,904 $851,853 $720,981
======== ======== ========
Weighted average interest rate ............ 4.47% 4.41% 4.57%
======== ======== ========
</TABLE>
F-22
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Maturities of outstanding certificates of deposit are summarized as follows:
September 30,
June 30 ------------------------
1997 1996 1995
---- ---- ----
(unaudited)
(In thousands)
Less than one year ............. $447,096 $438,168 $332,819
One to three years ............. 195,338 159,085 150,756
Over three years ............... 40,240 39,654 48,026
-------- -------- --------
$682,674 $636,907 $531,601
======== ======== ========
The aggregate amount of certificates of deposit in amounts of $100,000 or more
was approximately $61,540,000 (unaudited) at June 30, 1997 and $56,259,000 at
September 30, 1996. Balances of individual certificates in excess of $100,000
are not federally insured.
Interest expense on deposits is summarized as follows:
Nine months ended
June 30 Years ended September 30,
----------------- --------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
(In thousands)
Passbook accounts ............. $ 1,023 1,142 $ 1,506 $ 1,718 $ 1,934
Now, money market checking, and
money market investment
accounts ................... 1,433 1,189 1,724 1,782 1,923
Certificate accounts .......... 26,485 22,893 31,210 26,127 19,567
------- ------- ------- ------- -------
$28,941 $25,224 $34,440 $29,627 $23,424
======= ======= ======= ======= =======
Early withdrawal penalties for the nine months ended June 30, 1997 and 1996 and
the years ended September 30, 1996, 1995, and 1994 aggregated $146,000
(unaudited), $114,000 (unaudited), $174,000, $229,633 and $123,677,
respectively, and are netted against interest expense on certificate accounts.
Accrued interest payable of $139,720 (unaudited) at June 30, 1997 and $145,831
and $356,269 at September 30, 1996 and 1995,respectively, is included in other
liabilities.
(8) Short-Term Borrowings
At June 30, 1997, short-term borrowings were comprised of $30 million
(unaudited) in advances from the Federal Home Loan Bank (FHLB) due at various
dates through December, 1997, with fixed terms and fixed interest rates of 5.63%
to 5.81%.
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:
September 30,
June 30, -----------------------
1997 1996 1995
(Unaudited)
(Dollars in thousands)
Average balance during
the year ........................... $28,004 $ 5,997 $ 6,767
Average interest rate
during the year .................... 5.55% 5.87% 6.18%
Maximum month-end balance
during the year .................... 40,000 25,000 20,000
F-23
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Long-Term Debt
Long-term debt is summarized as follows:
September 30,
June 30, -----------------
1997 1996 1995
---- ---- ----
(unaudited)
(In thousands)
Advances from the Federal Home Loan Bank
(FHLB), due at various dates through
December 31, 2005, with fixed terms and
fixed interest rates of 5.86% to 6.5% .... $70,000 $70,000 $65,000
ESOP loan, maturing December, 1998 with a
variable interest rate of prime plus .25%,
8.75% at June 30, 1997 and 8.5% at
September 30, 1996 ....................... 449 674 974
------- ------- -------
$70,449 $70,674 $65,974
======= ======= =======
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 Company 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 June 30, 1997 and September 30, 1996 , the FHLB advances and the ESOP loan
have fiscal year maturity dates as follows:
June 30, 1997 September 30, 1996
-------------------- --------------------
Weighted Weighted
Period ending Amount average rate Amount average rate
- ------------- ------ ------------ ------ ------------
(unaudited)
(Dollars in thousands)
1997 ........................... 74 8.75% 299 8.50%
1998 ........................... 300 8.75% 300 8.50%
1999 ........................... 75 8.75% 75 8.50%
2000 ........................... 10,000 6.17% 10,000 6.17%
2001 ........................... 5,000 6.13% 5,000 6.13%
2002 and after ................. 55,000 6.10% 55,000 6.10%
------- ---- ------- ----
$70,449 6.11% $70,674 6.14%
======= ==== ======= ====
In October 1993, the Company 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 income tax benefit of approximately
$810,000) was charged to earnings as anextraordinary loss in 1994.
F-24
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other interest expense is summarized as follows:
Nine months ended
June 30, Years ended September 30,
----------------- --------------------------
1997 1996 1996 1995 1994
(Unaudited)
(In thousands)
Advances from the FHLB ....... $4,397 $3,364 $4,593 $3,546 $2,773
ESOP loan .................... 39 60 76 105 75
Other ........................ 5 5 5 2 4
------ ------ ------ ------ ------
$4,441 $3,429 $4,674 $3,653 $2,852
====== ====== ====== ====== ======
(10) Income Taxes
Income tax expense (benefit) on income from continuing operations is summarized
as follows:
Nine months ended
June 30 Years ended September 30,
------------------ --------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
(In thousands)
Current:
Federal ....... $ 3,637 $ 3,958 $ 5,832 $ 3,766 $ 3,892
State ......... 623 674 965 633 632
--- --- --- --- ---
4,260 4,632 6,797 4,399 4,524
----- ----- ----- ----- -----
Deferred:
Federal ........ 1,824 517 (1,170) 1,334 579
State .......... 255 58 (195) 225 151
--- -- ---- --- ---
2,079 575 (1,365) 1,559 730
----- --- ------ ----- ---
$ 6,339 $ 5,207 $ 5,432 $ 5,958 $ 5,254
======= ======= ======= ======= =======
F-25
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at June 30, 1997 and September 30, 1996 and
1995 are as follows:
September 30,
June 30, --------------------
1997 1996 1995
---- ---- ----
(Unaudited)
(In thousands)
Deferred tax assets:
SAIF special assessment ................. -- 1,929 --
Allowance for bad debts ................. 1,593 1,440 1,652
Valuation of real estate owned .......... 682 704 656
Deferred compensation ................... 673 681 632
Other ................................... 97 100 37
------- ------- -------
3,045 4,854 2,977
Less valuation allowance ................ (250) (250) (250)
------- ------- -------
Total deferred tax assets ........... 2,795 4,604 2,727
------- ------- -------
Deferred tax liability:
Net deferred loan fees and costs ........ 3,326 3,333 3,320
FHLB stock dividend ..................... 840 840 820
Premises and equipment depreciation
difference .......................... 355 355 316
Purchase accounting adjustments ......... 372 350 --
Cash to accrual adjustment .............. 99 132 --
Installment sales ....................... 128 128 275
Other ................................... 16 16 51
------- ------- -------
Total deferred tax liability ........ 5,136 5,154 4,782
------- ------- -------
Net deferred tax liability .......... $ 2,341 $ 550 $ 2,055
======= ======= =======
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:
June 30, September 30,
------------- ----------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
Statutory Federal income
tax rate ............................ 34.0% 34.0% 34.0% 34.0% 34.0%
State Income tax (net of
Federal income tax benefit) ......... 3.6 3.6 3.6 3.6 3.0
Other ................................. 1.6 1.1 1.0 -- (1.0)
---- ---- ---- ---- -----
Effective tax expense rate ............ 39.2% 38.7% 38.6% 37.6% 36.0%
==== ==== ==== ==== ====
Deferred income taxes payable of approximately $2,341,000 (unaudited), $550,000
and $2,055,000 at June 30, 1997 and 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 June 30, 1997 (unaudited) and 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
F-26
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 $5,600,000 at June
30, 1997 and September 30, 1996.
(11) Regulatory Matters
The 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
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off- balance-sheet items as calculated under regulatory
accounting practices. The 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 Bank to maintain minimum amounts and ratios (set forth in the table
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 June 30, 1997,
that the Bank meets all capital adequacy requirements to which it is subject.
As of June 30, 1997 , the most recent notification from the Office of Thrift
Supervision categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the 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.
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Dollars in thousands Actual Adequacy Purpose Action Provisions
- -------------------- ----------------------- -------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of June 30, 1997
- -------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk-
weighted assets) .................... $85,688 14.77% $46,416 >8.0% $58,020 >10.0%
- -
Tier I Capital (to risk-
weighted assets) .................... 78,386 13.51% 23,208 >4.0% 34,812 > 6.0%
- -
Tier I Capital (to
adjusted tangible
assets) ............................. 78,386 7.04% 33,402 >3.0% 55,670 > 5.0%
- -
Tangible Capital (to
adjusted tangible
assets) ............................. 78,386 7.04% 16,701 >1.50% n/a n/a
-
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%
- -
</TABLE>
F-27
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Dollars in thousands Actual Adequacy Purpose Action Provisions
- -------------------- ----------------------- -------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
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>
The following is a reconciliation of the Bank's capital under generally accepted
accounting principles (GAAP) to regulatory capital (in thousands):
<TABLE>
<CAPTION>
Tangible Risk-Based
June 30, 1997 Equity Capital Capital Capital
------------- -------------- ------- -------
<S> <C> <C> <C>
GAAP capital/equity capital ................................................... $ 81,706 $ 81,706 $ 81,706
========
Unrealized loss on investment securities available for sale, net .............. 43 43
Investment in and advance to nonincludable subsidiary
required to be deducted .................................................... (263) (263)
Goodwill ...................................................................... (3,100) (3,100)
General valuation allowance ................................................... -- 7,302
-------- --------
Regulatory capital measure .................................................... $ 78,386 $ 85,688
======== ========
</TABLE>
F-28
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Tangible Risk-Based
September 30, 1996 Equity Capital Capital Capital
------------------ -------------- ------- -------
<S> <C> <C> <C>
GAAP capital/equity capital ................................................... $ 84,832 $ 84,832 $ 84,832
======== -------- --------
Unrealized loss on investment securities available for sale, net .............. 49 49
Investment in and advance to nonincludable subsidiary
required to be deducted .................................................... (264) (264)
Goodwill ...................................................................... (3,587) (3,587)
General valuation allowance ................................................... -- 6,860
-------- --------
Regulatory capital measure .................................................... $ 81,030 $ 87,890
======== ========
</TABLE>
<TABLE>
<CAPTION>
Tangible Risk-Based
September 30, 1995 Equity Capital Capital Capital
------------------ -------------- ------- -------
<S> <C> <C> <C>
GAAP capital/equity capital ................................... $ 77,500 $77,500 $77,500
======== ------- -------
General valuation allowance ................................... -- 5,773
------- -------
Regulatory capital measure .................................... $77,500 $83,273
======= =======
</TABLE>
At June 30, 1997 and September 30, 1996, $7,432,000 (unaudited) and $4,777,864,
respectively, of retained earnings is restricted relating to the dividends on
the Company's shares owned by the Holding Company which have been waived. The
dividend waiver was approved by the OTS and is available only to the Holding
Company . The dividend 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 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.
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 was 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 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.
F-29
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Bank's one-time assessment resulted in a pre-tax charge of approximately
$4,552,000, which was paid on November 27, 1996 and, under provisions of the new
law, was 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 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 June 30, 1997, the Company had irrevocable letters of credit aggregating
approximately $824,000. As of September 30, 1997, the Company had irrevocable
letters of credit aggregating approximately $407,000.
The Company 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 Company 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 Company arises from its purchase from GDC of
land sales contracts originated by GDC. The Company, 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 Company 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 Company and subsidiaries.
(13) Related Party Transactions
Directors, officers and principals of the Company had transactions with the
Company 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:
<TABLE>
<CAPTION>
June 30, September 30,
----------------- ----------------------------
1997 1996 1996 1995 1994
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Outstanding loans - beginning of year $ 1,786 $ 1,478 $ 1,478 $ 1,386 $ 1,749
New loans ........................... 1,608 457 842 176 956
Repayments .......................... (1,469) (308) (534) (84) (1,319)
------- ------- ------- ------- -------
Outstanding balance - end of year ... $ 1,925 $ 1,627 $ 1,786 $ 1,478 $ 1,386
======= ======= ======= ======= =======
</TABLE>
F-30
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company paid legal fees of approximately $128,000 (unaudited) and $92,000
(unaudited) in the nine months ended June 30, 1997 and 1996, respectively, and
$125,000, $159,000 and $129,000 of legal fees in the years ended September 30,
1996, 1995 and 1994, respectively, to a law firm in which a director of the
Company is a partner.
Richard K. Davis, a director of the Company, is also chairman of Richard K.
Davis Construction Corp. In the year ended September 30, 1996, the Company paid
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
Company. This contract, worth $905,499, was awarded 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.
(14) Other Expense
Other expense consists of the following:
Nine months ended
June 30, Years ended September 30,
----------------- ----------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
(In thousands)
Data processing ......... $ 889 $ 821 $1,092 $ 994 $ 881
Advertising ............. 711 593 735 622 506
Postage ................. 261 217 294 252 263
Insurance ............... 140 166 214 216 209
Telephone ............... 205 200 265 252 209
OTS assessment .......... 158 138 190 171 162
Other ................... 1,248 877 1,193 1,097 1,041
------ ------ ------ ------ ------
$3,612 $3,012 $3,983 $3,604 $3,271
====== ====== ====== ====== ======
(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, Interest-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.
F-31
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Short and Long Term Advances from the FHLB - Rates currently available to the
Company 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.
The estimated fair values of the Company's financial instruments at June 30,
1997 and September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
September 30,
June 30 -----------------------------------------------------
1997 1996 1995
---------------------- ------------------------ ------------------------
(Unaudited)
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Assets: (In thousands)
Cash and amounts due from
depository institutions .............. $ 19,472 $ 19,472 $ 16,137 $ 16,137 $ 9,844 $ 9,844
Interest-bearing deposits in
other banks .......................... 15,039 15,039 16,350 16,350 15,986 15,986
Federal funds sold ....................... 10,250 10,250 16,075 16,075 12,825 12,825
Investment securities held to
maturity ............................. 15,000 14,994 20,000 20,016 25,186 25,287
Investment securities
available for sale ................... 47,493 47,493 33,493 33,493 -- --
Mortgage-backed securities
held to maturity ..................... 156,559 157,461 153,293 153,288 164,759 165,762
Loans held for sale ...................... 3,090 3,090 4,870 4,870 1,009 1,016
Loans .................................... 827,197 833,091 776,035 776,346 641,388 653,148
Less allowance for loan
losses ............................... (11,408) -- (11,016) -- (10,082) --
--------- --------- --------- --------- --------- ---------
Loans, net ........................... 815,789 833,091 765,019 776,346 631,306 653,148
--------- --------- --------- --------- --------- ---------
Liabilities
Commercial checking, non-
interest-bearing
personal, NOW,
passbook, money market
accounts and official
checks ............................... 222,230 222,230 214,946 214,946 189,380 189,380
Certificate accounts ..................... 682,674 683,973 636,907 638,592 531,601 536,157
FHLB advances ............................ 100,000 97,664 95,000 91,882 65,000 63,104
ESOP loan ................................ 449 449 674 674 974 974
</TABLE>
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 Company's entire holdings of a particular financial
instrument. Because no market exists for a portion of the Company'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
F-32
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 Company 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 $7,536 (unaudited) and $ 7,406 (unaudited) for the nine months ended
June 30, 1997 and 1996 and $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, 1996 .
The Company 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 June
30, 1997 and September 30, 1996 and 1995, deferred directors fees included in
other liabilities aggregated $213,792 (unaudited), $309,790 and $533,198,
respectively. Directors may elect to have their deferred compensation balance
invested in shares of the Company's common stock. When the Company 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 $213,000 (unaudited) for the nine months ended June 30, 1997 and
$238,000 and $435,000 for the years ended September 30, 1996 and 1994. No shares
were purchased in the nine months ended June 30, 1996 or the year ended
September 30, 1995.
The Company also has a retirement plan for nonemployee directors (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 nine months ended June 30, 1997 and 1996 and the
years ended September 30, 1996, 1995 and 1994, the charge to earnings relating
to the Plan was insignificant.
As part of the reorganization to the stock form of ownership, the Company's
Employee Stock Ownership Plan ("ESOP") purchased 149,800 shares of the Company's
common stock at $10 per share, or $1,498,000, which was funded by a loan from an
unaffiliated lender. The Company makes scheduled cash contributions to the ESOP
sufficient to service the amount borrowed. For the nine months ended June 30,
1997 and 1996 and the years ended September 30, 1996, 1995 and 1994, total
contributions to the ESOP, which were used to fund principal and interest
payments on the ESOP debt, totaled approximately $195,000 (unaudited), $230,000
(unaudited), $375,000, $405,000 and $299,000, respectively. At June 30, 1997,
there were 97,516 (unaudited) allocated shares, 14,994 (unaudited) shares
committed to be released, and 44,926 (unaudited) suspense shares held by the
ESOP. 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 nine months ended June 30, 1997
and 1996, and the years ended September 30, 1996, 1995 and 1994, totaled
$791,000 (unaudited), $618,000 (unaudited), $766,500, $661,000 and $367,000,
respectively.
Additionally, the Company'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 Company. The purchase price of $642,000 was
amortized as compensation expense ratably over the participants' vesting period
of three years.
F-33
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has adopted stock option plans for the benefit of directors,
officers, and other key employees of the Company. The number of shares of common
stock reserved for issuance under the stock option plans is equal to 214,000
shares (137,486 (unaudited) shares outstanding at June 30, 1997 and 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 Company'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 $40.75 per share over varying periods not to
exceed 10 years, depending upon the individual's position in the Company. At
June 30, 1997, 76,040 (unaudited) shares of the stock options had been
exercised, and 53,452 (unaudited) shares of the stock options were exercisable .
The weighted average exercise price of stock options outstanding at June 30,
1997 was $11.62 (unaudited) , and the weighted average remaining exercise period
on such options was approximately seven years.
The Company's 401(k) Profit Sharing Plan and Trust (the "401(k) Plan") covers
all eligible employees of the Company 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 Company. The Company intends
initially to make matching contributions of 25% of the first 6% of each
participant's contributions. For the nine months ended June 30, 1997 and 1996
and the years ended September 30, 1996, 1995 and 1994, the Company's matching
contribution totaled approximately $62,000 (unaudited), $56,000 (unaudited),
$75,000, $72,000 and $53,000, respectively.
(17) Acquisition of Treasure Coast
On June 1, 1996, the Company acquired all of the outstanding common stock of
Treasure Coast Bank, FSB ("Treasure Coast"), a Florida based 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 one branch to the Company'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 Company.
The fair value of assets acquired and liabilities assumed in conjunction with
the acquisition of Treasure Coast was as follows:
F-34
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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
net
Years ending September 30, 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 and as of June 30, 1997 is $3.1 million (unaudited).
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:
F-35
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 31,144 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 nine months ended June 30, 1997 and
the years ended September 30, 1996 and 1995 are as follows (in thousands):
For the Three Months Ended Fiscal 1997
---------------------------------------
June 30 March 31 December 31
------- -------- -----------
Interest income ................... $21,554 $20,723 $20,528
Interest expense .................. 11,447 11,002 10,932
------- ------- -------
Net interest income ............ 10,107 9,721 9,596
Provision for (recovery of)
loan losses .................. 205 126 125
------- ------- -------
Net interest income after
provision for loan losses ... 9,902 9,595 9,471
Total other income ................ 1,041 860 994
Total other expenses .............. 5,318 5,106 5,282
------- ------- -------
Income before income taxes ..... $ 5,625 $ 5,349 $ 5,183
======= ======= =======
Net income ..................... $ 3,416 $ 3,301 $ 3,101
======= ======= =======
Net income per share (1) ....... $ 0.68 $ 0.66 $ 0.62
======= ======= =======
<TABLE>
<CAPTION>
For the Three Months Ended Fiscal 1996
------------------------------------------------------------------
September 30 June 30 March 31 December 31
------------ ------- -------- -----------
<S> <C> <C> <C> <C>
Interest income .......................................... $ 19,885 $ 18,618 $ 18,221 $ 17,632
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 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
======== ======== ======== ========
</TABLE>
F-36
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
For the Three Months Ended Fiscal 1995
--------------------------------------------------------------------
September 30 June 30 March 31 December 31
------------ ------- -------- -----------
<S> <C> <C> <C> <C>
Interest income ....................................... $ 17,348 $ 16,709 $ 15,635 $ 15,191
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 income taxes .......................... $ 4,017 $ 4,155 $ 3,870 $ 3,810
======== ======== ======== ========
Net income ............................................ $ 2,592 $ 2,573 $ 2,399 $ 2,330
======== ======== ======== ========
Net income per share (1) .............................. $ 0.53 $ 0.53 $ 0.49 $ 0.48
======== ======== ======== ========
</TABLE>
- --------
(1) Earnings per share was computed by dividing net income by the weighted
average number of shares of common stock outstanding during the quarters
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.
(19) Subsequent Event (unaudited)
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 of Harbor Florida Bancorp, Inc. 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.
Direct costs of the sale of stock, if completed, will be recorded as a reduction
in proceeds from the sale of stock and applied to paid in capital. If the sale
of stock is not completed, such costs will be charged to expense. At June 30,
1997, no such costs had been incurred.
The Plan of Conversion 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 (1) 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 Mutual
Holding Company 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 plus the amounts distributed to the
mid-tier holding company by the Bank at the formation of the Mid-tier Holding
Company. 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 Bank as the sole stockholder of the Bank.
F-37
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For a period of one year after the date of the Conversion, total dividends paid
to stockholders must not exceed the net income of the Company during the one
year period.
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 the period following completion of the Conversion.
F-38
<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 Bancshares.
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 Bancshares 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 BANCSHARES, INC...............................1
HARBOR FLORIDA BANCORP, INC..................................1
HARBOR FEDERAL SAVINGS BANK..................................1
HARBOR FINANCIAL, M.H.C......................................2
THE CONVERSION...............................................2
SELECTED CONSOLIDATED FINANCIAL DATA........................17
RECENT DEVELOPMENTS.........................................21
RISK FACTORS................................................25
HARBOR FLORIDA BANCSHARES,
INC.......................................................32
HARBOR FLORIDA BANCORP, INC.................................33
HARBOR FEDERAL SAVINGS BANK.................................35
HARBOR FINANCIAL, M.H.C.....................................37
HARBOR FINANCIAL, M.H.C.....................................37
USE OF PROCEEDS.............................................37
DIVIDEND POLICY.............................................38
MARKET FOR COMMON STOCK.....................................39
CAPITALIZATION..............................................41
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE.................44
PRO FORMA DATA..............................................46
HARBOR FLORIDA BANCORP, INC. CONSOLIDATED
CONDENSED STATEMENTS OF EARNINGS..........................51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................54
BUSINESS OF HARBOR FLORIDA BANCSHARES, INC..................72
BUSINESS OF HARBOR FLORIDA BANCORP, INC.....................73
BUSINESS OF HARBOR FEDERAL SAVINGS BANK.....................75
REGULATION.................................................111
MANAGEMENT OF BANCSHARES...................................124
MANAGEMENT OF THE BANK.....................................125
BENEFICIAL OWNERSHIP OF COMMON STOCK.......................141
PROPOSED SUBSCRIPTIONS BY DIRECTORS AND
EXECUTIVE OFFICERS.......................................143
THE CONVERSION AND REORGANIZATION..........................144
COMPARISON OF STOCKHOLDERS'
RIGHTS IN BANCORP AND
BANCSHARES...............................................171
RESTRICTIONS ON ACQUISITION
OF THE COMPANY...........................................172
DESCRIPTION OF CAPITAL STOCK
OF BANCSHARES............................................178
LEGAL AND TAX MATTERS......................................181
EXPERTS....................................................182
REGISTRATION REQUIREMENTS..................................182
ADDITIONAL INFORMATION.....................................182
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 Bancshares Inc.'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,
II-1
<PAGE>
his testator or intestate is or was an employee or agent of the Corporation or
is 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.
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.
II-2
<PAGE>
3.3 Proposed Certificate of Incorporation of Harbor Florida Bancshares,
Inc.
3.4 Proposed bylaws of Harbor Florida Bancshares, Inc.
3.5 Proposed Federal stock charter of Harbor Florida Bancorp, Inc.
4 Form of Stock Certificate of Harbor Florida Bancshares 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 Form of 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
23.4 Consent of Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth, P.A.
(reference is made to Exhibit 8.2)
*24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule
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.
II-3
<PAGE>
99.4 Miscellaneous Solicitation and Marketing Materials
*99.5 Appraisal Report, without exhibits
- -----------
* Previously Filed
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.
II-4
<PAGE>
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 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
November 10, 1997.
HARBOR FLORIDA BANCSHARES, INC.
By: /s/
-----------------------------------
Michael J. Brown, Sr.
Director, President and Chief
Executive Officer
(Duly Authorized Representative)
<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/ President, Chief 11/10/97
- --------------------- Executive Officer and Director
Michael J. Brown, Sr.
/s/ Senior Vice President 11/10/97
- --------------------- Chief Financial Officer
Don W. Bebber
/s/* Chairman 11/10/97
- ---------------------
Edward G. Enns
/s/* Vice Chairman 11/10/97
- ---------------------
Bruce R. Abernethy, Sr.
/s/* Director 11/10/97
- ---------------------
Richard N. Bird
/s/* Director 11/10/97
- ---------------------
Richard B. Hellstrom
/s/* Director 11/10/97
- ---------------------
Richard K. Davis
/s/* Director 11/10/97
- ---------------------
Frank N. Fee III
* Michael J. Brown, Sr.
Attorney-in-Fact
Exhibit 1.2
HARBOR FLORIDA BANCSHARES, INC.
Up to 24,763,483 Shares
COMMON STOCK
($.001 Par Value)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
____________, 1997
Friedman, Billings, Ramsey & Co., Inc.
1001 Nineteenth Street North
Arlington, Virginia 22209
Ladies and Gentlemen:
Harbor Florida Bancorp, Inc. and Harbor Florida Bancshares, Inc., a
Delaware corporation (the "Company"), Harbor Financial, M.H.C. (the "MHC") and
Harbor Federal Savings Bank, Fort Pierce, Florida, a federal stock savings bank
(the "Bank"), with its deposit accounts insured by the Savings Association
Insurance Fund ("SAIF") administered by the Federal Deposit Insurance
Corporation ("FDIC"), hereby confirm their agreement with Friedman, Billings,
Ramsey & Co., Inc. (the "Agent") as follows (defined terms used herein shall
have the same definition given in the Prospectus dated ____________, 1997 unless
otherwise defined herein):
Section 1. The Offering. Harbor Florida Bancorp, Inc., a Delaware
corporation, will convert first to a federal stock holding company and
thereafter to an interim federal stock savings bank. Thereafter, it will merge
into the Bank. The MHC, in accordance with its Plan of Conversion and
Reorganization adopted by its Board of Directors (the "Plan"), intends to
convert to an interim federal stock savings bank and merge with and into the
Bank, pursuant to which the MHC will cease to exist (the "Conversion"). In
connection therewith, each stockholder other than the MHC immediately prior to
the Conversion ("Public Stockholders") will receive Exchange Shares of the
Company's common stock ("Common Stock," or "Shares") pursuant to a ratio that
will result in Public Stockholders owning in the aggregate immediately after the
Conversion the same percentage of the outstanding shares of Common Stock, before
giving effect to (a) the payment of cash in lieu of fractional shares and (b)
the purchase by such stockholders of additional shares of Common Stock in the
Offering.
Pursuant to the Plan and in connection with the Conversion, the Company is
offering up to 15,208,750 shares of its common stock (the "Conversion Stock") in
a subscription and
<PAGE>
community offering (the "Offerings"). Conversion Stock is first being offered in
a subscription offering with nontransferable subscription rights being granted,
in the following order of priority, to (i) 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) the Bank's ESOP; (iii) 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"); (iv) depositors of the Bank
as of the close of business on ______________, 1997 (other than Eligible Account
Holders and Supplemental Eligible Account Holders) and certain borrowers ("Other
Members") and (v) stockholders of the Company, other than the Mutual Holding
Company ("Public Stockholders"). 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 in the
Community Offering to certain members of the general public to whom a copy of
the Prospectus is delivered, with preference given to natural persons residing
in the 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 Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-_____) (the
"Registration Statement") containing a prospectus relating to the Offerings for
the registration of the Shares under the Securities Act of 1933 (the "1933
Act"), and has filed such amendments thereof, if any, and such amended
prospectuses as may have been required to the date hereof. The prospectus, as
amended, on file with the Commission at the time the Registration Statement
initially became effective is hereinafter called the "Prospectus," except that
if any prospectus is filed by the Company pursuant to Rule 424(b) or (c) of the
rules and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations") differing from the prospectus on file at the time the Registration
Statement initially becomes effective, the term "Prospectus" shall refer to the
prospectus filed pursuant to Rule 424(b) or (c) from and after the time said
prospectus is filed with the Commission.
In accordance with the regulations of the Office of Thrift Supervision
("OTS") governing the conversions of savings associations (the "Conversion
Regulations"), the MHC has filed with the OTS an Application for Conversion on
Form AC (the "Conversion Application"), including the prospectus, and has filed
such amendments thereto, if any, as may have been required by the OTS. The
Conversion Application has been approved by the OTS and the related Prospectus
has been authorized for use by the OTS.
Section 2. Retention of the Agent; Compensation; Sale and Delivery of the
Shares. Subject to the terms and conditions herein set forth, the Company, the
MHC and the Bank hereby appoint the Agent as their financial advisor and
marketing agent to utilize its best efforts to solicit subscriptions for Shares
of the Company's Common Stock and to advise and assist the Company
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<PAGE>
and the Bank with respect to the Company's sale of the Shares in the Offerings
and in the areas of market making, research coverage and syndicate formation (if
necessary).
On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, the Agent
accepts such appointment and agrees to consult with and advise the Company, the
MHC and the Bank as to the matters set forth in the letter agreement ("Letter
Agreement"), dated September 8, 1997, between the Bank and the Agent (a copy of
which is attached hereto as Exhibit A). It is acknowledged by the Company, the
MHC and the Bank that the Agent shall not be required to purchase any Shares and
shall not be obligated to take any action which is inconsistent with all
applicable laws, regulations, decisions or orders. In the event of a Community
Offering, the Agent will assemble and manage a selling group of broker-dealers
which are members of the National Association of Securities Dealers, Inc. (the
"NASD") to participate in the solicitation of purchase orders for shares under a
selected dealers' agreement ("Selected Dealers' Agreement"), the form of which
is set forth as Exhibit B to this Agreement.
The obligations of the Agent pursuant to this Agreement shall terminate
upon the completion or termination or abandonment of the Plan by the Company or
upon termination of the Offerings, but in no event later than 45 days after the
completion of the Subscription Offering (the "End Date"). All fees or expenses
due to the Agent but unpaid will be payable to the Agent in next day funds at
the earlier of the Closing Date (as hereinafter defined) or the End Date. In the
event the Offerings are extended beyond the End Date, the Company, the MHC, the
Bank and the Agent may agree to renew this Agreement under mutually acceptable
terms.
In the event the Company is unable to sell a minimum of 9,775,000 Shares
within the period herein provided, this Agreement shall terminate and the
Company shall refund to any persons who have subscribed for any of the Shares,
the full amount which it may have received from them plus accrued interest as
set forth in the Prospectus; and none of the parties to this Agreement shall
have any obligation to the other parties hereunder, except as set forth in this
Section 2 and in Sections 6, 8 and 9 hereof.
In the event the Offerings are terminated for any reason not attributable
to the action or inaction of the Agent, the Agent shall be paid the fees due to
the date of such termination pursuant to subparagraphs (a) and (b) below.
If all conditions precedent to the consummation of the Conversion,
including, without limitation, the sale of all Shares required by the Plan to be
sold, are satisfied, the Company agrees to issue, or have issued, the Shares
sold in the Offering and to release for delivery certificates for such Shares on
the Closing Date (as hereinafter defined) against payment to the Company by any
means authorized by the Plan, provided, however, that no funds shall be released
to the Company until the conditions specified in Section 7 hereof shall have
been complied with to the reasonable satisfaction of the Agent and their
counsel. The release of Shares against payment therefor shall
3
<PAGE>
be made on a date and at a place acceptable to the Company, the MHC, the Bank
and the Agent (it being understood that such date shall not be more than ten
business days after termination of the Offering) or such other time or place as
shall be agreed upon by the Company, the MHC, the Bank and the Agent.
Certificates for shares shall be delivered directly to the purchasers in
accordance with their directions. The date upon which the Company shall release
or deliver the Shares sold in the Offering, in accordance with the terms herein,
is called the "Closing Date."
The Agent shall receive the following compensation for its services
hereunder:
(a) A management fee to the Agent in the amount of $50,000, of which
$25,000 has been paid and of which $25,000 will be paid upon OTS approval
of the Plan application. Such fees shall be deemed to be earned when due.
Should the Conversion be terminated for any reason not attributable to the
action or inaction of the Agent, the Agent shall have earned and be
entitled to be paid fees accruing through the stage at which point the
termination occurred, including any accrued legal fees expanded by the
Agent.
(b) 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, 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.
(c) The decision to utilize other selected Broker-Dealers will be made
jointly by the Agent and the Bank. Selected broker-dealers who assist in
the subscription or purchase, excluding those shares purchased by the
Bank's officers, directors or employees or by any ESOP, tax-qualified or
stock based compensation plans (except IRA's) or similar plan created by
the Bank for some or all of its directors or employees or by member
depositors in the original subscription phase of the offering, will be paid
a fee not to exceed 4% of the aggregate Actual Purchase Price of the shares
of common stock sold by them in the Subscription and/or Community
Offerings. The Agent's fee for such shares shall equal 1.5% of the
aggregate Actual Purchase Price of the shares of common stock sold by
selected broker-dealers in the Subscription and/or Community Offering. Fees
with respect to subscriptions or purchases effected with the assistance of
Registered Representatives employed by a Broker/Dealer other than the Agent
shall be paid to the Agent at Closing and then transmitted by the Agent to
such Broker/Dealer.
(d) The Bank and the Company hereby agree to reimburse the Agent, from
time to time upon the Agent's request, for its reasonable out-of-pocket
expenses,
4
<PAGE>
including without limitation, accounting, communication, travel expenses,
and legal fees and expenses, for amounts not to exceed $70,000. Further,
the Bank will reimburse the Agent for (i) up to $50,000 of legal fees, and
(ii) expenses of such counsel. The Bank will bear the expenses of the
Offerings customarily borne by issuers including, without limitation,
OTS, SEC, "Blue Sky," and NASD filing and registration fees; the fees of
the Bank's accountants, conversion agent, data processor, attorneys,
appraiser, transfer agent and registrar, printing, mailing and marketing
expenses associated with the Conversion; and the fees set forth under this
Section 2.
Full payment of the Agent's actual and accountable expenses, advisory fees
and compensation shall be made in next day funds on the earlier of the Closing
Date or a determination by the Bank to terminate or abandon the Plan.
In the event of an oversubscription or other event, which causes the
Offerings to continue beyond the original expiration date or a resolicitation of
subscribers, the parties agree to renegotiate the expense cap on legal fees
applicable to the Agent.
Section 3. Prospectus; Offering. The Shares are to be initially offered in
the Offerings at the Purchase Price as defined and set forth on the cover page
of the Prospectus.
Section 4. Representations and Warranties. The Company, the MHC and the
Bank jointly and severally represent and warrant to the Agent on the date hereof
as follows:
(a) The Registration Statement was declared effective by the
Commission on _________, 1997. At the time the Registration Statement,
including the Prospectus contained therein (including any amendment or
supplement thereto), became effective, the Registration Statement complied
in all material respects with the requirements of the 1933 Act and the 1933
Act Regulations and the Registration Statement, including the Prospectus
contained therein (including any amendment or supplement thereto), and any
information regarding the Company or the Bank contained in Sales
Information (as such term is defined in Section 8 hereof) authorized by the
Company or the Bank for use in connection with the Offerings, did not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and at the time any Rule 424(b) or (c) Prospectus was filed
with the Commission and at the Closing Date referred to in Section 2, the
Registration Statement, including the Prospectus contained therein
(including any amendment or supplement thereto), any information regarding
the Company or the Bank contained in Sales Information (as such term is
defined in Section 8 hereof) authorized by the Company or the Bank for use
in connection with the Offerings will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements
5
<PAGE>
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties in
this Section 4(a) shall not apply to statements or omissions made in
reliance upon and in conformity with written information furnished to the
Company or the Bank by the Agent expressly regarding the Agent for use in
the Prospectus under the caption "The Conversion-Marketing Arrangements" or
statements in or omissions from any Sales Information or information filed
pursuant to state securities or blue sky laws or regulations regarding the
Agent.
(b) The Conversion Application was approved by the OTS on _________,
1997 and the related Prospectus has been authorized for use by the OTS. At
the time of the approval of the Conversion Application, including the
Prospectus (including any amendment or supplement thereto), by the OTS and
at all times subsequent thereto until the Closing Date, the Conversion
Application, including the Prospectus (including any amendment or
supplement thereto), will comply in all material respects with the
Conversion Regulations except to the extent waived by the OTS. The
Conversion Application, including the Prospectus (including any amendment
or supplement thereto), does not include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that the
representations and warranties in this Section 4(b) shall not apply to
statements or omissions made in reliance upon and in conformity with
written information furnished to the Company, the MHC or the Bank by the
Agent expressly regarding the Agent for use in the Prospectus contained in
the Conversion Application under the caption "The Conversion-Marketing
Arrangements" or statements in or omissions from any sales information or
information filed pursuant to state securities or blue sky laws or
regulations regarding the Agent.
(c) No order has been issued by the OTS preventing or suspending the
use of the Prospectus and no action by or before any such government entity
to revoke any approval, authorization or order of effectiveness related to
the Conversion is, to the best knowledge of the Company, the MHC or the
Bank, pending or threatened.
(d) At the Closing Date referred to in Section 2, the Plan will have
been adopted by the Boards of Directors of the Company, the MHC and the
Bank and the offer and sale of the Shares will have been conducted in all
material respects in accordance with the Plan, the Conversion Regulations,
and all other applicable laws, regulations, decisions and orders, including
all terms, conditions, requirements and provisions precedent to the
Conversion imposed upon the Company, the MHC or the Bank by the OTS, the
Commission or any other regulatory authority and in the manner described in
the Prospectus. To the best knowledge of the Company, no person has sought
to obtain review of the final action of the OTS in approving or taking no
objection to the Plan or in
6
<PAGE>
approving or taking no objection to the Conversion or the Holding Company
Application pursuant to the Conversion Regulations or any other statute or
regulation.
(e) The Bank has been organized and is a validly existing federally
chartered savings and loan association in stock form of organization and
upon the Conversion will continue as such, is duly authorized to conduct
its business and own its property as described in the Registration
Statement and the Prospectus; the Bank has obtained all material licenses,
permits and other governmental authorizations currently required for the
conduct of its business; all such licenses, permits and governmental
authorizations are in full force and effect, and the Bank is in all
material respects complying with all laws, rules, regulations and orders
applicable to the operation of its business; the Bank is existing under the
laws of the United States and is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which its
ownership of property or leasing or property or the conduct of its business
requires such qualification, unless the failure to be so qualified in one
or more of such jurisdictions would not have a material adverse effect on
the condition, financial or otherwise, or the business, operations or
income of the Bank. The Bank does not own equity securities or any equity
interest in any other business enterprise except as described in the
Prospectus or as would not be material to the operations of the Bank. Upon
completion of the sale by the Company of the Shares contemplated by the
Prospectus, (i) all of the authorized and outstanding capital stock of the
Bank will continue to be owned by the Company, and (ii) the Company will
have no direct subsidiaries other than the Bank. The Conversion will have
been effected in all material respects in accordance with all applicable
statutes, regulations, decisions and orders; and, except with respect to
the filing of certain post-sale, post-Conversion reports, and documents in
compliance with the 1933 Act Regulations or the OTS' resolutions or letters
of approval or no objection taken, all terms, conditions, requirements and
provisions with respect to the Conversion (except those that are conditions
subsequent) imposed by the Commission or the OTS, if any, will have been
complied with by the Company, the MHC and the Bank in all material respects
or appropriate waivers will have been obtained and all material notice and
waiting periods will have been satisfied, waived or elapsed.
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus, and the Company is qualified to do business as a foreign
corporation in each jurisdiction in which the conduct of its business
requires such qualification, except where the failure to so qualify would
not have a material adverse effect on the condition, financial or
otherwise, or the business, operations or income of the Company. The
Company has obtained all material licenses, permits and other governmental
authorizations currently required for the conduct of its business; all such
licenses, permits and governmental authorizations are in full force and
7
<PAGE>
effect, and the Company is in all material respects complying with all
laws, rules, regulations and orders applicable to the operation of its
business.
(g) The MHC has been duly organized and is a validly existing
federally chartered mutual holding company, with corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus, and
the MHC is qualified to do business as a foreign corporation in each
jurisdiction in which the conduct of its business requires such
qualification, except where the failure to so qualify would not have a
material adverse effect on the condition, financial or otherwise, or the
business, operations or income of the MHC. The MHC has obtained all
material licenses, permits and other governmental authorizations currently
required for the conduct of its business; all such licenses, permits and
governmental authorizations are in full force and effect, and the MHC is in
all material respects complying with all laws, rules, regulations and
orders applicable to the operation of its business.
(h) The Bank is a member of the Federal Home Loan Bank of Atlanta
("FHLB-Atlanta"). The deposit accounts of the Bank are insured by the FDIC
up to the applicable limits; and no proceedings for the termination or
revocation of such insurance are pending or, to the best knowledge of the
Company, the MHC or the Bank, threatened. Upon consummation of the
Conversion, the liquidation account for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders will be duly established
in accordance with the requirements of the Conversion Regulations.
(i) The Company, the MHC and the Bank have good and marketable title
to all real property and other assets material to the business of the
Company, the MHC and the Bank and to those properties and assets described
in the Registration Statement and Prospectus as owned by them, free and
clear of all liens, charges, encumbrances or restrictions, except such as
are described in the Registration Statement and Prospectus or are not
material to the business of the Company, the MHC and the Bank taken as a
whole; and all of the leases and subleases material to the business of the
Company, the MHC and the Bank under which the Company, the MHC or the Bank
hold properties, including those described in the Registration Statement
and Prospectus, are in full force and effect.
(j) The Company, the MHC and the Bank have received an opinion of
their special counsel, Peabody & Brown, with respect to the federal income
tax consequences of the conversion of the MHC from mutual to stock form,
and the sale of the Shares as described in the Registration Statement and
the Prospectus, and an opinion from Dean, Mead, Egerton, Bloodworth,
Capouano & Bozarth, P.C. ("Dean, Mead") with respect to the Florida state
income tax consequences of the proposed transaction; all material aspects
of the opinions of Peabody & Brown and Dean, Mead are accurately summarized
in the
8
<PAGE>
Prospectus; and the facts and representations upon which such opinions are
based are truthful, accurate and complete.
(k) The Company, the MHC and the Bank have all such power, authority,
authorizations, approvals and orders as may be required to enter into this
Agreement, to carry out the provisions and conditions hereof and to issue
and sell the Shares to be sold by the Company as provided herein and as
described in the Prospectus.
(l) The Company, the MHC and the Bank are not in violation of any
directive received from the OTS, the FDIC, or any other agency to make any
material change in the method of conducting their businesses so as to
comply in all material respects with all applicable statutes and
regulations (including, without limitation, regulations, decisions,
directives and orders of the OTS and the FDIC) and, except as set forth in
the Registration Statement and the Prospectus, there is no suit or
proceeding or charge or action before or by any court, regulatory authority
or governmental agency or body, pending or, to the knowledge of the
Company, the MHC and the Bank, threatened, which might materially and
adversely affect the Conversion, the performance of this Agreement or the
consummation of the transactions contemplated in the Plan and as described
in the Registration Statement and the Prospectus or which might result in
any material adverse change in the condition (financial or otherwise),
earnings, capital or properties of the Company, or the Bank, or which would
materially affect their properties and assets.
(m) The financial statements which are included in the Prospectus
fairly present the financial condition, results of operations, retained
earnings and cash flows of the Company and/or the Bank (as applicable) at
the respective dates thereof and for the respective periods covered thereby
and comply as to form in all material respects with the applicable
accounting requirements of Titles 12 and 17 of the Code of Federal
Regulations and generally accepted accounting principles (including those
requiring the recording of certain assets at their current market value).
Such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied through the periods
involved, present fairly in all material respects the information required
to be stated therein and are consistent with the most recent financial
statements and other reports filed by the Bank with the OTS and the FDIC,
except that accounting principles employed in such regulatory filings
conform to the requirements of such authorities and not necessarily to
generally accepted accounting principles. The other financial, statistical
and pro forma information and related notes included in the Prospectus
present fairly the information shown therein on a basis consistent with the
audited and unaudited financial statements of the Company and/or the Bank
(as applicable) included in the Prospectus, and as to the pro forma
adjustments, the adjustments made therein have been properly applied on the
basis described therein.
9
<PAGE>
(n) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus; (i) there has not been any
material adverse change, financial or otherwise, in the condition of the
Company, the MHC, the Bank or in the earnings, capital or properties of the
Company, the MHC or the Bank, whether or not arising in the ordinary course
of business; (ii) there has not been any material increase in the long-term
debt of the Bank or in loans past due 90 days or more or real estate
acquired by foreclosure, by deed-in-lieu of foreclosure or deemed
in-substance foreclosure or any material decrease in surplus and reserves
or total assets of the Bank nor has the Company or the Bank issued any
securities or incurred any liability or obligation for borrowing other than
in the ordinary course of business; (iii) there have not been any material
transactions entered into by the Company, the MHC or the Bank, except with
respect to those transactions entered into in the ordinary course of
business; (iv) the capitalization, liabilities, assets, properties and
business of the Company, the MHC and the Bank conform in all material
respects to the descriptions thereof contained in the Prospectus; and (v)
neither the Company, the MHC nor the Bank has any material contingent
liabilities, except as set forth in the Prospectus.
(o) As of the date hereof and as of the Closing Date, neither the
Company, the MHC nor the Bank is in violation of its articles of
incorporation or bylaws or charter or bylaws, as applicable, or in default
in the performance or observance of any material obligation, agreement,
covenant, or condition contained in any material contract, lease, loan
agreement, indenture or other instrument to which it is a party or by which
it or any of its property may be bound; the consummation of the Conversion,
the execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated have been duly and
validly authorized by all necessary corporate action on the part of the
Company and the Bank and this Agreement has been validly executed and
delivered by the Company, the MHC and the Bank and is the valid, legal and
binding Agreement of the Company, the MHC and the Bank enforceable in
accordance with its terms, except as the enforceability thereof may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium,
conservatorship, receivership or other similar laws now or hereafter in
effect relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of Federal savings institutions and
their holding companies, (ii) general equitable principles, (iii) laws
relating to the safety and soundness of insured depository institutions,
and (iv) applicable law or public policy with respect to the
indemnification and/or contribution provisions contained herein, and except
that no representation or warranty need be made as to the effect or
availability of equitable remedies or injunctive relief (regardless of
whether such enforceability is considered in a proceeding in equity or at
law). The consummation of the transactions herein contemplated will not:
(i) conflict with or constitute a breach of, or default under, the articles
of incorporation and bylaws of the Company or the charters and bylaws of
the Bank or the MHC (in either mutual or capital stock form), or any
material contract, lease or other instrument to which the Company, the MHC
or the Bank has a beneficial interest,
10
<PAGE>
or any applicable law, rule, regulation or order; (ii) violate any
authorization, approval, judgment, decree, order, statute, rule or
regulation applicable to the Company, the MHC or the Bank, except for such
violations which would not have a material adverse effect on the financial
condition and results of operations of the Company, the MHC and the Bank on
a consolidated basis; or (iii) with the exception of the liquidation
account established in the Conversion, result in the creation of any
material lien, charge or encumbrance upon any property of the Company, the
MHC or the Bank.
(p) No default exists, and no event has occurred which with notice or
lapse of time, or both, would constitute a default on the part of the
Company, the MHC or the Bank, in the due performance and observance of any
term, covenant or condition of any indenture, mortgage, deed of trust,
note, bank loan or credit agreement or any other instrument or agreement to
which the Company, the MHC or the Bank is a party or by which any of them
or any of their property is bound or affected except such defaults which
would not have a material adverse effect on the financial condition or
results of operations of the Company, the MHC and the Bank on a
consolidated basis; such agreements are in full force and effect; and no
other party to any such agreements has instituted or, to the best knowledge
of the Company, the MHC or the Bank, threatened any action or proceeding
wherein the Company, the Bank or the MHC would or might be alleged to be in
default thereunder under circumstances where such action or proceeding, if
determined adversely to the Company, the MHC or the Bank, would have a
material adverse effect on the Company, the MHC and the Bank, taken as a
whole.
(q) Upon consummation of the Conversion, the authorized, issued and
outstanding equity capital of the Company will be within the range set
forth in the Prospectus under the caption "Capitalization"; the Shares will
have been duly and validly authorized for issuance and, when issued and
delivered by the Company pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan and in the Prospectus,
will be duly and validly issued, fully paid and non-assessable; no
preemptive rights exist with respect to the Shares; and the terms and
provisions of the Shares will conform in all material respects to the
description thereof contained in the Registration Statement and the
Prospectus. To the best knowledge of the Company, the MHC and the Bank,
upon the issuance of the Shares, good title to the Shares will be
transferred from the Company to the purchasers thereof against payment
therefor, subject to such claims as may be asserted against the purchasers
thereof by third-party claimants.
(r) No approval of any regulatory or supervisory or other public
authority is required in connection with the execution and delivery of this
Agreement or the issuance of the Shares, except for the approval or
non-objection, as applicable, of the Commission, the OTS, and any necessary
qualification, notification, registration or exemption under the securities
or blue sky laws of the various states in which the Shares are to be
offered, and
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except as may be required under the rules and regulations of the NASD
and/or the Nasdaq National Market.
(s) KPMG Peat Marwick, LLP ("KPMG"), which has certified the financial
statements of the Bank included in the Prospectus as of June 30, 1997 and
1996 and for each of the years in the three year period ended June 30,
1997, has advised the Company, the MHC and the Bank in writing that they
are, with respect to the Company, the MHC and the Bank, independent public
accountants within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants and Title 121 of the
Code of Federal Regulations and Section 571.2(c)(3).
(t) RP Financial, LC which has prepared the Bank's Conversion
Valuation Appraisal Report as of ______, 1997 (as amended or supplemented,
if so amended or supplemented) (the "Appraisal"), has advised the Company
in writing that it is independent of the Company, the MHC and the Bank
within the meaning of the Conversion Regulations.
(u) The Company, the MHC and the Bank have timely filed all required
federal, state and local tax returns; the Company, the MHC and the Bank
have paid all taxes that have become due and payable in respect of such
returns, except where permitted to be extended, have made adequate reserves
for similar future tax liabilities and no deficiency has been asserted with
respect thereto by any taxing authority.
(v) The Company, the MHC and the Bank are in compliance in all
material respects with the applicable financial recordkeeping and reporting
requirements of the Currency and Foreign Transactions Reporting Act of
1970, as amended, and the regulations and rules thereunder.
(w) To the knowledge of the Company, the MHC and the Bank, neither the
Company, the MHC, the Bank nor employees of the Company, the MHC or the
Bank have made any payment of funds of the Company, the MHC or the Bank as
a loan for the purchase of the Shares (other than a loan by the Company to
the ESOP) or made any other payment of funds prohibited by law, and no
funds have been set aside to be used for any payment prohibited by law.
(x) Prior to the Conversion, the Bank had ___________ shares of
authorized capital stock, of which _________ shares were issued and
outstanding, the Company had ______ shares of authorized capital stock, of
which ________ shares were issued and outstanding and the MHC was not
authorized to issue shares. Neither the Bank, the Company nor the MHC has:
(i) other than as described in the Prospectus issued any securities within
the last 18 months (except for notes to evidence other bank loans and
reverse repurchase agreements or other liabilities in the ordinary course
of business or as
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described in the Prospectus); (ii) had any material dealings within the 12
months prior to the date hereof with any member of the NASD, or any person
related to or associated with such member, other than discussions and
meetings relating to the proposed offering and routine purchases and sales
of United States government and agency securities; (iii) entered into a
financial or management consulting agreement except as contemplated
hereunder and except for the Letter Agreement set forth in Exhibit A; and
(iv) engaged any intermediary between the Agents and the Company, the MHC
and the Bank in connection with the offering of the Shares, and no person
is being compensated in any manner for such service.
(y) The Company, the MHC and the Bank have not relied upon the Agent
or the Agent's counsel for any legal, tax or accounting advice in
connection with the Conversion.
(z) The Company is not required to be registered under the Investment
Company Act of 1940, as amended.
Any certificates signed by an officer of the Company, the MHC or the Bank
pursuant to the conditions of this Agreement and delivered to the Agent or its
counsel that refers to this Agreement shall be deemed to be a representation and
warranty by the Company, the MHC or the Bank to the Agent as to the matters
covered thereby with the same effect as if such representation and warranty were
set forth herein.
Section 5. Representations and Warranties of the Agent. The Agent
represents and warrants to the Company, the MHC and the Bank that:
(a) The Agent is a corporation and is validly existing in good
standing under the laws of the State of Delaware with full power and
authority to provide the services to be furnished to the Bank, the MHC and
the Company hereunder.
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly
authorized by all necessary action on the part of the Agent, and this
Agreement has been duly and validly executed and delivered by the Agent and
is the legal, valid and binding agreement of the Agent, enforceable in
accordance with its terms.
(c) Each of the Agent and its employees, agents and representatives
who shall perform any of the services hereunder shall be duly authorized
and empowered, and shall have all licenses, approvals and permits necessary
to perform such services, including appropriate licenses and the Company's
approvals in the various states in which securities shall be offered.
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(d) The execution and delivery of this Agreement by the Agent, the
consummation of the transactions contemplated hereby and compliance with
the terms and provisions hereof will not conflict with, or result in a
breach of, any of the terms, provisions or conditions of, or constitute a
default (or event which with notice or lapse of time or both would
constitute a default) under, the articles of incorporation of the Agent or
any agreement, indenture or other instrument to which the Agent is a party
or by which it or its property is bound.
(e) No approval of any regulatory or supervisory or other public
authority is required in connection with the Agent's execution and delivery
of this Agreement, except as may have been received.
(f) There is no suit or proceeding or charge of action before or by
any court, regulatory authority or government agency or body or, to the
knowledge of the Agent, pending or threatened, which might materially
adversely affect the Agent's performance of this Agreement.
Section 5.1 Covenants of the Company, the MHC and the Bank. The Company,
the MHC and the Bank hereby jointly and severally covenant with the Agent as
follows:
(a) The Company has filed the Registration Statement with the
Commission. The Company will not, at any time after the date the
Registration Statement is declared effective, file any amendment or
supplement to the Registration Statement without providing the Agent and
its counsel an opportunity to review such amendment or supplement or file
any amendment or supplement to which amendment or supplement the Agent or
its counsel shall reasonably object.
(b) The MHC has filed the Conversion Application with the OTS. The
Bank will not, at any time after the Conversion Application is approved by
the OTS, file any amendment or supplement to such Conversion Application
without providing the Agent and its counsel an opportunity to review such
amendment or supplement or file any amendment or supplement to which
amendment or supplement the Agent or its counsel shall reasonably object.
(c) The Company and the Bank will use their best efforts to cause any
post-effective amendment to the Registration Statement to be declared
effective by the Commission and any post-effective amendment to the
Conversion Application to be approved by the OTS and will immediately upon
receipt of any information concerning the events listed below notify the
Agent: (i) when the Registration Statement, as amended, has become
effective; (ii) when the Conversion Application, as amended, has been
approved by the OTS; (iii) of any comments from the Commission, the OTS or
any other governmental entity with respect to the Conversion or the
transactions contemplated by this Agreement; (iv) of the request by the
Commission, the OTS or any other
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governmental entity for any amendment or supplement to the Registration
Statement or the Conversion Application or for additional information; (v)
of the issuance by the Commission, the OTS or any other governmental entity
of any order or other action suspending the Offering or the use of the
Registration Statement or the Prospectus or any other filing of the Company
or the Bank under the Conversion Regulations, or other applicable law, or
the threat of any such action; (vi) the issuance by the Commission, the OTS
or any state authority of any stop order suspending the effectiveness of
the Registration Statement or the approval of the Conversion Application,
or of the initiation or threat of initiation or threat of any proceedings
for any such purpose; or (vii) of the occurrence of any event mentioned in
paragraph (h) below. The Company, the MHC and the Bank will make every
reasonable effort (i) to prevent the issuance by the Commission, the OTS or
any state authority of any such order and, if any such order shall at any
time be issued, (ii) to obtain the lifting thereof at the earliest possible
time.
(d) The Company, the MHC and the Bank will deliver to the Agent and to
its counsel two conformed copies of the Registration Statement and the
Conversion Application, as originally filed and of each amendment or
supplement thereto, including all exhibits. Further, the Company, the MHC
and the Bank will deliver such additional copies of the foregoing documents
to counsel to the Agent as may be required for any NASD and blue sky
filings.
(e) The Company, the MHC and the Bank will furnish to the Agent, from
time to time during the period when the Prospectus (or any later prospectus
related to this offering) is required to be delivered under the 1933 Act or
the Securities Exchange Act of 1934 (the "1934 Act"), such number of copies
of such Prospectus (as amended or supplemented) as the Agent may reasonably
request for the purposes contemplated by the 1933 Act, the 1933 Act
Regulations, the 1934 Act or the rules and regulations promulgated under
the 1934 Act (the "1934 Act Regulations"). The Company authorizes the Agent
to use the Prospectus (as amended or supplemented, if amended or
supplemented) in any lawful manner contemplated by the Plan in connection
with the sale of the Shares by the Agent.
(f) The Company, the MHC and the Bank will comply with any and all
material terms, conditions, requirements and provisions with respect to the
Conversion and the transactions contemplated thereby imposed by the
Commission, the OTS, the Conversion Regulations or the OTS, and by the 1933
Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations to
be complied with prior to or subsequent to the Closing Date and when the
Prospectus is required to be delivered, the Company, the MHC and the Bank
will comply, at their own expense, with all material requirements imposed
upon them by the Commission, the OTS, the Conversion Regulations or the
OTS, and by the 1933 Act, the 1933 Act Regulations, the 1934 Act and the
1934 Act Regulations, including, without limitation, Rule 10b-5 under the
1934 Act, in each case as from time to
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time in force, so far as necessary to permit the continuance of sales or
dealing in shares of Common Stock during such period in accordance with the
provisions hereof and the Prospectus.
(g) If, at any time during the period when the Prospectus relating to
the Shares is required to be delivered, any event relating to or affecting
the Company, the MHC or the Bank shall occur, as a result of which it is
necessary or appropriate, in the opinion of counsel for the Company, the
MHC and the Bank or in the reasonable opinion of the Agent's counsel, to
amend or supplement the Registration Statement or Prospectus in order to
make the Registration Statement or Prospectus not misleading in light of
the circumstances existing at the time the Prospectus is delivered to a
purchaser, the Company and the Bank will at their expense, prepare and file
with the Commission and the OTS and furnish to the Agent a reasonable
number of copies of an amendment or amendments of, or a supplement or
supplements to, the Registration Statement or Prospectus (in form and
substance satisfactory to the Agent and its counsel after a reasonable time
for review) which will amend or supplement the Registration Statement or
Prospectus so that as amended or supplemented it will not contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances
existing at the time the Prospectus is delivered to a purchaser, not
misleading. For the purpose of this Agreement, the Company, the MHC and the
Bank each will timely furnish to the Agent such information with respect to
itself as the Agent may from time to time reasonably request.
(h) The Company, the MHC and the Bank will take all necessary actions,
in cooperating with the Agent, and furnish to whomever the Agent may
direct, such information as may be required to qualify or register the
Shares for offering and sale by the Company or to exempt such Shares from
registration, or to exempt the Company as a broker-dealer and its officers,
directors and employees as broker-dealers or agents under the applicable
securities or blue sky laws of such jurisdictions in which the Shares are
required under the Conversion Regulations to be sold or as the Agent and
the Company, the MHC and the Bank may reasonably agree upon; provided,
however, that the Company shall not be obligated to file any general
consent to service of process or to qualify to do business in any
jurisdiction in which it is not so qualified. In each jurisdiction where
any of the Shares shall have been qualified or registered as above
provided, the Company will make and file such statements and reports in
each fiscal period as are or may be required by the laws of such
jurisdiction.
(i) The liquidation account for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders will be duly established
and maintained by the Bank in accordance with the requirements of the OTS,
and such Eligible Account Holders and Supplemental Eligible Account Holders
who continue to maintain their savings accounts in the Bank will have an
inchoate interest in their pro rata portion of the
16
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liquidation account which shall have a priority superior to that of the
holders of shares of Common Stock in the event of a complete liquidation of
the Bank.
(j) The Company, the MHC and the Bank will not sell or issue, contract
to sell or otherwise dispose of, for a period of 90 days after the Closing
Date, without the Agent's prior written consent, any shares of Common Stock
other than the Shares or other than in connection with any plan or
arrangement described in the Prospectus.
(k) The Company shall maintain the effectiveness of the registration
of its Common Stock under Section 12 (g) of the 1934 Act for not less than
three (3) years or such shorter period as may be required by the OTS.
(l) During the period during which the Company's Common Stock is
registered under the 1934 Act or for three years from the date hereof,
whichever period is greater, the Company will furnish to its stockholders
as soon as practicable after the end of each fiscal year an annual report
of the Company (including a consolidated balance sheet and statements of
consolidated income, stockholders' equity and cash flows of the Company and
its subsidiaries as at the end of and for such year, certified by
independent public accountants in accordance with Regulation S-X under the
1933 Act and the 1934 Act).
(m) During the period of three years from the date hereof, the Company
will furnish to the Agent: (i) as soon as practicable after such
information is publicly available, a copy of each report of the Company
furnished to or filed with the Commission under the 1934 Act or any
national securities exchange or system on which any class of securities of
the Company is listed or quoted (including, but not limited to, reports on
Forms 10-K, 10-Q and 8-K and all proxy statements and annual reports to
stockholders), (ii) a copy of each other non-confidential report of the
Company mailed to its stockholders or filed with the Commission, the OTS or
any other supervisory or regulatory authority or any national securities
exchange or system on which any class of securities of the Company is
listed or quoted, each press release and material news items and additional
documents and information with respect to the Company or the Bank as the
Agent may reasonably request; and (iii) from time to time, such other
nonconfidential information concerning the Company or the Bank as the Agent
may reasonably request.
