<PAGE>
As filed with the Securities and Exchange Commission on January 29, 1999
Registration No. 333-68793
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
TO THE
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FIRST BANCORP OF INDIANA, INC.
(exact name of registrant as specified in its articles of incorporation)
<TABLE>
<S> <C> <C>
INDIANA 6035 35-2061832
(state or other jurisdiction of (Primary Standard (IRS Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
2200 West Franklin Street
Evansville, Indiana 47712
(812) 423-3196
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Harold Duncan
President and Chief Executive Officer
First Federal Savings Bank
2200 West Franklin Street, Evansville, Indiana 47712
(812) 423-3196
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Paul M. Aguggia, Esquire
Aaron M. Kaslow, Esquire
Brian K. Lee, Esquire
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
(202) 362-0840
Approximate date of commencement of proposed sale to 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 /
----
<TABLE>
<CAPTION>
===========================================================================================================
Title of each Class of Amount to Purchase Price Aggregate Offering Registration
Securities to be Registered be Registered Per Share Price (1) Fee
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 2,512,750 $10.00 $25,127,500 $6,986 (2)
$.01 par Value Shares
===========================================================================================================
</TABLE>
(1)Estimated solely for the purpose of calculating the registration fee.
(2)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 Section 8(a), may
determine.
================================================================================
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PROSPECTUS
First Bancorp of Indiana, Inc.
(Proposed holding company for First Federal Savings Bank)
2,185,000 Shares of Common Stock
================================================================================
First Federal Savings Bank of Evansville, Indiana is converting from the mutual
form to the stock form of organization. As part of the conversion, First
Federal will become a wholly-owned subsidiary of First Bancorp of Indiana, Inc.
First Bancorp is offering its common stock to the public under the terms of
First Federal's Plan of Conversion which must be approved by a majority of the
votes eligible to be cast by the members of First Federal. The conversion will
not go forward if First Federal does not receive this approval or if First
Bancorp does not sell at least the minimum number of shares.
================================================================================
OFFERING SUMMARY
Price Per Share: $10.00
Proposed trading symbol: Nasdaq - FBEI
<TABLE>
<CAPTION>
Minimum Maximum
----------- -----------
<S> <C> <C>
Number of shares: 1,615,000 2,185,000
Gross offering proceeds: $16,150,000 $21,850,000
Estimated offering expenses: $ 671,000 $ 736,000
Estimated net proceeds: $15,479,000 $21,114,000
Estimated net proceeds per share: $ 9.58 $ 9.66
</TABLE>
With the approval of the Office of Thrift Supervision, First Bancorp may
increase the maximum number of shares by up to 15% to 2,512,750 shares.
Capital Resources, Inc. will use its best efforts to assist First Bancorp
in selling at least the minimum number of shares but does not guarantee
that this number will be sold. Capital Resources is not obligated to
purchase any shares in this offering.
The subscription offering will end at 12:00 Noon, local time, on
______________, 1999. If the conversion is not completed by ___________,
1999 and the Office of Thrift Supervision gives First Federal additional
time to complete the conversion, First Bancorp will give all subscribers
the opportunity to modify or cancel their orders. No single extension of
time may exceed 90 days and extensions may not go beyond ____________,
2001. First Bancorp will hold all funds received from subscribers in an
interest-bearing savings account at First Federal Savings Bank until the
completion or termination of the conversion. Funds will be returned
promptly if the conversion is canceled.
_____________________
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
For a discussion of risks that you should consider, see "RISK FACTORS" beginning
on page __.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
____________________
For additional information about the conversion and the stock offering, please
refer to the more detailed information in this prospectus. For assistance,
please contact First Federal's stock information center at (___)___________.
CAPITAL RESOURCES, INC.
The date of this prospectus is ___________, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
Summary.................................................................
Risk Factors............................................................
Selected Financial Information..........................................
Recent Developments.....................................................
Use of Proceeds.........................................................
Dividend Policy.........................................................
Market for Common Stock.................................................
Capitalization..........................................................
Historical and Pro Forma Regulatory Capital Compliance..................
Pro Forma Data..........................................................
Subscriptions by Executive Officers and Directors.......................
First Federal Savings Bank and Subsidiary Consolidated Statements
of Income..............................................................
Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................
Business of First Bancorp...............................................
Business of First Federal...............................................
Management of First Bancorp.............................................
Management of First Federal.............................................
Regulation..............................................................
Taxation................................................................
The Conversion..........................................................
Restrictions on Acquisition of First Bancorp............................
Description of Capital Stock of First Bancorp...........................
Registration Requirements...............................................
Legal and Tax Opinions..................................................
Experts.................................................................
Where You Can Find More Information.....................................
Index to Consolidated Financial Statements..............................
<PAGE>
SUMMARY
Because this is a summary, it does not contain all the information that may
be important to you. You should read the entire prospectus carefully before you
decide to invest. For assistance, please contact First Federal's stock
information center at (812) ____________.
The Companies
First Bancorp of Indiana, Inc. First Federal formed First Bancorp to be the
2200 West Franklin Street holding company for First Federal. To date,
Evansville, Indiana 47712 First Bancorp has only conducted organizational
(812) 423-3196 activities. After the conversion, First Bancorp
will own all of First Federal's capital stock
and will direct, plan and coordinate First
Federal's business activities. In the future,
First Bancorp might become an operating company
or acquire or organize other operating
subsidiaries, including other financial
institutions, although it currently has no
specific plans or agreements to do so.
First Federal Savings Bank First Federal is a community oriented financial
2200 West Franklin Street institution that operates out of four offices
Evansville, Indiana 47712 in Evansville, Indiana. First Federal's
(812) 423-3196 principal business is attracting deposits from
the general public and using those funds to
originate residential mortgage loans. First
Federal also maintains a significant portfolio
of investment and mortgage-backed securities.
At September 30, 1998, First Federal had assets
of $111.6 million, deposits of $91.0 million
and equity of $15.1 million. For a discussion
of First Federal's business strategy and recent
results of operations, see "Management's
Discussion and Analysis of Financial Condition
and Results of Operations." For a discussion of
First Federal's business activities, see
"Business of First Federal."
The Conversion
What is the Conversion The conversion is a change in First Federal's
(page ___) legal form of organization. As a mutual savings
bank, First Federal currently has no stock or
stockholders. Instead, First Federal operates
for the mutual benefit of its depositors, who
elect the board of directors and vote on other
important matters. Through the conversion,
First Federal will become a stock savings bank
and will be owned and controlled by the holder
of its stock, which will be First Bancorp.
Voting rights in First Bancorp will belong to
its stockholders. First Federal is conducting
the conversion under the terms of its Plan of
Conversion. The Office of Thrift Supervision
has approved the conversion with the condition
that First Federal's members approve the Plan
of Conversion. First Federal has called a
special meeting for _________, 1999 to vote on
the Plan of Conversion.
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Reasons for the Conversion By converting to the stock form of
(page ___) organization, First Federal will be structured
in the form used by commercial banks, most
business entities and a large number of savings
institutions. The conversion will be important
to First Federal's future growth and
performance by:
. providing a larger capital base
from which First Federal can operate;
. enhancing First Federal's ability
to attract and retain qualified
management through stock-based
compensation plans;
. enhancing First Federal's ability
to diversify into other financial
services related activities; and
. expanding First Federal's ability to
provide services to the public.
At this time, First Federal does not have any
specific plans or arrangements for
diversification or expansion.
Benefits of the Conversion to In connection with the conversion, First
Management (page __) Bancorp and First Federal intend to adopt the
following benefit plans and employment
agreements:
. Employee Stock Ownership Plan.
This plan intends to purchase 8% of
the shares issued in the conversion.
The shares will be allocated to
employees over a period of years in
proportion to their compensation.
. Stock Option Plan. Under this
plan, First Bancorp may award stock
options to key employees and
directors. The number of options
available under this plan will be
equal to 10% of the number shares
sold in the conversion. This plan
will require shareholder approval.
. Management Recognition and
Development Plan. Under this plan,
First Bancorp may award shares of
restricted stock to key employees and
directors at no cost to the
recipient. The number of shares
available under this plan will equal
4% of the number of shares sold in
the conversion. This plan will
require shareholder approval.
. Employment Agreements with First
Federal's President and Executive
Vice President. These agreements
will provide for severance benefits
if the executive is terminated
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<PAGE>
following a change in control of
First Bancorp or First Federal.
. Employee Severance Compensation
Plan. This plan will provide
severance benefits to eligible
employees if there is a change in
control of First Bancorp or First
Federal.
For a table that summarizes the value
of these benefits, see "Management of
First Federal -- Summary of Benefits
to Management from the Conversion."
For a discussion of certain risks
associated with these plans and
agreements, see "Risk Factors -- The
implementation of benefit plans will
increase future compensation expense"
and "-- Employment agreements and
severance plan could discourage
takeover attempts."
The Offering
Subscription Offering First Federal has granted subscription rights
(page ___) in the following order of priority to:
1. Persons with $50 or more on
IMPORTANT: Subscription rights deposit at First Federal as of June
are not transferable, and 30, 1997.
persons with subscription
rights may not subscribe for 2. The First Federal Savings Bank
shares for the benefit of any Employee Stock Ownership Plan.
other person. If you violate
this prohibition you may lose 3. Persons with $50 or more on
your right to purchase shares deposit at First Federal as of
in the conversion and may be December 31, 1998.
subject to criminal prosecution
and/or other sanctions. 4. First Federal's depositors as of
January 29, 1999 and borrowers of
First Federal as of March 16, 1988
whose loans continue to be
outstanding as of January 29, 1999.
To ensure that First Federal properly
identifies your subscription rights, you must
list all your savings accounts and loans as of
the eligibility dates on the stock order form.
If you do not list all your accounts and loans
your subscription may be reduced or rejected if
the offering is oversubscribed.
The subscription offering will expire at 12:00
Noon, local time, on ________, 1999. If the
offering is oversubscribed, shares will be
allocated in order of the priorities described
above following a formula contained in the Plan
of Conversion and described under "The
Conversion-- The Subscription, Direct Community
and Syndicated Community Offerings."
Community Offering (Page __) First Bancorp may offer shares not sold in the
subscription
3
<PAGE>
offering to the general public. People and
trusts of people who are residents of
Vanderburgh, Warrick, Posey, Gibson and Spencer
Counties, Indiana will have first preference to
purchase these shares. If shares are available,
First Bancorp expects to offer shares to the
general public immediately after the conclusion
of the subscription offering, but may begin a
community offering at any time during the
subscription offering.
First Bancorp and First Federal may reject
orders received from the general public either
in whole or in part. If your order is rejected
in part, you will not have the right to cancel
the remainder of the order.
Purchase Price The purchase price is $10.00 per share. The
purchase price was determined by the Boards of
Directors of First Bancorp and First Federal in
consultation with Capital Resources. You will
not pay a commission to buy any shares in the
conversion.
Number of Shares to be Issued First Bancorp will sell between 1,615,000 and
(page ___) 2,185,000 shares of its common stock in this
offering. With the approval of the Office of
Thrift Supervision, First Bancorp may increase
the number of shares to 2,512,750.
The amount of common stock being offered in the
conversion is based on an independent appraisal
of the estimated pro forma market value of
First Bancorp and First Federal. Capital
Resources Group, Inc., the independent
appraiser, has estimated that, in its opinion,
as of December 4, 1998, the aggregate pro forma
market value of First Bancorp and First Federal
ranged between $16,150,000 and $21,850,000,
with a midpoint of $19,000,000. Capital
Resources Group is the parent company of
Capital Resources. The appraisal was based in
part on First Federal's financial condition and
operations and the effect of the additional
capital raised by the sale of common stock in
this offering. The independent appraisal will
be updated prior to the completion of the
conversion.
Purchase Limitations (page __) The minimum purchase is 25 shares.
The maximum purchase in the subscription
offering for any person or group of persons
through a single deposit account is $150,000 of
common stock, which equals 15,000 shares.
The maximum purchase for any person in the
community offering is $150,000 of common stock,
which equals 15,000 shares.
The maximum purchase in the subscription
offering and community offering combined by any
person,
4
<PAGE>
related persons or persons acting together is
$220,000 of common stock, which equals 22,000
shares.
How to Purchase Common Stock If you want to subscribe for shares of common
(page ___) stock, complete an original stock order form
and send it together with full payment to First
Federal in the postage-paid envelope provided.
You must sign the certification that is part of
the stock order form. First Federal must
receive your stock order form before the end of
the subscription offering.
You may pay for shares in any of the
following ways:
IMPORTANT: After First Federal . In cash if delivered in person.
receives your order, you cannot
withdraw or change your order . By check or money order made payable to
without the consent of First First Bancorp of Indiana, Inc.
Federal. If First Bancorp
intends to sell fewer than . By withdrawal from an account at First
1,615,000 shares or more than Federal. To use funds in an IRA at
2,512,750 shares, all First Federal you must transfer your
subscribers will be notified account to an unaffiliated institution
and provided with the or broker. Please contact First
opportunity to modify or cancel Federal's stock information center at
their orders. least one week before the expiration of
the subscription offering for
assistance.
PLEASE NOTE: Payment for subscriptions of
$25,000 or more must be by certified or
cashier's check, money order or account
withdrawal.
First Federal will pay interest on subscription
funds at the rate it pays on passbook accounts
from the date it receives your funds until
completion or termination of the conversion.
All funds authorized for withdrawal from
deposit accounts with First Federal will earn
interest at the applicable account rate until
completion of the conversion. There will be no
early withdrawal penalty for subscriptions paid
for by withdrawal from certificates of deposit.
Use of Proceeds (page ___) First Bancorp will use 50% of the net proceeds
of the offering to buy all of the common stock
of First Federal. First Federal will use these
funds to expand its residential and consumer
loan portfolios and to purchase investments
similar to the kinds it currently holds. First
Bancorp will loan an amount equal to 8% of the
gross proceeds of the offering to First
Federal's employee stock ownership plan to fund
its purchase of common stock and will keep the
remainder of the net proceeds for general
corporate purposes. These purposes may include,
for example, paying dividends or buying back
shares of common stock. First Bancorp and First
Federal may also use the proceeds of the
offering for expansion and diversification of
their business, although they have no specific
plans for such activity at this time.
5
<PAGE>
Purchases by Officers and First Federal's directors and executive
Directors (page ___) officers intend to subscribe for 91,100 shares,
which equals 4.2% of the shares issued at the
maximum of the offering range. Directors and
executive officers will pay the same $10.00 per
share price as all other persons who purchase
shares in the conversion.
Market for Common Stock First Bancorp has obtained preliminary approval
(page ___) for its common stock to be quoted on the Nasdaq
National Market under the symbol FBEI. After
shares of First Bancorp common stock commence
trading, you may contact a stock broker to buy
or sell shares. First Bancorp cannot assure you
that there will be an active trading market for
its common stock. See "Risk Factors -- Possible
limited market for First Bancorp's common stock
may negatively effect the market price."
Dividend Policy (page ___) First Bancorp intends to adopt a policy of
paying regular cash dividends, but has not yet
made a decision as to how much or how often.
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RISK FACTORS
Before investing in the common stock please carefully consider the matters
discussed below. First Bancorp's common stock is not a savings account or
deposit and is not insured by the Federal Deposit Insurance Corporation or any
other government agency.
Competition has hurt First Federal's net interest income
First Federal faces intense competition both in making loans and attracting
deposits. Competition has made it more difficult for First Federal to make new
loans and has led First Federal to maintain a large investment in debt and
mortgage-backed securities, which generally earn less interest for First Federal
than loans. In recent years, in order to compete for deposits with larger
financial institutions that provide a wider range of products and services,
First Federal has offered amongst the highest deposit rates in its market area.
This competition for loans and deposits has contributed to a narrow interest
rate spread, which hurts net interest income. For more information about the
market in which First Federal operates and the competition it faces, see
"Business of First Federal -- Market Area" and "-- Competition."
Expanded consumer lending operations will make loan portfolio more risky and may
not be as profitable as expected
In January 1999, First Federal significantly expanded its consumer lending
operations by hiring four loan officers and three clerical staff to develop an
indirect automobile lending program. First Federal's goal is to sell 60-80% of
the automobile loans that it makes and to grow its consumer loan portfolio to
$20 million over two years. Automobile loans tend to have a higher rate of
default than mortgage loans and full repayment of defaulted loans is more
unlikely because the value of the automobiles securing these loans goes down
over time. First Federal's consumer loan portfolio will have additional risk
because a portion of the loans that First Federal intends to keep will be those
where the borrower has a lower credit rating. These loans have higher interest
rates to compensate for the lower credit quality. As its consumer loan
portfolio grows, First Federal expects to increase its allowance for loan losses
by charging a provision for loan losses against income. If actual losses exceed
expectations, First Federal could have to take additional charges to income.
First Federal expects to make a profit on the sale of automobile loans.
However, if First Federal is not able to make as many loans as it expects, the
income from its consumer lending operations may not exceed the costs of these
operations.
Increasing interest rates may hurt First Federal's profits
Like most financial institutions, First Federal's ability to make a profit
depends largely on its net interest income, which is the difference between
interest income it receives from its loans and investment securities and
interest it pays on deposits and borrowings. If interest rates rise, First
Federal anticipates that its net interest income could be negatively affected as
interest paid on deposits would increase more quickly than the interest received
on loans and investment securities. In addition, rising interest rates may
adversely affect First Federal's earnings because rising rates may cause a
decrease in customer demand for loans and a reduction in value of First
Federal's securities available for sale. For further discussion of how changes
in interest rates could impact First Federal, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Asset and Liability
Management."
High capital levels will cause First Bancorp to have a below average return on
equity after conversion
Return on equity, which is net income divided by average equity, is a ratio
used by many investors to compare the performance of a particular company with
other companies. In recent years, First Federal's return on equity has been
below the average return on equity for publicly held savings associations and
banks of comparable size. As a result of the additional capital to be raised in
this offering, First Bancorp expects that after the conversion its return on
equity will continue to be below average. In addition, compensation expense
will increase as a result of adopting new benefit plans. Over time, First
Bancorp intends to use the
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proceeds from this offering to increase earnings per share and book value per
share, without assuming undue risk, with the goal of achieving a return on
equity competitive with other publicly traded financial institutions. This goal
could take a number of years to achieve, and First Bancorp cannot assure you
that this goal can be attained. Consequently, you should not expect a
competitive return on equity in the near future. See "Pro Forma Data" for an
illustration of the effects of this stock offering.
The implementation of benefit plans will increase future compensation expense
First Federal will recognize additional material employee compensation and
benefit expenses that stem from the shares purchased or granted to employees and
executives under new benefit plans. First Federal cannot predict the actual
amount of these new expenses because applicable accounting practices require
that they be based on the fair market value of the shares of common stock at
specific points in the future. First Federal would recognize expenses for its
Employee Stock Ownership Plan when shares are committed to be released to
participants' accounts and would recognize expenses for the Management
Recognition and Development Plan over the vesting period of awards made to
recipients. These expenses have been reflected in the pro forma financial
information under "Pro Forma Data" assuming the $10.00 per share purchase price
as fair market value. Actual expenses, however, may be higher or lower.
Recently proposed accounting rules would also require First Bancorp to recognize
compensation expense for stock options awarded to non-employee directors. For
further discussion of these plans, see "Management of First Federal --
Benefits."
Issuance of shares for benefit programs may reduce your ownership interest
If stockholders approve the new stock-based benefit plans, First Bancorp
intends to issue shares to its officers and directors through these plans. If
the shares for the Management Recognition and Development Plan are issued from
authorized but unissued stock, your ownership interest could be reduced by up to
approximately 3.85%. If the shares for the Stock Option Plan are issued from
authorized but unissued stock, your ownership interest could be reduced by up to
approximately 9.09%. See "Pro Forma Data."
Possible voting control by management and employees may discourage takeover
attempts
The shares that First Federal's directors and executive officers intend to
purchase in the conversion, when combined with the shares that may be awarded or
sold to participants under First Federal's Employee Stock Ownership Plan and
First Bancorp's stock-based benefit plans, could ultimately result in management
and employees controlling a significant percentage of First Bancorp's common
stock. If these individuals were to coordinate their actions they could have
significant influence over the outcome of any stockholder vote. This voting
power may discourage takeover attempts that you would like to see happen. In
addition, the total voting power of management and employees could reach in
excess of 20% of First Bancorp's outstanding stock. That level would enable
management and employees as a group to defeat any stockholder matter that
requires an 80% vote. For information about management's intended purchases
and shares that may be awarded under new benefit plans, see "Subscriptions
by Executive Officers and Directors" and "Management of First Federal--
Benefits."
Anti-takeover provisions and statutory provisions could discourage takeover
attempts
Provisions in First Bancorp's Articles of Incorporation and Bylaws, the
corporation law of the state of Indiana, and federal regulations may make it
difficult and expensive to pursue a takeover attempt that management opposes.
These provisions may discourage or prevent takeover attempts that you would like
to see happen. These provisions will also make the removal of the current board
of directors or management of First Bancorp, or the appointment of new
directors, more difficult. These provisions include: limitations on voting
rights of beneficial owners of more than 10% of First Bancorp's common stock;
supermajority voting requirements for certain business combinations; the
election of directors to staggered terms of
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three years; the elimination of cumulative voting for directors; the removal of
directors without cause only upon the vote of holders of two thirds of the
outstanding voting shares; and limitations on calling special meetings of
shareholders. The Bylaws of First Bancorp also contain provisions regarding the
timing and content of stockholder proposals. For further information about these
provisions, see "Restrictions on Acquisition of First Bancorp."
Employment agreements and severance plan could discourage takeover attempts
The proposed employment agreements with the President and Executive Vice
President of First Federal provide for cash severance payments if the executive
is terminated following a change in control of First Bancorp or First Federal.
If a change in control had occurred at September 30, 1998 the aggregate amount
of the severance payment to these executive officers under the agreements would
have been approximately $486,000. In addition, if a change in control had
occurred at September 30, 1998 and all eligible employees had been terminated,
the aggregate payment due under First Federal's severance plan would have been
approximately $381,000. These arrangements may have the effect of increasing
the costs of acquiring First Bancorp, thereby discouraging future attempts to
take over First Bancorp or First Federal. For information about the proposed
employment agreements and the severance plan, see "Management of First Federal-
- - Executive Compensation."
Year 2000 data processing problems could interrupt First Federal's business and
have an adverse financial impact
First Federal is a user of computers, computer software and equipment
utilizing embedded microprocessors that will be affected by the year 2000 issue.
As the century date change occurs, date-sensitive systems that use a two-digit
date field to designate a year may recognize the year 2000 as 1900, or not at
all. This inability to recognize or properly treat the year 2000 may cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
processing. Because First Federal is substantially dependent on its computer
systems and the computer systems of third parties, the failure of these systems
to be year 2000 compliant could cause substantial disruption of First Federal's
business and could have a material adverse financial impact on First Federal.
Failure to resolve year 2000 issues presents the following risks to First
Federal:
(1) First Federal could lose customers to other financial institutions,
resulting in a loss of revenue, if First Federal's third party service
bureau is unable to process properly customer transactions;
(2) governmental agencies, such as the Federal Home Loan Bank, and
correspondent banks could fail to provide funds to First Federal,
which could materially impair First Federal's liquidity and affect
First Federal's ability to fund loans and deposit withdrawals;
(3) concern on the part of depositors that year 2000 issues could impair
access to their deposit account balances could result in First Federal
experiencing deposit outflows prior to December 31, 1999; and
(4) First Federal could incur increased personnel costs if additional
staff is required to perform functions that inoperative systems would
have otherwise performed.
First Federal has developed a plan and created a committee to analyze how the
year 2000 will impact its operations and to monitor the status of its vendors.
For further information on First Federal's year 2000 compliance efforts, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issues."
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Possible limited market for First Bancorp's common stock may negatively effect
the market price
Although First Bancorp has received preliminary approval to list its common
stock on the Nasdaq National Market, First Bancorp does not know whether an
active trading market will develop. Because of the relatively small size of
this offering, you may not be able to sell all of your shares of First Bancorp
on short notice and the sale of a large number of shares at one time could
temporarily depress the market price. Furthermore, First Bancorp cannot
guarantee that if you purchase shares in the conversion you will be able to sell
your shares at or above the $10.00 purchase price. For further information
about the trading market for First Bancorp's common stock, see "Market for
Common Stock."
Possible increase in number of shares issued would result in less favorable
pricing ratios
Capital Resources Group may increase its appraisal up to 15% to reflect the
results of the offering or changes in the financial condition or results of
operations of First Federal or changes in market conditions or general
financial, economic or regulatory conditions after the offering begins without
any further notice to you. If this happens, First Bancorp anticipates that it
would issue, without any additional notice, up to 2,512,750 shares of common
stock for an aggregate price of up to $25,127,500. This increase in the number
of shares would decrease pro forma net earnings per share and stockholders'
equity per share, which means that the price-to-earnings and price-to-book
ratios for First Bancorp would increase. Because many investors favor purchasing
shares of financial institutions at lower price-to-book and price-to-earnings
ratios, an increase in the number of shares sold could negatively effect the
market price of First Bancorp's common stock. For further information regarding
pro forma information, see "Pro Forma Data."
Your subscription funds could be held for an extended period if completion of
the conversion is delayed
If the conversion is not completed by __________, 1999 as a result of
changes that lead to a material revision in the appraisal of First Federal and
the Office of Thrift Supervision consents to an extension of time to complete
the conversion, First Bancorp would conduct a resolicitation offering. Federal
regulations permit the Office of Thrift Supervision to grant one or more time
extensions, none of which may exceed 90 days. Extensions may not go beyond
__________, 2001. In the resolicitation offering, all subscribers would be
mailed a supplement to this prospectus and given the opportunity to confirm,
modify or cancel their subscriptions. Failure to respond would be deemed a
cancellation and all subscription funds, together with accrued interest, would
be returned to the subscriber, or if the subscriber authorized payment by
withdrawal of funds on deposit at First Federal, that authorization would
terminate. If a subscriber affirmatively confirms his or her subscription order
during the resolicitation offering, First Bancorp and First Federal would
continue to hold the subscriber's subscription funds until the end of the
resolicitation offering. All subscriptions held by First Bancorp and First
Federal when the resolicitation offering expires would be irrevocable without
the consent of First Bancorp and First Federal until the completion or
termination of the conversion.
Regulatory reform legislation may reduce powers of First Bancorp and First
Federal
In 1998 the U.S. Congress considered legislation that was intended to
modernize the financial services industry. Under the proposed legislation,
newly formed unitary savings and loan holding companies would not be permitted
to exercise the broad powers currently available to these companies. Previous
proposals would have eliminated the federal savings association charter by
requiring that all federal savings associations convert to national banks or
other banking charters, but such provision was not included in the final
legislation that was considered. First Federal is a federal savings association
and First Bancorp, upon completion of the conversion, will be a unitary savings
and loan holding company. First Bancorp does not know whether federal
legislation will be enacted that affects the federal savings association charter
or unitary savings and loan holding companies, or if such legislation is
enacted, what form this legislation might take. Accordingly, management of
First Federal and First Bancorp cannot predict what effect, if any, banking
reform legislation would have on the activities and operations of First Federal
and First Bancorp.
10
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables provide selected information concerning the financial
position and results of operations of First Federal at the dates and for the
periods indicated. You should read this information in conjunction with the
Consolidated Financial Statements and Notes presented at the end of this
prospectus. Information at September 30, 1998 and for the three months ended
September 30, 1998 and 1997 is unaudited, but, in the opinion of management,
reflects all adjustments necessary for a fair presentation. None of these
adjustments are other than normal recurring entries. Results for the three
months ended September 30, 1998 are not necessarily indicative of the results
that may be expected for the year ending June 30, 1999.
<TABLE>
<CAPTION>
At At June 30,
September 30, -----------------------------------------------------
1998 1998 1997 1996 1995 1994
-------------- -----------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Total assets................... $111,627 $108,964 $110,747 $110,905 $105,846 $105,803
Other investment securities.... 15,168 18,195 18,940 17,246 8,788 6,455
Mortgage-backed securities..... 36,835 35,545 41,394 41,607 47,936 51,118
Loans receivable, net.......... 38,183 35,655 32,164 32,441 32,492 32,396
Deposits accounts.............. 90,961 89,229 88,560 88,844 86,886 87,615
Borrowings..................... 3,645 3,645 7,050 7,500 5,000 5,000
Equity capital................. 15,117 14,949 14,053 13,575 13,002 12,363
</TABLE>
<TABLE>
<CAPTION>
Three Months
Ended September 30, Years Ended June 30,
----------------------- --------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
------- ------ ------ -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(In Thousands)
Selected Operating Data:
Interest income........................ $1,831 $1,887 $7,715 $7,474 $7,295 $6,658 $6,069
Interest expense....................... 1,185 1,192 4,977 4,763 4,645 4,062 3,656
------ ------ ------ ------ ------ ------ ------
Net interest income.................... 646 695 2,738 2,711 2,650 2,596 2,413
Provision for loan losses.............. -- -- -- -- 100 -- --
------ ------ ------ ------ ------ ------ ------
Net interest income after provision
for loan losses..................... 646 695 2,738 2,711 2,550 2,596 2,413
Other income........................... 76 43 601 (1) 179 169 219 214
Other expense.......................... 506 415 2,044 2,391 (2) 1,900 1,901 1,863
------ ------ ------ ------ ------ ------ ------
Income before income taxes and
cumulative effect of a change in
accounting principle................ 216 323 1,295 499 819 914 764
Income taxes........................... 61 108 415 112 199 264 301
Cumulative effect of change in
accounting principle(3)............ -- -- -- -- -- -- 11
------ ------ ------ ------ ------ ------ ------
Net income.......................... $ 155 $ 215 $ 880 $ 387 $ 620 $ 650 $ 474
====== ====== ====== ====== ===== ====== ======
</TABLE>
- ------------------
(1) Includes gains of $400,000 on the sale of a branch office and related
deposits.
(2) Includes one-time assessment of $561,000 to recapitalize the Savings
Association Insurance Fund.
(3) Reflects adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
11
<PAGE>
<TABLE>
<CAPTION>
At At June 30,
September 30, --------------------------------------
1998 1998 1997 1996 1995 1994
----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Selected Other Data:
Number of:
Real estate loans outstanding 773 747 759 789 811 855
Deposit accounts 8,799 8,852 9,226 9,515 9,890 9,716
Full-service offices 4 4 4 4 4 4
</TABLE>
<TABLE>
<CAPTION>
At or For the
Three Months Ended
September 30, At or For the Years Ended June 30,
------------------ -----------------------------------------------
1998 1997 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios:
Performance Ratios(1):
Return on average assets(2)..... 0.56% 0.78% 0.77% 0.35% 0.57% 0.62% 0.47%
Return on average equity(3)..... 4.13 6.08 6.04 2.83 4.66 5.14 3.91
Average equity as a percent
of average total assets........ 13.58 12.82 12.79 12.35 12.33 12.01 11.91
Interest rate spread(4)......... 1.97 2.15 2.03 2.08 2.09 2.01 1.98
Net interest margin(5).......... 2.47 2.64 2.53 2.56 2.57 2.53 2.44
Average interest-earning
assets to average
interest-bearing
liabilities.................... 110.98 110.88 110.75 110.71 110.68 113.18 112.51
Other expenses as a percent
of average total assets........ 1.83 1.50 1.79 2.16 1.76 1.80 1.83
Capital Ratios:
Tangible........................ 13.47 12.96 13.60 12.62 12.28 12.29 11.69
Core............................ 13.47 12.96 13.60 12.62 12.28 12.29 11.69
Risk-based...................... 34.88 39.01 34.75 37.35 36.95 36.42 35.13
Asset Quality Ratios:
Nonperforming loans as a
percent of total loans(6)...... 0.00 0.09 0.00 0.08 0.00 0.12 0.22
Nonperforming assets as a
percent of total assets(7)..... 0.00 0.02 0.00 0.02 0.00 0.04 0.07
Allowance for loan losses as a
percent of total loans........... 0.65 0.79 0.70 0.77 0.76 0.46 0.46
Allowance for loan losses as a
percent of nonperforming loans... N/A 925.93 N/A 925.93 N/A 263.16 138.89
Net charge-offs as a percent
of average outstanding loans... N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- ---------------
(1) Ratios for the three-month periods are annualized where appropriate.
(2) Net income divided by average total assets.
(3) Net income divided by average total equity.
(4) Difference between weighted average yield on interest-earning assets
and weighted average cost of interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Nonperforming loans consist of loans accounted for on a nonaccrual
basis and accruing loans 90 days or more past due.
(7) Nonperforming assets consist of nonperforming loans, real estate
acquired in settlement of loans, and restructured loans. See "Business
of First Federal -- Lending Activities -- Nonperforming Assets and
Delinquencies."
12
<PAGE>
RECENT DEVELOPMENTS
The selected financial and operating data presented below at December 31,
1998 and for the three and six-month periods ended December 31, 1998 and 1997
are derived from unaudited financial data but, in the opinion of management,
reflects all adjustments which are necessary to present fairly the results from
such interim periods. These adjustments consist only of normal recurring
adjustments. The results of operations of the three and six months ended
December 31, 1998 are not necessary indicative of the results of operations that
may be expected for the year ending June 30, 1999.
<TABLE>
<CAPTION>
At At
December 31, 1998 June 30, 1998
----------------- -------------
(In thousands)
<S> <C> <C>
Selected Financial Data:
Total assets $112,482 $108,964
Other investment securities 15,592 18,195
Mortgage-backed securities 37,862 35,545
Loans receivable, net 39,020 35,655
Deposits accounts 92,310 89,229
Borrowings 3,645 3,645
Equity capital 15,209 14,949
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
(In thousands)
Selected Operating Data:
Interest income................ $ 1,835 $ 1,937 $ 3,666 $ 3,823
Interest expense............... 1,180 1,213 2,364 2,404
------- ------- ------- -------
Net interest income............ 655 724 1,302 1,419
Provision for loan losses...... -- -- -- --
------- ------- ------- -------
Net interest income after...... 655 724 1,302 1,419
provision for loan losses
Other income................... 81 447 155 489
Other expense.................. 590 563 1,096 978
------- ------- ------- -------
Income before income taxes..... 146 608 361 930
Income taxes................... 35 217 95 324
------- ------- ------- -------
Net income.................. $ 111 $ 391 $ 266 $ 606
======= ======= ======= =======
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
At or For the At or for the
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Selected Financial Ratios and Other Data (1):
Performance Ratios:
Return on average assets(2)............................................. 0.40% 1.40% 0.48% 1.09%
Return on average equity (3)............................................ 2.93 10.76 3.52 8.45
Average equity as a percent of average total assets..................... 13.52 12.98 13.55 12.90
Interest rate spread(4)................................................. 1.96 2.23 1.97 2.18
Net interest margin(5).................................................. 2.47 2.72 2.47 2.68
Average interest-earning assets to average interest-bearing
liabilities............................................................ 111.36 110.92 111.17 110.90
Other expenses as a percent of average total assets..................... 2.10 2.01 1.97 1.76
Capital Ratios:
Tangible................................................................ 13.46 12.42 13.46 12.42
Core.................................................................... 13.46 12.42 13.46 12.42
Risk-based.............................................................. 31.08 34.79 31.08 34.79
Asset Quality Ratios:
Total nonperforming loans as a percent of total loans(6)................ 0.11 0.18 0.11 0.18
Nonperforming assets as a percent of total assets(7).................... 0.04 0.05 0.04 0.05
Allowance for loan losses as a percent of total loans................... 0.64 0.79 0.64 0.79
Allowance for loan losses as a percent of
nonperforming loans.................................................. 581.40 446.43 581.40 446.43
Net charge-offs as a percent of average outstanding loans............... N/A N/A N/A N/A
</TABLE>
- ---------------
(1) Ratios for the three and six-month periods are annualized where
appropriate.
(2) Net income divided by average total assets.
(3) Net income divided by average total equity.
(4) Difference between weighted average yield on interest-earning assets
and weighted average cost of interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Nonperforming loans consist of loans accounted for on a nonaccrual
basis and accruing loans 90 days or more past due.
(7) Nonperforming assets consist of nonperforming loans, real estate
acquired in settlement of loans, and restructured loans. See "Business
of First Federal -- Lending Activities -- Nonperforming Assets and
Delinquencies."
Comparison of Financial Condition at December 31, 1998 and June 30, 1998
Total assets increased $3.5 million, or 3.2%, to $112.5 million at December
31, 1998 compared to June 30, 1998. The largest increase was in loans, which
increased $3.4 million, or 9.4%. The increase in loans was principally in real
estate mortgage loans, and was a result of First Federal's competitive mortgage
interest rates in its target market, favorable nationwide mortgage rates which
spurred an increase in home purchases and refinancing, and the results of hiring
of a new loan originator in fiscal 1998. During the three months ended December
31, 1998, First Federal's two commissioned loan officers left to pursue other
opportunities. While First Federal is actively seeking to fill these positions,
a prolonged vacancy could negatively impact the volume of loan originations.
First Federal adjusted its investment portfolio by decreasing debt securities by
$2.6 million and increasing mortgage-backed securities by $2.3 million. The
growth in loans was primarily funded by an increase in deposits of $3.1 million,
or 3.5%. The deposit increase can be attributed primarily to competitive
interest rates offered on certificates of deposit and money market accounts.
Borrowings were unchanged.
14
<PAGE>
Comparison of Results of Operations for the Three and Six Months Ended
December 31, 1998 and 1997
General. Net income decreased by $280,000 to $111,000 for the three
months ended December 31, 1998 from $391,000 for the same period in 1997. Net
income for the six months ended December 31, 1998 decreased $340,000 to $266,000
from $606,000 for the six months ended December 31, 1997. First Federal
recognized gains of $400,000 in 1997 in connection with a branch sale, with no
comparable transaction in 1998. The decrease in net income also was related to
a decrease in net interest income caused by the narrowing of First Federal's
interest rate spread to 1.97% compared to 2.18% for the first half of last year
and to increased other expenses. The decrease in the interest rate spread is
due to management's decision to offer competitive mortgage interest rates in an
effort to increase First Federal's loan portfolio, and to offer certificates of
deposit and money market accounts at rates slightly higher than that of its
competition to attract the funds to support loan growth.
Net Interest Income. Net interest income decreased $69,000, or 9.5%, in
the second quarter and $117,000, or 8.2%, in the first six months of fiscal 1999
compared to the same periods last year primarily as a result of the narrowing of
First Federal's interest rate spread.
Total interest income decreased 5.3% to $1.8 million for the second quarter
and decreased 4.1% to $3.7 million for the first half of fiscal 1999. The
decrease for both periods was caused primarily by a reduced yield on investment
securities as higher yielding securities matured, repriced or were repaid. This
was partially offset by a larger average balance of higher yielding loans. The
average yield on interest-earning assets was 6.91% for the six months ended
December 31, 1998 compared to 7.29% for the six months ended December 31, 1997.
Total interest expense decreased 2.7% to $1.2 million for the second
quarter and decreased 1.7% to $2.4 million for the first half of fiscal 1999.
For the second quarter, growth in deposits reflected a 16.2% increase in the
average balance of demand and savings deposits and a 0.5% decrease in the
average balance of certificates of deposit. This deposit growth produced a
small increase in interest expense, but the shift in deposits reduced the
average cost of deposits to 4.90% in the second quarter this year compared to
4.98% last year. Demand and savings deposits grew primarily as a result of the
introduction in February 1998 of a money market deposit account with a higher
minimum balance that pays a higher rate of interest. The increase in interest
expense on deposits was offset by a decrease in borrowings. For the first half
of fiscal 1999, growth in deposits reflected an 11.3% increase in the average
balance of demand and savings deposits and a 0.7% increase in the average
balance of certificates of deposit. This deposit growth produced a 2.7%
increase in interest expense, but the shift in deposits reduced the average cost
of deposits to 4.93% in the first half of fiscal 1999 compared to 4.95% in the
same period last year. The increase in interest expense during the first half of
fiscal 1999 was offset by reduced borrowings. The average cost of interest-
bearing liabilities was 4.98% for the six months ended December 31, 1998
compared to 5.04% for the six months ended December 31, 1997.
Provision for Loan Losses. There was no provision for loan losses in
either the three or six months ended December 31, 1998 or 1997.
Other Income. Other income was $81,000 for the three months ended December
31, 1998 compared to $447,000 in the same period last year. For the six months
ended December 31, 1998, other income was $155,000, compared to $489,000 for the
same period last year. Included in other income in 1997 are $400,000 in gains
on the sale of real estate, equipment and deposit accounts from First Federal's
sale of its Mt. Vernon, Indiana branch in October 1997. Excluding these gains,
other income increased as result of increased ATM fees and increased gains on
the sale of mortgage loans.
Other Expense. Other expenses increased 4.8% for the second quarter of
fiscal 1999 and 12.1% for the first half of fiscal 1999. This increase was
primarily due to increases in salaries and employee benefits, which totaled
$360,000 and $641,000 for the three and six months ended December 31, 1998.
First Federal added additional personnel in the mortgage loan department and in
the areas of technology and branch administration.
15
<PAGE>
Income Tax Expense. Total income tax expense was $35,000 for the three
months ended December 31, 1998 compared to $217,000 for the same period last
year. Total income tax expense was $95,000 for the six months ended December
31, 1998 compared to $324,000 for the same period last year. The decrease for
both the three and six month periods was primarily the result of lower taxable
income. The effective tax rate was 26.3% for the first half of fiscal 1999
compared to 34.8% for the same period last year.
Expansion of Consumer Lending Operations
In January 1999, First Federal significantly expanded its consumer lending
operations by hiring four loan officers and three clerical staff to develop an
indirect automobile lending program. First Federal anticipates originating
automobile loans through approximately 75 to 100 automobile dealers in southern
Indiana, northwestern Kentucky and southern Illinois. These dealers will provide
First Federal applications to finance vehicles sold by their dealerships.
Although substantially all of the dealers through which First Federal will
originate loans will sell both new and used automobiles, First Federal expects
that most of the loans it will originate will be secured by used automobiles.
First Federal will process loan applications through "CreditDesk," an automated
underwriting program by Fair Isaac and Company, Inc. Applications processed
through "CreditDesk" will receive a score which, along with other underwriting
criteria, will determine if the application will be approved, denied or approved
at an increased interest rate or on other terms.
First Federal anticipates developing a contractual relationship with
another financial institution in order to sell indirect automobile loans on a
flow basis for an origination fee of approximately 1.50% of the loan amount.
First Federal intends that this contract will define the criteria to be
satisfied for loans to be eligible for sale to the purchasing institution.
First Federal will sell all loans with servicing released and without recourse
to First Federal. Interest rates will be determined by reference to the rate
sheet in effect on the date the loan was closed and approved by the financial
institution purchasing the loan. Under the terms of its arrangement, First
Federal will have no minimum or maximum delivery requirements. This will
eliminate the risk that First Federal will not be able to sell the loans and
that an increase in market interest rates will reduce the value of the loans
before they can be sold.
First Federal intends to sell 60-80% of its indirect automobile loan
production and to retain the remainder for its own portfolio, with the goal of
increasing its consumer loan portfolio to $20 million over two years. The loans
sold will be primarily the ones with the highest credit quality. The loans
retained for First Federal's portfolio will generally have a lower credit
quality, but with a correspondingly higher interest rate. First Federal
believes that it will benefit from the higher yields earned on consumer loans
and that the shorter duration of consumer loans will improve First Federal's
interest rate risk position. However, because consumer loans tend to have a
higher rate of default than mortgage loans and because full repayment of
defaulted loans is more unlikely when the loan is secured by a depreciating
asset like an automobile, First Federal expects that it will increase its
allowance for loan losses as its consumer loan portfolio grows. First Federal
will increase its allowance for loan losses by charging a provision for loan
losses against income.