(n) The Company and the Bank will use the net proceeds from the sale
of the Shares in the manner set forth in the Prospectus under the caption
"Use of Proceeds."
(o) Other than as permitted by the Conversion Regulations, the Home
Owners Loan Act of 1933 (the "HOLA"), the 1933 Act, the 1933 Act
Regulations, and the laws of any state in which the Shares are registered
or qualified for sale or exempt from registration, neither the Company, the
MHC nor the Bank will distribute any prospectus,
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offering circular or other offering material in connection with the offer
and sale of the Shares.
(p) The Company will use its best efforts to (i) encourage and assist
two market makers to maintain a market for the Shares and (ii) continue to
list the Shares on the Nasdaq National Market.
(q) The Bank will maintain appropriate arrangements for depositing all
funds received from persons mailing subscriptions for or orders to purchase
Shares in the Offerings on an interest bearing basis at the rate described
in the Prospectus until the Closing Date and satisfaction of all conditions
precedent to the release of the Bank's obligation to refund payments
received from persons subscribing for or ordering Shares in the Offerings
in accordance with the Plan and as described in the Prospectus or until
refunds of such funds have been made to the persons entitled thereto or
withdrawal authorizations canceled in accordance with the Plan and as
described in the Prospectus. The Bank will maintain such records of all
funds received to permit the funds of each subscriber to be separately
insured by the FDIC (to the maximum extent allowable) and to enable the
Bank to make the appropriate refunds of such funds in the event that such
refunds are required to be made in accordance with the Plan and as
described in the Prospectus.
(r) The Company and the Bank will take such actions and furnish such
information as are reasonably requested by the Agent in order for the Agent
to ensure compliance with the NASD's "Interpretation Relating to Free
Riding and Withholding."
(s) Neither the Bank nor the MHC will amend the Plan of Conversion
without notifying the Agent prior thereto.
(t) The Company shall assist the Agent, if necessary, in connection
with the allocation of the Shares in the event of an oversubscription and
shall provide the Agent with any information necessary to assist the
Company in allocating the Shares in such event and such information shall
be accurate and reliable.
(u) Prior to the Closing Date, the Company, the MHC and the Bank will
inform the Agent of any event or circumstances of which it is aware as a
result of which the Registration Statement, the Conversion Application
and/or Prospectus, as then amended or supplemented, would contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading.
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Section 5.2 Covenants of the Agent. The Agent hereby covenants with the
Company, the MHC and the Bank as follows:
(a) During the period when the Prospectus is used, the Agent will
comply, in all material respects and at its own expense, with all
requirements imposed upon it by the OTS and, to the extent applicable, by
the 1933 Act and the 1934 Act and the rules and regulations promulgated
thereunder.
(b) The Agent shall return unused prospectuses, if any, to the Company
promptly upon the completion of the Conversion.
(c) The Agent will distribute the Prospectuses or offering materials
in connection with the sales of the common stock only in accordance with
OTS regulations, the 1933 Act and the rules and regulations promulgated
thereunder.
(d) The Agent shall assist the Bank in maintaining arrangements for
the deposit of funds and the making of refunds, as appropriate (as
described in Section 5.1(r)), and shall perform the allocation of shares in
the event of an oversubscription, in conformance with the Plan and
applicable regulations and based upon information furnished to the Agent by
the Bank (as described in Section 5.1(v)).
Section 6. Payment of Expenses. Whether or not the Conversion is completed
or the sale of the Shares by the Company is consummated, the Company, the MHC
and the Bank jointly and severally agree to pay or reimburse the Agent for: (a)
all filing fees in connection with all filings with the NASD; (b) any stock
issue or transfer taxes which may be payable with respect to the sale of the
Shares; (c) all reasonable expenses of the Conversion including but not limited
to the Company, the MHC and the Bank's attorneys' fees, transfer agent,
registrar and other agent charges, fees relating to auditing and accounting or
other advisors and costs of printing all documents necessary in connection with
the Conversion; and (d) all reasonable out-of-pocket expenses incurred by the
Agent not to exceed $70,000 (including legal fees and expenses). Such
out-of-pocket expenses include, but are not limited to, travel, communications
and postage. However, such out-of-pocket expenses do not include expenses
incurred with respect to the matters set forth in (a) or (b) above. In the event
the Company is unable to sell a minimum of 9,775,000 Shares or the Conversion is
terminated or otherwise abandoned, the Company, the MHC and the Bank shall
reimburse the Agent in accordance with Section 2 hereof.
Section 7. Conditions to the Agent's Obligations. The Agent's obligations
hereunder, as to the Shares to be delivered at the Closing Date, are subject, to
the extent not waived by the Agent, to the condition that all representations
and warranties of the Company, the MHC and the Bank herein are, at and as of the
commencement of the Offerings and at and as of the Closing Date, true and
correct in all material respects, the condition that the Company, the MHC and
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the Bank shall have performed all of their obligations hereunder to be performed
on or before such dates, and to the following further conditions:
(a) At the Closing Date, the Company, the MHC and the Bank shall have
conducted the Conversion in all material respects in accordance with the
Plan, the Conversion Regulations, and all other applicable laws,
regulations, decisions and orders, including all terms, conditions,
requirements and provisions precedent to the Conversion imposed upon them
by the OTS.
(b) The Registration Statement shall have been declared effective by
the Commission, the Conversion Application approved by the OTS, not later
than 5:30 p.m. on the date of this Agreement, or with the Agent's consent
at a later time and date; and at the Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued
under the 1933 Act or proceedings therefore initiated or threatened by the
Commission, or any state authority and no order or other action suspending
the authorization of the Prospectus or the consummation of the Conversion
shall have been issued or proceedings therefore initiated or, to the
Company's, the MHC's or the Bank's knowledge, threatened by the Commission,
the OTS or any state authority.
(c) At the Closing Date, the Agent shall have received:
(1) The favorable opinion, dated as of the Closing Date and
addressed to the Agent and for its benefit, of Peabody & Brown,
special counsel for the Company, the MHC and the Bank, in form and
substance to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation under the laws of the State of Delaware
and has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the
Registration Statement and the Prospectus. All of the outstanding
capital stock of the Company is duly authorized and validly
issued, fully paid and non-assessable.
(ii) The Bank has been duly organized and is a validly
existing federal savings association in capital stock form of
organization, duly authorized to conduct its business and own its
property as described in the Registration Statement and
Prospectus. All of the outstanding capital stock of the Bank is
duly authorized and validly issued, fully paid and non-assessable
and owned by the Company, free and clear of any liens,
encumbrances, claims or other restrictions.
(iii) The MHC has been duly organized and is a validly
existing federal mutual holding company duly authorized to
conduct its business and own its property as described in the
Registration Statement and Prospectus.
(iv) The Bank is a member of the FHLB-Atlanta. The deposit
accounts of the Bank are insured by the FDIC up to the maximum
amount allowed
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under law and no proceedings for the termination or revocation of
such insurance are pending or, to such counsel's Actual
Knowledge, threatened; the description of the liquidation account
as set forth in the Prospectus under the caption "The Conversion
and Reorganization-Liquidation Rights" to the extent that such
information constitutes matters of law and legal conclusions has
been reviewed by such counsel and is accurate in all material
respects.
(v) Upon consummation of the Conversion, the authorized,
issued and outstanding capital stock of the Company will be
within the range set forth in the Prospectus under the caption
"Capitalization," and except for shares issued as described in
the Prospectus or pursuant to employee stock benefit plans
described in the Prospectus in the section titled "Management of
the Bank -- Executive Compensation," no shares of Common Stock
have been issued prior to the Closing Date; at the time of the
Conversion, the Shares subscribed for pursuant to the Offerings
will have been duly and validly authorized for issuance, and when
issued and delivered by the Company pursuant to the Plan against
payment of the consideration calculated as set forth in the Plan
and the Prospectus, will be duly and validly issued and fully
paid and non-assessable; the issuance of the Shares is not
subject to preemptive rights and the terms and provisions of the
Shares conform in all material respects to the description
thereof contained in the Prospectus. To such counsel's Actual
Knowledge, upon the issuance of the Shares, good title to the
Shares will be transferred from the Company to the purchasers
thereof against payment therefor, subject to such claims as may
be asserted against the purchasers thereof by third-party
claimants.
(vi) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary action on the part
of the Company, the MHC, and the Bank; and this Agreement is a
valid and binding obligation of the Company, the MHC and the
Bank, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization, conservatorship,
receivership or other similar laws now or hereafter in effect
relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of savings institutions and
their holding companies, (ii) general equitable principles, (iii)
laws relating to the safety and soundness of insured depository
institutions, and (iv) applicable law or public policy with
respect to the indemnification and/or contribution provisions
contained herein, including, without limitation, the provisions
of Section 23A and 23B of the Federal Reserve Act, and except
that no opinion need to be expressed as to the effect or
availability of equitable remedies or injunctive relief
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
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(vii) The Conversion Application has been approved by the
OTS and the Prospectus has been authorized for use by the OTS and
no action has been taken, and to such counsel's Actual Knowledge,
none is pending or threatened, to revoke any such authorization
or approval.
(viii) The Plan has been duly adopted by the required vote
of the directors of the Company, the MHC and the Bank and, based
upon the certificate of the inspector of election, by the members
of the MHC, the stockholders of the Company and the stockholders
of the Bank.
(ix) Subject to the satisfaction of the conditions to the
OTS' approval of the Conversion, no further approval,
registration, authorization, consent or other order of or notice
to any federal or Delaware regulatory agency is required in
connection with the execution and delivery of this Agreement, the
issuance of the Shares and the consummation of the Conversion,
except as may be required under the securities or blue sky laws
of various jurisdictions (as to which no opinion need be
rendered) and except as may be required under the rules and
regulations of the NASD and/or the Nasdaq National Market (as to
which no opinion need be rendered).
(x) The Registration Statement is effective under the 1933
Act and no stop order suspending the effectiveness has been
issued under the 1933 Act or proceedings therefor initiated or,
to such counsel's Actual Knowledge, threatened by the Commission.
(xi) At the time the Conversion Application, including the
Prospectus contained therein, was approved by the OTS, the
Conversion Application, including the Prospectus contained
therein, complied as to form in all material respects with the
requirements of the Conversion Regulations, the HOLA and all
applicable rules and regulations promulgated thereunder (other
than the financial statements, the notes thereto, and other
tabular, financial, statistical and appraisal data included
therein, as to which no opinion need be rendered).
(xii) At the time that the Registration Statement became
effective, (i) the Registration Statement (as amended or
supplemented, if so amended or supplemented) (other than the
financial statements, the notes thereto and other tabular,
financial, statistical and appraisal data included therein, as to
which no opinion need be rendered) complied as to form in all
material respects with the requirements of the 1933 Act and the
1933 Act Regulations, and (ii) the Prospectus (other than the
financial statements, the notes thereto and other tabular,
financial, statistical and appraisal data included therein, as to
which no opinion need be rendered) complied as to form in all
material respects with the
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requirements of the 1933 Act, the 1933 Act Regulations, the
Conversion Regulations and federal law.
(xiii) The terms and provisions of the Shares of the Company
conform, in all material respects, to the description thereof
contained in the Registration Statement and Prospectus, and the
form of certificate used to evidence the Shares is in due and
proper form.
(xiv) There are no legal or governmental proceedings pending
or to such counsel's Actual Knowledge, threatened which are
required to be disclosed in the Registration Statement and
Prospectus, other than those disclosed therein, and to such
counsel's Actual Knowledge, all pending legal and governmental
proceedings to which the Company, the MHC or the Bank is a party
or of which any of their property is the subject, which are not
described in the Registration Statement and the Prospectus,
including ordinary routine litigation incidental to the
Company's, the MHC's or the Bank's business, are, considered in
the aggregate, not material.
(xv) To such counsel's Actual Knowledge, there are no
material contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments required to be described or
referred to in the Conversion Application, the Registration
Statement or the Prospectus or required to be filed as exhibits
thereto other than those described or referred to therein or
filed as exhibits thereto in the Conversion Application, the
Registration Statement or the Prospectus. The description in the
Conversion Application, the Registration Statement and the
Prospectus of such documents and exhibits is accurate in all
material respects and fairly presents the information required to
be shown.
(xvi) To such counsel's Actual Knowledge, the Company, the
MHC and the Bank have conducted the Conversion, in all material
respects, in accordance with all applicable requirements of the
Plan and the HOLA and regulations thereunder, and the Plan
complies in all material respects with all applicable Delaware
and federal laws, rules, regulations, decisions and orders
including, but not limited to, the Conversion Regulations (except
where a written waiver has been received); no order has been
issued by the OTS, the Commission or any state authority to
suspend the Offerings or the use of the Prospectus, and no action
for such purposes has been instituted or, to such counsel's
Actual Knowledge, threatened by the OTS or the Commission or any
state authority and, to such counsel's Actual Knowledge, no
person has sought to obtain regulatory or judicial review of the
final action of the OTS approving the Plan, the Conversion
Application or the Prospectus.
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(xvii) To such counsel's Actual Knowledge, the Company, the
MHC and the Bank have obtained all material federal and Delaware
licenses, permits and other governmental authorizations currently
required for the conduct of their businesses and all such
licenses, permits and other governmental authorizations are in
full force and effect, and the Company, the MHC and the Bank are
in all material respects complying therewith, except where the
failure to have such licenses, permits and other governmental
authorizations or the failure to be in compliance therewith would
not have a material adverse affect on the business or operations
of the Bank, the MHC and the Company, taken as a whole.
(xviii) To such counsel's Actual Knowledge, neither the
Company, the MHC nor the Bank is in violation of its articles of
incorporation, bylaws, or charter, as applicable, or, to such
counsel's Actual Knowledge, in default or violation of any
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which it is a party or by which it or its
property may be bound except for such defaults or violations
which would not have a material adverse impact on the financial
condition or results of operations of the Company, the MHC nor
the Bank on a consolidated basis; to such counsel's Actual
Knowledge, the execution and delivery of this Agreement, the
occurrence of the obligations herein set forth and the
consummation of the transactions contemplated herein will not
conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company, the MHC
or the Bank pursuant to any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument to
which the Company, the MHC or the Bank is a party or by which any
of them may be bound, or to which any of the property or assets
of the Company, the MHC or the Bank is subject (other than the
establishment of a liquidation account), and such action will not
result in any violation of the provisions of the articles of
incorporation, bylaws or charter, as applicable, of the Company,
the MHC or the Bank, or any applicable federal or Delaware law,
act, regulation (except that no opinion need be rendered with
respect to the securities or blue sky laws of various
jurisdictions or the rules and regulations of the NASD and/or the
Nasdaq National Market) or order or court order, writ, injunction
or decree.
(xix) The Company's articles of incorporation and bylaws
comply in all material respects with the General Corporation Law
("GCL") of the State of Delaware. The Bank's and the MHC's
charter and bylaws comply in all material respects with the HOLA
and the rules and regulations of the OTS.
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(xx) To such counsel's Actual Knowledge, neither the
Company, the MHC nor the Bank is in violation of any directive
from the OTS or the FDIC to make any material change in the
method of conducting its respective business.
(xxi) The information in the Prospectus under the captions
"Regulation," "The Conversion," "Restrictions on Acquisition of
the Company" and "Description of Capital Stock of Harbor
Florida," to the extent that such information constitutes matters
of law, summaries of legal matters, documents or proceedings, or
legal conclusions, has been reviewed by such counsel and is
correct in all material respects. The description of the
Conversion process under the caption "The Conversion" in the
Prospectus has been reviewed by such counsel and is in all
material respects correct. The discussion of statutes or
regulations described or referred to in the Prospectus are
accurate summaries and fairly present the information required to
be shown. The information under the caption "The Conversion-Tax
Aspects" has been reviewed by such counsel and constitutes a
correct summary of the opinions rendered by Peabody & Brown and
KPMG to the Company, the MHC and the Bank with respect to such
matters.
In giving such opinion, such counsel may rely as to all matters
of fact on certificates of officers or directors of the Company, the
MHC and the Bank and certificates of public officials. Such counsel's
opinion shall be limited to matters governed by federal laws and by
the State of Delaware General Corporation Law. With respect to matters
involving the application of Delaware law, such counsel may rely, to
the extent it deems proper and as specified in its opinion, upon the
opinion of local counsel (providing that such counsel states that it
believes the Agent is justified in relying upon such specified opinion
or opinions). The opinion of Peabody & Brown shall be governed by the
Legal Opinion Accord ("Accord") of the American Bar Association
Section of Business Law (1991). The term "Actual Knowledge" as used
herein shall have the meaning set forth in the Accord. For purposes of
such opinion, no proceedings shall be deemed to be pending, no order
or stop order shall be deemed to be issued, and no action shall be
deemed to be instituted unless, in each case, a director or executive
officer of the Company, the MHC or the Bank shall have received a copy
of such proceedings, order, stop order or action. In addition, such
opinion may be limited to present statutes, regulations and judicial
interpretations and to facts as they presently exist; in rendering
such opinion, such counsel need assume no obligation to revise or
supplement it should the present laws be changed by legislative or
regulatory action, judicial decision or otherwise; and such counsel
need express no view, opinion or belief with respect to whether any
proposed or pending legislation, if enacted, or any proposed or
pending regulations or policy statements issued by any regulatory
agency, whether or not promulgated pursuant to any such legislation,
would affect the validity of the Conversion or any aspect thereof.
Such counsel
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may assume that any agreement is the valid and binding obligation of
any parties to such agreement other than the Company, the MHC or the
Bank.
In addition, such counsel shall provide a letter stating that
during the preparation of the Conversion Application, the Registration
Statement and the Prospectus, they participated in conferences with
certain officers of, the independent public and internal accountants
for, and other representatives of the Company, the MHC and the Bank,
at which conferences the contents of the Conversion Application, the
Registration Statement and the Prospectus and related matters were
discussed and, while such counsel has not confirmed the accuracy or
completeness of or otherwise verified the information contained in the
Conversion Application, the Registration Statement or the Prospectus,
and does not assume any responsibility for such information, based
upon such conferences and a review of documents deemed relevant for
the purpose of rendering their opinion (relying as to materiality as
to factual matters on certificates of officers and other factual
representations by the Company, the MHC and the Bank), nothing has
come to their attention that would lead them to believe that the
Conversion Application, the Registration Statement, the Prospectus, or
any amendment or supplement thereto (other than the financial
statements, the notes thereto, and other tabular, financial,
statistical and appraisal data included therein as to which no opinion
need be rendered) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(2) The favorable opinion, dated as of the Closing Date and
addressed to the Agent and for its benefit, of the Bank's local
counsel, in form and substance to the effect that, to the best of such
counsel's knowledge, (i) the Company, the MHC and the Bank have good
and marketable title to all properties and assets which are material
to the business of the Company, the MHC and the Bank and to those
properties and assets described in the Registration Statement and
Prospectus, as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the
Registration Statement and Prospectus, or are not material in relation
to the business of the Company, the MHC and the Bank considered as one
enterprise; (ii) all of the leases and subleases material to the
business of the Company, the MHC and the Bank under which the Company,
the MHC and the Bank hold properties, as described in the Registration
Statement and Prospectus, are in full force and effect; (iii) to
counsel's actual knowledge based on certificates of officers, the Bank
is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which its ownership of
property or leasing of property or the conduct of its business
requires such qualification, unless the failure to be so qualified in
one or more of such jurisdictions would not have a material adverse
effect on the
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condition, financial or otherwise, or the business, operations or
income of the Bank; and (iv) the MHC is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which its ownership of property or leasing of property
or the conduct of its business requires such qualification, unless the
failure to be so qualified in one or more of such jurisdictions would
not have a material adverse effect on the condition, financial or
otherwise, or the business, operations or income of the MHC.
(3) The favorable opinion, dated as of the Closing Date, of Luse
Lehman Gorman Pomerenk & Schick, P.C., the Agent's counsel, with
respect to such matters as the Agent may reasonably require. Such
opinion may rely upon the opinions of counsel to the Company, the MHC
and the Bank, and as to matters of fact, upon certificates of officers
and directors of the Company, the MHC and the Bank delivered pursuant
hereto or as such counsel shall reasonably request.
(d) At the Closing Date, the Agents shall receive a certificate of the
Chief Executive Officer and the Chief Financial Officer of the Company and
a certificate of the Chief Executive Officer and the Chief Financial
Officer of the MHC and the Bank, both dated as of such Closing Date, to the
effect that: (i) they have reviewed the Prospectus and, in their opinion,
at the time the Prospectus became authorized for final use, the Prospectus
did not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading; (ii) since
the date the Prospectus became authorized for final use, no material
adverse change in the condition, financial or otherwise, or in the
earnings, capital, properties or business of the Company, the MHC and the
Bank has occurred and, to their knowledge, no other event has occurred,
which should have been set forth in an amendment or supplement to the
Prospectus which has not been so set forth, and the conditions set forth in
this Section 7 have been satisfied; (iii) since the respective dates as of
which information is given in the Registration Statement and Prospectus,
there has been no material adverse change in the condition, financial or
otherwise, or in the earnings, capital or properties of the Company, the
MHC or the Bank, independently, or of the Company, the MHC and the Bank
considered as one enterprise, whether or not arising in the ordinary course
of business; (iv) the representations and warranties in Section 4 are true
and correct with the same force and effect although expressly made at and
as of the Closing Date; (v) the Company, the MHC and the Bank have complied
in all material respects with all agreements and satisfied all conditions
on their part to be performed or satisfied at or prior to the Closing Date
and will comply in all material respects with all obligations to be
satisfied by them after Conversion; (vi) no stop order suspending the
effectiveness of the Registration Statement has been initiated or, to the
best knowledge of the Company, the MHC or the Bank, threatened by the
Commission or any state authority; (vii) no order suspending the Offerings,
the Conversion or the effectiveness of the Prospectus has been issued and
no
27
<PAGE>
proceedings for that purpose are pending or, to the best knowledge of the
Company, the MHC or the Bank, threatened by the OTS, the Commission or any
state authority; and (viii) to the best knowledge or the Company or the
Bank, no person has sought to obtain review of the final action of the OTS
approving the Plan.
(e) Prior to and at the Closing Date: (i) in the reasonable opinion of
the Agent, there shall have been no material adverse change in the
condition, financial or otherwise (other than as a result of a change in
law or regulation and affecting the savings association industry as a
whole), or in the earnings or business of the Company, the MHC or the Bank
independently, or of the Company, the MHC and the Bank considered as one
enterprise, from that as of the latest dates as of which such condition is
set forth in the Prospectus other than transactions referred to or
contemplated therein; (iii) the Company, the MHC or the Bank shall not have
received from the OTS or the FDIC any direction (oral or written) to make
any material change in the method of conducting their business with which
it has not complied (which direction, if any, shall have been disclosed to
the Agents) or which materially and adversely would affect the business,
operations or financial condition or income of the Company, the MHC and the
Bank considered as one enterprise; (iv) the Company, the MHC and the Bank
shall not have been in default (nor shall any event have occurred which,
with notice or lapse of time or both, would constitute a default) under any
provision of any agreement or instrument relating to any outstanding
indebtedness; (v) no action, suit or proceedings, at law or in equity or
before or by any federal or state commission, board or other administrative
agency, shall be pending or, to the knowledge of the Company, the MHC or
the Bank, threatened against the Company, the MHC or the Bank or affecting
any of their properties wherein an unfavorable decision, ruling or finding
would materially and adversely affect the business operations, financial
condition or income of the Company, the MHC and the Bank considered as one
enterprise; and (vi) the Shares have been qualified or registered for
offering and sale or exempted therefrom under the securities or blue sky
laws of the jurisdictions as the Agents shall have requested and as agreed
to by the Company and the Bank.
(f) Concurrently with the execution of this Agreement, the Agents
shall receive a letter from KPMG dated as of the date of the Prospectus and
addressed to the Agent: (i) confirming that KPMG is a firm of independent
public accountants within the meaning of Rule 101 of the Code of
Professional Ethics of the American Institute of Certified Public
Accountants and applicable regulations of the OTS and FDIC and stating in
effect that in KPMG's opinion the financial statements of the Company
and/or the Bank (as applicable) as of June 30, 1997 and 1996 and for each
of the three years in the period ended June 30, 1997, as are included in
the Prospectus and covered by their opinion included therein, comply as to
form in all material respects with the applicable accounting requirements
and related published rules and regulations of the OTS, the FDIC, the SEC
and the 1933 Act; (ii) a statement from KPMG in effect that, on the basis
of certain agreed
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<PAGE>
upon procedures (but not an audit in accordance with generally accepted
auditing standards) consisting of a reading of the latest available
unaudited interim consolidated financial statements of the Company prepared
by the Company, a reading of the minutes of the meetings of the Board of
Directors of the Company and the Bank and consultations with officers of
the Company and the Bank responsible for financial and accounting matters,
nothing came to their attention which caused them to believe that: (A) the
unaudited financial statements included in the Prospectus, are not in
conformity with the 1933 Act, applicable accounting requirements of the
OTS, the FDIC, and the SEC and generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
financial statements included in the Prospectus; or (B) during the period
from the date of the latest unaudited consolidated financial statements
included in the Prospectus to a specified date not more than three business
days prior to the date of the Prospectus, except as has been described in
the Prospectus, there was any material increase in borrowings, other than
normal deposit fluctuations, by the Company or the Bank; or (C) there was
any decrease in consolidated net assets of the Company or the Bank at the
date of such letter as compared with amounts shown in the latest unaudited
consolidated statement of condition included in the Prospectus; and (iii) a
statement from KPMG that, in addition to the audit referred to in their
opinion included in the Prospectus and the performance of the procedures
referred to in clause (ii) of this subsection (f), they have compared with
the general accounting records of the Company and the Bank, which are
subject to the internal controls of the Company and the Bank, the
accounting system and other data prepared by the Company and the Bank,
directly from such accounting records, to the extent specified in such
letter, such amounts and/or percentages set forth in the Prospectus as the
Agent may reasonably request; and they have reported on the results of such
comparisons.
(g) At the Closing Date, the Agent shall receive a letter from KPMG
dated the Closing Date, addressed to the Agent, confirming the statements
made by them in the letter delivered by them pursuant to subsection (f) of
this Section 7, the "specified date" referred to in clause (ii) of
subsection (f) thereof to be a date specified in such letter, which shall
not be more than three business days prior to the Closing Date.
(h) At the Closing Date, the Agent shall receive a letter from RP
Financial, LC, dated the date thereof and addressed to counsel for the
Agent (i) confirming that said firm is independent of the Company, the MHC
and the Bank and is experienced and expert in the area of corporate
appraisals within the meaning of Title 12 of the Code of Federal
Regulations, Part 303, (ii) stating in effect that the Appraisal prepared
by such firm complies in all material respects with the applicable
requirements of Title 12 of the Code of Federal Regulations, and (iii)
further stating that their opinion of the aggregate pro forma market value
of the Company, the MHC and the Bank expressed in their Appraisal dated as
of _______, 1997, and most recently updated, remains in effect.
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<PAGE>
(i) The Company, the MHC and the Bank shall not have sustained since
the date of the latest audited financial statements included in the
Prospectus any material loss or interference with their businesses from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Registration
Statement and Prospectus.
(j) At or prior to the Closing Date, the Agent shall receive: (i) a
copy of the letter from the OTS approving the Conversion Application and
authorizing the use of the Prospectus; (ii) a copy of the order from the
Commission declaring the Registration Statement effective; (iii)
certificates from the OTS evidencing the existence of the Bank and the MHC;
(iv) certificates of good standing from the State of Delaware evidencing
the good standing of the Company; (v) a certificate from the FDIC
evidencing the Bank's insurance of accounts, and (vi) a certificate of the
FHLB-Atlanta evidencing the Bank's membership thereof.
(k) Subsequent to the date hereof, there shall not have occurred any
of the following: (i) a suspension or limitation in trading in securities
generally on the New York Stock Exchange or in the over-the-counter market,
or quotations halted generally on the Nasdaq National Market, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices
for securities have been required by either of such exchanges or the NASD
or by order of the Commission or any other governmental authority; (ii) a
general moratorium on the operations of commercial banks or federal savings
associations or a general moratorium on the withdrawal of deposits from
commercial banks or federal savings associations declared by federal or
state authorities; (iii) the engagement by the United States in hostilities
which have resulted in the declaration, on or after the date hereof, of a
national emergency or war; or (iv) a material decline in the price of
equity or debt securities if the effect of such a declaration or decline,
in the Agent's reasonable judgment, makes it impracticable or inadvisable
to proceed with the Offerings or the delivery of the shares on the terms
and in the manner contemplated in the Registration Statement and
Prospectus.
Section 8. Indemnification.
(a) The Company, the MHC and the Bank jointly and severally agree to
indemnify and hold harmless the Agent, its officers, directors, agents,
servants and employees and each person, if any, who controls the Agent
within the meaning of Section 15 of the 1933 Act or Section 20(a) of the
1934 Act, against any and all loss, liability, claim, damage or expense
whatsoever (including but not limited to settlement expenses), joint or
several, that the Agent or any of them may suffer or to which the Agent and
any such persons may become subject under all applicable federal or state
laws or otherwise, and to promptly reimburse the Agent and any such persons
upon written demand for any
30
<PAGE>
expense (including fees and disbursements of counsel) incurred by the Agent
or any of them in connection with investigating, preparing or defending any
actions, proceedings or claims (whether commenced or threatened) to the
extent such losses, claims, damages, liabilities or actions: (i) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment or
supplement thereto), preliminary or final Prospectus (or any amendment or
supplement thereto), the Conversion Application (or any amendment or
supplement thereto), or any blue sky application or other instrument or
document executed by the Company, the MHC or the Bank based upon written
information supplied by the Company, the MHC or the Bank filed in any state
or jurisdiction to register or qualify any or all of the Shares or to claim
an exemption therefrom, or provided to any state or jurisdiction to exempt
the Company as a broker-dealer or its officers, directors and employees as
broker-dealers or agents, under the securities laws thereof (collectively,
the "Blue Sky Application"), or any application or other document,
advertisement, oral statement or communication ("Sales Information")
prepared, made or executed by or on behalf of the Company, the MHC or the
Bank with their consent or based upon written or oral information furnished
by or on behalf of the Company, the MHC or the Bank, whether or not filed
in any jurisdiction, in order to qualify or register the Shares or to claim
an exemption therefrom under the securities laws thereof; (ii) arise out of
or based upon the omission or alleged omission to state in any of the
foregoing documents or information, a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iii) arise
from any theory of liability whatsoever relating to or arising from or
based upon the Registration Statement (or any amendment or supplement
thereto), preliminary or final Prospectus (or any amendment or supplement
thereto), the Conversion Application (or any amendment or supplement
thereto), any Blue Sky Application or Sales Information or other
documentation distributed in connection with the Conversion; provided,
however, that no indemnification is required under this paragraph (a) to
the extent such losses, claims, damages, liabilities or actions arise out
of or are based upon any untrue material statement or alleged untrue
material statements in, or material omission or alleged material omission
from, the Registration Statement (or any amendment or supplement thereto),
preliminary or final Prospectus (or any amendment or supplement thereto),
the Conversion Application, any Blue Sky Application or Sales Information
made in reliance upon and in conformity with information furnished in
writing to the Company or the Bank by the Agent regarding the Agent and
provided further that such indemnification shall be to the extent permitted
by the OTS and the FDIC.
(b) The Agent agrees to indemnify and hold harmless the Company, the
MHC and the Bank, their directors and officers and each person, if any, who
controls the Company, the MHC or the Bank within the meaning of Section 15
of the 1933 Act or Section 20(a) of the 1934 Act against any and all loss,
liability, claim, damage or expense whatsoever (including but not limited
to settlement expenses), joint or several, which they,
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or any of them, may suffer or to which they, or any of them may become
subject under all applicable federal and state laws or otherwise, and to
promptly reimburse the Company, the MHC, the Bank, and any such persons
upon written demand for any expenses (including reasonable fees and
disbursements of counsel) incurred by them, or any of them, in connection
with investigating, preparing or defending any actions, proceedings or
claims (whether commenced or threatened) to the extent such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment or supplement thereto), the
Conversion Application (or any amendment or supplement thereto) or the
preliminary or final Prospectus (or any amendment or supplement thereto),
or are based upon the omission or alleged omission to state in any of the
foregoing documents a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
Agent's obligations under this Section 8(b) shall exist only if and only to
the extent (i) that such untrue statement or alleged untrue statement was
made in, or such material fact or alleged material fact was omitted from,
the Registration Statement (or any amendment or supplement thereto), the
preliminary or final Prospectus (or any amendment or supplement thereto) or
the Conversion Application (or any amendment or supplement thereto), any
Blue Sky Application or Sales Information in reliance upon and in
conformity with information furnished in writing to the Company or the Bank
by the Agent regarding the Agent. In no case shall the Agent be liable or
responsible for any amount in excess of the fees received by the Agent
pursuant to Section 2 of this Agreement.
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity
may be sought hereunder, but failure to so notify an indemnifying party
shall not relieve it from any liability which it may have on account of
this Section 8 or otherwise. An indemnifying party may participate at its
own expense in the defense of such action. In addition, if it so elects
within a reasonable time after receipt of such notice, an indemnifying
party, jointly with any other indemnifying parties receiving such notice,
may assume defense of such action with counsel chosen by it and approved by
the indemnified parties that are defendants in such action, unless such
indemnified parties reasonably object to such assumption on the ground that
there may be legal defenses available to them that are different from or in
addition to those available to such indemnifying party. If an indemnifying
party assumes the defense of such action, the indemnifying parties shall
not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action, proceeding or
claim, other than reasonable costs of investigation. In no event shall the
indemnifying parties be liable for the fees and expenses of more than one
separate firm of attorneys (and any special counsel that said firm may
retain) for each indemnified party in connection with any one action,
proceeding or claim or separate but similar or related
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actions, proceedings or claims in the same jurisdiction arising out of the
same general allegations or circumstances.
(d) The agreements contained in this Section 8 and in Section 9 hereof
and the representations and warranties of the Company, the MHC and the Bank
set forth in this Agreement shall remain operative and in full force and
effect regardless of: (i) any investigation made by or on behalf of the
Agent or its officers, directors or controlling persons, agents or
employees or by or on behalf of the Company, the MHC or the Bank or any
officers, directors or controlling persons, agents or employees of the
Company, the MHC or the Bank; (ii) deliver of and payment hereunder for the
Shares; or (iii) any termination of this Agreement.
Section 9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company, the Bank or the Agent, the Company,
the Bank and the Agent shall contribute to the aggregate losses, claims, damages
and liabilities (including any investigation, legal and other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit or
proceeding of any claims asserted, but after deducting any contribution received
by the Company, the Bank or the Agent from persons other than the other party
thereto, who may also be liable for contribution) in such proportion so that the
Agent shall be responsible for that portion represented by the percentage that
the fees paid to the Agent pursuant to Section 2 of this Agreement (not
including expenses) bears to the gross proceeds received by the Company from the
sale of the Shares in the Offerings and the Company and the Bank shall be
responsible for the balance. If, however, the allocation provided above is not
permitted by applicable law or if the indemnified party failed to give the
notice required under Section 8 above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative fault of the
Company and the Bank on the one hand and the Agent on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions, proceedings or claims in respect thereto), but also
the relative benefits received by the Company and the Bank on the one hand and
the Agent on the other from the Offerings (before deducting expenses). The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company and/or the Bank on the one hand or the Agent on the other and the
parties' relative intent, good faith, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Bank and the Agent agree that it would not be just and equitable if contribution
pursuant to this Section 9 were determined by pro-rata allocation or by any
other method of allocation which does not take into account the equitable
considerations referred to above in this Section 9. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions, proceedings or claims in respect thereof) referred to
above in this Section 9 shall be deemed to include any legal or other expenses
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reasonably incurred by such indemnified party in connection with investigating
or defending any such action, proceeding or claim. It is expressly agreed that
the Agent shall not be liable for any loss, liability, claim, damage or expense
or be required to contribute any amount which in the aggregate exceeds the
amount paid (excluding reimbursable expenses) to the Agent under this Agreement.
It is understood that the above stated limitation on the Agent's liability is
essential to the Agent and that the Agent would not have entered into this
Agreement if such limitation had not been agreed to by the parties to this
Agreement. No person found guilty of any fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not found guilty of such fraudulent misrepresentation.
The obligations of the Company and the Bank under this Section 9 and under
Section 8 shall be in addition to any liability which the Company and the Bank
may otherwise have. For purposes of this Section 9, each of the Agent's, the
Company's or the Bank's officers and directors and each person, if any, who
controls the Agent or the Company or the Bank within the meaning of the 1933 Act
and the 1934 Act shall have the same rights to contribution as the Agent, the
Company or the Bank. Any party entitled to contribution, promptly after receipt
of notice of commencement of any action, suit, claim or proceeding against such
party in respect of which a claim for contribution may be made against another
party under this Section 9, will notify such party from whom contribution may be
sought, but the omission to so notify such party shall not relieve the party
from whom contribution may be sought from any other obligation it may have
hereunder or otherwise than under this Section 9.
Section 10. Survival of Agreements, Representations and Indemnities. The
respective indemnities of the Company, the Bank and the Agent and the
representations and warranties and other statements of the Company and the Bank
set forth in or made pursuant to this Agreement shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of the Agent, the Company, the Bank or any
controlling person referred to in Section 8 hereof, and shall survive the
issuance of the Shares, and any legal representative, successor or assign of the
Agent, the Company, the Bank, and any such controlling person shall be entitled
to the benefit of the respective agreements, indemnities, warranties and
representations.
Section 11. Termination. The Agent may terminate its obligations under this
Agreement by giving the notice indicated below in this Section 11 at any time
after this Agreement becomes effective as follows:
(a) In the event the Company fails to sell all of the Shares by
___________, 1997, and in accordance with the provisions of the Plan or as
required by the Conversion Regulations, and applicable law, this Agreement
shall terminate upon refund by the Bank to each person who has subscribed
for or ordered any of the Shares the full amount which it may have received
from such person, together with interest as provided in the Prospectus, and
no party to this Agreement shall have any obligation to the other
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hereunder, except for payment by the Company and/or the Bank as set forth
in Sections 2(a) and (d), 6, 8 and 9 hereof.
(b) If any of the conditions specified in Section 7 shall not have
been fulfilled when and as required by this Agreement unless waived in
writing, or by the Closing Date, this Agreement and all of the Agent's
obligations hereunder may be canceled by the Agent by notifying the
Company, the MHC and the Bank of such cancellation in writing or by
telegram at any time at or prior to the Closing Date, and any such
cancellation shall be without liability of any party to any other party
except as otherwise provided in Sections 2, 6, 8 and 9 hereof.
(c) If the Agent elects to terminate this Agreement as provided in
this Section, the Company, the MHC and the Bank shall be notified promptly
by the Agent by telephone or telegram, confirmed by letter.
The Company, the MHC and the Bank may terminate this Agreement in the event
the Agent is in material breach of the representations and warranties or
covenants contained in Section 5 and such breach has not been cured after the
Company and the Bank have provided the Agent with notice of such breach.
This Agreement may also be terminated by mutual written consent of the
parties hereto.
Section 12. Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be mailed in writing and if sent to the
Agent shall be mailed, delivered or telegraphed and confirmed to Friedman,
Billings, Ramsey & Co., Inc., 1001 19th Street North, Arlington, Virginia
22209-1710, Attention: Richard A. Buckner (with a copy to Luse Lehman Gorman
Pomerenk & Schick, P.C., Attention: Kenneth R. Lehman, Esq.) and, if sent to the
Company, the MHC and the Bank, shall be mailed, delivered or telegraphed and
confirmed to the Company, the MHC and the Bank at 100 S. Second Street, Fort
Pierce, Florida 34950, Attention: Michael J. Brown, Sr., President and Chief
Executive Officer (with a copy to Peabody & Brown, Attention: Raymond J.
Gustini, Esq.)
Section 13. Parties. The Company, the MHC and the Bank shall be entitled to
act and rely on any request, notice, consent, waiver or agreement purportedly
given on behalf of the Agent, when the same shall have been given by the
undersigned. The Agent shall be entitled to act and rely on any request, notice,
consent, waiver or agreement purportedly given on behalf of the Company, the MHC
or the Bank, when the same shall have been given by the undersigned or any other
officer of the Company, the MHC or the Bank. This Agreement shall inure solely
to the benefit of, and shall be binding upon, the Agent, the Company, the MHC,
the Bank, and their respective successors, legal representatives and assigns,
and no other person shall have or be construed to have any legal or equitable
right, remedy or claim under or in respect of or by virtue of this Agreement or
any provision herein contained. It is understood and agreed that this
35
<PAGE>
Agreement is the exclusive agreement among the parties hereto, and supersedes
any prior agreement among the parties and may not be varied except in writing
signed by all the parties.
Section 14. Closing. The closing for the sale of the Shares shall take
place on the Closing Date at such location as mutually agreed upon by the Agent
and the Company, the MHC and the Bank. At the closing, the Company, the MHC and
the Bank shall deliver to the Agent in next day funds the commissions, fees and
expenses due and owing to the Agent as set forth in Sections 2 and 6 hereof and
the opinions and certificates required hereby and other documents deemed
reasonably necessary by the Agent shall be executed and delivered to effect the
sale of the Shares as contemplated hereby and pursuant to the terms of the
Prospectus.
Section 15. Partial Invalidity. In the event that any term, provision or
covenant herein or the application thereof to any circumstance or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstances
or situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
Section 16. Construction. This Agreement shall be construed in accordance
with the laws of the State of Delaware.
Section 17. Counterparts. This Agreement may be executed in separate
counterparts, each of which so executed and delivered shall be an original, but
all of which together shall constitute but one and the same instrument.
36
<PAGE>
If the foregoing correctly sets forth the arrangement among the Company,
the MHC, the Bank, and the Agent, please indicate acceptance thereof in the
space provided below for that purpose, whereupon this letter and the Agent's
acceptance shall constitute a binding agreement.
Very truly yours,
HARBOR FLORIDA BANCORP, INC. HARBOR FEDERAL SAVINGS BANK
By: ______________________________ By: ______________________________
Michael J. Brown, Sr. Michael J. Brown, Sr.
President and Chief Executive President and Chief Executive
Officer Officer
HARBOR FLORIDA BANCSHARES, INC.
By: ______________________________
Michael J. Brown, Sr.
President and Chief Executive
Officer
HARBOR FINANCIAL, M.H.C.
By: ______________________________
Michael J. Brown, Sr.
President and Chief Executive
Officer
Accepted as of the date first above written
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By: ______________________________
Richard A. Buckner
Senior Vice President
37
<PAGE>
EXHIBIT B
HARBOR FLORIDA BANCORP, INC.
Up to 15,208,750 Shares (Anticipated Maximum)
(Par Value $.01 Per Share)
Selected Dealers' Agreement
______________, 1997
Gentlemen:
We have agreed to assist Harbor Federal Savings Bank (the "Bank"), a
federally chartered stock savings bank, and the Bank's federal mutual holding
company, Harbor Financial, M.H.C. (the "MHC"), in connection with the offer and
sale of up to 15,208,750 shares of the conversion common stock, par value $.01
per share (the "Common Stock") of Harbor Florida Bancorp, Inc. (the "Company"),
a Delaware corporation, to be issued in connection with the conversion of the
MHC. The total number of shares of Common Stock to be offered may be decreased
to a minimum of 25 shares. The price per share has been fixed at $10.00. The
Common Stock, the number of shares to be issued, and certain of the terms on
which they are being offered, are more fully described in the enclosed
Prospectus dated _________, 1997 (the "Prospectus"). In connection with the
Conversion, the Company, on a best-efforts basis is offering for sale between
9,775,000 and 15,208,750 shares (the "Shares") of the Common Stock, in a
Subscription Offering, as defined, as contemplated by Office of Thrift
Supervision (the "OTS") Regulation. Any Shares not sold in the Subscription
Offering will be offered to the general public in a community offering (the
"Community Offering") giving preference to residents of the Bank's Local
Community, as defined in the Prospectus.
The Subscription and Community Offerings are being conducted under a Plan
of Conversion (the "Plan") adopted by the Bank and the MHC pursuant to which the
MHC intends to convert from a federal mutual holding company to an interim
federal stock savings bank and simultaneously merge with and into the Company
(the "Conversion"). As part of the Conversion, the Company will sell the Common
Stock to the public as provided for in the Plan. The Subscription and Community
Offerings are further being conducted in accordance with the regulations of the
OTS subject to the restrictions contained in the Plan.
The Common Stock is also being offered in accordance with the Plan by
broker/dealers licensed by the National Association of Securities Dealers, Inc.
("NASD"), which have been approved by the Bank ("Approved Brokers").
We are offering the selected dealers (of which you are one) the opportunity
to participate in the solicitation of offers to buy the Common Stock and we will
pay you a fee in the amount of
B-1
<PAGE>
four percent (4%) of the dollar amount of the Common Stock sold on behalf of the
Company by you, as evidenced by the authorized designation of your firm on the
order form or forms for payment therefor to the special account established by
the Bank for the purpose of holding such funds. It is understood, of course,
that payment of your fee will be made only out of compensation received by us
for the Common Stock sold on behalf of the Company by you, as evidenced in
accordance with the preceding sentence. As soon as practicable after the closing
date of the offering, we will remit to you, only out of our compensation as
provided above, the fees to which you are entitled hereunder.
Each order form for the purchase of Common Stock must set forth the
identity and address of each person to whom the certificates for such Common
Stock should be issued and delivered. Such order form also must clearly identify
your firm in order for you to receive compensation. You shall instruct any
subscriber who elects to send his order form to you to make any accompanying
check payable to "Harbor Florida Bancorp, Inc."
This offer is made subject to the terms and conditions herein set forth and
is made only to selected dealers who are members in good standing of the NASD
who are to comply with all applicable rules of the NASD, including, without
limitation, the NASD's Interpretation With Respect to Free-Riding and
Withholding and Section 24 of Article III of the NASD's Rules of Fair Practice.
Orders for Common Stock will be subject to confirmation and we, acting on
behalf of the Company, the MHC and the Bank, reserve the right in our unfettered
discretion to reject any order in whole or in part, to accept or reject orders
in the order of their receipt or otherwise, and to allot. Neither you nor any
other person is authorized by the Company, the MHC and the Bank, or by us to
give any information or make any representations other than those contained in
the Prospectus in connection with the sale of any of the Common Stock. No
selected dealer is authorized to act as agent for us when soliciting offers to
buy the Common Stock from the public or otherwise. No selected dealer shall
engage in any stabilizing (as defined in Rule 10b-7 promulgated under the
Securities Exchange Act of 1934) with respect to the Company's Common Stock
during the offering.
We and each selected dealer assisting in selling Common Stock pursuant
hereto agree to comply with the applicable requirements of the Securities
Exchange Act of 1934 and applicable state rules and regulations. Each
customer-carrying selected dealer that is not a $250,000 net capital reporting
broker/dealer agrees that it will not use a sweep arrangement and that it will
transmit all customer checks by noon of the next business day after receipt
thereof. In addition, we and each selected dealer confirm that the Securities
and Exchange Commission interprets Rule 15c2-8 promulgated under the Securities
Exchange Act of 1934 as requiring that a Prospectus be supplied to each person
who is expected to receive a confirmation of sale 48 hours prior to delivery of
such person's order form.
B-2
<PAGE>
We and each selected dealer further agree that to the extent that your
customers desire to pay for shares with funds held by or to be deposited with
us, in accordance with the interpretations of the Securities and Exchange
Commission of Rule 15c2-4 promulgated under the Securities and Exchange Act of
1934, either (a) upon receipt of an executed order form or direction to execute
an order form on behalf of a customer to forward the offering price of the
Common Stock ordered on or before twelve noon Delaware time of the next business
day following receipt or execution of an order form by us to the Company for
deposit in a segregated account or (b) to solicit indications of interest in
which event (i) we will subsequently contact any customer indicating interest to
confirm the interest and give instructions to execute and return an order form
or to receive authorization to execute the order form on the customer's behalf,
(ii) we will mail acknowledgments of receipt of orders to each customer
confirming interest on the business day following such confirmation, (iii) we
will debit accounts of such customers on the third business day (the "Debit
Date") following receipt of the confirmation referred to in (i), and (iv) we
will forward complete order forms together with such funds to the Company on or
before twelve noon on the next business day and each selected dealer
acknowledges that if the procedure in (b) is adopted, our customers' funds are
not required to be in their accounts until the Debit Date.
Unless earlier terminated by us, this Agreement shall terminate upon the
closing date of the Conversion. We may terminate this Agreement or any
provisions hereof any time by written or telegraphic notice to you. Of course,
our obligations hereunder are subject to the successful completion of the
Conversion.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of shares of
Common Stock sold on behalf of the Company by you under this Agreement.
We shall have full authority to take such actions as we may deem advisable
in respect of all matters pertaining to the offering. We shall be under no
liability to you except for lack of good faith and for obligations expressly
assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in which we
believe the Common Stock has been qualified for sale under, or are exempt from
the requirements of, the respective blue sky laws of such states, but we assume
no responsibility or obligation as to your rights to sell Common Stock in any
state.
Additional copies of the Prospectus and any supplements thereto will be
supplied in reasonable quantities upon request.
Any notice from us to you shall be deemed to have been duly given if
mailed, telephoned, or telegraphed to you at the address to which this Agreement
is mailed.
B-3
<PAGE>
This Agreement shall be construed in accordance with the laws of the State
of Delaware.
Please confirm your agreement hereto by signing and returning the
confirmations accompanying this letter at once to us at Friedman, Billings,
Ramsey & Co., Inc., Potomac Tower, 1001 Nineteenth Street North, Arlington,
Virginia 22209. The enclosed duplicate copy will evidence the agreement between
us.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By: _________________________________
Richard A. Buckner
Senior Vice President
CONFIRMED AS OF:
____________________,1997
(Name of Dealer)
By: _________________________________
Its: _________________________________
Exhibit 2
AMENDED PLAN OF CONVERSION
AND REORGANIZATION
of
HARBOR FINANCIAL, M.H.C.
and
AGREEMENT AND PLAN OF MERGER
between
HARBOR FINANCIAL, M.H.C.
and
HARBOR FLORIDA BANCORP, INC.
and
HARBOR FLORIDA BANCSHARES, INC.
and
HARBOR FEDERAL SAVINGS BANK
OCTOBER 31, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
1. INTRODUCTION........................................................... 1
2. DEFINITIONS............................................................ 3
3. GENERAL PROCEDURE FOR CONVERSION....................................... 9
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK.......... 11
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)....... 12
6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE
STOCK BENEFIT PLANS (SECOND PRIORITY).................................. 13
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS (THIRD PRIORITY)............................................... 13
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)................. 14
9. PUBLIC STOCKHOLDERS OFFERING........................................... 15
10. COMMUNITY OFFERING AND OTHER OFFERINGS................................. 16
11. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION STOCK......... 17
12. TIMING OF SUBSCRIPTION OFFERING., MANNER OF EXERCISING
SUBSCRIPTION RIGHTS AND ORDER FORMS.................................... 19
13. PAYMENT FOR CONVERSION STOCK........................................... 20
14. ACCOUNTHOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES............. 22
15. VOTING RIGHTS OF STOCKHOLDERS.......................................... 22
16. LIQUIDATION ACCOUNT.................................................... 22
17. TRANSFER OF DEPOSIT ACCOUNTS........................................... 24
18. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION,
MARKET MAKING AND STOCK EXCHANGE LISTING............................... 24
19. DIRECTORS AND OFFICERS OF THE BANK AND THE HOLDING COMPANY............. 25
20. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND
OFFICERS FOLLOWING THE CONVERSION...................................... 25
21. RESTRICTIONS ON TRANSFER OF STOCK...................................... 25
22. RESTRICTIONS ON ACQUISITION OF STOCK OF BANCSHARES..................... 26
23. TAX RULINGS OR OPTIONS................................................. 27
24. STOCK COMPENSATION PLANS............................................... 27
25. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK.......................... 27
26. PAYMENT OF FEES TO BROKERS............................................. 28
27. EFFECTIVE DATE......................................................... 28
28. AMENDMENT OR TERMINATION OF THE PLAN................................... 28
29. INTERPRETATION OF THE PLAN............................................. 29
ANNEX A - PLAN OF MERGER BETWEEN THE MUTUAL HOLDING COMPANY
AND HARBOR FEDERAL SAVINGS BANK.................................. A-1
ANNEX B - PLAN OF MERGER BETWEEN HARBOR FINANCIAL, M.H.C. AND
HARBOR FEDERAL SAVINGS BANK...................................... B-1
<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 and Reorganization 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 and Reorganization 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 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.
1
<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, a newly formed Holding Company, Harbor
Florida Bancshares, Inc. ("Bancshares") 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 Bancshares.
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. It was amended
on October 31, 1997.
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
2
<PAGE>
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. Harbor Florida Bancshares, Inc. is the newly
formed, Delaware chartered holding company, the shares of which will be
exchanged for shares of the Holding Company, Harbor Florida Bancorp, Inc.
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.
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
3
<PAGE>
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 and Reorganization.
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.
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 and the Mutual Holding Company merger into the Bank and the
subsequent reorganization of the Bank into a wholly owned subsidiary of
Bancshares. The exact rate shall be determined by the Mutual Holding Company and
Bancshares in order to ensure that upon consummation of the Conversion the
Public Stockholders will own in the aggregate approximately the same percentage
as Bancshares 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.
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 Bancshares.
4
<PAGE>
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 one or more interim federal stock savings associations, which
will be formed as a result of the conversion of Harbor Financial, M.H.C. into
the stock form of organization and the reorganization under which Bancshares
will own 100% of the Bank.
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.
MHC Merger means the merger of Interim with and into the Holding Company
pursuant to the Plan of Merger included as Annex A hereto.
5
<PAGE>
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 Reorganization and Plan of Merger means this Plan of
Conversion and Reorganization 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.
Primary Parties means the Mutual Holding Company, the Holding Company,
Bancshares and the Bank.
Prospectus means the one or more documents to be used in offering the
Conversion Stock in the Offerings.
6
<PAGE>
Public Stockholders mean those Persons who own shares of Bancorp Common
Stock, excluding the Mutual Holding Company, as of the Stockholder Voting Record
Date.
Public Stockholders Offering means the offering for sale Bancshares of any
shares of Conversion Stock not subscribed for in the Subscription Offering to
Public Stockholders, at the sole discretion of the bank and Bancshares.
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 October 31, 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 Bancshares.
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.
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.
7
<PAGE>
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 and
Reorganization.
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
3. GENERAL PROCEDURE FOR CONVERSION
--------------------------------
A. An application for the Conversion, including the Plan of Conversion and
Reorganization 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
8
<PAGE>
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, Bancshares will mail
definitive proxy materials to all Stockholders of the Holding Company 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.
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. The purchase price per share for
the Conversion Stock shall be a uniform price determined in accordance with the
provisions herein. Bancshares shall contribute to the Bank an amount of the net
proceeds received from the sale of Conversion Stock as shall be determined by
the Boards of Directors of Bancshares, and the Bank and as shall be approved by
the OTS.
9
<PAGE>
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 bank Bank 1. The middle tier holding company shall first
adopt a federal stock charter and then convert into an interim federal
stock savings bank - Bank 2. Bank 2 shall then merge with and into the Bank
with the Bank being the survivor. Immediately thereafter, Bank 1 shall
merge with and into the Bank with the Bank as being the survivor, and the
shares of Bank 1 and its shares of Bancorp shall be cancelled.
(ii) The Bank shall form two subsidiaries, a new Delaware corporation
(Bancshares) and an interim federal savings association (Interim). Interim
shall merge with and into the Bank resulting in a new structure in which
Bancshares owns 100% of the Bank.
(iii) Bancshares 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
10
<PAGE>
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 Bancshares, and Bancshares may sell to the Tax-Qualified
Employee Stock Benefit Plans, such additional shares ("Additional Shares") of
Bancshares 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
11
<PAGE>
priorities or purchase limitations otherwise set forth in this Plan of
Conversion and Reorganization.
(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, 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 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.
C. All of the purchase limitations herein shall include Exchange Shares
which shall be received as a result of the Exchange.
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, Bancshares and the Bank
shall receive, without payment, nontransferable Subscription Rights to purchase
in the aggregate up to 10% of the Conversion
12
<PAGE>
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, Bancshares or the Bank and/or borrowed from
an independent financial institution to exercise such Subscription Rights, and
the Holding Company, Bancshares 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, 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
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.
C. All of the purchase limitations herein shall include Exchange Shares
which shall be received as a result of the Exchange.
13
<PAGE>
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 or (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.
C. All of the purchase limitations herein shall include Exchange Shares
which shall be received as a result of the Exchange.
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.
14
<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.
C. All of the purchase limitations herein shall include Exchange Shares
which shall be received as a result of the Exchange.
15
<PAGE>
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.
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 that
when combined with Exchange Shares $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
16
<PAGE>
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 that, when combined with the Exchange Shares, shall equal
$500,000 divided by the Actual Purchase Price.
B. 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 together with any Associate or group of persons
Acting in Concert shall not exceed such number of shares that when combined with
Exchange Shares shall equal $4,7500,000 divided by the Actual Purchase Price per
share.
C. The number of shares of Conversion Stock which Directors and Officers
and their Associates may purchase in the aggregate in the Offering shall not,
when combined with Exchange Shares, 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.
D. 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
17
<PAGE>
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.
E. 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) Exchange Shares shall be valued
at the Actual Purchase Price.
F. 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.
G. 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.
H. Notwithstanding anything to the contrary and except as otherwise
required by the OTS, contained in this Plan, the Public Stockholders will not
have to sell any Holding Company Common Stock or be limited in receiving
Distribution Exchange Shares even if their ownership
18
<PAGE>
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.
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.
19
<PAGE>
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.
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
20
<PAGE>
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.
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
21
<PAGE>
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 Bancshares as holder of all of
the Bank's outstanding voting capital stock, and voting rights with respect to
Bancshares shall be held and exercised exclusively by the holders of Bancshares'
voting capital stock.
16. LIQUIDATION ACCOUNT
-------------------
A. At the time of the MHC Merger and middle tier mergers into the Bank, a
liquidation account shall be established by the Bank 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 by the Bank 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.
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<PAGE>
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.
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
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.
23
<PAGE>
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.
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. Bancshares 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) Bancshares 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 AND THE HOLDING COMPANY
----------------------------------------------------------
Each person serving as a Director or Officer of the Bank 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. Directors or officers of the
Holding Company shall continue to serve in the same capacity and for the same
terms in respect to Bancshares.
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 Bancshares, the Bank and their Associates may not purchase, without
the prior written approval of the OTS, Bancshares 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
24
<PAGE>
more than 1% of the outstanding Bancshares 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 Bancshares 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, the Holding Company,
Bancshares and the Bank on original issue from Bancshares (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 Bancshares 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, Bancshares shall give appropriate instructions to the transfer
agent for the 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.
25
<PAGE>
22. RESTRICTIONS ON ACQUISITION OF STOCK OF BANCSHARES
--------------------------------------------------
The articles of incorporation of Bancshares 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 Bancshares, 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 Bancshares 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 Bancshares 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
Bancshares 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 Bancshares. Directors, Officers or Employees of
Bancshares 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 Bancshares 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. Bancshares is authorized to adopt Tax-Qualified Employee Stock Benefit
Plans in connection with the Conversion, including without limitation an
employee stock ownership plan.
B. Bancshares 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
26
<PAGE>
the annual or special meeting of stockholders of Bancshares 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, Bancshares 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, Bancshares may not repurchase any of its capital
stock from any person, other than pursuant to (i) an offer to repurchase made by
Bancshares 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, Bancshares
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 and Mid-Tier Holding Company merger with
the Bank, (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 and
Mid-Tier Holding Company Mergers and the closing of the issuance of shares of
Conversion Stock in the Offerings shall not occur until all requisite
regulatory, Member
27
<PAGE>
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
Mid-Tier Holding Company Merger and the sale of shares of Conversion Stock in
the Offerings shall occur consecutively and substantially simultaneously with,
however, the merger of the Mid-Tier Holding Company into Bank occurring first.
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.
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
<PAGE>
ANNEX A
PLAN OF MERGER
PLAN OF MERGER, dated as of October 31, 1997 ("Plan of Merger") by and
between Harbor Florida Bancorp, Inc. (the "Holding Company") and Harbor Federal
Savings Bank (the "Bank"). Unless otherwise noted, defined terms shall have the
same meaning as those set forth in the Plan of Conversion and Reorganization of
the Mutual Holding Company dated October 31, 1997 of which this Plan of Merger
is an Annex thereto.
WITNESSETH:
WHEREAS, Harbor Financial, M.H.C. (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 Bank Number
1" ("Interim") and simultaneously merge with the Bank; and
WHEREAS, the Holding Company, after it adopts a federal stock charter, will
convert to an interim federal stock bank known as Interim Bank Number 2; and
WHEREAS, immediately upon completion of the Conversion, the Mutual Holding
Company and the existing minority stockholders of the Holding Company will
A-1
<PAGE>
exchange their current shares of Holding Company Common Stock for shares of
common stock of Bancshares based upon an Exchange Ratio established in
accordance with the independent appraisal of the Bank upon its merger with
Interim Bank Number 2 and Interim Bank Number 1 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.
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 Bank hereby agree that, subject to the conditions hereinafter
set forth, the Holding Company shall convert from a Delaware chartered
corporation to a federal stock corporation and from a federal stock corporation
to a federal interim stock savings bank -- Bank Number 2. The mutual form to a
federal interim stock savings bank, and Bank Number 2 shall then be merged with
and into the Bank with the Bank as the surviving entity. Thereafter, the Bank
shall be merged with a federal interim association subsidiary of a newly formed
Delaware corporation -- Bancshares and shall become as a result thereof a wholly
owned subsidiary of Bancshares. The terms and conditions of such merger shall be
as follows:
1. Regulatory Approvals. The merger, including the merger of the
Mutual Holding Company, 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 Mergers 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. 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
A-2
<PAGE>
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) 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 shall, by virtue of the
Reorganization and without any action on the part of the holder
thereof, be canceled and exchanged for Exchange Shares held by public
shareholders, (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 described in Annex B 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 by the Bank, 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 Holding Company Common
Stock.
9. Dissenting Shares. No 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, Bancshares 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 Bancshares
(or the Bank as the case may be), which shall have, hold and enjoy them in
its own right as fully
A-3
<PAGE>
and to the same extent as they were possessed, held and enjoyed by the
Bank, the Holding Company, Bancshares 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 Bancshares and such terms or positions will be unchanged.
13. Abandonment of Plan of Merger. This Plan of Merger may be
abandoned by either the Holding Company or Bancshares 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 Bancshares 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
Bancshares with respect to the Conversion and Merger.
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.
A-4
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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 FLORIDA BANCSHARES, INC.
Attest: _______________________________ By: _______________________________
Secretary Michael J. Brown, Sr.
HARBOR FLORIDA BANCORP, INC.
Attest: _______________________________ By: _______________________________
Secretary Michael J. Brown, Sr.
HARBOR FEDERAL SAVINGS BANK
Attest: _______________________________ By: _______________________________
Secretary Michael J. Brown, Sr.
A-5
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ANNEX B
PLAN OF MERGER
PLAN OF MERGER, dated as of October 31, 1997 ("Plan of Merger") by and
between Harbor Financial, M.H.C. (the "Mutual Holding Company"), Harbor Federal
Savings Bank (the "Bank"). Unless otherwise noted, defined terms shall have the
same meaning as those set forth in the Plan of Conversion and Reorganization and
Plan of Reorganization of the Mutual Holding Company dated October 31, 1997 (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 "Bank Number 1" and
merge with the Bank, a federal savings bank; and
WHEREAS, immediately upon completion of the Conversion and the Merger, the
Mutual Holding Company shares will be cancelled and minority stockholders of
Holding Company will exchange their current shares of Holding Company Common
Stock for shares of common stock of Bancshares based upon an Exchange Ratio
established in accordance with the independent appraisal of the Bank and Holding
Company upon Bank's merger with Bank Number 1, 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.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and in accordance with federal law, the Mutual
Holding Company hereby agrees
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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, known as Bank Number 1 and shall then be merged with and into Bank with
the Bank as the surviving entity. The merger shall occur after the merger of
Bank Number 2, as described in Annex A, merges into Bank. Therefore, the Bank
shall be, through a federal interim association, acquired by a newly formed
Delaware corporation -- Bancshares. The terms and conditions of such merger
shall be as follows:
1. Regulatory Approvals. The merger, including the Merger of the
Holding Company, 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. Holding Company 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) 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
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by the Mutual Holding Company shall, by virtue of the Merger 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 by the
Bank 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 Holding Company 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, Bancshares 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 Bancshares
(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, Bancshares, 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 Bancshares and such terms or positions will be unchanged.
13. Abandonment of Plan of Merger. This Plan of Merger may be
abandoned by either the Holding Company, Bancshares or the Mutual Holding
Company at any time before the Effective Date in the manner set forth in
Section 28 of the Plan.
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<PAGE>
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 and Merger.
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 FEDERAL SAVINGS BANK
Attest: _______________________________ By: _______________________________
Secretary Michael J. Brown, Sr.
HARBOR FLORIDA BANCSHARES, INC.
Attest: _______________________________ By: _______________________________
Secretary Michael J. Brown, Sr.
B-4
Exhibit 3.3
CERTIFICATE OF INCORPORATION
OF
HARBOR FLORIDA BANCSHARES, INC.
ARTICLE I
Name
The name of the corporation is HARBOR FLORIDA BANCSHARES, INC. (the
"Corporation").
ARTICLE II
Registered Office
The address of the Corporation's registered office in the State of Delaware
is Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805.
The name of the Corporation's registered agent at such address is the
Corporation Service Company.
ARTICLE III
Purpose and Powers
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
Capital Stock
SECTION 1. Authorized Shares. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is 80,000,000 shares,
divided into two classes consisting of 70,000,000 shares of Common Stock, par
value $0.001 per share ("Common Stock"), and 10,000,000 shares of Preferred
Stock, par value $0.001 per share ("Preferred Stock"). The Board of Directors
shall have authority by resolution to issue the shares of Preferred Stock from
time to time on such terms as it may determine and to divide the Preferred Stock
into one or more series and, in connection with the creation of any such series,
to determine and fix by the resolution or resolutions providing for the issuance
of shares thereof:
(a) the distinctive designation of such series, the number of shares
which shall constitute such series, which number may be increased or
decreased (but not below the number of shares then outstanding) from time
to time by action
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<PAGE>
of the Board of Directors, and the stated value thereof, if different from
the par value thereof;
(b) the dividend rate, the times of payment of dividends on the shares
of such series, whether dividends shall be cumulative, and, if so, from
what date or dates, and the preference or relation which such dividends
will bear to the dividends payable on any shares of stock of any other
class or any other series of this class;
(c) the price or prices at which, and the terms and conditions on
which, the shares of such series may be redeemed;
(d) whether or not the shares of such series shall be entitled to the
benefit of a retirement or sinking fund to be applied to the purchase or
redemption of such shares and, if so entitled the amount of such fund and
the terms and provisions relative to the operation thereof;
(e) whether or not the shares of such series shall be convertible
into, or exchangeable for, any other shares of stock of the Corporation or
any other securities and, if so convertible or exchangeable, the conversion
price or prices, or the rates of exchange, and any adjustments thereof, at
which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(f) the rights of the shares of such series in the event of voluntary
or involuntary liquidation, dissolution or winding up or upon any
distribution of the assets of the Corporation;
(g) whether or not the shares of such series shall have priority over
or parity with or be junior to the shares of any other class or series in
any respect, or shall be entitled to the benefit of limitations restricting
(i) the creation of indebtedness of the Corporation, (ii) the issuance of
shares of any other class or series having priority over or being on a
parity with the shares of such series in any respect, or (iii) the payment
of dividends on, the making of other distributions in respect of, or the
purchase or redemption of shares of any other class or series on parity
with or ranking junior to the shares of such series as to dividends or
assets, and the terms of any such restrictions, or any other restriction
with respect to shares of any other class or series on parity with or
ranking junior to the share of such series in any respect;
(h) whether such series shall have voting rights, in addition to any
voting rights provided by law, and, if so, the terms of such voting rights,
which may be general or limited; and
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<PAGE>
(i) any other powers, preferences, privileges, and relative
participating, optional, or other special rights of such series, and the
qualifications, limitations or restrictions thereof, to the full extent now
or hereafter permitted by law.
The powers, preferences and relative participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall be cumulative.
SECTION 2. Rights of Holders of Common Stock. Each holder of Common Stock
shall be entitled to one vote for each share of Common Stock held of record on
all matters on which stockholders generally are entitled to vote. Subject to the
provisions of law and the rights of the holders of the Preferred Stock and any
other class or series of stock having a preference as to dividends over the
Common Stock then outstanding, dividends may be paid on the Common Stock at such
times and in such amounts as the Board of Directors may determine. Upon the
dissolution, liquidation or winding up of the Corporation, after any
preferential amounts to be distributed to the holders of the Preferred Stock and
any other class or series of stock having a preference over the Common Stock
then outstanding have been paid or declared and set apart for payment, the
holders of the Common Stock shall be entitled to receive all the remaining
assets of the Corporation available for distribution to its stockholders ratably
in proportion to the number of shares held by them, respectively.
There shall be no cumulation of votes for the election of Directors or for
any other purpose.
Every share of Common Stock shall have the same relative rights as, and be
identical in all respects with, all the other shares of Common Stock.
ARTICLE V
Business Combinations
The provisions of Section 203 of the Delaware General Corporation Law or
any successor provision shall govern the Corporation.
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<PAGE>
ARTICLE VI
Board of Directors
SECTION 1. Number. The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors which, subject to any
right of the holders of any series of Preferred Stock then outstanding to elect
additional Directors under specified circumstances, shall consist of not less
than five nor more than 15 persons. The exact number of Directors within the
minimum and maximum limitations specified in the preceding sentence shall be
fixed from time to time by the Board of Directors pursuant to a resolution
adopted by a majority of the entire Board of Directors.
SECTION 2. Terms. Beginning with the first annual meeting of stockholders
held after the filing of this Certificate of Incorporation, the Board of
Directors, other than those who may be elected by the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation, shall be divided into three classes, class I, class II and
class III, as nearly equal in number as possible. The terms of office of the
classes of Directors elected at the initial annual meeting shall expire as
follows: the term of office of class I will expire at the 1999 Annual Meeting of
Stockholders, the term of office of class II will expire at the 2000 Annual
Meeting of Stockholders and the term of office of class III will expire at the
2001 Annual Meeting of Stockholders. At each Annual Meeting of Stockholders
following such initial classification and election, Directors elected to succeed
those Directors whose terms expire shall be elected for a term of office to
expire at the third succeeding Annual Meeting of Stockholders after their
election.
SECTION 3. Stockholder Nomination of Director Candidates. Stockholder
nominations for the election of Directors shall be given in the manner provided
in the Bylaws of the Corporation.
SECTION 4. Newly Created Directorships and Vacancies. Subject to the rights
of the holders of any series of Preferred Stock then outstanding, Directors
serving in newly created Directorships resulting from any increase in the
authorized number of Directors shall serve until the next Annual Meeting of
Stockholders. Vacancies on the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall be filled by a majority vote of the Directors then in office, and
Directors so chosen shall hold office for a term expiring at the Annual Meeting
of Stockholders at which the term of the class to which they have been elected
expires. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
SECTION 5 . Removal. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any Director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least two-thirds of the voting
power of all of the shares of the Corporation entitled to vote generally in the
election of Directors, voting together as a single class.
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<PAGE>
SECTION 6. Initial Directors. The names and addresses of the persons who
are to serve as Directors until the first annual meeting of stockholders or
until their successors are elected and qualified are as follows:
Name and Address Term
---------------- ----
Bruce R. Abernethy, Sr. 2000
100 S. Second Street
Fort Pierce, FL 34950
Richard N. Bird 2001
100 S. Second Street
Fort Pierce, FL 34950
Michael J. Brown, Sr. 1999
100 S. Second Street
Fort Pierce, FL 34950
Richard K. Davis 2001
100 S. Second Street
Fort Pierce, FL 34950
Edward G. Enns 2000
100 S. Second Street
Fort Pierce, FL 34950
Frank H. Fee, III 2001
100 S. Second Street
Fort Pierce, FL 34950
Richard B. Hellstrom 1999
100 S. Second Street
Fort Pierce, FL 34950
ARTICLE VII
Stockholder Action
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Except as otherwise required by law and subject to
the rights of the holders of any class of preferred stock having a preference
over the Common Stock as to dividends or upon liquidation, special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors.
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ARTICLE VIII
Bylaw Amendments
The Board of Directors shall have power to make, alter, amend and repeal
the Bylaws of the Corporation (except so far as the Bylaws of the Corporation
adopted by the stockholders shall otherwise provide). Any Bylaws made by the
Board of Directors under the powers conferred hereby may be altered, amended or
repealed by the Board of Directors or by the stockholders. Notwithstanding the
foregoing and anything contained in this Certificate of Incorporation or the
Bylaws to the contrary, Section 2 of Article I and Sections 1 through 5 of
Article II of the Bylaws shall not be altered, amended or repealed and no
provision inconsistent therewith shall be adopted without the affirmative vote
of the holders of two-thirds of all votes entitled to be cast in the election of
Directors, voting together as a single class.
ARTICLE IX
Purchase of Equity Securities
SECTION 1. Prevention of "Greenmail". Any direct or indirect purchase or
other acquisition by the Corporation of any Equity Security of any class from
any Substantial Securityholder who has beneficially owned such securities for
less than two years prior to the date of such purchase or any agreement in
respect thereof shall, except as hereinafter expressly provided, require the
affirmative vote of the holders of at least a majority of all votes entitled to
be cast in the election of Directors, excluding Voting Stock beneficially owned
by such Substantial Securityholder, voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or any agreement
with any national securities exchange, or otherwise, but no such affirmative
vote shall be required with respect to any purchase or other acquisition of
securities made as part of a tender or exchange offer by the Corporation to
purchase securities of the same class made on the same terms to all holders of
such securities and complying with the applicable requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations).
SECTION 2. Certain Definitions. For the purposes of this Article IX:
(a) A "Person" shall mean any individual, firm, corporation or other
entity.
(b) "Substantial Securityholder" shall mean any person (other than the
Corporation or any corporation of which a majority of any class of Equity
Security is owned, directly or indirectly, by the Corporation) who or
which:
(i) is the beneficial owner, directly or indirectly, of five
percent or more of the class or securities to be acquired;
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(ii) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of five percent or more of
the class of securities to be acquired;
(iii) is an assignee or has otherwise succeeded to any shares of
the class of securities to be acquired which were at any time within
the two-year period immediately prior to the date in question
beneficially owned by a Substantial Securityholder, if such assignment
or succession shall have occurred in the course of a transaction or
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
(c) A person shall be a "beneficial owner" of any security of any
class of the Corporation:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly;
(ii) which such person or any of its Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (B) any right to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which is beneficially owned, directly or indirectly, by any
such person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing any security of any
class of the Corporation.
(d) For the purposes of determining whether a person is a Substantial
Securityholder pursuant to paragraph (b) of this Section 2, the relevant
class of securities outstanding shall be deemed to comprise all such
securities deemed owned through application of paragraph (c) of this
Section 2, but shall not include other securities of such class which may
be issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December 31,
1996.
(f) "Equity Security" shall have the meaning ascribed to such term in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on
December 31, 1996.
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ARTICLE X
Acquisition of Stock
Notwithstanding anything contained in this Certificate of Incorporation to
the contrary:
SECTION 1. Restriction. No person shall directly or indirectly offer to
acquire or acquire the beneficial ownership of more than 10% of any class of any
equity security of the Corporation. This limitation shall not apply to any tax
qualified employee stock benefit plan of the Corporation.
In the event shares are acquired in violation of this Article X, all shares
beneficially owned by any person in excess of 10% shall be considered "excess
shares" and 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.
SECTION 2. Certain Definitions. For the purposes of this Article X, the
following definitions apply:
(a) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock
company, a trust, and any unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding
or disposing of securities of the Corporation.
(b) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security for value.
(c) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(d) The term "acting in concert" means (i) knowing participation in a
joint activity or conscious parallel action towards a common goal whether
or not pursuant to an express agreement, or (ii) a combination or pooling
of voting or other interests in the securities of an issuer or a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise.
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ARTICLE XI
Director Liability
No Director of officer acting in the capacity of a Director or performing
duties as Director shall be personally liable to the Corporation or any
stockholder for monetary damages for a breach of fiduciary duty as a Director,
except for any matter in respect of which such Director or officer acting as a
Director shall be liable under Section 174 of Title 8 of the Delaware Code
(relating to the Delaware Corporation Law) or any amendment thereto or successor
provision thereto or shall be liable by reason that, in addition to any and all
other requirements for such liability, he (i) shall have breached his duty of
loyalty to the Corporation or its stockholders, (ii) shall not have acted in
good faith or, in failing to act, shall not have acted in good faith, (iii)
shall have acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, shall have acted in a manner involving
intentional misconduct or a knowing violation of law or (iv) shall have derived
an improper personal benefit. Neither the Amendment nor repeal of this Article,
nor the adoption of any provision of the Certificate of Incorporation
inconsistent with this Article, shall eliminate or reduce the effect of this
Article in respect of any matter occurring, or any cause of action, suit or
claim, that, but for this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE XII
Amendments to Certificate of Incorporation
Notwithstanding any other provisions of this Certificate of Incorporation
or the Bylaws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
Bylaws of the Corporation), the affirmative vote of the holders of at least
two-thirds of all votes entitled to be cast in the election of Directors, voting
together as a single class, shall be required to amend or repeal, or adopt any
provisions inconsistent with, Articles V, VI, VII, VIII, IX or this Article XII
of this Certificate of Incorporation.
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ARTICLE XIII
Certain Business Combinations
SECTION 1. Vote Required for Certain Business Combinations.
(a) Higher Vote for Certain Business Combinations. Unless otherwise
required by law, in addition to any affirmative vote required by law or
this Certificate of Incorporation or the Bylaws of the Corporation, and
except as otherwise expressly provided in Section 2 of this Article XIII, a
Business Combination with, or proposed by or on behalf of, any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder or
any person who after such Business Combination would be an Affiliate or
Associate of such Interested Stockholder, shall require the approval of the
Board of Directors and the affirmative vote of the holders of at least
66-2/3% of the voting power of the then outstanding Voting Stock which is
not owned by the Interested Stockholder or any Affiliate or Associate of
such Interested Stockholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(b) Definition of "Business Combination". The term "Business
Combination" as used in this Article XIII shall mean:
(i) any merger, consolidation or share exchange of the
Corporation or any Subsidiary with (A) any Interested Stockholder or
(B) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be,
an Affiliate or Associate of an Interested Stockholder;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions),
except proportionately as a stockholder of such corporation, to or
with any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder of any assets of the Corporation or any
Subsidiary having an aggregate Market Value equal to 10% or more of
either the aggregate market value of all the assets of the Corporation
determined on a consolidated basis or the aggregate market value of
all of the outstanding stock of the Corporation;
(iii) any transaction which results in the issuance or transfer
by the Corporation or any Subsidiary (in one transaction or a series
of transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate or Associate
of any Interested Stockholder except (A) pursuant to the exercise,
exchange or conversion of securities exercisable for, exchangeable for
or convertible into stock of
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the Corporation or any Subsidiary which securities were outstanding
prior to the time the Interested Stockholder became such, (B) pursuant
to a dividend or distribution paid or made, or the exercise, exchange
or conversion of securities exercisable for, exchangeable for or
convertible into stock of the Corporation or any Subsidiary which
security is distributed pro rata to all holders of a class or series
of stock of the Corporation subsequent to the time the Interested
Stockholder became such, (C) pursuant to an exchange offer by the
Corporation to purchase stock made on the same terms to all holders of
such stock or (D) any issuance or transfer of stock by the
Corporation, provided, however, that in no case under (B) through (D)
above shall there be an increase in the Interested Stockholder's
proportionate share of the stock of any class or series of the
Corporation or of the Voting Stock of the Corporation;
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation or any Subsidiary proposed by or on
behalf of an Interested Stockholder or any Affiliate or Associate of
any Interested Stockholder; or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger,
consolidation or share exchange of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or into or
otherwise involving an Interested Stockholder) which in any such case
has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity
or convertible securities of the Corporation or any Subsidiary which
is directly or indirectly owned by any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder;
(vi) any transaction involving the Corporation or any Subsidiary
which has the effect, directly or indirectly, of increasing the
proportionate share of the stock of any class or securities
convertible into the stock of any class or series owned by the
Interested Stockholder of the Corporation or of any Subsidiary, except
as a result of immaterial changes due to fractional share adjustments
or as a result of any purchase or redemption of any shares of stock
not caused, directly or indirectly, by the Interested Stockholder; or
(vii) any receipt by the Interested Stockholder of the benefit,
directly or indirectly (except proportionately as a stockholder of
such corporation) of any loans, advances, guarantees, pledges, or
other financial benefits (other than those expressly permitted in
subparagraphs (i)-(vi) above) provided by or through the Corporation
or any Subsidiary.
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SECTION 2. When Higher Vote is Not Required. The provisions of Section 1 of
this Article XIII shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law and any other provisions of this Certificate of
Incorporation or the bylaws of the Corporation, if all of the conditions
specified in either the following paragraphs (a) or (b) are met:
(a) Approval by Disinterested Directors. The Business Combination
shall have been approved by a majority of the Disinterested Directors.
(b) Price and Procedure Requirements. All of the following conditions
shall have been met:
(1) Minimum Price Requirements. With respect to every class or
series of Voting Stock of the Corporation, whether or not the
Interested Stockholder has previously acquired beneficial ownership of
any shares of such class or series of Voting Stock:
(i) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per
share by holders of Common Stock in such Business Combination
shall be at least equal to the higher of the following:
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the
Interested Stockholder for any share of Common Stock in
connection with the acquisition by the Interested
Stockholder of beneficial ownership of shares of Common
Stock (1) within the two-year period immediately prior to
the first public announcement of the proposal of the
Business Combination (the "Announcement Date"), or (2) in
the transaction or series of related transactions in which
it became an Interested Stockholder, whichever is higher, in
either case as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with respect
to Common Stock; and
(B) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter
date is referred to in this Article XIII as the
"Determination Date"), whichever is higher, as adjusted for
any subsequent stock split, stock dividend,
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subdivision or reclassification with respect to Common
Stock.
(ii) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per
share by holders of shares of any other class or series of
outstanding Voting Stock shall be at least equal to the highest
of the following (it being intended that the requirements of this
paragraph (b)(ii) shall be required to be met with respect to
every class or series of outstanding Voting Stock, whether or not
the Interested Stockholder has previously acquired any shares of
a particular class or series of Voting Stock):
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the
Interested Stockholder for any shares of such class or
series of Voting Stock in connection with the acquisition by
the Interested Stockholder of beneficial ownership of such
shares (1) within the two-year period immediately prior to
the Announcement Date, or (2) in the transaction in which it
became an Interested Stockholder, whichever is higher, in
either case as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with respect
to such class or series of Voting Stock;
(B) (if applicable) the highest preferential amount per
share to which the holders of shares of such class or series
of Voting Stock are entitled in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation; and
(C) the Fair Market Value per share of such class or
series of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher, in either case as
adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification with respect to such class
or series of Voting Stock.
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(2) Other Requirements.
(i) The consideration to be received by holders of a
particular class or series of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the
Interested Stockholder has previously paid for shares of such
class or series of Voting Stock. If the Interested Stockholder
has paid for shares of any class or series of Voting Stock with
varying forms of consideration, the form of consideration for
such class or series of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such class
or series of Voting Stock previously acquired by it.
(ii) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (A) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to
declare and pay at the regular date therefor any full periodic
dividends (whether or not cumulative) on any outstanding
Preferred Stock; (B) there shall have been (1) no reduction in
the annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except
as approved by a majority of the Disinterested Directors, and (2)
an increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of
the Common Stock, unless the failure so to increase such annual
rate is approved by a majority of the Disinterested Directors;
and (C) such Interested Stockholder shall have not become the
beneficial owner of any additional shares of Voting Stock except
as part of the transaction which results in such Interested
Stockholder becoming an Interested Stockholder or by virtue of
proportionate stock splits or stock dividends.
(iii) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation or
any Subsidiary, whether in anticipation of or in connection with
such Business Combination or otherwise.
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(iv) A proxy or information statement describing the
proposed Business Combination and complying with the requirements
of the Securities Exchange Act of 1934 and the rules and
regulations thereunder (or any subsequent provisions replacing
such Act, rules or regulations) shall be mailed to the
stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant
to such Act or subsequent provisions).
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have made any major change in the Corporation's business or
capital structure without the approval of a majority of the
Disinterested Directors.
SECTION 3. Certain Definitions. For the purpose of this Article XIII:
(a) A "person" shall mean any individual or firm, corporation,
partnership, limited partnership, joint venture, trust, unincorporated
association, government or any political subdivision or agency or
instrumentality of a government or other entity and shall include any group
comprised of any person and any other person with whom such person or any
Affiliate or Associate of such person has any agreement, arrangement or
understanding, directly or indirectly, for the purpose of acquiring,
holding, voting or disposing of Voting Stock.
(b) "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of Voting
Stock entitled to cast more than 15% of the votes in the election of
Directors; is an Affiliate or Associate of the Corporation and at any
time within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 15% or
more of the combined voting power of the then outstanding Voting
Stock; or
(ii) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act
of 1933.
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(c) A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly;
(ii) which such person or any of its Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (B) the right to vote or direct the voting pursuant to any
agreement, arrangement or understanding, or (C) the right to dispose
of or direct the disposition of pursuant to any agreement, arrangement
or understanding; or
(iii) which is beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
(d) For the purpose of determining whether a person is an Interested
Stockholder pursuant to paragraph (b) of this Section 3, the number of
shares of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of paragraph (c) of this Section 3 but shall not
include any other shares of Voting Stock which may be issuable pursuant to
any agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December 31,
1996, except that the Corporation or any Subsidiary shall not be deemed to
be an Affiliate or an Associate of any Interested Stockholder.
(f) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Stockholder set forth in paragraph (b) of this Section 3, the
term "Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
Corporation.
(g) "Disinterested Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior to the time
that the Interested
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Stockholder became an Interested Stockholder, and any successor of a
Disinterested Director who is not an Affiliate of the Interested
Stockholder and is recommended to succeed a Disinterested Director by a
majority of Disinterested Directors then serving on the Board of Directors.
(h) "Fair Market Value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date
in question of a share of such stock on the Composite Tape for New York
Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on such exchange, or, if such stock is not listed on such
exchange, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such stock is listed,
or, if such stock is not listed on such exchange, on the National
Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") National Market ("NMS"), or if such stock is not included on
NASDAQ-NMS, the highest closing bid quotation with respect to a share of
such stock during the 30-day period preceding the date in question on the
NASDAQ or any system then in use, or if no such quotations are available,
the fair market value on the date in question of a share of such stock as
determined by the Board of Directors in good faith; and (ii) in the case of
property other than cash or stock, the fair market value of such property
on the date in question as determined by the Board of Directors in good
faith.
(i) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in paragraphs (b)(1)(i) and (ii) of Section 2 of
this Article XIII shall include the shares of Common Stock and/or the
shares of any other class or series of outstanding Voting Stock
retained by the holders of such shares.
(ii) "Voting Stock" means the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
Directors.
SECTION 4. Powers of the Board of Directors. A majority of the Directors of
the Corporation shall have the power and duty to determine for the purposes of
this Article XIII, on the basis of information known to them after reasonable
inquiry (a) whether a person is an Interested Stockholder, (b) the number of
shares of Voting Stock beneficially owned by any persons, (c) whether a person
is an Affiliate or Associate of another, and (d) whether the requirements of
Section 2(b) have been met.
SECTION 5. No Effect on Fiduciary Obligations of Interested Stockholders.
Nothing contained in this Article XIII shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
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SECTION 6. Amendment, Repeal, Etc. Notwithstanding any other provision of
this Certificate of Incorporation or the bylaws of the Corporation (and
notwithstanding the fact that a lesser percentage or separate class vote may be
specified by law, this Certificate of Incorporation or the bylaws of the
Corporation), any proposal to amend or repeal this Article XIII or adopt any
provision of this Certificate of Incorporation inconsistent with it which is
proposed by or on behalf of an Interested Stockholder or any Affiliate or
Associate of such Interested Stockholder shall require the affirmative vote of
the holders of at least 66-2/3% of the Voting Stock entitled to be cast at the
election of Directors, excluding Voting Stock beneficially owned by such
Interested Stockholder, unless such amendment, repeal or adoption is declared
advisable by the affirmative vote of two thirds of the entire Board of Directors
and a majority of the Disinterested Directors.
ARTICLE XIV
Indemnification
Indemnification shall be provided for to the fullest extent authorized in
the Bylaws. Any repeal or amendment of this Article XIV shall not effect
indemnification provided under this Article with respect to any state of facts
existing at or before the time of such amendment and any proceeding, whenever
brought, based in whole or in part upon any such state of facts.
ARTICLE XV
Incorporator
The name and mailing address of the incorporator of the Corporation is
_____________, Corporation Service Company, 1090 Vermont Avenue, N.W.,
Washington, D.C. 20005.
The undersigned being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, makes this certificate, hereby declaring and certifying that
this is my act and deed and the facts herein stated are true, and accordingly
have hereunto set my hand this 6th day of November, 1997.
/s/
----------------------------------------
, Incorporator
Exhibit 3.4
BYLAWS
OF
HARBOR FLORIDA BANCSHARES, INC.
ARTICLE I
Name
SECTION 1. Annual Meeting of Stockholders.
(a) The annual meeting of stockholders of the Corporation, for the purpose
of electing Directors and of transacting such other business as may properly
come before the meeting, shall be held on such date, at such place and such time
as shall be designated by the Board of Directors.
(b) To be properly brought before an annual meeting, business must be
either (i) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (ii) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) otherwise properly brought before the meeting by a stockholder.
(c) In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive office of the Corporation, not later than 120 days
prior to the anniversary date of the immediately preceding annual meeting. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of the Stockholder proposing such business, (iii) the class and number
of shares of the Corporation which are beneficially owned by the stockholder,
and (iv) any material interest of the stockholder in such business.
(d) Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Article I, provided, however, that nothing in this
Article I shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting.
(e) The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Article 1, and if
he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
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SECTION 2. Special Meetings of Stockholders.
Subject to the rights of the holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation, special
meetings of the stockholders for any purpose may be called only by a majority of
the entire Board of Directors.
SECTION 3. Notice of Meeting.
The Secretary shall cause written notice of the time, place and purposes of
each meeting to be mailed, or delivered personally, not less than 10 nor more
than 60 days before the date of the meeting, to each stockholder of record
entitled to vote at the meeting.
Attendance of a person at a meeting of stockholders, in person or by proxy,
constitutes a waiver of notice of the meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
SECTION 4. Quorum.
At any meeting of stockholders the holders of a majority of the shares of
the capital stock of the Corporation issued and outstanding and entitled to
vote, present in person or represented by proxy, shall constitute a quorum of
the stockholders for all purposes unless a greater or lesser quorum shall be
provided by law or by the Certificate of Incorporation and in such case the
representation of the number so required shall constitute a quorum. The
stockholders present in person or by proxy at a meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding
withdrawal of enough stockholders to leave less than a quorum.
Whether or not a quorum is present, the meeting may be adjourned from time
to time by a vote of the shares present. At any such adjourned meeting, at which
a quorum shall be present, any business may be transacted which might have been
transacted at the meeting if held at the time specified in the notice thereof.
SECTION 5. Organization.
The Chairman of the Board of Directors, the Vice Chairman of the Board of
Directors, the President, Senior Vice President or Vice President as the
Chairman of the Board of Directors may designate, shall act as Chairman of
meetings of the stockholders. The Board of Directors or the stockholders may
appoint any stockholder to act as Chairman of any meeting in the absence of the
Chairman of the Board of Directors, the Vice Chairman of the Board of Directors,
the President, Senior Vice President or Vice President.
The Secretary of the Corporation shall act as Secretary at all meetings of
the stockholders; but in the absence of the Secretary, the Chairman of the
meeting may appoint any person to act as Secretary of the meeting.
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SECTION 6. Voting.
Each holder of Common Stock and any series of Preferred Stock having voting
rights shall be entitled to one vote for each share of Common Stock or such
Preferred Stock held of record on all matters on which stockholders generally
are entitled to vote.
Directors shall be elected by ballot and upon demand of any stockholder the
vote upon any question before the meeting shall be by ballot.
Directors shall be elected by a plurality of the votes cast at an election.
All other action shall be authorized by a majority of the votes cast by the
holders of shares entitled to vote thereon, unless a greater vote is required by
law, by the Certificate of Incorporation or these Bylaws.
A stockholder entitled to vote at a meeting of stockholders may authorize
another person to act for him by written proxy.
SECTION 7. Inspectors of Elections.
The Board of Directors or Chairman of the meeting of stockholders shall
appoint one or more inspectors to count and tabulate the votes and to perform
such other acts or duties as may be required by the Chairman or required by law.
On request of the Chairman of the meeting, or as otherwise required by law, the
inspectors shall make and execute a written report to the Chairman of the
meeting of any facts found by them and matters determined by them. The report is
prima facie evidence of the facts stated and of the vote certified by the
inspectors.
ARTICLE II
Directors
SECTION 1. Number.
The business and affairs of the Corporation shall be managed under the
direction of the Board of Directors which, subject to any right of the holders
of any series of Preferred Stock then outstanding to elect additional directors
under specified circumstances, shall consist of not less than five nor more than
15 persons. The exact number of directors within the minimum and maximum
limitations specified in the preceding sentence shall be fixed from time to time
by the Board of Directors pursuant to a resolution adopted by a majority of the
entire Board of Directors.
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SECTION 2. Terms.
The Directors shall be divided into such classes and shall have such terms
as are set forth in the Certificate of Incorporation.
SECTION 3. Newly Created Directorships and Vacancies.
Newly created Directorships and vacancies in the Board of Directors shall
be filled in the manner set forth in the Certificate of Incorporation.
SECTION 4. Removal.
Removal of Directors shall be effected in the manner set forth in the
Certificate of Incorporation.
SECTION 5. Nominations of Director Candidates.
(a) Nominations of candidates for election as Directors of the Corporation
at any meeting of stockholders called for election of Directors (an "Election
Meeting") may be made by the Board of Directors or by any stockholder entitled
to vote at such Election Meeting.
(b) Nominations made by the Board of Directors shall be made at a meeting
of the Board of Directors, or by written consent of Directors in lieu of a
meeting, not less than 20 days prior to the date of the Election Meeting, and
such nominations shall be reflected in the minute books of the Corporation as of
the date made. At the request of the Secretary of the Corporation each proposed
nominee shall provide the Corporation with such information concerning himself
as is required under the rules of the Securities and Exchange Commission, to be
included in the Corporation's proxy statement soliciting proxies for his
election as a Director.
(c) Not less than 90 days prior to the date of the Election Meeting in the
case of an annual meeting, and not more than seven days following the date of
notice of the meeting in the case of a special meeting, any stockholder who
intends to make a nomination at the Election Meeting shall deliver a notice to
the Secretary of the Corporation setting forth (i) the name, age, business
address and residence address of each nominee proposed in such notice, (ii) the
principal occupation or employment of each such nominee, (iii) the number of
shares of capital stock of the Corporation which are beneficially owned by each
such nominee, (iv) a statement that the nominee is willing to be nominated, (v)
a representation that the stockholder is a holder of record of the capital stock
of the Corporation entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice, (vi) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder, and (vii) such other information concerning each such nominee
as would be required, under the rules of the Securities and Exchange Commission,
in a proxy statement soliciting proxies for the election of such nominees. The
presiding officer of the meeting may refuse to acknowledge the nomination by a
stockholder of any person not made in compliance with the foregoing procedures.
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(d) In the event that a person is validly designated as a nominee in
accordance with paragraph (b) or paragraph (c) hereof and shall thereafter
become unable or unwilling to stand for election to the Board of Directors, the
Board of Directors or the stockholder who proposed such nominee, as the case may
be, may designate a substitute nominee.
(e) If the Chairman of the Election Meeting determines that a nomination
was not made in accordance with the procedures as set forth in these Bylaws,
such nomination shall be void.
No person shall be elected a Director of the Corporation after having
attained the age of 70 years.
SECTION 6. Place and Manner of Meeting.
All meetings of the Board of Directors shall be held at the principal
office of the Corporation or at any other place within or without the State of
Delaware as the Board of Directors may from time to time fix therefor. Any
meeting of the Board of Directors, regular or special, may be held by conference
telephone or similar communication equipment so long as all Directors
participating in the meeting can hear one another, and all such Directors shall
be deemed to be present in person at the meeting.
SECTION 7. Regular Meetings.
A regular meeting of the Board of Directors, of which no notice shall be
required to be given, shall be held, if a quorum be present, in each and every
year immediately after the adjournment of the annual meeting of stockholders for
the purpose of electing officers and transacting such other business as might be
transacted at any regular meeting of the Board of Directors. Regular meetings of
the Board of Directors, of which no notice shall be required to be given, shall
be held quarterly in accordance with a schedule established by the Board of
Directors from time to time, except that the scheduled date of any meeting may
be changed by the Chairman of the Board or the President, in the discretion of
either, provided that notice of such change shall be given to all Directors
personally or by mail, telephone or telegraph at least 24 hours prior to such
scheduled date upon which such meeting is to be held.
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SECTION 8. Special Meetings.
Special meetings of the Board of Directors shall be called by the Secretary
at the direction of the Chairman of the Board, the President, or a majority of
the Directors. Notice of the time and place of any special meeting of the Board
of Directors shall be given by serving the same personally or by telephone or by
telegram addressed to each Director at his post office address as the same shall
appear on the books of the Corporation at least two hours before such meeting.
Each member of the Board of Directors shall, by writing filed with the
Secretary, designate his post office address to which notices or meetings of the
Board of Directors of the Corporation shall be directed, and in the event of any
change therein shall likewise designate his new post office address.
SECTION 9. Quorum.
A majority of the members of the Board of Directors then in office, or of a
committee thereof, shall constitute a quorum for the transaction of business,
and the vote of a majority of the members present at a meeting at which a quorum
is present shall be the act of the Board of Directors or of the Committee
thereof, except for the amendment of the Bylaws which shall require a vote of
not less than a majority of the members of the Board of Directors then in
office.
SECTION 10. Action Without a Meeting.
Action required or permitted to be taken at a meeting of the Board of
Directors, or a committee thereof, may be taken without a meeting, if all
members of the Board of Directors or of the committee consent thereto in
writing. The written consent shall be filed with the minutes of the proceedings
of the Board of Directors or Committee. The consent shall have the same effect
as a vote of the Board of Directors or Committee thereof for all purposes.
SECTION 11. Organization.
At all meetings of the Board of Directors, the Chairman of the Board of
Directors, the Vice Chairman of the Board of Directors, the President, a Senior
Vice President or a Vice President or in their absence a member of the Board to
be selected by the members present, shall preside as Chairman of the meeting.
The Secretary or an Assistant Secretary of the Corporation shall act as
secretary of all meetings of the Board, except that in their absence the
Chairman of the meeting may designate any other person to act as secretary.
At meetings of the Board of Directors business shall be transacted in such
order as from time to time the Board may determine.
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SECTION 12. Committees of the Board.
The Board of Directors may designate one or more Committees, including an
Executive Committee, each consisting of one or more Directors of the Corporation
as members, with such power and authority as prescribed by the Bylaws or as
provided in a resolution of the Board of Directors. Each Committee, and each
member thereof, shall serve at the pleasure of the Board of Directors.
ARTICLE III
Officers
SECTION 1. Officers.
The officers of the Corporation shall be a President, one or more Senior
Vice Presidents, one or more Vice Presidents, a Secretary, a Treasurer and/or a
Controller, and such additional officers, if any, as shall be elected by the
Board of Directors in accordance with these Bylaws. The Board of Directors,
immediately after each annual meeting of stockholders, shall select a President
and one or more Senior Vice Presidents and Vice Presidents, and a Secretary, a
Treasurer and/or a Controller. The failure to hold such election shall not of
itself terminate the term of office of any officer. All officers shall hold
office at the pleasure of the Board of Directors. Any officer may resign at any
time upon written notice to the Corporation. Officers may, but need not, be
Directors. Any two or more of the above offices may be held by the same persons
except as prohibited by law, but no officer shall execute, acknowledge or verify
an instrument in more than one capacity if the instrument is required by law to
be acknowledged or verified by two or more officers.
All officers shall be subject to removal with or without cause at any time
by the affirmative vote of a majority of the members of the Board of Directors
then in office. The removal of an officer without cause shall be without
prejudice to his contract rights, if any. The election or appointment of an
officer shall not of itself create contract rights. All agents and employees
other than officers elected by the Board of Directors shall also be subject to
removal, with or without cause, at any time by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as
set forth in these Bylaws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
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<PAGE>
SECTION 2. President.
The President shall be the chief executive officer of the Corporation and,
subject to the direction of the Board of Directors, shall have general
management and control of the affairs and business of the Corporation and shall
have general charge, control and supervision over the administration and
operations of the Corporation. He shall have all other powers and perform all
other duties commonly incident to his office or delegated to him by the Board of
Directors or which are or may at any time be authorized or required by law.
SECTION 3. Vice Presidents.
Each Senior Vice President and each of the other Vice Presidents shall have
such powers and perform such duties as may be assigned to him by the Board of
Directors or be delegated to him by the Board of Directors or the President. In
case of death, disability or absence of the President, the powers, duties and
functions of the President shall be temporarily performed and exercised by such
one of the Senior Vice Presidents or the Vice Presidents as shall be designated
by the Board of Directors.
SECTION 4. Secretary.
The Secretary shall keep the minutes of all meetings of the stockholders
and of the Board of Directors, and also (unless otherwise directed) the minutes
of all meetings of Committees. He shall procure and keep in his files copies of
the minutes of all meetings of stockholders and Boards of Directors of all
corporations which the Corporation controls by ownership of stock or otherwise.
He shall attend to the giving and serving of all notices and shall be custodian
of the seal of the Corporation. He may sign with the President or a Vice
President, in the name of the Corporation, all bonds, contracts and instruments
of conveyance authorized by the Board of Directors, and when so ordered by the
Board of Directors he shall affix the seal of the Corporation thereto. He shall
have charge of all such books and papers as the Board of Directors may direct;
all of which shall at all reasonable times be open to the examination of any
Director upon application at the office of the Corporation during business
hours. He shall publish promptly to stockholders any action in respect to
dividends or the allotment of rights for subscription to securities. He or the
Treasurer shall have charge of the capital stock transfer records, ledgers and
unissued and cancelled certificates and shall prepare and certify for use at the
annual meeting of stockholders a list, alphabetically arranged, of the
stockholders entitled to vote at such meeting. He shall, in general, perform all
the duties incident to the office of the Secretary and shall also have such
other powers and shall perform such other duties as may from time to time be
assigned to him by these Bylaws, the Board of Directors or the President.
SECTION 5. Powers and Duties of the Treasurer.
The Treasurer shall have custody of all funds of the Corporation. He is
authorized and empowered to receive and collect all monies due to the
Corporation and to receipt therefor. All monies received by the Treasurer shall
be deposited to the credit of the Corporation with such depositories as may be
designated by the Board of Directors; he may endorse for deposit therein,
8
<PAGE>
or for collection, all checks, drafts, vouchers, notes or other obligations
drawn to the order of the Corporation or payable to it. He is authorized to pay,
by check or otherwise, vouchers, payrolls, drafts and other accounts payable
when approved for payment by the Controller or such person or persons as may be
designated by the Board of Directors or the President. He is authorized to make
disbursements which have been otherwise ordered or provided for by the Board of
Directors, and for dividends on stock when due and payable. He is also
authorized to draw checks against any funds to the credit of the Corporation
with any of its depositories; but all checks drawn by him except as otherwise
provided for by resolution of the Board of Directors shall be countersigned by
such person or persons as may be designated by the Board of Directors or the
President from time to time to countersign the same. He shall sign, with the
President or such other person or persons as may be designated for the purpose
by the Board of Directors, all bills of exchange and promissory notes of the
Corporation. He shall enter regularly in the books of the Corporation, to be
kept by him for that purpose, a full and accurate account of all monies received
and paid by him on account of the Corporation; and shall render reports thereof
to the Controller or such other person or persons as may be designated for the
purpose by the Board of Directors at such times and in such form as the latter
may prescribe. Whenever required by the Board of Directors or such other person
or persons as may be designated for the purpose by the Board of Directors he
shall render a statement of his cash and security accounts, and shall at all
reasonable times exhibit his books and accounts to any director of the
Corporation upon application at the office of the Corporation during business
hours. He shall perform all acts incident to the position of the Treasurer and
shall also have such other powers and shall perform such other duties as may
from time to time be assigned to him by these Bylaws, the Board of Directors,
the President or such other person or persons as may be designated for the
purpose by the Board of Directors.
SECTION 6. Additional Officers.
The Board of Directors may from time to time elect such other officers (who
may but need not be Directors), including but not limited to a Controller,
Assistant Treasurers, Assistant Secretaries and Assistant Controllers, as the
Board may deem advisable and such officers shall have such authority and shall
perform such duties as may from time to time be assigned to them by the Board of
Directors or the President.
The Board of Directors may from time to time by resolution delegate to any
Assistant Treasurer or Assistant Treasurers any of the powers or duties herein
assigned to the Treasurer; and may similarly delegate to any Assistant Secretary
or Assistant Secretaries any of the powers or duties herein assigned to the
Secretary.
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<PAGE>
ARTICLE IV
Capital Stock
SECTION 1. Certificates of Stock.
The certificates for shares of the capital stock of the Corporation shall
be in such form as shall be approved by the Board of Directors. The certificates
shall be signed by the President or any Vice President and also by the Treasurer
or the Secretary, and may be sealed with the seal of the Corporation, or a
facsimile thereof.
The signatures of the aforesaid officers may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Corporation or its employee. The validity of any stock
certificate of the Corporation signed and executed by or in the name of duly
qualified officers of the Corporation shall not be affected by the subsequent
death, resignation, or the ceasing for any other reason of any such officer to
hold such office, whether before or after the date borne by or the actual
delivery of such certificates.
All certificates for shares of stock shall be consecutively numbered as the
same are issued. The name of the person owning the shares represented thereby,
with the number of such shares and the date of issue, shall be entered on the
Corporation's capital stock records.
Except as hereinafter provided, all certificates surrendered to the
Corporation shall be cancelled, and no new certificates shall be issued until
the former certificate for the same number of shares shall have been surrendered
and cancelled except in case of a lost or destroyed certificate.
The Corporation may treat the holder of record of any share or shares of
stock as the holder in fact thereof, and shall not be bound to recognize any
equitable or other claim to or interest in any such share or shares on the part
of any other person, whether or not it shall have express or other notice
thereof, save as expressly provided by law.
SECTION 2. Lost Certificate.
The Corporation may issue a new certificate for shares in place of a
certificate theretofore issued by it, alleged to have been lost or destroyed,
and the Board of Directors may require the owner of the lost or destroyed
certificate, or his legal representative, to give the Corporation a bond in form
satisfactory to the Corporation sufficient to indemnify the Corporation, its
transfer agents and registrars against any claim that may be made against them
on account of the alleged lost or destroyed certificate or the issuance of such
a new certificate.
SECTION 3. Transfer of Shares.
Shares of the capital stock of the Corporation shall be transferable by the
owner thereof in person or by a duly authorized attorney, upon surrender of the
certificates therefor properly endorsed. The Board of Directors, at its option,
may appoint a transfer agent and registrar, or
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<PAGE>
one or more transfer agents and one or more registrars, or either, for the stock
of the Corporation.
SECTION 4. Regulations.
The Board of Directors shall have power and authority to make all such
rules and regulations as they may deem expedient concerning the issue, transfer
and registration of certificates for shares of the capital stock of the
Corporation.
SECTION 5. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, as the case may be, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days before
the date of such meeting, nor more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; and the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 6. Dividends and Stock Repurchases.
Subject to the provisions of the Certificate of Incorporation, the Board of
Directors shall have the power to declare and pay dividends upon shares of, and
authorize repurchase programs for, stock of the Corporation, but only out of
funds available for the payment of dividends or repurchase of shares as provided
by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
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SECTION 7. Corporate Seal.
The Board of Directors shall provide a suitable seal, containing the name
of the Corporation, which seal shall be kept in the custody of the Secretary. A
duplicate of the seal may be kept and be used by any officer of the Corporation
designated by the Board or the President.
SECTION 8. Fiscal Year.
The fiscal year of the Corporation shall end on September 30 or shall be
such other fiscal year as the Board of Directors from time-to time by resolution
shall determine.
ARTICLE V
Miscellaneous Provisions
SECTION 1. Checks, Notes, Etc.
All checks, drafts, bills of exchange, acceptances, notes or other
obligations or orders for the payment of money shall be signed by at least one
(1) officer of the Corporation, or by a greater number of officers of the
Corporation and/or other persons as the Board of Directors from time to time
shall designate or as otherwise required by law.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depositary
by the Treasurer, or otherwise as the Board of Directors may from time to time,
by resolution, determine.
SECTION 2. Loans.
No loans and no renewals of any loans shall be contracted on behalf of the
Corporation except as authorized by the Board of Directors. When authorized so
to do, any officer or agent of the Corporation may effect loans and advances for
the Corporation from any bank, trust company or other institution or from any
firm, corporation or individual, and for such loans and advances may make,
execute and deliver promissory notes, bonds or other evidences of indebtedness
of the Corporation. When authorized so to do, any officer or agent of the
Corporation may pledge, hypothecate or transfer, as security for the payment of
any and all loans,, advances, indebtedness and liabilities of the Corporation,
any and all stocks, securities and other personal property at any time held by
the Corporation, and to that end may endorse, assign and deliver the same. Such
authority may be general or confined to specific instances.
SECTION 3. Waivers of Notice.
Whenever any notice whatever is required to be given by law, by the
Certificate of Incorporation or by these Bylaws to any person or persons, a
waiver thereof in writing, signed by
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<PAGE>
the person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
SECTION 4. Offices Outside of Delaware.
Except as otherwise required by the laws of the State of Delaware, the
Corporation may have an office or offices and keep its books, documents and
papers outside of the State of Delaware at such place or places as from time to
time may be determined by the Board of Directors or the President.
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 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 mount 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.
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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.
ARTICLE VII
Amendments
The stockholders or the Board of Directors of the Corporation may amend or
repeal the Bylaws or adopt new Bylaws. Except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, the vote of a majority of the
shares present or represented by proxy and entitled to vote at any annual or
special meeting shall be required to amend or repeal the Bylaws or to adopt new
Bylaws. Except as otherwise required by law, the Certificate of Incorporation or
these Bylaws, such action by the Board of Directors requires an affirmative vote
of not less than a majority of the members of the Board of Directors then in
office.
Exhibit 3.5
HARBOR FLORIDA BANCORP, INC.
FEDERAL STOCK CHARTER
Section 1. Corporate title. The full corporate title of the MHC subsidiary
holding company is Harbor Florida Bancorp, Inc.
Section 2. Domicile. The domicile of the MHC subsidiary holding company
shall be in the city of Fort Pierce, in the state of Florida.
Section 3. Duration. The duration of the MHC subsidiary holding company is
perpetual.
Section 4. Purposes and powers. The purpose of the MHC subsidiary holding
company is to pursue any or all of the lawful objectives of a federal mutual
holding company chartered under Section 10(o) of the Home Owners' Loan Act, 12
U.S.C. ss. 1467a(o), and to exercise all of the express, implied, and incidental
powers conferred thereby and by all acts amendatory thereof and supplemental
thereto, subject to the Constitution and laws of the United States as they are
now in effect, or as they may be hereafter be amended, and subject to all lawful
and applicable rules, regulations, and orders of the Office of Thrift
Supervision ("Office").
Section 5. Capital stock. The total number of shares of all classes of the
capital stock that the MHC subsidiary holding company has the authority to issue
is 13,000,000, all of which shall be common stock of par value of $0.01 per
share. The shares may be issued from time to time as authorized by the board of
directors without the approval of its shareholders, except as otherwise provided
in this Section 5 or to the extent that such approval is required by governing
law, rule, or regulation. The consideration for the issuance of the shares shall
be paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the MHC subsidiary holding company. The
consideration for the shares shall be cash, tangible or intangible property (to
the extent direct investment in such property would be permitted to the MHC
subsidiary holding company), labor, or services actually performed for the MHC
subsidiary holding company, or any combination of the foregoing. In the absence
of actual fraud in the transaction, the value of such property, labor, or
services, as determined by the board of directors of the MHC subsidiary holding
company, shall be conclusive. Upon payment of such consideration, such shares
shall be deemed to be fully paid and nonassessable. In the case of a stock
dividend, that part of the retained earnings of the MHC subsidiary holding
company that is transferred to common stock or paid-in capital accounts upon the
issuance of shares as a stock dividend shall be deemed to be the consideration
for their issuance.
<PAGE>
Except for shares issued in the initial organization of the MHC subsidiary
holding company, no shares of capital stock (including shares issuable upon
conversion, exchange, or exercise of other securities) shall be issued, directly
or indirectly, to officers, directors, or controlling persons (except for shares
issued to the parent mutual holding company) of the MHC subsidiary holding
company other than as part of a general public offering or as qualifying shares
to a director, unless the issuance or the plan under which they would be issued
has been approved by a majority of the total votes eligible to be cast at a
legal meeting.
The holders of the common stock shall exclusively possess all voting power.
Each holder of shares of common stock shall be entitled to one vote for each
share held by such holder, except as to the cumulation of votes for the election
of directors, unless the charter provides that there shall be no such cumulative
voting. Subject to any provision for a liquidation account, in the event of any
liquidation, dissolution, or winding up of the MHC subsidiary holding company,
the holders of the common stock shall be entitled, after payment or provision
for payment of all debts and liabilities of the MHC subsidiary holding company,
to receive the remaining assets of the MHC subsidiary holding company available
for distribution, in cash or in kind. Each share of common stock shall have the
same relative rights as and be identical in all respects with all the other
shares of common stock.
Section 6. Preemptive rights. Holders of the capital stock of the MHC
subsidiary holding company shall not be entitled to preemptive rights with
respect to any shares of the MHC subsidiary holding company which may be issued.
Section 7. Directors. The MHC subsidiary holding company shall be under the
direction of a board of directors. The authorized number of directors, as stated
in the MHC subsidiary holding company's bylaws, shall not be fewer than five nor
more than fifteen except when a greater or lesser number is approved by the
Directors of the Office, or his or her delegate.
Section 8. Amendment of charter. Except as provided in Section 5, no
amendment, addition, alteration, change or repeal of this charter shall be made,
unless such is proposed by the board of directors of the MHC subsidiary holding
company, approved by the shareholders by a majority of the votes eligible to be
cast at a legal meeting, unless a higher vote is otherwise required, and
approved or preapproved by the Office.
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<PAGE>
Attest: _____________________________________________
Don W. Bebber, Corporate Secretary
By: _____________________________________________
Michael J. Brown, Sr., President and CEO
Attest: _____________________________________________
Secretary of the Office of Thrift Supervision
By: _____________________________________________
Director of the Office of Thrift Supervision
Effective Date: _____________________________________________
Exhibit 4
NUMBER SHARES
- ------------ -----------
COMMON STOCK CUSIP _____
SEE REVERSE FOR
CERTAIN DEFINITIONS
HARBOR FLORIDA BANCSHARES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
SPECIMEN
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.001 PER SHARE OF
HARBOR FLORIDA BANCSHARES, INC. (the "Corporation"), a Delaware corporation. The
shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate is not valid until countersigned
and registered by the Corporation's transfer agent and registrar. THIS SECURITY
IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
DATED
- ------------------- -------------------- -------------------------------------
Secretary SEAL President and Chief Executive Officer
<PAGE>
The shares represented by this certificate are issued subject to all the
provisions of the certificate of incorporation and bylaws of Harbor Florida
Bancshares, Inc. (the "Corporation") as from time to time amended (copies of
which are on file at the principal executive offices of the Corporation).
The Corporation's certificate of incorporation also includes a provision
the general effect of which is to require the affirmative vote of the holders of
66 2/3% of the outstanding voting shares of the Corporation to approve certain
"business combinations" (as defined in the certificate of incorporation) between
the Corporation and a stockholder owning in excess of 10% of the outstanding
shares of the Corporation. However, only the affirmative vote of a majority of
the outstanding shares or such vote as is otherwise required by law (rather than
the 66 2/3% voting requirement) is applicable to the particular transaction if
it is approved by a majority of the "disinterested directors" (as defined in the
certificate of incorporation) or, alternatively, the transaction satisfies
certain minimum price and procedural requirements. The Corporation's certificate
of incorporation also contains a provision which requires the affirmative vote
of holders of at least 66 2/3% of the outstanding voting shares of the
Corporation which are not beneficially owned by the "interested person" (as
defined in the certificate of incorporation) to approve the direct or indirect
purchase or other acquisition by the Corporation of any "equity security" (as
defined in the certificate of incorporation) from such interested person.
The Corporation will furnish to any stockholder upon request and without
charge a full statement of the powers, designations, preferences and relative
participating, optional or other special rights of each authorized class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights, to the extent that the same have been fixed, and
of the authority of the board of directors to designate the same with respect to
other series. Such request may be made to the Corporation or to its transfer
agent and registrar.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed, as though they were written out in full
accounting to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -______ Custodian _______
TEN ENT - as tenants by the entirety (Cust) (Minor)
JT TEN - as joint tenants with Under Uniform Gift to Minors Act
right of survivorship and ________________________________
not as tenants in common (State)
UNIF TRANS MIN ACT -_____ Custodian ______
(Cust) (Minor)
Under Uniform Transfers to Minors Act
________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _______________________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of Common Stock represented by the within certificates, do and hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------------
Attorney to transfer the said shares on the books of the within named
Corporation with full power of substitution in the premises
<PAGE>
Dated: ----------------------- ------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Exhibit 5.1
(202) 973-7700
November 10, 1997
Board of Directors
Harbor Florida Bancshares, Inc.
100 S. Second Street
Fort Pierce, FL 3495
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
You have requested our opinion as special counsel to Harbor Florida
Bancshares, Inc. (the "Company") in connection with the Registration Statement
on Form S-1 filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Registration Statement"). The
Registration Statement relates to shares of common stock of the Company (the
"Common Stock") to be issued in connection with Harbor Financial M.H.C.
conversion from mutual to stock form and merger into Harbor Federal Savings Bank
(the "Bank") whereby the Bank will become a wholly owned subsidiary of the
Company.
In rendering this opinion, we understand that the Common Stock will be
offered and sold in the manner described in the Prospectus which is a part of
the Registration Statement. We have examined such records and documents and made
such examination as we have deemed relevant in connection with this opinion.
Based upon the foregoing, it is our opinion that the shares of Common Stock
will, when issued and sold as contemplated by the Registration Statement, be
legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus under the
heading "Legal Opinion."
Very truly yours,
/s/
Exhibit 8.1
[PEABODY & BROWN LETTERHEAD]
November 7, 1997
Board of Directors
Harbor Federal Savings Bank
100 S. Second Street
P.O. Box 249
Fort Pierce, Florida 34954-0249
Gentlemen:
You have asked that we provide you our opinion in regard to certain federal
income tax matters relating to the Amended Plan of Conversion and Reorganization
of Harbor Financial M.H.C. and Agreement and Plan of Merger between Harbor
Financial M.H.C., Harbor Florida Bancorp, Inc., Harbor Federal Savings Bank and
Harbor Florida Bancshares, Inc. dated as of October 31, 1997 (the "Plan").
We have examined the Plan and certain other documents as we deemed
necessary in order to provide our opinions. Unless otherwise defined, all terms
used in this letter have the meanings given to them in the Plan.
In our examination, we assumed that original documents were authentic,
copies were accurate and signatures were genuine. We have further assumed the
absence of adverse facts not apparent from the face of the instruments and
documents we examined. In rendering our opinion, we have relied upon certain
written representations of Harbor Federal Savings Bank ("Bank") and Harbor
Financial M.H.C. ("MHC") (collectively referred to herein as the
"Representations") which are attached hereto.
We assumed that the Plan has been or will be duly and validly authorized
and approved and adopted and that all parties will comply with the terms and
conditions of the Plan, and that the various representations and warranties
which have been provided to us are accurate, complete, true and correct.
Accordingly, we express no opinion concerning the effect, if any, of variations
from the foregoing. We specifically express no opinion concerning tax matters
relating to the Plan under state and local tax laws.
In issuing the opinions set forth below, we have referred solely to
existing provisions of (1) the Internal Revenue Code of 1986, as amended
("Code"), and existing and proposed Treasury Regulations thereunder; and (2)
current administrative rulings, notices and procedures and court decisions. Such
laws, regulations, administrative rulings, notices and procedures and court
decisions are subject to change at any time. Any such change could affect the
continuing validity of the opinions set forth below. This opinion is as of the
date hereof, and we disclaim any obligation to advise you of any change after
the date hereof.
<PAGE>
Board of Directors
Harbor Federal Savings Bank
November 7, 1997
Page 2
There can be no assurance that our opinions would be adopted by the
Internal Revenue Service (the "Service") or a court. The outcome of litigation
cannot be predicted. We have, however, attempted in good faith to opine as to
the merits of each tax issue with respect to which an opinion was requested.
STATEMENT OF FACTS
On January 6, 1994, Harbor Federal Savings Bank, a federally chartered
mutual savings institution, was 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,
MHC 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 MHC and the Holding Company believe that a
conversion of the MHC to stock form pursuant to this Plan is in the best
interests of MHC and the Bank, as well as the best interests of their respective
Members and Stockholders. The Boards of Directors determined that this Plan
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 and is designed to
enable the Bank to compete more effectively in a market which is undergoing
consolidation.
For valid business reasons, the present corporate structure of the MHC and
the Bank will be changed pursuant to the following proposed transactions:
(i) Holding Company will convert from a Delaware holding company into
a federal holding company and thereafter into a federal stock savings bank
("Interim Holding") and MHC will convert from a mutual form to a federal
interim stock savings bank ("Interim MHC").
(ii) Interim Holding will merge into Bank with the Bank being the
surviving corporation ("Merger 1").