First Federal estimates that it will have capital expenditures and other
start-up expenses of $115,000 for its consumer loan operations in the quarter
ending March 31, 1999. First Federal will also experience an increase in salary
and benefits and other operating expenses as a result of hiring additional
personal and the expansion of its lending operations.
First Federal has been sued by United Fidelity Bank, FSB, which previously
employed the persons hired by First Federal to conduct its consumer lending
operations. For information about this lawsuit, see "Business of First Federal
- -- Legal Proceedings."
16
<PAGE>
USE OF PROCEEDS
The amount of common stock being offered in the conversion is based on
Capital Resources Group's estimate that, as of December 4, 1998, the pro forma
market value of First Bancorp and First Federal ranged from $16,150,000 to
$21,850,000 ("Estimated Valuation Range"). The net proceeds from the sale of
the common stock in this offering will range from approximately $15.5 million to
$21.1 million, or up to $24.4 million if the Estimated Valuation Range is
increased by 15%. See "Pro Forma Data" for the assumptions used to arrive at
these amounts. First Bancorp will purchase all of the capital stock of First
Federal to be issued in the conversion in exchange for 50% of the net proceeds
of the offering. This will result in First Bancorp retaining approximately $7.7
million to $10.6 million of net proceeds, or up to $12.2 million if the
Estimated Valuation Range is increased by 15%, and First Federal receiving an
equal amount.
Receipt of 50% of the net proceeds of the sale of the common stock will
increase First Federal's capital and will support the expansion of First
Federal's existing business activities. First Federal will use the funds
contributed to it for general corporate purposes, including, initially, lending
and investment in short-term U.S. Government and agency obligations. First
Federal intends to increase its residential and consumer loan portfolios.
Depending on loan demand, First Federal may consider using a portion of the
conversion proceeds for additional investment in mortgage-backed securities.
In connection with the conversion and the establishment of First Federal's
Employee Stock Ownership Plan ("ESOP"), First Bancorp intends to loan the ESOP
the amount necessary to purchase 8% of the shares of common stock sold in the
conversion. First Bancorp's loan to fund the ESOP may range from $1,292,000 to
$1,748,000 based on the sale of 129,200 shares to the ESOP at the minimum of the
Estimated Valuation Range and 174,800 shares at the maximum of the Estimated
Valuation Range, respectively, at $10.00 per share. If 15% above the maximum of
the Estimated Valuation Range, or 2,512,750 shares, are sold in the conversion,
First Bancorp's loan to the ESOP would be $2,010,200 based on the sale of
201,020 shares to the ESOP. The Bank anticipates that the ESOP loan will have
a 12-year term with interest payable at the prime rate as published in The Wall
Street Journal on the closing date of the conversion. The loan will be repaid
principally from First Federal's contributions to the ESOP and from any
dividends paid on shares of common stock held by the ESOP.
Other than as described above, neither First Bancorp or First Federal have
specific plans for the investment of the proceeds of this offering. Although
First Federal's capital currently exceeds regulatory requirements, First Federal
is pursuing the mutual-to-stock conversion at this time in order to structure
itself in the form used by commercial banks and most other financial services
companies. For a discussion of management's business reasons for undertaking
the conversion, see "The Conversion-- Purposes of Conversion."
The remaining net proceeds retained by First Bancorp initially will be
invested primarily in short-term U.S. Government and agency obligations. These
funds will be available for additional contributions to First Federal in the
form of debt or equity, to support future diversification or acquisition
activities, as a source of dividends to the stockholders of First Bancorp and
for future repurchases of common stock to the extent permitted under Indiana law
and federal regulations. First Bancorp will consider exploring opportunities to
use these funds to expand operations through acquiring or establishing
additional branch offices or acquiring other financial institutions. Currently,
there are no specific plans, arrangements, agreements or understandings, written
or oral, regarding any expansion activities.
Following the conversion, the Board of Directors will have the authority to
adopt plans for repurchases of common stock, consistent with statutory and
regulatory requirements. Since First Bancorp has not yet issued stock, there
currently is insufficient information upon which an intention to repurchase
stock could be based. The facts and circumstances upon which the Board of
Directors may determine to repurchase stock in the future would include but are
not limited to:
17
<PAGE>
(1) market and economic factors such as the price at which the stock is
trading in the market, the volume of trading, the attractiveness of
other investment alternatives in terms of the rate of return and risk
involved in the investment, the ability to increase the book value
and/or earnings per share of the remaining outstanding shares, and the
ability to improve First Bancorp's return on equity;
(2) the avoidance of dilution to stockholders by not having to issue
additional shares to cover the exercise of stock options or to fund
employee stock benefit plans; and
(3) any other circumstances in which repurchases would be in the best
interests of First Bancorp and its stockholders.
Any stock repurchases will require a determination by the Board of
Directors that both First Bancorp and First Federal will be capitalized in
excess of all applicable regulatory requirements after any such repurchases and
that capital will be adequate, taking into account, among other things, First
Federal's level of nonperforming and classified assets, First Bancorp's and
First Federal's current and projected results of operations and asset/liability
structure, the economic environment and tax and other regulatory considerations.
For a discussion of the regulatory limitations applicable to stock repurchases,
see "The Conversion -- Restrictions on Repurchase of Stock."
DIVIDEND POLICY
General
First Bancorp's Board of Directors anticipates declaring and paying cash
dividends on the common stock. However, the Board of Directors has not made a
decision as to the amount or timing of dividends. In addition, the Board of
Directors may determine to pay periodic special cash dividends in addition to,
or in lieu of, regular cash dividends. Before declaring or paying any
dividends, First Bancorp's Board of Directors will take into account the amount
of the net proceeds retained by First Bancorp, First Bancorp's financial
condition, results of operations, tax considerations, capital requirements,
industry standards, economic conditions and other factors, including the
regulatory restrictions that affect the payment of dividends by First Federal to
First Bancorp discussed below. Under Indiana law, First Bancorp will be
permitted to pay cash dividends after the conversion so long as First Bancorp is
able to pay its debts as they come due in the usual course of business and First
Bancorp's assets are greater than the sum of its total liabilities plus the
amount that would be needed, if First Bancorp were to be dissolved at the time
of the dividend, to satisfy any rights that are preferential to those of the
persons receiving the dividend. In order to pay cash dividends, however, First
Bancorp must have available cash either from the net proceeds raised in the
conversion and retained by First Bancorp, borrowings by First Bancorp, dividends
received from First Federal or earnings on Holding Company assets. No
assurances can be given that any dividends, either regular or special, will be
declared or, if declared, what the amount of dividends will be or whether such
dividends, if commenced, will continue.
Current Restrictions
Dividends from First Bancorp may depend, in part, upon receipt of dividends
from First Federal because First Bancorp initially will have no source of income
other than dividends from First Federal and earnings from the investment of the
net proceeds from the offering retained by First Bancorp. Office of Thrift
Supervision ("OTS") regulations require First Federal to give the OTS 30 days'
advance notice of any proposed declaration of dividends to First Bancorp, and
the OTS has the authority under its supervisory powers to prohibit the payment
of dividends to First Bancorp. The OTS imposes certain limitations on the
payment of
18
<PAGE>
dividends from First Federal to First Bancorp which utilize a three-
tiered approach that permits various levels of distributions based primarily
upon a savings association's capital level. Based on its current capital
levels, after prior notice to and no objection made by the OTS, First Federal
could at its option distribute up to 100% of its net income during the calendar
year plus 50% of its surplus capital ratio at the beginning of the calendar year
less any distributions previously paid during the year. In addition, First
Federal may not declare or pay a cash dividend on its capital stock if the
effect thereof would be to reduce the regulatory capital of First Federal below
the amount required for the liquidation account to be established under First
Federal's Plan of Conversion. See "Regulation -- Federal Regulation of Savings
Associations -- Limitations on Capital Distributions," "The Conversion --
Effects of Conversion on Depositors and Borrowers of First Federal --
Liquidation Account" and Note 10 of the Notes to Consolidated Financial
Statements included at the end of this prospectus.
Additionally, in connection with the conversion, First Bancorp and First
Federal have committed to the OTS that during the one-year period following
consummation of the conversion, First Bancorp will not take any action to
declare an extraordinary dividend to stockholders that would be treated by
recipients as a tax-free return of capital for federal income tax purposes.
Tax Considerations
In addition to the foregoing, retained earnings of First Federal
appropriated to bad debt reserves and deducted for federal income tax purposes
cannot be used by First Federal to pay cash dividends to First Bancorp without
the payment of federal income taxes by First Federal at the then current income
tax rate on the amount deemed distributed, which would include the amounts of
any federal income taxes attributable to the distribution. See "Taxation --
Federal Taxation" and Note 8 of the Notes to Consolidated Financial Statements
included at the end of this prospectus. First Bancorp does not contemplate any
distribution by First Federal that would result in a recapture of First
Federal's bad debt reserve or create the above-mentioned federal tax
liabilities.
MARKET FOR COMMON STOCK
First Bancorp has never issued capital stock and, consequently, there is no
existing market for the common stock. Although First Bancorp has received
preliminary approval to list the common stock on the Nasdaq National Market
under the symbol FBEI, there can be no assurance that First Bancorp will meet
the Nasdaq National Market listing requirements, which include a minimum market
capitalization, at least three market makers and a minimum number of
shareholders. Capital Resources has agreed to make a market for the common
stock following consummation of the conversion, although it has no obligation to
do so, and will assist First Bancorp in seeking to encourage at least two
additional market makers to establish and maintain a market in the common stock.
Making a market involves maintaining bid and ask quotations and being able, as
principal, to effect transactions in reasonable quantities at those quoted
prices. First Bancorp anticipates that prior to the completion of the
conversion it will be able to obtain the commitment from at least two additional
broker-dealers to act as market maker for the common stock. Additionally, the
development of a liquid public market depends on the existence of willing buyers
and sellers, the presence of which is not within the control of First Bancorp,
First Federal or any market maker.
There can be no assurance that an active and liquid trading market for the
common stock will develop or that, if developed, it will continue. The number
of active buyers and sellers of the common stock at any particular time may be
limited. Under such circumstances, investors in the common stock could have
difficulty disposing of their shares on short notice and should not view the
common stock as a short-term investment. Furthermore, there can be no assurance
that purchasers will be able to sell their shares at or above the $10.00
purchase price or that quotations will be available on the Nasdaq National
Market as contemplated.
19
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of First Federal
at September 30, 1998, and the pro forma consolidated capitalization of First
Bancorp after giving effect to the assumptions listed under "Pro Forma Data,"
based on the sale of the number of shares of common stock at the minimum,
midpoint, maximum and maximum, as adjusted, of the Estimated Valuation Range.
The shares that would be issued at the maximum, as adjusted, of the Estimated
Valuation Range would depend upon receipt of OTS approval of an updated
appraisal confirming the valuation. A change in the number of shares to be
issued in the conversion may materially affect pro forma consolidated
capitalization.
<TABLE>
<CAPTION>
Holding Company
Pro Forma Consolidated Capitalization
Based Upon the Sale of
-------------------------------------------------------------
Bank 1,615,000 1,900,000 2,185,000 2,512,750
Capitalization Shares at Shares at Shares at Shares at
as of $10.00 $10.00 $10.00 $10.00
September 30, 1998 Per Share(1) Per Share(1) Per Share(1) Per Share(2)
------------------ ------------ ------------ ------------ ------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Deposits(3)..................................... $90,961 $90,961 $90,961 $90,961 $90,961
Borrowings...................................... 3,645 3,645 3,645 3,645 3,645
------- ------- ------- ------- -------
Total deposits and borrowed funds............... $94,606 $94,606 $94,606 $94,606 $94,606
======= ======= ======= ======= =======
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01 par value per share,
authorized; none issued or outstanding.... $ -- $ -- $ -- $ -- $ --
Common stock:
9,000,000 shares, $.01 par value per share,
authorized; specified number of shares
assumed to be issued and outstanding(4)... -- 16 19 22 25
Additional paid-in capital...................... -- 15,463 18,278 21,092 24,329
Retained earnings(5)............................ 15,055 15,055 15,055 15,055 15,055
Accumulated other comprehensive income.......... 62 62 62 62 62
Less:
Common stock acquired by ESOP(6)............... -- (1,292) (1,520) (1,748) (2,010)
Common stock to be acquired by MRDP(7)......... -- (646) (760) (874) (1,005)
------- ------- ------- ------- -------
Total stockholders' equity...................... $15,117 $28,658 $31,134 $33,609 $36,456
======= ======= ======= ======= =======
</TABLE>
- ------------------------------
(1) Does not reflect the possible increase or decrease in the Estimated
Valuation Range to reflect material changes in the financial condition or
results of operations of First Federal or changes in market conditions or
general financial, economic and regulatory conditions, or the issuance of
additional shares under the Stock Option Plan.
(2) This column represents the pro forma capitalization of First Bancorp in the
event the aggregate number of shares of common stock issued in the
conversion is 15% above the maximum of the Estimated Valuation Range. See
"Pro Forma Data" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of common stock are not
reflected. Withdrawals to purchase common stock will reduce pro forma
deposits by the amounts of the withdrawals.
(4) First Federal's authorized capital consists solely of 1,000 shares of common
stock, par value $1.00 per share, 1,000 shares of which will be issued to
First Bancorp, and 9,000 shares of preferred stock, no par value per share,
none of which will be issued in connection with the conversion.
(5) Retained earnings are substantially restricted by applicable regulatory
capital requirements. Additionally, First Federal will be prohibited from
paying any dividend that would reduce its regulatory capital below the
amount in the liquidation account, which will be established for the benefit
of First Federal's eligible depositors as of June 30, 1997 and December 31,
1998 at the time of the conversion and adjusted downward thereafter as such
account holders reduce their balances or cease to be depositors. See "The
Conversion --Effects of Conversion on Depositors and Borrowers of First
Federal -- Liquidation Account."
(6) Assumes that 8% of the common stock sold in the conversion will be acquired
by the ESOP in the conversion with funds borrowed from First Bancorp. Under
generally accepted accounting principles, the amount of common stock to be
purchased by the ESOP represents unearned compensation and is, accordingly,
reflected as a reduction of capital. As shares are released to ESOP
participants' accounts, a corresponding reduction in the charge against
capital will occur. Since the funds are borrowed from First Bancorp, the
borrowing will be eliminated in consolidation and no liability or interest
expense will be reflected in the consolidated financial statements of First
Bancorp. See "Management of First Federal -- Benefits -- Employee Stock
Ownership Plan."
(7) Assumes the purchase in the open market at $10.00 per share, under the
proposed Management Recognition and Development Plan ("MRDP"), of a number
of shares equal to 4% of the shares of common stock issued in the conversion
at the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range. The shares are reflected as a reduction of stockholders'
equity. See "Risk Factors -- Issuance of shares for benefit programs may
reduce your ownership interest," "Pro Forma Data" and "Management of First
Federal -- Benefits -- Management Recognition and Development Plan." The
MRDP will require stockholder approval at a meeting following the
conversion.
20
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents First Federal's historical and pro forma
capital position relative to its capital requirements at September 30, 1998.
The amount of capital infused into First Federal for purposes of the following
table is 50% of the net proceeds of the offering. For purpose of the table
below, the amount expected to be borrowed by the ESOP and the cost of the shares
expected to be acquired by the MRDP are deducted from pro forma regulatory
capital. For a discussion of the assumptions underlying the pro forma capital
calculations presented below, see "Use of Proceeds," "Capitalization" and "Pro
Forma Data." The definitions of the terms used in the table are those provided
in the capital regulations issued by the OTS. For a discussion of the capital
standards applicable to First Federal, see "Regulation -- Federal Regulation of
Savings Associations -- Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT SEPTEMBER 30, 1998
-------------------------------------------------------------------------------------------------------
15% Above
Minimum of Estimated Midpoint of Estimated Maximum of Estimated Maximum of Estimated
Valuation Range Valuation Range Valuation Range Valuation Range
------------------- ------------------- ------------------- -------------------
Historical at 1,615,000 Shares 1,900,000 Shares 2,185,000 Shares 5,512,750 Shares
September 30, 1998 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
------------------ ------------------- ------------------- ------------------- -------------------
Percent of Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted Adjusted
Total Total Total Total Total
Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1)
------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Equity(2)........... $15,117 13.54% $20,918 17.62% $21,985 18.32% $23,052 19.00% $24,279 19.77%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Tangible capital(2)...... $15,056 13.47% $20,857 17.55% $21,924 18.25% $22,991 18.93% $24,218 19.70%
Tangible capital
requirement........... 1,676 1.50 1,783 1.50 1,802 1.50 1,822 1.50 1,844 1.50
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess................... $13,380 11.97% $19,074 16.05% $20,122 16.75% $21,169 17.43% $22,374 18.20%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Core capital(2).......... $15,056 13.47% $20,857 17.55% $21,924 18.25% $22,991 18.93% $24,218 19.70%
Core capital requirement. 3,353 3.00 3,565 3.00 3,604 3.00 3,643 3.00 3,688 3.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess................... $11,703 10.47% $17,292 14.55% $18,320 15.25% $19,348 15.93% $20,530 16.70%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Total risk-based
capital(3)............ $15,306 34.88% $21,107 46.59% $22,174 48.66% $23,241 50.72% $24,468 53.05%
Total risk-based capital
requirement........... 3,511 8.00 3,625 8.00 3,645 8.00 3,666 8.00 3,690 8.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess................... $11,795 26.88% $17,482 38.59% $18,529 40.66% $19,575 42.72% $20,778 45.05%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- ---------------
(1) Tangible capital levels and core capital levels are shown as a percentage
of adjusted total assets. Risk-based capital levels are shown as a
percentage of risk-weighted assets.
(2) Unrealized gains on investment securities account for the difference
between GAAP capital and each of tangible capital and core capital.
(3) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that
carry a 20% risk-weighting.
21
<PAGE>
PRO FORMA DATA
Under the Plan of Conversion, the common stock must be sold at a price
equal to the estimated pro forma market value of First Bancorp and First Federal
as converted, based upon an independent valuation. The Estimated Valuation
Range as of December 4, 1998 is from a minimum of $16,150,000 to a maximum of
$21,850,000 with a midpoint of $19,000,000. At a price per share of $10.00,
this results in a minimum number of shares of 1,615,000, a maximum number of
shares of 2,185,000 and a midpoint number of shares of 1,900,000. The actual
net proceeds from the sale of the common stock cannot be determined until the
conversion is completed. However, net proceeds contained in the following table
are based upon the following assumptions:
(1) Capital Resources will receive fees of approximately $175,000,
$207,000, $240,000 and $278,000 at the minimum, midpoint, maximum and
15% above the maximum of Estimated Valuation Range, respectively (see
"The Conversion --Plan of Distribution for the Subscription, Direct
Community and Syndicated Community Offerings");
(2) all of the common stock will be sold pursuant to subscription rights;
and
(3) conversion expenses, excluding the fees paid to Capital Resources,
will total approximately $496,000 at each of the minimum, midpoint,
maximum and 15% above the maximum of Estimated Valuation Range.
Actual expenses may vary from this estimate, and the fees paid will depend
upon whether a syndicate of broker-dealers or other means is necessary to sell
the shares, and other factors.
The following table summarizes the historical net income and retained
income of First Federal and the pro forma consolidated net income and
stockholders' equity of First Bancorp at and for the dates indicated based on
the minimum, midpoint and maximum of the Estimated Valuation Range and based on
a 15% increase in the maximum of the Estimated Valuation Range. The pro forma
consolidated net income of First Federal for the three months ended September
30, 1998 and the year ended June 30, 1998 has been calculated as if the
conversion had been consummated at the beginning of each period and the
estimated net proceeds received by First Bancorp and First Federal had been
invested at 4.41% at the beginning of each period, which represents the one-year
U.S. Treasury Bill yield as of September 30, 1998. While OTS regulations
provide for the use of a yield representing the arithmetic average of the
weighted average yield earned by First Federal on its interest-earning assets
and the rates paid on its deposits, First Bancorp believes that the U.S.
Treasury Bill yield represents a more realistic yield on the investment of the
conversion proceeds. As discussed under "Use of Proceeds," First Bancorp
expects to retain 50% of the net proceeds of the offering from which it will
fund the ESOP loan. A pro forma after-tax return of 2.65% is used for both
First Bancorp and First Federal for both the three months ended September 30,
1998 and the year ended June 30, 1998, after giving effect to an incremental
combined federal and state income tax rate of 40.0%. Historical and pro forma
per share amounts have been calculated by dividing historical and pro forma
amounts by the number of shares of common stock indicated in the footnotes to
the table. Per share amounts have been computed as if the common stock had been
outstanding at the beginning of the respective periods, but without any
adjustment of per share historical or pro forma stockholders' equity to reflect
the earnings on the estimated net proceeds.
No effect has been given to:
(1) the shares to be reserved for issuance under First Bancorp's Stock
Option Plan, which requires stockholder approval at a meeting
following the conversion;
(2) withdrawals from deposit accounts for the purpose of purchasing common
stock in the conversion;
22
<PAGE>
(3) the issuance of shares from authorized but unissued shares to the
MRDP, which requires stockholder approval at a meeting following the
conversion; or
(4) the establishment of a liquidation account for the benefit of eligible
depositors as of June 30, 1997 and December 31, 1998. See "Management
of First Federal -- Benefits -- Stock Option Plan" and "The
Conversion -- Stock Pricing and Number of Shares to be Issued."
The following pro forma information may not be representative of the
financial effects of the conversion at the date on which the conversion actually
occurs and should not be taken as indicative of future results of operations.
Stockholders' equity represents the difference between the stated amounts of
consolidated assets and liabilities of First Bancorp computed in accordance with
generally accepted accounting principles. Stockholders' equity has not been
increased or decreased to reflect the difference between the carrying value of
loans and other assets and market value. Stockholders' equity is not intended to
represent fair market value nor does it represent amounts that would be
available for distribution to stockholders in the event of liquidation.
23
<PAGE>
<TABLE>
<CAPTION>
At or For the Three Months Ended September 30, 1998
--------------------------------------------------------
15% Above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Valuation Valuation Valuation
Price Price Price Price
------------ ----------- ----------- ------------
1,615,000 1,900,000 2,185,000 2,512,750(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
------------ ----------- ----------- ------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds...................................... $ 16,150 $ 19,000 $ 21,850 $ 25,128
Less: estimated expenses........................... (671) (703) (736) (774)
---------- ---------- ---------- ----------
Estimated net proceeds.............................. 15,479 18,297 21,114 24,354
Less: common stock acquired by ESOP................ (1,292) (1,520) (1,748) (2,010)
Less: common stock to be acquired by MRDP.......... (646) (760) (874) (1,005)
---------- ---------- ---------- ----------
Net investable proceeds............................ $ 13,541 $ 16,017 $ 18,492 $ 21,339
========== ========== ========== ==========
Consolidated net income:
Historical......................................... $ 155 $ 155 $ 155 $ 155
Pro forma income on net proceeds(2)................ 90 106 123 141
Pro forma ESOP adjustments(3)...................... (16) (19) (22) (25)
Pro forma MRDP adjustments(4)...................... (19) (23) (26) (30)
---------- ---------- ---------- ----------
Pro forma net income............................. $ 210 $ 219 $ 230 $ 241
========== ========== ========== ==========
Consolidated net income per share(5)(6):
Historical......................................... $ 0.10 $ 0.09 $ 0.07 $ 0.06
Pro forma income on net proceeds(2)................ 0.06 0.06 0.06 0.06
Pro forma ESOP adjustments(3)...................... (0.01) (0.01) (0.01) (0.01)
Pro forma MRDP adjustments(4)...................... (0.01) (0.01) (0.01) (0.01)
---------- ---------- ---------- ----------
Pro forma net income per share................... $ 0.14 $ 0.13 $ 0.11 $ 0.10
========== ========== ========== ==========
Consolidated stockholders' equity (book value):
Historical......................................... $ 15,117 $ 15,117 $ 15,117 $ 15,117
Estimated net proceeds............................. 15,479 18,297 21,114 24,354
Less: common stock acquired by ESOP............... (1,292) (1,520) (1,748) (2,010)
Less: common stock to be acquired by MRDP(4)...... (646) (760) (874) (1,005)
---------- ---------- ---------- ----------
Pro forma stockholders' equity(7)................ $ 28,658 $ 31,134 $ 33,609 $ 36,456
========== ========== ========== ==========
Consolidated stockholders' equity per share(6)(8):
Historical(6)...................................... $ 9.36 $ 7.96 $ 6.92 $ 6.02
Estimated net proceeds............................. 9.58 9.63 9.66 9.69
Less: common stock acquired by ESOP............... (0.80) (0.80) (0.80) (0.80)
Less: common stock to be acquired by MRDP(4)...... (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share(7)...... $ 17.74 $ 16.39 $ 15.38 $ 14.51
========== ========== ========== ==========
Purchase price as a percentage of pro forma
stockholders' equity per share................... 56.37% 61.01% 65.02% 68.92%
Purchase price as a multiple of pro forma
net income per share(10)......................... 17.86x 19.23x 22.73x 25.00x
</TABLE>
(Footnotes on page __ )
24
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended June 30, 1998
-------------------------------------------------------
15% Above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Valuation Valuation Valuation
Price Price Price Price
----------- ---------- ---------- ------------
1,615,000 1,900,000 2,185,000 2,512,750(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
----------- ---------- ---------- ------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds..................................... $ 16,150 $ 19,000 $ 21,850 $ 25,128
Less: estimated expenses.......................... (671) (703) (736) (774)
---------- ---------- ---------- ----------
Estimated net proceeds............................. 15,479 18,297 21,114 24,354
Less: common stock acquired by ESOP............... (1,292) (1,520) (1,748) (2,010)
Less: common stock to be acquired by MRDP......... (646) (760) (874) (1,005)
---------- ---------- ---------- ----------
Net investable proceeds........................... $ 13,541 $ 16,017 $ 18,492 $ 21,339
========== ========== ========== ==========
Consolidated net income:
Historical........................................ $ 880 $ 880 $ 880 $ 880
Pro forma income on net proceeds(2)............... 359 424 490 565
Pro forma ESOP adjustments(3)..................... (65) (76) (87) (101)
Pro forma MRDP adjustments(4)..................... (78) (91) (105) (121)
---------- ---------- ---------- ----------
Pro forma net income............................ $ 1,096 $ 1,137 $ 1,178 $ 1,223
========== ========== ========== ==========
Consolidated net income per share(5)(6):
Historical........................................ $ 0.58 $ 0.50 $ 0.43 $ 0.38
Pro forma income on net proceeds(2)............... 0.24 0.24 0.24 0.24
Pro forma ESOP adjustments(3)..................... (0.04) (0.04) (0.04) (0.04)
Pro forma MRDP adjustments(4)..................... (0.05) (0.05) (0.05) (0.05)
---------- ---------- ---------- ----------
Pro forma net income per share.................. $ 0.73 $ 0.65 $ 0.58 $ 0.53
========== ========== ========== ==========
Consolidated stockholders' equity (book value):
Historical........................................ $ 14,949 $ 14,949 $ 14,949 $ 14,949
Estimated net proceeds............................ 15,479 18,297 21,114 24,354
Less: common stock acquired by ESOP.............. (1,292) (1,520) (1,748) (2,010)
Less: common stock to be acquired by MRDP(4)..... (646) (760) (874) (1,005)
---------- ---------- ---------- ----------
Pro forma stockholders' equity(7)............... $ 28,490 $ 30,966 $ 33,441 $ 36,288
========== ========== ========== ==========
Consolidated stockholders' equity per share(6)(8):
Historical(6)..................................... $ 9.26 $ 7.87 $ 6.84 $ 5.95
Estimated net proceeds............................ 9.58 9.63 9.66 9.69
Less: common stock acquired by ESOP.............. (0.80) (0.80) (0.80) (0.80)
Less: common stock to be acquired by MRDP(4)..... (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share(7)..... $ 17.64 $ 16.30 $ 15.30 $ 14.44
========== ========== ========== ==========
Purchase price as a percentage of pro forma
stockholders' equity per share.................. 56.69% 61.35% 65.36% 69.25%
Purchase price as a multiple of pro forma
net income per share(10)........................ 13.70x 15.38x 17.24x 18.87x
</TABLE>
(Footnotes on following page)
25
<PAGE>
- ----------------------------------------------
(1) Gives effect to the sale of an additional 327,750 shares in the conversion,
which may be issued to cover an increase in the pro forma market value of
First Bancorp and First Federal as converted, without the resolicitation of
subscribers or any right of cancellation. The issuance of such additional
shares will be conditioned on a determination by Capital Resources Group
that such issuance is compatible with its determination of the estimated
pro forma market value of First Bancorp and First Federal as converted.
See "The Conversion -- Stock Pricing and Number of Shares to be
Issued."
(2) No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing common stock in the conversion. Since funds on
deposit at First Federal may be withdrawn to purchase shares of common
stock (which will reduce deposits by the amount of such purchases), the net
amount of funds available to First Federal for investment following receipt
of the net proceeds of the conversion will be reduced by the amount of such
withdrawals.
(3) Assumes that the ESOP will purchase 8% of the shares of common stock
offered in the conversion. The funds used to acquire such shares will be
borrowed by the ESOP (at an interest rate equal to the prime rate as
published in The Wall Street Journal on the closing date of the conversion,
which rate is currently 7.75%) from the net proceeds from the conversion
retained by First Bancorp. The amount of this borrowing has been reflected
as a reduction from gross proceeds to determine estimated net investable
proceeds. First Federal intends to make contributions to the ESOP in
amounts at least equal to the principal and interest requirement of the
debt. As the debt is paid down, stockholders' equity will be increased.
First Federal's payment of the ESOP debt is based upon equal installments
of principal over a 12-year period, assuming a combined federal and state
income tax rate of 40.0%. Interest income earned by First Bancorp on the
ESOP debt offsets the interest paid by First Federal on the ESOP loan. No
reinvestment is assumed on proceeds contributed to fund the ESOP.
Applicable accounting practices require that compensation expense for the
ESOP be based upon shares committed to be released and that unallocated
shares be excluded from earnings per share computations. The valuation of
shares committed to be released would be based upon the average market
value of the shares during the year, which, for purposes of this
calculation, was assumed to be equal to the $10.00 per share purchase
price. See "Management of First Federal -- Benefits -- Employee Stock
Ownership Plan."
(4) In calculating the pro forma effect of the MRDP, it is assumed that the
required stockholder approval has been received, that the shares were
acquired by the MRDP at the beginning of the period presented in open
market purchases at the $10.00 per share purchase price, that 20% of the
amount contributed was an amortized expense during such period, and that
the combined federal and state income tax rate is 40.0%. The issuance of
authorized but unissued shares of the common stock instead of open market
purchases would dilute the voting interests of existing stockholders by
approximately 3.85% and pro forma net income per share would be $0.14,
$0.12, $0.11 and $0.10 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range for the three months ended
September 30, 1998, respectively, and $0.72, $0.63, $0.57 and $0.52 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range for the year ended June 30, 1998, respectively, and pro
forma stockholders' equity per share would be $17.45, $16.14, $15.17 and
$14.33 at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range at September 30, 1998, respectively $17.35,
$16.06, $15.10 and $14.27 at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range at June 30, 1998,
respectively. For purposes of this table, shares issued under the MRDP
vest 20% per year and compensation expense is recognized on a straight-line
basis over each vesting period. In the event the fair market value per
share is greater than $10.00 per share on the date shares are awarded under
the MRDP, total MRDP expense would increase. The total estimated MRDP
expense was multiplied by 20% (the total percent of shares for which
expense is recognized in the first year) resulting in pre-tax MRDP expense
of $32,300, $38,000, $43,700 and $50,300 at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range for the three
months ended September 30, 1998, respectively and $129,200, $152,000,
$174,800 and $201,000 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range for the year ended June 30, 1998,
respectively. No effect has been given to the shares reserved for issuance
under the proposed Stock Option Plan. Recently proposed accounting rules
would require First Bancorp to recognize compensation expense for stock
options awarded to non-employee directors.
(5) Per share amounts are based upon shares outstanding of 1,487,146,
1,749,583, 2,012,021 and 2,313,824 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range for the three months
ended September 30, 1998, respectively 1,491,183, 1,754,333, 2,017,483 and
2,320,106 at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range for the year ended June 30, 1998,
respectively, which includes the shares of common stock sold in the
conversion less the number of shares assumed to be held by the ESOP not
committed to be released within the first year following the conversion.
(6) Historical per share amounts have been computed as if the shares of common
stock expected to be issued in the conversion had been outstanding at the
beginning of the period or on the date shown, but without any adjustment of
historical net income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares in the
conversion, the additional ESOP expense or the proposed MRDP expense, as
described above.
(7) "Book value" represents the difference between the stated amounts of First
Federal's assets and liabilities. The amounts shown do not reflect the
liquidation account, which will be established for the benefit of eligible
depositors as of June 30, 1997 and December 31, 1998, or the federal income
tax consequences of the restoration to income of First Federal's special
bad debt reserves for income tax purposes which would be required in the
unlikely event of liquidation. See "The Conversion -- Effects of
Conversion to Stock Form on Depositors and Borrowers of First Federal" and
"Taxation." The amounts shown for book value do not represent fair market
values or amounts distributable to stockholders in the unlikely event of
liquidation.
(8) Per share amounts are based upon shares outstanding of 1,615,000,
1,900,000, 2,185,000 and 2,512,750 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively.
(9) Does not represent possible future price appreciation or depreciation of
the common stock.
(10) Annualized
26
<PAGE>
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as to the intended
purchases of common stock by each director and executive officer of First
Federal, including their associates, as defined by applicable regulations. No
individual has entered into a binding agreement with respect to such intended
purchases, and, therefore, actual purchases could be more or less than indicated
below. Directors and officers of First Federal and their associates may not
purchase in excess of 33% of the shares sold in the conversion. For purposes of
the following table, it has been assumed that sufficient shares will be
available to satisfy subscriptions in all categories. Directors, officers,
their associates and employees will pay the same price as all other subscribers
for the shares for which they subscribe.
<TABLE>
<CAPTION>
Percent of
Shares at
Maximum of
Anticipated Number of Anticipated Dollar Estimated
Name and Position Shares Purchased(1) Amount Purchased Valuation Range
- ----------------- --------------------- ----------------- ---------------
<S> <C> <C> <C>
Robert L. Clayton, Sr. 5,000 $ 50,000 0.2%
Director
Herbert V. Dassel 20,000 200,000 0.9
Director
Frank E. Kern 4,000 40,000 0.2
Director
James L. Will, Jr. 10,000 100,000 0.5
Director
Jerry Ziemer 15,000 150,000 0.7
Director
Harold Duncan 15,000 150,000 0.7
President, Chief Executive
Officer and Director
Michael H. Head 20,000 200,000 0.9
Executive Vice President and
Chief Operating Officer
Monica L. Stinchfield 1,000 10,000 0.0
Senior Vice President
Christopher A. Bengert 600 6,000 0.0
Senior Vice President and
Treasurer
Richard L. Witte 500 5,000 0.0
Vice President ------ -------- ---
91,000 $911,000 4.2%
====== ======== ===
</TABLE>
_____________________________
(1) Does not include any shares to be awarded under the ESOP and MRDP or options
to acquire shares awarded under the Stock Option Plan.
27
<PAGE>
FIRST FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
The following Consolidated Statement of Income of First Federal for the
fiscal years ended June 30, 1998, 1997 and 1996 has been audited by Olive LLP,
independent auditors, whose report appears elsewhere in this prospectus. The
Consolidated Statement of Income for the three months ended September 30, 1998
and 1997 was not audited by Olive LLP, but, in the opinion of management,
reflect all adjustments, none of which are other than normal recurring entries,
necessary for a fair presentation. The results of operations for the three
months ended September 30, 1998 are not necessarily indicative of the results of
operations that may be expected for the entire fiscal year. You should read
this statement in conjunction with the Consolidated Financial Statements and
related Notes included at the end of this prospectus.
<TABLE>
<CAPTION>
Three Months
Ended September 30, Years Ended June 30,
----------------------- -------------------------------------
1998 1997 1998 1997 1996
---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable, including fees...................... $ 744,657 $ 660,287 $2,694,771 $2,580,620 $2,602,248
Investment securities:
Mortgage-backed securities........................... 579,840 687,485 2,664,326 2,771,610 2,974,734
Other investment securities.......................... 249,833 350,283 1,443,477 1,313,347 873,474
Deposits with financial institutions.................. 231,809 164,250 818,200 719,044 713,306
Federal funds sold.................................... 10,302 9,436 35,277 30,592 32,532
Other interest and dividend income.................... 14,722 15,126 58,650 58,550 98,658
---------- ---------- ---------- ---------- ----------
Total interest income............................. 1,831,163 1,886,867 7,714,701 7,473,763 7,294,952
---------- ---------- ---------- ---------- ----------
Interest expense:
Deposits.............................................. 1,119,852 1,078,314 4,584,001 4,301,758 4,292,375
Borrowings............................................ 52,865 105,027 354,630 432,896 334,477
Other................................................. 11,892 8,315 37,993 27,893 17,717
---------- ---------- ---------- ---------- ----------
Total interest expense............................ 1,184,609 1,191,656 4,976,624 4,762,547 4,644,569
---------- ---------- ---------- ---------- ----------
Net interest income.................................... 646,554 695,211 2,738,077 2,711,216 2,650,383
Provision for loan losses.............................. -- -- -- -- 100,000
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses.... 646,554 695,211 2,738,077 2,711,216 2,550,383
---------- ---------- ---------- ---------- ----------
Other income:
Gain on disposal of branch office..................... -- -- 261,024 -- --
Gain on disposal of deposits.......................... -- -- 138,528 -- --
Increase in cash surrender values of life insurance... 23,334 19,704 87,234 81,975 83,364
Other income.......................................... 51,398 22,898 114,601 97,971 85,808
---------- ---------- ---------- ---------- ----------
Total other income................................ 74,732 42,602 601,387 179,946 169,172
---------- ---------- ---------- ---------- ----------
Other expense:
Salaries and employee benefits........................ 280,869 225,658 1,134,397 972,717 947,422
Net occupancy expense................................. 43,627 30,836 181,065 141,808 161,937
Equipment expense..................................... 28,233 17,623 103,749 65,660 62,273
Deposit insurance expense............................. 14,699 14,103 56,468 118,678 199,162
SAIF special assessment............................... -- -- -- 561,290 --
Data processing fees.................................. 25,672 21,622 99,478 86,588 88,621
Other expenses........................................ 112,843 104,912 469,117 444,622 441,242
---------- ---------- ---------- ---------- ----------
Total other expense............................... 505,943 414,754 2,044,274 2,391,363 1,900,657
---------- ---------- ---------- ---------- ----------
Income before income tax............................... 215,343 323,059 1,295,190 499,799 818,898
Income tax expense.................................... 60,776 107,729 415,486 112,439 198,852
---------- ---------- ---------- ---------- ----------
Net income............................................. $ 154,567 $ 215,330 $ 879,704 $ 387,360 $ 620,046
========== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of First Federal. The information contained in this
section should be read in conjunction with the consolidated financial statements
and accompanying notes contained in this prospectus.
Operating Strategy
The principal business activity of First Federal consists of attracting
deposits from the general public and originating loans secured by one-to-four
family residential real estate properties located in its market area. First
Federal also maintains a substantial investment portfolio of mortgage-backed and
other securities. Earnings depend primarily upon net interest income, which is
the difference between the interest income First Federal receives on its loan
and investment portfolios and the interest it pays on deposits and borrowings.
First Federal's profitability is also affected by the level of other income and
expenses. Other income includes service charges, fees and gains on sales of
loans. Other expenses include compensation and benefits, occupancy and
equipment expenses, deposit insurance premiums, and data processing. First
Federal's profitability is also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government legislation and regulation, and monetary and fiscal policies.
First Federal's strategy is to operate as an independent, retail financial
institution dedicated to financing home ownership and other consumer needs in
Evansville, Indiana. First Federal's operating philosophy has been to be
conservative with respect to its underwriting standards and maintain a high
level of asset quality, while generating profits, remaining well capitalized and
providing a high level of customer service. First Federal's current business
strategy includes an emphasis on increasing its mortgage loan, consumer loan and
loan servicing portfolios. It also includes continued maintenance of a
substantial investment portfolio of U.S. government and agency securities and
investment grade mortgage-backed securities and deposit growth to support the
growth in loans and investments. First Federal intends to expand its mortgage
loan and loan servicing portfolios through increased origination efforts and not
by lowering its underwriting standards. First Federal has recently expanded its
consumer lending activities by initiating an indirect automobile lending
program. See "Recent Developments -- Expansion of Consumer Lending
Operations."
The conversion will increase the consolidated capital of First Bancorp by
the amount of the net proceeds, after deduction for the shares to be sold to the
ESOP. Funds withdrawn from deposit accounts to purchase shares will decrease
interest-bearing liabilities, and new funds used to purchase shares will
increase interest-earning assets. While First Bancorp expects these changes to
increase its net interest income, First Bancorp also expects that the adoption
of the ESOP and the MRDP will increase its non-interest expenses. See "Risk
Factors --The implementation of benefit plans will increase future compensation
expense." For additional information regarding the effects of this offering,
see "Pro Forma Data."
Comparison of Financial Condition at September 30, 1998 and June 30, 1998
Total assets increased $2.7 million, or 2.4%, to $111.6 million at
September 30, 1998 compared to June 30, 1998. The largest increase was in
loans, which increased $2.5 million, or 7.09%. The increase in loans was
principally in real estate mortgage loans, and was a result of First Federal's
competitive mortgage interest rates in its target market, favorable nationwide
mortgage rates which spurred an increase in home purchases and refinancing, and
the results of hiring of a new loan originator in fiscal 1998. The growth in
loans was primarily funded by an increase in deposits of $1.7 million, or 1.9%.
The deposit increase can be attributed primarily to
29
<PAGE>
competitive interest rates offered on certificates of deposit and money market
accounts. Borrowings were unchanged.
Comparison of Financial Condition at June 30, 1998 and 1997
Total assets at June 30, 1998 were $109.0 million compared to $110.7
million at June 30, 1997. The decrease of $1.7 million, or 1.6%, was a result
of management's decision to use funds from maturing securities to fund loan
growth and debt maturities. In order to cover the liquidity needs of expected
loan growth, as investments matured, cash in excess of that needed for immediate
loans was maintained in cash and cash equivalents. Investment securities
decreased by $6.6 million. This was offset by a $3.5 million increase in loans.
The growth in loans was primarily in mortgage loans, which increased 12.2%, or
$3.8 million. The growth in mortgage loans was in part due to First Federal's
competitive mortgage rates, nationally decreasing rates, and the hiring of a
loan originator. First Federal reduced its borrowings from the Federal Home
Loan Bank by $3.4 million. The majority of this decrease was the payoff of $3.0
million in fixed rate advances from the FHLB in February 1998.
Equity capital increased $895,000 because of $880,000 in net income and a
$15,000 increase in the unrealized gain on securities available for sale due to
decreases in market rates of interest and a corresponding increase in the market
value of First Federal's investments.
Comparison of Operating Results for the Three Months Ended September 30, 1998
and 1997
General. Net income decreased by $60,000 to $155,000 for the three months
ended September 30, 1998 from $215,000 for the same period in 1997. The
decrease was primarily related to a decrease in net interest income caused by
the narrowing of First Federal's interest rate spread to 1.97% compared to 2.15%
for the first quarter last year and to increased other expenses. The decrease
in the interest rate spread is due to management's decision to offer competitive
mortgage interest rates in an effort to increase First Federal's loan portfolio,
and to offer certificates of deposit and money market accounts at rates slightly
higher than that of its competition to attract the funds to support loan
growth.
Net Interest Income. Net interest income decreased $49,000, or 7.1%, to
$646,000 in the first quarter of fiscal 1999 compared to the first quarter last
year primarily as a result of the narrowing of First Federal's interest rate
spread. Total interest income decreased by 3.0% to $1.8 million for the three
months ended September 30, 1998, from $1.9 million for the same period ending in
1997. This decrease was caused by both a reduced yield on investment securities
and a reallocation of the portfolio of interest earning assets from securities
to lower yielding deposits with financial institutions. Interest income on
loans increased as the result of the growth of the portfolio, while interest
income on investment securities decreased as a result of the reduction of the
portfolio and lower yields. During 1998, higher yielding securities were
prepaid or called by the issuer, which left First Federal with lower yielding
securities. Instead of reinvesting the proceeds of redeemed securities at lower
market rates, First Federal kept the funds in cash pending investment in loans.
The average yield on interest-earning assets decreased to 6.99% for the three
months ended September 30, 1998 from 7.16% for the three months ended September
30, 1997 primarily as a result of the maturity, repricing and repayment of
higher yielding securities.
Interest expense decreased by $7,000 for the three months ended September
30, 1998 in comparison to the same period in 1997. The average cost of total
interest bearing liabilities remained unchanged at 5.02%. The decrease in
interest expense resulted from a net decrease in average total interest bearing
liabilities of $659,000. The increase in average deposits included increases in
demand and savings accounts of $1.3 million and certificates of deposit of $1.3
million. These increases were offset by reduced borrowings.
The following table provides information as of September 30, 1998 regarding
the balances of interest-earning assets and interest-bearing liabilities and
their yields and costs. The following table provides for the three months ended
September 30, 1998 and 1997 information regarding average balances of assets and
liabilities as well as the total dollar amounts of interest income from average
interest-earning assets and interest expense on average interest-bearing
liabilities and average yields and costs.
30
<PAGE>
Average balances are presented on a daily average basis. Such yields and costs
for the periods indicated are derived by dividing income or expense by the
average balances of assets or liabilities, respectively, for the periods
presented.
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------------------------------------------
At September 30, 1998 1998 1997
------------------------ ----------------------------------- ---------------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Yield/Cost Balance Dividends Cost(1) Balance Dividends Cost(1)
--------- ----------- ---------- ----------- --------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans receivable, net(2)..... $ 38,183 7.79% $ 36,169 $ 744 8.23% $ 32,052 $ 660 8.24%
Investment securities........ 52,003 6.37 51,728 830 6.42 60,590 1,039 6.86
Deposits with financial
institutions............... 15,436 5.70 15,377 232 6.03 11,339 164 5.79
Federal funds sold........... 420 5.75 737 10 5.43 671 9 5.37
Other........................ 727 8.00 727 15 8.25 727 15 8.25
-------- -------- ------ -------- ------
Total interest-earning
assets.................... 106,769 6.79 104,738 1,831 6.99 105,379 1,887 7.16
Non-interest-earning assets.... 4,858 5,869 5,031
-------- -------- --------
Total assets............... $111,627 $110,607 $110,410
======== ======== ========
Interest-bearing liabilities:
Demand and savings
deposits.................... $ 22,226 2.94 $ 21,738 160 2.94 $ 20,376 135 2.65
Certificates of deposit...... 68,735 5.60 68,520 960 5.60 67,254 944 5.61
-------- -------- ------ -------- ------
Total deposits............. 90,961 4.95 90,258 1,120 4.96 87,630 1,079 4.93
Borrowings................... 3,645 5.50 3,645 53 5.82 7,050 105 5.96
Other........................ 519 9.59 475 12 10.11 357 8 8.96
-------- -------- ------ -------- ------
Total interest-bearing
liabilities.............. 95,125 5.00 94,378 1,185 5.02 95,037 1,192 5.02
-----
Noninterest-bearing
liabilities................... 1,385 1,209 1,220
Stockholders' equity........... 15,117 15,020 14,153
-------- -------- --------
Total liabilities and
stockholders' equity..... $111,627 $110,607 $110,410
======== ======== ========
Net interest income............ $ 646 $ 695
====== ======
Interest rate spread(3)........ 1.97% 2.14%
Net interest margin(4)......... 2.47% 2.64%
Ratio of average interest-earning
assets to average interest-bearing
liabilities.................. 110.98% 110.88%
</TABLE>
____________________________
(1) Amounts are annualized.
(2) Average loans receivable includes nonperforming loans. Interest income
includes interest and fees on loans, but does not include interest on loans
90 days or more past due.
(3) Yield on interest-earning assets less cost of interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning assets.
31
<PAGE>
The following table sets forth the effects of changing rates and volumes on
net interest income of First Federal. Information is provided with respect to
(1) effects on interest income attributable to changes in volume (changes in
volume multiplied by prior rate) and (2) effects on interest income attributable
to changes in rate (changes in rate multiplied by prior volume). Changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
Three Months Ended September 30,
1998 Compared to 1997
----------------------------------
Increase (Decrease)
Due to
--------------------
Rate Volume Net
-------- ---------- -------
(In Thousands)
<S> <C> <C> <C>
Interest earning assets:
Loans receivable, net(2)......................................... $ (1) $ 85 $ 84
Investment securities............................................ (64) (145) (209)
Deposits with financial institutions............................. 7 61 68
Federal funds sold............................................... -- 1 1
Other............................................................ -- -- --
---- ----- -----
Total net change in income on interest-earning assets.......... (58) 2 (56)
Interest-bearing liabilities:
Demand and savings deposits...................................... 15 10 25
Certificates of deposit.......................................... -- 16 16
---- ----- -----
Total deposits................................................. 15 26 41
Borrowings....................................................... (3) (49) (52)
Other............................................................ 1 3 4
---- ----- -----
Total net change in expense on interest-bearing liabilities.... 13 (20) (7)
---- ----- -----
Net change in net interest income.................................. $(71) $ 22 $ (49)
==== ===== =====
</TABLE>
Provision for Loan Losses. The provision for loan losses is determined by
management as the amount to be added to the allowance for loan losses after net
charge-offs have been deducted to bring the allowance to a level which is
considered adequate to absorb losses inherent in the loan portfolio. The Board
of Directors reviews the allowance for loan losses on a monthly basis. As a
result of First Federal's focus on residential mortgage loans and adherence to
strict underwriting and collection guidelines, First Federal's historical loan
loss experience has been low. No assurances, however, can be given as to future
loss experience. For the three months ended September 30, 1998 and 1997, First
Federal took no provision for loan losses.
Other Income. Other income increased $32,000 to $75,000 for the three
months ended September 30, 1998. This increase was primarily due to an increase
in ATM fees and increased gains on the sale of mortgage loans. Interest rates
declined during the three months ended September 30, 1998, which increased the
market value of loans originated by First Federal and then later sold.
Other Expense. Other expenses increased 22% to $506,000 for the three
months ended September 30, 1998 from $415,000 for the same period in 1997. The
majority of this increase is attributable to a 24.5% increase in salaries and
employee benefits. At September 30, 1998 First Federal had 40 employees
compared to 33 employees at September 30, 1997. With First Federal's increased
focus on the origination of mortgage loans, additional personnel were necessary
in the mortgage loan department in order to originate and service new loans.
Additional employees were also hired in the areas of technology and branch
administration.
32
<PAGE>
Income Tax Expense. Total income tax expense was $61,000 for the three
months ended September 30, 1998, compared to $108,000 for the three months ended
September 30, 1997. This decrease is associated with the decrease in income
before tax expense of $108,000. The effective tax rate was 28.2% for the three
months ending September 30, 1998, as compared to 33.3% for the same period in
1997.
Comparison of Operating Results for the Years Ended June 30, 1998, 1997 and 1996
General. Net income increased by $493,000 to $880,000 for the year ended
June 30, 1998, from $387,000 for the fiscal year ended June 30, 1997. The
majority of the increase was due to a branch sale in fiscal 1998 and the one-
time Savings Association Insurance Fund assessment in fiscal 1997. Net interest
income increased $27,000 or less than 1%.
Net income decreased by 38%, to $387,000 for the year ended June 30, 1997,
compared to $620,000 for the year ended June 30, 1996. Net interest income
increased by $61,000 from fiscal 1996 to fiscal 1997, but the one-time deposit
insurance fund assessment negatively impacted June 30, 1997 pre-tax income by
$561,000.
Net Interest Income. Net interest income increased less than 1% to $2.7
million in fiscal 1998. Interest income increased $241,000 to $7.7 million for
fiscal 1998 from $7.5 million for fiscal 1997. The increase was the result of
First Federal's increased focus on the origination of loans, which generated a
slightly higher rate of interest than investments, and to larger average
balances of investment securities and deposits with financial institutions. The
average yield on interest-earning assets increased to 7.12% for fiscal 1998 from
7.05% for fiscal 1997.
Interest expense increased by $214,000 to $5.0 million for fiscal 1998 from
$4.8 million for fiscal 1997. The increase in interest expense was due to an
increase in interest bearing deposits, primarily certificates of deposit, and a
12 basis point increase in the average cost of interest bearing liabilities.
Certificates of deposit were First Federal's largest type of interest-bearing
liability, comprising, on average, 73% of the total. The average balance of
certificates of deposit outstanding during the year increased $5.2 million, to
$71.8 million from $66.6 million for fiscal 1997. Additionally, the average
yield on certificates of deposit increased 8 basis points, to 5.68% from 5.60%
for fiscal 1997. Following the sale of a branch office and the opening of a new
office in October 1997 First Federal offered a short-term certificate of deposit
at an above-market rate in order to attract customers to its new branch. There
was also an increase in the average cost of borrowings, which was partially
offset by decreases in the average cost of demand and savings deposits and in
other interest bearing liabilities.
Net interest income increased $61,000, or 2.3%, from fiscal 1996 to fiscal
1997. Total interest income for fiscal 1997 increased by $179,000, or 2.5%,
over the prior year to $7.5 million. While the average yield on interest
earning assets decreased slightly to 7.05% for fiscal 1997 compared to 7.07% for
fiscal 1996, the average balance outstanding of interest-earning assets
increased by $2.9 million, to $106.1 million for fiscal 1997 from $103.2 million
for fiscal 1996. The largest increase was in investment securities.
Interest expense for fiscal 1997 increased $118,000, or 2.5%, over fiscal
1996 to $4.8 million. The average cost of interest-bearing liabilities was
essentially unchanged. However, the average balance of interest-bearing
liabilities increased 2.8% to $95.8 million for fiscal 1997 from $93.2 million
for fiscal 1996 as a result of increases in the average balances of certificates
of deposit and borrowings.
The following table sets forth for the years ended June 30, 1998, 1997 and
1996 information regarding average balances of assets and liabilities as well as
the total dollar amounts of interest income from average interest-earning assets
and interest expense on average interest-bearing liabilities and average yields
and costs. Average balances are presented on a daily average basis. Such
yields and costs for the periods indicated are derived by dividing income or
expense by the average balances of assets or liabilities, respectively, for the
periods presented.
33
<PAGE>
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ ------------------------------ ----------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate Balance Dividends Rate
-------- --------- ------ -------- --------- ------ ------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1).......... $ 32,675 $2,695 8.25% $ 32,000 $2,581 8.07% $ 31,916 $2,602 8.15%
Investment securities........ 60,379 4,108 6.80 60,034 4,085 6.80 57,782 3,848 6.66
Deposits with financial
institutions................ 13,909 818 5.88 12,729 719 5.65 12,134 713 5.88
Federal funds sold........... 637 35 5.49 572 31 5.42 587 33 5.62
Other........................ 727 59 8.12 727 58 7.98 762 99 12.99
-------- ------ -------- ------ -------- ------
Total interest-earning
assets..................... 108,327 7,715 7.12 106,062 7,474 7.05 103,181 7,295 7.07
Non-interest-earning assets... 5,589 4,822 4,691
-------- -------- --------
Total assets................ $113,916 $110,884 $107,872
======== ======== ========
Interest-bearing liabilities:
Demand and savings accounts.. $ 19,573 500 2.55 $ 21,379 571 2.67 $ 22,821 648 2.84
Certificates of deposit...... 71,847 4,084 5.68 66,636 3,731 5.60 64,565 3,644 5.64
-------- ------ -------- ------ -------- ------
Total deposits.............. 91,420 4,584 5.01 88,015 4,302 4.89 87,386 4,292 4.91
Borrowings................... 5,991 355 5.93 7,498 433 5.77 5,655 335 5.92
Other........................ 400 38 9.50 288 28 9.72 184 18 9.78
-------- ------ -------- ------ -------- ------
Total interest-bearing
liabilities................ 97,811 4,977 5.09 95,801 4,763 4.97 93,225 4,645 4.98
Non-interest-bearing
liabilities.................. 1,536 1,386 1,341
Stockholders' equity.......... 14,569 13,697 13,306
-------- -------- --------
Total liabilities and
stockholders' equity....... $113,916 $110,884 $107,872
======== ======== ========
Net interest income........... $2,738 $2,711 $2,650
====== ====== ======
Interest rate spread(2)....... 2.03% 2.08% 2.09%
Net interest margin(3)........ 2.53% 2.56% 2.57%
Ratio of average
interest-earning assets
to average interest-bearing
liabilities............... 110.75% 110.71% 110.68%
</TABLE>
- --------------------------------
(1) Average loans receivable includes nonperforming loans. Interest income
includes interest and fees on loans, but does not include interest on loans
90 days or more past due.
(2) Yield on interest-earning assets less cost of interest-bearing liabilities.
(3) Net interest income as a percentage of average interest-earning assets.
34
<PAGE>
The following table sets forth the effects of changing rates and volumes on
net interest income of First Federal for the years ended June 30, 1998, 1997 and
1996. Information is provided with respect to (1) effects on interest income
attributable to changes in volume (changes in volume multiplied by prior rate)
and (2) effects on interest income attributable to changes in rate (changes in
rate multiplied by prior volume). Changes attributable to the combined input of
volume and rate have allocated proportionately to the changes due to volume and
the changes due to rate.
<TABLE>
<CAPTION>
1998 vs. 1997 1997 vs. 1996
---------------------------- ------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------ --------------------
Rate Volume Net Rate Volume Net
------- ------- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Interest-earning assets:
Loans receivable, net.................... $ 59 $ 55 $114 $(28) $ 7 $(21)
Investment securities.................... (1) 24 23 84 153 237
Deposits with financial institutions..... 31 68 99 (24) 30 6
Federal funds sold....................... 1 3 4 (1) (1) (2)
Other.................................... 1 -- 1 (37) (4) (41)
---- ---- ---- ---- ---- ----
Total net change in income on
interest-earning assets.............. 91 150 241 (6) 185 179
Interest-bearing liabilities:
Demand and savings accounts.............. (24) (47) (71) (38) (39) (77)
Certificates of deposit.................. 57 296 353 (28) 115 87
---- ---- ---- ---- ---- ----
Total deposits.......................... 33 249 282 (66) 76 10
Borrowings............................... 11 (89) (78) (8) 106 98
Other.................................... (1) 11 10 -- 10 10
---- ---- ---- ---- ---- ----
Total net change in expense on
interest-bearing liabilities......... 43 171 214 (74) 192 118
---- ---- ---- ---- ---- ----
Net change in net interest income......... $ 48 $(21) $ 27 $ 68 $ (7) $ 61
==== ==== ==== ==== ==== ====
</TABLE>
Provision for Loan Losses. First Federal took no provision for loan losses
in fiscal 1998 or fiscal 1997 as it had no loan losses during those years. The
provision for loan losses was $100,000 in fiscal 1996, although there were no
losses that year. The provision reflected management's concerns about a
developing downturn in the economy. Although the economy remained healthy, the
subsequent growth of First Federal's loan portfolio and the fact that a loss on
a single loan could consume a significant amount of the allowance for loan
losses led management to maintain the size of the allowance.
Other Income. Other income increased by $422,000, to $601,000 for fiscal
1998 from $179,000 for fiscal 1997. Included in other income for fiscal 1998
are gains on the sale of real estate, equipment and deposit accounts from First
Federal's sale of its Mt. Vernon, Indiana branch in October 1997. First Federal
recognized gains on the sale of real estate and equipment of $261,000 and gains
on the sale of deposits of $139,000. The primary components of other income are
loan servicing, deposit, ATM and other customer fees, increases in cash
surrender value of life insurance, and gains on sales of loans.
Other income increased by 6.4% to $179,000 for fiscal 1997 from $169,000
for fiscal 1996.
Other Expense. Other expenses decreased by 14.5%, to $2.0 million during
fiscal 1998 from $2.4 million for fiscal 1997. This decrease was principally
associated with the $561,000 one time Savings Association Insurance Fund
assessment that was paid and expensed during fiscal 1997. Pursuant to
legislation enacted on September 30, 1996, the Federal Deposit Insurance
Corporation ("FDIC") imposed a one-time special assessment on deposits held by
financial institutions that are insured through the Savings Association
Insurance Fund.
35
<PAGE>
The special assessment was equal to $0.657 per $100 of insured deposits and was
required to be applied against deposits held as of March 31, 1995. The
assessment had the effect of reducing First Federal's assessment per $1,000 of
insured deposits, from $0.23 to $0.648. Salaries and employee benefits increased
$162,000, or 16.6%, from fiscal 1997. First Federal, in addition to normal
increases, added personnel to the mortgage loan department, technology, and
branch administration. In addition to selling the Mt. Vernon, Indiana branch, as
discussed above, First Federal also purchased a new branch location from another
financial institution and opened this location for business. Additional
personnel were added to operate this full-service branch. Net occupancy and
equipment expense also combined to reflect an increase of $77,000 for fiscal
1998 over fiscal 1997. Reasons for this increase included depreciation and
related costs for the new branch, as well as for significant improvements in the
area of technology.
Other expense for fiscal 1997 increased by $491,000, or 26%, over fiscal
1996. The biggest increase in other expense was the one-time deposit insurance
assessment. This was partially offset by a related decrease in federal deposit
insurance expense of $80,000. Without this one-time expense, other expenses
would have increased by less than 1% from fiscal 1996.
Income Tax Expense. Income tax expense increased $303,000 to $415,000 for
fiscal 1998 from $112,000 for fiscal 1997 as a result of the increase in taxable
income. The effective tax rate increased to 32% for fiscal 1998 from 22% for
fiscal 1997 due principally to an increased amount of earnings relative to a
consistent amount of tax credits from First Federal's investment in a low-income
apartment complex. First Federal receives approximately $73,000 per year in
low-income housing tax credits through this investment. Such credits are
expected to be available through February 2004.
Income tax expense decreased in fiscal 1997 from fiscal 1996 due to the
decrease in net income. The effective tax rate decreased to 22% for fiscal 1997
from 24% for fiscal 1996.
Market Risk Analysis
Quantitative Aspects of Market Risk. First Federal does not maintain a
trading account for any class of financial instrument nor does First Federal
engage in hedging activities or purchase high-risk derivative instruments.
Furthermore, First Federal is not subject to foreign currency exchange rate risk
or commodity price risk. For information regarding the sensitivity to interest
rate risk of First Federal's interest-earning assets and interest-bearing
liabilities, see the tables under "Business of First Federal -- Lending
Activities -- Loan Portfolio Analysis," "-- Investment Activities" and "--
Deposit Activities and Other Sources of Funds -- Deposit Accounts."
First Federal uses interest rate sensitivity analysis to measure its
interest rate risk by computing changes in net portfolio value of its cash flows
from assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates. Net portfolio value represents the
market value of portfolio equity and is equal to the market value of assets
minus the market value of liabilities, with adjustments made for off-balance
sheet items. This analysis assesses the risk of loss in market risk sensitive
instruments in the event of a sudden and sustained 100 to 400 basis point
increase or decrease in market interest rates with no effect given to any steps
that management might take to counter the effect of that interest rate movement.
Using data compiled by the OTS, First Federal receives a report that measures
interest rate risk by modeling the change in net portfolio value over a variety
of interest rate scenarios. This procedure for measuring interest rate risk was
developed by the OTS to replace the "gap" analysis, which is the difference
between interest-earning assets and interest-bearing liabilities that mature or
reprice within a specific time period.
The following table is provided by the OTS and sets forth the change in
First Federal's net portfolio value at September 30, 1998, based on OTS
assumptions, that would occur in the event of an immediate change in interest
rates, with no effect given to any steps that management might take to
counteract that change.
36
<PAGE>
<TABLE>
<CAPTION>
Interest Rate Sensitivity of Net Portfolio Value
-------------------------------------------------------------------
Net Portfolio Value Portfolio Value of Assets
-------------------------------------- ---------------------------
Basis Point ("bp")
Change in Rates $ Amount $ Change (1) % Change NPV Ratio Change
- ------------------ -------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
400bp 11,980 (5,057) (30.0)% 11.23% (364)bp
300 13,536 (3,502) (21.0) 12.43 (245)
200 15,030 (2,007) (12.0) 13.53 (135)
100 16,171 (867) (5.0) 14.32 (56)
0 17,037 14.87
(100) 17,564 526 3.0 15.16 29
(200) 18,133 1,095 6.0 15.47 60
(300) 18,862 1,825 11.0 15.89 101
(400) 19,625 2,588 15.0 16.31 144
</TABLE>
The above table indicates that in the event of a sudden and sustained
increase in prevailing market interest rates, First Federal's net portfolio
value would be expected to decrease.
Certain assumptions utilized by the OTS in assessing the interest rate risk
of savings associations within First Federal's region were utilized in preparing
the preceding table. These assumptions relate to interest rates, loan
prepayment rates, deposit decay rates, and the market values of certain assets
under differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
Qualitative Aspects of Market Risk. First Federal's principal financial
objective is to achieve long-term profitability while reducing its exposure to
fluctuating market interest rates. First Federal has sought to reduce the
exposure of its earnings to changes in market interest rates by attempting to
manage the mismatch between asset and liability maturities and interest rates.
In order to reduce the exposure to interest rate fluctuations, First Federal has
developed strategies to manage its liquidity and shorten its effective
maturities of certain interest-earning assets. Management has sought to decrease
the average maturity of its assets by (1) offering a variety of adjustable-rate
residential mortgage loans and consumer loans, all of which are retained by
First Federal for its portfolio, (2) purchasing mortgage-backed and related
securities with adjustable rates or estimated lives of five to ten years or
less, and (3) purchasing short- to intermediate-term investment securities. In
addition, First Federal sells a portion of its long-term, fixed-rate single-
family residential mortgage loans for cash in the secondary market. The
retention of ARM loans and adjustable-rate mortgage-backed securities, which
reprice at regular intervals, helps to ensure that the yield on First Federal's
loan portfolio will be sufficient to offset increases in First Federal's cost of
funds. However, periodic and lifetime interest rate adjustment limits may
prevent ARM loans from repricing to market interest rates during periods of
rapidly rising interest rates. First Federal does not use any hedging
techniques to manage the exposure of its assets to fluctuating market interest
rates. First Federal relies on retail deposits as its primary source of funds
and maintains a moderate proportion of lower-costing passbook, NOW and money
market accounts. First
37
<PAGE>
Federal has attempted to lengthen the term of deposits by offering certificates
of deposit with terms of up to ten years. Management believes retail deposits,
compared to brokered deposits, reduce the effects of interest rate fluctuations
because they generally represent a more stable source of funds.
Liquidity and Capital Resources
First Federal's principal sources of funds are proceeds from maturities of
investment securities, principal payments received on mortgage-backed and
related securities, loan repayments and deposits. While scheduled payments from
the amortization of loans, investment securities and interest-bearing time
deposits are relatively predictable sources of funds, deposit flows and loan or
investment security prepayments are greatly influenced by general interest
rates, economic conditions, and competition. First Federal has been able to
generate sufficient cash through its deposits and has been able to maintain its
borrowings from the Federal Home Loan Bank at a relatively low level. Funds
borrowed from the Federal Home Loan Bank are generally matched against higher
yielding assets of like amounts with similar maturities to provide a built in
margin of interest to First Federal.
First Federal must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. First Federal invests excess funds in overnight
deposits and other short-term interest-earning assets to provide liquidity to
meet these needs. At September 30, 1998, cash and cash equivalents totaled
$14.0 million, or 12.5% of total assets. At September 30, 1998, First Federal
had outstanding commitments to originate loans of $3.1 million. At the same
time, certificates of deposit which are scheduled to mature in one year or less
totaled $37.5 million. Based upon historical experience, management believes
the majority of maturing certificates of deposit will remain with First Federal.
In addition, management of First Federal believes that it can adjust the
offering rates of certificates of deposit to retain deposits in changing
interest rate environments. If a significant portion of these deposits are not
retained by First Federal, First Federal would be able to utilize Federal Home
Loan Bank advances to fund deposit withdrawals, which would result in an
increase in interest expense to the extent that the average rate paid on such
advances exceeds the average rate paid on deposits of similar duration.
Federal regulations require First Federal to maintain minimum levels of
liquid assets, such as cash and eligible investments. The required percentage
has varied from time to time based upon economic conditions and savings flows
and is currently 4% of the average daily balance of its net withdrawable savings
deposits and short-term borrowings. At September 30, 1998, First Federal's
liquidity ratio, defined as liquid assets as a percentage of net withdrawable
savings deposits and short-term borrowings, was 24.1%.
The primary investing activities of First Federal are originating loans and
purchasing investments and mortgage-backed securities. Proceeds from maturities
of investment securities and principal payments received on mortgage-backed and
related securities, net of purchases, totaled $6.8 million for the year ended
June 30, 1998, while loan originations in excess of repayments totaled $3.4
million. For the three months ended September 30, 1998, proceeds from
maturities of investment securities and principal payments received on mortgage-
backed and related securities, net of purchases totaled $1.8 million and loan
originations in excess of repayments totaled $2.5 million.
First Federal's most significant financing activities are deposit accounts
and Federal Home Loan Bank borrowings. The repayment of Federal Home Loan Bank
borrowings of $3.4 million was the primary use of cash during 1998. This cash
outflow was offset by net increases in deposits totaling $3.4 million during
1998. During the three months ended September 30, 1998, First Federal had no
change in Federal Home Loan Bank advances while the net increase in deposits was
$1.7 million.
Management believes its ability to generate funds internally will satisfy
its liquidity requirements. If First Federal requires funds beyond its ability
to generate them internally, it has the ability to borrow funds from the Federal
Home Loan Bank. At September 30, 1998, First Federal had approximately
$11.4
38
<PAGE>
million available to it under its borrowing arrangement with the Federal Home
Loan Bank. At September 30, 1998, First Federal had $3.6 million in advances
from the Federal Home Loan Bank.
OTS regulations require First Federal to maintain specific amounts of
capital. As of September 30, 1998, First Federal complied with all regulatory
capital requirements as of that date with tangible, core and risk-based capital
ratios of 13.5%, 13.5% and 34.9%, respectively. For a detailed discussion of
regulatory capital requirements, see "Regulation -- Federal Regulation of
Savings Associations -- Capital Requirements." See also "Historical And Pro
Forma Regulatory Capital Compliance."
Year 2000 Issues
First Federal is a user of computers, computer software and equipment
utilizing embedded microprocessors that will be affected by the year 2000
issue. The year 2000 issue exists because many computer systems and
applications use two-digit date fields to designate a year. As the century date
change occurs, date-sensitive systems may recognize the year 2000 as 1900, or
not at all. This inability to recognize or properly treat the year 2000 may
cause erroneous results, ranging from system malfunctions to incorrect or
incomplete processing.
First Federal established a year 2000 committee in 1997 which is headed by
the Chief Operating Officer and includes all department heads. The committee
has developed and is currently implementing a comprehensive plan to make all
information and non-information technology assets year 2000 compliant. The
committee provides periodic reports to the Board of Directors in order to assist
the directors in their year 2000 readiness oversight role. The plan is comprised
of the following phases:
(1) Awareness - Educational initiatives on year 2000 issues and concerns.
---------
This phase is ongoing, especially as it relates to informing customers
of First Federal's year 2000 preparedness.
(2) Assessment - Inventory of all technology assets and identification of
----------
third-party vendors and service providers. Fird Federal has completed
its inventory of software and hardward that could potentially be
effected by the year 2000 issue.
(3) Renovation - Review of vendor and service providers responses to First
----------
Federal's year 2000 inquiries and development of a follow-up plan and
timeline. This phase has been completed. None of First Federal's
vendors or service providers have indicated that they will be unable to
make their products year 2000 compliant on a timely basis.
(4) Validation - Testing all systems and third-party vendors for year 2000
----------
compliance. First Federal is currently in this phase of its plan. A
third-party service bureau processes all customer transactions and has
indicated to First Federal that it has completed upgrades to its
systems to be year 2000 compliant. First Federal will test the third
party systems by reviewing the results of transactions at six different
test dates before and after the year 2000 date change covering all of
the applications used by First Federal. Testing is scheduled to be
completed by March 31, 1999. If testing reveals that the third party
systems are not year 2000 compliant, First Federal's service bureau
intends to either transfer First Federal to other systems that are year
2000 compliant or provide additional resources to resolve the year 2000
issues. Other parties whose year 2000 compliance may effect First
Federal include Fannie Mae, the Federal Home Loan Bank-Indianapolis,
brokerage firms, the operator of First Federal's ATM network and First
Federal's pension plan administrator. These third parties have
indicated their compliance or intended compliance. Where it is possible
to do so, First Federal has scheduled testing with these third parties.
Where testing is not possible, First Federal will rely on
certifications from vendors and service providers. While reliance on
certifications is less preferable since it does not afford First
Federal the opportunity to confirm year 2000 compliance, First Federal
believes that failure of any
39
<PAGE>
certification to be accurate would form the basis of a breach of
warranty or similar claim against the vendor providing the
certification.
(5) Implementation - Replacement or repair of non-compliant technology. As
--------------
First Federal progresses through the validation phase, First Federal
expects to determine necessary remedial actions and provide for their
implementation. First Federal has already implemented a new year 2000
compliant computerized teller system and mortgage loan processing
system and has verified the year 2000 compliance of its computer
hardware and other equipment containing embedded microprocessors. First
Federal's plan provides for year 2000 readiness to be completed by mid-
1999.
First Federal estimates its total cost to replace computer equipment,
software programs or other equipment containing embedded microprocessors that
were not year 2000 compliant to be approximately $161,500. As of September 30,
1998, approximately $155,000 of this amount has been incurred. System
maintenance or modification costs are being expensed as incurred, while the cost
of new hardware, software or other equipment is capitalized and amortized over
their estimated useful lives. First Federal does not separately track the
internal costs and time that its own employees spend on year 2000 issues. Such
costs are principally payroll costs.
Because First Federal is substantially dependent on its computer systems
and the computer systems of third parties, the failure of these systems to be
year 2000 compliant could cause substantial disruption of First Federal's
business and could have a material adverse financial impact on First Federal.
Failure to resolve year 2000 issues presents the following risks to First
Federal, which First Federal believes reflects its most reasonably likely worst-
case scenario:
(1) First Federal could lose customers to other financial institutions,
resulting in a loss of revenue, if First Federal's third party service
bureau is unable to properly process customer transactions;
(2) Governmental agencies, such as the Federal Home Loan Bank, and
correspondent banks could fail to provide funds to First Federal,
which could materially impair First Federal's liquidity and affect
First Federal's ability to fund loans and deposit withdrawals;
(3) Concern on the part of depositors that year 2000 issues could impair
access to their deposit account balances could result in First Federal
experiencing deposit outflows prior to December 31, 1999; and
(4) First Federal could incur increased personnel costs if additional
staff is required to perform functions that inoperative systems would
have otherwise performed.
Management believes that it is not possible to estimate the potential lost
revenue due to the year 2000 issue, as the extent and longevity of any potential
problem cannot be predicted. Because substantially all of First Federal's loan
portfolio consists of residential mortgage and consumer loans, management
believes that year 2000 issues will not impair the ability of First Federal's
borrowers to repay their debt.
There can be no assurances that First Federal's year 2000 plan will
effectively address the year 2000 issue, that First Federal's estimates of the
timing and costs of completing the plan will ultimately be accurate or that the
impact of any failure of First Federal or its third-party vendors and service
providers to be year 2000 compliant will not have a material adverse effect on
First Federal's business, financial condition or results of operations.
40
<PAGE>
Impact of Accounting Pronouncements and Regulatory Policies
Comprehensive Income. Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," issued in July 1997, establishes standards for
reporting and presentation of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. It requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is presented with the same prominence as other
financial statements. SFAS No. 130 requires that companies (1) classify items
of other comprehensive income by their nature in a financial statement and (2)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
statement of financial condition. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Comparative financial statements are required
to be reclassified to reflect the provisions of this statement. First Federal
adopted SFAS No. 130 in the quarter ended September 30, 1998.
Segment Information. Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information,"
establishes standards for the way public business enterprises report information
about operating segments and establishes standards for related disclosures about
products and services, geographic areas and major customers. Operating segments
are components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Information
required to be disclosed includes segment profit or loss, certain specific
revenue and expense items, segment assets and certain other information. This
statement is effective for First Bancorp for financial statements issued for the
fiscal year ending June 30, 1999. Adoption of SFAS No. 131 is not anticipated to
have a significant effect upon the presentation of First Bancorp's financial
statements.
Employers' Disclosures about Pensions and Other Postretirement Benefits.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," issued in February 1998,
standardizes disclosure requirements for pensions and other postretirement
benefits and requires additional disclosure on changes in benefit obligations
and fair values of plan assets in order to facilitate financial analysis. This
statement is effective for First Bancorp for financial statements issued for the
fiscal year ending June 30, 1999. Adoption of SFAS No. 132 is not anticipated
to have a significant effect upon the presentation of First Bancorp's financial
statements.
Accounting for Derivative Instruments and Hedging Activities. In June
1998, the FASB issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments and
requires that all derivatives be recognized as either assets or liabilities in
the statement of financial position. Under this standard, all derivative
instruments should be measured at fair value. At the date of initial
application, an entity may transfer any held-to-maturity securities into the
available-for-sale category or the trading category, although First Bancorp has
no intention of doing so. An entity will then be able in the future to
designate a security transferred into the available-for-sale category as a
hedged item. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. First Bancorp intends to adopt this standard
effective July 1, 1999, although early adoption is permitted. Because First
Federal does not hold off-balance sheet derivative instruments or enter into
hedging transactions, adoption of this statement is not anticipated to have a
significant effect on First Bancorp's financial position or results of
operations.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
in this prospectus have been prepared in accordance with generally accepted
accounting principles, which require 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 due to inflation. The
impact of inflation is reflected in the increased cost of First Federal's
operations. Unlike most industrial companies, virtually all the assets and
liabilities of a
41
<PAGE>
financial institution are monetary in nature. As a result, interest rates
generally have a more significant impact on a financial institution's
performance than do general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
BUSINESS OF FIRST BANCORP
General
First Bancorp was organized as an Indiana business corporation at the
direction of First Federal in November 1998 for the purpose of becoming the
holding company for First Federal upon completion of the conversion. As a
result of the conversion, First Federal will be a wholly-owned subsidiary of
First Bancorp and all of the issued and outstanding capital stock of First
Federal will be owned by First Bancorp.
Business
Prior to the conversion, First Bancorp has not and will not engage in any
significant activities other than of an organizational nature. Upon completion
of the conversion, First Bancorp's sole business activity will be the ownership
of the outstanding capital stock of First Federal. First Bancorp also will hold
a note receivable from the ESOP. In the future, First Bancorp may acquire or
organize other operating subsidiaries, although there are no current plans,
arrangements, agreements or understandings, written or oral, to do so.
Initially, First Bancorp will neither own nor lease any property but will
instead use the premises, equipment and furniture of First Federal with the
payment of appropriate rental fees, as required by applicable law and
regulations.
Since First Bancorp will only hold the outstanding capital stock of First
Federal following completion of the conversion, the competitive conditions
applicable to First Bancorp will be the same as those confronting First Federal.
See "Business of First Federal -- Competition."
BUSINESS OF FIRST FEDERAL
General
First Federal was chartered in 1904 as an Indiana building and loan
association named "West Side Building, Loan and Savings Association." In 1934,
First Federal became a federal savings and loan association and adopted the name
"First Federal Savings and Loan Association of Evansville." In 1988, First
Federal became a federal savings bank and changed its name to "First Federal
Savings Bank."
First Federal is regulated by the OTS and the FDIC. First Federal's
deposits have been federally-insured by the FDIC since 1934 and are currently
insured by the FDIC under the Savings Association Insurance Fund. First Federal
has been a member of the Federal Home Loan Bank System since 1934.
Market Area
First Federal conducts its operations through four offices located in
Evansville, Indiana. Most of First Federal's depositors live in the areas
surrounding its branches and most of First Federal's loans are made to persons
in Evansville and the surrounding counties.
42
<PAGE>
Evansville, which is in the southwest corner of Indiana, had a population
of approximately 168,000 persons as of 1997. At May 1998, unemployment in
Vanderburgh County was 3.1%, compared with 2.8% for the State of Indiana and
4.3% for the United States. The service sector (primarily medical services) is
the largest source of employment. However, manufacturing has played an
increasingly larger role in recent years with the addition or reopening of
several plants. The area's largest manufacturers produce pharmaceuticals, home
appliances, aluminum and plastic products, and automobiles. Employers include
Whirlpool Corporation, Bristol-Myers Squibb, Alcoa, AK Steel, General Electric
and Toyota Motor Corp. Unemployment is currently low and First Federal believes
the outlook for the area's economy is positive.
First Federal faces intense competition for deposits and loan originations
from the many financial institutions conducting business within its market area.
Four commercial banks and three other savings banks have retail banking offices
in Vanderburgh County. Most of these financial institutions are larger than
First Federal. See "-- Competition" and "Risk Factors -- Competition has hurt
First Federal's net interest income."
Lending Activities
General. At September 30, 1998, loans receivable totaled $38.2 million,
which was 34.2% of total assets. The principal lending activity of First Federal
is the origination of mortgage loans for the purpose of purchasing or
refinancing one- to four-family residential property. To a significantly lesser
extent, First Federal also originates construction loans, mortgage loans secured
by commercial and multi-family real estate and consumer loans. Most of First
Federal's borrowers and the properties securing its loans are located in
Evansville, Indiana and the surrounding counties.
Loan Portfolio Analysis. The following table sets forth the composition of
First Federal's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
At September 30, ---------------------------------------------------------------
1998 1998 1997 1996
-------------------- ------------------- ------------------- -------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family............ $36,745 92.73% $33,493 90.95% $31,106 94.44% $31,240 93.70%
Construction................... 1,090 2.75 1,551 4.21 77 0.23 372 1.12
Commercial and multi-family.... 107 0.27 117 0.32 153 0.46 193 0.58
------- ------ ------- ------ ------- ------ ------- ------
Total mortgage loans.......... 37,942 95.75 35,161 95.48 31,336 95.13 31,805 95.40
Credit line equity.............. 997 2.52 937 2.55 1,047 3.18 997 2.99
Savings account loans........... 146 0.37 226 0.61 131 0.40 156 0.47
Consumer loans.................. 542 1.36 501 1.36 424 1.29 381 1.14
------- ------ ------- ------ ------- ------ ------- ------
Total loans................... 39,627 100.00% 36,825 100.00% 32,938 100.00% 33,339 100.00%
------- ====== ------- ====== ------- ====== ------- ======
Less:
Undisbursed loan funds......... 958 700 349 463
Deferred loan fees............. 236 220 175 185
Allowance for loan losses...... 250 250 250 250
------- ------- ------- -------
Net loans....................... $38,183 $35,655 $32,164 $32,441
======= ======= ======= =======
</TABLE>
The following table sets forth certain information at September 30, 1998
regarding the dollar amount of loans maturing in First Federal's portfolio based
on their scheduled contractual principal repayments. Demand loans, loans having
no stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less. Loan balances do not include undisbursed
loan funds, deferred loan fees and allowance for loan losses.
43
<PAGE>
<TABLE>
<CAPTION>
Amount Due
---------------------------------------------------------------
After
One After After
Year 3 Years 5 Years
Within Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 10 Years Total
--------- --------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Mortgage loans:
One- to four-family............. $2,252 $4,061 $4,130 $10,290 $16,012 $36,745
Construction.................... 20 43 50 158 819 1,090
Commercial and multi-family..... 19 34 31 23 -- 107
Credit line equity loans......... 207 484 306 -- -- 997
Savings account loans............ 146 -- -- -- -- 146
Consumer loans................... 156 268 118 -- -- 542
------ ------ ------ ------- ------- -------
Total......................... $2,800 $4,890 $4,635 $10,471 $16,831 $39,627
====== ====== ====== ======= ======= =======
</TABLE>
The following table sets forth, as of September 30, 1998, the dollar amount
of all loans due or repricing after September 30, 1999, based on their scheduled
contractual principal payments, which have fixed interest rates and have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Adjustable
Fixed-Rate Rate
------------ ------------
(In Thousands)
<S> <C> <C>
Mortgage loans:
One- to four-family.............. $30,630 $3,863
Construction..................... 1,070 --
Commercial and multi-family...... 7 81
Credit line equity loans............ -- 790
Savings account loans............... -- --
Consumer loans...................... 386 --
------- ------
Total........................ $32,093 $4,734
======= ======
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of loans is substantially less
than their contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give First Federal the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase, however, when current mortgage
loan market rates are substantially higher than rates on existing mortgage loans
and, conversely, decreases when rates on existing mortgage loans are
substantially higher than current mortgage loan market rates.
Residential Real Estate Loans. The primary lending activity of First
Federal is the origination of mortgage loans to enable borrowers to purchase
existing homes or to refinance existing mortgage loans. At September 30, 1998,
$36.7 million, or 92.7%, of First Federal's total loan portfolio consisted of
loans secured by residential real estate. At September 30, 1998, 10.7% of First
Federal's residential real estate loans were subject to periodic interest rate
adjustments and 89.3% were fixed-rate loans.
First Federal offers a variety of fixed and adjustable-rate mortgage loan
products. The loan fees charged, interest rates and other provisions of First
Federal's mortgage loans are determined by First Federal on the basis of its own
pricing criteria and market conditions. Generally, all loans originated by
44
<PAGE>
First Federal conform to Fannie Mae underwriting standards. First Federal's
fixed-rate loans typically have maturities of 15 to 30 years, although 30-year
loans constitute the largest percentage of originations. First Federal also
offers five and seven year balloon mortgages based on a 30-year amortization
schedule. First Federal's ARM loans are typically based on a 30-year
amortization schedule. Interest rates and payments on First Federal's ARM loans
generally are adjusted annually after a specified period ranging from one to ten
years to a rate typically equal to 2.75% above the one-year constant maturity
U.S. Treasury index. First Federal currently offers ARM loans with initial
rates below those which would prevail under the foregoing computation,
determined by First Federal based on market factors and competitive rates for
loans having similar features offered by other lenders for such initial periods.
The maximum amount by which the interest rate may be increased or decreased in a
given period on First Federal's ARM loans is generally 2% per adjustment period
and the lifetime interest rate cap is generally 6% over the initial interest
rate of the loan. First Federal qualifies the borrower based on the borrower's
ability to repay the ARM loan based on the maximum interest rate at the first
adjustment, in the case of one-year ARM loans, and based on the initial interest
rate in the case of ARM loans that adjust after three or more years. First
Federal does not originate negative amortization loans. The terms and
conditions of the ARM loans offered by First Federal, including the index for
interest rates, may vary from time to time. First Federal believes that the
annual adjustment feature of its ARM loans also provides flexibility to meet
competitive conditions as to initial rate concessions while preserving First
Federal's return on equity objectives by limiting the duration of the initial
rate concession.
Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment. As a result of
the low interest rate environment in recent years, First Federal has experienced
a strong customer preference for fixed-rate loans.