(iii) Immediately after Merger 1, Interim MHC will merge with and into
the Bank, with the Bank being the surviving corporation ("Merger 2"). The
Bank stock which was previously held by the MHC will be extinguished.
Eligible members of the MHC as of certain specified dates set forth in the
Plan will be granted interests in a liquidation account to be established
by the Bank (referred to herein as "Bank Liquidation Accounts").
<PAGE>
Board of Directors
Harbor Federal Savings Bank
November 7, 1997
Page 3
The initial balance of the liquidation account will be equal to the
amount of dividends from Bank Common Stock waived by MHC plus the greater
of: (i) 100% of the retained earnings of the Bank as of June 30, 1993, or
(ii) 53.4% of the Bank's total shareholder equity as reflected in its
latest statement of financial condition contained in the Prospectus to be
utilized in the MHC's mutual-to-stock Conversion.
(iv) The Bank will form a Delaware corporation as a new, wholly owned,
first tier subsidiary ("Bancshares"), which will become a new holding
company.
(v) Bancshares will form an interim corporation ("Interim Corp") as a
new, wholly owned first tier subsidiary that is a federally-chartered stock
savings bank.
(vi) Immediately following Merger 2, Interim Corp will merge with and
into the Bank, with the Bank surviving entity ("Merger 3"). Merger 1,
Merger 2, and Merger 3 will be completed in accordance with applicable
federal and state laws. As a result of Merger 3, the Bank stock deemed held
by the Public Stockholders will be converted into Bancshares stock based
upon an exchange ratio which ensures that the Public Stockholders will own,
in the aggregate, approximately the same percentage of Bancshares stock
outstanding upon completion of the Conversion as the percentage of Bank
stock owned by them in the aggregate immediately prior to the consummation
of the Conversion, before giving effect to: (a) cash paid in lieu of
fractional shares, and (b) any shares of Bancshares stock purchased by
Public Stockholders in the Offering; in addition, the shares of Interim
Corp will be converted into shares of Bank stock.
(vii) Simultaneously with the consummation of Merger 3, Bancshares
will sell additional shares of Bancshares stock, with priority subscription
rights granted to certain members of the MHC at specified dates, and to tax
qualified employee benefit plans, directors, and employees of the Bank.
ANALYSIS AND OPINION
Section 354 of the Code provides that no gain or loss shall be recognized
by stockholders who exchange common stock in a corporation, which is a party to
a reorganization, solely for common stock in another corporation which is a
party to the reorganization. Section 356 of the Code provides that stockholders
shall recognize gain to the extent they receive money as part of a
reorganization, such as money received in lieu of fractional shares. Section 358
of the Code provides that, with certain adjustments for money received in a
reorganization, a stockholder's basis in the common stock he or she receives in
a reorganization shall equal the basis of the common stock which he or she
surrendered in the transaction. Section 1223(1) states that, where a stockholder
receives property in an exchange which has the same basis as the property
surrendered, he or she shall be deemed to have held the property received for
the same period as the property exchanged, provided that the property exchanged
had been held as a capital asset.
Section 361 of the Code provides that no gain or loss shall be recognized
to a corporation which is a party to a reorganization on any transfer of
property pursuant to a plan of reorganization. Section 362 of the Code provides
that if property is acquired by a corporation in connection with a
reorganization, then the basis of such property shall be same as it would be in
the hands of the transferor
<PAGE>
Board of Directors
Harbor Federal Savings Bank
November 7, 1997
Page 4
immediately prior to the transfer. Section 1223(2) of the Code states that where
a corporation will have a carryover basis in property received from another
corporation which is a party to a reorganization, the holding period of such
assets in the hands of the acquiring corporation shall include the period for
which such assets were held by the transferor, provided that the property
transferred had been held as a capital asset. Section 1032 of the Code states
that no gain or loss shall be recognized to a corporation on the receipt of
property in exchange for common stock.
Section 368(a)(1)(F) of the Code provides that a mere change in identity,
form, or place of organization, however effected, is a reorganization. When MHC
converts itself from a federal mutual holding company to a federal interim stock
savings bank, the changes at the corporate level will be insubstantial.
Similarly, when Holding Company adopts a federal charter and converts itself to
a federal stock savings bank, the changes at the corporate level will be
insubstantial. In addition, Rev. Rul. 80-105 provides that the conversion of a
federal mutual savings and loan association to a state or federal stock savings
and loan association, and the conversion of a state chartered mutual savings and
loan association to a stock savings and loan association in the same state are
reorganizations under Code Section 368(a)(1)(F). Therefore, the change in the
form of operation of MHC and Holding Company should constitute reorganizations
within the meaning of Section 368(a)(1)(F) of the Code.
Section 368(a)(1)(A) of the Code defines the term "reorganization" to
include a "statutory merger or consolidation" of corporations. Section
368(a)(2)(E) of the Code provides that a transaction otherwise qualifying as a
merger under Section 368(a)(1)(A), shall not be disqualified by reason of the
fact that common stock of a corporation which before the merger was in control
of the merged corporation, is used in the transaction if (i) after the
transaction, the corporation surviving the merger holds substantially all of its
properties and the properties of the merged corporation; and (ii) former
stockholders of the surviving corporation exchanged, for an amount of voting
common stock of the controlling corporation, an amount of common stock in the
surviving corporation which constitutes control of such corporation.
In order to qualify as a reorganization under Section 368(a)(1)(A), a
transaction must constitute a merger or consolidation effected pursuant to the
corporation laws of the United States or a state. Merger 1, Merger 2 and Merger
3 will be consummated in accordance with applicable federal and state laws.
In addition, a transaction qualifying as a reorganization under Section
368(a)(1)(A) of the Code must satisfy the "continuity of interest doctrine"
which requires that the continuing common stock interest of the former owners of
an acquired corporation, considered in the aggregate, represents a "substantial
part" of the value of their former interest and provides them with a "definite
and substantial interest" in the affairs of the acquiring corporation or a
corporation in control of the acquiring corporation. Helvering v. Minnesota Tea
Co., 296 U.S. 378 (1935); Southwest Natural Gas Co. v. Comm'r., 189 F.2d 332
(5th Cir. 1951), cert. denied, 342 U.S. 860 (1951).
As a result of Merger 1, the shareholders of Holding Company receive an
interest in Bank which will subsequently be converted into an interest in
Bancshares. Consequently, the continuity of interest doctrine should be
satisfied with regard to Merger 1.
<PAGE>
Board of Directors
Harbor Federal Savings Bank
November 7, 1997
Page 5
With regard to Merger 2, the MHC, as a federally-chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
Instead, the MHC has members who are accorded a variety of proprietary rights
such as voting rights and certain rights in the unlikely event of liquidation.
Prior to Merger 2, certain depositors in the Bank have both a deposit account in
the institution and a pro rata inchoate proprietary interest in the net worth of
the MHC based upon the balance in his account in the Bank, an interest which may
only be realized in the event of a liquidation of the MHC. However, this
inchoate proprietary 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 MHC,
which is lost to the extent that the balance in the account is reduced.
In accordance with the Plan, the Members will receive Bank Liquidation
Accounts and continue their inchoate proprietary interests in the Bank following
Merger 2. Although the Bank Liquidation Accounts would not allow the Members the
right to vote or the right to pro rata distributions of earnings, they would be
entitled to share in the distribution of assets upon the liquidation of the Bank
following Merger 2. The Members' liquidation interests in the Bank is
substantially similar to their current ownership interest in the MHC (a
liquidation interest in the MHC). Because the Members are not in effect "cashing
out" their inchoate proprietary interests in the MHC, they would continue to
maintain an inchoate proprietary interest in the Bank upon the consummation of
Merger 2. Such payments to be received as Bank Liquidation Accounts are not
guaranteed and can only be received by Members who continue to maintain deposit
accounts in the Bank following Merger 1. Therefore, it would seem that the
exchange of the Members' equity interests in the MHC for Bank Liquidation
Accounts should not violate the continuity of interest requirement of Section
1.368-1(b) of the Treasury Regulations. In addition, in PLR 9510044, the Service
held on facts which are identical to those of Merger 2, as described above, that
the continuity of interest doctrine was satisfied. Although a private letter
ruling cannot be cited as precedent, it is illustrative of the Service's
position on an issue.
As a result of Merger 3, the shareholders of Bank will receive a continuing
interest in Bancshares, the sole shareholder of Bank. Consequently, the
continuity of interest doctrine should be satisfied with regard to Merger 3.
One of the requirements of Section 368(a)(2)(E) of the Code is that
subsequent to the transaction, the corporation surviving the merger must hold
substantially all of its properties and the properties of the merged
corporation. The Bank has represented in the Representations that, following
Merger 3, it will hold at least 90% of the fair-market value of its net assets
and at least 70% of the fair-market value of its gross assets, and at least 90%
of the fair-market value of Interim Corp's net assets and at least 70% of the
fair-market value of Interim Corp's gross assets held immediately prior to
Merger 3. Based upon the representations, the Bank will clearly satisfy this
requirement of Code Section 368(a)(2)(E).
Pursuant to Code Section 368(a)(2)(E), Bancshares must also acquire control
of the Bank in Merger 3. Control is defined as at least 80% of the total
combined voting power of all classes of stock entitled to vote, and at least 80%
of the total number of shares. Subsequent to Merger 3, Bancshares will hold all
of the Bank stock. However, there is an issue as to whether the Bank Liquidation
Accounts must be taken into account for purposes of the "control" test. If the
Bank Liquidation Accounts are to be
<PAGE>
Board of Directors
Harbor Federal Savings Bank
November 7, 1997
Page 6
included in determining whether Bancshares acquired control of the Bank in
Merger 3, it would be necessary to recognize such interests as another class of
Bank stock. Although the Bank Liquidation Accounts may be compared to the equity
interests held by members of the MHC, which afforded members an equity/ownership
interest in the MHC, these interests in the Bank are too remote to qualify as a
separate class of Bank stock. Therefore, the Bank Liquidation Accounts should be
disregarded in determining whether Bancshares acquires control of the Bank in
Merger 3. The Service's analysis in PLR 9510044 supports this conclusion. PLR
9510044 involved the conversion of a mutual holding company from mutual to stock
form and a subsequent merger of mutual holding company into stock savings bank
with bank surviving. The stock of the savings bank held by mutual holding
company was extinguished and members of mutual holding company were granted
interests in a liquidation account established at bank. Subsequent thereto, the
bank engaged in a typical reorganization under Section 368(a)(2)(E) of the Code
to create a holding company structure identical to the structure of Bank
subsequent to Merger 3. The Service held that the liquidation interests in bank
(as well as stock previously held by mutual holding company in bank) were to be
disregarded in determining whether control of the bank was obtained by the
holding company in accordance with Section 368(c) of the Code.
In addition to the requirements discussed above, there is a judicially
created substance over form concept often referred to as the "step transaction
doctrine" which applies throughout tax law, including the corporate
reorganization area. The step transaction doctrine is an extremely amorphous
concept. Often, application of the doctrine hinges on whether a court finds that
a particular series of transactions runs counter to a significant tax policy.
Notwithstanding years of litigation and hundreds of cases, the exact contours of
the step transaction doctrine, and even its proper formulation, are still the
subject of intense debate. Consequently, it often will be difficult to determine
with a high degree of certainty whether a series of related transactions will be
stepped together in some fashion for tax purposes.
The courts over the years have developed three distinct verbal formulations
of the doctrine: (i) the binding commitment test, (ii) the end result test, and
(iii) the interdependence test. While the courts nominally apply one or more of
these three tests, a careful reading of the relevant cases indicates that the
courts, as a preliminary matter, in deciding whether to apply the step
transaction doctrine, tend to focus primarily on two key factors: intent and
temporal proximity. However, case law and the Service's pronouncements indicate
that there are limitations on the ability to assert the step transaction
doctrine, regardless of (i) the taxpayer's intent at the time of the first
transaction to engage in the later transactions, and (ii) the short period of
time that elapses between the transactions.
Case law and the Service's pronouncements indicate that if two or more
transactions carried out pursuant to an overall plan have economic significance
independent of each other, the transactions generally will not be stepped
together. The Service's most significant pronouncement regarding independent
economic significance is Rev. Rul. 79-250. In that ruling, the Service asserted
that:
the substance of each of a series of steps will be recognized and the step
transaction doctrine will not apply, if each such step demonstrates
independent economic significance, is not subject to attack as a sham, and
was undertaken for valid business purposes and not mere avoidance of taxes.
<PAGE>
Board of Directors
Harbor Federal Savings Bank
November 7, 1997
Page 7
The parties to Merger 2 maintain a separate and distinct business purpose
for consummating Merger 2 (e.g., allowing for the conversion of the MHC from
mutual to stock form). Immediately after the consummation of Merger 2, the Bank
will no longer be controlled by the MHC but will instead be controlled by its
public stockholders. The facts indicate that the merger of MHC with and into the
Bank will result in a real and substantial change in the form of ownership of
the Bank that is sufficient to conclude that Merger 2 comports with the
underlying purposes and assumptions of a reorganization under Section
368(a)(1)(A) of the Code.
In addition, we believe that, because the various steps contemplated by the
Plan were necessitated by the requirements of the Office of Thrift Supervision,
each of Merger 1, Merger 2 and Merger 3 has a business purpose and independent
significance and, as a result, the step transaction should not be applied to
this transaction. However, our opinion is not binding upon the Service, and
there can be no assurance that the Service will not assert a contradictory
position. Revenue Ruling 72-405 involved Corporation X which formed a wholly
owned subsidiary, merged an unrelated corporation Y into the subsidiary and then
liquidated the subsidiary. The Service held that the overall plan for the
transactions was the acquisition of Corporation Y assets by Corporation X and
that the transitory existence of the subsidiary did not have independent
economic significance. As a result, the step transaction doctrine was applied,
the transitory existence of the subsidiary was ignored and the transaction was
treated as a direct acquisition of Corporation Y assets by Corporation X.
It is possible that the Service could assert, based upon reasoning similar
to that which was applied in Revenue Ruling 72-405, that the overall plan of the
transactions contemplated by the Plan is the maintenance of the Bank's holding
company structure and the merger of MHC into Bank and that, as a result, the
step transaction doctrine should be applied and the transitory elimination of
the holding company structure in Merger 1 and re-creation of the holding company
structure in Merger 3 should be ignored for tax purposes. If the Service were
successful with such an assertion, the transaction would be treated as a direct
merger of MHC into Bank which may not qualify as a tax free reorganization
resulting in taxable gain to the parties to the transaction.
The Service is currently reviewing the question of whether certain
downstream mergers of a parent corporation into its subsidiary or inversion
transactions, where a parent and its subsidiary reverse positions, which
otherwise qualify for tax-free treatment nevertheless should be treated as
taxable transactions because they circumvent the repeal of the "General
Utilities doctrine." We do not believe that the transactions undertaken pursuant
to the Plan constitute the type of transactions which circumvent the "General
Utilities doctrine."
Based upon the foregoing, and assuming Merger 1, Merger 2 and Merger 3 are
consummated as described herein and in the Plan, and assuming that the change in
the form of operation of MHC to a federal stock savings bank and the change in
the form of the operation of Holding Company to a federal stock savings bank
constitute reorganizations under Section 368(a)(1)(F) of the Code, it is the
opinion of Peabody & Brown that, although the outcome of litigation cannot be
predicted with certainty, it is more likely than not that if the following
issues were litigated, a court would hold as set forth below.
<PAGE>
Board of Directors
Harbor Federal Savings Bank
November 7, 1997
Page 8
1. Assuming the transactions qualify as statutory mergers, Merger 1
and Merger 2 each qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Code. MHC, Holding Company and the Bank will be a party
to a "reorganization" as defined in Section 368(b) of the Code.
2. Interim MHC and Interim Holding will recognize no gain or loss
pursuant to Merger 1 and Merger 2.
3. No gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim Holding and Interim MHC in Merger 1 and Merger 2,
respectively.
4. Assuming the transactions qualify as statutory mergers, Merger 3
qualifies as a reorganization within the meaning of Section 368(a)(1)(A) of
the Code. Therefore, the Bank, Bancshares, and Interim Corp will each be a
party to a reorganization as defined in Section 368(b) of the Code.
5. No gain or loss will be recognized by Interim Corp upon the
transfer of its assets to the Bank pursuant to Merger 3.
6. No gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim Corp.
7. No gain or loss will be recognized by Bancshares upon the receipt
of Bank stock solely in exchange for Bancshares stock.
8. No gain or loss will be recognized by the Holding Company Public
Stockholders upon the receipt of Bancshares stock.
9. The basis of the Bancshares Stock to be received by the Public
Stockholders will be the same as the basis of the Holding Company stock
surrendered before giving effect to any payment of cash in lieu of
fractional shares.
10. The holding period of the Bancshares Stock to be received by the
Public Stockholders will include the holding period of the Holding Company
stock, provided that the Holding Company stock was held as a capital asset
on the date of the exchange.
11. No gain or loss will be recognized by Bancshares upon the sale of
Bancshares Stock to investors.
12. The Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members (as such terms are defined in the Plan) will
recognize gain, if any, upon the issuance to them of: (i) withdrawable
savings accounts in the Bank following the Conversion, (ii) Bank
Liquidation Accounts, and (iii) nontransferable subscription rights to
purchase Conversion Stock, but only to the extent of the value, if any, of
the subscription rights.
<PAGE>
Board of Directors
Harbor Federal Savings Bank
November 7, 1997
Page 9
13. The tax basis to the holders of Conversion Stock purchased in the
offerings will be the amount paid therefor, and the holding period for such
shares will begin on the date of exercise of the subscription rights if
purchased through the exercise of subscription rights. If purchased in the
Community Offering or Public Stockholder Offering (as such terms are
defined in the Plan), the holding period for such stock will begin on the
day after the date of purchase.
The opinions set forth above represent our conclusions as to the
application of existing federal income tax law to the facts of the instant
transaction. We can give no assurance that changes in such law, or in the
interpretation thereof, will not affect the opinions expressed by us. Moreover,
there can be no assurance that contrary positions may not be taken by the
Service, or that a court considering the issues would not hold contrary to such
opinions.
All of the opinions set forth above are qualified to the extent that the
validity or enforceability of any provision of any agreement may be subject to
or affected by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally. We do not express any
opinion as to the availability of any equitable or specific remedy upon any
breach of any of the covenants, warranties or other provisions contained in any
agreement. We have not examined, and we express no opinion with respect to the
applicability of, or liability under, any Federal, state or local law,
ordinance, or regulation governing or pertaining to environmental matters,
hazardous wastes, toxic substances, asbestos, or the like.
Further, the opinions set forth above represent our conclusions based upon
the documents reviewed by us and the facts presented to us. Any material
amendments to such documents or changes in any significant fact would affect the
opinions expressed herein.
We have not been asked to, and we do not, render any opinion with respect
to any matters other than those expressly set forth above.
<PAGE>
Board of Directors
Harbor Federal Savings Bank
November 7, 1997
Page 10
CONSENT
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-1 ("Form S-1") to be filed by the Holding
Company with the Securities and Exchange Commission, and as an exhibit to the
MHC's Application for Conversion on the Form AC as filed with the OTS ("Form
AC"), and to the references to our firm in the Prospectus which is part of both
the Form S-1 and the Form AC.
Very truly yours,
/s/ Peabody & Brown
<PAGE>
CERTIFICATE OF HARBOR FEDERAL SAVINGS BANK
November 7, 1997
Harbor Federal Savings Bank, a federally chartered stock savings bank
("Bank") intends to reorganize its structure in accordance with an Amended Plan
of Conversion and Reorganization of Harbor Financial M.H.C.("MHC") and Agreement
and Plan of Merger between Harbor Financial M.H.C. and Harbor Florida Bancorp,
Inc. and Harbor Florida Bancshares, Inc. and Harbor Federal Savings Bank, dated
October 31, 1997 (the "Plan"). In connection with said reorganization, each of
the undersigned, by its undersigned officer, duly authorized, hereby certifies
and makes the representations stated below to be relied upon by Peabody & Brown
in issuing its opinion dated November 7, 1997 to the Bank. All capitalized terms
used and not defined herein shall have the respective meanings ascribed to them
in the Plan.
(a) The fair-market value of the Bancshares stock received by each
Holding Company Public Stockholder will be approximately equal to the
fair-market value of the Holding Company stock surrendered in the exchange.
(b) There is no plan or intention by the Public Stockholders of
Holding Company who own 5 percent or more of the Holding Company stock, and
to the best of the knowledge of the management of Holding Company, there is
no plan or intention on the part of the remaining Public Stockholders of
Holding Company to sell, exchange, or otherwise dispose of a number of
shares of Bancshares stock received in the transaction that would reduce
such Holding Company shareholders' ownership of Bancshares stock to a
number of shares having a value, as of the date of the transaction, of less
than 50 percent of the value of all of the formerly outstanding stock of
Holding Company held by the Public Stockholders as of the same date. For
purposes of this representation, shares of Holding Company common stock
exchanged for cash or other property or surrendered by dissenters will be
treated as outstanding Holding Company common stock on the date of the
transaction. Moreover, shares of Holding Company stock held by Holding
Company shareholders and otherwise sold, redeemed, or disposed of prior or
subsequent to the transaction will be considered in making this
representation.
(c) Pursuant to the Plan, Bancshares will form a wholly-owned
subsidiary ("Interim") and Interim will merge into Bank. Following the
merger of Interim into Bank ("Merger 3"), Bank will hold at least 90
percent of the fair-market value of its net assets and at least 70 percent
of the fair-market value of its gross assets and at least 90 percent of the
fair-market value of Interim's net assets and at least 70 percent of the
fair-market value of Interim's gross assets held immediately prior to
Merger 3. For purposes of this representation, amounts paid by Bank or
Interim to dissenters, amounts paid by Bank or Interim to shareholders who
receive cash or other property, amounts used by Bank or Interim to pay
reorganization expenses, and all redemptions, and distributions (except for
regular, normal dividends) made by Bank will be included as assets of Bank
or Interim, respectively, immediately prior to Merger 3.
(d) Prior to Merger 3, Bancshares will be in control of Interim within
the meaning of section 368(c) of the Internal Revenue Code of 1986 (the
"Code").
(e) Bank has no plan or intention to issue additional shares of its
stock that would result in Bancshares losing control of Bank within the
meaning of section 368(c) of the Code.
<PAGE>
Certificate of Harbor Federal Savings Bank
October 31, 1997
Page 2
(f) Bancshares has no plan or intention to re-acquire any of its stock
issued in the transaction.
(g) Bancshares has no plan or intention to liquidate Bank; to merge
Bank with and into another corporation; to sell or otherwise dispose of the
stock of Bank except for transfers of stock to corporations controlled by
Bancshares; or to cause Bank to sell or otherwise dispose of any of its
assets or any of the assets acquired from Interim, except for dispositions
made in the ordinary course of business or transfers of assets to a
corporation controlled by Bank.
(h) Interim will have no liabilities assumed by Bank and will not
transfer to Bank any assets subject to liabilities in Merger 3.
(i) Following Merger 3, Bank will continue its historic business or
use a significant portion of its historic business assets in a business.
(j) Holding Company, Bancshares, Interim, Bank, and shareholders of
Bank will pay their respective expenses, if any, incurred in connection
with the transaction undertaken pursuant to the Plan.
(k) There is no intercorporate indebtedness existing between
Bancshares and Bank or between Interim and Bank that was issued, acquired,
or will be settled at a discount.
(l) In Merger 3, shares of Bank stock representing control of Bank, as
defined in section 368(c) of the Code, will be exchanged solely for voting
stock of Bancshares. For purposes of this representation, shares of Bank
stock exchanged for cash or other property will be treated as outstanding
Bank stock on the date of the transaction.
(m) At the time of Merger 3, Bank will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in Bank, that, if
exercised or converted, would affect Bancshares' acquisition or retention
of control of Bank as defined in section 368(c) of the Code.
(n) Bancshares does not own, nor has it owned during the past five
years, any shares of the stock of Bank.
(o) No two parties to the transaction are investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(p) On the date of the transactions undertaken pursuant to the Plan
(a) the fair-market value of the assets of Bank will exceed the sum of its
liabilities, plus the amount of liabilities, if any, to which the assets
are subject and (b) the fair-market value of the assets of MHC will exceed
the sum of its liabilities plus the amount of liabilities, if any, to which
the assets are subject and (c) the fair-market value of the assets of
Holding Company will exceed the sum of its liabilities plus the amount of
liabilities, if any, to which the assets are subject.
<PAGE>
Certificate of Harbor Federal Savings Bank
October 31, 1997
Page 3
(q) Neither Holding Company, nor MHC, nor Bank is under the
jurisdiction of a court in a title 11 or similar case within the meaning of
section 368((a)(3)(A) of the Code.
(r) None of the compensation received by any shareholder-employees of
Bank will be separate consideration for, or allocable to, any of their
shares of Holding Company common stock; none of the shares of Bancshares
common stock received by any shareholder-employees will be separate
consideration for, or allocable to any employment agreement; and the
compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
Harbor Federal Savings Bank
By: ______________________________
Its: _________________________
Harbor Financial, M.H.C.
By: ______________________________
Its: _________________________
Harbor Florida Bancshares, Inc.
By: ______________________________
Its: _________________________
Harbor Florida Bancorp, Inc.
By: ______________________________
Its: _________________________
Exhibit 8.2
[DEAN MEAD LETTERHEAD]
November 7, 1997
Board of Directors
Harbor Federal Savings Bank
100 S. Second Street
P.O. Box 249
Fort Pierce, FL 34954-0249
Gentlemen:
You have asked that we provide you our opinion with regard to certain
Florida income tax consequences relating to the Amended Plan of Conversion and
Reorganization of Harbor Financial, M.H.C. and Agreement and Plan of Merger
between Harbor Financial, M.H.C. ("Mutual Holding Company"), Harbor Florida
Bancorp., Inc. ("Holding Company") and Harbor Florida Bancshares, Inc.
("Bancshares") and Harbor Federal Savings Bank ("Bank") dated as of October 31,
1997 (the "Plan").
We have reviewed the Plan. Unless otherwise defined herein, all capitalized
terms used in this letter will have the meanings given to them in the Plan. In
addition, we have reviewed and relied upon the opinion letter prepared by
Peabody & Brown, a copy of which is attached hereto as Exhibit "A" (the "Peabody
& Brown Opinion").
In rendering our opinion, we have also relied upon certain written
representations of Bank and Mutual Holding Company (collectively referred to
herein as the "Representations") which are attached to the Peabody & Brown
Opinion.
We have examined the relative provisions of Chapter 220 of the Florida
Statutes ("Florida Income Tax Code"), the related Florida Administrative Code
and such other Florida laws, regulations, rulings and court decisions we deemed
appropriate to render this opinion. Such laws, regulations, administrative
rulings and court decisions are subject to change at any time. Any such change
could affect the continuing validity of the opinions set forth below.
<PAGE>
Board of Directors
Harbor Federal Savings Bank
November 7, 1997
Page 2
- --------------------------------------------
There can be no assurance that our opinions would be adopted by the Florida
Department of Revenue (the "Department") or a court. The outcome of litigation
cannot be predicted. We have, however, attempted in good faith to opine as to
the matters herein.
Because the Florida income tax consequences of the transactions
contemplated by the Plan are dependent upon the Federal income tax consequences
of the transactions contemplated by the Plan, you have authorized us to base our
opinions set forth herein with respect to the Florida income tax consequences of
such transactions on the opinions regarding the Federal income tax consequences
set forth in the Peabody & Brown Opinion. Accordingly, based solely upon the
assumption that the Federal income tax consequences of the transactions are as
set forth in item Nos. 1-13 on pages 9 and 10 of the Peabody & Brown Opinion, it
is our opinion that the Florida income tax consequences of the reorganization
under the Florida Income Tax Code will be substantially the same as the Federal
income tax consequences set forth in item Nos. 1-13 of the Peabody & Brown
Opinion.
The opinions herein expressed are subject to the following assumptions,
qualifications and limitations:
(i) The opinions set forth herein represent our conclusions as to the
application of the existing Florida Income Tax Code to the facts of the
instant transactions contemplated by the Plan. We can give no assurance
that changes in such law, or in the interpretation thereof, will not affect
the opinions expressed by us. Moreover, there can be no assurance that
contrary positions may not be taken by the Department or that the court
considering the issues would not hold contrary to such opinions.
(ii) All of the opinions set forth above are qualified to the extent
that the validity or enforceability of any provision of any agreement may
be subject to or affected by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of
creditors generally. We do not express any opinion as to the availability
of any equitable or specific remedy upon any breach of any of the
covenants, warranties or other provisions contained in any agreement. We
have not examined, and we express no opinion with respect to the
applicability or liability under any Federal, State or local law, ordinance
or regulation governing or pertaining to environmental matters, hazardous
waste, toxic substances, asbestos or the like. Further, the opinions set
forth above represent
<PAGE>
Board of Directors
Harbor Federal Savings Bank
November 7, 1997
Page 3
- --------------------------------------------
our conclusions based upon the documents reviewed by us and the facts
presented to us. Any material amendments to such documents or changes in
any significant fact would affect the opinions expressed herein.
(iii) We have not been asked to, and we do not, render any opinion
other than with respect to the Florida income tax matters referred to
above. Specifically, we render no opinion concerning any Federal tax
matters, matters of other states, local tax matters, or any other Florida
tax matters, including, but not limited to, those involving intangible
taxes, documentary stamps and ad valorem taxes.
(iv) We have assumed that the Plan as submitted to us has been or will
be duly and validly authorized and approved and adopted and that all
parties will comply with the terms and conditions of the Plan as submitted
to us, and that the Representations are accurate, complete, true and
correct. Accordingly, we express no opinion concerning the effect, if any,
of variations from the foregoing.
(v) We have assumed that the Peabody & Brown Opinion will be rendered
in exactly the form attached hereto, that the assumptions therein are
correct and that the opinions rendered in item Nos. 1-13 of the Peabody &
Brown Opinion are accurate and correct.
(vi) We have assumed that there are no other agreements or
understandings among the parties which would modify the terms of the Plan
or the respective rights or obligations of the parties under the Plan.
(vii) We have made no examination or investigation to verify the
accuracy or completeness of any financial, accounting, statistical or other
information furnished to anyone in connection with the Plan and express no
opinion with respect thereto.
(viii) Our opinions expressed herein are specifically qualified by
reference to, and are based solely upon, laws, rules and regulations in
effect on the date hereof, and are subject to modification to the extent
such laws, rules and regulations may be changed in the future with
retroactive affect.
<PAGE>
Board of Directors
Harbor Federal Savings Bank
November 7, 1997
Page 4
- --------------------------------------------
(ix) The opinions expressed herein are rendered as of the date hereof
and do not purport to analyze, evaluate or consider the legal effect of any
event subsequent to the date hereof. We do not undertake (and expressly
disclaim) any obligation to inform you of any changes in the facts,
statutes, rules, regulations or case law coming to our attention or
occurring after the date of this opinion letter.
(x) We are qualified to practice law only in Florida, and we are not
experts in, and express no opinion as to, the laws of any other State or
jurisdiction other than the State of Florida.
(xi) No opinions are implied or to be inferred beyond the opinions
expressly stated herein.
We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement on Form S-1 ("Form S-1") to be filed by the Holding
Company with the Securities and Exchange Commission, and as an exhibit to the
Mutual Holding Company's Application for Conversion on the Form AC as filed with
the OTS ("Form AC"), and to the references to our firm in the Prospectus which
is part of both the Form S-1 and the Form AC.
Sincerely,
DEAN, MEAD, EGERTON, BLOODWORTH, CAPOUANO
& BOZARTH, P.A.
/s/ Steven C. Lee
-----------------
Steven C. Lee, Vice President
SCL/cdj
Enclosure
Exhibit 10.1
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT is made effective as of __________________________, 1997 by
and among Harbor Federal Savings Bank (the "Bank"), Harbor Florida Bancshares,
Inc. ("Bancshares" or the "Holding Company") and _________________ (the
"Executive").
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to protect Executive's position therewith for the
period provided in this Agreement; and
WHEREAS, Executive has been elected to, and has agreed to serve in the
position of Senior Vice President for the Bank, a position of substantial
responsibility.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. GENERAL.
-------
Employee is, except as described in Section 4, an employee at will and
serves at the pleasure of the Board of Directors of the Bank (the "Board").
2. TERM OF AGREEMENT.
-----------------
The term of this Agreement shall commence as of the date first above
written and shall continue for a period of three (3) years thereafter.
Commencing on the first anniversary date of this Agreement and continuing at
each anniversary date thereafter, the Board may extend this Agreement for an
additional year. The Board will review the Agreement and the Executive's
performance annually for purposes of determining whether to extend the
Agreement, and the results thereof shall be included in the minutes of the
Board's meeting.
3. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
--------------------------------------------
(a) Upon the occurrence of a Change in Control (as herein defined) of the
Bank, Bancshares followed at any time during the term of this Agreement by the
voluntary or involuntary termination of Executive's employment, other than for
Cause as defined in Section 3(c) hereof, the provisions of Section 4 shall
apply. Upon the occurrence of a Change in Control, Executive shall have the
right to elect to voluntarily terminate his employment at any time during the
term of this Agreement following any demotion, loss of title, office or
significant authority, reduction in his annual compensation, or relocation of
his principal place of employment by more than 50 miles from its location
immediately prior to the Change in Control.
<PAGE>
(b) For purposes of this Agreement, a "Change in Control" of the Bank or
the Holding Company shall mean (a) merger or consolidation where the Bank or the
Holding Company is not the consolidated or surviving association, (b) transfer
of all or substantially all of the assets of the Bank or the Holding Company,
(c) voluntary or involuntary dissolution of the Bank or the Holding Company or
(d) change in control as defined under the Change in Bank Control Act of 1978.
The surviving or resulting association, the transferee of Bank's or the Holding
Company's assets or the control person shall be bound by and have the benefit of
the provisions of this Agreement, and the Bank or the Holding Company shall take
all actions necessary to insure that such association, transferee or control
person is bound by the provisions of this Agreement.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 4 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
material provision of this Agreement. In determining incompetence, the acts or
omissions shall be measured against standards generally prevailing in the
savings institutions industry. Notwithstanding the foregoing, Executive shall
not be deemed to have been Terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Board of Directors of the
Bank at a meeting of the Board called and held for that purpose (after
reasonable notice to the Executive and an opportunity for him, together with
counsel, to be heard before the Board at such meeting and which such meeting
shall be held not more than 30 days from the date of notice during which period
Executive may be suspended with pay), finding that in the good faith opinion of
the Board, the Executive was guilty of conduct justifying Termination for Cause.
4. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by the voluntary or involuntary termination of the
Executive's employment, other than for Termination for Cause, the Bank and the
Company shall pay the Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay or liquidated damages, or both, a sum equal to his then current annual
salary. At the election of the Executive such payment may be made in a lump sum
or paid in equal monthly installments during the twelve (12) months following
the Executive's termination. In the event that no election is made, payment to
the Executive will be in equal monthly installments.
(b) Upon the occurrence of a Change in Control of the Bank or the Holding
Company followed at any time during the term of this Agreement by the
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Bank shall cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the Bank for the Executive prior to his severance, except to the
extent such coverage may be changed in its
2
<PAGE>
application to all Bank employees. The Executive shall continue to be eligible
to participate in all Employer Benefit Plans, Stock Option Plan and Stock
Benefits Plan of the Bank, and Bancshares. Such coverage and payments shall
cease upon the expiration of twelve (12) months.
(c) At the effective date of this Agreement, and annually on each
anniversary, Executive shall make the election referred to in Section 4(a)
hereof with respect to whether the amounts payable under said Section 4(a) shall
be paid in a lump sum or on a monthly basis. Such election shall be irrevocable
for the year for which such election is made and shall continue in effect until
the executive has made his next annual election.
(d) Notwithstanding the preceding paragraphs of this Section 4, in no event
shall the aggregate payments or benefits to be made or afforded to Executive
under said paragraphs (the "Termination Benefits") constitute an "excess
parachute payment" under Section 280G of the Code or any successor thereto, and
in order to avoid such a result Termination Benefits will be reduced, if
necessary, to an amount (the "Non-Triggering Amount"), the value of which is one
dollar ($1.00) less than an amount equal to three (3) times Executive's "base
amount", as determined in accordance with said Section 280G. The allocation of
the reduction required hereby among the Termination Benefits provided by the
preceding paragraphs of this Section 4 shall be determined by the Executive.
5. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other parties thereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination which, in the instance of Termination for Cause, shall be immediate.
3
<PAGE>
6. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank. The
Holding Company, however, guarantees payment and provision of all amounts and
benefits due hereunder to the Executive, and if such amounts and benefits due
from the Bank are not timely paid or provided by the Bank, such amounts and
benefits shall be paid or provided by the Holding Company.
7. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition for the future or as to any act other than
that specifically waived.
8. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The Board of Directors may terminate the Executive's employment at any
time, but any termination by the Board of Directors, other than Termination for
Cause, shall not prejudice the Executive's right to compensation or other
benefits under this Agreement. The Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause as
defined in Section 3 hereinabove.
(b) If the Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) (12 U.S.C. ss. 1818(e)(3)) or 8(g) (12 U.S.C. ss. 1818(g)) of
the Federal Deposit Insurance Act, as amended by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, the Bank's obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Bank
may in its discretion (i) pay the Executive all or part of the compensation
withheld while their contract obligations were suspended and (ii) reinstate (in
whole or in part) any of the obligations which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e) (12 U.S.C. ss. 1818(e)) or 8(g) (12 U.S.C. ss. 1818(g)) of the
Federal Deposit Insurance Act, as amended by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, all obligations of the Bank under this
contract shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
4
<PAGE>
(d) If the Bank is in default as defined in section 3(x) (12 U.S.C. ss.
1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of
the Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to the
extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the Federal Deposit Insurance Act; or (ii) by the
Director of the Office of Thrift Supervision (or his or her designee) at the
time the Director (or his or her designee) approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by the Director to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such action.
9. REINSTATEMENT OF BENEFITS UNDER SECTION 8(b).
--------------------------------------------
In the event the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 8(b) hereof (the "Notice") during the terms of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and the Executive will be entitled to receive all of the
termination benefits provided for under Section 4 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
10. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
5
<PAGE>
11. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by Florida law.
13. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that the Executive shall be entitled to seek specific performance of
his right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
14. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank (which payments are guaranteed by the
Company pursuant to Section 6 hereof) if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
6
<PAGE>
15. SIGNATURES.
----------
IN WITNESS WHEREOF, Harbor Federal Savings Bank and Harbor Florida
Bancshares, Inc. each has caused this Agreement to be executed by its duly
authorized officers, and Executive has signed this Agreement, on the
________________________, 1997.
ATTEST: HARBOR FEDERAL SAVINGS BANK
_______________________________ BY: _______________________________
ATTEST: HARBOR FLORIDA BANCSHARES, INC.
_______________________________ BY: _______________________________
WITNESS:
_______________________________ _______________________________
Executive
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."
Peabody & Brown
Washington, D.C.
November 10, 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
West Palm Beach, Florida
November 10, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001029407
<NAME> Harbor Florida Bancorp, Inc.
<MULTIPLIER> 1000
<CURRENCY> US $
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.0000
<CASH> 19472
<INT-BEARING-DEPOSITS> 15039
<FED-FUNDS-SOLD> 10250
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47493
<INVESTMENTS-CARRYING> 171559
<INVESTMENTS-MARKET> 172455
<LOANS> 818879
<ALLOWANCE> 11408
<TOTAL-ASSETS> 1116718
<DEPOSITS> 904904
<SHORT-TERM> 30000
<LIABILITIES-OTHER> 17659
<LONG-TERM> 70449
0
0
<COMMON> 50
<OTHER-SE> 93656
<TOTAL-LIABILITIES-AND-EQUITY> 1116718
<INTEREST-LOAN> 17465
<INTEREST-INVEST> 3587
<INTEREST-OTHER> 502
<INTEREST-TOTAL> 21554
<INTEREST-DEPOSIT> 9940
<INTEREST-EXPENSE> 11447
<INTEREST-INCOME-NET> 10107
<LOAN-LOSSES> 205
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5318
<INCOME-PRETAX> 5625
<INCOME-PRE-EXTRAORDINARY> 5625
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3416
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 3.38
<LOANS-NON> 2227
<LOANS-PAST> 0
<LOANS-TROUBLED> 3829
<LOANS-PROBLEM> 8151
<ALLOWANCE-OPEN> 11280
<CHARGE-OFFS> 112
<RECOVERIES> 35
<ALLOWANCE-CLOSE> 11408
<ALLOWANCE-DOMESTIC> 11408
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
Exhibit 99.1
STOCK ORDER FORM & HARBOR FLORIDA BANCSHARES, INC.
CERTIFICATION FORM (Holding Company for Harbor Federal Savings Bank)
Note: Please read the Stock Order Form Guide and Instructions included in the
packet of information before completion.
- --------------------------------------------------------------------------------
Deadline
- --------------------------------------------------------------------------------
The Subscription Offering expires at 12:00 Noon, Florida time, December xx,
1997. Your Stock Order Form and Certification Form, properly executed and with
the correct payment, must be received at the address on the bottom of this form
by this deadline, or it will be considered void.
- --------------------------------------------------------------------------------
Number of Shares/Amount of Payment
- --------------------------------------------------------------------------------
(1) Number of Shares Price Per Share (2) Total Amount Due
-------------------- --------------------
X $10.00 = $
-------------------- --------------------
(minimum 25)
The minimum number of shares that may be subscribed for is 25 and the maximum
individual purchase, including Exchange Shares, is $500,000. No person, together
with associates of and persons acting in concert with such persons, may
purchase, including Exchange Shares, more than $4,750,000 of the Common Stock in
the Conversion. The total number of shares to be sold is based on a valuation
that is subject to review prior to filling individual stock orders.
- --------------------------------------------------------------------------------
Method of Payment
- --------------------------------------------------------------------------------
(3) [ ] Enclosed is a check, bank draft or money order payable to Harbor Florida
Bancshares, Inc. for $___________ (or cash if presented in person).
(4) [ ] I authorize Harbor Federal Savings Bank to make the withdrawals from my
Harbor account(s) shown below, and understand that the amounts will not
otherwise be available for withdrawal:
Account Number(s) Amount(s)
------------------------------------------------------------------
$
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
Total Withdrawal $
---------
There is no penalty for early withdrawals used for this payment.
To withdraw from an account with checking privileges, please write a check.
- --------------------------------------------------------------------------------
Purchaser Information
- --------------------------------------------------------------------------------
(5) [ ] Check here if you are a depositor or borrower and enter below
information for all accounts you had at the Eligibility Record Date
(July 31, 1996), Supplemental Eligibility Record Date (September 30,
1997) or Voting Record Date (October 31, 1997). If additional space is
needed, please utilize the back of this form. Please confirm account(s)
by initialing here ______________.
Account Title (Names on Accounts) Account Number
------------------------------------------------------------------
----------------------------------------------------
------------------------------------------------------------------
----------------------------------------------------
------------------------------------------------------------------
[ ] Check here if you are a director, officer or employee of Harbor Federal
Savings Bank or a member of such person's immediate family.
[ ] Check here if you are a shareholder of Harbor Florida Bancorp, Inc. as
of _____________, 1997.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Stock Registration
- --------------------------------------------------------------------------------
(6) Form of stock ownership
[ ] Individual [ ] Corporation
[ ] Joint Tenants [ ] Partnership
[ ] Tenants in Common [ ] Individual Retirement Account
[ ] Uniform Transfer to Minors [ ] Fiduciary/Trust (Under
[ ] Uniform Gift to Minors Agreement Dated______________)
- --------------------------------------------------------------------------------
(7) Name Social Security or Tax I.D.
- --------------------------------------------------------------------------------
Name Daytime Telephone
- --------------------------------------------------------------------------------
Street Address Evening Telephone
- --------------------------------------------------------------------------------
City State Zip Code County of Residence
- --------------------------------------------------------------------------------
NASD Affiliation (This section only applies to those individuals who meet the
delineated criteria)
- --------------------------------------------------------------------------------
[ ] Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associated with an NASD member has a beneficial interest. To comply with
conditions under which an exemption from the NASD's Interpretation With Respect
to Free Riding and Withholding is available, you agree, if you have checked the
NASD affiliation box, (i) not to sell, transfer or hypothecate the stock for a
period of 90 days following the issuance and, (ii) to report this subscription
in writing to the applicable NASD member within one day of the payment therefor.
- --------------------------------------------------------------------------------
Acknowledgment
- --------------------------------------------------------------------------------
By signing below, I acknowledge receipt of the Prospectus dated November xx,
1997 and the provisions therein and understand that I may not change or revoke
my order once it is received by Harbor Florida Bancshares, Inc. I also certify
that this stock order is for my account only and there is no agreement or
understanding regarding any further sale or transfer of these shares. Federal
regulations prohibit any persons from transferring, or entering into any
agreement directly or indirectly to transfer, the legal or beneficial ownership
of conversion subscription rights or the underlying securities to the account of
another person. Harbor Federal Savings Bank will pursue any and all legal and
equitable remedies in the event it becomes aware of the transfer of subscription
rights and will not honor orders known by it to involve such transfer.
Under penalties of perjury, I further certify that: (1) the social security
number or taxpayer identification number given above is correct; and (2) I am
not subject to backup withholding. You must cross out this item, (2) above, if
you have been notified by the Internal Revenue Service that you are subject to
backup withholding because of underreporting interest or dividends on your tax
return.
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Signature
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Sign and date the form. When purchasing as a custodian, corporate officer, etc.,
include your full title. An additional signature is required only when payment
is by withdrawal from an account that requires more than one signature to
withdraw funds.
YOUR ORDER WILL BE FILLED IN ACCORDANCE WITH THE PROVISIONS OF THE PROSPECTUS.
THIS ORDER IS NOT VALID IF NOT SIGNED. If you need help completing this Form,
you may call the Stock Information Center at (561) 466-6338 or toll free at
(888) 613-2262.
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Authorized Signature Title (if applicable) Date
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Authorized Signature Title (if applicable) Date
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THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER CORPORATION, FUND, OR GOVERNMENT AGENCY.
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FOR OFFICE USE ONLY STOCK INFORMATION CENTER
116 North Second Street
Date Rec'd __/__/__ Order # _______ Batch _______ Fort Pierce, Florida 34950
Check # ___________ Category _______ (561) 466-6338
Amount $___________ Initials _______ (888) 613-2262
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Harbor Florida Bancshares, Inc.
<PAGE>
STOCK ORDER FORM
GUIDE AND INSTRUCTIONS
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Stock Ownership Guide
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Individual
The stock is to be registered in an individual's name only. You may not list
beneficiaries for this ownership.
Joint Tenants
Joint tenants with rights of survivorship identifies two or more owners. When
stock is held by joint tenants with rights of survivorship, ownership
automatically passes to the surviving joint tenant(s) upon the death of any
joint tenant. You may not list beneficiaries for this ownership.
Tenants in Common
Tenants in common may also identify two or more owners. When stock is held by
tenants in common, upon the death of one co-tenant, ownership of the stock will
be held by the surviving co-tenant(s) and by the heirs of the deceased
co-tenant. All parties must agree to the transfer or sale of shares held by
tenants in common. You may not list beneficiaries for this ownership.
Individual Retirement Account
Individual retirement account ("IRA") holders may make stock purchases from
their deposits through a pre-arranged "trustee-to-trustee" transfer. Stock may
only be held in a self-directed IRA. Harbor Federal Savings Bank does not offer
a self-directed IRA. Please contact the Stock Information Center if you have any
questions about your IRA account or to obtain a list of brokers who will open a
self-directed IRA, or check with your broker. There will be no early withdrawal
or IRS penalties incurred by these transactions.
Uniform Gift to Minors/Uniform Transfer to Minors
For residents of many states, stock may be held in the name of a custodian for
the benefit of a minor under the Uniform Transfer to Minors Act. For residents
in other states, stock may be held in a similar type of ownership under the
Uniform Gift to Minors Act of the individual states. For either ownership, the
minor is the actual owner of the stock with the adult custodian being
responsible for the investment until the minor reaches legal age.
Instructions: See your legal advisor if you are unsure about the correct
registration of your stock.
On the first "Name" line, print the first name, middle initial, and last name of
the custodian, with the abbreviation "CUST" after the name. Print the first
name, middle initial, and last name of the minor on the second "Name" line. Only
one custodian and one minor may be designated.
Corporation/Partnership
Corporations/Partnerships may purchase stock. Please provide the Corporation/
Partnership's legal name and Tax I.D. To have depositor rights, the Corporation/
Partnership must have an account in the legal name. Please contact the Stock
Center to verify depositor rights and purchase limitations.
Fiduciary/Trust
Generally, fiduciary relationships (such as Trusts, Estates, Guardianships,
etc.) are established under a form of trust agreement or are pursuant to a court
order. Without a legal document establishing a fiduciary relationship, your
stock may not be registered in a fiduciary capacity.
Instructions: On the first "Name" line, print the first name, middle initial,
and last name of the fiduciary if the fiduciary is an individual. If the
fiduciary is a corporation, list the corporate title on the first "Name" line.
Following the name, print the fiduciary "title" such as trustee, executor,
personal representative, etc.
One the second "Name" line, print either the name of the maker, donor or
testator OR the name of the beneficiary. Following the name, indicate the type
of legal document establishing the fiduciary relationship (agreement, court
order, etc.). In the blank after "Under Agreement Dated", fill in the date of
the document governing the relationship. The date of the document need not be
provided for a trust created by a will.
An example of fiduciary ownership of stock in the case of a trust is: John D.
Smith, Trustee for Thomas A. Smith Under Agreement Dated 06/09/87.
<PAGE>
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Item Instruction
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Items 1 and 2-
Fill in the number of shares that you wish to purchase and the total payment
due. The amount due is determined by multiplying the number of shares by the
subscription price of $10.00 per share. The minimum purchase is 25 shares. The
maximum purchase amount in the Conversion by any person, including Exchange
Shares, is $500,000. No person, together with associates of and persons acting
in concert with such person, may purchase, including Exchange Shares, more than
$4,750,000 of the Common Stock in the Conversion.
Harbor Federal Savings Bank has reserved the right to reject any order received
in the Public Offering, in whole or in part.
Item 3-
Payment for shares may be made in cash (only if delivered by you in person) or
by check, bank draft, or money order payable to Harbor Florida Bancshares, Inc.
DO NOT MAIL CASH. If you choose to make a cash payment, take your Stock Order
Form, signed Certification Form, and payment in person to an office of Harbor
Federal Savings Bank. Your funds will earn interest until the stock is issued at
Harbor Federal Savings Bank's passbook rate.
Item 4-
To pay by withdrawal from a savings account or certificate of Harbor Federal
Savings Bank, insert the account number(s) and the amount(s) you wish to
withdraw from each account. If more than one signature is required to withdraw,
each must sign in the Signature box on the front of this Form. To withdraw from
an account with checking privileges, please write a check. No early withdrawal
penalty will be charged on funds used to purchase our stock. A hold will be
placed on the account(s) for the amount(s) you show. Payments will remain in
certificate account(s) until the stock offering closes and will continue to earn
interest at the account rate until then. However, if a partial withdrawal
reduces the balance of a certificate account to less than the applicable
minimum, the remaining balance will thereafter earn interest at the passbook
rate.
Item 5-
Please check this box if you were a depositor on the Eligibility Record Date
(July 31, 1996) and/or the Supplemental Eligibility Record Date (September 30,
1997) and/or a depositor or borrower on the Voting Record Date (October 31,
1997) and list all the names on the account(s) and all account number(s) of
those accounts you had at these dates to ensure proper identification of your
purchase rights.
Account Title (Names on Accounts) Account Number
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Items 6 and 7-
The stock transfer industry has developed a uniform system of shareholder
registrations that we will use in the issuance of Harbor Florida Bancshares,
Inc. common stock. Print the name(s) in which you want the stock registered and
the mailing address of the registration. Include the first name, middle initial,
and last name of the shareholder. Avoid the use of two initials. Please omit
words that do not affect ownership rights, such as "Mrs.", "Mr.", "Dr.",
"special account", etc.
Subscription rights are not transferable. If you are a qualified member, to
protect your priority over other purchasers as described in the Prospectus, you
must take ownership as your account relationship is established. If you, as a
qualified member, include a non-qualified member on your order, your priority
will be lowered.
Enter the Social Security or Tax I.D. number of one registered owner. This
registered owner must be listed on the first "Name" line. Be sure to include
your telephone number because we will need to contact you if we cannot execute
your order as given. Review the Stock Ownership Guide on this page and refer to
the instructions for Uniform Gift to Minors/Uniform Transfer to Minors and
Fiduciaries.
<PAGE>
CERTIFICATION FORM
(This Form Must Accompany A Signed Stock Order Form)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE
("COMMON STOCK"), OF HARBOR FLORIDA BANCSHARES, INC. ("CORPORATION"), THE
PROPOSED HOLDING COMPANY FOR HARBOR FEDERAL SAVINGS BANK ("HARBOR FEDERAL"), ARE
NOT FEDERALLY INSURED AND ARE NOT GUARANTEED BY THE CORPORATION, HARBOR FEDERAL
OR THE FEDERAL GOVERNMENT.
If anyone asserts that the shares of Common Stock are federally insured or
guaranteed, or are as safe as an insured deposit, I should call the Office of
Thrift Supervision Southeast Regional Director, John Ryan, at (404) 888-0771.
I further certify that, before purchasing the shares of Common Stock of the
Corporation, I received a copy of the Prospectus dated _____________, 1997 which
discloses the nature of the shares of Common Stock being offered thereby and
describes the following risks involved in an investment in the Common Stock
under the heading "Risk Factors" beginning on page __ of the Prospectus:
1. Vulnerability to Changes in Interest Rates (Page__)
2. Intent to Remain Independent; Unsuitability as a Short-term Investment
(Page__)
3. Price of Common Stock Following the Conversion(Page__)
4. Competition (Page__)
5. Geographic Concentration of Loans (Page__)
6. Certain Anti-Takeover Defense Provisions (Page__)
7. Voting Power of Directors and Executive Officers (Page__)
8. Return on Equity (Page__)
9. ESOP Compensation Expense (Page__)
10. Potential Elimination Of Thrift Charter (Page__)
11. Possible Dilutive Effect of Issuance of Additional Shares (Page__)
12. Risk of Delay (Page__)
13. Possible Adverse Income Tax Consequences of the Distribution of
Subscription Rights (Page__)
Signature: ___________________________
Signature: ___________________________
(Note: All parties named in registration must sign Certification Form)
Date: __________________
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, Harbor Florida Bancorp, Inc. ("Bancorp"), Harbor Florida
Bancshares, Inc. ("Bancshares") and Harbor Federal Savings Bank (the
"Bank") (the "Plan" or "Plan of Conversion");
2. The approval of the adjournment of the Special Meeting, if necessary,
to permit solicitation of proxies in the event there are not
sufficient votes at the time of the Special Meeting to approve the
Plan; and
3. 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 October 31, 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
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU SIGN, DATE AND MARK THE ENCLOSED
PROXY CARD IN FAVOR OF THE ADOPTION OF THE PLAN AND THE ADJOURNMENT OF THE
SPECIAL MEETING 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.
<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. ("Bancorp"), Harbor Florida Bancshares,
Inc. ("Bancshares") and Harbor Federal Savings Bank (the "Bank") pursuant to
which Bancorp shall adopt a Federal stock charter and then be merged into the
Bank with the Bank as a survivor. The Mutual Holding Company shall then convert
into an interim Federal stock savings bank and be merged into the Bank with the
Bank being the survivor. The Bank shall form an Interim Federal Savings
Association. Interim shall merge with and into the Bank, resulting in a new
structure in which Bancshares owns 100% of the Bank. As a result of the merger
of the Mutual Holding Company and Bancorp with and into the Bank all shares of
Bancorp Common Stock except those held by the Mutual Holding Company (the
"Public Bancorp Shares") will be deemed to be Exchange Shares pursuant to the
Exchange Ratio, as defined in the Prospectus, which will result in the holders
of such shares receiving in the aggregate approximately the same percentage of
Bancshares Common Stock to be outstanding upon the completion of the conversion
as the percentage of Public Bancorp Shares owned by them in the aggregate
immediately prior to the consummation of the conversion. Additionally Bancshares
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 included herewith. See "How to Obtain Additional
Information."
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
Depositors of 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 October 31, 1997 (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. See "Adjournment of Meeting."
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 Bancorp 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, Bancorp, Bancshares and the Bank (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 Bancshares Common Stock, which amount to 53.41% of
the outstanding shares, in favor of the Plan at the Stockholder's Meeting.
The approval of the Plan by the OTS does not constitute any endorsement or
recommendation of the Plan by the OTS. Further, final regulatory approval of the
Plan
2
<PAGE>
has not yet been obtained. Such approval may require changes to the Plan. Any
material change will require a resolicitation of member approval of the Plan.
This Proxy Statement and related materials are first being mailed to
Members on or about November ___, 1997.
PURCHASE RIGHTS OF MEMBERS
Voting in favor of the Plan does not require or obligate you to purchase
stock in the Offerings. Instead, Common Stock is being offered to Members of the
Mutual Holding Company in a Subscription Offering by means of nontransferable
subscription rights being granted in the following order of priority: (i) first
priority to depositors of the Bank with account balances of $50 or more as of
the close of business on July 31, 1996 (the "Eligible Account Holders"); (ii)
second priority to the Employee Stock Ownership Plan of the Bank; (iii) third
priority to the depositors of the Bank with account balances of $50 or more as
of the close of business on September 30, 1997 (the "Supplemental Eligible
Account Holders"); and (iv) fourth priority depositors of the Bank as of the
Voting Record Date, other than Eligible Account Holders and Supplement Eligible
Account Holders, and certain borrowers (collectively the "Members"). Therefore,
while all Members will receive subscription rights, they will receive them in
different priorities. Therefore, there is no assurance that an individual Member
who is not an Eligible Account Holder will be able to purchase Bancshares Common
Stock in the Subscription Offering.
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 and, if
necessary, in favor of adjournment of the Special Meeting. 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
3
<PAGE>
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.
ADJOURNMENT OF MEETING
In the event there are not sufficient votes to approve the Plan at the
Special Meeting, the Plan cannot be approved unless the Special Meeting is
adjourned in order to permit further solicitation of proxies. In order to allow
proxies which have been received by the Mutual Holding Company at the time of
the Special Meeting to be voted for such adjournment, if necessary, the Mutual
Holding Company has submitted, as a separate proposal, the question of
adjournment, under such circumstances, to its Members as a separate matter for
their consideration. The Board of Directors recommends that Members vote their
proxies in favor of such adjournment under this proposal so that their proxies
may be used for such purposes in the event it should become necessary. If it is
necessary to adjourn the Special Meeting and the adjournment is for a period of
fewer than thirty (30) days, no notice of the time and place of the adjourned
meeting or of the business to be transacted at the adjourned meeting is required
to be given to Members other than an announcement of such at the Special
Meeting. Approval of adjournment, if necessary, requires the affirmative vote by
the majority of votes represented at the Special Meeting and entitled to vote.
The Board of Directors recommends that shareholders vote FOR the
adjournment of the Special Meeting.
4
<PAGE>
INCORPORATION OF INFORMATION BY REFERENCE
The accompanying Prospectus of Bancshares 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 Bancorp 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 Bancshares, Bancorp, the Bank and the Mutual Holding
Company are set forth in the Prospectus under the captions "Harbor Florida
Bancshares, Inc.," "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 Bancorp 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 Bancshares, 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 Bancorp Common
Stock beneficially owned by (i) the only persons or entities who or which were
known to Bancorp to be the beneficial owner of more than 5% of the issued and
outstanding Bancorp Common Stock, (ii) the directors and executive officers of
Bancorp , and (iii) all directors and executive officers of Bancorp as a group.
See "Beneficial Ownership of Capital Stock" in the Prospectus.
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.
ss. 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.
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<PAGE>
REGISTRATION REQUIREMENTS
The Common Stock will be registered under the Securities Exchange Act of
1934, as amended ("Exchange Act"). In connection with the Conversion, Bancshares
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 Bancshares, 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.
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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. 333-37275) ("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.
------------------------
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.
7
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EXHIBIT A
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. ("Bancorp") 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 Bancorp
shall adopt a Federal stock charter and then be merged into the Bank with the
Bank as a survivor. Harbor Financial M.H.C. (the "Mutual Holding Company") shall
then convert into an interim Federal stock savings bank and be merged into the
Bank with the Bank being the survivor. The Bank shall then form an Interim
Federal Savings Association. Interim shall merge with and into the Bank,
resulting in a new structure in which Harbor Florida Bancshares, Inc.
("Bancshares") currently a wholly owned subsidiary of the Bank, will own 100% of
the Bank. ____________________________ . As a result of the merger of the Mutual
Holding Company and Bancorp with and into the Bank all stockholders of Bancorp
except the Mutual Holding Company (the "Public Stockholders") will receive a
distribution of shares of common stock of Bancshares (the "Common Stock")
pursuant to the 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, Bancshares 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 a federal stock charter
for Harbor Florida Bancorp, Inc. in order to facilitate the consummation of the
Plan.
3. The approval of the adjournment of the Special Meeting, if necessary, to
permit solicitation of proxies in the event there are not sufficient votes at
the time of the Special Meeting to approve the Plan.
4. 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 Bancorp 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 Bancorp do not have dissenters'
rights or appraisal rights in connection with the Conversion.
The Board of Directors of Harbor Florida has fixed October 31, 1997 as the
voting record date for the determination of stockholders entitled to notice of
and to vote at the 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 .