The retention of ARM loans in First Federal's loan portfolio helps reduce
First Federal's exposure to changes in the interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to changed rates to be paid by the customer. It is possible that, during
periods of rising interest rates, the risk of default on ARM loans may increase
as a result of repricing and the increased costs to the borrower. Furthermore,
because the ARM loans originated by First Federal generally provide, as a
marketing incentive, for initial rates of interest below the rates which would
apply were the adjustment index used for pricing initially (discounting), these
loans are subject to increased risks of default or delinquency. Another
consideration is that although ARM loans allow First Federal to increase the
sensitivity of its asset base to changes in interest rates, the extent of this
interest sensitivity is limited by the periodic and lifetime interest rate
adjustment limits. Because of these considerations, First Federal has no
assurance that yields on ARM loans will be sufficient to offset increases in
First Federal's cost of funds.
While fixed-rate single-family residential real estate loans are normally
originated with 15- to 30-year terms, and First Federal permits its ARM loans to
be assumed by qualified borrowers, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all mortgage loans in First
Federal's loan portfolio contain due-on-sale clauses providing that First
Federal may declare the unpaid amount due and payable upon the sale of the
property securing the loan. First Federal enforces these due-on-sale clauses to
the extent permitted by law and as business judgment dictates. Thus, average
loan maturity is a function of, among other factors, the level of purchase and
sale activity in the real estate market, prevailing interest rates and the
interest rates payable on outstanding loans.
First Federal requires title insurance insuring the status of its first
lien on real estate secured loans and also requires that the fire and extended
coverage casualty insurance (and, if appropriate, flood insurance) be maintained
in an amount at least equal to the outstanding loan balance.
45
<PAGE>
First Federal's residential mortgage loans typically do not exceed 80% of
the appraised value of the property. The First Federal's lending policies
permit First Federal to lend up to 97% of the appraised value of the property;
however, First Federal generally requires private mortgage insurance on the
portion of the principal amount that exceeds 80% of the appraised value of the
property. First Federal obtains appraisals on all first mortgage real estate
loans from outside appraisers.
Construction Loans. First Federal originates loans to individuals for the
construction of their personal residence. Recently, First Federal began
originating loans to local home builders. Construction loans to individuals are
made on the same terms as First Federal's residential mortgage loans, but
provide for the payment of interest only during the construction phase, which is
usually six months. At the end of the construction phase, the loan converts to
a permanent mortgage loan. First Federal's construction loans to builders
generally have fixed interest rates and are for a term of up to 18 months. Loans
to builders are usually made on a speculative basis, which means that the
builder has not identified a purchaser for the home at the time the loan is
made. Builders are evaluated on a case-by-case basis to establish a maximum
credit limit, however the maximum amount that First Federal will loan to any one
builder is $750,000. At September 30, 1998, First Federal had no outstanding
construction loans to builders. First Federal occasionally originates loans for
the purchase of residential building lots. Most of these loans have terms of
five years or less and may have fixed or adjustable rates. At September 30,
1998, First Federal did not have any land loans outstanding.
Construction lending is generally considered to involve a higher degree of
risk than single-family permanent mortgage lending because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost of the project. The nature of these loans is such that
they are generally more difficult to evaluate and monitor. If the estimate of
construction cost proves to be inaccurate, First Federal may be required to
advance funds beyond the amount originally committed to permit completion of the
project. If the estimate of value upon completion proves to be inaccurate, the
Company may be confronted with a project whose value is insufficient to assure
full repayment. Projects may also be jeopardized by disagreements between
borrowers and builders and by the failure of builders to pay subcontractors.
Loans to builders to construct homes for which no purchaser has been identified
carry more risk because the payoff for the loan is dependent on the builder's
ability to sell the property prior to the time that the construction loan is
due.
First Federal has attempted to minimize the foregoing risks by, among other
things, monitoring the project and controlling the disbursement of funds. Prior
to making a commitment to fund a construction loan, First Federal requires an
appraisal of the property. First Federal also reviews and inspects each project
prior to disbursement of funds during the term of the construction loan. In
most cases, loan proceeds are disbursed after inspection of the project based on
percentage of completion.
Commercial and Multi-Family Real Estate Loans. First Federal engages in a
limited amount of commercial and multi-family real estate lending. At September
30, 1998, commercial and multi-family real estate loans in First Federal's
portfolio totaled $107,000 and consisted of three loans. The maximum loan-to-
value ratio for a commercial or multi-family real estate loan is 75%. The
maximum term for a commercial or multi-family real estate loan is 15 years and
the maximum loan amount is $1,000,000. The majority of First Federal's
commercial real estate loans have been secured by small office buildings, motels
and retail establishments in Indiana.
Loans secured by commercial and multi-family real estate generally are
larger and involve greater risks than one- to four-family residential mortgage
loans. Payments on loans secured by such properties are often dependent on
successful operation or management of the properties. Repayment of such loans
may be subject to a greater extent to adverse conditions in the real estate
market or the economy. First Federal seeks to minimize these risks in a variety
of ways, including limiting the size of such loans and strictly scrutinizing the
financial condition of the borrower, the quality of the collateral and the
management of the property securing the loan. The properties securing First
Federal's commercial and multi-family real estate loans are inspected
46
<PAGE>
by First Federal's lending personnel before the loan is made. First Federal also
obtains appraisals on each property in accordance with applicable regulations.
Consumer and Other Loans. At September 30, 1998, First Federal's consumer
and other loans totaled approximately $1.7 million, or 4.3% of First Federal's
total loans. First Federal's consumer and other loans consist primarily of
credit line equity loans, savings account loans and automobile loans. In January
1999, First Federal significantly expanded its consumer lending operations. See
"Recent Developments - - Expansion of Consumer Lending Operations."
First Federal originates home equity loans in the form of lines of credit.
At September 30, 1998, First Federal had $997,000 of credit line equity loans
and unused commitments to extend credit under credit line equity loans of $2.2
million. Most of these loans are made to existing customers. First Federal's
home equity loans have variable interest rates tied to the prime lending rate.
First Federal imposes a maximum loan-to-value ratio of 80% after considering
both the first and second mortgage loans. First Federal's home equity loans may
have greater credit risk than one- to four-family residential mortgage loans
because they are secured by mortgages subordinated to an existing first mortgage
on the property, which, in most cases, is held by First Federal.
First Federal makes savings account loans for up to 90% of the depositor's
account balance. The interest rate is normally 2.0% or 3.0% above the rate paid
on the deposit account, depending on the type of account, and the account must
be pledged as collateral to secure the loan. Savings account loans are payable
on demand, although interest must be paid every six months.
First Federal originates consumer loans secured by automobiles and,
occasionally, boats and other recreational vehicles. Automobile loans are
secured by both new and used cars and light trucks. Both new and used cars are
financed for a period of up to 60 months and the rate on such loans is fixed for
the term of the loan.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not
warrant further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and thus are more
likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Furthermore, the application of various Federal and state laws,
including Federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans. Such loans may also give rise to claims
and defenses by a consumer loan borrower against an assignee of such loans such
as First Federal, and a borrower may be able to assert against such assignee
claims and defenses that it has against the seller of the underlying collateral.
Loan Solicitation and Processing. Loan applicants come through direct
solicitation by First Federal's branch managers and commissioned loan
originators, as well as through referrals by realtors and past and present
customers. First Federal does not advertise extensively. All types of loans may
be originated and closed in any of First Federal's offices. Loans are serviced
from First Federal's main office.
Upon receipt of a loan application from a prospective borrower, a credit
report and other data are obtained to verify specific information relating to
the loan applicant's employment, income and credit standing. An appraisal of
the real estate offered as collateral generally is undertaken by a fee appraiser
approved by First Federal and licensed or certified by the State of Indiana.
47
<PAGE>
Loans in the amount of less than $200,000 must be approved by two members
of First Federal's Executive Committee, one of which must be First Federal's
President. The Executive Committee consists of First Federal's President,
Executive Vice President and members of the Board of Directors. Loans of
$200,000 or more must be approved by a majority of First Federal's Executive
Committee.
Loan applicants are promptly notified of the decision of First Federal.
Interest rates are subject to change if the approved loan is not closed within
the time of the commitment, which usually is 45 days.
Loan Originations, Sales and Purchases. In an effort to manage its
interest rate risk position, First Federal generally sells the fixed-rate
mortgage loans with terms in excess of 15 years that it originates. However,
since the beginning of 1998, First Federal has retained selected 30-year, fixed-
rate loans in order to build its loan portfolio and increase the yield on its
interest-earning assets. The sale of loans in the secondary mortgage market
reduces First Federal's risk that the interest rates paid to depositors will
increase while First Federal holds long-term, fixed-rate loans in its portfolio.
It also allows First Federal to continue to fund loans when savings flows
decline or funds are not otherwise available. First Federal generally sells
loans without recourse to Fannie Mae with servicing retained. Gains, net of
origination expense, from the sale of such loans are recorded at the time of
sale. Generally a loan is committed to be sold and a price for the loan is
fixed after the loan is approved by the Executive Committee and the interest
rate is approved by the customer. This eliminates the risk to First Federal
that a rise in market interest rates will reduce the value of a mortgage before
it can be sold.
In the past First Federal has supplemented its loan originations through
the purchase of whole loans and loan participations. However, First Federal has
not purchased any loans or loan participations in many years.
At September 30, 1998, First Federal was servicing loans for others (Fannie
Mae) amounting to approximately $9.1 million. Servicing loans for others
generally consists of collecting mortgage payments, maintaining escrow accounts,
disbursing payments to investors and foreclosure processing. Loan servicing
income is recorded on the accrual basis and includes servicing fees from
investors.
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Three Months
Ended
September 30, Years Ended June 30,
------------------------------------------------
1998 1997 1998 1997 1996
------ ------ ------- ------ -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loan originated:
Mortgage loans:
One- to four-family.......................... $5,471 $ 971 $11,557 $3,974 $ 6,057
Construction................................. 406 433 1,767 571 850
Commercial and multi-family.................. -- -- -- -- --
Credit line equity loans...................... 277 185 848 818 907
Savings account loans......................... 32 33 249 85 242
Consumer loans................................ 87 44 398 290 151
------ ------ ------- ------ -------
Total loans originated..................... 6,273 1,666 14,819 5,738 8,207
Loans purchased............................... -- -- -- -- --
Loans sold.................................... 1,361 203 1,844 627 543
Mortgage loan principal repayments............ 1,998 2,069 8,379 5,289 6,633
Increase (decrease) in other items, net....... (386) (174) (1,105) (99) (1,082)
------ ------ ------- ------ -------
Net increase (decrease) in loans receivable... $2,528 $ (780) $ 3,491 $ (277) $ (51)
====== ====== ======= ====== =======
</TABLE>
48
<PAGE>
Loan Commitments. First Federal issues commitments for fixed- and
adjustable-rate one- to four-family residential mortgage loans conditioned upon
the occurrence of certain events. Such commitments are made on specified terms
and conditions and are honored for up to 45 days from the date of loan approval.
First Federal had outstanding mortgage loan commitments of approximately
$876,000 at September 30, 1998, $793,000 and $83,000 of which were at fixed and
adjustable rates, respectively. At September 30, 1998, First Federal also had
commitments to fund $2.2 million of credit line equity loans. See Note 9 of
Notes to Consolidated Financial Statements.
Loan Origination and Other Fees. First Federal, in most instances,
receives loan origination fees and discount "points." Loan fees and points are
a percentage of the principal amount of the mortgage loan which are charged to
the borrower for funding the loan. The amount of points charged by First
Federal generally is 1%. Current accounting standards require fees received (net
of certain loan origination costs) for originating loans to be deferred and
amortized into interest income over the contractual life of the loan. Net
deferred fees or charges associated with loans that are prepaid are recognized
as income adjustments at the time of prepayment. First Federal had $236,000 of
net deferred mortgage loan fees at September 30, 1998.
Nonperforming Assets and Delinquencies. First Federal generates reports
regarding delinquent loans at regular intervals each month to enable management
to track their status. First Federal also generates a series of notices at
regular intervals to inform mortgage loan borrowers when a required payment is
past due. When a payment becomes 30 days past due, First Federal contacts the
borrower by letter. If a satisfactory response is not obtained, continuous
follow-up contacts, including contact by telephone, are attempted until the loan
has been brought current. Before the 90th day of delinquency, attempts to
interview the borrower, preferably in person, are made to establish the cause
of the delinquency, whether the cause is temporary, the attitude of the
borrower toward the debt, and a mutually satisfactory arrangement for curing
the default. In most cases, delinquencies are cured promptly; however, if by
the 91st day of delinquency, or sooner if the borrower is chronically delinquent
and all reasonable means of obtaining payment on time have been exhausted,
foreclosure, according to the terms of the security instrument and applicable
law, is approved by the Board of Directors.
When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, First Federal institutes collection
procedures. The first notice is mailed to the borrower 15 days following the
payment due date. A computer-generated collection report is received by First
Federal daily. The customer is contacted by telephone to ascertain the nature
of the delinquency. In most cases, delinquencies are cured promptly; however,
if, by the 45th day following the grace period of delinquency no progress has
been made, a written notice is mailed informing the borrowers of their right to
cure the delinquency within 20 days and of First Federal's intent to begin legal
action if the delinquency is not corrected. Depending on the type of property
held as collateral, First Federal either obtains a judgment in small claims
court or takes action to repossess the collateral.
Loans are placed on nonaccrual status when they become 90 days past due.
Nonaccrual loans are returned to accrual status when they become less than 90
days past due.
First Federal's Board of Directors is informed on a monthly basis as to the
status of all mortgage and consumer loans that are delinquent 60 days or more,
the status on all loans currently in foreclosure, and the status of all
foreclosed and repossessed property owned by First Federal.
49
<PAGE>
The following table sets forth information with respect to First Federal's
nonperforming assets and restructured loans within the meaning of SFAS No. 15 at
the dates indicated.
<TABLE>
<CAPTION>
At At June 30,
September 30, -----------------------------
1998 1998 1997 1996
----------- ----- ----- -----
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Loans accounted for on a nonaccrual basis.............. $ -- $ -- $ 27 $ --
Accruing loans past due 90 days or more................ -- -- -- --
----- ----- ----- -----
Nonperforming loans.................................... -- -- 27 --
Real estate owned (net)................................ -- -- -- --
----- ----- ----- -----
Total nonperforming assets........................ $ -- $ -- $ 27 $ --
===== ===== ===== =====
Restructured loans..................................... -- -- -- --
Total loans delinquent 90 days or more to net loans.... N/A N/A 0.08% N/A
Total loans delinquent 90 days or more to total assets. N/A N/A 0.02% N/A
Total nonperforming assets to total assets............. N/A N/A 0.02% N/A
</TABLE>
Real Estate Owned. Real estate acquired by First Federal as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until it is sold. When property is acquired it is recorded at the lower of its
cost, which is the unpaid principal balance of the related loan plus foreclosure
costs, or fair market value. Subsequent to foreclosure, the property is carried
at the lower of the foreclosed amount or fair value. Upon receipt of a new
appraisal and market analysis, the carrying value is written down through a
charge to income, if appropriate. At September 30, 1998, First Federal had no
real estate owned.
Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets must have one or more defined weaknesses
and are characterized by the distinct possibility that the insured institution
will sustain some loss if the deficiencies are not corrected. Doubtful assets
have the weaknesses of substandard assets with the additional characteristic
that the weaknesses make collection or liquidation in full on the basis of
currently existing facts, conditions and values questionable, and there is a
high possibility of loss. An asset classified loss is considered uncollectible
and of such little value that continuance as an asset of the institution without
establishment of a specific reserve is not warranted. If an asset or portion
thereof is classified loss, the insured institution establishes specific
allowances for loan losses for the full amount of the portion of the asset
classified loss. A portion of general loan loss allowances established to cover
possible losses related to assets classified substandard or doubtful may be
included in determining an institution's regulatory capital, while specific
valuation allowances for loan losses generally do not qualify as regulatory
capital. OTS regulations also require that assets that do not currently expose
an institution to a sufficient degree of risk to warrant classification as loss,
doubtful or substandard but do possess credit deficiencies or potential weakness
deserving management's close attention shall be designated "special mention" by
either the institution or its examiners.
First Federal reviews and classifies its assets on a monthly basis. At
September 30, 1998 First Federal had no loans classified as loss, doubtful or
substandard. At such date First Federal had two one- to four-family mortgage
loans aggregating $153,000 classified as special mention. First Federal had no
impaired loans at September 30, 1998 or at June 30, 1998, 1997 and 1996.
Allowance for Loan Losses. In originating loans, First Federal recognizes
that losses will be experienced and that the risk of loss will vary with, among
other things, the type of loan being made, the creditworthiness of the borrower
over the term of the loan, general economic conditions and, in the case of a
50
<PAGE>
secured loan, the quality of the security for the loan. The allowance method is
used in providing for loan losses: all loan losses are charged to the allowance
and all recoveries are credited to it. The allowance for loan losses is
established through a provision for loan losses charged to First Federal's
income. The provision for loan losses is based on management's periodic
evaluation of First Federal's past loan loss experience, changes in the
composition of the portfolio, the current condition and amount of loans
outstanding and the probability of collecting all amounts due.
At September 30, 1998, First Federal had an allowance for loan losses of
$250,000, which represented 0.65% of total loans. Management believes that the
amount maintained in the allowances will be adequate to absorb losses inherent
in the portfolio. Although management believes that it uses the best
information available to make such determinations, future adjustments to the
allowance for loan losses may be necessary and results of operations could be
significantly and adversely affected if circumstances differ substantially from
the assumptions used in making the determinations. While First Federal believes
it has established its existing allowance for loan losses in accordance with
generally accepted accounting principles, there can be no assurance that First
Federal's regulators, in reviewing First Federal's loan portfolio, will not
request First Federal to increase significantly its allowance for loan losses.
In addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that substantial increases will not be necessary
should the quality of any loans deteriorate as a result of the factors discussed
above. Any material increase in the allowance for loan losses may adversely
affect First Federal's financial condition and results of operations.
The following table sets forth an analysis of First Federal's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
Three Months
Ended
September 30, Years Ended June 30,
----------------- ---------------------------
1998 1997 1998 1997 1996
----- ----- ------ ------- ------
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Allowance at beginning of period............... $ 250 $ 250 $ 250 $ 250 $ 150
Provision for loan losses...................... -- -- -- -- 100
Charge-offs.................................... -- -- -- -- --
Recoveries..................................... -- -- -- -- --
----- ------- ----- ------- -----
Net charge-offs................................ -- -- -- -- --
----- ------- ----- ------- -----
Allowance at end of period.................. $ 250 $ 250 $ 250 $ 250 $ 250
===== ======= ===== ======= =====
Ratio of allowance to total loans
outstanding at the end of the period........ 0.65% 0.79% 0.70% 0.77% 0.76%
Ratio of net charge-offs to average loans
outstanding during the period............... N/A N/A N/A N/A N/A
Allowance for loan losses to
nonperforming loans......................... N/A 925.93% N/A 925.93% N/A
</TABLE>
51
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
At September 30, -------------------------------------------------------------
1998 1998 1997 1996
----------------- ------------------ ------------------ -------------------
% of % of % of % of
Loans in Loans in Loans in Loans in
Each Each Each Each
Category Category Category Category
to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ --------- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans............. $225 95.75% $225 95.48% $250 95.13% $ 250 95.40%
Consumer and
other loans.............. 25 4.25 25 4.52 -- 4.87 -- 4.60
Unallocated................ -- N/A -- N/A -- N/A -- N/A
---- ------ ---- ------ ----- ------ ----- ------
Total allowance for
loan losses.......... $250 100.00% $250 100.00% $250 100.00% $ 250 100.00%
==== ====== ==== ====== ==== ====== ===== ======
</TABLE>
Investment Activities
First Federal is permitted under applicable law to invest in various types
of liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the Federal
Home Loan Bank-Indianapolis, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Subject to
various restrictions, savings institutions may also invest a portion of their
assets in commercial paper, corporate debt securities and mutual funds. Savings
institutions like First Federal are also required to maintain an investment in
Federal Home Loan Bank stock and a minimum level of liquid assets. See
"Regulation" and "Management's Discussion And Analysis of Financial Condition
And Results of Operations --Liquidity and Capital Resources."
First Federal must categorize its investments as "held to maturity,"
"trading" or "available for sale," based on management's intent as to the
ultimate disposition of each security. Debt securities may be classified as
"held to maturity" and reported in financial statements at amortized cost only
if First Federal has the positive intent and ability to hold those securities to
maturity. Securities that might be sold in response to changes in market
interest rates, changes in the security's prepayment risk, increases in loan
demand, or other similar factors cannot be classified as "held to maturity."
Debt and equity securities held for current resale are classified as "trading."
Such securities are reported at fair value, and unrealized gains and losses on
such securities would be included in earnings. First Federal does not currently
use or maintain a trading account. Debt and equity securities not classified as
either "held to maturity" or "trading" are classified as "available for sale."
Such securities are reported at fair value, and unrealized gains and losses on
such securities are excluded from earnings and reported as a net amount in a
separate component of equity.
First Federal's President determines appropriate investments in accordance
with the Board of Directors' approved investment policies and procedures.
Investments are made following certain considerations, which include First
Federal's liquidity position and anticipated cash needs and sources, which in
turn include outstanding commitments, upcoming maturities, estimated deposits
and anticipated loan amortization and repayments. Further, the effect that the
proposed investment would have on First Federal's credit and interest rate risk,
and risk-based capital is given consideration during the evaluation. The
interest rate, yield,
52
<PAGE>
settlement date and maturity are also reviewed. The Board of Directors must
ratify all investments up to $3 million and must provide its prior approval for
any investments above such amount.
First Federal purchases investments to provide necessary liquidity for day-
to-day operations and to manage First Federal's interest rate risk and overall
credit risk profile. In recent years First Federal has purchased mortgage-
backed and related securities when investable funds exceed loan demand.
First Federal maintains a significant portfolio of mortgage-backed and
related securities. Almost all of these securities were issued by Fannie Mae,
Freddie Mac or Ginnie Mae. Mortgage-backed securities generally entitle First
Federal to receive a pro rata portion of the cash flows from an identified pool
of mortgages. Ginnie Mae certificates are guaranteed as to principal and
interest by the full faith and credit of the United States, while Fannie Mae and
Freddie Mac certificates are guaranteed by Fannie Mae and Freddie Mac.
Approximately 41.7% of First Federal's mortgage-backed securities are real
estate mortgage investment conduits ("REMICs"), which are created by redirecting
the cash flows from a pool of mortgages or mortgage-backed securities to create
two or more classes (or tranches) with different maturity or risk
characteristics designed to meet a variety of investor needs and preferences.
Management believes these securities represent attractive alternatives relative
to other investments due to the wide variety of maturity, repayment and interest
rate options available. Current investment practices of First Federal prohibit
the purchase of high risk REMICs. At September 30, 1998, 53.2% of First
Federal's mortgage-backed securities were adjustable rate and 46.8% were fixed
rate.
Of First Federal's $36.8 million mortgage-backed securities portfolio at
September 30, 1998, $6.5 million had contractual maturities within ten years and
$30.3 million had contractual maturities over ten years. However, the actual
maturity of a mortgage-backed security may be less than its stated maturity due
to prepayments of the underlying mortgages. Prepayments that are faster than
anticipated may shorten the life of the security and may result in a loss of any
premiums paid and thereby reduce the net yield on such securities. Although
prepayments of underlying mortgages depend on many factors, including the type
of mortgages, the coupon rate, the age of mortgages, the geographical location
of the underlying real estate collateralizing the mortgages and general levels
of market interest rates, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, if the coupon rate of the underlying
mortgages exceeds the prevailing market interest rates offered for mortgage
loans, refinancing generally increases and accelerates the prepayment of the
underlying mortgages and the related security. Under such circumstances, First
Federal may be subject to reinvestment risk because, to the extent that First
Federal's mortgage-backed securities amortize or prepay faster than anticipated,
First Federal may not be able to reinvest the proceeds of such repayments and
prepayments at a comparable rate. In contrast to mortgage-backed securities in
which cash flow is received (and hence, prepayment risk is shared) pro rata by
all securities holders, the cash flow from the mortgages or mortgage-backed
securities underlying REMICs are segmented and paid in accordance with a
predetermined priority to investors holding various tranches of such securities
or obligations. A particular tranche of REMICs may therefore carry prepayment
risk that differs from that of both the underlying collateral and other
tranches.
A portion of First Federal's investment portfolio consists of corporate
securities and commercial paper. First Federal's investment policy requires that
such investments have one of the two highest ratings by a nationally recognized
rating agency such as Standard & Poor's or Moody's. A high credit rating
indicates only that the rating agency believes there is a low risk of default.
However, all of First Federal's investment securities, including those that have
high credit ratings, are subject to market risk insofar as increases in market
rates of interest may cause a decrease in their market value. Corporate
securities are also subject to credit risk insofar as the payment obligations on
such securities are dependent on the successful operation of the issuer's
business. First Federal purchased corporate obligations, most of which have
fixed interest rates, because they offered a yield higher than that available
for U.S. Government Agency obligations of similar duration.
53
<PAGE>
First Federal also maintains a small investment in collateralized auto
obligations. These asset-backed securities are similar to mortgage-backed
securities in that they generally entitle First Federal to receive a pro rata
portion of the cash flows from an identified pool of auto loans. As with
corporate securities, First Federal's investment policy requires that such
investments have one of the two highest ratings by a nationally recognized
rating agency. First Federal purchased these securities, which generally have
fixed interest rates, because they offered a yield higher than that available
for U.S. Government Agency obligations of similar duration.
The following table sets forth First Federal's investment securities
portfolio at carrying value at the dates indicated.
<TABLE>
<CAPTION>
At At June 30,
September 30, ----------------------------
1998 1998 1997 1996
------------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities.......... $ 4,016 $ 4,376 $ 7,864 $11,862
Held to maturity:
U.S. Government Agency obligations.. 8,235 10,232 16,201 15,688
Collateralized auto obligations..... 1,008 1,009 249 570
Corporate obligations............... 2,944 2,956 -- --
Mortgage-backed securities.......... 32,819 31,169 33,530 29,745
Commercial paper.................... 2,981 3,998 2,490 988
------- ------- ------- -------
Total held to maturity............. 47,987 49,364 52,470 46,991
------- ------- ------- -------
Total............................ $52,003 $53,740 $60,334 $58,853
======= ======= ======= =======
</TABLE>
At September 30, 1998, First Federal held a mortgage-backed security issued
by First Alliance Mortgage Loan Trust that had a book value of $2.0 million and
a market value of $2.0 million. The security has been rated AAA by Standard &
Poor's and Aaa by Moody's and is insured by MBIA Insurance Corporation. First
Federal held no other securities by an issuer where the aggregate book value of
the securities exceeded 10% of the equity capital of First Federal at September
30, 1998, except for securities issued by the U.S. Government or U.S. Government
agencies and corporations.
54
<PAGE>
The following table sets forth the maturities and weighted average yields
of the securities in First Federal's investment securities portfolio at
September 30, 1998. Expected maturities of mortgage-backed securities will
differ from contractual maturities due to scheduled repayments and because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties.
<TABLE>
<CAPTION>
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
----------------- --------------- -------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ----- ------ ----- ------ ----- ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities......... $ -- --% $ 704 7.72% $ 546 7.70% $ 2,766 7.32%
Held to maturity:
U.S. Government Agency
obligations..................... 1,197 7.16 3,000 6.09 3,040 7.11 998 7.00
Collateralized auto obligations.... -- -- 1,008 5.65 -- -- -- --
Corporate obligations.............. 1,001 5.55 1,943 5.99 -- -- -- --
Mortgage-backed securities......... -- -- 1,183 7.43 4,087 6.61 27,549 6.60
Commercial paper................... 2,981 5.61 -- -- -- -- -- --
------ ------ ------ -------
Total held to maturity............ 5,179 5.95 7,134 6.22 7,127 6.82 28,547 6.61
------ ------ ------ -------
Total........................... $5,179 5.95 $7,838 5.36 $7,673 6.89 $31,313 6.68
====== ====== ====== =======
</TABLE>
The following table sets forth the carrying value of investment securities
which have fixed interest rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
At September 30,
1998
----------------------
Floating or
Fixed Adjustable
Rates Rates
----------------------
<S> <C> <C>
(In Thousands)
Available for sale:
Mortgage-backed securities.......... $ 2,086 $ 1,930
Held to maturity:
U.S. Government Agency obligations.... 8,235 --
Collateralized auto obligations..... 1,008 --
Corporate obligations................. 2,944 --
Mortgage-backed securities............ 15,165 17,654
Commercial paper...................... 2,981 --
------- -------
Total held to maturity.............. 30,333 17,654
------- -------
Total investment securities....... $32,419 $19,584
======= =======
</TABLE>
55
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of First
Federal's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings from Federal Home Loan Bank-
Indianapolis may be used to compensate for reductions in the availability of
funds from other sources. First Federal had no other borrowing arrangements at
September 30, 1998.
Deposit Accounts. Substantially all of First Federal's depositors are
residents of the State of Indiana. Deposits are attracted from within First
Federal's market area through the offering of a broad selection of deposit
instruments, including NOW checking accounts, money market deposit accounts,
regular savings accounts, certificates of deposit and retirement savings plans.
Deposit account terms vary according to the minimum balance required, the time
periods the funds must remain on deposit and the interest rate, among other
factors. In determining the terms of its deposit accounts, First Federal
considers current market interest rates, profitability to First Federal,
matching deposit and loan products and its customer preferences and concerns.
First Federal generally reviews its deposit mix and pricing weekly. In recent
years First Federal has offered amongst the highest deposit rates in its market
area in order to complete with larger financial institutions that provide a
wider range of products and services. First Federal is evaluating the
possibility of expanding its checking account program as a means of attracting
lower cost funding.
In the unlikely event First Federal is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to First Bancorp as the sole stockholder of First Federal.
The following table indicates the amount of First Federal's jumbo
certificates of deposit by time remaining until maturity as of September 30,
1998. Jumbo certificates of deposit represent minimum deposits of $100,000.
<TABLE>
<CAPTION>
Maturity
Period Amount
- ------------------------------- -------------
(In Thousands)
<S> <C>
Three months or less.............. $ 447
Over three through six months..... 1,164
Over six through twelve months.... 2,304
Over twelve months................ 3,363
------
Total.......................... $7,278
======
</TABLE>
The following table sets forth the certificates of deposits in First
Federal classified by rates at the dates indicated.
<TABLE>
<CAPTION>
At At June 30,
September 30, ---------------------------------
1998 1998 1997 1996
-------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C>
4.00 - 4.99%.......... $ 8,200 $ 7,771 $11,657 $14,555
5.00 - 5.99%.......... 36,753 35,999 36,503 31,104
6.00 - 6.99%.......... 22,174 22,803 17,482 17,028
7.00 - 7.99%.......... 1,286 1,299 1,506 2,814
8.00 - 8.99%.......... 120 144 464 484
9.00 - 9.99%.......... 183 183 307 285
------- ------- ------- -------
Total.......... $68,736 $68,199 $67,919 $66,270
======= ======= ======= =======
</TABLE>
56
<PAGE>
The following table sets forth the amount and maturities of time deposits
at September 30, 1998.
<TABLE>
<CAPTION>
Amount Due
-----------------------------------------------
Less Than 1 - 2 2 - 3 3 - 4 After
One Year Years Years Years 4 Years
-------- ------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
4.00 - 4.99%.... $ 7,985 $ 235 $ -- $ -- $ --
5.00 - 5.99%.... 21,842 9,985 3,615 781 530
6.00 - 6.99%.... 7,468 14,010 59 237 400
7.00 - 7.99%.... -- 690 48 435 113
8.00 - 8.99%.... 69 19 32 -- --
9.00 - 9.99%.... 183 -- -- -- --
------- ------- ------ ------ ------
Total....... $37,547 $24,939 $3,754 $1,453 $1,043
======= ======= ====== ====== ======
</TABLE>
57
<PAGE>
The following table sets forth the balances and changes in dollar amounts
of deposits in the various types of accounts offered by First Federal between
the dates indicated.
<TABLE>
<CAPTION>
At September 30,
1998 1998
--------------------------------- --------------------------------------------
Percent Percent
of Increase/ of Increase/
Amount Total Decrease Amount Total Decrease
-------- -------- ---------- -------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits................................... $11,866 13.04% $1,242 $10,624 11.91% $ 1,714
Savings deposits.................................. 10,359 11.39 (47) 10,406 11.66 (1,325)
Certificates which mature:
Within 1 year.................................... 37,547 41.28 1,845 35,702 40.01 (7,287)
After 1 year, but within 2 years................. 24,939 27.42 (430) 25,369 28.43 8,771
After 2 years, but within 5 years................ 5,790 6.36 (785) 6,575 7.37 (836)
Certificates maturing thereafter................. 460 0.51 (93) 553 0.62 (368)
------- ------ ------ ------- ------ -------
Total........................................... $90,961 100.00% $1,732 $89,229 100.00% $ 669
======= ====== ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------
1997 1996
-------------------------------- -------------------
Percent Percent
of Increase/ of
Amount Total Decrease Amount Total
--------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
Demand deposits................................... $ 8,910 10.06% $(1,131) $10,041 11.30%
Savings deposits.................................. 11,731 13.25 (802) 12,533 14.11
Certificates which mature:
Within 1 year.................................... 42,989 48.54 7,388 35,601 40.07
After 1 year, but within 2 years................. 16,598 18.74 (3,580) 20,178 22.71
After 2 years, but within 5 years................ 7,411 8.37 (1,449) 8,860 9.97
Certificates maturing thereafter................. 921 1.04 (710) 1,631 1.84
------- ------ ------- ------- ------
Total........................................... $88,560 100.00% $ (284) $88,844 100.00%
======= ====== ======= ======= ======
</TABLE>
The following table sets forth the deposit activities of First Federal for the
periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Years Ended June 30,
----------------------------------------------------
1998 1997 1998 1997 1996
-------- -------- -------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance................................ $89,229 $88,560 $88,560 $88,844 $86,886
Net increase (decrease) before................... 1,410 (2,279) (2,582) (3,140) (836)
interest credited
Interest credited................................ 322 404 3,251 2,856 2,794
------- ------- ------- ------- -------
Net increase (decrease) in deposits.............. 1,732 (1,875) 669 (284) 1,958
------- ------- ------- ------- -------
Ending balance................................... $90,961 $86,685 $89,229 $88,560 $88,844
======= ======= ======= ======= =======
</TABLE>
58
<PAGE>
Borrowings. First Federal has the ability to use advances from the Federal
Home Loan Bank-Indianapolis to supplement its supply of lendable funds and to
meet deposit withdrawal requirements. The Federal Home Loan Bank-Indianapolis
functions as a central reserve bank providing credit for savings and loan
associations and certain other member financial institutions. As a member,
First Federal is required to own capital stock in the Federal Home Loan Bank-
Indianapolis and is authorized to apply for advances on the security of such
stock and certain of its mortgage loans and other assets (principally securities
which are obligations of, or guaranteed by, the U.S. Government) provided
certain creditworthiness standards have been met. Advances are made under
several different credit programs. Each credit program has its own interest
rate and range of maturities. Depending on the program, limitations on the
amount of advances are based on the financial condition of the member
institution and the adequacy of collateral pledged to secure the credit. At
September 30, 1998, First Federal had a borrowing capacity of $33.4 million
based on available collateral.
The following table sets forth certain information regarding First
Federal's use of Federal Home Loan Bank advances during the periods
indicated.
<TABLE>
<CAPTION>
Three Months
Ended
September 30, Years Ended June 30,
---------------- --------------------------
1998 1997 1998 1997 1996
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Maximum balance at any month end................... $3,645 $7,050 $7,050 $7,500 $8,000
Average balance.................................... 3,645 7,050 5,991 7,498 5,655
Period end balance................................. 3,645 7,050 3,645 7,050 7,500
Weighted average interest rate:
At end of period................................. 5.58% 5.88% 5.77% 5.91% 5.78%
During the period................................ 5.75 5.91 5.93 5.77 5.92
</TABLE>
Competition
First Federal faces intense competition in the attraction of savings
deposits (its primary source of lendable funds) and in the origination of loans.
Its most direct competition for savings deposits has historically come from
other thrift institutions, credit unions and from commercial banks located in
its market area. First Federal has faced additional significant competition for
investors' funds from short-term money market securities and other corporate and
government securities. First Federal's competition for loans comes principally
from other thrift institutions, commercial banks, credit unions, mortgage
banking companies and mortgage brokers.
Personnel
As of September 30, 1998, First Federal had 39 full-time employees and 1
part-time employee. The employees are not represented by a collective
bargaining unit and First Federal believes its relationship with its employees
is good.
Subsidiary Activities
First Federal has one subsidiary, FFSL Service Corporation, Inc. Federal
savings associations generally may invest up to 3% of their assets in service
corporations, provided that any amount in excess of 2% is used primarily for
community, inner-city and community development projects. At September 30, 1998,
First Federal's equity investment in its subsidiary was $268,000, or 0.2% of
total assets. First Federal used the service corporation in 1994 to purchase a
$500,000 equity interest in a limited partnership organized to build, own and
operate a 44-unit low-income apartment complex. The limited partnership
generates low-income housing credits of approximately $73,000 per year.
59
<PAGE>
Properties
The following table sets forth First Federal's offices, as well as certain
additional information relating to these offices, as of September 30, 1998.
First Federal owns all of its offices.
<TABLE>
<CAPTION>
Year Approximate
Location Opened Net Book Value (1) Square Footage
- -------- ---------- -------------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Main Office
- -----------
2200 West Franklin Street 1904 $313 17,507
Evansville, Indiana
Branch Offices
- --------------
2028 Division Street 1956 95 5,276
Evansville, Indiana
1001 N. Green River Road 1981 514 2,603
Evansville, Indiana
4451 N. First Avenue 1997 581 7,300
Evansville, Indiana
</TABLE>
----------------------------------
(1) Represents the net book value of land, buildings, furniture, fixtures and
equipment owned by First Federal.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving First
Federal, such as claims to enforce liens, condemnation proceedings on properties
in which First Federal holds security interests, claims involving the making and
servicing of real property loans and other issues incident to First Federal's
business. In the opinion of management, after consultation with First
Federal's legal counsel, no significant loss is expected from any of such
pending claims or lawsuits. Except as described below, First Federal is not a
party to any material pending legal proceedings.
On January 8, 1999, Fidelity Federal Bancorp and its wholly owned
subsidiary, United Fidelity Bank, FSB, filed suit in Vanderburgh County Superior
Court (82D039901CP61) against First Federal in connection with First Federal's
actions in hiring new personnel for its consumer lending department, all of whom
were previously employed by United Fidelity Bank. The plaintiffs allege three
counts in their complaint. In the first count, the plaintiffs allege that First
Federal tortiously interfered with the plaintiff's contractual relationships
with its employees by intentionally inducing six persons to simultaneously break
their employment contracts and/or relationships with United Fidelity Bank. The
plaintiffs allege that First Federal's actions have effectively shut down the
consumer loan department of United Fidelity Bank and have caused damage to
United Fidelity Bank, including lost profits and damage to its reputation. In
the second count, the plaintiffs seek to impose a constructive trust on the
future profits generated by First Federal's consumer loan department in order to
avoid the unjust
60
<PAGE>
enrichment of First Federal. In the third count, the plaintiffs allege that
through the development of its consumer lending department United Fidelity Bank
had developed practices, policies, methods and procedures as well as customer
and prospective customer information which it considered proprietary and
confidential and that First Federal has misappropriated these trade secrets. The
complaint requests injunctive relief prohibiting First Federal from using the
information alleged to constitute trade secrets, unspecified monetary damages
and recovery of reasonable attorneys' fees and costs. As of the date of this
prospectus, the plaintiffs have not sought a temporary restraining order, a
preliminary injunction or any other interim relief. The Bank is in the process
of answering the plaintiffs' complaint and intends to vigorously defend the
action. No trial date has been set.
MANAGEMENT OF FIRST BANCORP
Directors shall be elected by the stockholders of First Bancorp for
staggered three-year terms, or until their successors are elected and qualified.
First Bancorp's Board of Directors consists of six persons divided into three
classes, each of which contains one third of the Board. One class, consisting of
Messrs. Robert L. Clayton, Sr. and James L. Will, Jr., has a term of office
expiring at the first annual meeting of stockholders after their initial
election by stockholders; a second class, consisting of Messrs. Herbert V.
Dassel and Jerry Ziemer, has a term of office expiring at the second annual
meeting of stockholders after their initial election by stockholders; and a
third class, consisting of Messrs. Frank E. Kern and Harold Duncan, has a term
of office expiring at the third annual meeting of stockholders after their
initial election by stockholders. First Bancorp anticipates that its first
annual meeting of stockholders will be held in October 1999.
The Board of Directors has established an Audit Committee consisting of
Directors Kern, Dassel and Ziemer and a Compensation Committee consisting of
Directors Dassel, Kern and Will.
The executive officers of First Bancorp are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of First Bancorp are:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Harold Duncan President, Chief Executive Officer and Chairman of
the Board
Michael H. Head Vice President
Christopher A. Bengert Treasurer
</TABLE>
Since the formation of First Bancorp, none of the executive officers,
directors or other personnel has received remuneration from First Bancorp.
Initially, no separate compensation will be paid for service as an executive
officer of First Bancorp. For information concerning the principal occupations,
employment and compensation of the directors and executive officers of First
Bancorp during the past five years, see "Management of First Federal --
Biographical Information."
MANAGEMENT OF FIRST FEDERAL
Directors and Executive Officers
The Board of Directors of First Federal is presently composed of six
members who are elected for terms of three years, one-third of whom are elected
annually in accordance with the Bylaws of First Federal. The executive officers
of First Federal are elected annually by the Board of Directors and serve at the
Board's discretion. The following table sets forth information with respect to
the directors and executive officers of First Federal, all of whom will continue
to serve as directors and executive officers of First Federal and First
Bancorp.
61
<PAGE>
Directors
<TABLE>
<CAPTION>
Current
Director Term
Name Age(1) Position Since Expires
---- ------- ----------------------------- --------- ---------
<S> <C> <C> <C> <C>
Robert L. Clayton, Sr. 69 Chairman of the Board 1974 2000
Herbert V. Dassel 67 Director 1988 2001
Frank E. Kern 69 Director 1979 1999
James L. Will, Jr. 40 Director 1987 2000
Jerry Ziemer 60 Director 1979 2001
Harold Duncan 57 President, Chief Executive Officer 1978 1999
and Director
</TABLE>
Executive Officers Who Are Not Directors
<TABLE>
<CAPTION>
Name Age(1) Position
- ----------------------- -------- ----------------------------------------------------
<S> <C> <C>
Michael H. Head 40 Executive Vice President and Chief Operating Officer
Monica L. Stinchfield 42 Senior Vice President
Christopher A. Bengert 41 Senior Vice President and Treasurer
Richard L. Witte 45 Vice President
</TABLE>
_____________________________
(1) As of September 30, 1998
Biographical Information
Information regarding the directors and executive officers of First Federal
is provided below. Unless otherwise stated, each director and executive officer
has held his or her current occupation for the last five years. There are no
family relationships among the directors or executive officers.
Robert L. Clayton, Sr. was employed by First Federal from 1952 until his
retirement in 1992. From 1974 to 1990 he served as President of First Federal.
Mr. Clayton has been Chairman of the Board since 1976.
Herbert V. Dassel is a retired businessman. Prior to his retirement, he
was the President and co-owner of Adroit Mold & Tool Corp., a tooling
manufacturer located in Evansville, Indiana.
Frank E. Kern is the Executive Director of the Evansville Association for
the Blind, a not-for-profit enterprise engaged in rehabilitation and
manufacturing.
James L. Will, Jr. is the owner of an insurance agency in Evansville,
Indiana.
Jerry Ziemer is the President and majority shareholder of Ziemer Funeral
Homes in Evansville, Indiana.
Harold Duncan joined First Federal in 1964 and served as a loan officer,
Assistant Vice President, Vice President, and Executive Vice President before
becoming President in 1990. Mr. Duncan added the title of Chief Executive
Officer in 1991.
62
<PAGE>
Michael H. Head joined First Federal in 1980. From 1984 to 1994, he served
as Vice President and manager of the loan department. In 1994, he became
Senior Vice President. In 1996, Mr. Head became Executive Vice President and in
September 1998 added the title of Chief Operating Officer.
Monica L. Stinchfield joined First Federal in 1980. From 1985 to 1993 she
served as Assistant Vice President and from 1993 to September 1998, she served
as Vice President. In 1996, Ms. Stinchfield became the manager of the loan
department and secondary market activity. In September 1998, Ms. Stinchfield
became Senior Vice President.
Christopher A. Bengert joined First Federal in 1986. From 1991 to 1994,
Mr. Bengert served as Vice President and Treasurer. In 1994, he became Senior
Vice President.
Richard L. Witte joined First Federal in 1997 and in October 1998 became
Vice President. Mr. Witte is responsible for the savings department and deposit
services. Prior to joining First Federal, Mr. Witte was employed by Evansville
Federal Savings Bank for 21 years.
Meetings and Committees of the Board of Directors
The business of First Federal is conducted through meetings and activities
of its Board of Directors and its committees. During the fiscal year ended June
30, 1998, the Board of Directors held 12 regular meetings and no director
attended fewer than 75% of the total meetings of the Board of Directors of First
Federal and committees on which such director served.
The Audit Committee, consisting of Frank E. Kern, Herbert V. Dassel and
Jerry Ziemer, receives and reviews all reports prepared by First Federal's
independent auditors. The Audit Committee met one time during the fiscal year
ended June 30, 1998.
The Salary Committee, consisting of Herbert V. Dassel, Frank E. Kern and
James L. Will, Jr., is responsible for setting the salaries of all employees.
The Salary Committee met once during the fiscal year ended June 30, 1998.
Directors' Compensation
Directors receive a fee of $900 per month. Following consummation of the
conversion, directors' fees will continue to be paid by First Federal and,
initially, no separate fees are expected to be paid for service on First
Bancorp's Board of Directors.
First Federal maintains a deferred compensation arrangement for directors
who may elect on an annual basis to defer up to 100 percent of their monthly
Board and committee meeting fees and retainers. Upon the director's attainment
of an age specified in his individual deferral agreement, First Federal will pay
the balance of the director's deferral account in monthly installments over a
period specified in the director's individual agreement. Over the deferral
period, a director's account is credited with 10 percent annual interest with
monthly compounding. In the event of a change in control of First Federal (as
defined in the program) followed by a director's termination of service, each
director will be entitled to receive a benefit increased to reflect three
additional years of deferrals. First Federal has acquired life insurance on
members of the Board to provide informal funding for its obligations under the
program. During the fiscal year ended June 30, 1998, all directors participated
in the director deferral program. As of September 30, 1998, First Federal had
accrued a liability of $370,000 with respect to its obligations under the
director deferral program.
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Executive Compensation
Summary Compensation Table. The following information is furnished for Mr.
Duncan for the year ended June 30, 1998. No other executive officer of First
Federal received salary and bonus of $100,000 or more during the year ended June
30, 1998.
<TABLE>
<CAPTION>
Annual Compensation/(1)/
------------------------------------------
Other All Other
Name and Annual Compensation/(3)/
Positions Year Salary Bonus Compensation/(2)/
- -------------------- ------ -------- ------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Harold Duncan 1998 $125,086 $8,642 $10,800 $4,150
President and Chief Executive
Officer
</TABLE>
(1) Compensation information for the years ended June 30, 1997 and 1996 has
been omitted as First Federal was not a public company nor a subsidiary
thereof at such time.
(2) Consists of directors fees. Does not include the aggregate amount of
perquisites and other personal benefits, which was less than 10% of the
total annual salary and bonus reported.
(3) Consists of employer contributions to First Federal's 401(k) plan.
Employment Agreements. In connection with the conversion, First Bancorp
and First Federal plan to enter into three-year employment agreements with
Messrs. Duncan and Head. Under the employment agreements, the initial salary
levels for Mr. Duncan and Mr. Head will be $136,000 and $72,000, respectively,
which amount will be paid by First Federal and may be increased at the
discretion of the Board of Directors or an authorized committee of the Board.
On each anniversary of the commencement date of the employment agreement, the
term of each agreement may be extended for an additional year at the discretion
of the Board. The agreements are terminable by the employers at any time, by
the executive if he is assigned duties inconsistent with his initial position,
duties, responsibilities and status, or upon the occurrence of certain events
specified by federal regulations. If the executive's employment is terminated
without cause or upon the executive's voluntary termination following the
occurrence of an event described in the preceding sentence, First Federal would
be required to honor the terms of the agreement through the expiration of the
current term, including payment of current cash compensation and continuation of
employee benefits.
The employment agreements also provide for a severance payment and other
benefits in the event of involuntary termination of employment in connection
with any change in control of First Bancorp or First Federal. A severance
payment also will be provided on a similar basis in connection with a voluntary
termination of employment where, subsequent to a change in control, the
executive is assigned duties inconsistent with his position, duties,
responsibilities and status immediately prior to such change in control. The
term "change in control" is defined in the agreement as having occurred when,
among other things, (a) there occurs a change in control of First Bancorp within
the meaning of the Home Owners' Loan Act and OTS regulations , (b) any person or
entity is or becomes the beneficial owner, directly or indirectly, of securities
of First Bancorp representing 25% or more of the combined voting power of First
Bancorp's then outstanding securities, (c) the membership of the Board of
Directors changes as the result of a contested election, or (d) shareholders of
First Bancorp approve a merger, consolidation, sale or disposition of all or
substantially all of First Bancorp's assets, or a plan of partial or complete
liquidation.
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The maximum present value of the severance benefits under the employment
agreements is 2.99 times the executive's average annual compensation during the
five-year period preceding the effective date of the change in control (the
"base amount"). The employment agreements provide that the value of the maximum
benefit may be distributed, at the executive's election, (1) in the form of a
lump sum cash payment equal to 2.99 times the executive's base amount or (2) a
combination of a cash payment and continued coverage under First Federal's
health, life and disability programs for a 36-month period following the change
in control, the total value of which does not exceed 2.99 times the executive's
base amount. Assuming that a change in control had occurred at September 30,
1998 and that Mr. Duncan and Mr. Head elected to receive a lump sum cash
payment, they would have been entitled to payments of approximately $332,000 and
$154,000, respectively. Section 280G of the Internal Revenue Code provides that
severance payments that equal or exceed three times the individual's base amount
are deemed to be "excess parachute payments" if they are contingent upon a
change in control. Individuals receiving excess parachute payments are subject
to a 20% excise tax on the amount of such excess payments, and First Bancorp
would not be entitled to deduct the amount of such excess payments.
The employment agreements restrict the executive's right to compete against
First Bancorp and First Federal for a period of one year from the date of
termination of the agreement if he voluntarily terminates employment, except in
the event of a change in control.
Supplemental Retirement Agreement. First Federal maintains a supplemental
executive retirement program for key personnel in order to encourage continued
employment and to provide an additional source of retirement income. The
program provides that, upon the attainment of a specified retirement age, a
participating officer will receive a benefit equal to the product of the
officer's highest annual base compensation and the officer's "wage replacement
percentage" reduced by the annual benefits derived by the officer from any other
tax-qualified or non-qualified retirement arrangements sponsored by First
Federal. The officer's retirement age and "wage replacement factor" are
specified in individual agreements entered into between First Federal and the
officer. If the officer dies prior to attaining the normal retirement age, a
survivor benefit is payable to the officer's surviving spouse or other
designated beneficiary. In the event of an officer's termination without cause
prior to attaining the normal retirement age, payment of the officer's accrued
benefit as of the date of termination is deferred until the officer attains
normal retirement age. In the event of disability, the officer may elect to
begin receipt of his accrued benefit immediately in lieu of a deferred
retirement benefit. In the event of a change in control of First Federal, as
defined in the program, followed by the officer's termination of employment, the
officer would be entitled to receive his full normal retirement benefit upon
attaining his specified retirement age. All benefits are payable in the form of
a monthly annuity over a period specified in the officer's individual agreement.
As a condition of Mr. Duncan's receipt of benefits, he must, during the five-
year period after benefits commence, provide certain consulting and advisory
services to First Federal at the request of the Board of Directors. At present,
Mr. Duncan, four other officers and one former employee participate in the
supplemental retirement program. As of September 30, 1998, First Federal had
accrued $140,000 as a liability with respect to its obligations under the
supplemental retirement program.
Employee Severance Compensation Plan
In connection with the Conversion, the Board of Directors of First Federal
intends to adopt the First Federal Savings Bank Employee Severance Compensation
Plan to provide benefits to eligible employees in the event of a change in
control of First Bancorp or First Federal. Eligible employees are employees
with a minimum of two years of service with First Federal. However, officers
who enter into separate employment or severance agreements with First Bancorp
and First Federal will not be eligible to participate in the severance plan.
Under the severance plan, in the event of a change in control of First Bancorp
or First Federal, eligible employees, other than officers of First Federal, who
are terminated or who terminate employment upon the occurrence of events
specified in the severance
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plan within 12 months of the effective date of a change in control will be
entitled to a payment based on years of service with First Federal with a
maximum payment equal to 26 weeks of compensation. In addition, officers of
First Federal (four persons) and branch managers (three persons) would be
eligible to receive a severance payment equal to 24 and 12 months, respectively,
of their current compensation. Assuming that a change in control had occurred at
September 30, 1998 and the termination of all eligible employees, the maximum
aggregate payment due under the severance plan would be approximately
$381,000.
Summary of Benefits to Management from the Conversion
First Federal intends to establish an Employee Stock Ownership Plan that
will purchase stock in the conversion. The ESOP will purchase an amount of
stock equal to 8% of the shares sold in this offering. First Bancorp also
intends to adopt a Stock Option Plan, which will reserve a number of shares
equal to 10% of the number of shares sold in the conversion, and a Management
Recognition and Development Plan, which will reserve a number of shares equal to
4% of the number of shares sold in the conversion. The shares that may be
issued under the Stock Option Plan and the MRDP may be authorized but unissued
shares or treasury shares. The ESOP, Stock Option Plan and MRDP are discussed
in more detail below.
The following table presents the total value of the shares of common stock,
at the maximum of the offering range, which would be acquired by the employee
stock ownership plan and the total value of all shares available for award and
issuance under the Stock Option Plan and MRDP. The table assumes that the value
of the shares is the same as the sales price of the shares in the offering. The
table does not include a value for the options because that value will be equal
to the fair market value of the common stock on the day that the options are
granted. As a result, financial gains can be realized under an option only if
the market price of common stock increases.
<TABLE>
<CAPTION>
Percentage of
Estimated Shares Issued
Value of Shares in the Conversion
----------------- -------------------
<S> <C> <C>
Employee Stock Ownership Plan.... $1,748,000 8.0%
MRDP awards...................... 874,000 4.0
Stock options.................... -- 10.0
---------- ----
Total.................... $2,622,000 22.0%
========== ====
</TABLE>
Additionally, two officers will receive employment agreements that could
provide those individuals with cash payments if they are terminated following a
change in control of First Bancorp or First Federal. First Federal also intends
to adopt an Employee Severance Compensation Plan that would provide cash
payments to eligible employees in the event of a change in control of First
Bancorp or First Federal. The employment agreements and severance plan are
described in more detail above.
Benefits
Insurance. First Federal provides full-time employees, with minimal
contribution or expense to them, with group plan insurance that covers
hospitalization, dependent coverage, long-term disability and accidental death
and dismemberment. This insurance is available generally and on the same basis
to all full-time employees.
Retirement Plan. First Federal is a participant in the Financial
Institutions Retirement Fund, a multi-employer, non-contributory defined benefit
retirement plan. The following table indicates the annual retirement benefits
that would be payable under the retirement plan upon retirement at age 65 to a
participant electing to receive his retirement benefit in the standard form of
benefit, assuming various specified levels of plan compensation and various
specified years of credited service. Under the Internal Revenue Code,
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maximum annual benefits under the retirement plan are limited to $130,000 per
year for the 1999 calendar year.
<TABLE>
<CAPTION>
Highest Five-Year
Average Annual Years of Service
--------------------------------------------------------------
Compensation 5 10 15 25 35 40 45
- --------------- ------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$10,000............. 1,000 2,000 3,000 5,000 7,000 8,000 9,000
20,000............ 2,000 4,000 6,000 10,000 14,000 16,000 18,000
30,000............ 3,000 6,000 9,000 15,000 21,000 24,000 27,000
40,000............ 4,000 8,000 12,000 20,000 28,000 32,000 36,000
60,000............ 6,000 12,000 18,000 30,000 42,000 48,000 54,000
80,000............ 8,000 16,000 24,000 40,000 56,000 64,000 72,000
100,000............ 10,000 20,000 30,000 50,000 70,000 80,000 90,000
120,000............ 12,000 24,000 36,000 60,000 84,000 96,000 99,000
130,000............ 13,000 26,000 38,000 65,000 91,000 104,000 117,000
</TABLE>
The retirement plan is a non-contributory, defined benefit plan which
provides for monthly payments to, or on behalf of, each covered employee. All
full-time employees are eligible to participate in the retirement plan after
completion of one year of service to First Federal and the attainment of age 21.
To obtain one year of service, an employee must complete at least at least 1,000
hours of service in 12 consecutive months. Benefits are based upon years of
service and salary excluding bonuses, fees, etc. Employees become vested
following five years of service. As of June 30, 1998, Mr. Duncan had 33 years of
credited service under the retirement plan.
The normal retirement age is 65 and the early retirement age is before age
65, but after age 45. Normal retirement benefits are equal to 2% multiplied by
the years of service to First Federal and by the employees's average base salary
above the covered compensation level for the five highest consecutive years
preceding retirement. If an employee elects early retirement, but defers the
receipt of benefits until age 65, the formula for computation of early
retirement benefits is the same as if the employee had retired at the normal
retirement age. However, if the employee elects early retirement benefits
payable under the retirement plan the benefits are equal to the benefits payable
assuming retirement at age 65 reduced by applying an early retirement factor
based on age and vesting service when payments begin. Payment may also be
deferred to any time up to age 70, in which case the retirement allowance
payable at age 65 will be increased by 0.8% for each month of deferment after
age 65. The maximum increase allowable is 48%. Under the retirement plan ,
First Federal makes annual contributions to fund the benefits computed on an
actuarial basis.
Upon retirement, the regular form of benefit under the retirement plan is
an annuity payable in equal monthly installments for the life of the employee.
Optional annuity or lump sum benefit forms may also be elected by the employee.
Benefits under the retirement plan are not integrated with social security.
At June 30, 1998, which is the date of the most recent retirement plan
statement, the retirement plan's assets exceeded current liabilities by
approximately $160,000.
401(k) Plan. First Federal maintains a 401(k) Plan for the benefit of
eligible employees of First Federal. The 401(k) Plan is intended to be a tax-
qualified plan under Sections 401(a) and 401(k) of the Internal Revenue Code.
Employees of First Federal who have completed 1,000 hours of service during 12
consecutive months and who have attained age 21 are eligible to participate in
the 401(k) Plan. Participants may contribute up to 15% of their annual
compensation to the 401(k) Plan through a salary reduction election. First
Federal matches 50% of participant contributions to a maximum of 6% of the
participant's salary. In addition to employer matching contributions, First
Federal may contribute a discretionary amount to the
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401(k) Plan in any plan year which is allocated to individual participants in
the proportion that their annual compensation bears to the total compensation of
all participants during the plan year. To be eligible to receive a discretionary
employer contribution, the participant must complete 1,000 hours of service
during the plan year and remain employed by First Federal on the last day of the
plan year. Participants are at all times 100% vested in their 401(k) Plan
accounts. For the year ended June 30, 1998, First Federal incurred total
contribution-related expenses of approximately $22,000 in connection with the
401(k) Plan.
Employee Stock Ownership Plan. The Board of Directors has authorized the
adoption by First Federal of an ESOP for employees of First Federal to become
effective upon the completion of the conversion. The ESOP is intended to satisfy
the requirements for an employee stock ownership plan under the Internal Revenue
Code and the Employee Retirement Income Security Act of 1974, as amended. Full-
time employees of First Bancorp and First Federal who have been credited with at
least 1,000 hours of service during a 12-month period and who have attained age
21 will be eligible to participate in the ESOP.
First Bancorp intends to loan the ESOP the amount necessary to purchase 8%
of the common stock to be sold in the conversion. The loan will equal 100% of
the aggregate purchase price of the common stock. The loan to the ESOP will be
repaid principally from First Federal's contributions to the ESOP and dividends
payable on common stock held by the ESOP over the anticipated 12-year term of
the loan. The interest rate for the ESOP loan is expected to be the prime rate
as published in The Wall Street Journal on the closing date of the conversion.
See "Pro Forma Data." To the extent that the ESOP is unable to acquire 8% of
the common stock sold in the offering, it is anticipated that such additional
shares may be acquired following the conversion through open market
purchases.
In any plan year, First Federal may make additional discretionary
contributions to the ESOP for the benefit of plan participants in either cash or
shares of common stock, which may be acquired through the purchase of
outstanding shares in the market or from individual stockholders or which
constitute authorized but unissued shares or shares held in treasury by Holding
Company. The timing, amount, and manner of such discretionary contributions
will be affected by several factors, including applicable regulatory policies,
the requirements of applicable laws and regulations, and market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held in
a suspense account and released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of total compensation. Forfeitures will be reallocated among
the remaining plan participants.
Participants will vest in their accrued benefits under the ESOP at the rate
of 20% per year, beginning upon the completion of two years of service. A
participant is fully vested at retirement, in the event of disability or upon
termination of the ESOP. Benefits are distributable upon a participant's
retirement, early retirement, death, disability, or termination of employment.
First Federal's contributions to the ESOP are not fixed, so benefits payable
under the ESOP cannot be estimated.
It is anticipated that members of First Federal's Board of Directors will
serve as trustees of the ESOP. Under the ESOP, the trustees must vote all
allocated shares held in the ESOP in accordance with the instructions of plan
participants and unallocated shares and allocated shares for which no
instructions are received must be voted in the same ratio on any matter as those
shares for which instructions are given.
Under applicable accounting requirements, compensation expense for a
leveraged ESOP is recorded at the fair market value of the ESOP shares when
committed to be released to participants' accounts. See "Pro Forma Data."
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The ESOP will be subject to the requirements of Employee Retirement Income
Security Act and the regulations of the Internal Revenue Service and the
Department of Labor. First Federal intends to request a determination letter
from the IRS regarding the tax-qualified status of the ESOP. Although no
assurance can be given that a favorable determination letter will be issued,
First Federal expects that a favorable determination letter will be received by
the ESOP.
Stock Option Plan. The Board of Directors of First Bancorp intends to
adopt the Stock Option Plan and to submit the Stock Option Plan to stockholders
for approval at a meeting held no earlier than six months following consummation
of the conversion. Under current OTS regulations, the approval of a majority
vote of First Bancorp's outstanding shares is required for implementation of the
Stock Option Plan within one year of the consummation of the conversion. The
Stock Option Plan will comply with all applicable regulatory requirements.
However, the Stock Option Plan will not be approved or endorsed by the OTS.
The Stock Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in First Bancorp
as an incentive to contribute to the success of First Bancorp and First Federal,
and to reward officers and key employees for outstanding performance. The Stock
Option Plan will provide for the grant of incentive stock options intended to
comply with the requirements of Section 422 of the Internal Revenue Code and for
nonqualified stock options. Under the Stock Option Plan, stock options may be
granted to key employees of First Bancorp and its subsidiaries, including First
Federal. Unless sooner terminated, the Stock Option Plan will continue in
effect for a period of ten years from the date the Stock Option Plan is approved
by stockholders.
First Bancorp will reserve a number of authorized shares of common stock
equal to 10% of the number of shares of common stock issued in connection with
the conversion for future issuance under the Stock Option Plan, or 218,500
shares based on the issuance of 2,185,000 shares at the maximum of the Estimated
Valuation Range. Shares acquired upon exercise of options will be authorized but
unissued shares or treasury shares. In the event of a stock split, reverse
stock split, stock dividend, or similar event, the number of shares of common
stock under the Stock Option Plan, the number of shares to which any award
relates and the exercise price per share under any option may be adjusted to
reflect the increase or decrease in the total number of shares of common stock
outstanding.
A committee of the Board of Directors will administer and interpret the
Stock Option Plan. Subject to applicable OTS regulations, the committee will
determine which nonemployee directors, officers and key employees will be
granted options, whether, in the case of officers and employees, such options
will be incentive stock options or non-qualified options, the number of shares
subject to each option, and the exercisability of such options. All options
granted to nonemployee directors will be non-qualified options. The per share
exercise price of all options will equal at least 100% of the fair market value
of a share of common stock on the date the option is granted.
It is anticipated that all options granted under the Stock Option Plan will
be granted subject to a vesting schedule whereby the options become exercisable
over a specified period following the date of grant. Under OTS regulations, if
the Stock Option Plan is implemented within the first year following
consummation of the conversion the minimum vesting period will be five years.
All unvested options will be immediately exercisable in the event of the
recipient's death or disability. Unvested options also will be exercisable
following a change in control (as defined in the Stock Option Plan) of First
Bancorp or First Federal to the extent authorized or not prohibited by
applicable law or regulations. OTS regulations currently provide that if the
Stock Option Plan is implemented prior to the first anniversary of the
conversion, vesting may not be accelerated upon a change in control of First
Bancorp or First Federal.
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Each stock option that is awarded to an officer or key employee will remain
exercisable at any time on or after the date it vests through the earlier to
occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment (one year in the event of the
optionee's termination by reason of death or disability), unless such period is
extended. Each stock option that is awarded to a nonemployee director will
remain exercisable through the earlier to occur of the tenth anniversary of the
date of grant or one year (two years in the event of a nonemployee director's
death or disability) following the termination of a nonemployee director's
service on the Board. All stock options are nontransferable except by will or
the laws of descent or distribution.
Under current provisions of the Internal Revenue Code, the federal tax
treatment of incentive stock options and non-qualified options is different.
With respect to incentive stock options, an optionee who satisfies certain
holding period requirements will not recognize income at the time the option is
granted or at the time the option is exercised. If the holding period
requirements are satisfied, the optionee will generally recognize capital gain
or loss upon a subsequent disposition of the shares of common stock received
upon the exercise of a stock option. If the holding period requirements are not
satisfied, the difference between the fair market value of the common stock on
the date of grant and the option exercise price, if any, will be taxable to the
optionee at ordinary income tax rates. A federal income tax deduction generally
will not be available to First Bancorp as a result of the grant or exercise of
an incentive stock options, unless the optionee fails to satisfy the holding
period requirements. With respect to non-qualified options, the grant of a non-
qualified option generally is not a taxable event for the optionee and no tax
deduction will be available to First Bancorp. However, upon the exercise of a
non-qualified option, the difference between the fair market value of the common
stock on the date of exercise and the option exercise price generally will be
treated as compensation to the optionee upon exercise, and First Bancorp will be
entitled to a compensation expense deduction in the amount of income realized by
the optionee.
Under generally accepted accounting principles, compensation expense is
generally not recognized with respect to the award of options to officers and
employees of First Bancorp and its subsidiaries. However, the Financial
Accounting Standards Board recently indicated that it would propose rules during
1999 that would generally require recognition of compensation expense with
respect to awards made to non-employees, including non-employee directors of
First Bancorp, and that the proposed changes would apply to awards made after
December 15, 1998.
Although no specific award determinations have been made at this time,
First Bancorp and First Federal anticipate that if stockholder approval is
obtained it would provide awards to its directors, officers and employees to the
extent and under terms and conditions permitted by applicable regulations.
Under current OTS regulations, if the Stock Option Plan is implemented within
one year of the consummation of the conversion, no officer or employees could
receive an award of options covering in excess of 25% of the number of shares
reserved for issuance under the Stock Option Plan, no nonemployee director could
receive in excess of 5% of the number of shares reserved for issuance under the
Stock Option Plan and nonemployee directors, as a group, could not receive in
excess of 30% of the number of shares reserved for issuance under the Stock
Option Plan.
Management Recognition and Development Plan. Following the conversion, the
Board of Directors of First Bancorp intends to adopt an MRDP for officers,
employees, and nonemployee directors of First Bancorp and First Federal, and to
submit the MRDP to stockholders for approval at a meeting held no earlier than
six months following consummation of the conversion. The MRDP will enable First
Bancorp and First Federal to provide participants with a proprietary interest in
First Bancorp as an incentive to contribute to the success of First Bancorp and
First Federal. The MRDP will comply with all applicable regulatory
requirements. However, the MRDP will not be approved or endorsed by the OTS.
Under current OTS regulations, the approval of a majority vote of First
Bancorp's outstanding shares is required for implementation of the MRDP within
one year of the consummation of the conversion.
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The MRDP expects to acquire a number of shares of First Bancorp's common
stock equal to 4% of the common stock issued in connection with the conversion
(87,400 shares based on the issuance of 2,185,000 shares in the conversion at
the maximum of the Estimated Valuation Range). Such shares will be acquired on
the open market, if available, with funds contributed by First Bancorp or First
Federal to a trust which First Bancorp may establish in conjunction with the
MRDP or from authorized but unissued shares or treasury shares of First
Bancorp.
A committee of the Board of Directors of First Bancorp will administer the
MRDP, the members of which will also serve as trustees of the MRDP trust, if
formed. The trustees will be responsible for the investment of all funds
contributed by First Bancorp or First Federal to the MRDP trust. The Board of
Directors of First Bancorp may terminate the MRDP at any time and, upon
termination, all unallocated shares of common stock will revert to First
Bancorp.
Shares of common stock granted under the MRDP will be in the form of
restricted stock payable ratably over a specified vesting period following the
date of grant. During the period of restriction, all shares will be held in
escrow by First Bancorp or by the MRDP trust. Under OTS regulations, if the
MRDP is implemented within the first year following consummation of the
conversion, the minimum vesting period will be five years. All unvested MRDP
awards will vest in the event of the recipient's death or disability. Unvested
MRDP awards will also vest following a change in control (as defined in the
MRDP) of First Bancorp or First Federal to the extent authorized or not
prohibited by applicable law or regulations. OTS regulations currently provide
that, if the MRDP is implemented prior to the first anniversary of the
conversion, vesting may not be accelerated upon a change in control of First
Bancorp or First Federal.
A recipient of an MRDP award in the form of restricted stock generally will
not recognize income upon an award of shares of common stock, and First Bancorp
will not be entitled to a federal income tax deduction, until the termination of
the restrictions. Upon such termination, the recipient will recognize ordinary
income in an amount equal to the fair market value of the common stock at the
time and First Bancorp will be entitled to a deduction in the same amount after
satisfying federal income tax withholding requirements. However, the recipient
may elect to recognize ordinary income in the year the restricted stock is
granted in an amount equal to the fair market value of the shares at that time,
determined without regard to the restrictions. In that event, First Bancorp
will be entitled to a deduction in such year and in the same amount. Any gain
or loss recognized by the recipient upon subsequent disposition of the stock
will be either a capital gain or capital loss.
Although no specific award determinations have been made at this time,
First Bancorp and First Federal anticipate that if stockholder approval is
obtained it would provide awards to its directors, officers and employees to the
extent and under terms and conditions permitted by applicable regulations.
Under current OTS regulations, if the MRDP is implemented within one year of the
consummation of the conversion, no officer or employees could receive an award
covering in excess of 25% of the number of shares reserved for issuance under
the MRDP, no nonemployee director could receive in excess of 5% of the number of
shares reserved for issuance under the MRDP and nonemployee directors, as a
group, could not receive in excess of 30% of the number of shares reserved for
issuance under the MRDP.
Transactions with First Federal
Federal regulations require that all loans or extensions of credit by First
Federal to executive officers and directors must generally be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, unless
the loan or extension of credit is made under a benefit program generally
available to all other employees and does not give preference to any insider
over any other employee, and must not involve more than the normal risk of
repayment or present other unfavorable features. First Federal's policy is to
offer consumer loans, savings account
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loans and fixed-rate mortgage loans to directors, officers and employees at
rates lower than those offered to the general public. In addition, loans made to
a director or executive officer in an amount that, when aggregated with the
amount of all other loans to such person and his or her related interests, are
in excess of the greater of $25,000, or 5% of First Federal's capital and
surplus (up to a maximum of $500,000) must be approved in advance by a majority
of the disinterested members of the Board of Directors. See "Regulation --
Federal Regulation of Savings Associations -- Transactions with Affiliates." The
aggregate amount of loans by First Federal to its executive officers and
directors and their associates was $302,000 at September 30, 1998, or
approximately 1.0% of First Bancorp's pro forma stockholders' equity, based on
the issuance of shares at the midpoint of the Estimated Valuation Range.
REGULATION
General
First Federal is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits. The activities of federal savings institutions are governed by
the Home Owners' Loan Act, as amended and, in certain respects, the Federal
Deposit Insurance Act and the regulations issued by the OTS and the FDIC to
implement these statutes. These laws and regulations delineate the nature and
extent of the activities in which federal savings associations may engage.
Lending activities and other investments must comply with various statutory and
regulatory capital requirements. In addition, First Federal's relationship with
its depositors and borrowers is also regulated to a great extent, especially in
such matters as the ownership of deposit accounts and the form and content of
First Federal's mortgage documents. First Federal must file reports with the
OTS and the FDIC concerning its activities and financial condition in addition
to obtaining regulatory approvals prior to entering into certain transactions
such as mergers with, or acquisitions of, other financial institutions. There
are periodic examinations by the OTS and the FDIC to review First Federal's
compliance with various regulatory requirements. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC or Congress, could have a material
adverse impact on First Federal and its operations.
Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the Treasury.
The OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
Federal Home Loan Bank System. The Federal Home Loan Bank System,
consisting of 12 Federal Home Loan Banks, is under the jurisdiction of the
Federal Housing Finance Board. The designated duties of the Federal Housing
Finance Board are to supervise the Federal Home Loan Banks, to ensure that the
Federal Home Loan Banks carry out their housing finance mission, to ensure that
the Federal Home Loan Banks remain adequately capitalized and able to raise
funds in the capital markets, and to ensure that the Federal Home Loan Banks
operate in a safe and sound manner. First Federal, as a member of the Federal
Home Loan Bank-Indianapolis, is required to acquire and hold shares of capital
stock in the Federal Home Loan Bank-Indianapolis in an amount equal to the
greater of (1) 1.0% of the aggregate outstanding principal amount of residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year, or (2) 1/20 of its advances (i.e., borrowings) from the Federal
Home Loan Bank-Indianapolis. First Federal is in compliance with this
requirement with an investment in Federal Home Loan Bank-Indianapolis stock of
$727,000 at September 30, 1998. Among
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other benefits, the Federal Home Loan Bank-Indianapolis provides a central
credit facility primarily for member institutions. It is funded primarily from
proceeds derived from the sale of consolidated obligations of the Federal Home
Loan Bank System. It makes advances to members in accordance with policies and
procedures established by the Federal Housing Finance Board and the Board of
Directors of the Federal Home Loan Bank-Indianapolis.
Federal Deposit Insurance Corporation. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the Bank Insurance Fund and the Savings Association Insurance Fund. As
insurer of First Federal's deposits, the FDIC has examination, supervisory and
enforcement authority over First Federal.
First Federal's accounts are insured by the Savings Association Insurance
Fund to the maximum extent permitted by law. First Federal pays deposit
insurance premiums based on a risk-based assessment system established by the
FDIC. Under applicable regulations, institutions are assigned to one of three
capital groups that are based solely on the level of an institution's capital --
"well capitalized," "adequately capitalized," and "undercapitalized" -- which
are defined in the same manner as the regulations establishing the prompt
corrective action system, as discussed below. These three groups are then
divided into three subgroups which reflect varying levels of supervisory
concern, from those which are considered to be healthy to those which are
considered to be of substantial supervisory concern. The matrix so created
results in nine assessment risk classifications, with rates that until September
30, 1996 ranged from 0.23% for well capitalized, financially sound institutions
with only a few minor weaknesses to 0.31% for undercapitalized institutions that
pose a substantial risk of loss to the Savings Association Insurance Fund unless
effective corrective action is taken.
Under the Deposit Insurance Funds Act, which was enacted on September 30,
1996, the FDIC imposed a special assessment on each depository institution with
deposits insured under the Savings Association Insurance Fund which resulted in
the insurance fund achieving its designated reserve ratio. In connection
therewith, the FDIC reduced the assessment schedule for Savings Association
Insurance Fund members, effective January 1, 1997, to a range of 0% to 0.27%,
with most institutions, including First Federal, paying 0%. This assessment
schedule is the same as that for the Bank Insurance Fund, which reached its
designated reserve ratio in 1995. In addition, since January 1, 1997, members
of the Savings Association Insurance Fund are charged an assessment of 0.065% of
assessable deposits for the purpose of paying interest on the obligations issued
by the Financing Corporation in the 1980s to help fund the thrift industry
cleanup. Deposits insured under the Bank Insurance Fund will be charged an
assessment to help pay interest on the Financing Corporation bonds at a rate of
approximately 0.013% until the earlier of December 31, 1999 or the date upon
which the last savings association ceases to exist, after which time the
assessment will be the same for all insured deposits.
The Deposit Insurance Funds Act provides for the merger of the Bank
Insurance Fund and the Savings Association Insurance Fund into the Deposit
Insurance Fund on January 1, 1999, but only if no insured depository institution
is a savings association on that date. The Act contemplates the development of
a common charter for all federally chartered depository institutions and the
abolition of separate charters for national banks and federal savings
associations. It is not known what form the common charter may take and what
effect, if any, the adoption of a new charter would have on the operation of
First Federal.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible capital. If
insurance of accounts is terminated, the accounts at the institution at the time
of termination, less subsequent withdrawals, shall continue to
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be insured for a period of six months to two years, as determined by the FDIC.
Management is aware of no existing circumstances that could result in
termination of the deposit insurance of First Federal.
Liquidity Requirements. Under OTS regulations, each savings institution is
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
4.0%) of its net withdrawable accounts plus short-term borrowings. Monetary
penalties may be imposed for failure to meet liquidity requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Prompt Corrective Action. Under federal law, each federal banking agency
is required to implement a system of prompt corrective action for institutions
that it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be
. "well capitalized" if it has a total risk-based capital ratio of 10.0%
or more, has a Tier I risk-based capital ratio of 6.0% or more, has a
leverage ratio of 5.0% or more and is not subject to specified
requirements to meet and maintain a specific capital level for any
capital measure;
. "adequately capitalized" if it has a total risk-based capital ratio of
8.0% or more, has a Tier I risk-based capital ratio of 4.0% or more,
has a leverage ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;"
. "undercapitalized" if it has a total risk-based capital ratio that is
less than 8.0%, has a Tier I risk-based capital ratio that is less
than 4.0% or has a leverage ratio that is less than 4.0% (3.0% under
certain circumstances);
. "significantly undercapitalized" if it has a total risk-based capital
ratio that is less than 6.0%, has a Tier I risk-based capital ratio
that is less than 3.0% or has a leverage ratio that is less than 3.0%;
and
. "critically undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.
An institution generally must file a written capital restoration plan that
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. Immediately upon becoming undercapitalized, an
institution shall become subject to various mandatory and discretionary
restrictions on its operations.
At September 30, 1998, First Federal was categorized as "well capitalized"
under the prompt corrective action regulations of the OTS.
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Standards for Safety and Soundness. The federal banking regulatory
agencies have prescribed, by regulation, guidelines for all insured depository
institutions relating to: internal controls, information systems and internal
audit systems; loan documentation; credit underwriting; interest rate risk
exposure; asset growth; asset quality; earnings; and compensation, fees and
benefits. The guidelines describe the safety and soundness standards that the
federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. If the OTS determines
that First Federal fails to meet any standard prescribed by the Guidelines, the
agency may require First Federal to submit to the agency an acceptable plan to
achieve compliance with the standard. OTS regulations establish deadlines for
the submission and review of such safety and soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are required to
meet a qualified thrift lender test to avoid certain restrictions on their
operations. A savings institution that fails to become or remain a qualified
thrift lender shall either convert to a national bank charter or be subject to
the following restrictions on its operations:
(1) First Federal may not make any new investment or engage in activities
that would not be permissible for national banks;
(2) First Federal may not establish any new branch office where a national
bank located in the savings institution's home state would not be able
to establish a branch office;
(3) First Federal shall be ineligible to obtain new advances from any
Federal Home Loan Bank; and
(4) the payment of dividends by First Federal shall be subject to the
rules regarding the statutory and regulatory dividend restrictions
applicable to national banks.
Also, beginning three years after the date on which the savings institution
ceases to be a qualified thrift lender, the savings institution would be
prohibited from retaining any investment or engaging in any activity not
permissible for a national bank and would be required to repay any outstanding
advances to any Federal Home Loan Bank. In addition, within one year of the
date on which a savings association controlled by a company ceases to be a
qualified thrift lender, the company must register as a bank holding company
and become subject to the rules applicable to such companies. A savings
institution may requalify as a qualified thrift lender if it thereafter complies
with the qualified thrift lender test.
Currently, the qualified thrift lender test requires that either an
institution qualify as a domestic building and loan association under the
Internal Revenue Code or that 65% of an institution's "portfolio assets" (as
defined) consist of certain housing and consumer-related assets on a monthly
average basis in nine out of every 12 months. Assets that qualify without limit
for inclusion as part of the 65% requirement are loans made to purchase,
refinance, construct, improve or repair domestic residential housing and
manufactured housing; home equity loans; mortgage-backed securities (where the
mortgages are secured by domestic residential housing or manufactured housing);
Federal Home Loan Bank stock; direct or indirect obligations of the FDIC; and
loans for educational purposes, loans to small businesses and loans made through
credit cards. In addition, the following assets, among others, may be included
in meeting the test subject to an overall limit of 20% of the savings
institution's portfolio assets: 50% of residential mortgage loans originated
and sold within 90 days of origination; 100% of consumer loans; and stock issued
by Freddie Mac or Fannie Mae. Portfolio assets consist of total assets minus
the sum of goodwill and other intangible assets, property used by the savings
institution to conduct its business, and liquid assets up to 20% of the
institution's total assets. At September 30, 1998, First Federal was in
compliance with the qualified thrift lender test.
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Capital Requirements. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (1) any intangible assets, except
for certain qualifying intangible assets; (2) certain mortgage servicing rights;
and (3) equity and debt investments in subsidiaries that are not "includable
subsidiaries," which is defined as subsidiaries engaged solely in activities not
impermissible for a national bank, engaged in activities impermissible for a
national bank but only as an agent for its customers, or engaged solely in
mortgage-banking activities. In calculating adjusted total assets, adjustments
are made to total assets to give effect to the exclusion of certain assets from
capital and to account appropriately for the investments in and assets of both
includable and non-includable subsidiaries. Institutions that fail to meet the
core capital requirement would be required to file with the OTS a capital plan
that details the steps they will take to reach compliance. In addition, the
OTS's prompt corrective action regulation provides that a savings institution
that has a leverage ratio of less than 4% (3% for institutions receiving the
highest CAMEL examination rating) will be deemed to be "undercapitalized" and
may be subject to certain restrictions. See "-- Federal Regulation of Savings
Associations -- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of adjusted total assets. "Tangible capital" is defined, generally, as core
capital minus any "intangible assets" other than purchased mortgage servicing
rights.
Savings associations must maintain total risk-based capital equal to at
least 8% of risk-weighted assets. Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined. Supplementary capital includes (1)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (2)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (3) general valuation loan and lease loss allowances
up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans
are assigned a 100% risk weight, as are nonqualifying residential mortgage loans
and that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totaled to arrive at total risk-weighted assets. Off-
balance sheet items are included in risk-weighted assets by converting them to
an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of
First Federal's assets, as calculated in accordance with guidelines promulgated
by the OTS. A savings
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association whose measured interest rate risk exposure exceeds 2% must deduct an
interest rate risk component in calculating its total capital under the risk-
based capital rule. The interest rate risk component is an amount equal to one-
half of the difference between the institution's measured interest rate risk and
2%, multiplied by the estimated economic value of First Federal's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data. A
savings association with assets of less than $300 million and risk-based capital
ratios in excess of 12% is not subject to the interest rate risk component,
unless the OTS determines otherwise. The rule also provides that the Director of
the OTS may waive or defer an association's interest rate risk component on a
case-by-case basis. Under certain circumstances, a savings association may
request an adjustment to its interest rate risk component if it believes that
the OTS-calculated interest rate risk component overstates its interest rate
risk exposure. In addition, certain "well-capitalized" institutions may obtain
authorization to use their own interest rate risk model to calculate their
interest rate risk component in lieu of the OTS-calculated amount. The OTS has
postponed the date that the component will first be deducted from an
institution's total capital.
See "Historical and Pro Forma Regulatory Capital Compliance" for a table
that sets forth in terms of dollars and percentages the OTS tangible, core and
risk-based capital requirements, First Federal's historical amounts and
percentages at September 30, 1998 and pro forma amounts and percentages based
upon the assumptions stated.
Limitations on Capital Distributions. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require First Federal to give the OTS 30
days' advance notice of any proposed declaration of dividends, and the OTS has
the authority under its supervisory powers to prohibit the payment of dividends.
The regulation utilizes a three-tiered approach which permits various levels of
distributions based primarily upon a savings association's capital level.
A Tier 1 savings association has capital in excess of its capital
requirement both before and after the proposed capital distribution. A Tier 1
savings association may make (without application but upon prior notice to, and
no objection made by, the OTS) capital distributions during a calendar year up
to 100% of its net income to date during the calendar year plus one-half its
surplus capital ratio, i.e., the amount of capital in excess of its requirement,
at the beginning of the calendar year or the amount authorized for a Tier 2
association. Capital distributions in excess of such amount require advance
notice to the OTS. A Tier 2 savings association has capital equal to or in
excess of its minimum capital requirement but below its requirement (both before
and after the proposed capital distribution). Such an association may make
(without application) capital distributions up to an amount equal to 75% of its
net income during the previous four quarters depending on how close First
Federal is to meeting its capital requirement. Capital distributions exceeding
this amount require prior OTS approval. Tier 3 associations are savings
associations with capital below the minimum capital requirement either before or
after the proposed capital distribution. Tier 3 associations may not make any
capital distributions without prior approval from the OTS.
First Federal currently meets the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year.
Effective April 1, 1999, the OTS's capital distribution regulation will
change. Under the new regulation, an application to and the prior approval of
the OTS will be required prior to any capital distribution if the institution
does not meet the criteria for "expedited treatment" of applications under OTS
regulations, the total capital distributions for the calendar year exceed net
income for that year plus the amount of retained net income for the preceding
two years, the insitution would be undercapitalized following the distribution
or the distribution would otherwise be contrary to a statute, regulation or
agreement with the OTS. If an application is not required, the institution must
still provide prior notice to the OTS of the capital distribution.
Loans to One Borrower. Under federal law, savings institutions are
generally subject to the national bank limit on loans to one borrower.
Generally, this limit is 15% of First Federal's unimpaired capital and surplus,
plus an additional 10% of unimpaired capital and surplus, if such loan is
secured by readily-marketable collateral, which is defined to include certain
financial instruments and bullion. The OTS by regulation has amended the loans
to one borrower rule to permit savings associations meeting certain
requirements, including capital requirements, to extend loans to one borrower in
additional amounts under
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circumstances limited essentially to loans to develop or complete residential
housing units. At September 30, 1998, First Federal's regulatory limit on loans
to one borrower was $2.3 million. At September 30, 1998, First Federal's largest
aggregate amount of loans to one borrower was $649,000.