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, THE ADOPTION OF A NEW
CHARTER OR ADJOURNMENT OF THE SPECIAL MEETING DOES NOT REQUIRE YOU TO PURCHASE
STOCK IN THE OFFERINGS.
<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 ("Bancorp Common Stock"), of Harbor Florida Bancorp,
Inc. ("Bancorp"), 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, 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 Bancorp 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, in favor of the
adoption of the Federal stock charter, in favor of the adjournment of the
Special Meeting 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 Bancorp 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 Bancorp, (ii) properly submitting to Bancorp 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 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 the voting record
1
<PAGE>
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,
Bancorp, Bancshares, the Bank 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 Bancorp Common Stock excluding the Mutual Holding
Company (the "Public Stockholders") at the Special Meeting.
The approval of the Plan by the OTS does not constitute an endorsement or
recommendation of the Plan by the OTS. Further, final regulatory approval of the
Plan has not yet been obtained. Such approval may require changes to the Plan.
Any material change will require resolicitation of stockholder approval of the
Plan.
The affirmative vote of the holders of record of a majority of the
outstanding shares of Bancorp entitled to vote is necessary to adopt a new
Federal stock charter. The affirmative vote of the majority of the outstanding
shares of Bancorp present or represented by proxy at the Special Meeting is
necessary to adjourn the Special Meeting. 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, in favor of the new charter at the
Special Meeting and in favor of the adjournment of the Special Meeting. In
addition, as of June 30, 1997, directors and executive officers of Bancorp as a
group (persons) beneficially owned 410,331 shares (including exercisable stock
options) or 8.26% of the outstanding Bancorp Common Stock, which shares can also
be expected to be voted in favor of the Plan, adoption of the new charter and
the adjournment at the Special Meeting.
Only holders of record Common Stock at the close of business on October 31,
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
Bancorp Common Stock issued and outstanding and Bancorp 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 Bancorp 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 Bancorp Common Stock, and the adoption of the new charter must be
approved by the holders of at least a majority of the outstanding Bancorp
2
<PAGE>
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.
ADOPTION OF FEDERAL STOCK CHARTER
Bancorp is seeking shareholder approval to adopt a Federal stock charter.
The Federal stock charter will be used solely to implement the Plan. Pursuant to
OTS policy, its adoption is necessary to allow Bancorp to merge into the Bank,
which has a federal stock charter. The Plan provides that upon consummation of
the Conversion Bancorp and the Mutual Holding Company will be merged out of
existence. Bancshares will then own 100% of the Bank and the Common Stock will
be held by the Public Stockholders and those who purchase Common Stock in the
Offerings. Therefore, upon consummation of the Conversion, Public Stockholders'
rights will be governed by the incorporating documents of Bancshares. The
Certificate of Incorporation of Bancshares, a Delaware corporation, is
substantially similar to that of Bancorp. For a discussion of the differences
between these two certificates of incorporation, see "Comparison of Stockholder
Rights" in the Prospectus.
The Mutual Holding Company intends to vote its shares in favor of the
adoption of the Federal stock charter. Its passage, therefore, is assure.
3
<PAGE>
ADJOURNMENT OF THE SPECIAL MEETING
In the event there are not sufficient votes to approve the Plan at the time
of the Special Meeting, it could not be approved unless the Special Meeting were
adjourned. In order to allow proxies that have been received by Bancorp at the
time of the Special Meeting to be voted for such adjournment, if necessary,
Bancorp has submitted as a separate proposal the question of adjournment under
such circumstances to its stockholders as a separate matter and for their
consideration. The Board of Directors recommends that stockholders vote their
proxies in favor of such adjournment. If it is necessary to adjourn the Special
Meeting and the adjournment is for a period of fewer than 30 days, no notice of
the time and place of the adjourned meeting or if the business of the adjourned
meeting is required to be given to stockholders other than announcement of such
at the Special Meeting.
The Mutual Holding Company intends to vote its shares in favor of the
adjournment of the Special Meeting. Therefore, if necessary, the adjournment of
the Special Meeting is assured.
INCORPORATION OF INFORMATION BY REFERENCE
The accompanying Prospectus of Bancshares 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 Bancorp 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 Bancshares, Bancorp, the Bank and the Mutual Holding
Company are set forth in the Prospectus under the captions "Harbor Florida
Bancshares, Inc.," "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 Bancorp 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 Bancshares, and other pro forma data are set
forth in the Prospectus under the captions "Use of Proceeds," "Capitalization"
and "Pro Forma Data," respectively.
The differences between the Certification of Incorporation of Harbor
Florida Bancorp and Harbor Florida Bancshares is found under the caption
"Comparison of Stockholder Rights."
The Prospectus sets forth certain information as to the Bancorp Common
Stock beneficially owned by (i) the only persons or entities who or which were
known to
4
<PAGE>
Bancorp to be the beneficial owner of more than 5% of the issued and outstanding
Bancorp Common Stock, (ii) the directors and executive officers of Bancorp, and
(iii) all directors and executive officers of Bancorp as a group. See
"Beneficial Ownership of Common 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 Bancorp which is expected to be held in February 1998, if the
Conversion is not consummated, must have been received at the main office of
Bancorp no later than September 19, 1997.
OTHER MATTERS
Each proxy solicited hereby also confers discretionary authority on the
Board of Directors of Bancorp 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 Bancorp. Bancorp 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 Bancorp Common Stock. In addition to solicitations by
mail, directors, officers and employees of Bancorp 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 Bancorp 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
Bancorp by November ____, 1997.
YOUR VOTE IS IMPORTANT! THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE PLAN OF CONVERSION AND THE ADOPTION OF THE FEDERAL STOCK CHARTER AND THE
ADJOURNMENT OF THE SPECIAL MEETING. WE URGE YOU TO MARK, SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT TODAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
5
<PAGE>
EXHIBIT A
Exhibit 99.4
Ads will run two times in each county. Ad will be 6 7/16 X 10(3x10)
- --------------------------------------------------------------------------------
Harbor Florida Share In
Bancshares, Inc. Our Future
- --------------------------------------------------------------------------------
Harbor Florida Bancshares, Inc. is offering up to 13,225,000 shares.
You are invited...
to a Community Investor Meeting and Reception
Senior executives of Harbor Federal are hosting Community Investor Meetings. In
addition to learning details about the stock offering, you'll be presented with
information about Harbor Federal's business focus and results of operations.
TBD DATE
TBD PLACE
TBD TIME
To receive a copy of the Prospectus or to make a reservation to attend the
meeting, please call the Stock Information Center at (561) 466-6338 or (888)
613-2262 from 9:00 a.m. to 5:00 p.m., Monday through Friday.
This invitation is neither an offer to sell nor a solicitation of an offer to
buy these securities. The offer is made only by the Prospectus. The shares of
Common Stock are not savings accounts or deposits and are not insured by the
Federal Deposit Insurance Corporation, the Bank Insurance Fund, the Savings
Association Insurance Fund or any other governmental agency. This is not an
offer to sell or an offer to buy stock. The offer is made only by the Prospectus
accompanied by the Order Form.
- --------------------------------------------------------------------------------
<PAGE>
Meeting Invitation
- ------------------
Harbor Florida Share Our
Bancshares, Inc. Future
- --------------------------------------------------------------------------------
Community Investor Meeting Schedule
Please call the Stock Information Center to make
your reservation: (561) 466-6338
Or toll free (888) 613-2262
Meeting Locations and times go here
This invitation is neither an offer to sell nor a solicitation of an offer to
buy these securities. The offer is made only by the Prospectus. The shares of
Common Stock are not savings accounts or deposits and are not insured by the
Federal Deposit Insurance Corporation, the Bank Insurance Fund, the Savings
Association Insurance Fund or any other governmental agency. This is not an
offer to sell or an offer to buy stock. The offer is made only by the Prospectus
accompanied by the Order Form.
<PAGE>
Meeting Invitation
- ------------------
Harbor Florida Share Our
Bancshares, Inc. Future
- --------------------------------------------------------------------------------
You Are Cordially Invited To a Community Investor
Meeting & Reception to Learn About the Plan of
Conversion and Related Offering of Harbor Florida
Bancshares, Inc. (the newly formed holding company for
Harbor Federal Savings Bank) Common Stock.
See the reverse side of this card for the dates, times and
locations of these meetings
Senior executives of Harbor Federal will present information and answer your
questions about Harbor Federal's Plan of Conversion and related Stock Offerings.
You will also be presented with information about Harbor Federal Savings Bank's
business focus and results of operations.
Seating is Limited
Please call the Stock Information Center to make your reservation.
(561) 466-6338
(888) 613-2262
This invitation is neither an offer to sell nor a solicitation of an offer to
buy these securities. The offer is made only by the Prospectus. The shares of
Common Stock are not savings accounts or deposits and are not insured by the
Federal Deposit Insurance Corporation, the Bank Insurance Fund, the Savings
Association Insurance Fund or any other governmental agency. This is not an
offer to sell or an offer to buy stock. The offer is made only by the Prospectus
accompanied by the Order Form.
<PAGE>
[Member Letter - Harbor Federal Savings Bank letterhead]
_____________, 1997
Dear Member:
I am pleased to inform you that the Boards of Directors of Harbor Federal
Savings Bank (the "Bank") and Harbor Florida Bancorp, Inc. ("Bancorp") and
Harbor Financial M.H.C. (the "MHC") have adopted a Plan of Conversion and
Agreement and Plan of Reorganization (the "Plan of Conversion"). Pursuant to the
Plan of Conversion, the Bank will become a subsidiary of the newly formed stock
holding company, Harbor Florida Bancshares, Inc. (the "Company"), and the
existing shareholders of Bancorp (other than the MHC) will be issued shares of
the Company's Common Stock in exchange for their shares of Bancorp Common Stock
(the "Exchange"). The Exchange will result in those shareholders owning in the
aggregate approximately the same percentage of the Company as they had owned in
Bancorp. In addition to the shares of Company stock to be issued in the
Exchange, the Company is also offering up to 13,225,000 shares of common stock
to the MHC's members, Bancorp's stockholders and members of the public (the
"Conversion"). Consummation of the Plan of Conversion is subject to (i) the
approval of the members of the MHC, (ii) the approval of the stockholders of
Bancorp, and (iii) various regulatory approvals.
Upon completion of the Conversion and Reorganization, your deposits and
loans with the Bank will continue to be deposits and loans with the Bank; there
will be no change in the balance, interest rate or maturity of deposits or loans
because of this restructuring. Your deposits will continue to be insured by the
Federal Deposit Insurance Corporation to the maximum amount permitted by law to
the same extent as prior to the Conversion and Reorganization.
We are asking depositors of the Bank as of October 31, 1997, the voting
record date, as well as borrowers of the Bank as of January 6, 1994, who
continue to be depositors and borrowers as of the Special Meeting, to vote FOR
the Plan of Conversion. If you and/or members of your family have multiple
accounts with the Bank, you may receive more than one proxy mailing. Federal
regulations do not allow the combining of accounts unless they represent
identical forms of ownership. Please vote all proxy cards found in the front of
the mailing envelope and return them today in the enclosed postage-paid
envelope, even if you plan to attend the meeting. Your vote FOR the Conversion
and Reorganization will not require you to buy any stock. A Proxy Statement
relating to the Conversion and Reorganization is enclosed.
As part of this process, the Company is offering shares of its Common Stock
in accordance with federal regulations. You may take advantage of your
nontransferable right to purchase shares directly from the Company, without
commission or fee. We have enclosed a package of information, including an Order
Form and a Prospectus, which will help you learn more about the merits of Harbor
Florida Bancshares, Inc. Common Stock as an investment. Please read and review
the materials carefully. The deadline for ordering stock is 12:00 noon, Florida
Time, on ______________, 1997.
If you have any questions about the Conversion and Reorganization, please
call (561) 466-6338 or toll-free at (888) 613-2262 or stop by the Stock
Information Center located at 116 North Second Street in Fort Pierce between
9:00 a.m. and 5:00 p.m., Florida Time, Monday through Friday. We have also
enclosed an invitation to an informational community meeting where you can learn
more about the Conversion and Reorganization. Please call the Stock Information
Center to reserve a seat.
Thank you for giving these matters your attention and timely consideration.
Sincerely,
Michael J. Brown, Sr.
President and Chief Executive Officer
The shares of Common Stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund, the Savings Association Insurance Fund or any other governmental
agency. This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus accompanied by the Order Form.
<PAGE>
[Closed Account Letter - Harbor Federal Savings Bank Letterhead]
_____________, 1997
Dear Friend:
I am pleased to inform you that the Boards of Directors of Harbor Federal
Savings Bank (the "Bank") and Harbor Florida Bancorp, Inc. ("Bancorp") and
Harbor Financial M.H.C. (the "MHC") have adopted a Plan of Conversion and
Agreement and Plan of Reorganization (the "Plan of Conversion"). Pursuant to the
Plan of Conversion, the Bank will become a subsidiary of the newly formed stock
holding company, Harbor Florida Bancshares, Inc. (the "Company"), and the
existing shareholders of Bancorp (other than the MHC) will be issued shares of
the Company's Common Stock in exchange for their shares of Bancorp Common Stock
(the "Exchange"). The Exchange will result in those shareholders owning in the
aggregate approximately the same percentage of the Company as they had owned in
Bancorp. In addition to the shares of Company stock to be issued in the
Exchange, the Company is also offering up to 13,225,000 shares of common stock
to the MHC's members, Bancorp's stockholders and members of the public (the
"Conversion"). Consummation of the Plan of Conversion is subject to (i) the
approval of the members of the MHC, (ii) the approval of the stockholders of
Bancorp, and (iii) various regulatory approvals.
As part of the Conversion, the Company is offering shares of its Common
Stock in accordance with federal regulations. Because you had a deposit account
with the Bank as of either July 31, 1996 or September 30, 1997 but closed the
account prior to October 31, 1997, you are entitled to purchase the Common Stock
being offered but may not vote on the Plan of Conversion. You may take advantage
of your nontransferable right to purchase shares directly from the Company,
without paying a commission or fee. We have enclosed a package of information,
including an Order Form and a Prospectus, which will help you learn more about
the merits of the Company's Common Stock as an investment. Please read and
review the materials carefully. The deadline for ordering stock is 12:00 noon,
Florida Time, on ________, 1997.
If you have any questions about the Conversion and Reorganization, please
call (561) 466-6338 or toll-free at (888) 613-2262 or stop by the Stock
Information Center located at 116 North Second Street in Fort Pierce between
9:00 a.m. and 5:00 p.m., Florida Time, Monday through Friday. We have also
enclosed an invitation to an informational community meeting where you can learn
more about the Conversion and Reorganization. Please call the Stock Information
Center to reserve a seat.
Thank you for giving these matters your attention and timely consideration.
Sincerely,
Michael J. Brown, Sr.
President and Chief Executive Officer
The shares of Common Stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund, the Savings Association Insurance Fund or any other governmental
agency. This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus accompanied by an Order Form.
<PAGE>
[Prospective Investor Letter - Harbor Federal Savings Bank letterhead]
_____________, 1997
Dear Prospective Investor:
I am pleased to announce that Harbor Federal Savings Bank (the"Bank") and
its mutual holding company, Harbor Financial M.H.C. and Harbor Florida Bancorp,
Inc.("Bancorp") are converting and reorganizing into the stock holding company
structure (the "Conversion"). In conjunction with this Conversion, the newly
formed stock holding company Harbor Florida Bancshares, Inc. (the "Company"),
the proposed stock holding company for the Bank, is offering shares of Common
Stock in Subscription, Public Stock and Community Offerings.
We have enclosed the following materials that will help you learn more
about investing in the Company's Common Stock. Please read and review the
materials carefully before making an investment decision.
PROSPECTUS: This document provides detailed information about the proposed
stock offerings and about the Company's operations.
QUESTIONS AND ANSWERS: Key questions and answers about the stock offerings
are found in this pamphlet.
INVITATION: We are hosting informational community meetings where you can
learn more about the Conversion and Stock Offerings. Please call the Stock
Information Center to reserve a seat in the meeting of your choice.
STOCK ORDER AND CERTIFICATION FORM: These forms are used to purchase stock
by properly executing them and returning them with your payment in the
enclosed business reply envelope. The deadline for ordering stock is 12:00
noon, Florida Time, on ____________, 1997.
We invite you to become a stockholder of the Company. Through this
offering, you have the opportunity to buy stock directly from the Company
without paying a commission or fee.
If you have any questions about the Conversion and Reorganization, please
call (561) 466-6338 or toll-free at (888) 613-2262 or stop by the Stock
Information Center located at 116 North Second Street in Fort Pierce between
9:00 a.m. and 5:00 p.m., Florida Time, Monday through Friday.
Thank you for giving these matters your attention and timely consideration.
Sincerely,
Michael J. Brown, Sr.
President and Chief Executive Officer
The shares of Common Stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund, the Savings Association Insurance Fund or any other governmental
agency. This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus accompanied by the Order Form.
<PAGE>
[Broker Dealer Letter - FBR Letterhead]
To Members and Friends of Harbor Federal Savings Bank and Stockholders of Harbor
Florida Bancorp, Inc.:
Friedman, Billings, Ramsey & Co., Inc., a member of the National
Association of Securities Dealers ("NASD"), is assisting Harbor Federal Savings
Bank (the "Bank") and Harbor Florida Bancorp, Inc. ("Bancorp") with their
conversion and reorganization into a newly formed stock holding company, Harbor
Florida Bancshares, Inc. (the "Company") and its concurrent offerings of shares
of Common Stock.
At the request of the Company, we are enclosing materials explaining this
process and your opportunity to invest in shares of the Company's Common Stock
being offered to customers, stockholders and the community through ___________,
1997. Please read the enclosed offering materials carefully. The Company has
asked us to forward these documents to you in view of certain requirements of
the securities laws in your state.
If you have any questions about the Conversion and Reorganization, please
call (561) 466-6338 or toll-free at (888) 613-2262 or stop by the Stock
Information Center located at 116 North Second Street in Fort Pierce between
9:00 a.m. and 5:00 p.m., Florida Time, Monday through Friday.
Very truly yours,
Friedman, Billings, Ramsey & Co., Inc.
The shares of Common Stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund, the Savings Association Insurance Fund or any other governmental
agency. This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus accompanied by the Order Form.
<PAGE>
[Stockholder Letter -- STREET HOLDERS#1 -- HARB letterhead]
_____________, 1997
Dear Stockholder:
I am pleased to inform you that the Boards of Directors of Harbor Federal
Savings Bank (the "Bank") and Harbor Florida Bancorp, Inc. ("Bancorp") and
Harbor Financial M.H.C. (the "MHC") have adopted a Plan of Conversion and
Agreement and Plan of Reorganization (the "Plan of Conversion"). Pursuant to the
Plan of Conversion, the Bank will become a subsidiary of the newly formed stock
holding company, Harbor Florida Bancshares, Inc. (the "Company"), and the
existing shareholders of Bancorp (other than the MHC) will be issued shares of
the Company's Common Stock in exchange for their shares of Bancorp Common Stock
(the "Exchange"). The Exchange will result in those shareholders owning in the
aggregate approximately the same percentage of the Company as they had owned in
Bancorp. In addition to the shares of Company stock to be issued in the
Exchange, the Company is also offering up to 13,225,000 shares of common stock
to the MHC's members, Bancorp's stockholders and members of the public (the
"Conversion"). Consummation of the Plan of Conversion is subject to (i) the
approval of the members of the MHC, (ii) the approval of the stockholders of
Bancorp, and (iii) various regulatory approvals.
We are asking stockholders of Bancorp as of October 31, 1997, the voting
record date, to vote FOR the Plan of Conversion. If you and/or members of your
family hold stock in different names, you may receive more than one proxy
mailing. Please vote all proxy cards received and return them today in the
enclosed postage-paid envelope labeled Proxy Card. Your vote FOR the Conversion
will not require you to buy any additional stock in the Conversion. A Proxy
Statement relating to the Conversion is enclosed.
We have enclosed the following materials that will help you learn more
about the merits of the Company's Common Stock as an investment. Please read and
review the materials carefully.
PROSPECTUS: This document provides detailed information about the Bank's
operations and the proposed stock offerings.
QUESTIONS AND ANSWERS BROCHURE: Key questions and answers about the stock
offerings are found in this pamphlet.
INVITATION: We are hosting informational community meetings where you can
learn more about the Conversion and Stock Offerings. Please call the Stock
Information Center to reserve a seat in the meeting of your choice.
You may obtain a Stock Order Form and Certification Form by contacting the Bank.
STOCK ORDER AND CERTIFICATION FORMS: These forms are used to purchase stock
by properly executing them and returning them with your payment in the
enclosed envelope labeled Order Forms. The deadline for ordering stock is
12:00 noon, Florida Time, on ___________, 1997.
We are inviting our customers, existing stockholders and the general public
to become stockholders of the Company. Through this offering you have the
opportunity to buy additional stock directly from the Company without paying a
commission or fee.
If you have any questions about the Conversion and Reorganization, please
call (561) 466-6338 or toll-free at (888) 613-2262 or stop by the Stock
Information Center located at 116 North Second Street in Fort Pierce between
9:00 a.m. and 5:00 p.m., Florida Time, Monday through Friday.
Thank you for giving these matters your attention and timely consideration.
Sincerely,
Michael J. Brown, Sr.
President and Chief Executive Officer
The shares of Common Stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund, the Savings Association Insurance Fund or any other governmental
agency. This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus accompanied by the Order Form.
<PAGE>
[Stockholder Letter REGISTERED HOLDERS -- HARB letterhead]
_____________, 1997
Dear Stockholder:
I am pleased to inform you that the Boards of Directors of Harbor Federal
Savings Bank (the "Bank") and Harbor Florida Bancorp, Inc. ("Bancorp") and
Harbor Financial M.H.C. (the "MHC") have adopted a Plan of Conversion and
Agreement and Plan of Reorganization (the "Plan of Conversion"). Pursuant to the
Plan of Conversion, the Bank will become a subsidiary of the newly formed stock
holding company, Harbor Florida Bancshares, Inc. (the "Company"), and the
existing shareholders of Bancorp (other than the MHC) will be issued shares of
the Company's Common Stock in exchange for their shares of Bancorp Common Stock
(the "Exchange"). The Exchange will result in those shareholders owning in the
aggregate approximately the same percentage of the Company as they had owned in
Bancorp. In addition to the shares of Company stock to be issued in the
Exchange, the Company is also offering up to 13,225,000 shares of common stock
to the MHC's members, Bancorp's stockholders and members of the public (the
"Conversion"). Consummation of the Plan of Conversion is subject to (i) the
approval of the members of the MHC, (ii) the approval of the stockholders of
Bancorp, and (iii) various regulatory approvals.
We are asking stockholders of Bancorp as of October 31, 1997, the voting
record date, to vote FOR the Plan of Conversion. If you and/or members of your
family hold stock in different names, you may receive more than one proxy
mailing. Please vote all proxy cards received and return them today in the
enclosed postage-paid envelope labeled Proxy Card. Your vote FOR the Conversion
will not require you to buy any additional stock in the Conversion. A Proxy
Statement relating to the Conversion is enclosed.
We have enclosed the following materials that will help you learn more
about the merits of the Company's Common Stock as an investment. Please read and
review the materials carefully.
PROSPECTUS: This document provides detailed information about the Bank's
operations and the proposed stock offerings.
QUESTIONS AND ANSWERS BROCHURE: Key questions and answers about the stock
offerings are found in this pamphlet.
INVITATION: We are hosting informational community meetings where you can
learn more about the Conversion and Stock Offerings. Please call the Stock
Information Center to reserve a seat in the meeting of your choice.
STOCK ORDER AND CERTIFICATION FORMS: These forms are used to purchase stock
by properly executing them and returning them with your payment in the
enclosed envelope labeled Order Forms. The deadline for ordering stock is
12:00 noon, Florida Time, on ____________, 1997.
We are inviting our customers, existing stockholders and the general public
to become stockholders of the Company. Through this offering you have the
opportunity to buy additional stock directly from the Company without paying a
commission or fee.
If you have any questions about the Conversion and Reorganization, please
call (561) 466-6338 or toll-free at (888) 613-2262 or stop by the Stock
Information Center located at 116 North Second Street in Fort Pierce between
9:00 a.m. and 5:00 p.m., Florida Time, Monday through Friday.
Thank you for giving these matters your attention and timely consideration.
Sincerely,
Michael J. Brown, Sr.
President and Chief Executive Officer
The shares of Common Stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund, the Savings Association Insurance Fund or any other governmental
agency. This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus accompanied by the Order Form.
<PAGE>
[Stockholder Letter -- NoBo's -- 2nd mailing -- HARB Letterhead]
_____________, 1997
Dear Stockholder:
Under separate cover on this date, we forwarded to you information
regarding the Plan of Conversion of Harbor Financial M.H.C. (the "MHC") and
Reorganization between the MHC and Harbor Florida Bancorp, Inc. ("Bancorp") and
its wholly owned subsidiary Harbor Federal Savings Bank (the "Bank") and the
offering of Common Stock by the newly formed stock holding company, Harbor
Florida Bancshares, Inc. (the "Company").
As a result of certain requirements, we could not forward a Stock Order
Form and Certification Form with the other packet of materials. They are
enclosed herein, along with a Prospectus.
The deadline for ordering the Company's Common Stock is at 12:00 noon, Fort
Pierce, Florida Time, on ___________, 1997.
If you have any questions about the Conversion and Reorganization, please
call (561) 466-6338 or toll-free at (888) 613-2262 or stop by the Stock
Information Center located at 116 North Second Street in Fort Pierce between
9:00 a.m. and 5:00 p.m., Florida Time, Monday through Friday.
Sincerely,
Michael J. Brown, Sr.
President and Chief Executive Officer
The shares of Common Stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund, the Savings Association Insurance Fund or any other governmental
agency. This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus accompanied by the Order Form.
<PAGE>
[Dear Member "Dark Blue Sky" & Foreign Accounts --
Harbor Federal Savings Bank letterhead]
_____________, 1997
Dear Member:
I am pleased to announce that Harbor Federal Savings Bank (the"Bank") and
its mutual holding company, Harbor Financial M.H.C. and Harbor Florida Bancorp,
Inc.("Bancorp") are converting and reorganizing into the stock holding company
structure (the "Conversion"). In conjunction with this Conversion, the newly
formed stock holding company Harbor Florida Bancshares, Inc. (the "Company"),
the proposed stock holding company for the Bank, is offering shares of Common
Stock in Subscription, Public Stock and Community Offerings.
Unfortunately, the Company is unable to either offer or sell its common
stock to you because the small number of eligible subscribers in your
jurisdiction makes registration or qualification of the common stock under the
securities laws of your jurisdiction impractical, for reasons of cost or
otherwise. Accordingly, this letter should not be considered an offer to sell or
a solicitation of an offer to buy the common stock of the Company.
However, as a member of Harbor Federal, you have the right to vote on the
Plan of Conversion at the Special Meeting of Members to be held on December __,
1997. Therefore, enclosed is a proxy card, a Proxy Statement (which includes the
Notice of the Special Meeting), a Prospectus (which contains information
incorporated into the Proxy Statement) and a return envelope for your proxy
card.
If you have any questions about the Conversion and Reorganization, please
call (561) 466-6338 or toll-free at (888) 613-2262 or stop by the Stock
Information Center located at 116 North Second Street in Fort Pierce between
9:00 a.m. and 5:00 p.m., Florida Time, Monday through Friday.
Thank you for giving these matters your attention and timely consideration.
Sincerely,
Michael J. Brown, Sr.
President and Chief Executive Officer
The shares of Common Stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund, the Savings Association Insurance Fund or any other governmental
agency. This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus accompanied by the Order Form.
<PAGE>
================================================================================
Proxy Gram
We recently forwarded to you information advising that the Board of Directors of
Harbor Federal Savings Bank had received regulatory approval to reorganize into
the stock holding company form of ownership.
Your vote on our Plan of Conversion has not yet been received.
- --------------------------------------------------------------
Failure to Vote has the Same Effect as Voting Against the Plan of Conversion.
Your vote is important to us, and we, therefore, are requesting that you sign
the enclosed proxy card and return it promptly in the enclosed postage-paid
envelope.
Voting for the Plan does not obligate you to purchase stock; Approval of the
Plan will not affect the terms or insurance of your accounts.
The Board of Directors unanimously recommends that you vote "FOR" the Plan.
- ---------------------------------------------------------------------------
HARBOR FEDERAL SAVINGS BANK
Michael J. Brown, Sr.
President and Chief Executive Officer
If you mailed the proxy, please accept our thanks and disregard this request.
For further information call our Stock Information Center at (561) 466-6338 or
toll free (888) 613-2262.
The Common Stock is not a deposit or account and is not federally insured or
guaranteed. This is not an offer to sell or a solicitation of an offer to buy
stock. The offer is made only by the Prospectus accompanied by the Order Form.
================================================================================
<PAGE>
STOCK
OFFERING
QUESTIONS
and
ANSWERS
Harbor Florida
Bancshares, Inc.
<PAGE>
STOCK OFFERING
QUESTIONS & ANSWERS
Facts about the Conversion
- --------------------------
The Board of Directors of Harbor Florida Bancorp, Inc. ("Bancorp") and its
wholly owned subsidiary Harbor Federal Savings Bank ("Harbor" or the "Bank") and
Harbor Financial M.H.C. (the "MHC") unanimously adopted a Plan of Conversion and
Reorganization (the "Plan") to convert from a mutual holding company structure
to a newly formed stock holding company, Harbor Florida Bancshares, Inc. (the
"Company"). We refer to this as the Conversion and Reorganization (the
"Conversion").
This brochure answers some of the most frequently asked questions about the Plan
and about your opportunity to invest in Harbor Florida Bancshares, Inc.
Investment in the stock of the Company involves certain risks. For a discussion
of these risks and other factors, investors are urged to read the accompanying
Prospectus, especially the discussion under the heading "Risk Factors".
Why are Bancorp and its subsidiary, the Bank, and the MHC converting to the
stock holding company structure?
The stock holding company form of ownership is used by most business
corporations and an increasing number of banks and savings institutions. Through
the sale of the stock, the Company will raise additional capital enabling it to:
o Purchase all the capital stock of the Bank, contributing the remaining
proceeds to the Bank. The Bank, in turn, will utilize these funds to
support and broaden its range of its products and services offered; and
o Allow customers of the Bank and friends to purchase stock and share in the
Company and the Bank's future.
Will the Conversion affect any of my deposit accounts or loans?
No. The Conversion will have no effect on the balance or terms of any savings
account or loan, and your deposits will continue to be federally insured by the
Federal Deposit Insurance Corporation ("FDIC") to the maximum legal limit. Your
savings account is not being converted to stock. The Common Stock purchased from
the Company, however, cannot and will not be insured by the FDIC or any other
governmental authority.
Who is eligible to purchase stock in the offerings?
Depositors and borrowers of Harbor as of certain dates, the Company's Employee
Stock Ownership Plan, the Bancorp's public stockholders, and members of the
general public.
How many shares of stock are being offered and at what price?
The Company is offering up to 13,225,000 shares of Common Stock at a price of
$10.00 per share through the Prospectus. Shares held by Bancorp stockholders
will also be exchanged.
<PAGE>
I am an existing shareholder. How will my stock be treated?
Each share of Bancorp common stock will automatically be converted into shares
of the Company's Common Stock according to a ratio that will result in you
retaining the same aggregate percentage ownership in the Company's Common Stock
after Conversion, adjusted downward pursuant to Office of Thrift Supervision
policy to reflect the assets contributed by the MHC. Depending on where the
offering closes in the Offering Range, an Exchange Ratio ranging from
approximately 3.68 to 4.98 (5.73 at the adjusted Maximum) Exchange Shares of
Company Common Stock will be applied to each share of Bancorp common stock.
How much stock may I buy?
The minimum order is 25 shares. The maximum purchase limit for any person,
including Exchange Shares, is $500,000 and for associates of or persons acting
in concert the maximum purchase limitation, including Exchange Shares, is
$4,750,000.
No order which, when combined with Exchange Shares, exceeds $500,000 will be
accepted.
Do members have to buy stock?
No. The Conversion, however, will allow the Bank's depositors and borrowers an
opportunity to buy stock and become initial stockholders of the holding company
for the bank with which they do business.
How do I order stock?
You must complete the enclosed Stock Order Form and the Certification Form.
Instructions for completing your Stock Order Form and Certification Form are
contained in this packet. Your order must be received by Harbor Federal by 12:00
p.m. Florida Time on ___________, 1997.
How may I pay for my shares of stock?
First, you may pay for stock by check, cash (if delivered in person) or money
order. Interest will be paid by the Bank on these funds at the passbook rate,
which is currently 1.70% APY, from the day the funds are received until the
completion or termination of the Conversion.
You may also authorize us to withdraw funds from your Harbor Federal savings
account or certificate of deposit for the amount of funds you specify for
payment. You will not have access to these funds from the day we receive your
order until the completion or termination of the Conversion.
Can I purchase shares using funds in my Harbor Federal IRA account?
Federal regulations do not permit the purchase of conversion stock in your
existing Harbor Federal IRA account. To accommodate our depositors, however, we
have made arrangements to have funds transferred into self-directed IRA accounts
with a third party broker-dealer to allow for such purchases. Please call our
Stock Information Center at (561) 466-6338 or toll free at (888) 613-2262 for
additional information.
Will the stock be insured?
No. Like any other common stock, the Company's Common Stock will not be insured
by the Federal Deposit Insurance Corporation, the Bank Insurance Fund, the
Savings Association Insurance Fund or any other government agency.
<PAGE>
Will dividends be paid on the stock?
The Board of Directors of the Company intends to declare cash dividends on the
Common Stock commencing with the first quarter following the consummation of the
Conversion. It is expected that the dividend will be $.24 per share at the
maximum as adjusted. There can, however, be no assurance that such dividends
will not be reduced or eliminated in the future.
How will the stock be traded?
The Company's Common Stock will trade on the Nasdaq National Market under the
symbol "HARB". However, no assurances can be given that an active and liquid
market will develop.
Must I pay a commission?
No. You will not be charged a commission or fee on the purchase of shares in the
Conversion.
Should I vote?
Yes. Your "Yes" vote is very important!
Why did I get several proxy cards?
If you have more than one account, you could receive more than one proxy card,
depending on the ownership structure of your accounts. PLEASE VOTE, SIGN AND
RETURN ALL PROXY CARDS!
How many votes do I have?
Your proxy card(s) show the number of votes you have. Every depositor entitled
to vote may cast one vote for each $100, or fraction thereof, on deposit as of
the voting record date.
May I vote in person at the Special Meeting?
Yes, but we would still like you to sign and mail your proxy card early. If you
decide to revoke your proxy you may do so by giving notice at the Special
Meeting.
FOR ADDITIONAL INFORMATION YOU MAY CALL OUR STOCK INFORMATION CENTER AT (561)
466-6338 or toll free at (888) 613-2262, between 9:00 a.m. and 5:00 p.m. Monday
through Friday.
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation, the Bank Insurance Fund, the Savings Association
Insurance Fund or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy stock. The
offer will be made only by the Prospectus accompanied by the Order Form.
Exhibit 99.5
---------------------------
CONVERSION APPRAISAL REPORT
HARBOR FLORIDA BANCORP, INC.
HOLDING COMPANY FOR
HARBOR FEDERAL SAVINGS BANK
Fort Pierce, Florida
Dated As Of:
September 19, 1997
---------------------------
Prepared By:
RP Financial, LC.
1700 North Moore Street
Suite 2210
Arlington, Virginia 22209
<PAGE>
RP FINANCIAL, LC
- ---------------------------------------
Financial Services Industry Consultants
September 19, 1997
Board of Directors
Harbor Financial, M.H.C.
Harbor Florida Bancorp, Inc.
Harbor Federal Savings Bank
100 South Second Street
Fort Pierce, Florida 34950
Gentlemen:
At your request, we have completed and hereby provide an independent
appraisal ("Appraisal") of the estimated pro forma market value of the common
stock which is to be issued by Harbor Florida Bancorp, Inc. ("Harbor Florida" or
the "Holding Company"), in connection with the mutual-to-stock conversion of
Harbor Financial, M.H.C., Fort Pierce, Florida (the "Mutual Holding Company" or
the "MHC"). The Mutual Holding Company currently has a majority ownership
interest in, and its principal asset consists of, approximately 53.41 percent of
the common stock of Harbor Florida, a mid-tier savings institution holding
company whose principal asset consists of 100 percent of the outstanding common
stock of Harbor Federal Savings Bank, Fort Pierce, Florida, ("Harbor Federal" or
the "Bank"). The remaining 46.59 percent of Harbor Florida's common stock is
owned by public stockholders (the "Public Shares"). It is our understanding that
the Holding Company will offer its stock to depositors, the Bank's employee
stock ownership plan ("ESOP"), members of the local community and the public at
large.
This Appraisal is furnished pursuant to the requirements of the Code of
Federal Regulations 563b.7 and has been prepared in accordance with the
"Guidelines for Appraisal Reports for the Valuation of Savings and Loan
Associations Converting from Mutual to Stock Form of Organization" of the Office
of Thrift Supervision ("OTS"), which have been adopted in practice by the
Federal Deposit Insurance Corporation ("FDIC"), including the most recent
revisions as of October 21, 1994, and applicable regulatory interpretations
thereof.
Description of Reorganization
- -----------------------------
The Boards of Directors of Harbor Florida and the Mutual Holding Company
have adopted a Plan of Conversion and Agreement and Plan of Reorganization
pursuant to which the proposed transaction will occur. In the reorganization
process, to become effective concurrent with the completion of the stock sale,
which is targeted for the first calendar quarter of 1998: (1) the Mutual Holding
Company, which currently owns approximately 53.41 percent of the Holding
Company, will convert to an interim federal stock savings bank and merge with
and into the Holding Company, with the Holding Company being the surviving
entity; (2) the outstanding Harbor Florida common stock held by the Mutual
Holding Company will be cancelled; and (3) the outstanding Public Shares of
Harbor Florida will be converted into Exchange Shares pursuant to a Distribution
Exchange Ratio, which will result in the holders of such shares owning in the
aggregate the same percentage of the Holding Company as they currently own. As a
result of the transaction, Harbor Federal will remain a wholly-owned subsidiary
of the Holding Company operating under the name Harbor Federal Savings Bank.
- --------------------------------------------------------------------------------
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<PAGE>
RP Financial, LC.
Board of Directors
September 19, 1997
Page 2
Pursuant to the reorganization, the Holding Company will issue shares in
the Subscription and Community Offerings that will represent an ownership
interest in the Holding Company equal to the percentage ownership that the
Mutual Holding Company currently maintains in the Holding Company. Also pursuant
to the reorganization, the Holding Company will issue the Exchange Shares to the
current minority stockholders of the Holding Company in exchange for the Public
Shares pursuant to an exchange ratio determined by the Board of Directors that
will maintain the current minority stockholders' existing ownership interest
(the Distribution Exchange Ratio).
RP Financial, LC.
- -----------------
RP Financial, LC. ("RP Financial") is a financial consulting firm that
specializes in financial valuations and analyses of business enterprises and
securities. The background and experience of RP Financial are detailed in
Exhibit V-1. We believe that, except for the fee we will receive for our
appraisal of the shares to be issued by the Holding Company, and the preparation
of and the fee received for the regulatory business plan filed with the
application, we are independent of the Bank, the Mutual Holding Company, the
Holding Company and other parties engaged by the Bank to assist in the stock
issuance process.
Valuation Methodology
- ----------------------
In preparing our appraisal, we have reviewed the Mutual Holding Company's
Application for Approval of Conversion, including the Proxy Statement, as filed
with the OTS and the Holding Company's Form S-1 registration statement as filed
with the Securities and Exchange Commission ("SEC"). We have conducted an
analysis of the Bank, the Holding Company and the Mutual Holding Company
(hereinafter, collectively referred to as the "Bank") that has included due
diligence related discussions with the Bank's management; KPMG Peat Marwick LLP,
the Bank's independent auditor; Peabody & Brown, the Bank's conversion counsel;
and Friedman, Billings, Ramsey, & Co., Inc., which has been retained by the Bank
as a financial and marketing advisor in connection with the Holding Company's
stock offering. All conclusions and assumptions set forth in the Appraisal were
reached independently from such discussions. In addition, where appropriate, we
have considered information based on other available published sources that we
believe are reliable. While we believe the information and data gathered from
all these sources are reliable we cannot guarantee the accuracy and completeness
of such information.
We have investigated the competitive environment within which the Bank
operates, and have assessed the Bank's relative strengths and weaknesses. We
have kept abreast of the changing regulatory and legislative environment and
analyzed the potential impact on the Bank and the industry as a whole. We have
analyzed the potential effects of the stock offering on the Bank's operating
characteristics and financial performance as they relate to the pro forma market
value of the Bank. We have reviewed the economy in the Bank's primary market
area and have compared the Bank's financial performance and condition with
selected publicly-traded thrift institutions. We have reviewed conditions in the
securities markets in general and for thrift stocks in particular, including the
market for existing thrift issues (including both full stock institutions and
institutions organized as mutual holding companies), initial public offerings by
thrifts and second step conversion offerings.
Our Appraisal is based on the Bank's representation that the information
contained in the regulatory applications and additional information furnished to
us by the Bank and its independent auditors are truthful, accurate and complete.
We did not independently verify the financial statements and other information
provided by the Bank and its independent auditors, nor did we independently
value the individual assets or liabilities of the Bank. The valuation considers
the Bank only as a publicly-held going concern and should not be considered as
an indication of the liquidation or control values of the Bank.
<PAGE>
RP Financial, LC.
Board of Directors
September 19, 1997
Page 3
Our appraised value is predicated on a continuation of the current
operating environment for the Bank and for all thrifts. 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) may occur
from time to time, often with great unpredictability and may materially impact
the value of thrift stocks as a whole or the Bank's value alone. To the extent
that such factors can be foreseen, they have been factored into our analysis.
Pro forma market value is defined as the price at which the Holding
Company's shares would change hands between a willing buyer and a willing
seller, neither being under any compulsion to buy or sell and both having
reasonable knowledge of relevant facts.
Valuation Conclusion
- --------------------
It is our opinion that, as of September 19, 1997, the aggregate pro forma
market value of the Bank, the Holding Company and the Mutual Holding Company,
inclusive of the sale of an approximate 53.41 percent ownership interest in the
Subscription and Community Offerings, was $215,334,643 at the midpoint. Based on
the range of value set forth in the OTS conversion guidelines, the resultant
valuation range equals $183,034,446 at the minimum and $247,634,839 at the
maximum. Based on this valuation and the approximate 53.41 percent ownership
interest being sold in the Subscription and Community Offerings, the midpoint of
the Holding Company's stock offering was $115,000,000, equal to 11,500,000
shares offered at a per share value of $10.00. The resultant offering range
includes a minimum of $97,750,000 and a maximum of $132,250,000. Based on the
$10.00 per share offering price, this range equates to an offering of 9,775,000
shares at the minimum to 13,225,000 shares at the maximum. The Holding Company's
offering also includes a provision for a super range, which if exercised, based
on a market value of $284,780,065, would result in an offering size of
$152,087,500, equal to 15,208,750 shares at the $10.00 per share offering price.
Establishment of Exchange Ratio
- -------------------------------
OTS regulations provide that in a conversion of a mutual holding company,
the minority stockholders are entitled to exchange their shares of the Bank's
common stock for common stock of the Holding Company. The Board of Directors of
the Mutual Holding Company has independently established a formula to determine
the exchange ratio. The formula has been designed to preserve the current
aggregate percentage ownership in the Bank represented by the Public Shares,
adjusted for assets currently held at the Mutual Holding Company level, which
results in an approximate 46.59 percent minority ownership interest. Pursuant to
the formula, the Distribution Exchange Ratio will be determined at the end of
the Holding Company's stock offering based on the total number of shares sold in
the Subscription and Community Offerings. Based upon this formula, and the
valuation conclusion and offering range concluded above, the Distribution
Exchange Ratio would be 3.6826 shares, 4.3325 shares, 4.9824 shares and 5.7297
shares of Holding Company stock issued for each Public Share, at the minimum,
midpoint, maximum and super range of the offering, respectively.
Limiting Factors and Considerations
- -----------------------------------
Our valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing shares of the
common stock. Moreover, because such valuation is necessarily based upon
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 who purchase
shares of common stock in the initial offering will thereafter be able to sell
such shares at prices related to the foregoing valuation of the pro forma market
value. The Appraisal does not take into account any trading activity with
respect to the purchase and sale of common stock in the secondary market, and
reflects only a valuation range as of this date for the pro forma market value
of the Bank immediately upon issuance of the stock.
<PAGE>
RP Financial, LC.
Board of Directors
September 19, 1997
Page 4
RP Financial's valuation was determined based on the financial condition,
operations and shares outstanding as of June 30, 1997, the date of the financial
data included in the Holding Company's Prospectus. The proposed Distribution
Exchange Ratio and the exchange of Public Shares for newly issued Holding
Company shares was determined independently by the Boards of Directors of the
Mutual Holding Company and the Bank. RP Financial expresses no opinion on the
proposed Distribution Exchange Ratio and the exchange of Public Shares for newly
issued Holding Company shares.
RP Financial is not a seller of securities within the meaning of any
federal and state securities laws and any report prepared by RP Financial shall
not be used as an offer or solicitation with respect to the purchase or sale of
any securities. RP Financial maintains a policy which prohibits the company, its
principals or employees from purchasing stock of its client institutions.
The valuation will be updated should market conditions or changes in Harbor
Federal's operating results warrant. The valuation will also be updated at the
completion of the Holding Company's stock offering. These updates will consider,
among other things, any developments or changes in the Bank's financial
performance and condition, management policies, and current conditions in the
equity markets for thrift shares, both existing issues and new issues. Also,
these updates will consider changes in other external factors which impact value
including, but not limited to: various changes in the legislative and regulatory
environment (including changes in the appraisal guidelines), the stock market
and the market for thrift stocks, and interest rates. Should any such new
developments or changes be material, in our opinion, to the valuation of the
shares, appropriate adjustments to the estimated pro forma market value will be
made. The reasons for any such adjustments will be explained in the update at
the date of the release of the update.
Respectfully submitted,
RP FINANCIAL, LC.
William E. Pommerening
Chief Executive Officer
James J. Oren
Vice President
<PAGE>
RP Financial, LC.
TABLE OF CONTENTS
HARBOR FLORIDA BANCORP, INC.
HARBOR FEDERAL SAVINGS BANK
Fort Pierce, Florida
PAGE
DESCRIPTION NUMBER
- ----------- ------
CHAPTER ONE OVERVIEW AND FINANCIAL ANALYSIS
- -----------
Plan of Conversion and Holding Company Reorganization 1.1
Strategic Discussion 1.2
Balance Sheet Trends 1.6
Income and Expense Trends 1.9
Interest Rate Risk Management 1.12
Lending Activities and Strategy 1.12
Asset Quality 1.15
Funding Composition and Strategy 1.15
Subsidiary Operations 1.16
Legal Proceedings 1.16
CHAPTER TWO MARKET AREA
- -----------
Introduction 2.1
National Economic Factors 2.2
Market Area Demographics 2.4
Economy 2.5
Deposit Trends and Competition 2.6
Summary 2.7
CHAPTER THREE PEER GROUP ANALYSIS
- -------------
Selection of Peer Group 3.1
Financial Condition 3.5
Income and Expense Components 3.7
Loan Composition 3.9
Credit Risk 3.11
Interest Rate Risk 3.11
Summary 3.14
<PAGE>
RP Financial, LC.
TABLE OF CONTENTS
HARBOR FLORIDA BANCORP, INC.
HARBOR FEDERAL SAVINGS BANK
Fort Pierce, Florida
(continued)
PAGE
DESCRIPTION NUMBER
- ----------- ------
CHAPTER FOUR VALUATION ANALYSIS
- ------------
Introduction 4.1
Appraisal Guidelines 4.1
Valuation Analysis 4.2
1. Financial Condition 4.2
2. Profitability, Growth and Viability of Earnings 4.2
3. Asset Growth 4.4
4. Primary Market Area 4.4
5. Dividends 4.6
6. Liquidity of the Shares 4.7
7. Marketing of the Issue 4.7
A. The Public Market 4.8
B. The New Issue Market 4.11
C. Secondary Step Conversion Offerings 4.14
D. The Acquisition Market 4.14
E. Trading in Harbor Florida's Stock 4.14
8. Management 4.18
9. Effect of Government Regulation and Regulatory Reform 4.18
Summary of Adjustments 4.18
Valuation Approaches 4.19
1. Price-to-Tangible Book ("P/TB") 4.21
2. Price-to-Earnings ("P/E") 4.21
3. Price-to-Assets ("P/A") 4.22
Valuation Conclusion 4.22
Establishment of Exchange Ratio 4.23
<PAGE>
RP Financial, LC.
LIST OF TABLES
HARBOR FEDERAL SAVINGS BANK
HARBOR FLORIDA BANCORP, INC.
Fort Pierce, Florida
TABLE
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
1.1 Historical Balance Sheets 1.7
1.2 Historical Income Statements 1.10
2.1 State of Florida Employment Sectors 2.6
2.2 Market Area Unemployment Trends 2.6
2.3 Deposit Summary 2.8
3.1 Peer Group of Publicly-Traded Thrifts 3.3
3.2 Balance Sheet Composition and Growth Rates 3.6
3.3 Income as a Percent of Average Assets
and Yields, Costs, Spreads 3.8
3.4 Loan Portfolio Composition & Related Info. 3.10
3.5 Credit Risk Measures & Related Information 3.12
3.6 Interest Rate Risk Comparative Analysis 3.13
4.1 Peer Group Market Area Comparative Analysis 4.5
4.2 Recent Conversions: Market Pricing Comparatives 4.12
4.3 Market Pricing Comparatives 4.13
4.4 Completed Second Step Conversions 4.15
4.5 MHC Institutions - Implied Pricing Ratios 4.16
4.6 Calculation of Exchange Ratios 4.23
4.7 Public Market Pricing: Valuation Conclusion 4.24
<PAGE>
RP Financial, LC.
Page 1.1
I. OVERVIEW AND FINANCIAL ANALYSIS
Harbor Federal is a federally-chartered stock savings bank headquartered in
Fort Pierce, St. Lucie County, Florida. The Bank also operates 22 other branch
offices along the central eastern coast of Florida in the counties of St. Lucie,
Indian River, Brevard, Martin, Volusia and Okeechobee. The Bank considers its
primary market for deposits to consist of these six counties, in particular the
areas surrounding the office locations. Lending activities are also concentrated
in the six market area counties (see ExhibityI-1). The Bank was chartered as a
mutual savings association in 1934, obtaining federal deposit insurance in that
year. Harbor Federal is currently a member of the Federal Home Loan Bank
("FHLB") system and is regulated by the Office of Thrift Supervision ("OTS").
The Bank's deposits are insured up to the regulatory maximums by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC"). As of June 30, 1997, the Bank maintained $1.117 billion in assets,
$904.9 million in deposits and $93.7 million in stockholders' equity, equal to
8.4 percent of assets.
In January 1994, the Bank completed a reorganization from a mutual savings
bank to a stock savings bank concurrent with the reorganization as a federal
mutual holding company. Pursuant to the reorganization, Harbor Federal
transferred substantially all of its assets and liabilities to a newly-formed
stock association in exchange for 2,654,369 shares of stock issued to Harbor
Financial, M.H.C. (the "Mutual Holding Company" or "MHC"). Simultaneously, the
Bank sold 2,239,831 shares of stock to the public in a subscription and
community offering. In June 1997, the Bank and MHC completed a second
reorganization with the formation of a mid-tier holding company, Harbor Florida,
in which all common stock of Harbor Federal was exchanged on a one-for-one basis
for Harbor Florida common stock. As of June 30, 1997 there were 4,970,240 total
shares of the Bank's common stock issued and outstanding, of which 2,654,369
shares, or 53.41 percent, were owned by the Mutual Holding Company and 2,315,871
shares, or 46.59 percent, were owned by the public. Harbor Florida's primary
asset consists of holding the common stock of Harbor Federal. Besides the common
stock investment in Harbor Florida, the MHC's other asset consists of cash
deposited in a savings account at the Bank. The MHC also had a liability in the
form of management fees payable to the Bank.
Plan of Conversion and Holding Company Reorganization
- -----------------------------------------------------
On September 24, 1997, the Board of Directors of the Bank and the Mutual
Holding Company adopted the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan") pursuant to which the Mutual Holding Company will
convert from mutual to stock form and simultaneously merge with and into the
Bank. In the reorganization process, to become effective concurrent with the
completion of the stock sale which is targeted for the fourth calendar quarter
of 1997: (1) the Mutual Holding Company, which currently
<PAGE>
RP Financial, LC.
Page 1.2
owns approximately 53.41 percent of the Bank, will convert to an interim federal
stock savings bank and merge with and into the Bank, with the Bank being the
surviving entity; (2) the outstanding Harbor Florida common stock held by the
Mutual Holding Company will be cancelled; (3) the outstanding Public Shares of
Harbor Florida will be converted into Exchange Shares pursuant to a Distribution
Exchange Ratio, which will result in the holders of such shares owning in
aggregate the same percentage of the Holding Company as they currently own.
Pursuant to the reorganization, the Holding Company will issue shares in a
subscription and community offering that will represent an ownership interest in
the Holding Company equal to the percentage ownership that the Mutual Holding
Company currently maintains in the Holding Company. The Holding Company will
also issue the Exchange Shares to the current minority stockholders of the
Holding Company. The number of exchange shares issued by the Holding Company
will be calculated pursuant to a Distribution Exchange Ratio determined by the
Board of Directors that will maintain the current minority stockholders'
existing ownership interest (the "Distribution Exchange Ratio").
The Holding Company anticipates granting common stock awards to directors,
officers and other key personnel (the "Management Recognition and Retention
Plan" or "MRP") up to 4ypercent of the shares being offered publicly,
supplementing stock awards granted in the mutual holding company reorganization.
The Bank's Employee Stock Ownership Plan ("ESOP") intends to purchase 8.0
percent of the common stock being offered publicly, funded by a loan from the
Holding Company. The Holding Company also intends to implement, subject to
stockholder approval, a stock option plan no less than six months after
conversion, which will reserve for future issuance 10 percent of the stock
issued in the Subscription and Community offerings.
At this time, no other activities are contemplated for the Holding Company
other than the ownership of the Bank, although in the future the Holding Company
may acquire or organize other operating subsidiaries. The Holding Company
intends to downstream conversion proceeds to the Bank via a loan to the Bank and
placing funds into a savings account at the Bank.
Strategic Discussion
- --------------------
The Bank is a community-oriented financial institution dedicated to meeting
the borrowing, savings and financial services needs of its communities served.
The market area served by the Bank (the six county market area along the central
eastern coast of Florida), has been experiencing relatively strong increases in
the levels of population and households in recent years. The economy and
employment base is relatively diversified into most economic sectors, including
services, trade, tourism and manufacturing. The region is home to over 1.3
million individuals, and certain sections of the market area have become popular
retirement locations for
<PAGE>
RP Financial, LC.
Page 1.3
residents while other sections contain a more industrial economic base. The
positive demographic and economic characteristics of the market area have
attracted a number of other financial institutions, including both regional and
superregional institutions that provide substantial competition.
In this operating environment the Bank has pursued a strategy of increasing
asset size in order to leverage the capital base and provide the ability to more
effectively compete. While the Bank has been successful in expanding the deposit
base (primarily through growth in existing branches), growth in deposit balances
has not been sufficient to adequately leverage the capital base (which has been
growing due to retained earnings and also increased in fiscal 1994 due to the
minority stock offering and MHC formation). Thus, borrowed funds have been
utilized to assist in this leveraging strategy, providing additional funds for
reinvestment into earning assets. While the Bank's loan portfolio has shown
steady growth in recent years, Harbor Federal's generally conservative loan
underwriting and loan origination policies and procedures have restricted the
increases in the loan portfolio, notwithstanding the fact that the Bank retains
essentially all loans originated. To most effectively utilize available cash,
Harbor Federal has developed a substantial mortgage-backed security ("MBS")
portfolio as an earning asset, which provides higher yields than available on
cash and investments, and also assists in interest rate risk management, and
does not require substantial additional operating expense to maintain.
In fiscal 1996, Harbor Federal completed the acquisition of Treasure Coast
Bank, FSB, which added one office location and approximately $64 million in
deposits and $60 million in loans to the Bank's operations. The acquisition was
accounted for as a purchase, which resulted in an intangible, goodwill, of $3.6
million as of September 30, 1996.
Throughout its history, the Bank has generally pursued a traditional
operating strategy of mortgage lending secured by 1-4 family residential
properties in the local market area, funded by retail deposits. In an effort to
deploy available funds and increase returns, Harbor Federal diversified its loan
portfolio in the 1980s by increasing the emphasis on income property lending
(multi-family and non-residential real estate), resulting in a relatively large
portfolio of various types of commercial real estate loans (including loans with
higher balances). Following a period of elevated non-performing assets due to
the higher credit risk associated with these loan types, the Bank returned to a
strategy of emphasizing residential lending in the early 1990's and permitted
the commercial real estate loan portfolio to decline through repayments and
amortization. Upon attaining a relatively higher credit quality earning asset
base, the Bank again began to originate commercial real estate loans for
portfolio, although under more conservative and strict underwriting guidelines.
Harbor Federal also completed the mutual holding company minority stock offering
in 1994 that strengthened the capital base and has since continued to expand the
loan portfolio primarily in the area of 1-4 family permanent and construction
loans. The Bank has also increased the level of borrowed funds in order to more
effectively
<PAGE>
RP Financial, LC.
Page 1.4
leverage the capital base and provide a more competitive return on equity to the
existing public shareholders. In context with the emphasis on providing a wider
range of products, recently the Bank has also expanded its activities in
consumer loans, primarily home equity, manufactured housing, automobile and
personal loans. The increases in loans receivable has been funded in part
internally through deposits and equity and externally through FHLB advances. The
Bank sells a minor portion of the 1-4 family loan originations for interest rate
risk management purposes and expects the majority of its loan activity in the
future to be within the six county market area.
The Bank's more recent emphasis on originating 1-4 family permanent
mortgage loans in local and familiar markets and strong underwriting criteria on
loans originated has resulted in improving credit quality measures. The Bank's
allowance for loan losses relative to loans is also comparatively higher by
industry standards, a level that the Bank has maintained, even in light of the
continued growth in the loan portfolio. The ratio of non-performing assets
("NPAs"), consisting of real estate owned ("REO") and other repossessed assets,
non-accruing loans and delinquent accruing loans to assets has dropped steadily
over the past three fiscal years, and was 0.46 percent of assets as of June 30,
1997.
Harbor Federal's strategies to limit exposure to interest rate risk have
involved originating, whenever possible, adjustable rate residential mortgage
loans ("ARMs"), adjustable rate commercial real estate loans and shorter-term
construction, consumer and commercial business loans. The Bank also maintains a
relatively short-term investment securities portfolio. Fixed rate residential
loans with terms-to-maturity of greater than 15 years are generally sold in the
secondary market. Liability strategies have involved attempting to increase the
level of core deposits (i.e. checking accounts and other savings accounts),
which are deemed less sensitive to changes in interest rates, and longer term
FHLB advances have been utilized to lengthen the average term-to-maturity of the
interest-bearing liability base. The Bank, however, remains subject to a certain
level of interest rate risk due to a balance of fixed rate residential loans
held in portfolio. As of June 30, 1997, approximately 78 percent of loans
receivable with a maturity of greater than 12 months were fixed rate in nature.
Regarding the measure of interest rate risk, Harbor Federal's projected change
in net portfolio value ("NPV"), based on calculations provided by the OTS,
reveal that the Bank's NPV would decrease by 25 percent upon a positive 200
basis point change in interest rates. Harbor Federal anticipates the conversion
proceeds will facilitate improvement in the asset/liability gap analysis as the
net capital raised in the conversion will increase the ratio of interest-earning
assets ("IEA") to interest-bearing liabilities ("IBL").
Harbor Federal has reported relatively strong levels of net income over the
last five years, ranging from 0.77 percent to 1.25 percent of assets. The Bank's
main source of net income, the net interest margin, has remained relatively
stable over this time frame, with overall net interest income increasing in step
with the growth in assets, although spread compression has occurred in the most
recent periods. For the twelve months
<PAGE>
RP Financial, LC.
Page 1.5
ended June 30, 1997, Harbor Federal experienced a lower level of interest
income, as competitive and market factors reduced the yield on earning assets.
Core profitability has been enhanced since fiscal 1994 by an declining operating
expense ratio, as growth in operating expenses has been lower than growth in
assets. The Bank has successfully expanded its operations in the recent past
without fixed asset, personnel and other costs above the growth in operations.
The Bank's ratio of non-interest income has remained relatively stable,
increasing in line with overall operations. Further improvement in core
profitability is expected to be difficult in light of efficiencies in operations
achieved in recent years (the Bank's efficiency ratio is below 50 percent, a
favorable level based on industry standards), due to competitive and market
factors which result in downward pressure on the level of net interest income.
Future core profitability is projected to improve with the reinvestment benefit
of the new capital raised.
Harbor Federal's Board of Directors has determined that a full conversion
to stock form is an attractive business strategy for several reasons. The full
conversion is expected to provide the capital necessary to improve the overall
competitive position of the Bank in the market area, with regard to rates and
services offered and ability to expand. In addition, an increase in the
publicly-held shares may increase the stock liquidity, and the conversion may
provide the opportunity for expanded local stock ownership which could enhance
the financial success of the Bank as local shareholders promote the Bank's
products and services. Finally, the new structure will provide the ability to
diversify business activities, provide greater flexibility in structuring
acquisitions and increase the future access to capital markets. The new
structure is also being pursued in view of certain regulatory uncertainties
regarding the MHC structure and thrift industry as a whole. As disclosed in the
prospectus, the proceeds from stock conversion are anticipated to be invested as
follows.
o Holding Company. The balance of conversion proceeds from the second
step offering are expected to be downstreamed to the Bank via a loan
to the Bank and through proceeds deposited in a savings account at the
Bank. The Holding Company funds will be utilized for various corporate
purposes, including funding expansion through diversification or
acquisition, stock repurchase programs, funding stock purchases for
the MRP and/or payment of special dividends, although there are no
specific plans at present. Harbor Florida has indicated its intention
to pay a regular dividend following completion of the second step
conversion, and will fund the loan to the ESOP.
o Harbor Federal. Harbor Florida intends to downstream the conversion
proceeds to the Bank via a loan to Harbor Federal and through proceeds
deposited at the Bank. The funds at Harbor Federal are anticipated to
initially be held in short- and mid-term cash and investments and also
redeployed into lending and investment activities consistent with the
Bank's plan.
On a pro forma basis, Harbor Federal is expected to have a capital ratio
above both regulatory requirements and industry averages. The Board of Directors
has determined to pursue a strategy of controlled
<PAGE>
RP Financial, LC.
Page 1.6
growth in order to maintain well-capitalized status, with growth expected to be
funded primarily through local retail deposit growth and additional borrowings.
Balance Sheet Trends
- ----------------------
Table 1.1 shows key balance sheet items at the close of the last five
fiscal years and as of June 30, 1997. The Bank's audited financial statements
are incorporated by reference as Exhibit I-2, while historical key operating
ratios are presented in Exhibit I-3. From September 30, 1992 through June 30,
1997, the Bank exhibited annual asset growth of 9.3 percent, with the asset
growth channelled into all major balance sheet categories. The most rapid growth
occurred with cash and investments, which increased by over 12 percent annually,
however loans receivable remained the largest portion of the asset base (73
percent of assets as of June 30, 1997). The Bank's annual deposit growth totaled
7.0 percent over the period in Table 1.1, with deposits increasing since fiscal
1993. Asset growth has also been supported by increased levels of borrowings,
consisting of FHLB advances, which have been used as a supplemental funding
source, and have assisted in leveraging the Bank's capital base.
The balance of loans receivable increased consistently since fiscal 1992,
averaging an 9.5 percent annual increase. Over this time period, the Bank has
been successful in expanding the balances of the various loan types, although
permanent residential and construction loans have declined in proportion while
commercial real estate and non-mortgage loans have increased. At June 30, 1997,
loans receivable totaled $818.9 million, or 73.3 percent of total assets. The
composition of the loan portfolio continues to reflect a concentration on
residential lending, as loans secured by residential property (including
construction loans), constituted $661.5 million, or 77.0 percent of the gross
loan portfolio at June 30, 1997, a slight decline from 80.9 percent as of
September 30, 1994. Commercial real estate loans (including multi-family loans)
and land loans totaled $99.3 million, or 11.6 percent of the loan portfolio, an
increase from 9.42 percent of the loan portfolio as of September 30, 1994, while
consumer loans totaled $87.0 million, or 10.1 percent of loans receivable,
representing an increase from 8.4 percent of gross loans receivable as of
September 30, 1994.
MBS totaled $156.6 million at June 30, 1997, the second largest component
of interest-earning assets. Similar to loans receivable, the increase in the MBS
balance since fiscal year end 1993 highlights the Bank's strategy of increasing
the asset base in order to more effectively leverage capital, and to invest
available liquid assets into the higher yielding and low credit risk assets such
as MBS. The MBS portfolio consists of FNMA and FHLMC pass-through certificates,
of which approximately one-third carried adjustable rates, one-third were
balloon-type securities with terms of 5, 7 or 10 years, and the remaining were
longer-term fixed rate securities. The entire MBS portfolio was classified as
"held-to-maturity" ("HTM") at June 30, 1997, and is
<PAGE>
RP Financial, LC.
Page 1.7
Table 1.1
Harbor Florida Bancorp, Inc.
Historical Balance Sheets (1)
(Amount and Percent of Assets)
<TABLE>
<CAPTION>
For the Fiscal Year Ended September 30,
-----------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
----------------- ----------------- ----------------- ----------------- -------------------
Amount Pct Amount Pct Amount Pct Amount Pct Amount Pct
------ --- ------ --- ------ --- ------ --- ------ ---
($000) (%) ($000) (%) ($000) (%) ($000) (%) ($000) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Amount of:
Assets $731,504 100.00% $759,389 100.00% $808,110 100.00% $886,570 100.00% $1,057,443 100.00%
Loans Receivable (net) 531,145 72.61% 547,377 72.08% 576,432 71.33% 632,316 71.32% 769,889 72.81%
Mortgage-Backed Securities 97,201 13.29% 89,535 11.79% 120,099 14.86% 164,759 18.58% 153,293 14.50%
Cash and Investment Securities 64,567 8.83% 93,899 12.37% 87,669 10.85% 69,904 7.88% 109,212 10.33%
Real Estate Owned 16,527 2.26% 6,198 0.82% 2,522 0.31% 2,786 0.31% 3,118 0.29%
Goodwill 0 0.00% 0 0.00% 0 0.00% 0 0.00% 3,587 0.34%
Deposits 654,988 89.54% 651,093 85.74% 673,830 83.38% 720,981 81.32% 851,853 80.56%
FHLB Advances, Other Borrowed Funds 22,027 3.01% 45,990 6.06% 46,273 5.73% 65,974 7.44% 95,674 9.05%
Stockholders Equity 34,527 4.72% 40,230 5.30% 68,251 8.45% 77,500 8.74% 84,832 8.02%
Tangible Stockholders Equity 34,527 4.72% 40,230 5.30% 68,251 8.45% 77,500 8.74% 81,245 7.68%
AFS Adjustment -- -- -- -- -- -- -- -- (49) -0.00%
End of Period Shares Outstanding -- -- 4,894,200 4,910,991 4,934,454
Wghtd Avg Shrs for EPS Calculations(2) -- -- -- 4,880,054 4,947,108
Book Value/Share -- -- $13.95 $15.78 $17.19
Tangible Book Value/Share -- -- $13.95 $15.78 $16.46
Offices Open -- 21 21 22 23
</TABLE>
Table 1.1 (Continued)
<TABLE>
<CAPTION>
9/30/92-
6/30/97
As of June 30, Annualized
1997 Growth Rate
-------------------- -----------
Amount Pct Pct
------ --- ---
($000) (%) (%)
<S> <C> <C> <C>
Total Amount of:
Assets $1,116,718 100.00% 9.31%
Loans Receivable (net) 818,879 73.33% 9.54%
Mortgage-Backed Securities 156,559 14.02% 10.56%
Cash and Investment Securities 114,851 10.28% 12.89%
Real Estate Owned 2,896 0.26% -30.70%
Goodwill 3,100 0.28% N/M
Deposits 904,904 81.03% 7.04%
FHLB Advances, Other Borrowed Funds 100,449 9.00% 37.64%
Stockholders Equity 93,706 8.39% 23.39%
Tangible Stockholders Equity 90,606 8.11% 22.52%
AFS Adjustment (43) -0.00%
End of Period Shares Outstanding 4,970,240
Wghtd Avg Shrs for EPS Calculations(2) 4,960,243
Book Value/Share $18.85
Tangible Book Value/Share $18.23
Offices Open 23
</TABLE>
(1) Ratios are as a percent of ending assets.
(2) The Bank's minority sale of stock was completed in January 1994.
Source: Harbor Federal's audited financial statements.
<PAGE>
RP Financial, LC.
Page 1.8
carried on the balance sheet at historical cost. There was an unrealized pre-tax
gain of $896,000 as of June 30, 1997 in the MBS portfolio. The Bank utilizes a
portion of its MBS portfolio to satisfy regulatory liquidity requirements,
preferring to maintain such funds in MBS instead of lower yielding cash and
investments. Going forward, the Bank intends to continue a focus on investment
in MBS.
The portfolio of cash and investment securities totaled $114.9 million, or
10.3 percent of assets, at June 30, 1997 (see Exhibit I-4). The cash and
investments portfolio consisted of cash and equivalents, including
interest-earning deposits in other financial institutions ($34.5 million),
federal funds sold ($10.3 million), U.S. Government and agency securities ($62.4
million), FHLB stock ($7.6 million) and other securities ($0.1 million). The
Bank attempts to maintain cash and investments in the range of 10 percent of
assets, preferring to invest available funds into higher yielding MBS and loans
receivable. Management utilizes the portfolio of cash and investments for
liquidity purposes and as part of the asset-liability management strategy, as
the investments portfolio consists of short- to intermediate-term instruments.
The Bank classifies a portion of the U.S. Government securities as
available-for-sale ("AFS") and as of June 30, 1997, the cost basis of the AFS
portfolio was equal to the market value. Going forward, the Bank intends to
continue to purchase generally low risk investments and the composition of the
cash and investments portfolio is not anticipated to change significantly,
although the level will initially increase on a post-conversion basis. Going
forward, the Bank intends to continue a focus on investment into whole loans,
although MBS may be purchased with available funds.
As noted previously, deposits have traditionally met most of the Bank's
funding needs, and all of the Bank's deposits are generated through its branch
office network. Deposits have increased by 7.0 percent annually since fiscal
1992, but have declined as a percent of assets. Harbor Federal has achieved
growth in deposits by offering competitive rates and attempting to be more
visible in the local market area through advertising and other marketing
efforts. The Bank has also upgraded a number of branch facilities and moved from
generally smaller, leased facilities to full-service free-standing offices in
order to attract additional customers. Currently, savings rates offered by
Harbor Federal are generally in line with the local competition, with
certificates of deposits ("CDs") accounting for the majority of deposits. The
Bank has a portfolio of core deposits totaling approximately 24 percent of
deposits, providing a base of stable lower costing deposits for operations.
As stated previously, borrowings have been used by the Bank for the purpose
of funding operations and assisting in leveraging the capital base. As of June
30, 1997, the Bank had borrowed funds of $100.0 million in advances from the
FHLB of Atlanta, with maturity dates between 1997 and the year 2002, and a minor
amount of borrowings related to the Bank's ESOP. The borrowings consist of both
short-term and longer-term advances that have been taken down in advantageous
interest rate environments. Going forward, the Bank
<PAGE>
RP Financial, LC.
Page 1.9
intends to continue using borrowings to support operations, although deposits
are expected to continue to comprise the majority of funding liabilities.
Harbor Federal has experienced improved asset quality in recent years, and
as shown in Table 1.1, the balance of REO has declined from $16.5 million to
under $3.0 million as of June 30, 1997. Table 1.1 also reveals the intangible
resulting from the acquisition of Treasure Coast in 1996. The goodwill is being
amortized over 15 years.
Positive earnings from fiscal 1993 to fiscal 1996 and the most recent 12
month period and the minority stock offering in 1994 resulted in an increase in
the Bank's capital to $93.7 million, or 8.4 percent of assets, as of June 30,
1997. The Bank's capital ratio has remained relatively stable since fiscal 1994
in the range of 8 to 9 percent due to the expansion of the asset base. The Bank
has also paid dividends to shareholders (excluding the MHC shares) since fiscal
1994. Harbor Federal is currently in compliance with respect to all of its fully
phased-in capital requirements. The addition of conversion proceeds will enhance
the Bank's capital position and strengthen Harbor Federal's competitive posture
within its market area.
Income and Expense Trends
- -------------------------
Table 1.2 displays the Bank's earnings over the past five fiscal years and
for the most recent twelve months, reveals that earnings have fluctuated between
0.77 and 1.25 percent of average assets, and totaled 0.94 percent for the twelve
months ended June 30, 1997. Earnings for fiscal 1996 and the most recent period
have been adversely affected primarily by the one-time SAIF assessment fee
booked in the September 30, 1996 quarter, while the higher income in fiscal year
1995 was due in part to a stronger net interest margin. The reinvestment of
offering proceeds is expected to improve net income in future periods.
The Bank's net interest income is the major source of income, totaling
$38.8 million or 3.57 percent of average assets for the twelve months ended June
30, 1997. While such income is higher than industry averages, the Bank's net
interest margin has declined from a high of 3.84 percent for fiscal 1993 to the
present level, due entirely to higher funding costs (See Table 1.2). The source
of this increase in funding costs is highlighted in Exhibit I-5, which shows the
changes in the Bank's asset yields and cost of funds over the past three fiscal
years and for the most recent periods, which have influenced the level of net
interest income. Spreads narrowed by 31 basis points between fiscal 1994 and the
most recent twelve months, as higher costs of deposits and borrowings increased
the Bank's overall funding costs by 87 basis points, while asset yields
increased by a lower 56 basis points. The cost of funds rose in part due to the
greater proportion of higher cost borrowings used to fund earnings assets. These
trends indicate that while the Bank has been successful maintaining a strong net
<PAGE>
RP Financial, LC.
Page 1.10
Table 1.2
Harbor Florida Bancorp, Inc.
Historical Income Statements
(Amount and Percent of Assets)(1)
<TABLE>
<CAPTION>
For the Fiscal Year Ended September 30,
----------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---------------- ---------------- ---------------- ---------------- ----------------
Amount Pct Amount Pct Amount Pct Amount Pct Amount Pct
------ --- ------ --- ------ --- ------ --- ------ ---
($000) (%) ($000) (%) ($000) (%) ($000) (%) ($000) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income $60,801 8.28% $55,674 7.52% $56,084 7.16% $64,884 7.61% $74,357 7.83%
Interest Expense (35,760) -4.87% (27,251) -3.68% (26,276) -3.35% (33,281) -3.90% (39,114) -4.12%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Net Interest Income $25,041 3.41% $28,423 3.84% $29,808 3.80% $31,604 3.71% $35,243 3.71%
Provision for Loan Losses (2,755) -0.38% (1,890) -0.26% (1,553) -0.20% (460) -0.05% 76 0.01%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Net Interest Income after Provisions $22,286 3.03% $26,533 3.58% $28,256 3.61% $31,144 3.65% $35,319 3.72%
Other Income $ 3,152 0.43% $ 2,668 0.36% $ 2,701 0.34% $ 2,855 0.33% $ 3,226 0.34%
Operating Expense (16,142) -2.20% (16,971) -2.29% (17,867) -2.28% (18,198) -2.13% (19,580) -2.06%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Net Operating Income $ 9,296 1.27% $12,230 1.65% $13,090 1.67% $15,801 1.85% $18,965 2.00%
Gain(Loss) on Sale of Inv. Sec.\MBS $ 223 0.03% $ 281 0.04% $ 118 0.01% $ 92 0.01% $ (40) 0.00%
Income on Real Estate Operations 1,810 0.25% (2,792) -0.38% 1,250 0.16% (40) 0.00% (301) -0.03%
SAIF Special Assessment 0 0.00% 0 0.00% 0 0.00% 0 0.00% (4,552) -0.48%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total Non-Operating Inc.\Exp. $ 2,033 0.28% $(2,511) -0.34% $ 1,368 0.17% $ 52 0.01% $(4,893) -0.52%
Net Income Before Tax $11,329 1.54% $ 9,719 1.31% $14,458 1.84% $15,853 1.86% $14,072 1.48%
Income Taxes (4,365) -0.59% (4,016) -0.54% (5,254) -0.67% (5,958) -0.70% (5,432) -0.57%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Net Inc(Loss) Before Extraordinary Items $ 6,964 0.95% $ 5,703 0.77% $ 9,204 1.17% $ 9,895 1.16% $ 8,640 0.91%
Cumulative Effect of Change in
Accounting For Income Taxes $ 0 0.00% $ 0 0.00% $ 1,935 0.25% $ 0 0.00% $ 0 0.00%
Utilization of Tax Loss Carryforwards 456 0.06% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Repayment of FHLB Adv., Net of Taxes 0 0.00% 0 0.00% (1,342) -0.17% 0 0.00% 0 0.00%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Net Income (Loss) $ 7,420 1.01% $ 5,703 0.77% $ 9,797 1.25% $ 9,895 1.16% $ 8,640 0.91%
Earnings Excluding Non-Operating and
Extraord. Items:
Pre-Tax Net Inc. Before Extraordinary Items $11,329 1.54% $ 9,719 1.31% $14,458 1.84% $15,853 1.86% $14,072 1.48%
Addback(Deduct): Non-Recurring (Inc)/Exp (2,033) -0.28% 2,511 0.34% (1,368) -0.17% (52) -0.01% 4,893 0.52%
Tax Effect (39.30%) (3,653) -0.50% (4,806) -0.65% (5,144) -0.66% (6,210) -0.73% (7,453) -0.78%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Earnings Excl. Non-Op./Extraord Items: $ 5,643 0.77% $ 7,424 1.00% $ 7,946 1.01% $ 9,591 1.12% $11,512 1.21%
Earnings Per Share:
Reported N/A N/A N/A $2.03 $1.75
Earnings Excl. Non-Op./Extraord Items: N/A N/A N/A 1.97 2.33
Dividends:
Amount N/A N/A $0.34 $0.90 $1.20
Payout Ratio N/A N/A N/A 44.39% 68.71%
Efficiency Ratio 57.26% 54.59% 54.96% 52.81% 50.90%
</TABLE>
<PAGE>
RP Financial, LC.
Page 1.10 (continued)
Table 1.2 (Continued)
<TABLE>
<CAPTION>
12 Months Ended
June 30, 1997
-----------------
Amount Pct
------ ---
($000) (%)
<S> <C> <C>
Interest Income $82,691 7.61%
Interest Expense (43,843) -4.03%
------- -----
Net Interest Income $38,848 3.57%
Provision for Loan Losses (529) -0.05%
------- -----
Net Interest Income after Provisions $38,319 3.52%
Other Income $ 3,574 0.33%
Operating Expense (20,635) -1.90%
------- -----
Net Operating Income $21,258 1.96%
Gain(Loss) on Sale of Inv. Sec.\MBS $ 50 0.00%
Income on Real Estate Operations 15 0.00%
SAIF Special Assessment (4,552) -0.42%
------- -----
Total Non-Operating Inc.\Exp. $(4,487) -0.41%
Net Income Before Tax $16,771 1.54%
Income Taxes (6,564) -0.60%
------- -----
Net Inc(Loss) Before Extraordinary Items $10,207 0.94%
Cumulative Effect of Change in
Accounting For Income Taxes 0 0.00%
Utilization of Tax Loss Carryforwards 0 0.00%
Repayment of FHLB Adv., Net of Taxes 0 0.00%
------- -----
Net Income (Loss) $10,207 0.94%
Earnings Excluding Non-Operating and
Extraord. Items:
Pre-Tax Net Inc. Before Extraordinary Items $16,771 1.54%
Addback(Deduct): Non-Recurring (Inc)/Exp 4,487 0.41%
Tax Effect (39.30%) (8,354) -0.77%
------- -----
Earnings Excl. Non-Op./Extraord Items: $12,904 1.19%
Earnings Per Share:
Reported $2.06
Earnings Excl. Non-Op./Extraord Items: 2.60
Dividends:
Amount $1.20
Payout Ratio 58.31%
Efficiency Ratio 48.64%
</TABLE>
(1) Ratios are as a percent of average assets. Average assets calculated based
on annual average.
Source: Harbor Federal's audited financial statements.
<PAGE>
RP Financial, LC.
Page 1.11
interest margin, the Bank's net interest income is still influenced by changes
in interest rates and the composition of the funding base.
Harbor Federal derives income from non-interest sources, which has provided
some protection from changes in the net interest margin due to interest rate
fluctuations. For the most recent twelve month period, non-interest operating
income totaled $3.6 million, or 0.33 percent of average assets, and the level of
such income has remained relatively stable as a percent of average assets over
the past few fiscal years. A majority of this income results from the Bank's
deposit base in the form of various fees and charges on deposit accounts and
transactions. A smaller portion of this income is obtained from other sources
such as various banking fees and charges. Going forward, the Bank anticipates
that non-interest income will remain primarily related to the deposit base, as
other significant income sources are not expected to be developed (such as
significant loans service for others income).
Harbor Federal's profitability has been enhanced in recent years by a more
efficient operating expense ratio. Since fiscal 1993, the Bank's operating
expense ratio has declined by 39 basis points to 1.90 percent of assets for the
twelve months ended June 30, 1997 as expenses have been restrained while assets
have continued to increase. As shown in Table 1.1, the Bank has added two branch
office locations since fiscal 1993, while assets have increased by 47 percent
overall. Over the past few years, all major expense categories such as
personnel, occupancy and data processing have grown at rates less than the rate
of asset growth, and Harbor Federal's use of borrowings has assisted in
leveraging the Bank's existing operations. A measure of the Bank's expenses, the
Bank's efficiency ratio (defined as operating expenses divided by net interest
income and non-interest operating income), has declined to approximately 49
percent in 1997 from earlier higher levels. The Bank's operating expenses are
expected to initially increase following the conversion as a result of the ESOP
and MRP purchases in the offering and in the year following conversion,
respectively. In addition, as a full stock institution, the Bank will incur
additional legal, accounting, printing/mailing and related costs.
Provisions for loan losses have generally had a small impact on earnings in
recent years, as the improvement in asset quality since the early 1990s has
resulted in an allowance for loan and lease losses balance in excess of
requirements as calculated by the Bank. In fiscal 1996, the Bank recorded a
credit to the allowance for loan losses of $76,000 as asset quality continued to
improve and classified assets declined. During the most recent twelve month
period, the Bank booked a provision of $529,000, due primarily to the continued
growth in the loan portfolio. As of June 30, 1997 the allowance for loan and
lease loss balance was equal to $11,408,000, or 1.40 percent of net loans
receivable and 512.26 percent of non-accruing loans (see Exhibit I-6).
Historically, non-operating gains and losses have been limited to gains or
losses on the sale of investment securities and/or MBS and income from property
held as REO (see Table 1.2). Income from gains
<PAGE>
RP Financial, LC.
Page 1.12
on the sale of loans and/or MBS has traditionally been limited as the Bank does
not sell a significant amount of loans, and income (or losses) from real estate
operations have been minimal in recent years as the level of REO has declined.
Similar to all SAIF-insured financial institutions, the Bank incurred a pre-tax
charge for the special SAIF insurance premium assessment fee at September 30,
1996 equal to $4,552,000. During the most recent twelve month period, Harbor
Federal reported net gains of $50,000 from the sale of interest-earning assets,
REO income of $15,000, and the SAIF assessment charge.
The Bank's effective tax rate was approximately 39.1 percent for the twelve
months ended June 30, 1997. Dividends paid to shareholders (excluding shares
held by the MHC), totaled $0.35 per share for the most recent quarter.
Interest Rate Risk Management
- -----------------------------
Harbor Federal attempts to manage exposure to interest rate fluctuations on
both the asset and liability side of the balance sheet, and has attempted to
enhance the interest sensitivity of its operations through several means,
including: (1) originating, whenever possible, adjustable rate residential
mortgage loans ("ARMs"), adjustable rate commercial real estate loans and
shorter-term construction, consumer and commercial business loans; (2)
maintaining a relatively short-term investment securities portfolio, including a
balance of adjustable or balloon-type MBS; (3) selling fixed rate residential
loans with terms-to-maturity of greater than 15 years in the secondary market;
(4) attempting to increase the level of core deposits (i.e. checking accounts
and other savings accounts), which are deemed less sensitive to changes in
interest rates; and (5) utilizing longer term FHLB advances lengthen the average
term-to-maturity of the interest-bearing liability base. Exhibit I-7 displays
the distribution of the Bank's fixed and adjustable rate loans.
Harbor Federal monitors its exposure to interest rate risk using an OTS
calculation of the change in net portfolio value of the Bank's equity. As shown
in Exhibit I-8, according to the most recent calculation, the Bank's net
portfolio value would decline by 25 percent in the event of a 200 basis point
increase in interest rates, indicating a level of interest rate risk. Although
this measure is within the Board-established limits of the Bank, Harbor Federal
is seeking to reduce exposure to interest rate risk, and the reinvestment of
conversion proceeds is expected to contribute to reduced exposure.
Lending Activities and Strategy
- -------------------------------
The Bank's recent lending activities emphasize the origination of 1-4
family mortgage loans (see Exhibits I-9 and I-10, loan composition and
maturity). Harbor Federal also maintains a level of loan portfolio
<PAGE>
RP Financial, LC.
Page 1.13
diversification with a balance of commercial real estate loans, commercial
business loans and consumer loans in an effort to enhance overall portfolio
yields and expand the Bank's products and services offered. Gross loans
increased from $612.6 million at September 30, 1994 to $862.4 million at June
30, 1997, with the proportion of 1-4 family loans declining slightly to 72
percent. Consumer, commercial business, non-residential real estate and land
loans increased in proportion over this time frame, while construction,
residential and multi-family loans decreased.
As of June 30, 1997, residential mortgage loans secured by 1-4 family
properties totaled $620.1 million, or 72.2 percent of total loans receivable.
The Bank originates both ARMs and fixed-rate residential mortgages with a
majority of loans underwritten to secondary market guidelines, primarily FNMA,
although most customer demand in recent periods has been for fixed rate loan
products. A majority of the ARM loans are underwritten to be assumable, an
attractive feature for the Bank's customers, and essentially all loans are
originated by in-house personnel who are compensated by salary plus commission.
Residential loans made by the Bank are generally originated with maximum
loan-to-value ("LTV") ratios of 80 percent, with loans with LTV ratios in excess
of 80ypercent requiring private mortgage insurance ("PMI") coverage. Fixed-rate
mortgages are offered with maturities of up to 30 years, with essentially all
loans with maturities in excess of 20 years sold in the secondary market, and
loans with shorter terms held in portfolio. The Bank also offers a bi-weekly
fixed rate mortgage product that is not offered by many competitors and
effectively lowers the term-to-maturity of a 30 year loan to 23 years.
Approximately 25 percent of the Bank's 1-4 family residential mortgages
consisted of ARMs at June 30, 1997, which are retained for portfolio as part of
asset/liability management strategy. Harbor Federal offers ARMs that are fixed
for one-, three-, five- or seven year periods and adjust annually thereafter and
are indexed to the weekly average rate on the corresponding U.S. Treasury
securities, adjusted to a constant maturity. The majority of ARMs are originated
with annual adjustment caps of 2.0 percent and lifetime adjustment caps of up to
5.0 percentage points.
The Bank also maintains a portfolio of land loans, representing land
located in the market area for eventual development into residential property.
As of June 30, 1997, land loans totaled $31.9 million, or 3.7 percent of gross
loans receivable, an increase from fiscal 1994 levels. Land loans are offered
with either a fixed or adjustable interest rate and a maximum term of up to 15
years. LTVs on land loans are generally limited to 75 to 80 percent.
Construction loans have been an area of emphasis for the Bank in recent
years, and totaled $41.4 million, or 4.8 percent of gross loans outstanding, at
June 30, 1997, primarily for residential property. A majority of the
construction loans are made on "pre-sold" homes with are structured to become
permanent
<PAGE>
RP Financial, LC.
Page 1.14
loans upon completion of the construction period. Other construction loans are
speculative loans, loans to builders who intend to locate a purchaser for the
home prior to or shortly after construction is completed. Construction loans are
structured as interest-only during the construction period, which generally
equals six months to one year. Pre-sold construction/permanent loans have
maximum LTV ratios of up to 80 percent, while speculative construction loans
typically have maximum LTV ratios of 75 percent.
Harbor Federal historically had been an active originator of commercial
real estate loans in the local market area. In the late 1980s, the Bank
curtailed lending activities in this area due to credit quality issues, and
following a period of work-out of problem assets, re-entered the commercial real
estate lending market in the early 1990s. The Bank currently maintains a balance
of commercial real estate loans in portfolio in an effort to diversify the loan
portfolio and increase overall asset yields. As of June 30, 1997, multi-family
loans totaled $14.5 million, or 1.7 percent of the loan portfolio, while
non-residential mortgage loans totaled $53.0 million, or 6.2 percent of the loan
portfolio. Recent lending activities have been pursued on a conservative basis,
as commercial real estate loans are generally limited to $1.5 million per loan
and approximately $2.5 million per borrower relationship, and lending is mostly
confined to the six county market area. The Bank's non-residential mortgage
portfolio consists primarily of loans secured by office buildings, doctor's
offices, warehouses and other non-residential property. Approximately one half
of originations are on new property, with the other half consisting of
refinanced loans. Commercial real estate loans originated by Harbor Federal are
either fixed rate (generally for 15 years), or adjustable rate loans that
generally are fixed for five or ten years and adjust thereafter. The loans are
generally indexed to the U.S. Treasury rate of a similar term as the adjustment
period. LTVs on income property loans typically do not exceed 75 percent. The
Bank seeks to manage credit risk on such loans by lending primarily on local
property, to borrowers with whom management is familiar, and obtaining personal
guarantees.
Harbor Federal also offers consumer and commercial business loans,
including home equity loans, which totaled $98.5 million, or 11.5 percent of
gross loans receivable, at June 30, 1997. The Bank offers a variety of types of
consumer loans, including home equity loans, home improvement loans, retirement
community mobile home loans, automobile loans, personal loans and loans secured
by deposit accounts. The attractiveness of the market area for retirees has
resulted in a number of retirement communities where the residents do not own
the land, but own the home on the land. Home equity loans represent an area of
growth for Harbor Federal in recent years, and usually consist of equity loans
for typically up to 80 percent of the appraised value of a home, less the amount
of the first mortgage. Home equity loans are offered at both fixed and
adjustable rates of interest, with the adjustable rate based on the prime rate
of interest. The Bank has a small balance of commercial business loans
consisting of loans to a number of local area businesses. Commercial business
loans are not expected to be a growth area in the future.
<PAGE>
RP Financial, LC.
Page 1.15
As shown in Exhibit I-11, Harbor Federal's overall loan origination volume
increased from $148.8 million in fiscal 1994 to $171.5 million for the most
recent twelve months. The table highlights the Bank's emphasis on residential
real estate and construction lending, with originations of these loan types
ranging from $135.5 million, or 91 percent of mortgage loan originations in
fiscal 1994, to $140.2 million, or 82 percent of mortgage loan originations for
the most recent twelve months. The data reveals the recent increase in lending
in commercial real estate and land lending. Non-mortgage lending has increased
from $36.2 million for fiscal 1994 to $60.1 million for the most recent twelve
months, indicating the Bank's increased activity in this area. Harbor Federal
has not historically purchased loans, and has sold a portion of loans originated
in the secondary market. A portfolio of loans totaling $60.5 million was
acquired with the acquisition of Treasure Coast Bank, F.S.B. in 1996.
Asset Quality
- -------------
Exhibit I-12 displays Harbor Federal's NPAs from fiscal 1994 to June 30,
1997, and shows that the level of NPAs (consisting of non-accruing loans and
REO) has declined in each year since 1994, from 0.85 to 0.46 percent of total
assets. REO totaled $2,896,000 as of June 30, 1997, and the Bank had a zero
balance of loans greater than 90 days delinquent and still accruing. As of June
30, 1997, NPAs consisted of residential, multi-family and construction loans on
non-accrual status or REO. As of the same date, the Bank maintained valuation
allowances of $11,401,000, equal to 1.38 percent of loans receivable and 209.73
percent of NPAs. Harbor Federal had classified assets of $2.2 million at June
30, 1997, all of which were classified as substandard (see Exhibit I-13).
Funding Composition and Strategy
- --------------------------------
Exhibits I-14 and I-15 provide data pertaining to Harbor Federal's deposit
composition at fiscal year ends 1994 through 1996 and as of June 30, 1997.
Harbor Federal's deposits consist of CD accounts, which totaled $682.7 million,
or 75.5 percent of total deposits, and a base of core deposits (passbook
accounts, NOW accounts, non-interest checking accounts, and MMDAs) which totaled
$222.2 million, or 24.5 percent of total deposits. Passbook accounts were the
largest component of core deposits and totaled $77.5 million, or 8.6 percent of
total deposits, at June 30, 1997, followed by NOW accounts totaling $53.1
million, money market deposits totaling $45.4 million and non-interest bearing
accounts totaling $40.1 million. Since fiscal 1994, the proportion of CDs has
risen, which has an upward effect on funding costs given the higher costs of CDs
versus transaction/passbook accounts. Going forward, the Bank intends to try to
increase the base of transaction accounts in order to lower the overall cost of
funds and assist in funding anticipated increases in lending operations. CDs
with balances greater than $100,000, which tend to be more rate sensitive than
lower balance
<PAGE>
RP Financial, LC.
Page 1.6
CDs, accounted for $61.5 million, or 6.8 percent of deposits, at June 30, 1997.
The level of these large balance CDs in the Bank's CD portfolio is significant
in these CDs tend to be more rate sensitive than smaller denomination CDs,
increasing the Bank's interest rate risk to a degree.
As part of the Bank's strategy to leverage the capital base and support
certain investment strategies, the Bank has utilized borrowings from the FHLB of
Atlanta. These advances are secured by the Bank's stock in the FHLB and a
portion of Harbor Federal's mortgage loans, and consist of both short-term and
long-term borrowings. As of June 30, 1997, the Bank had FHLB advances of $100.0
million outstanding with an average interest rate of 6.00 percent. Harbor
Federal also had borrowings in the form of an ESOP borrowing of $449,000 as of
June 30, 1997.
Subsidiary Operations
- ---------------------
The Bank currently has two active subsidiaries. Appraisal Analysts, Inc.
provides real estate 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.
Harbor Federal also has one inactive subsidiary, CFD, Inc., which has been
in bankruptcy court in the Southern District of Florida since September 1991.
Previously, CFD, Inc. had been engaged in land development and sales of land
using land installment contracts. The bankruptcy process is still underway, and
all of the assets of CFD, Inc. have been transferred to the bankruptcy trustee
for liquidation. In connection with the bankruptcy proceedings, the Bank is both
a secured and unsecured creditor of CFD, Inc. Until completion of the bankruptcy
proceedings, there remains a level of litigation risk to the Bank. The Bank's
exposure cannot be estimated at this point.
Legal Proceedings
- -----------------
Harbor Federal is not involved in litigation which is expected to have a
material impact on Harbor Federal's financial condition or operations. Other
litigation generally involves routine legal proceedings that occur in the Bank's
ordinary course of business.
<PAGE>
RP Financial, LC.
Page 2.1
II. MARKET AREA
Introduction
- ------------
Harbor Federal conducts operations out of a headquarters office in Fort
Pierce, St. Lucie County, Florida and a network of 22 branch offices in six
counties along the central eastern coast of Florida (see Exhibit I-1 for the
location of the Bank's market area counties and Exhibit II-1 for information
regarding Harbor Federal's offices). The Bank operates offices in St. Lucie
County (8 offices), Indian River County (4 offices), Brevard County (4 offices),
Martin County (3 offices), Volusia County (3 offices) and Okeechobee County (1
office). During fiscal 1996, Harbor Federal completed the acquisition of
Treasure Coast Bank, FSB, which added one branch office and approximately $64
million in deposits to the Bank. The Bank's market area counties are located
along the central portion of the eastern Florida coastline, extending
approximately 200 miles from the Daytona Beach area in the north to Stuart,
Florida in the south. Okeechobee County is the only county not located along the
coastline. The Bank operates within the metropolitan statistical areas of
Daytona Beach, Melbourne-Titusville-Palm Bay and Fort Pierce-Port St. Lucie,
encompassing all market area counties except for Okeechobee County. The city of
Fort Pierce, the location of the Bank's headquarters, contains approximately
37,000 residents, and is located to the southern end of the Bank's market area
counties. The Bank's offices are generally located in population centers within
each county and serve the local residents of the communities.
The six county market area contains a population of approximately 1.3
million residents, and includes a broad cross-section of demographic and
economic characteristics. Similar to the rest of the state of Florida, the
region has experienced relatively strong growth in recent years, with population
growth well above national averages. Sections of the market area contain
concentrations of developed areas (residential and industrial), agricultural
areas (citrus and cattle), and more vacation/resort areas (along the coastline).
The relatively rapid development has resulted in strong population growth and
relatively new housing stock.
Competition from other financial institutions operating in the market area
includes a number of both large and small commercial banks and savings
institutions, including large superregional banks, although the Bank's market
area does not include the larger metropolitan areas of Florida such as southern
Florida (Miami), or other population centers such as Orlando, Jacksonville,
Tampa or Tallahassee (the market area contains approximately 9 percent of the
state's population). The Bank maintains a market share of approximately 6
percent of overall financial institution deposits in the six county market area.
The Bank has experienced growth in deposits in recent years primarily due to an
increased emphasis on marketing products and services. However, competition
remains high in the marketplace.
<PAGE>
RP Financial, LC.
Page 2.2
Future business and growth opportunities will be partially influenced by
economic and demographic characteristics of the markets served, particularly the
future growth and stability of the regional economy, demographic growth trends,
and the nature and intensity of the competitive environment for financial
institutions. These factors have been briefly examined in the following pages to
help determine the growth potential that exists, the relative economic health of
the market area, and the related impact on value.
National Economic Factors
- -------------------------
Over the past year, national economic growth has been mixed. Economic data
released at the beginning of the fourth quarter generally confirmed that the
national economy was slowing. October unemployment remained at 5.2 percent,
although the number of new jobs being added to the economy was lower compared to
job growth recorded during the late-spring and the summer. Third quarter GDP
growth fell to a 2.2 percent annual rate, versus a comparative 4.7 percent rate
in the second quarter. Wage data also indicated that inflation was under
control, as wages remained flat for production and nonsupervisory workers in
October, despite a $0.50 increase in the minimum wage rate that became effective
on October 1, 1996. While the November unemployment rate climbed to 5.4 percent
from 5.2 percent in October, inflation concerns were heightened somewhat by an
unexpectedly sharp $0.09 jump in average hourly earnings. However, most of the
economic data released at the close of 1996, which included jobless claims
rising to a five month high in November and a decline in November durable goods
orders, suggested that the economy was sluggish and non-inflationary.
While fourth quarter GDP growth came in at a stronger than expected 4.7
percent annual growth rate (subsequently revised to 3.9 percent), most of the
economic data released during the beginning of the first quarter of 1997
indicated a continuation of moderate economic growth. Such measures as a 1.9
percent decline in December durable goods orders and a modest uptick in the
January 1997 unemployment rate to 5.4 percent, versus 5.3 percent in December
1996, eased concerns that the economy was overheating. However, the increase in
the unemployment rate was attributable to more people entering the job force,
and some markets began to experience labor shortages. In congressional testimony
at the end of February 1997, the Federal Reserve Chairman indicated that he
anticipated recent signs of lower job insecurity among workers would lead to
upward pressure in wages, which could possibly trigger the Federal Reserve to
boost interest rates. Signs of inflation became more notable during March and
April, with most economic indicators posting month-to-month increases from
January to February. Most notably, during February, industrial production
increased 0.5 percent, housing starts rose 12.2 percent and the sale of existing
homes jumped 9.0 percent. Accelerating economic growth was further indicated by
a decline in the March unemployment rate to 5.2 percent, versus 5.3 percent for
February, and a higher than expected rise in the March "core" producer price
index, which posted
<PAGE>
RP Financial, LC.
Page 2.3
its largest increase in 18 months. However, inflation measures showed that the
"Goldilocks Economy" remained in effect, based on lower producer prices and a
lower than expected increase in the employment cost index. Some of the reasons
cited for the low inflation were a larger labor force, a measurable increase in
productivity, and an increasingly global economy. First quarter 1997 GDP growth
was measured at 5.9 percent, far exceeding analysts' projections.
Second quarter economic data began to show signs of economic weakening,
based on a number of indicators. A lower than anticipated National Association
of Purchasing Managers index in April indicated a slowdown of expansion in the
manufacturing sector. New home sales also dropped by 7.7 percent in April 1997,
the sharpest decline in six months. Automobile sales for April and May 1997
declined from year earlier levels, and discounting became more common by
automakers. A rise in the June unemployment rate and GDP growth slowing to an
annual rate of 2.2 percent in the second quarter, which was well below the
revised 4.9 percent rate recorded in the first quarter, further signaled that
the economy was slowing to a more sustainable pace. Economic data released in
August and early September 1997 provided mixed signals of economic growth, as a
decline in the July unemployment rate and an unexpectedly sharp decline in the
U.S. trade deficit provided indications of a robust economy. At the same time, a
modest increase in the July consumer price index and a decline in July wholesale
prices suggested that inflation remained non-threatening.
Consistent with the mixed economic activity, interest rate trends have been
varied as well over the past year. The Federal Reserve's decision not to raise
interest rates at its September and October 1996 meetings, along with economic
data providing indications of a cooling economy, translated into a declining
interest rate environment during late-September and through most of October.
Interest rates continued to edge lower through November, as the October economic
data suggested that inflationary pressures were non-threatening. Bond prices
declined slightly in early-December, as investors focused on weakness in the
dollar and rising oil prices. Concern over Japanese investors slowing their
buying of U.S. Treasury notes caused bond prices to slide in mid-December,
despite economic data which continued to indicate mild inflation. Interest rates
were somewhat trendless at the close of 1996, as the Federal Reserve elected not
to change interest rates at its December meeting.
With few inflationary signs, interest rates held steady at the beginning of
1997, which was followed by a mild easing in interest rates during the first
half of February. Indications of slowing economic growth and the Federal
Reserve's decision to leave rates unchanged at its early-February meeting
spurred the downward trend in interest rates. However, interest rates edged
higher in late-February, following renewed concerns by the Federal Reserve
Chairman over the sharp rise in the stock market during the past two years.
After stabilizing briefly, the strengthening economy and growing expectations of
a rate increase by the Federal Reserve propelled interest rates higher in
late-March. The Federal Reserve increased short-term interest rates by 0.25
<PAGE>
RP Financial, LC.
Page 2.4
percent in late-March, which was followed by a sharp sell-off in the bond
market. For the first time in six months, the rate on the 30-year benchmark bond
moved above 7.0 percent in late-March.
Inflation concerns pushed interest rates higher during the first half of
April, which was followed by a slight decline in interest rates on rumors of a
national budget accord. News of the budget agreement and favorable inflation
data sustained the rally in bond prices through early-May. Interest rates
stabilized in mid-May, as the Federal Reserve opted not to raise interest rates
at its May meeting. The high level of consumer confidence indicated by the May
reading caused the 30-year bond yield to edge above 7.0 percent in late-May.
However, the increase was short-lived, as signs of slowing economic growth
provided for a lower interest rate environment during June. The downward trend
in interest rates became more pronounced during July, following the Federal
Reserve's decision to leave rates unchanged at its early-July meeting and the
release of new economic data that indicated inflation was under control. Slower
economic growth indicated by the second quarter GDP growth rate of 2.2 percent
sustained the rally in bond prices at the end of July. However, in early-August,
the stronger than expected job growth reflected in the July employment data and
a falling U.S dollar against the year end mark caused bond prices to tumble.
After recovering briefly on the favorable inflation data indicated by July
wholesale and retail prices, bond prices declined in late-August on news of the
narrower than expected June trade deficit. During early September 1997, one- and
thirty-year U.S. Government bonds were fluctuating in a narrow range, although
continued positive economic growth reports and little sign of inflation resulted
in a decline in market interest rates in late September 1997 (see Exhibit II-2
for historical interest rate information).
Market Area Demographics
- ------------------------
Demographic growth trends in the primary market area counties have been
measured by changes in population, number of households and median household
income and other data, with trends in those areas summarized by the data
presented in Exhibit II-3. Florida and U.S. data is provided for comparative
purposes, and trends in this data provide some indication of future levels of
business activities for financial institutions.
The Bank's offices are located in a relatively large market area in terms
of population, with a total population of approximately 1.3 million as of 1997
that is experiencing relatively high rates of population and household growth.
Since 1990, the primary market area counties have recorded population growth
ranging from 2.4 percent annual growth in St. Lucie County to 0.6 percent in
Okeechobee County, with Brevard, Volusia and Martin Counties also exceeding the
statewide population growth average of 1.7 percent annually. Households have
shown similar growth rates. Such growth rates are expected to continue over the
next five years.
<PAGE>
RP Financial, LC.
Page 2.5
In general, income levels in the Bank's market area are comparable to
statewide averages, with St. Lucie, Martin and Brevard Counties reporting median
household income levels above the state average of approximately $32,500, while
the six county market area reported an average household income level of
$31,500, less than the state average. Per capita incomes generally follow the
household levels. The effect of the retirement age population can also been seen
in Exhibit II-3, as all market area counties reported median ages above the
national average of 34.8 years, and Martin, Indian River and Volusia Counties
reported median ages above 40. Based on the increasing population trends,
comparable income levels and proportion of retirement age residents (who
typically have more financial assets than a younger population), growth
opportunities in the primary market area counties can be expected, although
competition can be expected due to the favorable demographic trends.
Economy
- -------
Most of the Bank's deposit gathering and lending operations are conducted
in the six county market area. Employment in this region is generally
diversified, containing employment in services, wholesale and retail trade,
state and local government and manufacturing. Table 2.1 below presents the
employment sectors for the state of Florida, indicating the relatively high
level of services employment and a low level of manufacturing employment. Within
the Bank's market area, there are different concentrations of the employment
base. Brevard County contains an emphasis on manufacturing, in particular high
tech companies. Indian River, St. Lucie and Okeechobee Counties maintain a level
of citrus and cattle agriculture operations, while Martin County has a more
mixed or fragmented employment base. All market area counties except for
Okeechobee County have beach access, and therefore vacation homes, second homes
or retirement homes are prevalent. Indian River and Martin Counties have a
noticeable level of retirement and/or part-time residents, including more
upscale retirees. In light of the growth of the market area counties, the
construction industry has traditionally been strong. Exhibit II-4 presents
additional data concerning sources of personal income and employment sectors.
<PAGE>
RP Financial, LC.
Page 2.6
Table 2.1
Harbor Federal Savings Bank
State of Florida Employment Sectors
Employment Sectors % of Labor Force
------------------ ----------------
Services 33.6%
Wholesale/Retail Trade 23.4
Government 13.9
Other 8.3
Finance, Insurance, Real Estate 8.2
Manufacturing 6.9
Construction 5.7
------
100.0%
Source: REIS DataSource.
Table 2.2 displays unemployment data in the local market area as of July
1996 and July 1997. The unemployment rates for most of the market area counties
remained above statewide and national averages, and the employment situation has
improved in the most recent twelve month period. Unemployment rates for St.
Lucie and Indian River Counties were in excess of 10 percent, well above
comparative ratios. This data indicates a certain weakness to the economy.
Table 2.2
Harbor Federal Savings Bank
Market Area Unemployment Trends
Region July 1996 July 1997
------ --------- ---------
United States 5.6% 5.0%
Florida 5.4 5.0
St. Lucie County 16.7 13.7
Indian River County 13.1 11.4
Volusia County 4.1 3.7
Martin County 7.5 6.9
Brevard County 5.3 4.4
Okeechobee County 12.5 9.3
Source: U.S. Bureau of Labor Statistics.
Deposit Trends and Competition
- ------------------------------
The market area is characterized by the presence of both larger
superregional financial institutions and locally-based and locally-owned
financial institutions. Major competitors include financial institutions such as
Barnett Banks (proposed merger with Nationsbank), First Union Corp., SunTrust
Banks, NationsBank Corp., Seacoast Banking Corp, Riverside Banking Co. and Great
Western Bank (merged with Washington Mutual).
<PAGE>
RP Financial, LC.
Page 2.7
Table 2.3 displays deposit market trends for the State of Florida and the
primary market area from June 30, 1994 to June 30, 1996. Overall, financial
institution deposits showed an increase statewide, with commercial banks showing
growth and savings institutions losing deposits. This trend of modest increases
in overall deposits, similar to the rest of the nation, reflects in part
disintermediation whereby banking customers have also placed available funds
into other types of financial intermediaries such as mutual funds, investment
firms, brokerage houses, and insurance companies. Savings institutions have also
lost deposits due to mergers and acquisitions. Deposit trends in the Bank's six
county market area exhibited stronger growth in deposits, with overall deposits
growing at a 2.8 percent annual rate. Consistent with statewide trends, savings
institutions reported deposit declines, including declines in two of the six
counties. Commercial banks hold approximately 84 percent of deposits statewide,
and market shares ranging from 72 percent in Martin County to 92 percent in
Volusia County.
Harbor Federal has recorded growth in deposits in all market area counties
except Okeechobee County, and has increased deposits on average by 12.9 percent
over the time period shown in Table 2.3. This increase in deposits includes the
acquisition of Treasure Coast Bank, FSB during June 1996, which added
approximately $64 million in deposits to the Bank's overall funding base.
Excluding these acquired deposits, the Bank's deposits increased at an annual
rate of approximately 8.5 percent over the time period shown in Table 2.3,
indicating success in raising additional retail deposit funds for business
operations, and an increase in deposit market share since June 30, 1994.
Summary
- -------
The overall condition of the primary market area can be characterized as a
growth area with an increasing population and household base. The local
economies are relatively diversified, and the area is attractive for both
younger and older residents. Unemployment rates are higher than comparative
averages, indicating an excessive supply of the labor force for available jobs,
although seasonal employment may affect the reported unemployment rates. In
order to support the Bank's desired level of business operations, the Bank has
expanded into a six county region having a sizeable population base. Going
forward, in view of the local demographic and economic trends and the numbers
and types of competitors in the market area, the competition for deposits is
expected to remain substantial, which will result in Harbor Federal having to
pay competitive deposit rates to maintain local market share. The reinvestment
of stock proceeds from the conversion may mitigate to some extent the
potentially higher funding costs to attract deposits through anticipated loyalty
of local shareholders and referrals from local shareholders.
<PAGE>
RP Financial, LC.
Page 2.8
---------------------------
Table 2.3
Harbor Federal Savings Bank
Deposit Summary
---------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
As of June 30,
---------------------------------------------------------------------
1994 1996
--------------------------------- --------------------------------- Deposit
Market Number of Market Number of Growth Rate
Deposits Share Branches Deposits Share Branches 1994-1996
------------ ------ --------- ------------ ------ --------- -----------
(Dollars In Thousands) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
State of Florida $172,584,726 100.0% 4,301 $178,523,911 100.0% 4,207 1.7%
Commercial Banks/Savings Banks 127,126,126 73.7% 3,329 149,571,318 83.8% 3,543 8.5%
Savings Institutions 45,458,600 26.3% 972 28,952,593 16.2% 664 -20.2%
St. Lucie County $ 1,645,770 100.0% 41 $ 1,752,612 100.0% 45 3.2%
Commercial Banks/Savings Banks 1,237,275 75.2% 29 1,324,946 75.6% 33 3.5%
Savings Institutions 408,495 24.8% 12 427,666 24.4% 12 2.3%
Harbor Federal 309,862 18.8% 8 333,677 19.0% 8 3.8%
Indian River County $ 1,769,650 100.0% 46 $ 1,897,653 100.0% 44 3.6%
Commercial Banks/Savings Banks 1,449,276 81.9% 37 1,624,922 85.6% 36 5.9%
Savings Institutions 320,374 18.1% 9 272,731 14.4% 8 -7.7%
Harbor Federal 127,060 7.2% 4 143,231 7.5% 4 6.2%
Volusia County $ 4,837,160 100.0% 120 $ 5,036,514 100.0% 121 2.0%
Commercial Banks/Savings Banks 4,124,393 85.3% 109 4,613,560 91.6% 115 5.8%
Savings Institutions 712,767 14.7% 11 422,954 8.4% 6 -23.0%
Harbor Federal 79,009 1.6% 3 129,544 2.6% 3 28.0%
Martin County $ 1,704,351 100.0% 62 $ 1,863,840 100.0% 59 4.6%
Commercial Banks/Savings Banks 1,266,797 74.3% 41 1,341,347 72.0% 40 2.9%
Savings Institutions 437,554 25.7% 21 522,493 28.0% 19 9.3%
Harbor Federal 31,958 1.9% 2 99,461 5.3% 3 76.4%
Brevard County $ 3,348,187 100.0% 112 $ 3,509,618 100.0% 115 2.4%
Commercial Banks/Savings Banks 2,921,934 87.3% 95 2,994,875 85.3% 97 1.2%
Savings Institutions 426,253 12.7% 17 514,743 14.7% 18 9.9%
Harbor Federal 67,641 2.0% 3 90,934 2.6% 4 15.9%
Okeechobee County $ 257,689 100.0% 9 $ 272,517 100.0% 9 2.8%
Commercial Banks/Savings Banks 206,394 80.1% 7 216,995 79.6% 7 2.5%
Savings Institutions 51,295 19.9% 2 55,522 20.4% 2 4.0%
Harbor Federal 39,349 15.3% 1 38,245 14.0% 1 -1.4%
Total - Market Area Counties $ 13,562,807 $ 14,332,754 2.8%
Total - Market Area Comm. Banks 11,206,069 12,116,645 4.0%
Total - Market Area Savings Inst. 2,356,738 2,216,109 -3.0%
Total - Harbor Federal 654,879 835,092 12.9%
Harbor Fed (Excl Treasure Coast) 654,879 771,092 8.5%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: FDIC; OTS.
<PAGE>
RP Financial, LC.
Page 3.1
III. PEER GROUP ANALYSIS
This chapter presents an analysis of Harbor Federal's operations versus a
group of comparable public companies (the "Peer Group") selected from the
universe of all publicly-traded savings institutions. The primary basis of the
pro forma market valuation of the Bank is provided by these public companies.
Factors affecting Harbor Federal's pro forma market value such as financial
condition, credit risk, interest rate risk, and recent operating results can be
readily assessed in relation to the Peer Group. Current market pricing of the
Peer Group, subject to appropriate adjustments to account for differences
between the Harbor Federal and the Peer Group, will then be used as a basis for
the valuation of the Bank's to-be-issued common stock.
Selection of Peer Group
- -----------------------
We consider the appropriate Peer Group to be comprised of only those
publicly-traded savings institutions whose common stock is either listed on a
national exchange or is NASDAQ listed, since the market for companies trading in
this fashion is regular and reported. We believe non-listed institutions are
inappropriate since the trading activity for thinly-traded stocks is typically
highly irregular in terms of frequency and price and may not be a reliable
indicator of market value. We have excluded from the Peer Group all
publicly-traded subsidiary institutions of mutual holding companies, because
their pricing ratios are distorted by the minority issuance of their shares. We
have also excluded from the Peer Group those companies under acquisition and/or
companies whose market prices appear to be distorted by speculative factors or
unusual operating conditions, and recently converted companies whose stock does
not have sufficient seasoning as a public company. The universe of all
publicly-traded institutions is included as Exhibit III-1. Pricing
characteristics of all thrift institutions are included as Exhibit IV-1
(institutions excluded from the calculation of averages are denoted with a
footnote (8)).
Under ideal circumstances, the Peer Group would be comprised of a minimum
of ten similarly sized publicly-traded Florida thrifts with capital, earnings,
asset sizes, balance sheet composition, risk profiles, operating strategies and
market areas comparable to the Bank. Because of a lack of a sufficient number
comparable Florida companies we expanded our search criteria to include
similarly sized institutions in other regions of the country with certain
similarities in various financial and operating characteristics. In the
selection process we applied three "screens" to the universe of all public
companies as follows:
o Screen #1. Florida institutions with equity/assets ratios greater than
10 percent. One company met the criteria for this screen and was
included in the Peer Group (see Exhibit III-2).
<PAGE>
RP Financial, LC.
Page 3.2
o Screen #2. Institutions with equity/assets greater than 12 percent and
assets between $1.0 billion and $5.0 billion. Nine companies met the
criteria for this screen and five were included in the Peer Group (see
Exhibit III-2). Two companies, FirstFed America Bancorp and Roslyn
Bancorp were excluded due to having been recently converted. Security
Capital Corp was excluded due to being under acquisition, and
Washington FS&LA of Seattle, WA was excluded due to asset size (see
Exhibit III-2).
o Screen #3. Institutions with equity/assets greater than 12 percent and
assets between $600 million and $1.0 billion. Eight companies met the
criteria for this screen and five were included in the Peer Group (see
Exhibit III-2). IBS Financial Corp of NJ was excluded due to having a
balance sheet with a high level of investment securities, while
Provident Financial Holdings of CA was excluded due to low
profitability. Trenton SB, FSB of New Jersey was excluded due to its
MHC ownership (see Exhibit III-2).
Table 3.1 lists key characteristics of the Peer Group companies. In
general, the Peer Group is comprised of relatively seasoned publicly-traded
institutions with a similar average asset size to Harbor Federal. While the Peer
Group is not exactly comparable to the Bank, we believe that it provides a
reasonable representation of publicly-traded thrifts with operations comparable
to those of the Bank and thus forms a sound basis for valuation. A summary
description of the key characteristics of each of the Peer Group companies
selected is detailed below.
o JSB Financial, Inc. of NY. JSB Financial is a $1.5 billion company
operating 13 offices in the greater New York metropolitan area and was
chosen due to its relatively similar asset size. JSB Financial follows
an operating strategy of investing in commercial real estate loans
funded with deposits, and has the highest capital ratio of the Peer
Group. JSB Financial reported the highest profitability ratio of the
Peer Group companies.
o First Colorado Bancorp of CO. First Colorado is a $1.5 billion
institution operating a network of 26 offices in Colorado. While First
Colorado was selected for the Peer Group on the basis of its size and
equity position, First Colorado also maintains a relatively high level
of investment in 1-4 family loans and strong asset quality.
o Ocean Financial Corp. of NJ. Ocean Financial is a $1.4 billion thrift
operating 10 branches in central New Jersey that converted during
1996. Ocean Financial maintained relatively high levels of investment
in MBS, while reported profitability has been affected by
non-operating items. Ocean Financial had little loan diversification
away from 1-4 family lending, and reported a low risk-weighted assets
ratio.
o Dime Community Bancorp of NY. Dime Community is a $1.3 billion thrift
operating 15 branches in the New York metropolitan area that converted
in 1996. Dime Community maintains a strong net interest margin due to
a relatively low cost of funds, and a loan portfolio diversified into
commercial real estate lending.
o First Savings Bancorp of WA. First Savings operates 16 offices in a
rural market in central Washington State. First Savings has expanded
its asset base through the use of borrowed funds, and maintains a high
ratio of investments. Lending is dominated by 1-4 family residential
mortgages, with some diversification into commercial real estate and
construction lending. First Savings maintains the largest loan
servicing portfolio of the Peer Group members.
<PAGE>
RP Financial, LC.
Page 3.3
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 3.1
Peer Group of Publicly-Traded Thrifts
October 2, 1997(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ------------------------------- ------ ---------------- --------- ------ ------- ------ ----- ------ ------
($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JSB JSB Financial, Inc. of NY AMEX New York City NY Thrift 1,531 13 12-31 06/90 47.50 468
FFBA First Colorado Bancorp of Co OTC Denver CO Thrift 1,510 26 12-31 01/96 18.75 311
OCFC Ocean Fin. Corp. of NJ OTC Eastern NJ Thrift 1,448 10 12-31 07/96 34.62 298
DIME Dime Community Bancorp of NY OTC New York City NY Thrift 1,315 15 06-30 06/96 20.00 262
FWWB First Savings Bancorp of WA (3) OTC Central WA Thrift 1,008 M 16 03-31 11/95 24.12 254
ISBF ISB Financial Corp. of LA OTC SouthCentral LA Thrift 939 M 25 12-31 04/95 25.62 177
HFNC HFNC Financial Corp. of NC OTC Charlotte NC Thrift 895 8 06-30 12/95 16.00 275
FFIC Flushing Fin. Corp. of NY (3) OTC New York City NY Thrift 860 7 12-31 11/95 22.12 176
GAF GA Financial Corp. of PA AMEX Pittsburgh PA Thrift 750 13 12-31 03/96 19.00 152
KFBI Klamath First Bancorp of OR OTC Southern OR Thrift 728 7 09-30 10/95 20.50 205
FFLC FFLC Bancorp of Leesburg FL OTC Central FL Thrift 387 9 12-31 01/94 31.50 73
</TABLE>
NOTES: (1) Or most recent date available (M=March, S=September, D=December,
J=June, E=Estimated, and P=Pro Forma)
(2) Operating strategies are: Thrift=Traditional Thrift, M.B.=Mortgage
Banker, R.E.=Real Estate Developer, Div.=Diversified, and
Ret.=Retail Banking.
(3) FDIC savings bank institution.
Source: Corporate offering circulars, data derived from information published
in SNL Securities Quarterly Thrift Report, and financial reports of
publicly-traded thrifts.
Date of Last Update: 10/02/97
<PAGE>
RP Financial, LC.
Page 3.4
o ISB Financial Corp. of LA. ISB Financial is a $939 million institution
operating from 25 office locations in southcentral Louisiana. ISB
Financial maintains a high level of investment in MBS, funded with
deposits.
o HFNC Financial Corp. of NC. HFNC Financial is a $895 million thrift
operating from 8 offices in central North Carolina, with a
concentration in 1-4 family lending. HFNC Financial also utilizes
borrowings to fund operations and maintains a relatively high capital
level. HFNC Financial maintained a relatively high ratio of
non-performing assets relative to other Peer Group members.
o Flushing Financial Corporation of NY. Flushing Financial operates with
$860 million of assets out of 7 offices in the New York metropolitan
area. Flushing Financial maintains high levels of investment in cash
and investments and MBS, and utilizes borrowings to a moderate extent.
Flushing Financial's profitability is enhanced by a strong net
interest margin and maintains a high investment in commercial real
estate loans. Flushing Financial reported fairly strong asset quality
ratios.
o GA Financial Corp. of PA. GA Financial operates with $750 million in
assets in the Pittsburgh, PA metropolitan area. GA Financial also
invests to a rather high degree in MBS and cash and investments. The
loan portfolio shows a minor level of diversification away from 1-4
family lending. Asset quality ratios are favorable in comparison to
Peer Group averages.
o Klamath First Bancorp of OR. Klamath First is a $728 million thrift
operating from 7 offices in southern Oregon. Klamath First maintains
relatively high investment in loans receivable (primarily residential
loans), funded with deposits, borrowings and equity. The loan
portfolio reveals little diversification away from 1-4 family lending.