Activities of Associations and their Subsidiaries. A savings association
may establish operating subsidiaries to engage in any activity that the savings
association may conduct directly and may establish service corporation
subsidiaries to engage in certain preapproved activities or, with approval of
the OTS, other activities reasonably related to the activities of financial
institutions. When a savings association establishes or acquires a subsidiary
or elects to conduct any new activity through a subsidiary that First Federal
controls, the savings association must notify the FDIC and the OTS 30 days in
advance and provide the information each agency may, by regulation, require.
Savings associations also must conduct the activities of subsidiaries in
accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of First Federal or is
inconsistent with sound banking practices or with the purposes of the Federal
Deposit Insurance Act. Based upon that determination, the FDIC or the OTS has
the authority to order the savings association to divest itself of control of
the subsidiary. The FDIC also may determine by regulation or order that any
specific activity poses a serious threat to the Savings Association Insurance
Fund. If so, it may require that no Savings Association Insurance Fund member
engage in that activity directly.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association were a Federal Reserve member bank. Under federal law, a savings
and loan holding company, its subsidiaries and any other company under common
control are considered affiliates of the subsidiary savings association.
Generally, Sections 23A and 23B: (1) limit the extent to which the insured
association or its subsidiaries may engage in certain covered transactions with
an affiliate to an amount equal to 10% of such institution's capital and surplus
and place an aggregate limit on all such transactions with affiliates to an
amount equal to 20% of such capital and surplus, and (2) require that all such
transactions be on terms substantially the same, or at least as favorable to the
institution or subsidiary, as those provided to a non-affiliate. The term
"covered transaction" includes the making of loans, the purchase of assets, the
issuance of a guarantee and similar types of transactions. Any loan or
extension of credit by First Federal to an affiliate must be secured by
collateral in accordance with Section 23A.
Three additional rules apply to savings associations: (1) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (2) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (3) the OTS
may, for reasons of safety and soundness, impose more stringent restrictions on
savings associations but may not exempt transactions from or otherwise abridge
Section 23A or 23B. Exemptions from Section 23A or 23B may be granted only by
the Federal Reserve, as is currently the case with respect to all FDIC-insured
banks.
First Federal's authority to extend credit to executive officers, directors
and 10% shareholders, as well as entities controlled by such persons, is
currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and
Regulation O thereunder. Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk of
repayment. Regulation O also places individual and aggregate limits on the
amount of loans First Federal may make to such persons based, in part, on First
Federal's capital position, and requires certain board approval procedures to be
followed. The OTS regulations, with certain minor variances, apply Regulation O
to savings institutions.
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Community Reinvestment Act. Savings associations are also subject to the
provisions of the Community Reinvestment Act of 1977, which requires the
appropriate federal bank regulatory agency, in connection with its regular
examination of a savings association, to assess the saving association's record
in meeting the credit needs of the community serviced by the savings
association, including low and moderate income neighborhoods. The regulatory
agency's assessment of the savings association's record is made available to the
public. Further, such assessment is required of any savings association which
has applied, among other things, to establish a new branch office that will
accept deposits, relocate an existing office or merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated financial
institution.
Savings and Loan Holding Company Regulations
Holding Company Acquisitions. Federal law and OTS regulations generally
prohibit a savings and loan holding company, without prior OTS approval, from
acquiring more than 5% of the voting stock of any other savings association or
savings and loan holding company or controlling the assets thereof. They also
prohibit, among other things, any director or officer of a savings and loan
holding company, or any individual who owns or controls more than 25% of the
voting shares of such holding company, from acquiring control of any savings
association not a subsidiary of such savings and loan holding company, unless
the acquisition is approved by the OTS.
Holding Company Activities. As a unitary savings and loan holding company,
First Bancorp generally is not subject to activity restrictions under federal
law. If First Bancorp acquires control of another savings association as a
separate subsidiary other than in a supervisory acquisition, it would become a
multiple savings and loan holding company. There generally are more
restrictions on the activities of a multiple savings and loan holding company
than on those of a unitary savings and loan holding company. No multiple
savings and loan holding company or subsidiary thereof which is not an insured
association may commence or continue for more than two years after becoming a
multiple savings and loan association holding company or subsidiary thereof, any
business activity other than:
(1) furnishing or performing management services for a subsidiary insured
institution,
(2) conducting an insurance agency or escrow business,
(3) holding, managing, or liquidating assets owned by or acquired from a
subsidiary insured institution,
(4) holding or managing properties used or occupied by a subsidiary
insured institution,
(5) acting as trustee under deeds of trust,
(6) those activities previously directly authorized by regulation as of
March 5, 1987 to be engaged in by multiple holding companies or
(7) those activities authorized by the Federal Reserve Board as
permissible for bank holding companies, unless the OTS by regulation,
prohibits or limits such activities for savings and loan holding
companies.
Those activities described in (7) above also must be approved by the OTS prior
to being engaged in by a multiple savings and loan holding company.
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Qualified Thrift Lender Test. Federal law provides that any savings and
loan holding company that controls a savings association that fails the
qualified thrift lender test, as explained under "-- Federal Regulation of
Savings Associations -- Qualified Thrift Lender Test," must, within one year
after the date on which First Federal ceases to be a QTL, register as and be
deemed a bank holding company subject to all applicable laws and regulations.
TAXATION
Federal Taxation
General. Following completion of the conversion, First Bancorp and First
Federal will report their income on a calendar year basis using the accrual
method of accounting and will be subject to federal income taxation in the same
manner as other corporations with some exceptions, including particularly First
Federal's reserve for bad debts discussed below. The following discussion of
tax matters is intended only as a summary and does not purport to be a
comprehensive description of the tax rules applicable to First Federal or First
Bancorp. For additional information regarding income taxes, see Note 8 of Notes
to Consolidated Financial Statements.
Bad Debt Reserve. Historically, savings institutions such as First Federal
which met certain definitional tests primarily related to their assets and the
nature of their business were permitted to establish a reserve for bad debts and
to make annual additions thereto, which may have been deducted in arriving at
their taxable income. First Federal's deductions with respect to "qualifying
real property loans," which are generally loans secured by certain interest in
real property, were computed using an amount based on First Federal's actual
loss experience, or a percentage equal to 8% of First Federal's taxable income,
computed with certain modifications and reduced by the amount of any permitted
additions to the non-qualifying reserve. Due to First Federal's high equity in
relation to deposits, First Federal generally recognized a bad debt deduction
equal to net charge-offs.
The thrift bad debt rules were revised by Congress in 1996. The new rules
eliminated the percentage of taxable income method for deducting additions to
the tax bad debt reserves for all thrifts for tax years beginning after December
31, 1995. These rules also required that all institutions recapture all or a
portion of their bad debt reserves added since the base year (last taxable year
beginning before January 1, 1988). For taxable years beginning after December
31, 1995, First Federal's bad debt deduction must be determined under the
experience method using a formula based on actual bad debt experience over a
period of years or, if First Federal is a "large" association (assets in excess
of $500 million) on the basis of net charge-offs during the taxable year. The
new rules allowed an institution to suspend bad debt reserve recapture for the
1996 and 1997 tax years if the institution's lending activity for those years is
equal to or greater than the institutions average mortgage lending activity for
the six taxable years preceding 1996 adjusted for inflation. For this purpose,
only home purchase or home improvement loans are included and the institution
can elect to have the tax years with the highest and lowest lending activity
removed from the average calculation. If an institution is permitted to
postpone the reserve recapture, it must begin its six year recapture no later
than the 1998 tax year. The unrecaptured base year reserves will not be subject
to recapture as long as the institution continues to carry on the business of
banking. In addition, the balance of the pre-1988 bad debt reserves continues
to be subject to provisions of present law referred to below that require
recapture of the pre-1988 bad debt reserve in the case of certain excess
distributions to shareholders.
Distributions. To the extent that First Federal makes "nondividend
distributions" to First Bancorp, such distributions will be considered to result
in distributions from the balance of its bad debt reserve as of December 31,
1987 (or a lesser amount if First Federal's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions will
be included in First Federal's taxable income.
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Nondividend distributions include distributions in excess of First Federal's
current and accumulated earnings and profits, distributions in redemption of
stock and distributions in partial or complete liquidation. However, dividends
paid out of First Federal's current or accumulated earnings and profits, as
calculated for federal income tax purposes, will not be considered to result in
a distribution from First Federal's bad debt reserve. The amount of additional
taxable income created from an Excess Distribution is an amount that, when
reduced by the tax attributable to the income, is equal to the amount of the
distribution. Thus, if, after the conversion, First Federal makes a "nondividend
distribution," then approximately one and one-half times the Excess Distribution
would be includable in gross income for federal income tax purposes, assuming a
34% corporate income tax rate, exclusive of state and local taxes. See
"Regulation" and "Dividend Policy" for limits on the payment of dividends by
First Federal. First Federal does not intend to pay dividends that would result
in a recapture of any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Internal Revenue Code imposes a tax
on alternative minimum taxable income at a rate of 20%. The excess of the tax
bad debt reserve deduction using the percentage of taxable income method over
the deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the alternative minimum
taxable income. In addition, only 90% of alternative minimum taxable income can
be offset by net operating loss carryovers. Alternative minimum taxable income
is increased by an amount equal to 75% of the amount by which First Federal's
adjusted current earnings exceeds its alternative minimum taxable income
(determined without regard to this preference and prior to reduction for net
operating losses).
Dividends-Received Deduction. First Bancorp may exclude from its income
100% of dividends received from First Federal as a member of the same affiliated
group of corporations. The corporate dividends-received deduction is generally
70% in the case of dividends received from unaffiliated corporations with which
First Bancorp and First Federal will not file a consolidated tax return, except
that if First Bancorp or First Federal owns more than 20% of the stock of a
corporation distributing a dividend, then 80% of any dividends received may be
deducted.
Audits. First Federal's federal income tax returns have not been audited
for the last five years.
State Taxation
Indiana imposes an 8.5% franchise tax based on a financial institution's
adjusted gross income as defined by statute. In computing adjusted gross
income, deductions for municipal interest, U.S. Government interest, the bad
debt deduction computed using the reserve method and pre-1990 net operating
losses are disallowed. First Federal's state franchise tax returns have not
been audited for the past five tax years.
THE CONVERSION
The OTS has approved the Plan of Conversion subject to approval of the Plan
of Conversion by the members of First Federal and to the satisfaction of certain
other conditions imposed by the OTS in its approval. OTS approval does not
constitute a recommendation or endorsement of the Plan of Conversion.
General
On September 16, 1998, the Board of Directors of First Federal unanimously
adopted the Plan of Conversion, under which First Federal will be converted from
a federally chartered mutual
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savings bank to a federally chartered stock savings bank to be held as a wholly-
owned subsidiary of First Bancorp, a newly formed Indiana corporation. The Board
of Directors amended the Plan of Conversion on December 16, 1998. THE FOLLOWING
DISCUSSION OF THE PLAN OF CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE PLAN OF CONVERSION, WHICH IS AVAILABLE TO MEMBERS OF FIRST FEDERAL UPON
REQUEST. The Plan of Conversion is also filed as an exhibit to the Registration
Statement. See "Where You Can Find More Information." The OTS has approved the
Plan of Conversion subject to its approval by the members of First Federal
entitled to vote on the matter at a Special Meeting called for that purpose to
be held on ___________, 1999, and subject to the satisfaction of certain other
conditions imposed by the OTS in its approval.
The conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by First Federal.
As part of the conversion, First Federal will issue all of its newly issued
common stock to First Bancorp in exchange for 50% of the net proceeds from the
sale of common stock by First Bancorp. The Plan of Conversion provides
generally that:
(1) First Federal will convert from a federally chartered mutual savings
bank to a federally chartered stock savings bank;
(2) First Bancorp will offer its common stock to persons having
subscription rights;
(3) if necessary, shares of common stock not subscribed for pursuant to
subscription rights will be offered to certain members of the general
public, with preference given to natural persons and trusts of natural
persons residing in Vanderburgh, Warrick, Posey, Gibson and Spencer
Counties, Indiana, and then to certain members of the general public
through a syndicate of registered broker-dealers pursuant to selected
dealers agreements; and
(4) First Bancorp will purchase all of the capital stock of First Federal
to be issued in connection with the conversion.
As part of the conversion, First Bancorp is offering its common stock in a
subscription offering to holders of subscription rights in the following order
of priority to:
(1) "Eligible Account Holders" -- depositors with $50.00 or more on
deposit as of June 30, 1997;
(2) First Federal's ESOP;
(3) "Supplemental Eligible Account Holders" -- depositors with $50.00 or
more on deposit as of December 31, 1998; and
(4) "Other Members" -- depositors of First Federal as of January 29, 1999
and borrowers of First Federal with loans outstanding as of March 16,
1988 which continue to be outstanding as of January 29, 1999.
Shares of common stock not subscribed for in the Subscription Offering may
be offered for sale to members of the general public through a direct community
offering. The direct community offering, if one is held, is expected to begin
immediately after the expiration of the subscription offering, but may begin at
any time during the subscription offering. Shares of common stock not sold in
the subscription offering and the direct community offering may be offered to
members of the general public on a best efforts basis by a selling group of
broker-dealers managed by Capital Resources in a syndicated community
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offering. Regulations require that the direct community offering and the
syndicated community offering be completed within 45 days after completion of
the subscription offering unless extended by First Federal or First Bancorp with
the approval of the regulatory authorities. If the syndicated community offering
is determined not to be feasible, the Board of Directors of First Federal will
consult with the regulatory authorities to determine an appropriate alternative
method for selling the unsubscribed shares of common stock. The Plan of
Conversion provides that the conversion must be completed within 24 months after
the date of the approval of the Plan of Conversion by the members of First
Federal.
No sales of common stock may be completed, either in the subscription
offering, direct community offering or syndicated community offering unless the
Plan of Conversion is approved by the members of First Federal.
The completion of the offering, however, is subject to market conditions
and other factors beyond First Federal's control. No assurance can be given as
to the length of time after approval of the Plan of Conversion at the Special
Meeting that will be required to complete the direct community offering or the
syndicated community offering or other sale of the common stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of First Bancorp and First Federal as converted, together with
corresponding changes in the net proceeds realized by First Bancorp from the
sale of the common stock. In the event the conversion is terminated, First
Federal would be required to charge all conversion expenses against current
income.
Orders for shares of common stock will not be filled until at least
$16,150,000 of common stock has been subscribed for or sold and the OTS approves
the final valuation and the conversion closes. If the conversion is not
completed within 45 days after the last day of the subscription offering and the
OTS consents to an extension of time to complete the conversion, subscribers
will be given the right to increase, decrease or rescind their subscriptions.
Unless an affirmative indication is received from subscribers that they wish to
continue to subscribe for shares, the funds will be returned promptly, together
with accrued interest at First Federal's passbook rate from the date payment is
received until the funds are returned to the subscriber. If such period is not
extended, or, in any event, if the conversion is not completed, all withdrawal
authorizations will be terminated and all funds held will be promptly returned
together with accrued interest at First Federal's passbook rate from the date
payment is received until the conversion is terminated.
Reasons for the Conversion
The Board of Directors and management believe that the conversion is in the
best interests of First Federal, its members and the communities it serves.
First Federal's Board of Directors has formed First Bancorp to serve as a
holding company, with First Federal as its subsidiary, upon the consummation of
the conversion. By converting to the stock form of organization, First Bancorp
and First Federal will be structured in the form used by holding companies of
commercial banks, most business entities and by a large number of savings
institutions. Management of First Federal believes that the conversion offers a
number of advantages which will be important to the future growth and
performance of First Federal. The capital raised in the conversion is intended
to support First Federal's current lending and investment activities and may
also support possible future expansion and diversification of operations,
although there are no current specific plans, arrangements or understandings,
written or oral, regarding any such expansion or diversification. The
conversion is also expected to afford First Federal's management, members and
others the opportunity to become stockholders of First Bancorp and participate
more directly in, and contribute to, any future growth of First Bancorp and
First Federal. The conversion will also enable First Bancorp and First Federal
to raise additional capital in the public equity or debt markets should the need
arise, although there are no current specific plans, arrangements or
understandings, written or oral, regarding any such financing activities. First
Federal, as a mutual savings bank, does not have the authority to issue capital
stock or debt instruments, other than by accepting deposits.
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Effects of Conversion to Stock Form on Depositors and Borrowers of First Federal
Voting Rights. Depositors and borrowers will have no voting rights in the
converted Bank or First Bancorp and therefore will not be able to elect
directors of First Federal or First Bancorp or to control their affairs.
Currently, these rights are accorded to members of First Federal. After the
conversion, voting rights will be vested exclusively in First Bancorp with
respect to First Federal and the holders of the common stock as to matters
pertaining to First Bancorp. Each holder of common stock shall be entitled to
vote on any matter to be considered by the stockholders of First Bancorp. A
stockholder will be entitled to one vote for each share of common stock owned.
Savings Accounts and Loans. First Federal's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the conversion. Furthermore, the conversion will not affect the
loan accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with First Federal.
Tax Effects. First Federal has received an opinion from Muldoon, Murphy &
Faucette LLP, Washington, D.C., that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Internal Revenue Code. The
opinion states that:
(1) no gain or loss will be recognized to First Federal in its mutual or
stock form by reason of the conversion;
(2) no gain or loss will be recognized to its account holders upon the
issuance to them of accounts in First Federal immediately after the
conversion, in the same dollar amounts and on the same terms and
conditions as their accounts at First Federal in its mutual form plus
interest in the liquidation account;
(3) the tax basis of account holders' accounts in First Federal
immediately after the conversion will be the same as the tax basis of
their accounts immediately prior to conversion;
(4) the tax basis of each account holder's interest in the liquidation
account will be equal to the value, if any, of that interest;
(5) the tax basis of the common stock purchased in the conversion will be
the amount paid and the holding period for such stock will commence at
the date of purchase; and
(6) no gain or loss will be recognized to account holders upon the receipt
or exercise of subscription rights in the conversion, except to the
extent subscription rights are deemed to have value as discussed
below.
Unlike a private letter ruling issued by the IRS, an opinion of counsel is
not binding on the IRS and the IRS could disagree with the conclusions reached
in the opinion. In the event of such disagreement, no assurance can be given
that the conclusions reached in an opinion of counsel would be sustained by a
court if contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of subscription rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the subscription rights are deemed to have a
fair market value. Capital Resources Group, a financial consulting firm retained
by First Federal, whose findings are not binding on the IRS, has issued a letter
indicating that 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
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afford the recipients the right only to purchase shares of the common stock at
the same price paid by purchasers in the direct community offering for
unsubscribed shares of common stock. If the subscription rights are deemed to
have a fair market value, the receipt of such rights may only be taxable to
those Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who exercise their subscription rights. First Federal could also
recognize a gain on the distribution of such subscription rights. Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members are
encouraged to consult with their own tax advisors as to the tax consequences in
the event the subscription rights are deemed to have a fair market value.
First Federal has also received an opinion from Olive LLP that, assuming
the conversion does not result in any federal income tax liability to First
Federal, its account holders, or First Bancorp, implementation of the Plan of
Conversion will not result in any Indiana income tax liability to such entities
or persons.
The opinions of Muldoon, Murphy & Faucette LLP and Olive LLP and the letter
from Capital Resources Group are filed as exhibits to the Registration
Statement. See "Where You Can Find More Information."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
Liquidation Account. In the unlikely event of a complete liquidation of
First Federal in its present mutual form, each depositor in First Federal would
receive a pro rata share of any assets of First Federal remaining after payment
of claims of all creditors, including the claims of all depositors up to the
withdrawal value of their accounts. Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his or her
deposit account to the total value of all deposit accounts in First Federal at
the time of liquidation.
After the conversion, holders of withdrawable deposit(s) in First Federal,
including certificates of deposit ("Savings Account(s)"), shall not be entitled
to share in any residual assets in the event of liquidation of First Federal.
However, following OTS regulations, First Federal will, at the time of the
conversion, establish a liquidation account in an amount equal to its total
equity as of the date of the latest statement of financial condition contained
in this prospectus.
The liquidation account will be maintained by First Federal subsequent to
the conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in First Federal.
Each Eligible Account Holder and Supplemental Eligible Account Holder will, with
respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder will be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the denominator is the total amount of the "qualifying
deposits" of all such holders. The initial subaccount balance will not be
increased, and it will be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of First Federal subsequent to June 30, 1997, or December 31, 1998
is less than the lesser of (1) the deposit balance in such Savings Account at
the close of business on any other annual closing date subsequent to June 30,
1997 or December 31, 1998 or (2) the amount of the "qualifying deposit" in such
Savings Account on June 30, 1997 or December 31, 1998, then the subaccount
balance for such Savings Account shall be adjusted by reducing such subaccount
balance in an amount
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proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of First Federal (and only in such
event) each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then current adjusted subaccount balance(s) for
Savings Account(s) then held by such holder before any liquidation distribution
may be made to stockholders. No merger, consolidation, bulk purchase of assets
with assumptions of Savings Accounts and other liabilities or similar
transactions with another federally insured institution in which First Federal
is not the surviving institution shall be considered to be a complete
liquidation. In any such transaction the liquidation account shall be assumed
by the surviving institution.
In the unlikely event First Federal is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to First Bancorp as the sole stockholder of First Federal.
The Subscription, Direct Community and syndicated community offerings
Subscription offering. In accordance with the Plan of Conversion,
nontransferable subscription rights to purchase the common stock have been
issued to persons and entities entitled to purchase the common stock in the
subscription offering. The amount of the common stock which these parties may
purchase will be subject to the availability of the common stock for purchase
under the categories specified in the Plan of Conversion. Subscription
priorities have been established for the allocation of stock to the extent that
the common stock is available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or more
on deposit at First Federal as of June 30, 1997 will receive nontransferable
subscription rights to subscribe for up to the greater of $150,000 of common
stock, one-tenth of one percent of the total offering of common stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders. If the exercise of subscription
rights in this category results in an oversubscription, shares of common stock
will be allocated among subscribing Eligible Account Holders so as to permit
each Eligible Account Holder, to the extent possible, to purchase a number of
shares sufficient to make such person's total allocation equal 100 shares or the
number of shares actually subscribed for, whichever is less. Thereafter,
unallocated shares will be allocated among subscribing Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all subscribing Eligible Account
Holders whose subscriptions remain unsatisfied. Subscription rights received by
officers and directors in this category based on their increased deposits in
First Federal in the one year period preceding June 30, 1997 are subordinated to
the subscription rights of other Eligible Account Holders.
Category 2: ESOP. The Plan of Conversion provides that the ESOP shall
receive nontransferable subscription rights to purchase up to 8% of the shares
of common stock sold in the conversion. The ESOP intends to purchase 8% of the
shares of common stock sold in the conversion. In the event the number of
shares offered in the conversion is increased above the maximum of the Estimated
Valuation Range, the ESOP shall have a priority right to purchase any such
shares exceeding the maximum of the Estimated Valuation Range up to an aggregate
of 8% of the common stock sold in the conversion. If the ESOP's subscription is
not filled in its entirety, the ESOP may purchase shares in the open market.
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Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of December 31, 1998 will receive nontransferable
subscription rights to subscribe for up to the greater of $150,000 of common
stock, one-tenth of one percent of the total offering of common stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders. If the
exercise of subscription rights in this category results in an oversubscription,
shares of common stock will 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 sufficient to make his or
her total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated among subscribing Supplemental Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unsatisfied.
Category 4: Other Members. Each depositor of First Federal as of January
29, 1999 (the "Voting Record Date") and each borrower with a loan outstanding on
March 16, 1988 which continues to be outstanding as of the Voting Record Date
will receive nontransferable subscription rights to purchase up to $150,000 of
common stock in the conversion to the extent shares are available following
subscriptions by Eligible Account Holders and Supplemental Eligible Account
Holders. In the event of an oversubscription in this category, the available
shares will be allocated proportionately based on the amount of the respective
subscriptions.
SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS SELLING OR OTHERWISE
TRANSFERRING THEIR RIGHTS TO SUBSCRIBE FOR COMMON STOCK IN THE SUBSCRIPTION
OFFERING OR SUBSCRIBING FOR COMMON STOCK ON BEHALF OF ANOTHER PERSON WILL BE
SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OTS OR ANOTHER AGENCY OF THE U.S. GOVERNMENT. EACH
PERSON EXERCISING SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT HE OR SHE
IS PURCHASING SUCH SHARES SOLELY FOR HIS OR HER OWN ACCOUNT AND THAT HE OR SHE
HAS NO AGREEMENT OR UNDERSTANDING WITH ANY OTHER PERSON FOR THE SALE OR TRANSFER
OF SUCH SHARES. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT
THE CONSENT OF FIRST FEDERAL AND FIRST BANCORP.
First Bancorp and First Federal will make reasonable attempts to provide a
prospectus and related offering materials to holders of subscription rights.
However, the subscription offering and all subscription rights under the Plan of
Conversion will expire at 12:00 Noon, local time, on ____________, 1999, whether
or not First Federal has been able to locate each person entitled to such
subscription rights. ORDERS FOR COMMON STOCK IN THE SUBSCRIPTION OFFERING
RECEIVED IN HAND BY FIRST fEDERAL AFTER THE EXPIRATION DATE WILL NOT BE
ACCEPTED.
Direct Community Offering. Any shares of common stock which remain
unsubscribed for in the subscription offering may be offered by First Bancorp to
certain members of the general public in a direct community offering, with
preference given to natural persons and trusts of natural persons residing in
Vanderburgh, Warrick, Posey, Gibson and Spencer Counties, Indiana. Purchasers
in the direct community offering are eligible to purchase up to $150,000 of
common stock. In the event an insufficient number of shares are available to
fill orders in the direct community offering, the available shares will be
allocated on a pro rata basis determined by the amount of the respective orders.
The direct community offering, if one is held, is expected to begin immediately
after the expiration of the subscription offering, but may begin at any time
during the subscription offering. The direct community offering may terminate
at the same time as the subscription offering or at any time subsequent thereto,
but no later than 45 days after the close of the subscription offering, unless
extended by First Bancorp and First Federal, with approval of the OTS.
THE RIGHT OF ANY PERSON TO PURCHASE SHARES IN THE DIRECT COMMUNITY OFFERING
IS SUBJECT TO THE ABSOLUTE RIGHT OF FIRST BANCORP AND FIRST FEDERAL TO ACCEPT OR
REJECT SUCH PURCHASES IN WHOLE OR IN PART. IF AN ORDER IS REJECTED IN PART, THE
PURCHASER DOES NOT HAVE THE RIGHT TO CANCEL
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THE REMAINDER OF THE ORDER. FIRST BANCORP PRESENTLY INTENDS TO TERMINATE THE
DIRECT COMMUNITY OFFERING AS SOON AS IT HAS RECEIVED ORDERS FOR ALL SHARES
AVAILABLE FOR PURCHASE IN THE CONVERSION.
If all of the common stock offered in the subscription offering is
subscribed for, no common stock will be available for purchase in the direct
community offering.
Syndicated Community Offering. The Plan of Conversion provides that, if
necessary, all shares of common stock not purchased in the subscription offering
and direct community offering, if any, may be offered for sale to certain
members of the general public in a syndicated community offering through a
syndicate of registered broker-dealers to be formed and managed by Capital
Resources acting as agent of First Bancorp. FIRST BANCORP AND FIRST FEDERAL
HAVE THE RIGHT TO REJECT ORDERS, IN WHOLE OR IN PART, IN THEIR SOLE DISCRETION
IN THE SYNDICATED COMMUNITY OFFERING. Neither Capital Resources nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of the common stock in the syndicated community offering; however,
Capital Resources has agreed to use its best efforts in the sale of shares in
the syndicated community offering.
Stock sold in the syndicated community offering also will be sold at the
$10.00 purchase price. See "--Stock Pricing and Number of Shares to be Issued."
No person will be permitted to subscribe in the syndicated community offering
for shares of common stock with an aggregate purchase price of more than
$150,000. See "--Plan of Distribution for the Subscription, Direct Community
and syndicated community offerings" for a description of the commission to be
paid to the selected dealers and to Capital Resources.
Capital Resources may enter into agreements with selected dealers to assist
in the sale of shares in the syndicated community offering. If a syndicate of
broker-dealers ("selected dealers") is formed to assist in the syndicated
community offering, a purchaser may pay for his or her shares with funds held by
or deposited with a selected dealer. If an order form is executed and forwarded
to the selected dealer or if the selected dealer is authorized to execute the
order form on behalf of a purchaser, the selected dealer is required to forward
the order form and funds to First Federal for deposit in a segregated account on
or before noon of the business day following receipt of the order form or
execution of the order form by the selected dealer. Alternatively, selected
dealers may solicit indications of interest from their customers to place orders
for shares. Such selected dealers shall subsequently contact their customers
who indicated an interest and seek their confirmation as to their intent to
purchase. Those indicating an intent to purchase shall execute order forms and
forward them to their selected dealer or authorize the selected dealer to
execute such forms. The selected dealer will acknowledge receipt of the order
to its customer in writing on the following business day and will debit such
customer's account on the third business day after the customer has confirmed
his intent to purchase (the "debit date") and on or before noon of the next
business day following the debit date will send order forms and funds to First
Federal for deposit in a segregated account. Although purchasers' funds are not
required to be in their accounts with selected dealers until the debit date if
this alternative procedure is employed, once a confirmation of an intent to
purchase has been received by the selected dealer, the purchaser has no right to
rescind his or her order.
The syndicated community offering may terminate no more than 45 days after
the expiration of the subscription offering, unless extended by First Bancorp
and First Federal, with approval of the OTS. In the event First Federal is
unable to find purchasers from the general public for all unsubscribed shares,
other purchase arrangements will be made by the Board of Directors of First
Federal, if feasible. Such other arrangements will be subject to the approval
of the OTS.
Time to Complete the Offering. OTS regulations require that First Bancorp
complete the sale of common stock within 45 days after the close of the
subscription offering. If the offering is not completed within such period all
funds received will be promptly returned with interest at First Federal's
passbook rate and all withdrawal authorizations will be canceled. The OTS may
grant one or more extensions of the offering period, provided that no single
extension exceeds 90 days, subscribers are given the right to increase,
decrease or rescind their subscriptions during the extension period, and the
extensions do not go
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more than two years beyond the date on which the members approved the Plan of
Conversion. If the OTS grants approval of an extension offering period, all
subscribers will be notified of such extension and of the duration of any
extension that has been granted, and will be given the right to increase,
decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by First Bancorp from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest (or withdrawal authorizations will be canceled).
Persons in Non-Qualified States. First Bancorp and First Federal will make
reasonable efforts to comply with the securities laws of all states in the
United States in which persons entitled to subscribe for stock under the Plan of
Conversion reside. However, First Bancorp and First Federal are not required to
offer stock in the subscription offering to any person (1) who resides in a
foreign country or in a state of the United States in which a small number of
persons otherwise eligible to subscribe for shares of common stock reside in
such state or (2) who resides in a state with respect to which First Bancorp or
First Federal determines that compliance with the securities laws of such state
would be impracticable for reasons of cost or otherwise, including but not
limited to a request or requirement that First Bancorp and First Federal or
their officers, directors or trustees register as a broker, dealer, salesman or
selling agent, under the securities laws of such state, or a request or
requirement to register or otherwise qualify the subscription rights or common
stock for sale or submit any filing with respect thereto in such state. Where
the number of persons eligible to subscribe for shares in one state is small,
First Bancorp and First Federal will base their decision as to whether or not to
offer the common stock in such state on a number of factors, including the size
of accounts held by account holders in the state, the cost of reviewing the
registration and qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register First Bancorp, its
officers, directors or employees as brokers, dealers or salesmen.
Plan of Distribution for the Subscription, Direct Community and syndicated
community offerings
First Bancorp and First Federal have retained Capital Resources, a broker-
dealer registered with the SEC and a member of the NASD, to consult with and
advise First Bancorp and First Federal and to assist, on a best efforts basis,
in the distribution of the common stock in the conversion. The services Capital
Resources will perform include: (1) training and educating the Company's and
First Federal's employees regarding the mechanics and regulatory requirements of
the stock conversion process; (2) conducting information meetings for potential
subscribers, if necessary; (3) managing the sales efforts in the offering; (4)
assisting in the collection of proxies from depositors for use at the Special
Meeting; and (5) keeping records of subscriptions and orders for common stock.
Capital Resources will receive for its services a fee equal to 1.25% of the
total dollar amount of stock sold, excluding shares purchased by the ESOP and by
officers, directors and employees and their immediate household family members.
If selected dealers are utilized in connection with the offering, First Bancorp
will pay a fee (negotiated at such time) to such selected dealers and a
management fee to Capital Resources under a selected dealer's agreement. The
fee to be negotiated with the selected dealers is expected to be up to 4.0% of
the total dollar amount sold through selected dealers. Capital Resources will
also be reimbursed for its legal fees and for reasonable out-of-pocket expenses
in an amount not to exceed $40,000. Capital Resources has received fees
totaling $60,000 for consulting and advisory services relating to the
conversion, which fees will be credited against marketing fees payable to
Capital Resources. Capital Resources is affiliated with Capital Resources
Group.
Subject to certain limitations, First Bancorp and First Federal have also
agreed to indemnify Capital Resources against liabilities and expenses,
including legal fees, incurred in connection with certain claims or litigation,
including claims or litigation arising out of or based upon untrue statements or
omissions contained in the offering material for the common stock.
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Description of Sales Activities
The common stock will be offered in the subscription offering and direct
community offering principally by the distribution of this prospectus and
through activities conducted at First Federal's stock center at its main office
facility. The stock center is expected to operate during normal business hours
throughout the subscription offering and direct community offering. It is
expected that at any particular time one or more Capital Resources employees
will be working at the stock center. Such employees of Capital Resources will
be responsible for mailing materials relating to the offering, responding to
questions regarding the conversion and the offering and processing stock orders.
Sales of common stock will be made by registered representatives affiliated
with Capital Resources or by the selected dealers managed by Capital Resources.
The management and employees of First Federal may participate in the offering in
clerical capacities, providing administrative support in effecting sales
transactions or, when permitted by state securities laws, answering questions of
a mechanical nature relating to the proper execution of the order form.
Management of First Federal may answer questions regarding the business of First
Federal when permitted by state securities laws. Other questions of prospective
purchasers, including questions as to the advisability or nature of the
investment, will be directed to registered representatives. The management and
employees of First Bancorp and First Federal have been instructed not to solicit
offers to purchase common stock or provide advice regarding the purchase of
common stock.
No officer, director or employee of First Federal or First Bancorp will be
compensated, directly or indirectly, for any activities in connection with the
offer or sale of securities issued in the conversion.
None of First Federal's personnel participating in the offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
First Federal's personnel will assist in the above-described sales activities
under an exemption from registration as a broker or dealer provided by Rule 3a4-
1 promulgated under the Exchange Act. Rule 3a4-1 generally provides that an
"associated person of an issuer" of securities shall not be deemed a broker
solely by reason of participation in the sale of securities of such issuer if
the associated person meets certain conditions. Such conditions include, but
are not limited to, that the associated person participating in the sale of an
issuer's securities not be compensated in connection therewith at the time of
participation, that such person not be associated with a broker or dealer and
that such person observe certain limitations on his or her participation in the
sale of securities. For purposes of this exemption, "associated person of an
issuer" is defined to include any person who is a director, officer or employee
of the issuer or a company that controls, is controlled by or is under common
control with the issuer.
Procedure for Purchasing Shares in the Subscription and direct community
offerings
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the expiration of the subscription offering 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 only be distributed with a prospectus. First
Federal will accept for processing only orders submitted on original order
forms. First Federal is not obligated to accept orders submitted on photocopied
or telecopied order forms. ORDERS CANNOT AND WILL NOT BE ACCEPTED WITHOUT THE
EXECUTION OF THE CERTIFICATION APPEARING ON THE ORDER FORM. By executing and
returning the regulatory mandated certification form, you will be certifying
that you received this prospectus and acknowledging that the common stock is not
a deposit account and is not insured or guaranteed by any federal or state
governmental agency. You will also be acknowledging that you received
disclosure concerning the risks involved in this offering. The certification
form could be used as support to show that you understand the nature of this
investment.
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To purchase shares in the subscription offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization for withdrawal of full payment from the subscriber's
deposit account with First Federal (which may be given by completing the
appropriate blanks in the order form), must be received by First Federal by
12:00 Noon, local time, on ___________, 1999. Order forms that are not received
by such time or are executed defectively or are received without full payment or
without appropriate withdrawal instructions are not required to be accepted.
First Bancorp and First Federal have the right to waive or permit the correction
of incomplete or improperly executed order forms, but do not represent that they
will do so. Under the Plan of Conversion, the interpretation by First Bancorp
and First Federal of the terms and conditions of the Plan of Conversion and of
the order form will be final. In order to purchase shares in the direct
community offering, the order form, accompanied by the required payment for each
share subscribed for, must be received by First Federal prior to the time the
direct community offering terminates, which may be at the same time as or
subsequent to the expiration of the subscription offering. Once received, an
executed order form may not be modified, amended or rescinded without the
consent of First Federal unless the conversion has not been completed within 45
days after the end of the subscription offering, 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 priorities, depositors as of the Eligibility Record Date (June 30,
1997) and/or the Supplemental Eligibility Record Date (December 31, 1998) and/or
the Voting Record Date (January 29, 1999) must list all accounts on the order
form giving all names in each account, the account number and the approximate
account balance as of such date. Failure to list an account could result in
fewer shares being allocated in the event of an oversubscription than if all
accounts had been disclosed.
Full payment for subscriptions may be made (1) in cash if delivered in
person at First Federal's stock center, (2) by check, bank draft, or money
order, or (3) by authorization of withdrawal from deposit accounts maintained
with First Federal. Appropriate means by which such withdrawals may be
authorized are provided on the order form. No wire transfers will be accepted.
Payment for subscriptions of $25,000 or more must be by account withdrawal or by
certified or cashier's check or money order. Interest will be paid on payments
made by cash, check, bank draft or money order at First Federal's passbook rate
from the date payment is received until the completion or termination of the
conversion. If payment is made by authorization of withdrawal from deposit
accounts, the funds authorized to be withdrawn from a deposit account will
continue to accrue interest at the contractual rates until completion or
termination of the conversion, unless the certificate matures after the date of
receipt of the order form but prior to closing, in which case funds will earn
interest at the passbook rate from the date of maturity until consummation 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.
At the completion of the conversion, the funds received in the offering will be
used to purchase the shares of common stock ordered. THE SHARES OF COMMON STOCK
ISSUED IN THE CONVERSION CANNOT AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER
GOVERNMENT AGENCY. In the event that the conversion is not completed for any
reason, all funds submitted will be promptly refunded with interest as described
above.
If a subscriber authorizes First Federal to withdraw the amount of the
aggregate purchase price from his or her deposit account, First Federal will do
so as of the effective date of conversion, though the account must contain the
full amount necessary for payment at the time the subscription order is
received. First Federal will 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 First Federal's passbook rate.
IRAs maintained in First Federal do not permit investment in the common
stock. A depositor interested in using his or her IRA funds to purchase common
stock must do so through a self-directed IRA. Since First Federal does not
offer such accounts, it will allow such a depositor to make a trustee-to-trustee
transfer of the IRA funds to a trustee offering a self-directed IRA program with
the agreement that such funds will
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be used to purchase First Bancorp's common stock in the offering. There will be
no early withdrawal or IRS interest penalties for such transfers. The new
trustee would hold the common stock in a self-directed account in the same
manner as First Federal now holds the depositor's IRA funds. An annual
administrative fee may be payable to the new trustee. Depositors interested in
using IRA funds at First Federal to purchase common stock should contact the
stock information center as soon as possible so that the necessary forms may be
forwarded for execution and returned prior to the expiration of the subscription
offering. In addition, the provisions of the Employee Retirement Income Security
Act and IRS regulations require that officers, directors and 10% shareholders
who use self-directed IRA funds to purchase shares of common stock in the
subscription offering, make such purchases for the exclusive benefit of IRAs.
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 common stock
subscribed for at the $10.00 purchase price at the closing of the conversion,
provided that there is in force from the time of its subscription until such
time, a loan commitment from an unrelated financial institution or First Bancorp
to lend to the ESOP, at such time, the aggregate purchase price of the shares
for which it subscribed.
Certificates representing shares of common stock purchased, and any refund
due, will be mailed to purchasers at such address as may be specified in
properly completed order forms or to the last address of such persons appearing
on the records of First Federal as soon as practicable following consummation of
the sale of all shares of common stock. Any certificates returned as
undeliverable will be disposed of in accordance with applicable law. PURCHASERS
MAY NOT BE ABLE TO SELL THE SHARES OF COMMON STOCK WHICH THEY PURCHASED UNTIL
CERTIFICATES FOR THE COMMON STOCK ARE AVAILABLE AND DELIVERED TO THEM, EVEN
THOUGH TRADING OF THE COMMON STOCK MAY HAVE COMMENCED.
Stock Pricing and Number of Shares to be Issued
Federal regulations promulgated by the OTS require that a converting
savings association issue and sell its capital stock at a total price equal to
the estimated pro forma market value of such stock in the converted savings
association, based on an independent valuation. These regulations require First
Bancorp and First Federal to retain an appraiser who is independent of First
Bancorp and First Federal, experienced and expert in the area of corporate
appraisal and acceptable to OTS. The term independent appraiser is defined by
the federal regulations. First Federal has retained Capital Resources Group to
prepare an appraisal of the pro forma market value of First Bancorp and First
Federal as converted and to assist in preparing a business plan. Capital
Resources Group is the parent company of and affiliated with Capital Resources,
the marketing agent for First Bancorp's conversion stock. Capital Resources
Group will receive a fee expected to total $35,000 for its appraisal services
and assistance in the preparation of a business plan, plus reasonable out-of-
pocket expenses incurred in connection with the appraisal and preparation of the
business plan, not to exceed $5,000 without prior approval by First Federal. If
an updated appraisal is required in connection with the conversion process,
Capital Resources Group will receive a fixed fee of $5,000 for preparation of an
updated appraisal. First Federal has agreed to indemnify Capital Resources
Group under certain circumstances against liabilities and expenses (including
legal fees) arising out of, related to, or based upon the conversion. Capital
Resources Group will also receive a fee of $20,000 for records management
services in connection with the conversion plus reimbursement of reasonable out-
of-pocket expenses incurred in connection with the records management services
not to exceed $5,000 without prior approval by First Federal.
The OTS has issued guidelines to appraisers in connection with the
appraisal of converting savings institutions which describe the methodology that
OTS expects the appraiser to utilize. OTS reviews the appraisal and any
appraisal update submitted to them, and the methodology employed in the
appraisal. In the past, OTS has required converting savings institutions to
adjust their appraisals or appraisal updates which has resulted in a change in
the number of shares issued. Although OTS has not objected to the appraisal of
First Bancorp and First Federal in connection with the conversion, there can be
no assurance that the
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OTS may not require First Federal to sell additional stock to complete the
conversion. There also can be no assurance that the common stock will exhibit
the post-conversion price and trading patterns experienced by other converting
mutual associations, or that the common stock will sell in the aftermarket at
$10.00 per share or in the aggregate at or above the estimated pro form market
value.