Reserve coverage ratios are more favorable than Peer Group averages.
o FFLC Bancorp of Leesburg, Florida. FFLC Bancorp is the smallest member
of the Peer Group with $387 million in assets and operates in central
Florida in a market adjacent to the Bank's. FFLC Bancorp maintains
relatively high investment in loans receivable (primarily residential
loans), funded primarily with deposits and equity. Reserve coverage
ratios are higher than Peer Group averages.
In aggregate, the Peer Group companies have an average capital ratio that
is higher than the industry average (15.92 percent of assets versus 12.89
percent for the all SAIF average), and higher core profitability (1.11 percent
versus 0.85 percent for all SAIF-insured publicly-traded institutions). The Peer
Group's higher capital ratio results in a lower core ROE of 6.16 percent versus
7.49 percent for the all SAIF average. In terms of pricing, the Peer Group on
average trades at a similar price/book ("P/B") multiple and a higher
price/earnings ("P/E") multiple relative to the industry (see the following
table).
<PAGE>
RP Financial, LC.
Page 3.5
As of September 19, 1997
------------------------
Peer All SAIF
Group Insured
----- --------
Equity-to-Assets 15.92% 12.89%
Return on Assets ("ROA")-Core 1.11% 0.85%
Return on Equity ("ROE")-Core 6.16% 7.49%
Market Capitalization ($Mil) $240.92 $163.06
Price-to-Tangible Book Ratio ("P/TB") 151.90% 151.49%
Price-to-Earnings Multiple ("P/E")-Core 22.87x 19.21x
Price-to-Assets Ratio ("P/A") 23.11% 18.04%
Source: Chapter IV tables.
The following sections present a comparison of the Bank's financial
condition, income and expense trends, loan composition, interest rate risk and
credit risk versus the Peer Group. The conclusions drawn from the comparative
analysis are then factored into the valuation analysis discussed in the final
chapter.
Financial Condition
- -------------------
Table 3.2 shows comparative balance sheet measures for the Bank and the
Peer Group, reflecting the expected similarities and some differences given the
selection procedures outlined above. Information for Harbor Federal is as of
June 30, 1997, and as of the latest available (June 30 or March 31) for the Peer
Group. The Bank's pre-conversion net worth of 8.4 percent was below the Peer
Group's average net worth ratio of 15.9 percent, although the Bank's capital
level can be expected to be similar to the Peer Group average on a pro forma
basis. The increase in the Bank's capital on a pro forma basis can also be
expected to reduce its ROE. Both the Bank and the Peer Group had a minor level
of intangible assets. The Bank and all of the Peer Group companies were in
compliance with all fully phased-in regulatory capital requirements and were
considered to be well-capitalized by FDICIA standards.
In terms of asset composition, the Bank's ratio of loans to assets exceeded
the Peer Group's ratio (73.3 percent of assets versus 56.9 percent for the Peer
Group), while the Peer Group recorded a higher level of MBS (17.8 percent versus
14.0 percent for the Bank). The Bank maintains a lower balance of cash and
investments as part of its operating strategy, and the portfolio totaled 10.3
percent of total assets. In contrast, the Peer Group maintained a higher ratio
of cash and investments (22.3 percent of assets). Following the conversion, the
Bank's level of cash and investments is expected to initially increase, pending
the Bank's deployment of the proceeds into loans. Overall, the Bank's IEA
totaled 97.6 percent of assets, which was higher than the Peer Group's ratio of
97.0 percent.
<PAGE>
RP Financial, LC.
Page 3.6
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 3.2
Balance Sheet Composition and Growth Rates
Comparable Institution Analysis
As of June 30, 1997
<TABLE>
<CAPTION>
Balance Sheet as a Percent of Assets
----------------------------------------------------------------------------------------
Cash and Borrowed Subd. Net Goodwill Tng Net MEMO:
Investments Loans MBS Deposits Funds Debt Worth & Intang Worth Pref.Stock
----------- ----- --- -------- -------- ----- ----- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Harbor Florida Bancorp of FL
- ----------------------------
June 30, 1997 10.3 73.3 14.0 81.0 9.0 0.0 8.4 0.3 8.1 0.0
SAIF-Insured Thrifts 17.9 67.4 11.4 71.1 14.5 0.2 12.6 0.2 12.4 0.0
Comparable Group Average 22.3 56.9 17.8 67.3 15.3 0.0 15.9 0.5 15.4 0.0
Mid-Atlantic Companies 25.2 51.4 20.5 68.7 12.9 0.0 16.9 0.4 16.4 0.0
North-West Companies 21.9 68.6 6.7 55.6 25.3 0.0 17.1 0.6 16.6 0.0
South-East Companies 17.4 44.2 34.5 65.8 18.0 0.0 15.1 0.9 14.2 0.0
Other Comparative Companies 20.5 71.7 5.4 76.9 8.6 0.0 13.2 0.1 13.1 0.0
Comparable Group
- ----------------
Florida Companies
- -----------------
FFLC FFLC Bancorp of Leesburg FL 20.4 70.4 7.1 78.0 7.8 0.0 13.5 0.0 13.5 0.0
Mid-Atlantic Companies
- ----------------------
DIME Dime Community Bancorp of NY 21.2 56.3 17.9 73.3 10.6 0.0 14.5 2.0 12.5 0.0
FFIC Flushing Fin. Corp. of NY 20.6 54.7 22.3 68.7 14.7 0.0 15.5 0.0 15.5 0.0
GAF GA Financial Corp. of PA 30.6 37.3 30.3 61.2 22.5 0.0 15.2 0.2 15.0 0.0
JSB JSB Financial, Inc. of NY 38.3 58.5 0.3 74.0 0.0 0.0 22.9 0.0 22.9 0.0
OCFC Ocean Fin. Corp. of NJ 15.3 50.1 31.6 66.3 16.8 0.0 16.3 0.0 16.3 0.0
North-West Companies
- --------------------
FWWB First Savings Bancorp of WA(1) 29.2 64.1 3.1 54.1 29.1 0.0 14.8 1.2 13.6 0.0
KFBI Klamath First Bancorp of OR 14.7 73.0 10.3 57.2 21.4 0.0 19.5 0.0 19.5 0.0
South-East Companies
- --------------------
HFNC HFNC Financial Corp. of NC 17.9 73.5 5.9 49.6 30.9 0.0 18.0 0.0 18.0 0.0
ISBF ISB Financial Corp. of LA(1) 16.8 15.0 63.0 81.9 5.1 0.0 12.2 1.9 10.3 0.0
Western Companies (Excl CA)
- ---------------------------
FFBA First Colorado Bancorp of Co 20.6 73.1 3.7 75.8 9.4 0.0 12.9 0.2 12.8 0.0
</TABLE>
<PAGE>
RP Financial, LC.
Page 3.6 (continued)
Table 3.2 (Continued)
<TABLE>
<CAPTION>
Balance Sheet Annual Growth Rates Regulatory Capital
-------------------------------------------------------------- ------------------------
Cash and Loans Borrows. Net Tng Net
Assets Investments & MBS Deposits &Subdebt Worth Worth Tangible Core Reg.Cap.
------ ----------- ----- -------- -------- ----- ------- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Harbor Florida Bancorp of FL
- ----------------------------
June 30, 1997 7.54 6.94 7.62 8.39 6.71 14.19 15.65 7.04 7.04 14.77
SAIF-Insured Thrifts 12.28 8.79 13.18 8.38 17.40 0.60 -0.16 10.95 11.00 22.79
Comparable Group Average 17.78 -4.48 27.66 13.51 6.06 -10.36 -12.72 12.92 13.00 26.99
Mid-Atlantic Companies 12.64 -8.51 25.94 2.57 NM -5.04 -5.38 12.20 12.20 26.97
North-West Companies 25.57 3.66 31.44 25.66 NM -7.82 -11.68 16.77 15.21 30.05
South-East Companies 32.02 4.25 39.62 35.08 -2.01 -19.98 -27.16 14.53 14.53 28.36
Other Comparative Companies 8.58 -11.27 16.21 7.13 14.14 -13.91 -13.98 11.17 11.25 22.62
Comparable Group
- ----------------
Florida Companies
- -----------------
FFLC FFLC Bancorp of Leesburg FL 16.56 -12.09 27.99 10.45 NM -7.48 -7.48 10.90 10.90 23.10
Mid-Atlantic Companies
- ----------------------
DIME Dime Community Bancorp of NY -4.14 -47.64 24.38 1.40 NM -10.41 -10.86 9.86 9.87 19.99
FFIC Flushing Fin. Corp. of NY 12.18 -32.61 38.76 4.17 NM -3.52 -3.52 11.74 11.74 26.57
GAF GA Financial Corp. of PA 33.32 26.68 36.70 7.73 NM -11.39 -12.32 13.10 13.10 37.00
JSB JSB Financial, Inc. of NY 0.33 -9.48 8.42 -2.73 NM 5.16 5.16 14.08 14.08 20.37
OCFC Ocean Fin. Corp. of NJ 21.51 20.47 21.41 2.31 NM NM NM 12.23 12.23 30.90
North-West Companies
- --------------------
FWWB First Savings Bancorp of WA(1) 35.58 19.16 41.09 45.69 NM -3.57 -11.30 NM 13.65 24.77
KFBI Klamath First Bancorp of OR 15.55 -11.85 21.78 5.64 NM -12.07 -12.07 16.77 16.77 35.32
South-East Companies
- --------------------
HFNC HFNC Financial Corp. of NC 13.50 14.50 13.26 -1.05 NM -34.66 -34.66 18.85 18.85 36.68
ISBF ISB Financial Corp. of LA(1) 50.54 -5.99 65.98 71.21 -2.01 -5.29 -19.66 10.21 10.21 20.04
Western Companies (Excl CA)
- ---------------------------
FFBA First Colorado Bancorp of Co 0.60 -10.45 4.44 3.82 14.14 -20.34 -20.47 11.43 11.59 22.14
</TABLE>
(1) Financial information is for the quarter ending March 31, 1997.
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, LC. calculations. The information
provided in this table has been obtained from sources we believe are
reliable, but we cannot guarantee the accuracy or completeness of such
information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP Financial, LC.
Page 3.7
While both the Bank and the Peer Group have relied on deposits as the
primary source of funds, the Peer Group on average has utilized borrowings to a
greater extent as reflected in the current deposits to assets ratios of 81.0
percent and 67.3 percent, respectively, and borrowings to assets ratios of 9.0
percent and 15.3 percent, respectively. Total interest-bearing liabilities
("IBL") maintained by the Bank and the Peer Group equaled 90.0 percent and 82.6
percent, respectively, with the Peer Group's lower ratio attributable to its
higher capital ratio. On a pro forma basis, the Bank's IBL ratio is expected to
decline as a result of the Bank's enhanced capital base and potential deposit
withdrawals to fund stock purchases.
The growth rate section of Table 3.2 shows growth rates for key balance
sheet items. The growth rates for the Bank are for the nine months ended June
30, 1997 (annualized), while growth rates for the Peer Group are for the latest
trailing twelve months available. The Bank reported an increase in assets of
7.54 percent since September 30, 1996, while the Peer Group reported asset
growth equal to 17.78 percent. The Bank's balance sheet expansion occurred
relatively equally in the areas of loans receivable and cash and investments,
while the Peer Group funded loan portfolio growth with cash and investments.
Asset growth was support by growth in deposits, borrowings and equity. The Peer
Group funded asset growth through a combination of deposits and borrowings. The
Bank reported a strong growth in equity while the Peer Group's capital ratio
declined due to stock repurchases and dividends.
Income and Expense Components
- -----------------------------
For the twelve months ended June 30, 1997, the Bank's net income amounted
to 0.94 percent of average assets, above the 0.88 percent average return posted
by the Peer Group (see Table 3.3). Net interest income was the primary component
of the Bank's and the Peer Group's earnings. The ratio of net interest income
was similar for the Bank and Peer Group, 3.57 and 3.61 percent of average
assets, respectively, with Harbor Federal reporting higher levels of both
interest income and interest expense. The Bank's interest income was supported
by higher overall yields earned on the loan portfolio (as shown in the "yields,
costs, and spreads section of Table 3.3). Interest expense was elevated for
Harbor Federal, in part due to the higher ratio of interest-bearing liabilities
as a percent of assets. The Bank's cost of funds was slightly less than the Peer
Group average (4.56 percent versus 4.61 percent). The reinvestment of the net
conversion proceeds may serve to initially dilute the Bank's asset yields due to
current market rates on short- to intermediate-term investment securities but
the net interest margin should increase with an increase in the IEA/IBL ratio.
<PAGE>
RP Financial, LC.
Page 3.8
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 3.3
Income as a Percent of Average Assets and Yields, Costs, Spreads
Comparable Institution Analysis
For the Twelve Months Ended June 30, 1997
<TABLE>
<CAPTION>
Net Interest Income Other Income G&A/Other Exp.
------------------------------ ------------------- -----------------
Loss NII Total
Net Provis. After Loan R.E. Other Other G&A Goodwill
Income Income Expense NII on IEA Provis. Fees Oper. Income Income Expense Amort.
------ ------ ------- --- ------- ------- ---- ----- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Harbor Florida Bancorp of FL
- ----------------------------
June 30, 1997 0.94 7.61 4.03 3.57 0.05 3.52 0.00 0.00 0.33 0.33 1.84 0.06
SAIF-Insured Thrifts 0.66 7.38 4.09 3.29 0.14 3.15 0.12 0.01 0.30 0.42 2.22 0.02
Comparable Group Average 0.88 7.27 3.66 3.61 0.08 3.53 0.07 0.01 0.18 0.25 1.98 0.03
Mid-Atlantic Companies 0.94 7.09 3.28 3.81 0.10 3.71 0.09 0.01 0.13 0.24 1.96 0.04
North-West Companies 0.93 7.50 4.07 3.43 0.11 3.33 0.05 0.00 0.12 0.17 1.81 0.02
South-East Companies 0.77 7.56 3.96 3.60 0.02 3.58 0.05 0.00 0.28 0.32 2.16 0.05
Other Comparative Companies 0.79 7.18 3.90 3.29 0.08 3.21 0.04 0.01 0.24 0.00 1.99 0.01
Comparable Group
- ----------------
Florida Companies
- -----------------
FFLC FFLC Bancorp of Leesburg FL 0.70 7.30 3.91 3.39 0.06 3.33 0.09 0.00 0.15 0.24 1.98 0.00
Mid-Atlantic Companies
- ----------------------
DIME Dime Community Bancorp of NY 0.96 6.98 3.26 3.72 0.33 3.39 0.05 -0.04 0.19 0.20 1.78 0.19
FFIC Flushing Fin. Corp. of NY 0.93 7.44 3.61 3.83 0.02 3.80 0.06 -0.03 0.15 0.18 2.23 0.00
GAF GA Financial Corp. of PA 0.99 7.21 3.34 3.87 0.05 3.82 0.00 0.00 0.27 0.27 2.29 0.01
JSB JSB Financial, Inc. of NY 1.80 7.04 2.60 4.44 0.04 4.40 0.20 0.11 0.03 0.34 1.83 0.00
OCFC Ocean Fin. Corp. of NJ 0.03 6.77 3.57 3.20 0.07 3.13 0.14 0.03 0.03 0.20 1.68 0.00
North-West Companies
- --------------------
FWWB First Savings Bancorp of WA(1) 1.05 7.58 4.10 3.48 0.16 3.32 0.09 0.00 0.19 0.28 2.15 0.04
KFBI Klamath First Bancorp of OR 0.81 7.42 4.03 3.38 0.05 3.33 0.00 0.01 0.06 0.06 1.47 0.00
South-East Companies
- --------------------
HFNC HFNC Financial Corp. of NC 0.86 7.64 4.05 3.59 -0.01 3.60 0.00 -0.01 0.14 0.13 1.84 0.00
ISBF ISB Financial Corp. of LA(1) 0.69 7.48 3.88 3.60 0.04 3.56 0.10 0.00 0.41 0.51 2.48 0.10
Western Companies (Excl CA)
- ---------------------------
FFBA First Colorado Bancorp of Co 0.89 7.07 3.88 3.19 0.09 3.09 0.00 0.01 0.34 0.35 2.01 0.02
</TABLE>
<PAGE>
RP Financial, LC.
Page 3.8 (continued)
Table 3.3 (Continued)
<TABLE>
<CAPTION>
Non-Op. Items Yields, Costs, and Spreads
-------------- -----------------------------
MEMO: MEMO:
Net Extrao. Yield Cost Yld-Cost Assets/ Effective
Gains Items On Assets Of Funds Spread FTE Emp. Tax Rate
----- ------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Harbor Florida Bancorp of FL
- ----------------------------
June 30, 1997 -0.41 0.00 7.93 4.56 3.37 3,511 39.14
SAIF-Insured Thrifts -0.32 0.00 7.41 4.65 2.76 4,288 36.94
Comparable Group Average -0.34 0.00 7.50 4.61 2.89 4,809 44.45
Mid-Atlantic Companies -0.38 0.00 7.35 4.12 3.23 4,757 53.10
North-West Companies -0.27 0.00 7.69 5.35 2.34 5,010 35.01
South-East Companies -0.42 0.00 7.82 5.05 2.77 5,423 38.82
Other Comparative Companies -0.23 0.00 7.37 4.66 2.71 4,126 37.89
Comparable Group
- ----------------
Florida Companies
- -----------------
FFLC FFLC Bancorp of Leesburg FL -0.47 0.00 7.47 4.66 2.81 3,097 38.02
Mid-Atlantic Companies
- ----------------------
DIME Dime Community Bancorp of NY -0.11 0.00 7.32 4.10 3.22 5,303 39.30
FFIC Flushing Fin. Corp. of NY -0.06 0.00 7.66 4.41 3.25 4,943 47.83
GAF GA Financial Corp. of PA -0.42 0.00 7.52 4.19 3.33 3,712 45.05
JSB JSB Financial, Inc. of NY 0.14 0.00 7.26 3.46 3.80 3,504 41.30
OCFC Ocean Fin. Corp. of NJ -1.46 0.01 6.99 4.45 2.54 6,324 92.02
North-West Companies
- --------------------
FWWB First Savings Bancorp of WA(1) 0.08 0.00 7.82 5.40 2.42 3,463 29.64
KFBI Klamath First Bancorp of OR -0.63 0.00 7.55 5.29 2.26 6,558 40.38
South-East Companies
- --------------------
HFNC HFNC Financial Corp. of NC -0.49 0.00 7.85 5.49 2.36 7,163 38.50
ISBF ISB Financial Corp. of LA(1) -0.36 0.00 7.80 4.61 3.19 3,682 39.14
Western Companies (Excl CA)
- ---------------------------
FFBA First Colorado Bancorp of Co 0.02 0.00 7.27 4.66 2.61 5,155 37.77
</TABLE>
(1) Financial information is for the quarter ending March 31, 1997.
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, LC. calculations. The information
provided in this table has been obtained from sources we believe are
reliable, but we cannot guarantee the accuracy or completeness of such
information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP Financial, LC.
Page 3.8a
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Core Earnings Analysis
Comparable Institution Analysis
For the Twelve Months Ended June 30, 1997
<TABLE>
<CAPTION>
Estimated
Net Income Less: Net Tax Effect Less: Extd Core Income Estimated
to Common Gains(Loss) @ 34% Items to Common Shares Core EPS
---------- ----------- ---------- ---------- ----------- ------ ---------
($000) ($000) ($000) ($000) ($000) ($000) ($)
Comparable Group
- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DIME Dime Community Bancorp of NY 12,316 1,404 -477 0 13,243 13,093 1.01
FFLC FFLC Bancorp of Leesburg FL 2,452 1,655 -563 0 3,544 2,318 1.53
FFBA First Colorado Bancorp of Co 13,452 -251 85 0 13,286 16,561 0.80
FWWB First Savings Bancorp of WA(1) 9,314 -701 238 0 8,851 10,519 0.84
FFIC Flushing Fin. Corp. of NY 7,414 512 -174 0 7,752 7,979 0.97
GAF GA Financial Corp. of PA 6,373 2,681 -912 0 8,142 7,985 1.02
HFNC HFNC Financial Corp. of NC 7,363 4,158 -1,414 0 10,107 17,192 0.59
ISBF ISB Financial Corp. of LA(1) 5,294 2,808 -955 0 7,147 6,901 1.04
JSB JSB Financial, Inc. of NY 27,406 -2,062 701 0 26,045 9,845 2.65
KFBI Klamath First Bancorp of OR 5,494 4,252 -1,446 0 8,300 10,019 0.83
OCFC Ocean Fin. Corp. of NJ 357 19,085 -6,489 -165 12,788 8,606 1.49
</TABLE>
(1) Financial information is for the quarter ending March 31, 1997.
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, LC. calculations. The information
provided in this table has been obtained from sources we believe are
reliable, but we cannot guarantee the accuracy or completeness of such
information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP Financial, LC.
Page 3.9
In another key area of core earnings strength, the Bank operates with a
lower operating expense ratio than the Peer Group (1.90 percent versus 2.01
percent of assets for the Peer Group), including intangibles amortization. The
Bank has been able to increase its asset size and overall operations in recent
years without commensurate increases in operating costs, as shown by the Bank's
lower assets per employee ratio relative to the Peer Group median ($3.511
million and $4.809 million, respectively). Going forward, Harbor Federal's
operating expenses will be subject to increase related to operations as a
publicly-held company, stock plan expenses and continued expected growth in
operations.
Non-interest operating income made a higher contribution to the Bank's
earnings. For the trailing twelve months ended June 30, 1997, the Bank and Peer
Group recorded non-interest operating income of 0.33 percent and 0.25 percent of
average assets. These levels are less than the industry average, indicating a
lower level of earnings diversification for the Bank and Peer Group. Going
forward, the Bank anticipates that non-interest operating income will continue
to contribute similar levels to overall revenues.
When viewed together, net interest income, other operating income and
operating expenses provide insight into an institution's earnings strength,
since those sources of income and expense are typically the most prominent
components of earnings and are generally more predictable than losses and gains
realized from the sale of assets or other non-recurring activities. In this
regard, the Bank's efficiency ratio of 48.72 percent compares more favorably to
the Peer Group's ratio of 52.07. Both figures are below industry averages and
reflect relatively efficient operations.
During the most recent fiscal year, Harbor Federal recorded non-operating
expense of 0.41 percent of average assets, while the Peer Group as a whole
recorded net non-operating expense of 0.34 percent of average assets. Like
Harbor Federal, most of the Peer Group companies were affected by the SAIF
assessment charge to income during the quarter ended September 30, 1996. The
Bank recorded non-operating income in the form of gains on the sale of
interest-earning assets. Loan loss provisions for the Peer Group and Harbor
Federal were similar at 0.05 and 0.08 percent of average assets, respectively.
Loan Composition
- ----------------
Table 3.4 presents data related to the loan composition of the Bank and the
Peer Group. Harbor Federal exhibited a greater emphasis on residential lending
than the Bank, with 1-4 family permanent mortgage loans and MBS accounting for
76.53 percent and 72.82 percent of the Bank's and Peer Group's total loan and
MBS portfolios, respectively. Similar to the Bank, most of the Peer Group
members are not active sellers of loans in the secondary market with servicing
retained and maintaining minimal balances of loans serviced for others.
<PAGE>
RP Financial, LC.
Page 3.10
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 3.4
Loan Portfolio Composition and Related Information
Comparable Institution Analysis
As of June 30, 1997
<TABLE>
<CAPTION>
Portfolio Composition as a Percent of MBS and Loans
---------------------------------------------------
1-4 Constr. 5+Unit Commerc. RWA/ Serviced Servicing
Institution MBS Family & Land Comm RE Business Consumer Assets For Others Assets
- ----------- --- ------ ------- ------- -------- -------- ------ ---------- ---------
(%) (%) (%) (%) (%) (%) (%) ($000) ($000)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Harbor Florida Bancorp of FL 15.36 61.17 7.19 6.62 1.12 8.54 51.96 60,971 0
SAIF-Insured Thrifts 15.11 61.77 5.27 11.76 6.53 1.69 51.96 378,867 2,656
Comparable Group Average 17.01 55.81 3.76 19.45 4.29 0.88 49.49 60,029 232
Comparable Group
- ----------------
DIME Dime Community Bancorp of NY 25.75 28.33 0.03 45.62 0.66 0.00 50.39 69,648 31
FFLC FFLC Bancorp of Leesburg FL 13.07 74.31 7.60 5.02 3.27 0.18 48.33 1,446 0
FFBA First Colorado Bancorp of Co 9.80 71.27 3.23 11.72 5.36 0.03 53.22 139,490 513
FWWB First Savings Bancorp of WA(1) 6.05 59.08 8.56 16.32 3.57 2.87 58.93 208,359 354
FFIC Flushing Fin. Corp. of NY 28.62 43.85 0.00 27.49 0.32 0.00 44.46 45,423 0
GAF GA Financial Corp. of PA 43.29 43.72 0.98 3.02 9.59 0.05 34.98 0 0
HFNC HFNC Financial Corp. of NC 9.31 72.03 13.83 7.72 3.60 0.39 52.63 30,852 0
ISBF ISB Financial Corp. of LA(1) 5.51 65.55 2.94 4.81 15.21 5.98 54.13 102 0
JSB JSB Financial, Inc. of NY 0.72 9.39 0.28 86.54 3.39 0.16 62.41 15,229 0
KFBI Klamath First Bancorp of OR 11.33 83.53 2.88 4.15 0.73 0.01 45.21 1,069 0
OCFC Ocean Fin. Corp. of NJ 33.70 62.81 1.02 1.56 1.46 0.00 39.66 148,698 1,658
</TABLE>
(1) Financial information is for the quarter ending March 31, 1997.
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, LC. calculations. The information
provided in this table has been obtained from sources we believe are
reliable, but we cannot guarantee the accuracy or completeness of such
information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP Financial, LC.
Page 3.11
Harbor Federal's loan portfolio exhibited lower diversification into higher
risk weight loans than the Peer Group's loan portfolio. The Bank's loan
portfolio was diversified into consumer, construction/land and commercial real
estate loans relatively equally, with only a minor level of commercial business
loans. The Peer Group's loan portfolio diversification was primarily in the area
of commercial real estate, with lower levels of commercial business and
construction/land loans. Overall, however, the Peer Group's loan portfolio
diversification was above that of the Bank. The Bank's risk-weighted assets
ratio was higher than the Peer Group, measured at 52.0 and 49.5 percent,
respectively.
Credit Risk
- -----------
Harbor Federal's credit risk exposure appears to be lower than the Peer
Group's based on the Bank's higher reserve coverage ratios and lower level of
non-accruing loans as a percent of total loans along with a similar level of
risk-weighted assets. As shown in Table 3.5, as of June 30, 1997, the Bank
recorded NPAs of 0.46 percent of assets, comparable to the Peer Group average of
0.44 percent, but maintained a lower ratio of non-performing loans ("NPLs") to
loans of 0.27 percent versus 0.62 percent for the Peer Group. The Bank reported
a higher level of REO. The Bank maintained a higher level of loss reserves as a
percent of loans receivable (1.40 percent versus 0.77 percent for the Peer
Group), and higher ratios of reserves as a percent of NPLs and total NPAs.
Interest Rate Risk
- ------------------
Table 3.6 reflects the relative interest rate risk exposure of Harbor
Federal and the Peer Group. The Bank's lower capital level was the key factor
contributing to its lower IEA/IBL ratio relative to the Peer Group (108.4
percent versus 117.7 percent, respectively). The Bank's lower capital and
IEA/IBL ratios increases its funding costs relative to the Peer Group. However,
the Bank's capital ratio and IEA/IBL ratio will increase on a post-conversion
basis. The Bank maintained a lower ratio of non-interest earning assets, which
is favorable from an interest rate risk perspective as it increases the
proportion of assets repricing upward in a rising rate environment.
In the absence of available or comparable gap and rate shock analyses for
the Peer Group, the change in the quarterly net interest income ratio to average
assets for the Bank and the Peer Group has been examined in relation to the
change in market interest rates. As shown in Table 3.6, the Bank's net interest
margin has recently shown more sensitivity to changing market interest rates
than the Peer Group's average net interest margin. On a pro forma basis, the
Bank's higher capital position and reinvestment of proceeds in short- to
intermediate-term securities can be expected to lower exposure to changes in
interest rates.
<PAGE>
RP Financial, LC.
Page 3.12
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 3.5
Credit Risk Measures and Related Information
Comparable Institution Analysis
As of June 30, 1997 or Most Recent Date Available
<TABLE>
<CAPTION>
NPAs & Rsrves/
REO/ 90+Del/ NPLs/ Rsrves/ Rsrves/ NPAs & Net Loan NLCs/
Institution Assets Assets Loans Loans NPLs 90+Del Chargoffs Loans
- ----------- ------ ------- ----- ------- ------- ------- --------- -----
(%) (%) (%) (%) (%) (%) ($000) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harbor Florida Bancorp of FL 0.26 0.46 0.27 1.40 512.26 222.68 470 0.06
SAIF-Insured Thrifts 0.28 0.79 0.85 0.81 175.34 130.33 397 0.16
Comparable Group Average 0.13 0.44 0.62 0.77 177.63 139.29 73 0.03
Comparable Group
- ----------------
DIME Dime Community Bancorp of NY 0.13 0.73 1.05 1.43 136.45 112.22 209 0.12
FFLC FFLC Bancorp of Leesburg FL 0.09 0.19 0.18 0.44 241.01 163.65 0 0.00
FFBA First Colorado Bancorp of Co 0.08 0.23 0.20 0.38 191.75 121.82 170 0.06
FWWB First Savings Bancorp of WA(1) 0.11 0.30 0.27 0.97 366.82 215.39 148 0.09
FFIC Flushing Fin. Corp. of NY 0.03 0.29 0.46 1.15 252.00 223.21 64 0.06
GAF GA Financial Corp. of PA 0.00 0.12 0.32 0.43 132.49 132.49 6 -0.02
HFNC HFNC Financial Corp. of NC 0.10 0.87 1.05 1.14 109.34 97.22 32 0.02
ISBF ISB Financial Corp. of LA(1) 0.06 NA NA 0.80 NA NA 72 -0.03
JSB JSB Financial, Inc. of NY 0.75 1.08 1.62 0.62 38.43 33.97 23 0.01
KFBI Klamath First Bancorp of OR 0.00 0.08 0.11 0.23 213.23 213.23 2 0.00
OCFC Ocean Fin. Corp. of NJ 0.09 0.55 0.91 0.87 94.78 79.68 72 0.04
</TABLE>
(1) Financial information is for the quarter ending March 31, 1997.
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, LC. calculations. The information
provided in this table has been obtained from sources we believe are
reliable, but we cannot guarantee the accuracy or completeness of such
information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP Financial, LC.
Page 3.13
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 3.6
Interest Rate Risk Measures and Net Interest Income Volatility
Comparable Institution Analysis
As of June 30, 1997 or Most Recent Date Available
<TABLE>
<CAPTION>
Balance Sheet Measures
------------------------
Non-Earn. Quarterly Change in Net Interest Income
Equity/ IEA/ Assets/ ----------------------------------------------------------
Institution Assets IBL Assets 06/30/97 03/31/97 12/31/96 09/30/96 06/30/96 03/31/96
- ----------- ------ ----- --------- -------- -------- -------- -------- -------- --------
(%) (%) (%) (change in net interest income is annualized in basis points)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Harbor Florida Bancorp of FL 8.1 108.4 2.4 14 5 6 21 0 0
SAIF-Insured Thrifts 12.3 113.3 3.3 0 0 0 -1 8 7
Comparable Group Average 15.4 117.7 3.0 -11 -5 -5 14 9 16
Comparable Group
- ----------------
DIME Dime Community Bancorp of NY 12.5 113.8 4.6 -10 3 46 96 NA NA
FFLC FFLC Bancorp of Leesburg FL 13.5 114.2 2.1 -9 4 0 6 2 15
FFBA First Colorado Bancorp of Co 12.8 114.2 2.6 -3 9 2 -13 16 55
FWWB First Savings Bancorp of WA(1) 13.6 115.9 3.6 NA -6 -5 27 -17 4
FFIC Flushing Fin. Corp. of NY 15.5 117.2 2.4 -5 -1 0 9 4 48
GAF GA Financial Corp. of PA 15.0 117.4 1.8 -18 -14 -34 -3 NA 9
HFNC HFNC Financial Corp. of NC 18.0 120.9 2.6 -49 -6 -18 -28 57 NA
ISBF ISB Financial Corp. of LA(1) 10.3 109.0 5.2 NA -21 -7 1 15 -1
JSB JSB Financial, Inc. of NY 22.9 131.2 2.9 1 1 0 4 7 2
KFBI Klamath First Bancorp of OR 19.5 124.7 2.0 -3 -7 -20 -8 -1 8
OCFC Ocean Fin. Corp. of NJ 16.3 116.7 3.0 -8 -16 -13 59 -5 1
</TABLE>
(1) Financial information is for the quarter ending March 31, 1997.
NA = Change is greater than 100 basis points during the quarter.
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, LC. calculations. The information
provided in this table has been obtained from sources we believe are
reliable, but we cannot guarantee the accuracy or completeness of such
information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP Financial, LC.
Page 3.14
Summary
- -------
Based on the above analysis and the criteria employed by in the Peer Group
selection process, the Peer Group appears to form a reasonable basis for
determining the pro forma market value of the Bank, subject to the adjustments
noted in the following section.
<PAGE>
RP Financial, LC.
Page 4.1
IV. VALUATION ANALYSIS
Introduction
- ------------
This chapter presents the valuation analysis, prepared pursuant to the
approved valuation methodology promulgated by the OTS, and valuation factors
used to determine the estimated pro forma market value of the common stock to be
issued in conjunction with the conversion of the MHC. The MHC is merging with
and into Harbor Florida pursuant to the Plan. The pro forma valuation
methodology has been modified to reflect the unique characteristics of the
conversion of the MHC, specifically the fact that Harbor Florida will be selling
only a partial ownership interest in the Subscription and Community offerings,
instead of a 100 percent ownership interest as would be the case in a standard
conversion.
Appraisal Guidelines
- --------------------
The OTS appraisal guidelines, originally released in October 1983, specify
the methodology for estimating the pro forma market value of an institution. The
methodology included: (1) selection of a peer group of comparable seasoned
publicly-traded institutions whose pricing is not distorted due to a variety of
factors; (2) a fundamental analysis of the subject company to the peer group;
and (3) a pro forma valuation analysis of the subject company based on the
market pricing of the peer group as of the date of valuation. The amended
valuation guidelines also limit the amount of a new issue discount which may be
incorporated into the valuation and thereby curtail the potential price
appreciation in the after-market.
RP Financial's valuation analysis complies with the October 1983 OTS
appraisal guidelines as revised on October 21, 1994, incorporating a
"fundamental analysis" relative to the Peer Group and a "technical analysis" of
final conversion pricing and trading levels of recently completed conversions
(given the emphasis of limiting after-market appreciation). It should be noted
that such analysis cannot possibly fully account for all the market forces which
impact after-market trading activity and pricing characteristics of a stock on a
given day.
The pro forma market value determined herein is a preliminary value for the
Holding Company's to-be-issued stock. Throughout the conversion process, RP
Financial will: (1) review changes in the Bank's operations and financial
condition; (2) monitor the Bank's operations and financial condition relative to
the Peer Group to identify any fundamental changes; (3) monitor the external
factors affecting value including, but not limited to, local and national
economic conditions, interest rates, and the stock market environment, including
the market for thrift stocks; and (4) monitor pending initial and second step
conversion offerings (including those in the offering phase) both regionally and
nationally. If material changes should occur during
<PAGE>
RP Financial, LC.
Page 4.2
the conversion process, RP Financial will prepare updated valuation reports
reflecting such changes and their related impact on value, if any, over the
course of the conversion process. RP Financial will also prepare a final
valuation update at the closing of the conversion offering to determine if the
preliminary range of value continues to be appropriate.
The appraised value determined herein is based on the current market and
operating environment for the Bank and for all thrifts. Subsequent 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 major world events), which may occur from time to time (often with
great unpredictability), may materially impact the market value of all savings
institution stocks, including the Bank's, or the Bank's value alone. To the
extent a change in factors impacting the Bank's value can be reasonably
anticipated and/or quantified, RP Financial has incorporated the estimated
impact into its analysis.
Valuation Analysis
- ------------------
A fundamental analysis discussing similarities and differences relative to
the Peer Group was presented in Chapter III. The following sections summarize
such differences between the Bank and the Peer Group and how those differences
affect the pro forma valuation. Emphasis is placed on the specific strengths and
weaknesses of the Bank relative to the Peer Group in such key areas as financial
condition, profitability, growth and viability of earnings, asset growth,
primary market area, dividends, liquidity of the issue, marketing of the issue,
management, and the effect of government regulations and/or regulatory reform.
We have also considered the market for savings institution stocks, and in
particular new issues, including second step conversions, to assess the impact
on value of Harbor Federal coming to market at this time.
1. Financial Condition
-------------------
The financial strength of an institution is an important determinant in pro
forma market value, because investors typically look to such factors as
liquidity, capital, asset composition and quality, and funding sources in
assessing investment attractiveness. The similarities and differences in the
Bank's financial strength can be summarized as follows:
o Overall A/L Composition. Permanent residential mortgage loans funded
by retail deposits were the primary components of both Harbor
Federal's and the Peer Group's balance sheets. The Bank maintains a
higher proportion of overall loans receivable than the Peer Group,
offset by a lower level of cash and investments and investment in MBS.
Harbor Federal reported a lower level of diversification into higher
credit risk types of loans relative to the Peer Group, and the Bank
intends to continue loan portfolio diversification. The Peer Group
<PAGE>
RP Financial, LC.
Page 4.3
relied on borrowed funds to a greater extent than the Bank, although
retail deposits comprised the major portion of the respective funding
needs.
o Credit Risk. Harbor Federal maintains a comparable level of
NPAs/assets, a lower level of NPLs/loans, a lower credit risk profile
and a similar risk-weighted assets ratio. The Bank has a higher
loans/assets ratio and higher reserve coverage ratios than the Peer
Group.
o Liquidity. Harbor Federal maintained a lower level of cash and
investments and MBS than the Peer Group. The Bank's proportion of cash
and investments is likely to initially increase on a pro forma basis.
Borrowings were utilized to a higher degree by the Peer Group, and
both maintain ample borrowings capacity. A majority of the Bank's
loans meet secondary market standards for sale. Overall, Harbor
Federal appears to have similar balance sheet liquidity as the Peer
Group.
o Capital. While the Bank maintains a lower capital position in relation
to the Peer Group, following the infusion of conversion proceeds, the
Bank's capital position is expected to exceed the Peer Group average.
As a result, the Bank is expected to have more leverage capacity than
the Peer Group. The Bank's pro forma return on equity ("ROE") is not
expected to exceed the Peer Group average due to lower profitability.
On balance, no adjustment was deemed necessary for financial condition.
2. Profitability, Growth and Viability of Earnings
-----------------------------------------------
Earnings are an important factor in determining pro forma market value, as
the level and risk characteristics of an institution's earnings stream and the
prospects and ability to generate future earnings are typically heavily factored
into an investment decision. The historical income statements of Harbor Federal
and the Peer Group were generally reflective of traditional savings institution
operating strategies, with net interest income and operating expenses being the
major determinants of their respective core earnings. The specific factors
considered in the valuation include:
o Reported Earnings. The Bank reported net income of 0.94 percent of
average assets for the most recent twelve month period versus earnings
of 0.88 percent for the Peer Group. The differential in reported
earnings is due in part to the Bank's lower operating expenses and
higher non-interest income.
o Core Earnings. The Bank maintains a favorable core earnings posture
relative to the Peer Group, as although both the Bank and Peer Group's
earnings were affected by the payment of the SAIF assessment fee in
the September 30, 1996 period, the Bank operated with a lower level of
operating expense and a favorable level of non-interest operating
income than the Peer Group, along with a lower effective tax rate.
While redeployment of conversion proceeds into interest-earning assets
should enhance Harbor Federal's net interest income, operating
expenses for the Bank are expected to increase as well. On a pro forma
basis, Harbor Federal's core profitability is expected to exceed that
of the Peer Group.
<PAGE>
RP Financial, LC.
Page 4.4
o Interest Rate Risk. Harbor Federal's NPV analysis measures indicated
moderate exposure to rising interest rates. Although gap data was not
available for the Peer Group, other analyses indicated a comparable
advantage for the Peer Group. The pro forma increase in the IEA/IBL
ratio can be expected to reduce the Bank's interest rate risk
exposure.
o Credit Risk. Loss provisions had a lower impact on the earnings of the
Bank in comparison to the Peer Group. In terms of credit quality
related losses, the Bank maintained higher reserve coverage ratios as
a percent of loans receivable, non-accruing loans and total NPAs. The
Bank's less diversified loan portfolio indicates a lower level of
credit risk than the Peer Group, which lessens earnings volatility
relative to the Peer Group.
o Earnings Growth Potential. Several factors were considered in
assessing earnings growth potential. Harbor Federal's current loan
portfolio is higher than the Peer Group's as a percent of assets,
making additional gains in earning asset yields difficult without
added credit risk. Although the higher expected pro forma capital
position is expected to enable the Bank to continue on a growth
pattern, expectations that operating expenses will increase at a
higher rate than assets in the future and the uncertain cost of
acquiring new deposit funds for lending result in the Bank's earnings
appearing to have less upside potential than the Peer Group.
o Return on Equity. On a pro forma basis the Bank's pro forma return on
equity will be lower to the Peer Group average, as the pro forma
profitability is measured against a comparatively higher capital
position.
Overall, RP Financial made a slight downward adjustment for profitability,
growth and viability of earnings.
3. Asset Growth
------------
The Bank's asset growth in recent periods, which has been achieved through
growth in deposits in the existing market area and through borrowed funds, has
been less favorable than the Peer Group's. The Bank intends to continue to grow
in future periods, and is expected to have adequate capital post-conversion to
support such growth, although the competitive nature of the market area provides
uncertainty as to the cost of raising additional deposits. In total, the Peer
Group also operates in competitive markets and faces many of the same factors as
the Bank in raising deposits. We concluded that no adjustment was warranted for
the Bank's asset growth potential.
4. Primary Market Area
-------------------
The general condition of a financial institution's market area has an
impact on value, as future success is in part dependent upon opportunities for
profitable activities in the local market area. Summary demographic and deposit
market share data for the Bank and the Peer Group is included in Table 4.1. The
Bank's headquarter's county of St. Lucie along the Atlantic Coast is an urban
and rural market that has been experiencing increases in population and
households in recent years, while the Peer Group companies operate
<PAGE>
RP Financial, LC.
Page 4.5
Table 4.1
Peer Group Market Area Comparative Analysis
<TABLE>
<CAPTION>
Per Capita Income
Population Proj. ----------------- Deposit
------------ Pop. 1990-97 1997-2002 % State Market
Institution County 1990 1997 2002 % Change % Change Median Age Amount Average Share(1)
- ----------- ------ ---- ---- ----- -------- --------- ---------- ------ ------- --------
(000) (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JSB Financial, Inc. of NY Nassau 1,287 1,304 1,316 1.3% 0.9% 37.8 25,933 98.7% 1.0%
First Colorado Bancorp of CO Jefferson 438 500 543 14.1% 8.5% 35.9 28,823 114.4% 8.8%
Ocean Financial Corp. of NJ Ocean 433 482 516 11.3% 7.0% 39.6 19,900 82.3% 11.4%
Dime Community Bancorp of NY Kings 2,301 2,268 2,246 -1.4% -1.0% 32.5 14,742 79.7% 2.0%
First Savings Bancorp of WA Walla Walla 48 54 58 11.2% 6.9% 35.0 14,165 81.2% 23.4%
ISB Financial Corp. of LA Iberia 68 72 75 5.7% 3.7% 31.3 11,011 83.9% 38.7%
HFNC Financial Corp. of NC Mecklenburg 511 614 685 20.1% 11.5% 34.3 23,061 131.7% 3.6%
Flushing Financial Corp. of NY Queens 1,952 1,987 2,011 1.8% 1.2% 36.5 17,607 95.2% 1.2%
GA Financial Corp. of PA Allegheny 1,336 1,286 1,252 -3.8% -2.6% 38.8 18,708 103.9% 1.4%
Klamath First Bancorp of OR Klamath 58 63 67 10.0% 6.3% 36.7 13,879 81.9% 45.5%
FFLC Bancorp of Leesburg FL Lake 152 192 220 26.5% 14.4% 45.0 14,942 86.7% 11.2%
----- ----- ----- ---- ---- ---- ------- ----- ----
Averages: 780 802 817 8.8% 5.2% 36.7 18,434 94.5% 13.5%
Medians: 438 500 543 10.0% 6.3% 36.5 17,607 86.7% 8.8%
Harbor Federal Savings Bank of FL St. Lucie 150 178 198 18.8% 10.9% 38.9 $16,845 97.7% 19.0%
</TABLE>
(1) Total institution deposits in headquarters county as percent of total
county deposits, excluding Credit Unions.
Sources: CACI, Inc, SNL Securities
<PAGE>
RP Financial, LC.
Page 4.6
on average in larger but slower growing markets. The per capita income in the
Bank's market is below the average of the primary markets of the Peer Group
members and the median age in Harbor Federal's market is higher. The Bank's
share of market area deposits is higher than the average position of the Peer
Group institutions in their headquarters counties, which indicates that the
ability of the Bank to increase deposits and market share in the headquarters
county may be difficult. On balance, RP Financial concluded that a slight upward
adjustment was warranted for market area.
5. Dividends
---------
As stated in the Holding Company's offering circular, the Holding Company
intends to implement a cash dividend policy during the first full quarter
following consummation of the conversion at the same annual rate as is currently
paid on the Public Shares adjusted for the Distribution Exchange Ratio. The
annual dividend rate, based on the midpoint valuation is an estimated $0.32 on
an estimated $10.00 share price, to be paid quarterly. The ability to pay a
dividend will be based on numerous factors including growth objectives,
financial condition, the amount of net proceeds retained by the Holding Company
in the conversion, investment opportunities available to the Holding Company and
the Bank, profitability, tax considerations, minimum capital requirements,
regulatory limitations, stock market characteristics and general economic
conditions.
Historically, savings institutions typically have not established dividend
policies at the time of their conversion to stock ownership. Newly converted
institutions, in general, have preferred to gain market seasoning, establish an
earnings track record and more fully invest the conversion proceeds before
establishing a dividend policy. However, during the late 1980s and early 1990s,
with negative publicity surrounding savings institutions, there was a tendency
for more institutions to initiate moderate dividend policies concurrent with
their conversion as a means of increasing the attractiveness of the stock
offering. Today, fewer institutions are compelled to initially establish
dividend policies at the time of their conversion offering to increase the
attractiveness of the stock issue as: (1) industry profitability has improved,
(2) the number of problem thrift institutions has declined, and (3) the stock
market cycle for thrift stocks is generally more favorable than in the early
1990s. At the same time, with ROE ratios under pressure, due to high equity
levels, well-capitalized institutions are subject to increased competitive
pressures to offer dividends and a number of institutions have instituted
special dividends.
As publicly-traded savings institution's capital levels and profitability
have improved and as weakened institutions have been resolved, the proportion of
institutions with cash dividend policies has increased. Ten of the eleven
institutions in the Peer Group presently pay regular cash dividends, with
implied dividend yields ranging from 1.08 percent to 2.95 percent. The average
dividend yield on the stocks of the Peer Group institutions was 1.75 percent as
of September 19, 1997, representing an average earnings payout ratio of 39.52
<PAGE>
RP Financial, LC.
Page 4.7
percent. As of September 19, 1997, approximately 84 percent of all SAIF-insured
savings institutions had adopted cash dividend policies (see Exhibit IV-1),
exhibiting an average yield of 1.92 percent and an average payout ratio of 41.90
percent. The dividend paying institutions generally maintain higher than average
profitability ratios, facilitating their ability to pay cash dividends, which
supports a market pricing premium on average relative to non-dividend paying
institutions.
The Holding Company's ability following the completion of the conversion to
pay a dividend would appear to be similar relative to the Peer Group based on
higher pro forma capital and earnings. The Company's stated intention to
implement a dividend shortly after completion of the conversion is a favorable
comparison to the Peer Group companies and thus no adjustment is warranted for
this valuation factor.
6. Liquidity of the Shares
-----------------------
The Peer Group is by definition composed of companies that are traded in
the public markets, all of which trade on the NASDAQ system. Typically, the
number of shares outstanding and market capitalization provides an indication of
how much liquidity there will be in a particular stock. The market
capitalization of the Peer Group companies ranged from $73.0 million to $467.6
million as of September 19, 1997, with an average market value of $240.9
million. The shares outstanding of the Peer Group members ranged from 2.3
million to 17.2 million, with average shares outstanding of approximately 10.1
million. The Bank's pro forma market value is expected to be similar to the
comparative Peer Group averages, and shares outstanding will also be similar.
The Bank's stock is expected to be listed on the NASDAQ National Market System,
and accordingly, we anticipate the liquidity of the Bank's shares will be
similar to that of the Peer Group on average, and thus there has been no
valuation adjustment applied for this factor.
7. Marketing of the Issue
----------------------
We believe that five separate markets exists for savings institution stocks
coming to market such as Harbor Federal: (A) the after-market for public
companies, in which trading activity is regular and investment decisions are
made based upon financial condition, earnings, capital, ROE and dividends; (B)
the new issue market in which converting thrifts are evaluated on the basis of
the same factors but on a pro forma basis without the benefit of a stock trading
history and reporting quarterly operating results as a publicly-held company;
(C) the market for second step conversions by MHCs; (D) the acquisition market
for savings institution franchises in Florida; and (E) the market for the public
stock of Harbor Federal. All of these markets were considered in the valuation
of the Bank's second step conversion.
<PAGE>
RP Financial, LC.
Page 4.8
A. Public Market
-------------
The value of publicly-traded thrift stocks is easily measurable, and is
tracked by most investment houses and related organizations. Exhibit IV-1
provides pricing and financial data on all publicly-traded thrifts. In general,
thrift stock values react to market stimuli such as interest rates, inflation,
perceived industry health, projected rates of economic growth, regulatory issues
and stock market conditions in general. Exhibit IV-2 displays historical stock
market trends for various indices and includes historical stock price index
values for thrifts and commercial banks. Exhibit IV-3 displays historical stock
price indices for thrifts only.
In terms of assessing general stock market conditions, the stock market has
generally trended higher over the past year. The stock market rose in
early-September 1996, as investors reacted positively to the inflation data
contained in the August employment report. Oil stocks sustained the upward trend
in the stock market in early-September 1996, as renewed tension between the U.S.
and Iraq pushed crude oil prices to their highest level in five years. Both bond
and stock prices surged higher as most of the economic data for August 1996
indicated that the economy was slowing down and investors became more optimistic
that the Federal Reserve would not raise interest rates in September 1996.
The Federal Reserve's decision not to raise interest rates at its September
1996 meeting, and generally healthy third quarter earnings results sustained the
upward momentum in the stock market during the beginning of the fourth quarter.
Favorable inflation data and lower interest rates further spurred the upward
trend in the stock market prior to the election. Investors were cheered by the
"status quo" election results, as stocks rallied strongly immediately following
the election with the DJIA posting ten consecutive advances through
mid-November. Economic stability and a rising bond market sustained the stock
market rally through the end of November. For the entire month of November, the
DJIA increased 492.3 points, or 8.2 percent. Following the rapid rise in the
stock market during November, stocks retreated during the first half of
December. Profit taking, concern about speculative excesses in the stock market
and higher interest rates all contributed to the decline in the stock market.
The stock market resumed an upward trend during the end of 1996 and the
first three weeks of 1997, with the DJIA establishing several new highs in the
process. Factors contributing to the rally in the stock market included the
Federal Reserve's decision to leave rates unchanged at its December meeting,
economic data which reflected moderate growth and low inflation, and favorable
fourth quarter earnings particularly in the technology sector. However, a
disappointing fourth quarter earnings report by IBM ignited a sell-off in the
stock market in late-January. Higher interest rates extended the downturn, as
the 30-year bond approached 7.0 percent at the end of January. A high degree of
market volatility was evident throughout most of February 1997, reflecting
concern over speculative excesses in the stock market; particularly, as the DJIA
<PAGE>
RP Financial, LC.
Page 4.9
closed above the 7000 mark in mid-February. Profit taking, growing expectations
of a correction and comments by the Federal Reserve Chairman pulled the market
lower in late-February.
Following a downturn in late-February 1997, the market recovered in
early-March. Despite increasing expectations of an interest rate hike by the
Federal Reserve, the Dow Jones Industrial Average ("DJIA") closed to a new
record high of 7085.16 on March 11, 1997. However, an upward revision to the
January retail sales figure triggered a one day sell-off in stocks and bonds on
March 13, 1997, as the stronger than expected growth heightened expectations of
an interest rate increase by the Federal Reserve. Unease over higher interest
rates, profitability concerns in the technology sector and litigation concerns
for tobacco stocks pulled the stock market lower in mid-March. As expected, the
Federal Reserve increased the rate on short-term funds by 0.25 percent at its
late-March meeting. Following the rate increase, the sell-off in the stock
market became more severe amid further signs of an accelerating economy. Stocks
bottomed-out on news of a stronger than expected rise in core producer prices
for March, with the DJIA closing at 6391.69 on April 11, 1997, or 9.8 percent
below its all-time high recorded a month ago.
Some favorable first quarter earnings reports and news of a possible
settlement by tobacco companies to resolve the threat of liability lawsuits
provided for a modest recovery in the stock market in mid-April 1997. In
late-April, the release of economic data which indicated mild inflationary
pressures furthered the rally in bond and stock prices. News of a budget
agreement and a favorable ruling for tobacco companies sent the stock market
soaring to record highs in early-May. Mixed economic data and the Federal
Reserve's decision to leave its target for the federal-funds rate unchanged at
its May meeting sustained a positive trend in the stock market through the end
of May. Profit worries caused a sell-off in high-technology stocks in
early-June, while declining interest rates served to stabilize the broader
market. The stock market rose during late June, July and early August based on
positive consumer confidence, little sign of inflation with continued low
unemployment rates, and continued strong second quarter earnings reports. After
reaching an all time high of 8259.31 on August 6, 1997, the DJIA suffered
declines of 157 points on August 8, 101 points on August 12, and 247 points on
August 15, 1997 to close at 7694.66 as of that date, a decline of 6.8 percent in
less than two weeks. Through September 19, 1997, the stock market has followed a
fluctuating trend, as the market has reacted to investor fears of inflation,
public statements regarding the health of the economy by regional federal
reserve bank presidents, and an overall perception that the market had reached
excessive levels, leading to certain profit-taking. On September 19, 1997, the
DJIA closed at 7917.27, an increase of 34.5 percent from one year ago.
<PAGE>
RP Financial, LC.
Page 4.10
Similar to the overall stock market, the market for thrift stocks has
generally been favorable during the past twelve months, as a bullish outlook on
the financial institution sector in general served to bolster prices. Thrift
stocks settled into a narrow trading range in late-August 1996 and
early-September 1996, as higher interest rates dampened interest in the thrift
sector. For the balance of September, trading activity in thrift stocks was
somewhat mixed. Higher thrift prices were recorded in mid-September, as the
yield on the 30-year U.S. Treasury bond briefly dropped below 7.0 percent.
However, the rally in financial services stocks faltered in late-September,
reflecting renewed fears about higher interest rates and rising bad debt on
credit cards.
Thrift prices generally moved higher during October and November 1996. The
upward trend in thrift prices was supported by lower interest rates, with the
slow down in economic growth pushing the 30-year U.S. bond rate below 6.5
percent during the second half of November. Investors also reacted positively to
the SAIF rescue legislation, in light of the reduction in deposit insurance
premiums to be paid by SAIF-insured thrifts following the one time special
assessment. Similar to the overall stock market, thrift prices traded lower in
early-December. Profit taking and expectations of higher interest rates were
factors contributing to the pull back in thrift issues.
Bullish sentiment for thrift stocks heightened at the beginning of 1997, as
investors reacted positively to the favorable inflation data and generally
strong fourth quarter earnings. The rally in thrift issues was driven by the
large California institutions, reflecting expectations that there would be
further consolidation among the large California thrifts. The acquisition
speculation for the large California thrifts became a reality in mid-February,
as H.F. Ahamanson's unsolicited offer to acquire Great Western Financial sent
the SNL Index soaring in mid-February. Stable interest rates and acquisition
activity supported higher thrift prices in early-March, with the SNL Index
posting a new high of 579.1 on March 11, 1997. Like the stock market in general,
the peak in thrift prices was followed by a sharp sell-off in mid-March. In
fact, interest-rate sensitive issues were among the sectors hardest hit by the
revised January retail sales report, as the 30-year bond approached 7.0 percent.
Interest-rate sensitive issues continued to experience selling pressure in
late-March and early-April, as signs of a strengthening economy pushed interest
rates higher. The sell-off in thrift stocks culminated on April 11, 1997, as
interest rates increased sharply on news of the higher than expected rise in
core producer prices for March. Thrift prices edged modestly higher in
mid-April, reflecting generally favorable first quarter earnings and a slight
decline in interest rates following the release of economic data which showed
that inflation was low. Favorable inflation data and the budget agreement
provided for a more substantial rally in thrift stocks in late-April and
early-May, as interest-rate sensitive issues were bolstered by a decline in
interest rates. Thrift stocks continued to trend higher through the second and
third quarters of 1997, based on the improved interest-rate outlook, consumer
confidence and the overall rise in the stock market.
<PAGE>
RP Financial, LC.
Page 4.11
The SNL Index for all publicly-traded thrifts closed at 728.8 on September 19,
1997, an increase of 73.0 percent from one year ago.
B. The New Issue Market
--------------------
In addition to thrift stock market conditions in general, the new issue
market for converting thrifts is also an important consideration in determining
the Bank's pro forma market value. There was generally strong interest in
converting issues during the second half of 1996, as most offerings experienced
oversubscriptions. Fewer offerings, more attractive pricing, lower interest
rates, and the general positive trend in thrift prices were among the most
prominent factors contributing to the investor interest shown for converting
thrift issues. The favorable market environment for converting thrift issues has
generally been sustained during the first three quarters of 1997 and there has
been an increase in the number of conversion offerings completed during the past
three months in comparison to previous periods. As shown in Table 4.2, the
median one week change in price for offerings completed during the latest three
months equaled positive 46.3 percent.
In examining the current pricing characteristics of institutions completing
their conversions during the last three months (see Table 4.3), we note there
exists a considerable difference in pricing ratios compared to the universe of
all publicly-traded thrifts. Specifically, the current average P/B ratio of the
conversions completed in the most recent three month period of 119.82 percent
reflects a discount of 20.91 percent from the average P/B ratio of all
publicly-traded savings institutions (equal to 151.49 percent), and the average
core P/E ratio of 33.58 times reflects a premium of 74.8 percent from the all
public average core P/E ratio of 19.21 times. The pricing ratios of the better
capitalized but lower earning recently converted savings institutions (based on
return on equity measures) suggest that the investment community has determined
to discount their stocks on a book basis until the earnings improve through
redeployment and leveraging of the proceeds over the longer term.
In determining our valuation adjustment for marketing of the issue, we
considered trends in both the overall savings institution market and the new
issue market. The overall market for savings institution stocks is considered to
be positive, as savings institution stocks are currently exhibiting pricing
ratios that are in the range of historically high levels. Investor interest in
the new issue market has been favorable, as most of the recently completed
offerings have been oversubscribed and have recorded price increases in initial
post-conversion trading activity.
<PAGE>
RP Financial, LC.
Page 4.12
RP Financial, LC.
September 19, 1997
----------------------------------------------------------
Table 4.2
Recent Conversions (Last Three Months)
Conversion Pricing Characteristics: Sorted Chronologically
----------------------------------------------------------
<TABLE>
<CAPTION>
Pre-Conversion Data Insider Purchases
------------------------------ Offering ---------------------
Institutional Information Financial Info. Asset Quality Information Benefit Plans
- --------------------------------------------------------- --------------- ------------- ------------------ -------------
Conversion Equity/ NPAs/ Res. Gross % of Exp./ Recog. Mgmt.
Institution State Date Ticker Assets Assets Assets Cov. Proc. Mid. Proc. ESOP Plans & Dirs.
- ----------- ----- ---------- ------ ------ ------- ------ ---- ----- ---- ----- ---- ------ -------
($Mil) (%) (%)(2) (%) ($Mil) (%) (%) (%) (%) (%)(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Citizens Bancorp IN 09/19/97 P. Sheet $ 46 12.28% 0.45% 84% $10.6 132% 4.6% 8.0% 4.0% 16.1%
WSB Holding Company PA 08/29/97 P. Sheet 33 6.04% 2.34% 26% 3.3 132% 8.5% 8.0% 4.0% 31.0%
Bayonne Bancshares (8) NJ 08/22/97 FSNJ 577 8.33% 0.81% 53% 48.7 132% 3.8% 8.0% 4.0% 10.0%
FirstSpartan Fin. Corp. SC * 07/09/97 FSPT 388 11.81% 0.75% 44% 88.6 132% 1.6% 8.0% 4.0% 1.5%
GSB Financial Corp. NY 07/09/97 GOSB 96 12.68% 0.07% 188% 22.5 132% 4.1% 8.0% 4.0% 2.6%
FirstBank Corp. ID * 07/02/97 FBNW 138 8.00% 0.99% 68% 19.8 132% 3.5% 8.0% 4.0% 8.2%
Montgomery Fin. Corp.(8) IN 07/01/97 MONT 94 9.83% 0.91% 20% 11.9 132% 4.5% 8.0% 4.0% 4.6%
Community First Bankg. Corp. GA 07/01/97 CFBC 366 7.02% 1.68% 40% 48.3 132% 2.9% 8.0% 4.0% 1.0%
First Robinson Fin. Corp.(9) IL 06/30/97 FRFC 72 6.78% 0.63% 89% 8.6 132% 4.7% 8.0% 4.0% 9.8%
Security Bancorp TN 06/30/97 P./Sheet 46 5.46% 0.06% NM 4.4 132% 6.9% 8.0% 4.0% 2.0%
Sistersville Bancorp WV 06/26/97 P./Sheet 27 17.91% 0.31% 198% 6.6 110% 6.8% 8.0% 4.0% 5.4%
Averages: $184 9.39% 0.86% 81% $26.3 130% 4.7% 8.0% 4.0% 7.6%
Medians: 95 8.17% 0.78% 53% $15.9 132% 4.3% 8.0% 4.0% 5.0%
Averages, Excluding 2nd Steps $146 9.46% 0.85% 93% 25.3 130% 4.9% 8.0% 4.0% 7.7%
Medians, Excluding 2nd Steps $ 84 7.51% 0.69% 68% $14.2 132% 4.4% 8.0% 4.0% 4.0%
</TABLE>
Table 4.2 (Continued)
<TABLE>
<CAPTION>
Pro Forma Data
Institutional Information ------------------------------------------
- --------------------------------------------------------- Pricing Ratios(4) Fin. Characteristics
Conversion --------------------- --------------------
Institution State Date Ticker P/TB P/E(5) P/A ROA TE/A ROE
- ----------- ----- ---------- ------ ---- ------ --- --- ---- ---
(%) (x) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Citizens Bancorp IN 09/19/97 P. Sheet 72.9% 14.8 14.8% 1.1% 46.3% 2.4%
WSB Holding Company PA 08/29/97 P. Sheet 71.4% 16.6 9.2% 0.6% 12.9% 4.3%
Bayonne Bancshares (8) NJ 08/22/97 FSNJ 100.9% NM 14.6% NM 14.4% NM
FirstSpartan Fin. Corp. SC * 07/09/97 FSPT 72.4% 17.3 19.1% 1.1% 26.3% 4.2%
GSB Financial Corp. NY 07/09/97 GOSB 72.5% 22.5 19.6% 0.9% 27.1% 3.2%
FirstBank Corp. ID * 07/02/97 FBNW 71.4% 22.8 12.9% 0.6% 18.0% 3.1%
Montgomery Fin. Corp.(8) IN 07/01/97 MONT 89.1% 24.1 16.0% 0.7% 17.9% 3.7%
Community First Bankg. Corp. GA 07/01/97 CFBC 72.3% 24.5 11.9% 0.5% 16.4% 2.9%
First Robinson Fin. Corp.(9) IL 06/30/97 FRFC 71.4% 16.7 10.9% 0.7% 15.2% 4.3%
Security Bancorp TN 06/30/97 P./Sheet 72.0% 14.1 8.8% 0.6% 12.2% 5.1%
Sistersville Bancorp WV 06/26/97 P./Sheet 65.0% 18.9 20.6% 1.1% 31.6% 3.4%
Averages: 75.8% 19.7 14.3% 0.7% 19.2% 3.8%
Medians: 72.1% 18.9 13.7% 0.7% 17.2% 3.6%
Averages, Excluding 2nd Steps 71.1% 19.2 14.1% 0.7% 20.0% 3.8%
Medians, Excluding 2nd Steps 71.7% 18.1 12.4% 0.6% 17.2% 3.8%
</TABLE>
<PAGE>
RP Financial, LC.
Page 4.12 (continued)
Table 4.2 (Continued)
<TABLE>
<CAPTION>
Post-IPO Pricing Trends
-------------------------------------------------------
Closing Price:
Institutional Information -----------------------------------------------
- --------------------------------------------------------- First After After
Conversion IPO Trading % First % First %
Institution State Date Ticker Price Day Chg. Week(6) Chg. Month(7) Chg.
- ----------- ----- ---------- ------ ----- ------- ---- ------- ---- -------- ----
($) ($) (%) ($) (%) ($) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Citizens Bancorp IN 09/19/97 P. Sheet $10.00 $14.00 40.0% $14.25 42.5%
WSB Holding Company PA 08/29/97 P. Sheet 10.00 13.50 35.0% 14.50 45.0% $14.00 40.0%
Bayonne Bancshares (8) NJ 08/22/97 FSNJ 10.00 11.75 17.5% 11.88 18.8% 12.38 23.8%
FirstSpartan Fin. Corp. SC * 07/09/97 FSPT 20.00 36.69 83.4% 36.62 83.1% 35.63 78.1%
GSB Financial Corp. NY 07/09/97 GOSB 10.00 14.63 46.3% 14.75 47.5% 14.38 43.8%
FirstBank Corp. ID * 07/02/97 FBNW 10.00 15.81 58.1% 15.56 55.6% 17.88 78.8%
Montgomery Fin. Corp.(8) IN 07/01/97 MONT 10.00 11.13 11.3% 11.25 12.5% 11.75 17.5%
Community First Bankg. Corp. GA 07/01/97 CFBC 20.00 31.88 59.4% 33.00 65.0% 34.25 71.3%
First Robinson Fin. Corp.(9) IL 06/30/97 FRFC 10.00 14.50 45.0% 14.38 43.8% 16.50 65.0%
Security Bancorp TN 06/30/97 P./Sheet 10.00 14.50 45.0% 15.00 50.0% 15.25 52.5%
Sistersville Bancorp WV 06/26/97 P./Sheet 10.00 13.75 37.5% 13.88 38.8% 14.00 40.0%
Averages: $12.00 $17.81 43.8% $18.08 46.0% $18.60 51.1%
Medians: $10.00 $14.50 45.0% $14.63 46.3% $14.81 48.1%
Averages, Excluding 2nd Steps $11.25 $19.41 51.2% $19.71 53.6% $20.23 58.7%
Medians, Excluding 2nd Steps $10.00 $14.56 45.6% $14.88 48.8% $15.88 58.8%
</TABLE>
Note: * - Appraisal performed by RP Financial; "NT" - Not Traded;
"NA" - Not Applicable, Not Available.
(1) Non-OTS regulated thrifts.
(2) As reported in summary pages of prospectus.
(3) As reported in prospectus.
(4) Does not take into account the adoption of SOP 93-6.
(5) Excludes impact of special SAIF assessment on earnings.
(6) Latest price if offering less than one week old.
(7) Latest price if offering more than one week but less than one month old.
(8) Second-step conversions.
(9) Simultaneously converted to commercial bank charter.
<PAGE>
RP Financial, LC.
Page 4.13
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 4.3
Market Pricing Comparatives
Prices As of September 19, 1997
<TABLE>
<CAPTION>
Market Per Share Data
Capitalization -------------- Dividends(4)
---------------- Core Book Pricing Ratios(3) ------------------------
Price/ Market 12-Mth Value/ ------------------------------------ Amount/ Payout
Financial Institution Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE Share Yield Ratio(5)
- --------------------- -------- ------ ------ ------ ----- ------ ----- ------ ------ ------- ----- --------
($) ($Mil) ($) ($) (x) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts 23.28 163.06 1.15 15.72 21.97 147.62 18.04 151.49 19.21 0.38 1.67 30.30
Special Selection Grouping(8) 23.17 66.45 0.70 19.07 0.00 119.48 25.11 119.82 29.17 0.12 0.34 11.32
Comparable Group
- ----------------
Special Comparative Group(8)
- ----------------------------
CFBC Community First Bnkg Co. of GA 35.00 84.49 1.06 28.74 NM 121.78 18.75 123.46 NM 0.60 1.71 56.60
FBNW FirstBank Corp of Clarkston WA 17.00 33.73 0.44 14.00 NM 121.43 21.90 121.43 NM 0.00 0.00 0.00
FSPT FirstSpartan Fin. Corp. of SC 35.62 157.80 1.16 27.63 NM 128.92 33.93 128.92 NM 0.00 0.00 0.00
GOSB GSB Financial Corp. of NY 16.00 35.97 0.44 13.78 NM 116.11 31.42 116.11 NM 0.00 0.00 0.00
MONT Montgomery Fin. Corp. of IN 12.25 20.25 0.42 11.22 NM 109.18 19.56 109.18 29.17 0.00 0.00 0.00
</TABLE>
Table 4.3 (Continued)
<TABLE>
<CAPTION>
Financial Characteristics(6)
----------------------------------------------
Reported Core
Total Equity/ NPAs/ ---------- ----------
Financial Institution Assets Assets Assets ROA ROE ROA ROE
- --------------------- ------ ------- ------ ---- ---- ---- ----
($Mil) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts 1,158 12.89 0.79 0.63 5.44 0.85 7.49
Special Selection Grouping(8) 258 20.95 1.67 0.73 3.44 0.75 3.59
Comparable Group
- ----------------
Special Comparative Group(8)
- ----------------------------
CFBC Community First Bnkg Co. of GA 451 15.40 2.02 0.56 3.65 0.57 3.69
FBNW FirstBank Corp of Clarkston WA 154 18.04 2.07 0.70 3.86 0.57 3.14
FSPT FirstSpartan Fin. Corp. of SC 465 26.32 NA 0.95 3.62 1.11 4.20
GOSB GSB Financial Corp. of NY 114 27.06 NA 1.02 3.77 0.86 3.19
MONT Montgomery Fin. Corp. of IN 104 17.91 0.91 0.42 2.32 0.67 3.74
</TABLE>
(1) Average of High/Low or Bid/Ask price per share.
(2) EPS (estimate core basis) is based on actual trailing twelve month data,
adjusted to omit non-operating items (including the SAIF assessment) on a
tax effected basis.
(3) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB =
Price to tangible book value; and P/CORE = Price to estimated core
earnings.
(4) Indicated twelve month dividend, based on last quarterly dividend declared.
(5) Indicated dividend as a percent of trailing twelve month estimated core
earnings.
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing twelve month earnings and average equity and assets
balances.
(7) Excludes from averages those companies the subject of actual or rumored
acquisition activities or unusual operating characteristics.
(8) Includes Converted Last 3 Mths (no MHC).
Source: Corporate reports, offering circulars, and RP Financial, LC.
calculations. The information provided in this report has been obtained
from sources we believe are reliable, but we cannot guarantee the
accuracy or completeness of such information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP Financial, LC.
Page 4.14
C. Secondary Step Conversion Market
--------------------------------
There is a pronounced difference in the pricing of second step conversions
relative to full conversion offerings in which 100 percent of the shares are
issued. As noted in Table 4.4, during the past 12 months, the median pro forma
price/tangible book ratios of second step conversions exceeded 82 percent, as
compared to the median price/tangible book of conversions over the last three
months which just exceeds 71 percent, perhaps reflecting the smaller offering
and some seasoning as a public company for second steps. Furthermore, as shown
in Table 4.5, assuming the publicly-traded MHCs completed second step
conversions (utilizing standard assumptions for each MHC) at their current
market prices, the implied median price/tangible book is computed at
approximately 102.96 percent.
D. Acquisition Market
------------------
Also considered in the valuation was the potential impact on Harbor
Federal's stock price of recently completed and pending acquisitions of other
thrifts operating in Harbor Federal's market area. As shown in Exhibit IV-4,
there were 15 Florida savings institutions acquired or under acquisition since
the beginning of 1996. The recent acquisition activity involving Florida savings
institutions may imply a certain degree of acquisition speculation for the
Bank's stock. To the extent that acquisition speculation may impact the Bank's
offering, we have largely taken this into account in selecting similarly sized
savings institutions that also experience a degree of acquisition speculation.
E. Trading in Harbor Federal's Stock
---------------------------------
Since Harbor Federal's minority stock currently trades under the symbol
"HARB" on the NASDAQ National Market system, RP Financial also considered the
recent trading activity in its valuation analysis. Harbor Federal had a total of
4,970,240 shares issued and outstanding at June 30, 1997, of which 2,315,871
were held by Public Stockholders and were traded as public securities. As of
September 19, 1997, the Bank's stock price was $57.50 per share. On August 26,
1997, the day prior to the announcement of the second step conversion, the
shares closed at $47.75. On August 27, 1997, the day the second step conversion
was announced, the shares increased by $5.75, or 12.0 percent, to $53.50 per
share. We attribute the price increase to some speculation and the current
pricing has placed it at a premium to the average P/TB of other MHCs. There are
differences between the Bank's minority stock (currently being traded) and the
conversion stock that will be issued by the Holding Company. Such differences
include different liquidity characteristics (the new conversion stock will be
significantly more liquid owing to greater public shares available to trade), a
lower return on equity for the Holding Company's conversion stock, and the
anticipated difference in dividend for the conversion stock. Since the pro forma
impact has not been publicly disseminated to date, it is
<PAGE>
RP Financial, LC.
Page 4.15
RP Financial, LC.
August 29, 1997
-----------------------------------------------
Table 4.4
Pricing Characteristics and After-Market Trends
Second Step Conversions
-----------------------------------------------
<TABLE>
<CAPTION>
Pre-Conversion Data Insider Purchases
------------------------------ Offering ---------------------
Institutional Information Financial Info. Asset Quality Information Benefit Plans
- --------------------------------------------------------- --------------- ------------- ------------------ -------------
Conversion Equity/ NPAs/ Res. Gross % of Exp./ Recog. Mgmt.
Institution State Date Ticker Assets Assets Assets Cov. Proc. Mid. Proc. ESOP Plans & Dirs.
- ----------- ----- ---------- ------ ------ ------- ------ ---- ----- ---- ----- ---- ------ -------
($Mil) (%) (%)(2) (%) ($Mil) (%) (%) (%) (%) (%)(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bayonne Bancshares NJ 08/22/97 FSNJ $ 577 8.33% 0.81% 53% $ 48.7 132% 3.8% 8.0% 4.0% 10.0%
Montgomery Fin. Corp. IN 07/01/97 MONT 94 9.83% 0.91% 20% 11.9 132% 4.5% 8.0% 4.0% 4.6%
Cumberland Mtn. Bncshrs. KY * 04/01/97 P./Sheet 92 5.14% 1.31% 19% 4.4 132% 8.0% 6.2% 4.0% 4.5%
Kenwood Bancorp OH * 07/01/96 P./Sheet 48 6.88% 0.00% NM 1.6 102% 22.2% 8.0% 4.0% 6.4%
Commonwealth Bancorp PA * 06/17/96 CMSB 2,054 6.71% 0.51% 109% 98.7 110% 1.9% 8.0% 4.0% 0.1%
Westwood Financial Corp. NJ 06/07/96 WWFC 85 7.05% 0.00% NM 3.9 99% 9.9% 0.0% 0.0% 2.5%
Jacksonville Bancorp TX 04/01/96 JXVL 198 10.47% 1.41% 36% 16.2 106% 4.4% 8.0% 4.0% 2.0%
North Central Bancshares IA 03/21/96 FFFD 180 16.47% 0.17% 562% 26.0 106% 3.5% 3.2% 0.0% 0.5%
Fidelity Financial of Ohio OH * 03/04/96 FFOH 227 13.23% 0.50% 69% 22.8 132% 3.2% 8.0% 4.0% 5.6%
First Colorado Bancorp CO * 01/02/96 FFBA 1,400 12.71% 0.31% 20% 134.1 105% 1.9% 10.0% 2.0% 2.0%
Charter Financial IL * 12/29/95 CBSB 293 12.17% 0.27% 281% 29.2 116% 3.4% 3.3% 0.0% 0.1%
American Nat'l Bancorp MD * 11/03/95 ANBK 426 6.80% 2.23% 67% 21.8 132% 3.3% 8.0% 4.0% 0.6%
First Defiance Fin. Corp. OH * 10/02/95 FDEF 476 15.27% 0.24% 135% 64.8 132% 2.3% 8.0% 4.0% 0.9%
Community Bank Shares IN * 04/10/95 CBIN 205 7.00% 0.33% 80% 10.1 132% 4.4% 8.0% 0.0% 17.9%
Fed One Bancorp WV * 01/19/95 FOBC 305 9.20% 0.32% 142% 16.1 85% 7.7% 7.0% 4.0% 0.9%
Home Financial Corp. FL * 10/25/94 HOFL 1,005 13.40% 0.91% 44% 175.6 112% 3.1% 8.0% 4.0% 0.6%
Jefferson Bancorp LA * 08/18/94 JEBC 257 6.30% 0.90% 25% 16.1 107% 3.9% 7.0% 3.0% 1.5%
Averages: $ 440 9.28% 0.62% 104% $ 39.0 110% 5.1% 6.5% 2.7% 3.4%
Medians: 257 9.25% 0.50% 67% $ 21.8 112% 3.8% 8.0% 4.0% 2.0%
</TABLE>
Table 4.4 (Continued)
<TABLE>
<CAPTION>
Pro Forma Data
Institutional Information --------------------------------------------------
- --------------------------------------------------------- Pricing Ratios(4) Fin. Characteristics
Conversion ----------------------------- --------------------
Institution State Date Ticker P/TB P/E(7) P/Core P/A ROA TE/A ROE
- ----------- ----- ---------- ------ ---- ------ ------ --- --- ---- ---
(%) (x) (x) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bayonne Bancshares NJ 08/22/97 FSNJ 100.9% NM NM 14.6% -0.5% 14.4% -6.6%
Montgomery Fin. Corp. IN 07/01/97 MONT 89.1% 24.1 24.1 16.0% 0.7% 17.9% 3.7%
Cumberland Mtn. Bncshrs. KY * 04/01/97 P./Sheet 81.2% 13.8 13.8 7.1% 0.5% 8.8% 5.9%
Kenwood Bancorp OH * 07/01/96 P./Sheet 67.6% NM NM 6.0% 0.1% 8.8% 1.7%
Commonwealth Bancorp PA * 06/17/96 CMSB 109.3% 12.1 12.5 8.4% 0.7% 6.7% 10.4%
Westwood Financial Corp. NJ 06/07/96 WWFC 80.0% 10.1 10.1 7.3% 0.7% 9.2% 7.9%
Jacksonville Bancorp TX 04/01/96 JXVL 77.7% 14.9 14.9 12.6% 0.8% 16.2% 5.2%
North Central Bancshares IA 03/21/96 FFFD 74.2% 12.1 12.5 19.7% 1.6% 26.5% 6.1%
Fidelity Financial of Ohio OH * 03/04/96 FFOH 82.6% 18.1 18.1 16.6% 0.9% 20.0% 4.6%
First Colorado Bancorp CO * 01/02/96 FFBA 87.0% 12.7 13.4 13.2% 1.0% 15.2% 6.9%
Charter Financial IL * 12/29/95 CBSB 81.4% 12.3 12.3 15.5% 1.3% 19.1% 6.6%
American Nat'l Bancorp MD * 11/03/95 ANBK 83.9% 17.7 17.7 9.0% 0.5% 10.7% 4.7%
First Defiance Fin. Corp. OH * 10/02/95 FDEF 85.6% 18.2 18.2 20.6% 1.1% 24.1% 4.7%
Community Bank Shares IN * 04/10/95 CBIN 85.5% 10.3 9.0 9.3% 0.9% 10.9% 8.3%
Fed One Bancorp WV * 01/19/95 FOBC 67.9% 9.0 9.0 8.8% 1.0% 13.0% 7.6%
Home Financial Corp. FL * 10/25/94 HOFL 86.4% 10.6 12.4 21.3% 2.0% 24.6% 8.2%
Jefferson Bancorp LA * 08/18/94 JEBC 71.7% 10.2 10.2 7.9% 0.8% 11.1% 7.0%
Averages: 78.4% 12.9 13.0 11.9% 0.9% 14.3% 5.9%
Medians: 82.6% 12.3 12.5 12.6% 0.8% 14.4% 6.1%
</TABLE>
<PAGE>
RP Financial, LC.
Page 4.15 (continued)
Table 4.4 (Continued)
<TABLE>
<CAPTION>
Post-IPO Pricing Trends
-------------------------------------------------------
Closing Price:
Institutional Information -----------------------------------------------
- --------------------------------------------------------- First After After
Conversion IPO Trading % First % First %
Institution State Date Ticker Price Day Chg. Week(5) Chg. Month(6) Chg.
- ----------- ----- ---------- ------ ----- ------- ---- ------- ---- -------- ----
($) ($) (%) ($) (%) ($) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bayonne Bancshares NJ 08/22/97 FSNJ $10.00 $11.75 17.5% $11.94 19.4% $11.94 19.4%
Montgomery Fin. Corp. IN 07/01/97 MONT 10.00 11.13 11.3% 11.25 12.5% 12.13 21.3%
Cumberland Mtn. Bncshrs. KY * 04/01/97 P./Sheet 10.00 11.88 18.8% 12.25 22.5% 12.63 26.3%
Kenwood Bancorp OH * 07/01/96 P./Sheet 10.00 NT NA NT NA NT NA
Commonwealth Bancorp PA * 06/17/96 CMSB 10.00 10.50 5.0% 10.75 7.5% 10.00 0.0%
Westwood Financial Corp. NJ 06/07/96 WWFC 10.00 10.75 7.5% 10.38 3.8% 10.62 6.2%
Jacksonville Bancorp TX 04/01/96 JXVL 10.00 9.75 -2.5% 9.63 -3.8% 9.88 -1.2%
North Central Bancshares IA 03/21/96 FFFD 10.00 10.88 8.8% 10.69 6.9% 10.44 4.4%
Fidelity Financial of Ohio OH * 03/04/96 FFOH 10.00 10.50 5.0% 10.00 0.0% 10.13 1.3%
First Colorado Bancorp CO * 01/02/96 FFBA 10.00 11.44 14.4% 11.63 16.3% 12.00 20.0%
Charter Financial IL * 12/29/95 CBSB 10.00 10.81 8.1% 10.88 8.8% 11.38 13.8%
American Nat'l Bancorp MD * 11/03/95 ANBK 10.00 9.38 -6.3% 9.75 -2.5% 9.88 -1.3%
First Defiance Fin. Corp. OH * 10/02/95 FDEF 10.00 10.38 3.8% 10.31 3.1% 10.13 1.3%
Community Bank Shares IN * 04/10/95 CBIN 10.00 12.00 20.0% 12.75 27.5% 12.25 22.5%
Fed One Bancorp WV * 01/19/95 FOBC 10.00 11.00 10.0% 11.00 10.0% 11.62 16.2%
Home Financial Corp. FL * 10/25/94 HOFL 10.00 9.59 -4.1% 10.00 0.0% 10.31 3.1%
Jefferson Bancorp LA * 08/18/94 JEBC 10.00 13.00 30.0% 14.25 42.5% 14.25 42.5%
Averages: $ 9.44 10.28 7.3% 10.43 8.9% $10.48 11.0%
Medians: $10.00 $10.84 7.8% $10.81 7.2% $10.62 6.2%
</TABLE>
Note: "NT" - Not Traded; "NA" - Not Applicable, Not Available.
(1) Non-OTS regulated thrifts.
(2) As reported in summary pages of prospectus.
(3) As reported in prospectus.
(4) Does not take into account the adoption of SOP 93-6.
(5) Latest price if offering less than one week old.
(6) Latest price if offering more than one week but less than one month old.
(7) Price to core earnings if converted after 9/30/96 due to impact of SAIF
assessment.
<PAGE>
RP Financial, LC.
Page 4.16
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 4.5
MHC INSTITUTIONS--IMPLIED PRICING RATIOS FULL CONVERSION BASIS
Comparable Institution Analysis
As of September 19, 1997
<TABLE>
<CAPTION>
Fully Converted
Implied Value Per Share (8)
---------------- -------------- Dividends(4)
Implied Core Book Pricing Ratios(3) ------------------------
Price/ Market 12-Mth Value/ ------------------------------------ Amount/ Payout
Financial Institution Share(1) Val(8) EPS(2) Share P/E P/B P/A P/TB P/CORE Share Yield Ratio(5)
- --------------------- -------- ------ ------ ------ ----- ------ ----- ------ ------ ------- ----- --------
($) ($Mil) ($) ($) (x) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts(7)
- -----------------------
Averages 23.28 163.06 1.15 15.72 21.97 147.62 18.04 151.49 19.21 0.38 1.67 30.30
Medians -- -- -- -- 22.05 140.90 16.54 143.95 18.88 -- -- --
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
Averages 26.10 248.32 1.16 25.27 26.45 102.39 21.97 103.22 22.95 0.55 2.12 40.39
Medians -- -- -- -- 28.27 103.33 21.22 102.96 21.85 -- -- --
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
CMSV Commty. Svgs, MHC of FL (48.5) 32.12 163.49 1.47 29.35 28.94 109.44 21.22 109.44 21.85 0.90 2.80 61.22
FFFL Fidelity FSB, MHC of FL (47.7) 27.25 184.51 1.11 24.35 NM 111.91 17.08 112.32 24.55 0.90 3.30 NM
SKBO First Carnegie,MHC of PA (45.0) 16.25 37.38 0.55 17.72 NM 91.70 22.34 91.70 29.55 0.30 1.85 54.55
FFSX First FS&LA, MHC of IA (46.1) 30.00 84.84 1.56 27.33 28.30 109.77 16.73 110.21 19.23 0.48 1.60 30.77
FSLA First SB SLA MHC of NJ (47.5) 34.75 252.42 1.67 28.90 28.48 120.24 22.04 126.59 20.81 0.48 1.38 28.74
GDVS Greater DV SB, MHC of PA (19.9) 24.00 78.53 0.86 24.80 NM 96.77 26.42 96.77 27.91 0.36 1.50 41.86
HARS Harris SB, MHC of PA (24.3) 44.00 493.81 1.75 42.58 28.39 103.33 20.94 107.98 25.14 0.58 1.32 33.14
JXSB Jcksnville SB, MHC of IL (45.6) 22.25 28.30 1.06 23.60 NM 94.28 16.11 94.28 20.99 0.40 1.80 37.74
LFED Leeds FSB, MHC of MD (36.3) 30.25 104.51 1.34 29.38 28.27 102.96 30.94 102.96 22.57 0.76 2.51 56.72
NWSB Northwest SB, MHC of PA (30.7) 25.37 593.05 1.22 23.26 25.89 109.07 24.34 111.42 20.80 0.32 1.26 26.23
PBCT Peoples Bank, MHC of CT (40.1) 31.62 1930.50 1.46 26.85 17.37 117.77 21.83 117.81 21.66 0.68 2.15 46.58
PHSB Ppls Home SB, MHC of PA (45.0) 16.25 44.85 0.87 21.87 NM 74.30 17.96 74.30 18.68 0.00 0.00 0.00
PULB Pulaski SB, MHC of MO (29.8) 27.25 57.06 1.25 27.11 26.72 100.52 26.98 100.52 21.80 1.10 4.04 NM
PLSK Pulaski SB, MHC of NJ (46.0) 16.75 34.67 0.72 17.80 NM 94.10 17.96 94.10 23.26 0.30 1.79 41.67
SBFL SB Fngr Lakes MHC of NY (33.1) 24.25 43.29 0.88 25.27 NM 95.96 17.96 95.96 27.56 0.40 1.65 45.45
WAYN Wayne S&L Co. MHC of OH (47.8) 23.31 52.40 1.02 20.68 NM 112.72 18.90 112.72 22.85 0.62 2.66 60.78
WCFB Wbstr City FSB MHC of IA (45.2) 18.00 37.80 0.86 18.81 25.71 95.69 33.73 95.69 20.93 0.80 4.44 NM
</TABLE>
<PAGE>
RP Financial, LC.
Page 4.16 (continued)
Table 4.5 (Continued)
<TABLE>
<CAPTION>
Financial Characteristics(6)
----------------------------------------------
Reported Core
Total Equity/ NPAs/ ---------- ----------
Financial Institution Assets Assets Assets ROA ROE ROA ROE
- --------------------- ------ ------- ------ ---- ---- ---- ----
($Mil) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts(7)
- -----------------------
Averages 1,158 12.89 0.79 0.63 5.44 0.85 7.49
Medians -- -- -- -- -- -- --
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
Averages 1,141 21.70 0.70 0.77 3.53 1.00 4.64
Medians -- -- -- -- -- -- --
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
CMSV Commty. Svgs, MHC of FL (48.5) 770 19.39 0.55 0.77 3.84 1.02 5.09
FFFL Fidelity FSB, MHC of FL (47.7) 1,080 15.26 0.34 0.57 3.41 0.77 4.62
SKBO First Carnegie,MHC of PA (45.0) 167 24.36 NA 0.60 2.48 0.76 3.10
FFSX First FS&LA, MHC of IA (46.1) 507 15.24 0.11 0.60 3.95 0.89 5.81
FSLA First SB SLA MHC of NJ (47.5) 1,145 18.33 0.68 0.80 4.30 1.09 5.89
GDVS Greater DV SB, MHC of PA (19.9) 297 27.30 2.79 0.76 2.72 0.97 3.49
HARS Harris SB, MHC of PA (24.3) 2,358 20.26 0.65 0.82 3.72 0.93 4.20
JXSB Jcksnville SB, MHC of IL (45.6) 176 17.09 0.66 0.49 2.69 0.82 4.53
LFED Leeds FSB, MHC of MD (36.3) 338 30.05 0.02 1.12 3.68 1.40 4.61
NWSB Northwest SB, MHC of PA (30.7) 2,437 22.31 0.72 1.00 4.26 1.24 5.30
PBCT Peoples Bank, MHC of CT (40.1) 8,842 18.54 0.90 1.30 6.99 1.05 5.60
PHSB Ppls Home SB, MHC of PA (45.0) 250 24.17 NA 0.57 2.38 0.96 3.98
PULB Pulaski SB, MHC of MO (29.8) 211 26.84 NA 1.01 3.78 1.23 4.64
PLSK Pulaski SB, MHC of NJ (46.0) 193 19.08 0.65 0.46 2.86 0.79 4.91
SBFL SB Fngr Lakes MHC of NY (33.1) 241 18.71 0.69 0.40 2.08 0.68 3.52
WAYN Wayne S&L Co. MHC of OH (47.8) 277 16.77 0.73 0.52 3.08 0.84 4.99
WCFB Wbstr City FSB MHC of IA (45.2) 112 35.24 0.26 1.31 3.75 1.61 4.60
</TABLE>
(1) Current stock price of minority stock. Average of High/Low or Bid/Ask price
per share.
(2) EPS (estimated core earnings) is based on reported trailing twelve month
data, adjusted to omit non-operating gains and losses (including the SAIF
assessment) on a tax effected basis. Public MHC data reflects additional
earnings from reinvestment of proceeds of second step conversion.
(3) P/E = Price to Earnings; P/B = Price to Book; P/A = Price to Assets; P/TB =
Price to Tangible Book; and P/CORE = Price to Core Earnings. Ratios are pro
forma assuming a second step conversion to full stock form.
(4) Indicated twelve month dividend, based on last quarterly dividend declared.
(5) Indicated twelve month dividend as a percent of trailing twelve month
estimated core earnings (earnings adjusted to reflect second step
conversion).
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing twelve month earnings and average equity and assets
balances.
(7) Excludes from averages and medians those companies the subject of actual or
rumored acquisition activities or unusual operating characteristics.
(8) Figures estimated by RP Financial to reflect a second step conversion of
the MHC to full stock form.
Source: Corporate reports, offering circulars, and RP Financial, LC.
calculations. The information provided in this report has been obtained
from sources we believe are reliable, but we cannot guarantee the
accuracy or completeness of such information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP Financial, LC.
Page 4.17
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Calculation of Implied Per Share Data -- Incorporating MC Second Step Conversion
Comparable Institution Analysis
For the Twelve Months Ended June 30, 1997
<TABLE>
<CAPTION>
Current Ownership Current Per Share Data (MHC Ratios) Impact of Second Step Conversion
--------------------- --------------------------------- -------------------------------------
Total Public MHC Core Book Tangible Share Gross Net Incr. Net Incr.
Shares Shares Shares EPS EPS Value Book Assets Price Procds(1) Capital(2) Income(3)
------ ------ ------ --- ---- ----- -------- ------ ------ --------- ---------- ---------
(000) (000) (000) ($) ($) ($) ($) ($) ($000) ($000) ($000) ($000)
Publicly-Traded MHC Institutions
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CMSV Commty. Svgs, MHC of FL (48.5) 5,090 2,470 2,620 0.73 1.09 15.46 15.46 137.48 32.12 84,154 70,690 1,911
FFFL Fidelity FSB, MHC of FL (47.7) 6,771 3,224 3,547 0.50 0.79 12.36 12.27 147.58 27.25 96,656 81,191 2,194
FFSX First FS&LA, MHC of IA (46.1) 2,828 1,303 1,525 0.69 1.19 13.74 13.63 165.69 30.00 45,750 38,430 1,039
FSLA First SB SLA MHC of NJ (47.5) 7,264 3,404 3,860 0.80 1.25 13.39 11.94 142.18 34.75 134,135 112,673 3,045
GDVS Greater DV SB, MHC of PA (19.9) 3,272 650 2,622 0.23 0.42 8.64 8.64 74.69 24.00 62,928 52,860 1,429
HARS Harris SB, MHC of PA (24.3) 11,223 2,723 8,500 0.79 0.99 14.59 12.76 182.15 44.00 374,000 314,160 8,491
JXSB Jcksnville SB, MHC of IL (45.6) 1,272 580 692 0.36 0.79 13.43 13.43 127.94 22.25 15,397 12,933 350
LFED Leeds FSB, MHC of MD (36.3) 3,455 1,255 2,200 0.63 0.90 13.20 13.20 81.59 30.25 66,550 55,902 1,511
NWSB Northwest SB, MHC of PA (30.7) 23,376 7,176 16,200 0.58 0.82 8.49 8.00 89.47 25.37 410,994 345,235 9,331
PBCT Peoples Bank, MHC of CT (40.1) 61,053 24,453 36,600 1.39 1.03 10.93 10.92 128.90 31.62 1,157,292 972,125 26,275
PHSB Ppls Home SB, MHC of PA (45.0) 2,760 1,242 1,518 0.32 0.67 14.36 14.36 82.97 16.25 24,668 20,721 560
PLSK Pulaski SB, MHC of NJ (46.0) 2,070 952 1,118 0.21 0.51 10.20 10.20 85.68 16.75 18,727 15,730 425
PULB Pulaski SB, MHC of MO (29.8) 2,094 624 1,470 0.59 0.82 11.04 11.04 84.92 27.25 40,058 33,648 909
SBFL SB Fngr Lakes MHC of NY (33.1) 1,785 590 1,195 0.15 0.51 11.63 11.63 121.40 24.25 28,979 24,342 658
SKBO First Carnegie,MHC of PA (45.0) 2,300 1,035 1,265 0.24 0.35 10.21 10.21 65.23 16.25 20,556 17,267 467
WAYN Wayne S&L Co. MHC of OH (47.8) 2,248 1,075 1,173 0.35 0.74 10.46 10.46 113.09 23.31 27,343 22,968 621
WCFB Wbstr City FSB MHC of IA (45.2) 2,100 950 1,150 0.48 0.64 10.53 10.53 45.09 18.00 20,700 17,388 470
</TABLE>
<PAGE>
RP Financial, LC.
Page 4.17 (continued)
Calculation of Implied Per Share Data (Continued)
<TABLE>
<CAPTION>
Pro Forma Per Share Data (Fully Converted)
------------------------------------------
Core Book Tangible
EPS EPS Value Book Assets
--- ---- ----- -------- ------
($) ($) ($) ($) ($)
Publicly-Traded MHC Institutions
- --------------------------------
<S> <C> <C> <C> <C> <C>
CMSV Commty. Svgs, MHC of FL (48.5) 1.11 1.47 29.35 29.35 151.37
FFFL Fidelity FSB, MHC of FL (47.7) 0.82 1.11 24.35 24.26 159.57
FFSX First FS&LA, MHC of IA (46.1) 1.06 1.56 27.33 27.22 179.28
FSLA First SB SLA MHC of NJ (47.5) 1.22 1.67 28.90 27.45 157.69
GDVS Greater DV SB, MHC of PA (19.9) 0.67 0.86 24.80 24.80 90.85
HARS Harris SB, MHC of PA (24.3) 1.55 1.75 42.58 40.75 210.14
JXSB Jcksnville SB, MHC of IL (45.6) 0.63 1.06 23.60 23.60 138.11
LFED Leeds FSB, MHC of MD (36.3) 1.07 1.34 29.38 29.38 97.77
NWSB Northwest SB, MHC of PA (30.7) 0.98 1.22 23.26 22.77 104.24
PBCT Peoples Bank, MHC of CT (40.1) 1.82 1.46 26.85 26.84 144.82
PHSB Ppls Home SB, MHC of PA (45.0) 0.52 0.87 21.87 21.87 90.48
PLSK Pulaski SB, MHC of NJ (46.0) 0.42 0.72 17.80 17.80 93.28
PULB Pulaski SB, MHC of MO (29.8) 1.02 1.25 27.11 27.11 100.99
SBFL SB Fngr Lakes MHC of NY (33.1) 0.52 0.88 25.27 25.27 135.O4
SKBO First Carnegie,MHC of PA (45.0) 0.44 0.55 17.72 17.72 72.74
WAYN Wayne S&L Co. MHC of OH (47.8) 0.63 1.02 20.68 20.68 123.31
WCFB Wbstr City FSB MHC of IA (45.2) 0.70 0.86 18.81 18.81 53.37
</TABLE>
(1) Gross proceeds calculated as stock price multiplied by the number of shares
owned by the mutual holding company (i.e., non-public shares).
(2) Net increase in capital reflects gross proceeds less offering expenses,
contra-equity account for leveraged ESOP and deferred compensation account
for restricted stock plan:
Offering expense percent 4.00
ESOP percent purchase 8.00
Recognition plan percent 4.00
(3) Net Increase in earnings reflects after-tax reinvestment income (assumes
ESOP and recognition plan do not generate reinvestment income), less
after-tax ESOP amortization and recognition plan vesting:
After-tax reinvestment 3.96
ESOP loan term (years 10
Recog. plan vesting (yrs) 5
Effective tax rate 34.00
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, PC. calculations. The
information provided in this table has been obtained from sources we
believe are reliable, but we cannot guarantee the accuracy or
completeness of such information.
Copyright (c) 1997 by RP Financial, PC.
<PAGE>
RP Financial, LC.
Page 4.18
appropriate to discount the current trading level. As the pro forma impact is
made known publicly, the trading level will become more informative.
Taking these factors and trends into account, RP Financial concluded that
no adjustment was appropriate in the valuation analysis for purposes of
marketing of the issue.
8. Management
----------
Harbor Federal's management team has experience and expertise in all of the
key areas of the Bank's operations. Exhibit IV-5 lists Harbor Federal's Board of
Directors and executive management with summary resumes. The Bank's operations
to date indicates that Harbor Federal's management team, in conjunction with the
Board, has developed and implemented an effective operating philosophy. Harbor
Federal has no apparent senior management or Board vacancies and there appears
to be a well-defined organizational structure.
Similarly, the financial results of the Peer Group companies indicate that
they have been effectively managed, as all of the Peer Group companies
maintained capital positions in compliance with regulatory requirements, solid
core earnings and favorable credit quality measures. We have therefore concluded
that, in general, Harbor Federal is currently being operated at least as
effectively as the Peer Group companies and no adjustment for this factor was
necessary.
9. Effect of Government Regulation and Regulatory Reform
-----------------------------------------------------
The Bank and the Peer Group members were similarly impacted by the 1996
recapitalization of the SAIF insurance fund, and their deposits will be assessed
at the same rate going forward. As a fully-converted SAIF-insured institution,
Harbor Federal will operate in substantially the same regulatory environment as
the Peer Group members -- all of whom are adequately capitalized institutions
and are operating with no apparent restrictions. Exhibit IV-6 reflects the
Bank's pro forma regulatory capital ratios. On balance, RP Financial concluded
that no adjustment to the Bank's value was warranted for this factor.
Summary of Adjustments
- ----------------------
Overall, we believe the Bank's pro forma market value should take into
account the valuation adjustments relative to the Peer Group:
<PAGE>
RP Financial, LC.
Page 4.19
Key Valuation Parameters: Valuation Adjustment
------------------------- --------------------
Financial Condition No Adjustment
Profitability, Growth and Viability of Earnings Slight Downward
Asset Growth No Adjustment
Primary Market Area Slight Upward
Dividends No Adjustment
Liquidity of the Shares No Adjustment
Marketing of the Issue No Adjustment
Management No Adjustment
Effect of Government Regulations and Regulatory Reform No Adjustment
Valuation Approaches
- --------------------
In applying the accepted valuation methodology promulgated by the OTS and
adopted by the FDIC, i.e., the pro forma market value approach, we considered
the three key pricing ratios in valuing Harbor Federal's to-be-issued stock --
the price/earnings ("P/E"), price/book ("P/B"), and price/assets ("P/A")
approaches -- all performed on a pro forma basis including the effects of the
conversion proceeds from selling the MHCs interest to the public. In computing
the pro forma impact of the conversion and the related pricing ratios, we have
incorporated the valuation parameters disclosed in Harbor Federal's prospectus
for offering expenses, and the effective tax rate and stock benefit plan
assumptions (summarized in Exhibits IV-7 and IV-8). We have utilized the
reinvestment rate set forth in the prospectus, the arithmetic average of the
Bank's yield on interest earning assets and cost of deposits for the twelve
months ended June 30, 1997. With regard to the employee stock ownership plan and
stock reward plans, we have performed the valuation assuming the ESOP purchases
an amount equal to 8.0 percent of the offering (15 year amortization) and the
MRP acquires 4.0 percent of the offering. In our estimate of value, we assessed
the relationship of the pro forma pricing ratios relative to the Peer Group and
the recent conversions. In addition to the three valuation methodologies
specified by the OTS, RP Financial also considered the recent prices for trades
of the Bank's stock.
RP Financial's valuation placed emphasis on the following:
o P/E Approach. The P/E approach is generally the best indicator of
long-term value for a stock. Since the Bank and the Peer Group
reported pro forma core profitability, the P/E approach was heavily
considered in this valuation. In applying this approach, we took into
account primarily estimated core earnings.
o P/B Approach. P/B ratios have generally served as a useful benchmark
in the valuation of savings institution stocks, with the greater
determinant of long term value being earnings. We have also modified
the P/B approach to exclude the impact of intangible assets (i.e.,
price/tangible book value or "P/TB"). RP Financial considered the P/TB
approach to be a reliable indicator of value given current market
conditions, particularly the market for new conversions, which often
exhibit a willingness to pay premium P/E multiples in the expectation
that such institutions will implement leveraging strategies to promote
earnings growth. At the
<PAGE>
RP Financial, LC.
Page 4.20
same time, with lower ROE ratios, new conversions are typically
discounted on a book value basis relative to the market at least until
there is partial realization of leveraging strategies.
o P/A Approach. P/A ratios are generally a less reliable indicator of
market value, as investors do not place exclusive weight simply on the
size of total assets as a determinant of market value. Furthermore,
this approach does not take into account the amount of stock purchases
funded by deposit withdrawals, thus understating the pro forma P/A
ratio. Investors place significantly greater weight on book value and
earnings -- which have received greater weight in our valuation
analysis. At the same time, the P/A ratio is an indicator of franchise
value and, in the case of a highly capitalized institution, a high P/A
ratio limits the investment community's willingness to pay average
market multiples for earnings and book value when ROE is low.
o Trading of HARB Stock. Converting institutions generally do not have
stock outstanding. Harbor Federal, however, has public shares
outstanding due to the mutual holding company form of ownership.
Because HARB stock is currently traded in the markets, it is an
indicator of investor interest in the Bank's conversion stock and
therefore received some weight in our valuation. Based on the
September 19, 1997 stock price of $57.50 per share and the 4,970,240
shares of Bank stock issued and outstanding, the implied value of
$285.79 million was considered in the valuation process. However,
since the conversion stock will have different characteristics than
the minority shares and since pro forma information has not been
publicly disseminated to date, the current trading price of HARB stock
was somewhat discounted herein but will become more important towards
the closing of the offering.
The current minority ownership percentage is 46.59 percent. Pursuant to
federal policy as established subsequent to February 1, 1995, the minority
ownership interest is required to be adjusted pursuant to a two-step process to
reflect both waived dividends and assets held by the MHC. However, the MHC was
formed prior to this date, and thus dividends waived by the MHC are exempt from
this minority ownership interest adjustment. In addition, assets held at the MHC
consist of a de minimus amount of assets. Thus, there has been no adjustment to
the minority ownership interest percentage. Our calculations for the exchange
ratio and the size of the offering were based upon the existing ownership
percentage of approximately 46.59 percent.
The Bank intends to adopt Statement of Position ("SOP" 93-6), which will
cause earnings per share computations to be based on shares issued and
outstanding excluding shares owned by an ESOP where there is not a commitment to
release such shares. For the purpose of preparing the pro forma pricing tables
and exhibits, we have reflected all shares issued in the offering including
shares purchased by the ESOP as outstanding to capture the full dilutive impact
of such stock to the Bank's shareholders. However, we have considered the impact
of adoption of SOP 93-6 on the Bank in the determination of the Bank's pro forma
value.
<PAGE>
RP Financial, LC.
Page 4.21
Based on the application of the three valuation approaches, taking into
consideration the valuation adjustments discussed above, and placing the
greatest weight on the P/TB and P/E approaches, followed by the P/A approach, RP
Financial concluded that the pro forma market value of the Bank's conversion
stock is $215,334,643 at the midpoint at this time.
1. Price-to-Tangible Book ("P/TB"). The application of the P/TB valuation
method requires calculating the Bank's pro forma market value by applying a
valuation P/TB ratio to Harbor Federal's pro forma tangible book value. The
pre-conversion book value for Harbor Federal of $93,978,932 was equal to the
Bank's reported capital as of June 30, 1997, plus the mutual holding company
assets which will be consolidated with the Holding Company as a result of the
conversion. Based on the $215,334,643 midpoint valuation, Harbor Federal's pro
forma P/TB ratio was 113.02 percent. In comparison to the median P/TB ratio for
the Peer Group of 144.37 percent, Harbor Federal's valuation reflected a
discount of 21.72 percent. RP Financial considered a discount under the P/TB
approach to be reasonable in light of the historically high P/TB pricing for
thrifts in today's market, as a valuation discount under the P/TB approach could
only be expected and is consistent with the aftermarket trading of new
conversion issues.
Given the emphasis on limiting near term aftermarket trading in the revised
appraisal guidelines, RP Financial also considered the pro forma P/TB ratios of
recent conversions in its valuation analysis. It is these companies that provide
a proxy for aftermarket trading for new thrift issues. At the midpoint value of
$215,334,643, Harbor Federal's pro forma P/TB ratio of 113.02 percent
represented a discount of 5.7 percent from the 119.82 percent average P/TB ratio
of the recently converted thrifts (see Table 4.3). At the super maximum of the
valuation range, Harbor Federal's pro forma P/B ratio of 127.75 percent is at a
premium of 6.6 percent to the new conversions.
2. Price-to-Earnings ("P/E"). The application of the P/E valuation method
requires calculating the Bank's pro forma market value by applying a valuation
P/E multiple times the pro forma earnings base. Ideally, the pro forma earnings
base is composed principally of the Bank's recurring earnings base, that is,
earnings adjusted to exclude any one-time non-operating items, plus the
estimated after-tax earnings benefit of the reinvestment of net conversion
proceeds. Harbor Federal reported net income of $10,207,000 for the twelve
months ended June 30, 1997, which included net non-operating items such as the
SAIF assessment fee, and other various gains on the sale of interest earning
assets. As shown below, the Bank's core earnings were calculated to equal the
following (Note: the adjustments applied to the Peer Group's earnings in the
calculation of core earnings are shown in Exhibit IV-9, including the SAIF
assessment):
<PAGE>
RP Financial, LC.
Page 4.22
Amount
------
($000)
Pre-Tax Net Operating Income $16,771
Plus: Non-Operating Expense 4,487
Less: Tax Adjustment(1) (8,354)
-------
Adjusted (Core) Income After Tax $12,904
(1) Tax rate equal to 39.3%.
Based on Harbor Federal's trailing twelve month core earnings, and
incorporating the impact of the pro forma assumptions previously discussed, the
Bank's pro forma core P/E multiple at the $215,334,643 midpoint value equaled
13.68 times. Comparatively, the Peer Group posted a median core P/E multiple of
23.23 times, which indicates a discount of 41.1 percent in the Bank's pro forma
earnings multiple. In reaching the valuation conclusion, we also evaluated the
Bank's price/earnings multiple on the basis of projected earnings as reflected
in the business plan.
3. Price-to-Assets ("P/A"). The P/A valuation methodology determines market
value by applying a valuation P/A ratio to the Bank's pro forma asset base,
conservatively assuming no deposit withdrawals are made to fund stock purchases.
In all likelihood there will be deposit withdrawals, which results in
understating the pro forma P/A ratio which is computed herein. At the midpoint
of the valuation range, Harbor Federal's value equaled 17.71 percent of pro
forma assets. Comparatively, the Peer Group companies exhibited a median P/A
ratio of 20.56 percent, which implies a discount of 13.9 percent being applied
to the Bank's pro forma P/A ratio.
Valuation Conclusion
- --------------------
Based on the foregoing, it is our opinion that, as of September 19, 1997,
the aggregate pro forma market value of the Bank, inclusive of the sale of the
MHCs ownership interest in the Subscription and Community Offerings was
$215,334,643 at the midpoint. Based on this valuation and the approximate 53.41
percent ownership interest being sold in the Subscription and Community
Offerings, the midpoint value of the Holding Company's stock offering was
$115,000,000 (i.e. 0.5341 x $215,334,643), equal to 11,500,000 shares offered at
$10.00 per share. Pursuant to the conversion guidelines, the 15 percent offering
range includes a minimum of $97,750,000 and a maximum of $132,250,000. Based on
the $10.00 per share offering price, this valuation range equates to an offering
of 9,775,000 shares at the minimum to 13,225,000 shares at the maximum. The
Holding Company's offering also includes a provision for a super maximum, which
would result in an offering size of $152,087,500, equal to 15,208,750 shares at
the $10.00 per share offering price. The comparative
<PAGE>
RP Financial, LC.
Page 4.23
pro forma valuation ratios relative to the Peer Group are shown in Table 4.7,
and the key valuation assumptions are detailed in ExhibityIV-7. The pro forma
calculations for the range are detailed in ExhibityIV-8.
Establishment of Exchange Ratio
- -------------------------------
OTS regulations provide that in a conversion of a mutual holding company,
the minority stockholders are entitled to exchange their shares of the Bank's
common stock for common stock of the Company. The Board of Directors of the
Mutual Holding Company has independently established a formula to determine the
exchange ratio. The formula has been designed to preserve the current aggregate
percentage ownership in the Bank represented by the Public Shares, which is an
approximate 46.59 percent ownership interest. Pursuant to the formula, the
Exchange Ratio will be determined at the end of the Holding Company's stock
offering based on the total number of shares sold in the Subscription and
Community offerings. Based upon this formula, and the valuation conclusion and
offering range concluded above, the Exchange Ratio would be 3.6826 shares,
4.3325 shares, 4.9824 shares and 5.7297 shares of Holding Company stock issued
for each Public Share, at the minimum, midpoint, maximum and supermaximum of the
offering, respectively.
The Exchange Ratio formula and share exchange procedures were determined
independently by the Board of Directors. RP Financial expresses no opinion on
the proposed exchange of the Holding Company shares for the Public Shares or on
the proposed Exchange Ratio.
Table 4.6
Harbor Federal Savings Bank
Calculation of Exchange Ratios
Shares Price/ Exchange Implied
Offered Share Shares(1) Exch. Ratio(2)
------- ------ --------- --------------
($000)
Minimum 9,775,000 $10.00 8,528,444 3.6826
Midpoint 11,500,000 10.00 10,033,464 4.3325
Maximum 13,225,000 10.00 11,538,483 4.9824
Super Maximum 15,208,750 10.00 13,269,256 5.7297
(1) Calculated to preserve the Public Shares percentage ownership in the
Holding Company at approximately 46.59 percent.
(2) Calculated as pro forma exchange shares divided by 2,315,871 existing
Public Shares outstanding.
<PAGE>
RP Financial, LC.
Page 4.24
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 4.7
Public Market Pricing
Harbor Florida Bancorp of FL and the Comparables
As of September 19, 1997
<TABLE>
<CAPTION>
Market Per Share Data
Capitalization -------------- Dividends(4)
---------------- Core Book Pricing Ratios(3) ------------------------
Price/ Market 12-Mth Value/ ------------------------------------ Amount/ Payout
Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE Share Yield Ratio(5)
-------- ------ ------ ------ ----- ------ ----- ------ ------ ------- ----- --------
($) ($Mil) ($) ($) (x) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Harbor Florida Bancorp of FL
- ----------------------------
Superrange 10.00 284.78 0.49 7.94 20.46 126.00 22.81 127.75 17.10 0.24 2.44 49.98
Range Maximum 10.00 247.63 0.54 8.43 18.43 118.66 20.11 120.45 15.32 0.28 2.81 51.80
Range Midpoint 10.00 215.33 0.60 8.99 16.55 111.21 17.71 113.02 13.68 0.32 3.23 53.49
Range Minimum 10.00 183.03 0.69 9.76 14.54 102.50 15.24 104.31 11.95 0.38 3.80 55.29
SAIF-Insured Thrifts(7)
- -----------------------
Averages 23.28 163.06 1.15 15.72 21.97 147.62 18.04 151.49 19.21 0.38 1.67 30.30
Medians -- -- -- -- 22.05 140.90 16.54 143.95 18.88 -- -- --
All Non-MHC State of FL(7)
- --------------------------
Averages 27.06 361.89 0.88 13.56 19.87 166.71 17.57 188.38 23.27 0.24 0.84 12.42
Medians -- -- -- -- 16.11 169.57 11.11 209.27 23.63 -- -- --
Comparable Group Averages
- -------------------------
Averages 25.43 240.92 1.16 17.91 23.69 145.70 23.11 151.90 22.87 0.48 1.75 39.52
Medians -- -- -- -- 23.75 139.94 20.56 144.37 23.23 -- -- --
State of FL
- -----------
BANC BankAtlantic Bancorp of FL 13.50 303.39 0.71 6.83 13.78 197.66 11.11 240.64 19.01 0.13 0.96 18.31
BKUNA BankUnited SA of FL 12.87 114.14 0.48 7.59 NM 169.57 6.32 209.27 26.81 0.00 0.00 0.00
FFFG F.F.O. Financial Group of FL(7) 6.75 57.01 0.36 2.46 27.00 274.39 17.81 274.39 18.75 0.00 0.00 0.00
FFLC FFLC Bancorp of Leesburg FL 31.50 73.02 1.53 22.51 29.72 139.94 18.86 139.94 20.59 0.48 1.52 31.37
FFPB First Palm Beach Bancorp of FL 34.75 174.83 0.08 21.76 NM 159.70 10.49 163.68 NM 0.60 1.73 NM
OCN Ocwen Financial Corp. of FL 42.69 1144.09 1.60 9.10 16.11 NM 41.05 NM 26.68 0.00 0.00 0.00
Comparable Group
- ----------------
DIME Dime Community Bancorp of NY 20.00 261.86 1.01 14.58 21.28 137.17 19.91 159.24 19.80 0.00 0.00 0.00
FFLC FFLC Bancorp of Leesburg FL 31.50 73.02 1.53 22.51 29.72 139.94 18.86 139.94 20.59 0.48 1.52 31.37
FFBA First Colorado Bancorp of Co 18.75 310.52 0.80 11.79 23.15 159.03 20.56 161.22 23.44 0.48 2.56 60.00
FWWB First Savings Bancorp of WA 24.12 253.72 0.84 14.13 27.10 170.70 25.18 185.54 28.71 0.28 1.16 33.33
FFIC Flushing Fin. Corp. of NY 22.12 176.50 0.97 16.68 23.78 132.61 20.52 132.61 22.80 0.24 1.08 24.74
GAF GA Financial Corp. of PA 19.00 151.72 1.02 14.25 23.75 133.33 20.24 134.75 18.63 0.48 2.53 47.06
HFNC HFNC Financial Corp. of NC 16.00 275.07 0.59 9.37 NM 170.76 30.72 170.76 27.12 0.28 1.75 47.46
ISBF ISB Financial Corp. of LA 25.62 176.80 1.04 16.58 NM 154.52 18.83 182.22 24.63 0.50 1.95 48.08
JSB JSB Financial, Inc. of NY 47.50 467.64 2.65 35.54 17.09 133.65 30.54 133.65 17.92 1.40 2.95 52.83
KFBI Klamath First Bancorp of OR 20.50 205.39 0.83 14.20 NM 144.37 28.22 144.37 24.70 0.30 1.46 36.14
OCFC Ocean Fin. Corp. of NJ 34.62 297.94 1.49 27.35 NM 126.58 20.57 126.58 23.23 0.80 2.31 53.69
</TABLE>
<PAGE>
RP Financial, LC.
Page 4.24 (continued)
Table 4.7 (Continued)
<TABLE>
<CAPTION>
Financial Characteristics(6)
----------------------------------------------
Reported Core MEMO: MEMO:
Total Equity/ NPAs/ ---------- ---------- Exchange Conversion
Assets Assets Assets ROA ROE ROA ROE Ratio Proceeds
------ ------- ------ ---- ---- ---- ---- -------- ----------
($Mil) (%) (%) (%) (%) (%) (%) ($000)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Harbor Florida Bancorp of FL
- ----------------------------
Superrange 1,249 18.10 0.41 1.11 6.16 1.33 7.37 5.7297 $152.09
Range Maximum 1,231 16.95 0.42 1.09 6.44 1.31 7.75 4.9824 132.25
Range Midpoint 1,216 15.92 0.42 1.07 6.72 1.29 8.13 4.3325 115.00
Range Minimum 1,201 14.87 0.43 1.05 7.05 1.28 8.58 3.6826 97.75
SAIF-Insured Thrifts(7)
- -----------------------
Averages 1,158 12.89 0.79 0.63 5.44 0.85 7.49
Medians -- -- -- -- -- -- --
All Non-MHC State of FL(7)
- --------------------------
Averages 1,876 7.63 1.52 0.92 11.46 0.74 9.13
Medians -- -- -- -- -- -- --
Comparable Group Averages
- -------------------------
Averages 1,034 15.92 0.44 0.88 4.90 1.11 6.16
Medians -- -- -- -- -- -- --
State of FL
- -----------
BANC BankAtlantic Bancorp of FL 2,730 5.62 0.97 0.90 14.98 0.65 10.86
BKUNA BankUnited SA of FL 1,807 3.72 0.60 0.21 4.55 0.34 7.54
FFFG F.F.O. Financial Group of FL(7) 320 6.49 3.28 0.68 10.82 0.97 15.58
FFLC FFLC Bancorp of Leesburg FL 387 13.48 0.19 0.70 4.57 1.01 6.60
FFPB First Palm Beach Bancorp of FL 1,666 6.57 0.73 -0.03 -0.42 0.03 0.37
OCN Ocwen Financial Corp. of FL 2,787 8.75 5.11 2.81 33.59 1.69 20.28
Comparable Group
- ----------------
DIME Dime Community Bancorp of NY 1,315 14.52 0.73 0.96 5.96 1.04 6.41
FFLC FFLC Bancorp of Leesburg FL 387 13.48 0.19 0.70 4.57 1.01 6.60
FFBA First Colorado Bancorp of Co 1,510 12.93 0.23 0.89 6.25 0.88 6.17
FWWB First Savings Bancorp of WA 1,008 14.75 0.30 1.05 6.25 1.00 5.90
FFIC Flushing Fin. Corp. of NY 860 15.47 0.29 0.93 5.55 0.97 5.78
GAF GA Financial Corp. of PA 750 15.18 0.12 1.00 5.26 1.27 6.71
HFNC HFNC Financial Corp. of NC 895 17.99 0.87 0.86 3.47 1.19 4.76
ISBF ISB Financial Corp. of LA 939 12.19 NA 0.69 4.59 0.93 6.20
JSB JSB Financial, Inc. of NY 1,531 22.85 1.08 1.80 8.12 1.71 7.74
KFBI Klamath First Bancorp of OR 728 19.55 0.08 0.81 3.67 1.23 5.54
OCFC Ocean Fin. Corp. of NJ 1,448 16.25 0.55 0.03 0.16 0.98 5.97
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) EPS (core basis) is based on actual trailing twelve month data, adjusted to
omit the impact of non-operating items (including the SAIF assessment) on a
tax effected basis, and is shown on a pro forma basis where appro.
(3) P/E = Price to Earnings; P/B = Price to Book; P/A = Price to Assets; P/TB =
Price to Tangible Book; and P/CORE = Price to Core Earnings.
(4) Indicated twelve month dividend, based on last quarterly dividend declared.
(5) Indicated twelve month dividend as a percent of trailing twelve month
estimated core earnings.
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing twelve month common earnings and average common equity
and total assets balances.
(7) Excludes from averages and medians those companies the subject of actual or
rumored acquisition activities or unusual operating characteristics.
Source: Corporate reports, offering circulars, and RP Financial, Inc.
calculations. The information provided in this report has been obtained
from sources we believe are reliable, but we cannot guarantee the
accuracy or completeness of such information.
Copyright (c) 1997 by RP Financial, LC.