The appraisal contains an analysis of a number of factors including, but
not limited to, First Federal's financial condition and operating trends, the
competitive environment within which First Federal operates, operating trends of
certain thrift institutions and savings and loan holding companies, relevant
economic conditions both nationally and in the State of Indiana which affect the
operations of thrift institutions, stock market values of certain institutions,
and stock market conditions for publicly traded savings institutions and savings
and loan holding companies. In addition, Capital Resources Group has advised
First Federal that it has considered and will consider the effect of the
additional capital raised by the sale of the common stock on the estimated
aggregate pro forma market value of such shares. The Board of Directors has
reviewed the appraisal, including the stated methodology of Capital Resources
Group and the assumptions used in the preparation of the appraisal. The Board
of Directors is relying upon the expertise, experience and independence of
Capital Resources Group and is not qualified to determine the appropriateness of
the assumptions or the methodology. The appraisal has been filed as an exhibit
to the registration statement of which this prospectus is a part. See "Where
You Can Find More Information."
OTS regulations require that the appraiser establish an estimated valuation
range for First Bancorp's common stock to allow for fluctuations in the
aggregate value of the stock due to changing market conditions and other
factors. On the basis of the foregoing, Capital Resources Group has advised
First Bancorp and First Federal that, in its opinion, as of December 4, 1998,
the pro forma market value of First Bancorp and First Federal as converted and,
therefore, the common stock, was within the valuation range of $16,150,000 to
$21,850,000 with a midpoint of $19,000,000. After reviewing the methodology and
the assumptions used by Capital Resources Group in the preparation of the
appraisal, the Board of Directors accepted the Estimated Valuation Range.
Assuming that the shares are sold at $10.00 per share in the conversion, the
estimated number of shares would be between 1,615,000 and 2,185,000 with a
midpoint of 1,900,000. The purchase price of $10.00 was determined by
discussion among the Boards of Directors of First Federal and First Bancorp and
Capital Resources, taking into account, among other factors, the requirement
under OTS regulations that the common stock be offered in a manner that will
achieve the widest distribution of the stock and desired liquidity in the
common stock subsequent to the conversion. Since the outcome of the offering
relates in large measure to market conditions at the time of sale, it is not
possible to determine the exact number of shares that will be issued by First
Bancorp at this time. The Estimated Valuation Range may be amended, with the
approval of the OTS, if necessitated by developments following the date of such
appraisal in, among other things, First Federal's financial condition and
operating trends, the competitive environment within which First Federal
operates, operating trends of certain thrift institutions and savings and loan
holding companies, relevant economic conditions both nationally and in the State
of Indiana which affect the operations of thrift institutions, stock market
values of certain institutions, and stock market conditions for publicly traded
savings institutions and savings and loan holding companies.
If, upon completion of the subscription offering, at least the minimum
number of shares are subscribed for, Capital Resources Group, after taking into
account factors similar to those involved in its prior appraisal as well as the
results of the subscription offering, will determine its estimate of the pro
forma market value of First Bancorp and First Federal as converted based on
information available to Capital Resources Group at that time. This may result
in an increase or decrease of the Estimated Valuation Range. An increase or
decrease in the Estimated Valuation Range will result in a change in the number
of shares to be issued in the conversion.
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No sale of the shares will take place unless prior thereto Capital
Resources Group confirms to the OTS that, to the best of Capital Resources
Group's knowledge and judgment, nothing of a material nature has occurred that
would cause it to conclude that the actual total purchase price on an aggregate
basis was incompatible with its estimate of the total pro forma market value of
First Bancorp and First Federal as converted at the time of the sale. If,
however, the facts do not justify such a statement, the offering or other sale
may be canceled, a new Estimated Valuation Range and price per share set and new
Subscription, Direct Community and syndicated community offerings held. Under
such circumstances, subscribers would have the right to modify or rescind their
subscriptions and to have their subscription funds returned promptly with
interest and holds on funds authorized for withdrawal from deposit accounts
would be released or reduced.
Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares discussed in this
prospectus. Persons ordering shares will not be permitted to modify or cancel
their orders unless the change in the number of shares to be issued in the
conversion results in an offering which is either less than 1,615,000 shares or
more than 2,512,750 shares. In the event the total amount of shares issued is
less than 1,615,000 or more than 2,512,750 (15% above the maximum of the
Estimated Valuation Range), for aggregate gross proceeds of less than
$16,150,000 or more than $25,127,500, subscription funds will be returned
promptly with interest to each subscriber unless he indicates otherwise. In the
event a new valuation range is established by Capital Resources Group, such new
range will be subject to approval by the OTS. In the event of an increase in
the valuation, First Bancorp may increase the total number of shares to be
issued in the conversion. An increase in the total number of shares to be issued
in the conversion would decrease a subscriber's percentage ownership interest
and pro forma net worth (book value) per share and increase the pro forma net
income and net worth (book value) on an aggregate basis. In the event of a
reduction in the valuation, First Bancorp may decrease the number of shares to
be issued to reflect the reduced valuation. A decrease in the number of shares
to be issued in the conversion would increase a subscriber's percentage
ownership interest and the pro forma net worth (book value) per share and
decrease the pro forma net income and net worth on an aggregate basis. For a
presentation of the possible effects of an increase or decrease in the number of
shares to be issued, see "Pro Forma Data."
If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of First Federal and First Bancorp, if possible. These other
purchase arrangements will be subject to the approval of the OTS and may provide
for purchases for investment purposes by directors, officers, their associates
and other persons in excess of the limitations provided in the Plan of
Conversion and in excess of the proposed director purchases, although no
additional purchases are currently intended. If such other purchase
arrangements cannot be made, the Plan of Conversion will terminate.
In formulating its appraisal, Capital Resources Group relied upon the
truthfulness, accuracy and completeness of all documents First Federal furnished
to it. Capital Resources Group also considered financial and other information
from regulatory agencies, other financial institutions, and other public
sources, as appropriate. While Capital Resources Group believes this information
to be reliable, Capital Resources Group does not guarantee the accuracy or
completeness of such information and did not independently verify the financial
statements and other data provided by First Federal and First Bancorp or
independently value the assets or liabilities of First Bancorp and First
Federal. The appraisal considers First Bancorp and First Federal only as a
going concern and should not be considered to be a liquidation value. THE
APPRAISAL BY CAPITAL RESOURCES GROUP IS NOT INTENDED TO BE, AND MUST NOT BE
INTERPRETED AS, A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF VOTING TO
APPROVE THE PLAN OF CONVERSION OR OF PURCHASING SHARES OF COMMON STOCK.
MOREOVER, BECAUSE THE APPRAISAL IS NECESSARILY BASED ON MANY FACTORS WHICH
CHANGE FROM TIME TO TIME, THERE IS NO ASSURANCE THAT PERSONS WHO PURCHASE SUCH
SHARES IN THE CONVERSION WILL LATER BE ABLE TO SELL SHARES THEREAFTER AT PRICES
AT OR ABOVE THE PURCHASE PRICE IN THE OFFERING.
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Limitations on Purchases of Shares
The Plan of Conversion provides for certain limitations to be placed upon
the purchase of common stock by eligible subscribers and others in the
conversion. Each subscriber must subscribe for a minimum of 25 shares. The Plan
of Conversion provides the following purchase limitations:
(1) no eligible subscriber (including all persons on a joint account) may
purchase more than $150,000 of common stock in the subscription
offering;
(2) no person may purchase more than $150,000 of common stock in the
direct community offering;
(3) no person may purchase more than $150,000 of common stock in the
syndicated community offering; and
(4) no person, either alone or together with associates of or persons
acting in concert with such person, may purchase in the aggregate more
than the overall maximum purchase limitation of $220,000 of common
stock.
For purposes of the Plan of Conversion, the directors are not deemed to be
acting in concert solely by reason of their Board membership. Pro rata
reductions within each subscription rights category will be made in allocating
shares to the extent that the maximum purchase limitations are exceeded.
First Federal's and First Bancorp's Boards of Directors may, in their sole
discretion, increase the maximum purchase limitation described above up to 9.99%
of the shares of common stock sold in the conversion, provided that if the
maximum purchase limitation is increased to more than 5% of the shares sold in
the conversion, orders for shares which exceed 5% of the shares of common stock
sold in the conversion may not exceed, in the aggregate, 10% of the shares sold
in the conversion. First Federal and First Bancorp do not intend to increase
the maximum purchase limitation unless market conditions are such that an
increase in the maximum purchase limitation is necessary to sell a number of
shares in excess of the minimum of the Estimated Valuation Range. If the Boards
of Directors decide to increase the purchase limitation above, persons who
subscribed for the maximum number of shares of common stock will be, and other
large subscribers in the discretion of First Bancorp and First Federal may be,
given the opportunity to increase their subscriptions accordingly, subject to
the rights and preferences of any person who has priority subscription rights.
The term "acting in concert" is defined in the Plan of Conversion to mean
(1) knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not under an express agreement;
or (2) a combination or pooling of voting or other interests in the securities
of an issuer for a common purpose under any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. In
general, a person who acts in concert with another party shall also be deemed to
be acting in concert with any person who is also acting in concert with that
other party. First Bancorp and First Federal may presume that certain persons
are acting in concert based upon, among other things, joint account
relationships and the fact that such persons have filed joint Schedules 13D with
the SEC with respect to other companies.
The term "associate" of a person is defined in the Plan of Conversion to
mean:
(1) any corporation or organization (other than First Federal or a
majority-owned subsidiary of First Federal) of which such person is an
officer or partner or is, directly or indirectly, the beneficial owner
of 10% or more of any class of equity securities;
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(2) 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 (excluding tax-qualified employee plans);
and
(3) any relative or spouse of such person, or any relative of such spouse,
who either has the same home as such person or who is a director or
officer of First Federal or any of its parents or subsidiaries.
For example, a corporation of which a person serves as an officer would be
an associate of such person and, therefore, all shares purchased by such
corporation would be included with the number of shares which such person could
purchase individually under the above limitations.
The term "officer" is defined in the Plan of Conversion to mean an
executive officer of First Federal, including its Chairman of the Board,
President, Vice Presidents, Secretary and Treasurer.
Common stock purchased under the conversion will be freely transferable,
except for shares purchased by directors and officers of First Federal and First
Bancorp and by NASD members. See "-- Restrictions on Transferability by
Directors and Officers and NASD Members."
Restrictions on Repurchase of Stock
Under OTS regulations, OTS-regulated savings associations (and their
holding companies) may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in the event of an offer made to all of its stockholders to
repurchase the common stock on a pro rata basis, approved by the OTS, or the
repurchase of qualifying shares of a director. Furthermore, repurchases of any
common stock are prohibited if the effect thereof would cause First Federal's
regulatory capital to be reduced below the amount required for the liquidation
account or the regulatory capital requirements imposed by the OTS. Repurchases
are generally prohibited during the first year following conversion. Upon ten
days' written notice to the OTS, and if the OTS does not object, an institution
may make open market repurchases of its outstanding common stock during years
two and three following the conversion, provided that certain regulatory
conditions are met and that the repurchase would not adversely affect the
financial condition of the institution. Any repurchases of common stock by
First Bancorp would be subject to these regulatory restrictions unless the OTS
would provide otherwise.
Restrictions on Transferability by Directors and Officers and NASD Members
Shares of common stock purchased in the offering by directors and officers
of First Bancorp may not be sold for a period of one year following consummation
of the conversion, except in the event of the death of the stockholder or in any
exchange of the common stock in connection with a merger or acquisition of First
Bancorp. Shares of common stock received by directors or officers through the
ESOP or the MRDP or upon exercise of options issued pursuant to the Stock Option
Plan or purchased subsequent to the conversion are not subject to this
restriction. Accordingly, shares of common stock issued by First Bancorp to
directors and officers shall bear a legend giving appropriate notice of the
restriction and, in addition, First Bancorp will give appropriate instructions
to the transfer agent for First Bancorp's common stock with respect to the
restriction on transfers. Any shares issued to directors and officers as a
stock dividend, stock split or otherwise with respect to restricted common stock
shall be subject to the same restrictions.
Purchases of outstanding shares of common stock of First Bancorp by
directors, executive officers (or any person who was an executive officer or
director of First Federal after adoption of the Plan of Conversion) and their
associates during the three-year period following 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
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restriction does not apply, however, to negotiated transactions involving more
than 1% of First Bancorp's outstanding common stock or to the purchase of stock
pursuant to the Stock Option Plan.
First Bancorp has filed with the SEC a registration statement under the
Securities Act of 1933 for the registration of the common stock to be issued
pursuant to the conversion. The registration of shares of the common stock to
be issued in the conversion does not cover the resale of such shares. Shares of
common stock purchased by persons who are not affiliates of First Bancorp may be
resold without registration. Shares purchased by an affiliate of First Bancorp
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If First Bancorp meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of First Bancorp who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of 1% of the outstanding shares of First
Bancorp or the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by First
Bancorp to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
Under guidelines of the NASD, members of the NASD and their associates are
subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.
RESTRICTIONS ON ACQUISITION OF FIRST BANCORP
The following discussion is a summary of provisions of federal law and
regulations and Indiana corporate law, as well as the Articles of Incorporation
and Bylaws of First Bancorp, relating to stock ownership and transfers, the
Board of Directors and business combinations, all of which may be deemed to have
"anti-takeover" effects. The description of these provisions is necessarily
general and reference should be made to the actual law and regulations and to
the Articles of Incorporation and Bylaws of First Bancorp contained in the
Registration Statement filed with the SEC. See "Where You Can Find More
Information" as to how to obtain a copy of these documents.
Conversion Regulations
OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date of the completion of the conversion if, upon the
completion of such offer, announcement or acquisition, that person would become
the beneficial owner of more than 10% of the outstanding stock of the
institution (or its holding company). The OTS has defined "person" to include
any individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution. However, offers made
exclusively to an association (or its holding company) or an underwriter or
member of a selling group acting on the converting institution's (or its holding
company's) behalf for resale to the general public are excepted. The regulation
also provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution (or its holding company) or who controls more than 10% of
the outstanding shares or voting rights of a converting or converted institution
(or its holding company).
Change of Control Regulations
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Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings and loan association or its parent holding company
unless the OTS has been given 60 days' prior written notice and has not issued a
notice disapproving the proposed acquisition. In addition, OTS regulations
provide that no company may acquire control of a savings association without the
prior approval of the OTS. Any company that acquires such control becomes a
"savings and loan holding company" subject to registration, examination and
regulation by the OTS.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the OTS that the acquirer 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 any class of a savings association's voting stock, if the acquirer also
is subject to any one of specified "control factors," constitutes a rebuttal
determination of control under the regulations. Such control factors include
the acquirer being one of the two largest stockholders. 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 must file with the OTS a certification form that the holder
is not in control of such institution, is not subject to a rebuttal
determination of control and will take no action which would result in a
determination or rebuttal determination of control without prior notice to or
approval of the OTS, as applicable. There are also rebuttal presumptions in the
regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."
The OTS may prohibit an acquisition of control if it finds, among other
things, that: (1) the acquisition would result in a monopoly or substantially
lessen competition; (2) the financial condition of the acquiring person might
jeopardize the financial stability of the institution; or (3) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.
Anti-takeover Provisions in First Bancorp's Articles of Incorporation and Bylaws
and in Indiana Law
A number of provisions of First Bancorp's Articles of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of First Bancorp's Articles of Incorporation and Bylaws 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. These provisions may have the effect of discouraging a
future takeover attempt which is not approved by the Board of Directors but
which individual Holding Company stockholders may deem to be in their best
interests or in 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 an opportunity to do
so. Such provisions will also render the removal of the incumbent Board of
Directors or management of First Bancorp more difficult. The following
description of certain of the provisions of the Articles of Incorporation and
Bylaws of First Bancorp is necessarily general and reference should be made in
each case to such Articles of Incorporation and Bylaws, which are incorporated
in this prospectus by reference. See "Where You Can Find More Information" as
to where to obtain a copy of these documents.
Limitation on Voting Rights. The Articles of Incorporation of First
Bancorp provide 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,
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unless permitted by a resolution adopted by a majority of the board of
directors. Beneficial ownership is determined under the federal securities laws
and includes shares beneficially owned by such person or any of his or her
affiliates (as defined in the Articles of Incorporation), shares which such
person or his or her affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his or her
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
First Federal or Holding Company or shares that are subject to a revocable proxy
and that are not otherwise beneficially, or deemed by First Bancorp to be
beneficially, owned by such person and his or her affiliates.
Board of Directors. The Board of Directors of First Bancorp is divided
into three classes, each of which shall contain approximately one-third of the
whole number of the members of the Board. The members of each class shall be
elected for a term of three years, with the terms of office of all members of
one class expiring each year so that approximately one-third of the total number
of directors are elected each year. The Articles of Incorporation provide that
any vacancy occurring in the Board, including a vacancy created by an increase
in the number of directors, may be filled by a vote of a majority of the
directors then in office and any director so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of the class to
which the director has been chosen expires. 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 stockholder 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 First Bancorp. The Articles of Incorporation of First Bancorp
provide that a director may be removed from the Board of Directors prior to the
expiration of his or her term only for cause and only upon the vote of two-
thirds of the outstanding shares of voting stock. In the absence of this
provision, the vote of the holders of a majority of the shares could remove one
or more directors with or without cause. The Bylaws of First Bancorp provide
that each director must at all times be the beneficial owner of not less than
100 shares of First Bancorp's common stock. The Bylaws also provide that no
person seventy years of age shall be eligible for election to the Board of
Directors and that any director who becomes seventy years of age may serve until
the completion of his term. Finally, the Bylaws provide that to be eligible for
election to the Board of Directors a person must reside within 50 miles of an
office of First Bancorp or First Federal.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Articles of Incorporation do not provide for cumulative voting for any purpose.
Moreover, the Articles of Incorporation provide that special meetings of
stockholders of First Bancorp may be called only by the Board of Directors of
First Bancorp. Under Indiana law, action may be taken by shareholders without a
meeting only if evidenced by a written consent signed by all shareholders
entitled to vote.
Authorized Shares. The Articles of Incorporation authorizes the issuance
of 9,000,000 shares of common stock and 1,000,000 shares of preferred stock.
The shares of common stock and preferred stock were authorized in an amount
greater than that to be issued in the conversion to provide First Bancorp's
Board of Directors with as much flexibility as possible to effect, among other
transactions, financing, acquisitions, stock dividends, stock splits, restricted
stock grants and the exercise of stock options. However, these additional
authorized shares may also be used by the Board of Directors, consistent with
fiduciary duties, to deter future attempts to gain control of First Bancorp.
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 duties, to issue a series of preferred stock to
persons friendly to management in order to attempt to block a tender offer,
merger or other transaction by which a third party seeks control of First
Bancorp, and thereby assist members of management to retain their positions.
First Bancorp's Board currently has no plans for the issuance of additional
shares, other than the issuance of shares of common stock upon exercise of stock
options and in connection with the MRDP.
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Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders. The Articles of Incorporation require the approval of the holders
of at least 80% of First Bancorp's outstanding shares of voting stock to approve
certain "Business Combinations" involving a "Related Person" except in cases
where the proposed transaction has been approved in advance by a majority of
those members of First Bancorp's Board of Directors who are unaffiliated with
the Related Person and were directors prior to the time when the Related Person
became a Related Person. The term "Related Person" is defined to include any
individual, corporation, partnership or other entity, other than First Bancorp
or its subsidiary, which owns beneficially or controls, directly or indirectly,
10% or more of the outstanding shares of voting stock of First Bancorp or an
affiliate of such person or entity. This provision of the Articles of
Incorporation applies to any "Business Combination," which is defined to
include:
(1) any merger or consolidation of First Bancorp with or into any Related
Person;
(2) any sale, lease, exchange, mortgage, transfer, or other disposition of
25% or more of the assets of First Bancorp or combined assets of First
Bancorp and its subsidiaries to a Related Person;
(3) any merger or consolidation of a Related Person with or into First
Bancorp or a subsidiary of First Bancorp;
(4) any sale, lease, exchange, transfer, or other disposition of 25% or
more of the assets of a Related Person to First Bancorp or a
subsidiary of First Bancorp;
(5) the issuance of any securities of First Bancorp or a subsidiary of
First Bancorp to a Related Person;
(6) the acquisition by First Bancorp or a subsidiary of First Bancorp of
any securities of a Related Person;
(7) any reclassification of common stock of First Bancorp or any
recapitalization involving the common stock of First Bancorp; or
(8) any agreement or other arrangement providing for any of the
foregoing.
Under Indiana law, absent this provision, business combinations, including
mergers, share exchanges and sales of substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of a majority of the outstanding shares of common stock of First Bancorp
and any other affected class of stock. The increased stockholder vote required
to approve a business combination may have the effect of foreclosing mergers and
other business combinations which a majority of stockholders deem desirable and
placing the power to prevent such a merger or combination in the hands of a
minority of stockholders.
Amendment of Articles of Incorporation and Bylaws. Amendments to First
Bancorp's Articles of Incorporation must be approved by a two-thirds 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 two-thirds
of the outstanding voting stock entitled to vote (after giving effect to the
provision limiting voting rights) is required to amend or repeal certain
provisions of the Articles of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by First Bancorp
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and amendment of First Bancorp's Bylaws and Articles of Incorporation. First
Bancorp's Bylaws may be amended by its Board of Directors.
Stockholder Nominations and Proposals. The Bylaws of First Bancorp require
a stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to give not less
than 60 nor more than 90 days' advance notice to the Secretary of First Bancorp.
The notice provision requires a stockholder who desires to raise new business to
provide certain information to First Bancorp concerning the nature of the new
business, the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
director must provide First Bancorp with certain information concerning the
nominee and the proposing stockholder.
Purpose and Takeover Defensive Effects of First Bancorp's Articles of
Incorporation and Bylaws. The Board of Directors of First Federal believes that
the provisions described above are prudent and will reduce First Bancorp's
vulnerability to takeover attempts and certain other transactions that have not
been negotiated with and approved by its Board of Directors. These provisions
will also assist First Bancorp and First Federal in the orderly deployment of
the conversion proceeds into productive assets during the initial period after
the conversion. The Board of Directors believes these provisions are in the best
interest of First Federal and Holding Company and its stockholders. In the
judgment of the Board of Directors, First Bancorp's Board will be in the best
position to determine the true value of First Bancorp and to negotiate more
effectively for what may be in the best interests of its stockholders.
Accordingly, the Board of Directors believes that it is in the best interest of
First Bancorp and its stockholders to encourage potential acquirors to negotiate
directly with the Board of Directors of First Bancorp and that these provisions
will encourage such negotiations and discourage hostile takeover attempts. It
is also the view of the Board of Directors that these provisions should not
discourage persons from proposing a merger or other transaction at a price
reflective of the true value of First Bancorp and that is in the best interest
of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of First
Bancorp for its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of First Bancorp's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive First
Bancorp's remaining stockholders of benefits of certain protective provisions of
the Exchange Act, if the number of beneficial owners became less than 300,
thereby allowing for deregistration under the Exchange Act.
Despite the belief of First Federal and First Bancorp as to the benefits to
stockholders of these provisions of First Bancorp's Articles of Incorporation
and Bylaws, these provisions may also have the effect of discouraging a future
takeover attempt that would not be approved by
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First Bancorp's Board, but in 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. Such provisions will also render the removal of First
Bancorp's Board of Directors and of management more difficult. The Board of
Directors of First Federal and First Bancorp, however, have concluded that the
potential benefits outweigh the possible disadvantages.
Following the conversion, if permitted by applicable law and, if required,
following the approval by stockholders, First Bancorp may adopt additional anti-
takeover charter provisions or other devices regarding the acquisition of its
equity securities that would be permitted for an Indiana business
corporation.
The cumulative effect of the restriction on acquisition of First Bancorp
contained in the Articles of Incorporation and Bylaws of First Bancorp and in
Federal and Indiana law may be to discourage potential takeover attempts and
perpetuate incumbent management, even though certain stockholders of First
Bancorp may deem a potential acquisition to be in their best interests, or deem
existing management not to be acting in their best interests.
DESCRIPTION OF CAPITAL STOCK OF FIRST BANCORP
General
First Bancorp is authorized to issue 9,000,000 shares of common stock
having a par value of $.01 per share and 1,000,000 shares of preferred stock
having a par value of $.01 per share. Each share of First Bancorp's common
stock will have the same relative rights as, and will be identical in all
respects with, each other share of common stock. Upon payment of the purchase
price for the common stock, in accordance with the Plan of Conversion, all such
stock will be duly authorized, fully paid and nonassessable.
THE COMMON STOCK OF FIRST BANCORP WILL REPRESENT NON WITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF ANY TYPE, AND WILL NOT BE INSURED BY THE FDIC OR ANY
OTHER GOVERNMENT AGENCY.
Common Stock
Dividends. The payment of dividends by First Bancorp is subject to
limitations which are imposed by law and applicable regulation. See "Dividend
Policy" and "Regulation." The holders of common stock of First Bancorp will be
entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of First Bancorp out of funds legally available therefor.
If First Bancorp issues preferred stock, the holders thereof may have a priority
over the holders of the common stock with respect to dividends.
Voting Rights. Upon conversion, the holders of common stock of First
Bancorp will possess exclusive voting rights in First Bancorp. They will elect
First Bancorp's Board of Directors and act on such other matters as are required
to be presented to them under Indiana law or as are otherwise presented to them
by the Board of Directors. Except as discussed in "Restrictions on Acquisition
of First Bancorp," each holder of common stock will be entitled to one vote per
share and will not have any right to cumulate votes in the election of
directors. If First Bancorp issues preferred stock, holders of First Bancorp
preferred stock may also possess voting rights. Certain matters require a vote
of more than 50% of the outstanding shares entitled to vote thereon. See
"Restrictions on Acquisition of First Bancorp."
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As a federal mutual savings bank, corporate powers and control of First
Federal are vested in its Board of Directors, who elect the officers of First
Federal and who fill any vacancies on the Board of Directors as it exists upon
conversion. Subsequent to conversion, voting rights will be vested exclusively
in the owners of the shares of capital stock of First Federal, all of which will
be owned by First Bancorp, and voted at the direction of First Bancorp's Board
of Directors. Consequently, the holders of the common stock will not have
direct control of First Federal.
Liquidation. In the event of any liquidation, dissolution or winding up of
First Federal, First Bancorp, as holder of First Federal's capital stock would
be entitled to receive, after payment or provision for payment of all debts and
liabilities of First Federal (including all deposit accounts and accrued
interest thereon) and after distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders (see "The Conversion"), all assets of First Federal available
for distribution. In the event of liquidation, dissolution or winding up of
First Bancorp, the holders of its common stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of First Bancorp available for distribution. If First Bancorp issues
preferred stock, the holders thereof may have a priority over the holders of the
common stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the common stock of First Bancorp will not
be entitled to preemptive rights with respect to any shares that may be issued.
The common stock is not subject to redemption.
Preferred Stock
None of the shares of the authorized Holding Company preferred stock will
be issued in the conversion and there are no plans to issue the preferred stock.
Such stock may be issued with such designations, powers, preferences and rights
as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
Restrictions on Acquisition
Acquisitions of First Bancorp are restricted by provisions in its Articles
of Incorporation and Bylaws and by the rules and regulations of various
regulatory agencies. See "Regulation" and "Restrictions on Acquisition of First
Bancorp."
REGISTRATION REQUIREMENTS
First Bancorp has registered the common stock with the SEC under Section
12(g) of the Exchange Act and will not deregister its common stock for a period
of at least three years following the completion of the conversion. As result of
such registration, the proxy and tender offer rules, insider trading reporting
and restrictions, annual and periodic reporting and other requirements of the
Exchange Act will be applicable.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for First Bancorp by
Muldoon, Murphy & Faucette LLP, Washington, D.C. The federal tax consequences
of the offering have been opined upon by Muldoon, Murphy & Faucette LLP and the
Indiana tax consequences of the offering have been
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opined upon by Olive LLP. Muldoon, Murphy & Faucette LLP and Olive LLP have
consented to the references in this prospectus to their opinions. Certain legal
matters will be passed upon for Capital Resources, Inc. by Steele, Silcox &
Browning, P.C., Washington, D.C.
EXPERTS
The financial statements of First Federal as of June 30, 1998 and 1997 and
for the years ended June 30, 1998, 1997 and 1996 included in this prospectus
have been audited by Olive LLP independent auditors, as stated in its report
appearing in this prospectus, and have been so included in reliance upon the
report of such firm given upon its authority as experts in accounting and
auditing.
Capital Resources Group has consented to the publication in this prospectus
of the summary of its report to First Federal setting forth its opinion as to
the estimated pro forma market value of First Bancorp and First Federal as
converted and its letter with respect to subscription rights and to the use of
its name and statements with respect to it appearing in this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
First Bancorp has filed with the SEC a Registration Statement on Form S-1
(File No. 333-68793) under the Securities Act of 1933 with respect to the common
stock offered in the conversion. This prospectus does not contain all the
information provided in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. You may read
and copy such information at the SEC's public reference room in Washington, D.C.
You can request copies of those documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The Registration
Statement, including this prospectus and the exhibits, also is available through
the SEC's World Wide Web site on the Internet (http://www.sec.gov).
First Federal has filed with the OTS an Application for Approval of
Conversion, which includes proxy materials for First Federal's Special Meeting
and certain other information. This prospectus omits certain information
contained in such Application. The Application, including the proxy materials,
exhibits and certain other information that are a part thereof, may be
inspected, without charge, at the offices of the OTS, 1700 G Street, N.W.,
Washington, D.C. 20552 and at the office of the Regional Director of the OTS at
the Central Regional Office of the OTS, 200 West Madison Street, Suite 1300,
Chicago, IL 60606.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
First Federal Savings Bank and Subsidiary
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report...................................... F-1
Consolidated Balance Sheet as of September 30, 1998 (unaudited)
and June 30, 1998 and 1997....................................... F-2
Consolidated Statement of Income for the
Three Months Ended September 30, 1998 and 1997 (unaudited) and
the Years Ended June 30, 1998, 1997 and 1996..................... 28
Consolidated Statement of Equity Capital for the
Three Months Ended September 30, 1998 (unaudited) and
the Years Ended June 30, 1998, 1997 and 1996..................... F-3
Consolidated Statement of Cash Flows for the
Three Months Ended September 30, 1998 and 1997 (unaudited) and
the Years Ended June 30, 1998, 1997 and 1996..................... F-4
Notes to Consolidated Financial Statements........................ F-5
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements for First Bancorp have not been included in
this prospectus because First Bancorp, which has engaged in only organizational
activities to date, has no significant assets, liabilities (contingent or
otherwise), revenues or expenses.
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[LOGO OF OLIVE APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First Federal Savings Bank
Evansville, Indiana
We have audited the consolidated balance sheet of First Federal Savings Bank and
subsidiary as of June 30, 1998 and 1997, and the related consolidated statements
of income, changes in equity capital and cash flows for each of the three years
in the period ended June 30, 1998. These consolidated financial statements are
the responsibility of the Bank'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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of First
Federal Savings Bank and subsidiary as of June 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/ Olive LLP
Evansville, Indiana
August 12, 1998, except for note 16,
as to which the date is September 16,
1998
(F-1)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
-----------------------------
1998 1998 1997
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 888,262 $ 926,974 $ 940,736
Interest-bearing demand deposits 12,665,601 10,442,095 6,797,436
Federal funds sold 420,000 320,000 25,000
------------------------------------------
Total cash and cash equivalents 13,973,863 11,689,069 7,763,172
Interest-bearing deposits 1,882,000 2,279,000 5,546,000
Investment securities
Available for sale 4,015,967 4,375,672 7,864,682
Held to maturity (fair value of
$48,304,000 (unaudited), $49,463,000
and $52,118,000) 47,987,499 49,363,642 52,469,675
------------------------------------------
Total investment securities 52,003,466 53,739,314 60,334,357
Loans, net of allowance for loan
losses of $250,000 38,183,162 35,655,003 32,164,336
Premises and equipment 1,513,210 1,520,311 888,861
Federal Home Loan Bank stock 727,400 727,400 727,400
Other assets 3,344,239 3,353,715 3,322,798
------------------------------------------
Total assets $111,627,340 $108,963,812 $110,746,924
==========================================
LIABILITIES
Deposits
Non-interest bearing $ 216,530 $ 197,161 $ 205,586
Interest bearing 90,744,364 89,031,871 88,354,630
------------------------------------------
Total deposits 90,960,894 89,229,032 88,560,216
Borrowings 3,645,000 3,645,000 7,050,000
Advances by borrowers for taxes and
insurance 560,660 355,841 333,770
Other liabilities 1,344,144 785,282 749,565
------------------------------------------
Total liabilities 96,510,698 94,015,155 96,693,551
------------------------------------------
COMMITMENTS AND CONTINGENCIES
EQUITY CAPITAL
Retained earnings--substantially
restricted 15,055,306 14,900,739 14,021,035
Accumulated other comprehensive
income 61,336 47,918 32,338
------------------------------------------
Total equity capital 15,116,642 14,948,657 14,053,373
------------------------------------------
Total liabilities and equity
capital $111,627,340 $108,963,812 $110,746,924
==========================================
</TABLE>
See notes to consolidated financial statements.
(F-2)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EQUITY CAPITAL
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE
EARNINGS INCOME TOTAL
--------------------------------------------------------
<S> <C> <C> <C>
BALANCES, JULY 1, 1995 $13,013,629 $(11,425) $13,002,204
Comprehensive income
Net income 620,046 620,046
Other comprehensive income, net of tax--
unrealized losses on securities (47,707) (47,707)
--------------------------------------------------------
Comprehensive income 620,046 (47,707) 572,339
--------------------------------------------------------
BALANCES, JUNE 30, 1996 13,633,675 (59,132) 13,574,543
Comprehensive income
Net income 387,360 387,360
Other comprehensive income, net of tax--
unrealized gains on securities 91,470 91,470
--------------------------------------------------------
Comprehensive income 387,360 91,470 478,830
--------------------------------------------------------
BALANCES, JUNE 30, 1997 14,021,035 32,338 14,053,373
Comprehensive income
Net income 879,704 879,704
Other comprehensive income, net of tax--
unrealized gains on securities 15,580 15,580
--------------------------------------------------------
Comprehensive income 879,704 15,580 895,284
--------------------------------------------------------
BALANCES, JUNE 30, 1998 14,900,739 47,918 14,948,657
Comprehensive income
Net income (unaudited) 154,567 154,567
Other comprehensive income, net of tax--
unrealized gains on securities (unaudited) 13,418 13,418
--------------------------------------------------------
Comprehensive income (unaudited) 154,567 13,418 167,985
--------------------------------------------------------
BALANCES, SEPTEMBER 30, 1998 (UNAUDITED) $15,055,306 $ 61,336 $15,116,642
========================================================
</TABLE>
See notes to consolidated financial statements.
(F-3)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED JUNE 30
-------------------------------------------------------------------
1998 1997 1998 1997 1996
-------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 154,567 $ 215,330 $ 879,704 $ 387,360 $ 620,046
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 100,000
Depreciation and amortization 27,319 10,260 96,349 51,180 67,188
Amortization of net loan origination fees (14,836) (11,985) (47,940) (28,412) 34,612
Deferred income tax (5,487) (9,780) (41,607) (54,752) (80,561)
Increase in cash surrender value of life insurance
in excess of premiums paid (23,548) (19,782) (87,234) (81,975) (83,364)
Investment securities amortization (accretion), net 1,057 (30,365) (146,994) (164,730) (341,136)
Loans originated for sale (1,361,000) (203,000) (1,844,000) (627,000) (543,000)
Proceeds from sale of loans 1,361,000 203,000 1,844,000 627,000 543,000
Gain on disposal of branch office and deposits (399,552)
Net change in
Interest receivable 12,295 81,850 84,555 (5,750) (227,246)
Interest payable and other liabilities 558,862 402,554 35,717 234,808 154,469
Prepaid expense and other assets 15,634 74,352 1,853 1,500 86,850
-------------------------------------------------------------------
Net cash provided by operating activities 725,863 712,434 374,851 339,229 330,858
-------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in interest-bearing deposits 397,000 (395,000) 3,267,000 2,477,000 (894,000)
Proceeds from maturities of securities available for sale 383,705 1,027,645 3,528,075 4,177,517 3,240,899
Purchases of securities held to maturity (8,000,000) (8,230,000) (38,641,921) (14,317,656) (21,987,259)
Proceeds from maturities of securities held to maturity 9,375,086 12,389,295 41,882,979 8,982,598 16,875,685
Net change in loans (2,513,323) 791,942 (3,442,727) 305,532 (84,413)
Purchases of premises and equipment (20,218) (608,260) (779,275) (4,066) (14,768)
Disposal of branch office and deposits (2,319,522)
-------------------------------------------------------------------
Net cash provided (used) by investing activities (377,750) 4,975,622 3,494,609 1,620,925 (2,863,856)
-------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in
Non-interest bearing, interest-bearing demand
and savings deposits 1,195,282 (687,698) 1,091,502 (1,932,818) (625,457)
Certificates of deposit 536,580 (1,187,852) 2,347,864 1,648,781 2,584,129
Advances by borrowers for taxes and insurance 204,819 189,128 22,071 (83,229) (8,652)
Repayment of long-term debt (3,405,000) (450,000) (500,000)
Proceeds from long-term debt 3,000,000
-------------------------------------------------------------------
Net cash provided (used) by financing activities 1,936,681 (1,686,422) 56,437 (817,266) 4,450,020
-------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,284,794 4,001,634 3,925,897 1,142,888 1,917,022
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11,689,069 7,763,172 7,763,172 6,620.284 4,703,262
-------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $13,973,863 $11,764,806 $11,689,069 $ 7,763,172 $ 6,620,284
===================================================================
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 704,609 $ 841,656 $ 5,041,792 $ 4,586,705 $ 4,629,667
Income tax paid 16,298 85,200 492,900 247,200 234,574
</TABLE>
See notes to consolidated financial statements.
(F-4)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Federal Savings Bank (Bank) and
its wholly-owned subsidiary, FFSL Service Corporation, conform to generally
accepted accounting principles and reporting practices followed by the thrift
industry. The more significant of these policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Bank operates under a federal thrift charter and provides full banking
services. As a federally-chartered thrift, the Bank is subject to regulation by
the Office of Thrift Supervision and the Federal Deposit Insurance Corporation.
The Bank generates mortgage and consumer loans and receives deposits from
customers located primarily in Vanderburgh County, Indiana, and surrounding
counties. The Bank's loans are generally secured by specific items of
collateral, including real property and consumer assets.
FFSL Service Corporation's only current activity is that it owns an equity
interest in a limited partnership that is organized to build, own and operate a
44-unit low-income apartment complex.
The accompanying consolidated balance sheet as of September 30, 1998 and the
consolidated statements of income, changes in equity capital and cash flows for
the three months ended September 30, 1998 and 1997 are unaudited and include the
accounts of the Bank and its subsidiary after elimination of all material
intercompany transactions. Management is of the opinion that all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the results of the periods reported, have been included in the accompanying
financial statements. The results of operations for the three months ended
September 30, 1998 are not necessarily indicative of those expected for the
remainder of the year.
CONSOLIDATION -- The consolidated financial statements include the accounts of
the Bank and subsidiary after elimination of all material intercompany
transactions and accounts.
INVESTMENT SECURITIES-- Debt securities are classified as held to maturity when
the Bank has the positive intent and ability to hold the securities to maturity.
Securities held to maturity are carried at amortized cost. Debt securities not
classified as held to maturity are classified as available for sale. Securities
available for sale are carried at fair value with unrealized gains and losses
reported separately in equity capital, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
(F-5)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
LOANS are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. This is generally ninety days after the
loan becomes past due. When interest accrual is discontinued, all unpaid accrued
interest is reversed when considered uncollectible. Interest income is
subsequently recognized only to the extent cash payments are received. Certain
loan fees and direct costs are being deferred and amortized as an adjustment of
yield on the loans over the contractual life of those loans.
ALLOWANCE FOR LOAN LOSSES is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that, as of
September 30, 1998 (unaudited), the allowance for loan losses is adequate based
on information currently available. A worsening or protracted economic decline
in the area within which the Bank operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based on the estimated
useful lives of the assets, which range from 5 to 50 years. Maintenance and
repairs are expensed as incurred while major additions and improvements are
capitalized. Gains and losses on dispositions are included in current
operations.
FEDERAL HOME LOAN BANK (FHLB) STOCK is a required investment for institutions
that are members of the FHLB system. The required investment in the common stock
is based on a predetermined formula.
INVESTMENT IN LIMITED PARTNERSHIP is included in other assets and is recorded
using the equity method of accounting. Losses due to impairment are recorded
when it is determined that the investment no longer has the ability to recover
its carrying amount. The benefits of low-income housing tax credits associated
with the investment are accrued when earned.
INCOME TAX in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Bank
files consolidated income tax returns with its subsidiary.
(F-6)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 2 -- INVESTMENT SECURITIES
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------
<S> <C> <C> <C> <C>
AT SEPTEMBER 30, 1998 (UNAUDITED)
Available for sale
Mortgage-backed securities $ 3,908 $108 $ 4,016
--------------------------- ---------
Held to maturity
Federal agencies 8,235 66 8,301
Collateralized auto obligations 1,008 1 1,009
Corporate obligations 2,944 24 $ 1 2,967
Mortgage-backed securities 32,819 289 63 33,045
Commercial paper 2,981 1 2,982
------------------------------------------------------
Total held to maturity 47,987 381 64 48,304
------------------------------------------------------
Total investment securities $51,895 $489 $ 64 $52,320
======================================================
AT JUNE 30, 1998
Available for sale
Mortgage-backed securities $ 4,292 $ 84 $ 4,376
--------------------------- ---------
Held to maturity
Federal agencies 10,232 32 10,264
Collateralized auto obligations 1,009 $ 2 1,007
Corporate obligations 2,956 3 2 2,957
Mortgage-backed securities 31,169 220 151 31,238
Commercial paper 3,998 1 3,997
------------------------------------------------------
Total held to maturity 49,364 255 156 49,463
------------------------------------------------------
Total investment securities $53,656 $339 $156 $53,839
======================================================
AT JUNE 30, 1997
Available for sale
Mortgage-backed securities $ 7,808 $ 76 $ 20 $ 7,864
------------------------------------------------------
Held to maturity
Federal agencies 16,201 22 219 16,004
Collateralized auto obligations 249 249
Mortgage-backed securities 33,530 189 345 33,374
Commercial paper 2,490 1 2,491
------------------------------------------------------
Total held to maturity 52,470 212 564 52,118
------------------------------------------------------
Total investment securities $60,278 $288 $584 $59,982
======================================================
</TABLE>
All mortgage backed securities owned by the Bank at September 30, 1998 and
June 30, 1998 and 1997 are government agency backed by the Federal Home Loan
Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) or
Government National Mortgage Association (GNMA), with the exception of one
$2,000,000 security that was held in the "held to maturity" category at
September 30, 1998.
(F-7)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The amortized cost and fair market value of securities held to maturity and
available for sale at September 30, 1998 (unaudited) and June 30, 1998, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
----------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1998 (UNAUDITED)
Within one year $ 5,179 $ 5,186
One to five years 5,951 5,988
Five to ten years 3,040 3,078
After ten years 998 1,007
-------------------
15,168 15,259
Mortgage-backed securities 32,819 33,045 $3,908 $4,016
---------------------------------------------
Totals $47,987 $48,304 $3,908 $4,016
=============================================
JUNE 30,1998
Within one year $ 6,194 $ 6,203
One to five years 5,963 5,964
Five to ten years 4,040 4,059
After ten years 1,998 1,999
-------------------
18,195 18,225
Mortgage-backed securities 31,169 31,238 $4,292 $4,376
---------------------------------------------
Totals $49,364 $49,463 $4,292 $4,376
=============================================
</TABLE>
Securities with a carrying value of $6,787,000 and $7,322,000 were pledged at
September 30, 1998 (unaudited) and June 30, 1998 to secure FHLB advances and
certain other funds advanced to the Bank as part of the Community Reinvestment
Act.
On December 31, 1995, the Bank transferred certain securities from held to
maturity to available for sale in accordance with a transition reclassification
allowed by the Financial Accounting Standards Board. Such securities had a
carrying value of $10,422,468 and a fair value of $10,469,217.
(F-8)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 3 -- LOANS AND ALLOWANCE
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
---------------------
1998 1998 1997
-------------------------------------
(Unaudited)
<S> <C> <C> <C>
Real estate mortgages
One to four family $36,745 $33,493 $31,106
Other 1,197 1,668 230
Credit line equity loans 997 937 1,047
Loans to depositors secured by savings 146 226 131
Consumer loans 542 501 424
-------------------------------------
39,627 36,825 32,938
-------------------------------------
Undisbursed portion of loans (958) (700) (349)
Deferred loan fees (236) (220) (175)
Allowance for loan losses (250) (250) (250)
-------------------------------------
(1,444) (1,170) (774)
-------------------------------------
$38,183 $35,655 $32,164
=====================================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED JUNE 30
---------------------------------------------------------------------
1998 1997 1998 1997 1996
---------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses
Balances, beginning of period $250 $250 $250 $250 $150
Provision for losses 100
---------------------------------------------------------------------
Balances, end of period $250 $250 $250 $250 $250
=====================================================================
</TABLE>
The Bank has not had any impaired loans during the three years ended June 30,
1998, 1997 and 1996 or the three months ended September 30, 1998 (unaudited).
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheet. The unpaid balances of these loans were $9,055,000
and $7,198,000 at September 30, 1998 and 1997 (unaudited) and $7,994,000,
$7,276,000 and $7,712,000 at June 30, 1998, 1997 and 1996.
(F-9)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 4 -- PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
-----------------------
1998 1998 1997
---------------------------------------
(Unaudited)
<S> <C> <C> <C>
Land $ 639 $ 639 $ 515
Buildings 1,840 1,840 1,669
Equipment 858 838 787
---------------------------------------
Total cost 3,337 3,317 2,971
Accumulated depreciation (1,824) (1,797) (2,082)
---------------------------------------
Net $ 1,513 $ 1,520 $ 889
=======================================
</TABLE>
In October 1997, the Bank sold the real estate, equipment and deposit accounts
of its Mr. Vernon, Indiana branch in exchange for cash. Gains on the disposal of
real estate and equipment of $261,000 and on the disposal of deposits of
$139,000 are included in other income for 1998. Approximately $2,800,000 of
deposits were sold at a 5% premium.
(F-10)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 5 -- OTHER ASSETS AND OTHER LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
----------------------
1998 1998 1997
-------------------------------------
(Unaudited)
<S> <C> <C> <C>
Other assets
Interest receivable
Investment securities $ 490 $ 502 $ 620
Loans 181 181 148
Cash value of insurance 2,084 2,061 1,973
Investment in limited partnership 268 277 330
Net deferred tax asset 142 148 117
Prepaid expenses and other 179 185 135
-------------------------------------
Total $3,344 $3,354 $3,323
=====================================
Other liabilities
Interest payable
Deposits $ 613 $ 144 $ 239
Other borrowings 114 103 73
Deferred directors' fees and officer compensation 405 382 296
Accrued expenses 212 156 142
-------------------------------------
Total $1,344 $ 785 $ 750
=====================================
</TABLE>
The investment in limited partnership of $268,000, $277,000 and $330,000 at
September 30, 1998 (unaudited) and June 30, 1998 and 1997 represents a 40
percent equity interest in Vann Park II, L.P., a limited partnership organized
to build, own and operate a 44-unit apartment complex. In addition to recording
its equity in the losses of $53,000, $32,000 and $82,000, the Bank has recorded
the benefit of low-income housing tax credits of $73,000 for each of the years
ended June 30, 1998, 1997 and 1996. For each of the three-month periods ended
September 30, 1998 and 1997 (unaudited), the Bank recorded equity in the losses
of the partnership of $9,000, as well as the benefit of low-income housing tax
credits of $18,250.
(F-11)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 6 -- DEPOSITS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
-----------------------
1998 1998 1997
--------------------------------------
(Unaudited)
<S> <C> <C> <C>
Demand deposits $11,866 $10,624 $ 8,910
Savings deposits 10,359 10,406 11,731
Certificates and other time deposits of $100,000 or more 7,278 6,782 6,865
Other certificates and time deposits 61,458 61,417 61,054
--------------------------------------
Total deposits $90,961 $89,229 $88,560
======================================
</TABLE>
Certificates maturing in years ending:
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30
- -------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
1999 $37,547 $35,702
2000 24,939 25,369
2001 3,754 4,423
2002 1,453 1,141
2003 583 1,011
Thereafter 460 553
--------------------------
$68,736 $68,199
==========================
</TABLE>
Interest expense on deposits:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED JUNE 30
------------------------------------------------------
1998 1997 1998 1997 1996
------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest-bearing demand $ 19 $ 23 $ 85 $ 103 $ 113
Money market savings deposits 71 27 115 117 138
Savings deposits 70 84 295 352 398
Certificates 960 944 4,089 3,730 3,643
------------------------------------------------------
$ 1,120 $ 1,078 $ 4,584 $ 4,302 $ 4,292
======================================================
</TABLE>
Deposits in excess of $100,000 are not federally insured.
(F-12)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 7 -- BORROWINGS
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30
---------------------------
1998 1998 1997
-----------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Federal Home Loan Bank advances
Variable rate, 5.5% at September 30, 1998
(unaudited), due in March 1999 $3,645 $3,645 $4,050
Fixed rate, 5.9%, paid February 1998 3,000
-----------------------------------------------
$3,645 $3,645 $7,050
===============================================
</TABLE>
NOTE 8 -- INCOME TAX
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED JUNE 30
-------------------------------------------------------------
1998 1997 1998 1997 1996
-------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income tax
Currently payable
Federal $45 $ 87 $ 332 $ 141 $ 179
State 21 31 125 25 101
Deferred
Federal (4) (7) (32) (45) (68)
State (1) (3) (10) (9) (13)
-------------------------------------------------------------
Total income tax expense $61 $108 $ 415 $ 112 $ 199
=============================================================
Reconciliation of federal statutory
to actual tax expense
Federal statutory income tax at 34% $73 $110 $ 440 $ 170 $ 278
State income taxes, net of federal benefit 13 19 76 11 58
Cash surrender value of life insurance (7) (7) (30) (28) (28)
Tax credits (18) (18) (73) (73) (73)
Other 4 2 32 (36)
-------------------------------------------------------------
Actual tax expense $61 $108 $ 415 $ 112 $ 199
=============================================================
Effective rate 28% 33% 32% 23% 24%
=============================================================
</TABLE>
(F-13)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
A cumulative net deferred tax asset is included in other assets. The components
of the asset are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
----------------------------
1998 1998 1997
-------------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Differences in accounting for loan losses $ 90 $ 91 $ 90
Differences in accounting for loan fees 35 37 48
Deferred compensation and directors fees 198 188 139
Other 5 5 2
-------------------------------------------
Total assets 328 321 279
-------------------------------------------
LIABILITIES
Differences in depreciation methods (83) (83) (79)
Federal Home Loan Bank dividends (55) (55) (55)
Other (2)
Accretion of investment discounts (4)
Unrealized gain on securities available for sale (46) (35) (24)
-------------------------------------------
Total liabilities (186) (173) (162)
-------------------------------------------
$ 142 $ 148 $ 117
-------------------------------------------
</TABLE>
A valuation allowance was not considered necessary at September 30, 1998
(unaudited) and June 30, 1998 and 1997.
Retained earnings at September 30, 1998 (unaudited) and June 30, 1998 include
approximately $4,102,000, for which no deferred income tax liability has been
recognized. This amount represents an allocation of income to bad debt
deductions for tax purposes only. Reduction of amounts so allocated for purposes
other than tax bad debt losses or adjustments arising from carryback of net
operating losses would create income for tax purposes only, which income would
be subject to the then-current corporate income tax rate. The unrecorded
deferred income tax liability on the above amount at September 30, 1998
(unaudited) and June 30, 1998 was approximately $1,395,000.
NOTE 9 -- COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments and
contingent liabilities, such as guarantees and commitments to extend credit
which are not included in the accompanying consolidated financial statements.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit is
represented by the contractual or notional amount of those instruments. The Bank
uses the same credit policies in making such commitments as it does for
instruments that are included in the consolidated balance sheet.
(F-14)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Commitments to extend credit, which represent financial instruments whose
contract amount represents credit risk, were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
---------------------------------------
1998 1998 1997
--------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Loan commitments
At variable rates $2,308 $2,108 $1,855
At fixed rates ranging from
6.75% to 7.25% 793
6.75% to 7.25% 710
8.25% to 9.25% 176
--------------------------------------------------------
$3,101 $2,818 $2,031
========================================================
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies, but may include residential real estate,
income-producing commercial properties or other assets of the borrower.
The Bank and subsidiary are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate determination of such possible claims or
lawsuits will not have a material adverse effect on the consolidated financial
position of the Bank.
NOTE 10 -- REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies and is assigned to a capital category. The assigned
capital category is largely determined by three ratios that are calculated
according to the regulations: total risk adjusted capital, Tier 1 capital, and
Tier 1 leverage ratios. The ratios are intended to measure capital relative to
assets and credit risk associated with those assets and off-balance sheet
exposures of the entity. The capital category assigned to an entity can also be
affected by qualitative judgments made by regulatory agencies about the risk
inherent in the entity's activities that are not part of the calculated ratios.
(F-15)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At September 30, 1998 (unaudited)
and June 30, 1998 and 1997, the Bank is categorized as well capitalized and met
all subject capital adequacy requirements. There are no conditions or events
since September 30, 1998 (unaudited) that management believes have changed the
Bank's classification.
The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL* CAPITALIZED*
---------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
Total risk-based capital* (to risk-
weighted assets) $15,306 34.88% $3,511 8.00% $4,389 10.00%
Core capital* (to adjusted tangible
assets) 15,056 13.47 4,470 4.00 6,705 6.00
Core capital* (to adjusted total assets) 15,056 13.47 4,472 4.00 5,591 5.00
AS OF JUNE 30, 1998
Total risk-based capital* (to risk-
weighted assets) $15,151 34.7% $3,488 8.00% $4,361 10.00%
Core capital* (to adjusted tangible
assets) 14,901 13.6 4,383 4.00 6,575 6.00
Core capital* (to adjusted total assets) 14,901 13.6 4,385 4.00 5,482 5.00
AS OF JUNE 30, 1997
Total risk-based capital* (to risk-
weighted assets) $14,271 37.3% $3,057 8.00% $3,821 10.00%
Core capital* (to adjusted tangible
assets) 14,021 12.6 4,443 4.00 6,664 6.00
Core capital* (to adjusted total assets) 14,021 12.6 4,444 4.00 5,555 5.00
</TABLE>
*As defined by regulatory agencies
The Bank's tangible capital at September 30, 1998 (unaudited) and June 30, 1998
was $15,056,000 and $14,901,000, which amount was 13.5% and 13.6% of tangible
assets and exceeded the required ratio of 1.5%.
(F-16)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Reconciliation of capital for financial statement purposes to regulatory capital
was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 (UNAUDITED)
-----------------------------------------------------
CORE TANGIBLE RISK-BASED
CAPITAL CAPITAL CAPITAL
-----------------------------------------------------
<S> <C> <C> <C>
Capital for financial statement purposes $15,117 $15,117 $15,117
Unrealized gain on securities available for sale (61) (61) (61)
General loan valuation allowance 250
-----------------------------------------------------
Regulatory capital $15,056 $15,056 $15,306
=====================================================
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
--------------------------------------------------------------------------------
RISK- RISK-
CORE TANGIBLE BASED CORE TANGIBLE BASED
CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital for financial statement purposes $14,949 $14,949 $14,949 $14,053 $14,053 $14,053
Unrealized gain on securities available
for sale (48) (48) (48) (32) (32) (32)
General loan valuation allowance 250 250
--------------------------------------------------------------------------------
Regulatory capital $14,901 $14,901 $15,151 $14,021 $14,021 $14,271
================================================================================
</TABLE>
NOTE 11 -- PENSION AND EMPLOYEE BENEFIT PLANS
The Bank is a participant in a pension fund known as the Financial Institutions
Retirement Fund (FIRF). This plan is a multi-employer plan; separate actuarial
valuations are not made with respect to each participating employer. According
to FIRF administrators, the market value of the fund's assets exceeded the value
of vested benefits in the aggregate as of June 30, 1998, the date of the latest
actuarial valuation. Pension expense was $200 and $1,400 for the three months
ended September 30, 1998 and 1997 (unaudited) and $1,700, $8,500 and $35,300 for
the years ended June 30, 1998, 1997 and 1996. This plan provides pension
benefits for substantially all of the Bank's employees.
The Bank has a retirement savings Section 401(k) plan in which substantially all
employees may participate. The Bank matches employees' contributions at the rate
of 50% of the first 6% of base salary contributed by participants. The Bank's
expense for the plan was $4,900 for each of the quarters ended September 30,
1998 and 1997 (unaudited) and $30,000, $23,700 and $23,300 for the years ended
June 30, 1998, 1997 and 1996.
(F-17)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The Bank also has a supplemental retirement plan and deferred compensation
arrangements for the benefit of certain officers. These arrangements are funded
by life insurance contracts which have been purchased by the Bank. The Bank's
expense for the plan was $9,700 and $8,600 for each of the quarters ended
September 30, 1998 and 1997 (unaudited) and $36,300, $32,100 and $27,700 for the
years ended June 30, 1998, 1997 and 1996. The Bank also established deferred
compensation arrangements with certain directors whereby, in lieu of currently
receiving fees, the directors or their beneficiaries will be paid benefits for
an established period following the director's retirement or death. These
arrangements are also funded by life insurance contracts which have been
purchased by the Bank.
NOTE 12 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS--The fair value of cash and cash equivalents
approximates carrying value.
INTEREST-BEARING DEPOSITS--The fair value of interest-bearing time deposits
approximates carrying value.
INVESTMENT SECURITIES--Fair values are based on quoted market prices.
LOANS--For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair values for certain mortgage loans, including one-to-four family
residential, are based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for differences in loan
characteristics. The fair value for other loans, are estimated using discounted
cash flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
INTEREST RECEIVABLE/PAYABLE--The fair values of interest receivable/payable
approximate carrying values.
FHLB STOCK--Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
CASH SURRENDER VALUE OF LIFE INSURANCE--The fair values of cash surrender values
of life insurance approximate carrying values.
DEPOSITS--The fair values of noninterest-bearing, interest-bearing demand and
savings accounts are equal to the amount payable on demand at the balance sheet
date. The carrying amounts for variable rate, fixed-term certificates of deposit
approximate their fair values at the balance sheet date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on such time deposits.
LONG-TERM DEBT--The fair value of these borrowings are estimated using a
discounted cash flow calculation, based on current rates for similar debt. Fair
value approximates carrying value.
(F-18)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
OFF-BALANCE SHEET COMMITMENTS--Commitments include commitments to purchase and
originate mortgage loans and commitments to sell mortgage loans and are
generally of a short-term nature. The fair value of such commitments are based
on fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the counterparties' credit standing.
The carrying amounts of these commitments, which are immaterial, are reasonable
estimates of the fair value of these financial instruments.
The estimated fair values of the Bank's financial instruments are as follows;
<TABLE>
<CAPTION>
JUNE 30
---------------------------------------------------
SEPTEMBER 30, 1998 1998 1997
-------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
--------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $13,974 $13,974 $11,689 $11,689 $ 7,763 $ 7,763
Interest-bearing deposits 1,882 1,882 2,279 2,279 5,546 5,546
Investment securities available for sale 4,016 4,016 4,376 4,376 7,864 7,864
Investment securities held to maturity 47,987 48,304 49,364 49,463 52,470 52,118
Loans, net 38,183 39,909 35,655 35,931 32,164 31,269
Interest receivable 671 671 683 683 768 768
FHLB stock 727 727 727 727 727 727
Cash surrender value of life insurance 2,084 2,084 2,061 2,061 1,973 1,973
LIABILITIES
Deposits 90,961 92,102 89,229 89,556 88,560 88,424
Long-term debt 3,645 3,645 3,645 3,645 7,050 7,050
Interest payable 727 727 247 247 312 312
</TABLE>
Note 13 -- OTHER COMPREHENSIVE INCOME--UNREALIZED GAINS (LOSSES) ON SECURITIES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30
---------------------------------------------------------
1998 1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Before tax amount $24 $27 $158 $(83)
Tax (expense) benefit (11) (11) (67) 35
-------------------------------------------------------------------------
Net-of-tax amount--other
comprehensive income $13 $16 $91 $(48)
=========================================================================
</TABLE>
(F-19)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 14--RELATED PARTY TRANSACTIONS
Deposits from related parties held by the Bank at September 30, 1998 (unaudited)
and June 30, 1998 and 1997, totaled $756,000, $855,900 and $767,500.
NOTE 15--YEAR 2000
Like all entities, the Bank and its subsidiary are exposed to risks associated
with the Year 2000 issue, which affects computer software and hardware;
transactions with customers, vendors and other entities, and equipment dependent
upon microchips. The Bank has begun, but has not yet completed, the process of
identifying and remediating potential Year 2000 problems. It is not possible for
any entity to guarantee the results of its own remediation efforts or to
accurately predict the impact of the Year 2000 issue on third parties with which
the Bank and its subsidiary do business. If remediation efforts of the Bank or
third parties with which the Bank and its subsidiary do business are not
successful, the Year 2000 issue could have negative effects on the Bank's
financial condition and results of operations in the near term.
NOTE 16--SUBSEQUENT EVENT--PLAN OF CONVERSION
On September 16, 1998, the Board of Directors adopted a plan of conversion
(Plan) whereby the Bank will convert from a federally chartered mutual
institution to a federally chartered stock savings bank. The Plan is subject to
approval of regulatory authorities and members at a special meeting. The stock
of the Bank will be issued to First Bancorp of Indiana, Inc. (First), a holding
company formed in connection with the conversion, and the Bank will become a
wholly-owned subsidiary of First. Pursuant to the Plan, shares of capital stock
of First are expected to be offered initially for subscription to eligible
members of the Bank and certain other persons as of specified dates subject to
various subscription priorities as provided in the Plan. The capital stock will
be offered at a price to be determined by the Board of Directors based upon an
appraisal to be made by an independent appraisal firm. The exact number of
shares to be offered will be determined by the Board of Directors in conjunction
with the determination of the subscription price. At least the minimum number of
shares offered in the conversion must be sold. Any stock not purchased in the
subscription offering may be sold in a community offering expected to be held
concurrently with the subscription offering.
(F-20)
<PAGE>
FIRST FEDERAL SAVINGS BANK
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The Plan provides that when the conversion is completed, a "liquidation account"
will be established in an amount equal to the retained income of the Bank as of
the date of the most recent financial statements contained in the final
conversion prospectus. The liquidation account is established to provide a
limited priority claim to the assets of the Bank to qualifying depositors
(eligible account holders) at September 30, 1998 and other depositors
(supplemental eligible account holders) as of December 31, 1998 who continue to
maintain deposits in the Bank after conversion. In the unlikely event of a
complete liquidation of the Bank, and only in such event, eligible account
holders would receive from the liquidation account a liquidation distribution
based on their proportionate share of the then total remaining qualifying
deposits.
Certain regulations allow the Bank to pay dividends on its stock after the
conversion if its regulatory capital would not thereby be reduced below the
amount then required for the aforementioned liquidation account. Also, capital
distribution regulations limit the Bank's ability to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers,
interest payments on certain convertible debt and other transactions charged to
the capital account based on its capital level and supervisory condition.
Costs of conversion will be netted from proceeds of sale of common stock and
recorded as a reduction of additional paid-in capital or common stock. If the
conversion is not completed, such costs, totaling $48,000 at September 30, 1998
(unaudited), would be charged to expense.
(F-21)
<PAGE>
You should rely only on the information contained in this document. Neither
First Bancorp of Indiana, Inc. nor First Federal Savings Bank have authorized
anyone to provide you with information that is different. This prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person or in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this prospectus nor any sale hereunder shall under any circumstances
create any implication that there has been no change in the affairs of First
Bancorp of Indiana, Inc. or First Federal Savings Bank since any of the dates as
of which information is furnished herein or since the date hereof.
[Logo for First Bancorp of Indiana, Inc.]
(Proposed Holding Company for
First Federal Savings Bank)
__________to __________ Shares of
Common Stock
---------------
Prospectus
----------------
Capital Resources, Inc.
______ __, 1999
DEALER PROSPECTUS DELIVERY OBLIGATION
Until the later of _______, 1999, or 25 days after commencement of the
syndicated community offering of common stock, if any, all dealers that effect
transactions in these securities may be required to deliver a prospectus. This
is in addition to the dealers' obligation 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.(1)
<TABLE>
<CAPTION>
<S> <C>
Legal fees and expenses................ $160,000
Underwriter's legal fees............... 35,000
EDGAR, printing, postage and mailing... 95,000
Appraisal and business plan fees....... 35,000
Accounting fees and expenses........... 70,000
Securities marketing expenses.......... 30,000
Data processing fees................... 20,000
SEC fee................................ 7,500
Blue Sky fees and expenses............. 15,000
OTS fee................................ 8,400
Other.................................. 20,100
--------
TOTAL $496,000
========
</TABLE>
______________________
(1) In addition to the above expenses, Capital Resources, Inc. will receive a
fee of 1.25% of the aggregate purchase price of the shares of common stock
sold in the Subscription Offering and Direct Community Offering, excluding
shares purchased by the ESOP and by officers and directors of the Bank and
their associates.
Item 14. Indemnification of Directors and Officers.
In accordance with the Indiana Business Corporation Law of the State of Indiana
(being Section 7 of the Indiana Code), Article 7 of First Bancorp of Indiana,
Inc.'s Articles of Incorporation provides as follows:
Section 7.01. General Provisions. The corporation shall, to the fullest
extent to which it is empowered to do so by the Indiana Business Corporation Act
or any other applicable laws, as from time to time in effect, indemnify any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal, by
reason of the fact that he is or was a director, officer or employee of the
corporation, or who, while serving as such director, officer or employee of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
whether for profit or not, against expenses (including attorneys' fees),
judgments, settlements, penalties and fines (including excise taxes assessed
with respect to employee benefit plans) actually or reasonably incurred by him
in accordance with such action, suit or proceeding, if he acted in good faith
and in a manner he reasonably believed, in the case of conduct in his official
capacity, was in the best interest of the corporation, and in all other cases,
was not opposed to the best interests of the corporation, and with respect to
any criminal action or proceeding, he either had reasonable cause to believe his
conduct was lawful or no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not meet the prescribed
standard of conduct.
Section 7.02. Indemnification Authorized. To the extent that a director,
officer or employee of the corporation has been successful, on the merits or
otherwise, in the defense of any action, suit or proceeding referred to in
Section 7.01 of this Article, or in the defense of any claim, issue or matter
therein, the corporation shall indemnify such person against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith. Any other indemnification under Section 7.01 of this Article (unless
ordered by a court) shall be made by
II-1
<PAGE>
the corporation only as authorized in the specific case, upon a determination
that indemnification of the director, officer or employee is permissible in the
circumstances because he has met the applicable standard of conduct. Such
determination shall be made (a) by the board of directors by a majority vote of
a quorum consisting of directors who were not at the time parties to such
action, suit or proceeding; or (b) if a quorum cannot be obtained under
subdivision (a), by a majority vote of a committee duly designated by the board
of directors (in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to such
action, suit or proceeding; or (c) by special legal counsel: (i) selected by the
board of directors or its committee in the manner prescribed in subdivision (a)
or (b), or (ii) if a quorum of the board of directors cannot be obtained under
subdivision (a) and a committee cannot be designated under subdivision (b),
selected by a majority vote of the full board of directors (in which selection
directors who are parties may participate); or (d) by stockholders, but shares
owned by or voted under the control of directors who are at the time parties to
such action, suit or proceeding may not be voted on the determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (c)
to select counsel.
Section 7.03. Definition of Good Faith. For purposes of any determination
under Section 7.01 of this Article, a person shall be deemed to have acted in
good faith and to have otherwise met the applicable standard of conduct set
forth in Section 7.01 if his action is based on information, opinions, reports,
or statements, including financial statements and other financial data, if
prepared or presented by (a) one or more officers or employees of the
corporation or other enterprise whom he reasonably believes to be reliable and
competent in the matters presented; (b) legal counsel, public accountants,
appraisers or other persons as to matters he reasonably believes are within the
person's professional or expert competence; or (c) a committee of the board of
directors of the corporation or another enterprise of which the person is not a
member if he reasonably believes the committee merits confidence. The term
"another enterprise" as used in this Section 7.03 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which such person is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent. The
provisions of this Section 7.03 shall not be deemed to be exclusive or to limit
in any way the circumstances in which a person may be deemed to have met the
applicable standards of conduct set forth in Section 7.01 of this Article.
Section 7.04. Advancement of Expenses. Expenses incurred in connection
with any civil or criminal action, suit or proceeding may be paid for or
reimbursed by the corporation in advance of the final disposition of such
action, suit or proceeding, as authorized in the specific case in the same
manner described in Section 7.02 of this Article, upon receipt of a written
affirmation of the director, officer or employee's good faith belief that he has
met the standard of conduct described in Section 7.01 of this Article and upon
receipt of a written undertaking on behalf of the director, officer or employee
to repay such amount if it shall ultimately be determined that he did not meet
the standard of conduct set forth in this Article, and a determination is made
that the facts then known to those making the determination would not preclude
indemnification under this Article.
Section 7.05. Non-Exclusivity. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under these Articles of Incorporation,
the corporation's Bylaws, any resolution of the board of directors or
stockholders, any other authorization, whenever adopted, after notice, by a
majority vote of all voting stock then outstanding, or any contract, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer or employee, and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 7.06. Vestment of Rights. The right of any individual to
indemnification under this Article shall vest at the time of occurrence or
performance of any event, act or omission giving rise to any action, suit or
proceeding of the nature referred to in Section 7.01 of this Article and, once
vested, shall not later be impaired as a result of any
II-2
<PAGE>
amendment, repeal, alteration or other modification of any or all of these
provisions. Notwithstanding the foregoing, the indemnification afforded under
this Article shall be applicable to all alleged prior acts or omissions of any
individual seeking indemnification hereunder, regardless of the fact that such
alleged acts or omissions may have occurred prior to the adoption of this
Article. To the extent such prior acts or omissions cannot be deemed to be
covered by this Article, the right of any individual to indemnification shall be
governed by the indemnification provisions in effect at the time of such prior
acts or omissions.
Section 7.07. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or who is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against or incurred by the
individual in that capacity or arising from the individual's status as a
director, officer, employee or agent, whether or not the corporation would have
power to indemnify the individual against the same liability under this Article.
Section 7.08. Other Definitions.
For purposes of this Article, serving an employee benefit plan at the
request of the corporation shall include any service as a director, officer or
employee of the corporation which imposes duties on, or involves services by
such director, officer or employee with respect to an employee benefit plan, its
participants, or beneficiaries. A person who acted in good faith and in a
manner he reasonably believed to be in the best interests of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interest of the corporation" referred to in this
Article.
For purposes of this Article, "party" includes any individual who is or was
a plaintiff, defendant or respondent in any action, suit or proceeding.
For purposes of this Article, "official capacity," when used with respect
to a director, shall mean the office of director of the corporation; and when
used with respect to an individual other than a director, shall mean the office
in the corporation held by the officer or the employment or agency relationship
undertaking by the employee or agent on behalf of the corporation. "Official
capacity" does not include service for any other foreign or domestic corporation
or any partnership, joint venture, trust, employee benefit plan, or other
enterprise, whether for profit or not, except as set forth in Section 1 of this
Article.
Section 7.09. Business Expenses. Any payments made to any indemnified
party under this Article under any other right of indemnification shall be
deemed to be an ordinary and necessary business expense of the corporation, and
payment thereof shall not subject any person responsible for the payment, or the
board of directors, to any action for corporate waste or to any similar action.
Item 15. Recent Sales of Unregistered Securities
None.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between First Federal Savings Bank and Capital
Resources, Inc. *
1.2 Draft Form of Agency Agreement
2.1 Plan of Conversion of First Federal Savings Bank
3.1 Articles of Incorporation of First Bancorp of Indiana, Inc. *
3.2 Bylaws of First Bancorp of Indiana, Inc. *
4.1 Form of Stock Certificate of First Bancorp of Indiana, Inc. *
5.1 Opinion of Muldoon, Murphy & Faucette LLP re: legality
5.2 Opinion of Johnson, Carroll and Griffith re: legality
8.1 Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.2 Opinion of Olive LLP re: State Tax Matters
8.3 Opinion of Capital Resources Group, Inc. as to the value of subscription
rights *
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents *
10.2 Form of Proposed Employment Agreement between First Federal Savings Bank,
First Bancorp of Indiana, Inc. and certain executive officers *
10.3 Form of Employee Stock Ownership Plan*
10.4 Form of Proposed First Federal Savings Bank Employee Severance
Compensation Plan *
10.5 Restated and Amended Executive Supplemental Retirement Income Master
Agreement *
10.6 Restated and Amended Director Deferred Compensation Master Agreement *
21.1 Subsidiaries of First Bancorp of Indiana, Inc. *
23.1 Consent of Olive LLP as independent auditors
23.2 Consent of Muldoon, Murphy & Faucette LLP (contained in its opinion filed
as exhibit 5.1)
23.3 Consent of Olive LLP (contained in its opinion filed as exhibit 8.2)
23.4 Consent of Capital Resources Group, Inc. *
23.5 Consent of Johnson, Carroll and Griffith
24.1 Power of Attorney *
27.1 Financial Data Schedule*
99.1 Appraisal Report of Capital Resources Group, Inc. (P)*
99.2 Additional solicitation materials *
99.3 Proxy Statement for Special Meeting of Members of First Federal Savings
Bank *
99.4 Agreement with Capital Resources Group, Inc. *
99.5 Stock Order Form
- --------------------------------------
* Previously filed
(P) This exhibit was filed in paper format pursuant to a continuing hardship
exemption.
II-4
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the Offering.
The undersigned Registrant hereby undertakes to furnish stock certificates
to or in accordance with the instructions of the respective purchasers of the
Common Stock, so as to make delivery to each purchaser promptly following the
closing under the Plan of Conversion.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant 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 Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
CONFORMED
- ---------
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Evansville, State of
Indiana, on January 29, 1999.
First Bancorp of Indiana, Inc.
By: /s/ Harold Duncan
-------------------------------------------
Harold Duncan
President, Chief Executive Officer
and Chairman of the Board
Pursuant to 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 indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C>
/s/ Harold Duncan
- --------------------------- President, Chief Executive January 29, 1999
Harold Duncan Officer and Chairman of the Board
(principal executive officer)
/s/ Christopher A. Bengert
- --------------------------- Treasurer January 29, 1999
Christopher A. Bengert (principle financial and
accounting officer)
/s/ Robert L. Clayton, Sr.*
- --------------------------- Director January 29, 1999
Robert L. Clayton, Sr.
/s/ Herbert V. Dassel*
- --------------------------- Director January 29, 1999
Herbert V. Dassel
/s/ Frank E. Kern*
- --------------------------- Director January 29, 1999
Frank E. Kern
/s/ James E. Will, Jr.*
- --------------------------- Director January 29, 1999
James E. Will, Jr.
/s/ Jerry Ziemer*
- --------------------------- Director January 29, 1999
Jerry Ziemer
</TABLE>
* Pursuant to Power of Attorney dated December 16, 1998.
II-6
<PAGE>
Exhibit 1.2
DRAFT 1,615,000 - 2,185,000 Shares
1/26/99 (subject to increase up to 2,512,750 shares
in the event of an oversubscription)
FIRST BANCORP OF INDIANA, INC.
(an Indiana corporation)
COMMON STOCK
($0.01 Par Value Per Share)
Subscription Price: $10.00 Per Share
AGENCY AGREEMENT
____________ , 1999
Capital Resources, Inc.
1211 Connecticut Avenue, N.W.
Suite 200
Washington, D.C. 20036
Ladies and Gentlemen:
First Bancorp of Indiana, Inc. (the "Company") and First Federal Savings
Bank of Evansville, Indiana, a federally chartered mutual savings bank ("Savings
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 Capital Resources, Inc. ("Capital
Resources") as follows:
SECTION 1. The Offering. The Savings Bank, in accordance with and
pursuant to its plan of conversion adopted by the Board of Directors of the
Savings Bank (the "Plan"), intends to be converted from a federally chartered
mutual savings bank to a federally chartered stock savings bank and will sell
all of its issued and outstanding stock to the Company. The Company will offer
and sell its common stock (the "Common Stock") in a subscription offering
("Subscription Offering") to (1) depositors of the Savings Bank as of June 30,
1997 ("Eligible Account Holders"), (2) tax qualified employee benefit plans of
the Savings Bank, (3) depositors of the Savings Bank as of December 31, 1998
("Supplemental Eligible Account Holders"), and (4) certain other members of the
Savings Bank ("Other Members") pursuant to rights to subscribe for shares of
Common Stock (the "Shares"). Subject to the prior subscription rights of the
above-listed parties, and, depending on market conditions, the Company may also
offer the Common Stock for sale to persons residing in communities near the
Savings Bank's offices in a direct community offering (the "Direct Community
Offering") conducted after the Subscription Offering and the Company may offer
its Common Stock for sale in a public offering to selected persons (the "Public
Offering,") conducted after the Direct Community Offering. The Public Offering,
the Direct Community Offering and Subscription Offering are refereed to
collectively as the "Offering," and all such Offerees being referred to in the
aggregate as "Eligible Offerees." Shares may also be sold in the Public
Offering by a selling group of broker-dealers organized and managed by Capital
Resources. It is acknowledged that the purchase of Shares in the Offering is
subject to maximum and minimum purchase limitations as described in the Plan and
that the Company may reject in whole or in part any subscriptions received from
subscribers in the Public Offering or Direct Community Offering.
<PAGE>
The Company and the Savings Bank desire to retain Capital Resources to
assist the Company with its sale of the Shares in the Offering. By and through
this Agreement, the Company and the Savings Bank confirm the retention of
Capital Resources to assist the Company and the Savings Bank during the
Offering.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No.333-68793)
containing an offering prospectus relating to the Offering for the registration
of the Shares under the Securities Act of 1933, as amended (the "1933 Act"), and
has filed such amendments thereto, if any, and such amended prospectuses as may
have been required to the date hereof (the "Registration Statement"). The
prospectus, as amended, included in the Registration Statement at the time it
initially becomes effective, is hereinafter called the "Offering 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 offering prospectus included in the
Registration Statement at the time it initially becomes effective, the term
"Offering Prospectus" shall refer to the offering prospectus filed pursuant to
Rule 424(b) or (c) from and after the time said offering prospectus is filed
with or mailed to the Commission for filing.
In accordance with Title 12, Part 563b of the Code of Federal Regulations
(the "Conversion Regulations"), the Savings Bank has filed with the Office of
Thrift Supervision (the "OTS") an Application for Approval of Conversion on Form
AC (the "Conversion Application") including the Offering 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. The Company has filed with
the OTS its application on Form H-(e)1-S (the "Holding Company Application") to
acquire the Savings Bank under the Home Owners' Loan Act, as amended (12 U.S.C.
(S)1467a) ("HOLA").
SECTION 2. Retention of Capital Resources; Compensation; Sale and Delivery
of the Shares. Subject to the terms and conditions herein set forth, the Company
and the Savings Bank hereby appoint Capital Resources as their agent to advise
and assist the Company and the Savings Bank with the Company's sale of the
Shares in the Offering.
On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, Capital
Resources accepts such appointment and agrees to consult with and advise the
Company and the Savings Bank as to matters relating to the Conversion and the
Offering. It is acknowledged by the Company and the Savings Bank that Capital
Resources shall not be required to purchase any Shares and shall not be
obligated to take any action which is inconsistent with any applicable laws,
regulations, decisions or orders. If requested by the Company or the Savings
Bank, Capital Resources also may 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"). A
form of Selected Dealers' Agreement is annexed as Exhibit B. The obligations of
Capital Resources pursuant to this Agreement shall terminate upon the completion
or termination or abandonment of the Plan by the Company or the Savings Bank, or
if the terms of the Conversion are substantially amended so as to materially and
adversely change the role of Capital Resources, but in no event later than 45
days after the completion of the Offering (the "End Date"). All fees due to
Capital Resources but unpaid will be payable to Capital Resources in next day
funds at the earlier of the Closing Date (as hereinafter defined) or the End
Date. In the event the Offering is extended beyond the End Date, the Company,
the Savings Bank and Capital Resources may agree to renew this Agreement under
mutually acceptable terms.
In the event the Company is unable to sell a minimum of $16,150,000 of
Common Stock 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
-2-
<PAGE>
set forth in the Offering 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 7, 9 and 10 hereof.
In the event the closing does not occur, the Conversion is terminated or
otherwise abandoned, or the terms of the Conversion are substantially amended so
as to materially and adversely change the role of Capital Resources, Capital
Resources shall be entitled to retain any compensation already received for
consulting services prior to the closing, and shall be reimbursed for all
reasonable legal fees and actual, accountable out-of-pocket expenses subject to
the limits set forth in paragraph (b) below for rendering financial advice to
the Savings Bank concerning the structure of the Conversion, preparing a market
and financial analysis, performing due diligence and assisting in the
preparation of the Application for Conversion and the Registration Statement,
which shall be paid upon such termination, abandonment or amendment or within
five days of such event.
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 certificates shall be
released for such shares until the conditions specified in Section 7 hereof
shall have been complied with to the reasonable satisfaction of Capital
Resources and its counsel. The release of Shares against payment therefor shall
be made on a date and at a time and place acceptable to the Company, the Savings
Bank and Capital Resources. The date upon which the Company shall release or
deliver the Shares sold in the Offering, in accordance with the terms hereof, is
herein called the "Closing Date."
Capital Resources shall receive the following compensation for its services
hereunder:
(a) a marketing fee in the amount of 1.25% of the total dollar amount of
the Common Stock sold in the Offering, excluding Shares received by the ESOP,
and by officers, directors, and employees of the Savings Bank, and their
immediate household family members (of which $30,000 was paid on execution of
the engagement letter dated August 24, 1998 and $30,000 was paid on regulatory
approval of the Conversion Application for consulting work performed prior to
the Offering, and the balance will be paid upon closing of the Conversion).
(b) Capital Resources shall be reimbursed for all reasonable out-of-pocket
expenses, including, but not limited to, legal fees, travel, communications and
postage, incurred by it whether or not the Conversion is successfully completed
as set forth in Section 7 hereof. Reimbursement for Capital Resources' legal and
other expenses shall not exceed $40,000, unless otherwise approved by the
Savings Bank. Capital Resources shall be reimbursed promptly for all out-of-
pocket expenses upon receipt by the Company or the Savings Bank of a monthly
itemized bill summarizing such expenses since the date of the last bill, if any,
to the date of the current bill.
(c) In the event other broker-dealers are assembled and managed by Capital
Resources to participate in the sale of the shares pursuant to a Selected
Dealers' Agreement or other arrangement, the Company and the Savings Bank will
enter into a separate agreement for the payment of selected dealers'
commissions.
All subscription funds received by Capital Resources (and if by check shall
be made payable to the Company) or by other NASD registered broker-dealers
soliciting subscriptions (if any) shall be transmitted (either by U.S. Mail or
similar type of transmittal) to the Company by noon of the following business
day.
SECTION 3. Offering Prospectus; the Offering. The Shares are to be
offered in the Offering at the Purchase Price as set forth on the cover page of
the Offering Prospectus.
-3-
<PAGE>
SECTION 4. Representations and Warranties. The Company and the Savings
Bank jointly and severally represent and warrant to Capital Resources as
follows:
(a) The Registration Statement was declared effective by the Commission on
_____________. At the time the Registration Statement, including the Offering
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 Offering Prospectus contained therein
(including any amendment or supplement thereto), any Blue Sky Application or any
Sales Information (as such terms are defined previously herein or in Section 8
hereof) authorized by the Company or the Savings Bank for use in connection with
the Offering 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) Offering Prospectus was
filed with the Commission for filing and at the Closing Date referred to in
Section 2, the Registration Statement including the Offering Prospectus
contained therein (including any amendment or supplement thereto), any Blue Sky
Application or any Sales Information (as such terms are defined previously
herein or in Section 8 hereof) authorized by the Company or the Savings Bank for
use in connection with the Offering 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 the 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 in or omissions from such
Registration Statement or Offering Prospectus made in reliance upon and in
conformity with written information furnished to the Company or the Savings Bank
by Capital Resources expressly regarding Capital Resources for use under the
caption "The Conversion-Plan of Distribution for the Subscription, Direct
Community, and Syndicated Community Offerings", and "--Stock Pricing and Number
of Shares to be Issued."
(b) The Conversion Application, including the Offering Prospectus, was
approved by the OTS on _________________________________, 1999. At the time of
the approval of the Conversion Application, including the Offering Prospectus,
by the OTS (including any amendment or supplement thereto) and at all times
subsequent thereto until the Closing Date, the Conversion Application, including
the Offering Prospectus, will comply in all material respects with the
Conversion Regulations and any other rules and regulations of the OTS. The
Conversion Application, including the Offering Prospectus (including any
amendment or supplement thereto), does not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that representations or
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
Savings Bank by Capital Resources expressly regarding Capital Resources for use
in the Offering Prospectus contained in the Conversion Application under the
caption "The Conversion-Plan of Distribution for the Subscription, Direct
Community, and Syndicated Community Offerings," and "--Stock Pricing and Number
of Shares to be Issued."
(c) The Company has filed with the OTS the Holding Company Application and
will have received from the OTS, as of the Closing Date, approval of its
acquisition of the Savings Bank.
(d) No order has been issued by the OTS, the Commission, the FDIC (and
hereinafter reference to the FDIC shall include the SAIF), or to the best
knowledge of the Company or the Savings Bank any State regulatory or Blue Sky
authority, preventing or suspending the use of the Offering 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 Savings Bank or the Company, pending or threatened.
-4-
<PAGE>
(e) At the Closing Date referred to in Section 2, the Plan will have been
adopted by the Board of Directors of both the Company and the Savings Bank, the
Company and the Savings Bank will have completed in all material respects the
conditions precedent to the Conversion 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 or the Savings Bank by the OTS, the
Commission or any other regulatory authority and in all materials respects in
the manner described in the Offering Prospectus. At the Closing Date, no person
will have sought to obtain review of the final action of the OTS, to the
knowledge of the Company or the Savings Bank, in approving the Plan or in
approving the Conversion or the Company's application to acquire all of the
capital stock and control of the Savings Bank pursuant to the HOLA or any other
statute or regulation.
(f) The Savings Bank is now a duly organized and validly existing federally
chartered savings bank in mutual form of organization and upon the Conversion
will become a duly organized and validly existing federally chartered savings
bank in capital stock form of organization, in both instances duly authorized to
conduct its business and own its property as described in the Registration
Statement and the Offering Prospectus; the Company and the Savings Bank have
obtained all material licenses, permits and other governmental authorizations
currently required for the conduct of their respective businesses; all such
licenses, permits and governmental authorizations are in full force and effect,
and the Company and the Savings Bank are in all material respects complying with
all laws, rules, regulations and orders applicable to the operation of their
businesses; and the Savings Bank is in good standing 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 of properties 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 Savings
Bank. The Savings Bank does not own equity securities or any equity interest in
any other business enterprise except as described in the Offering Prospectus.
Upon the completion of the Conversion of the Savings Bank to a federally
chartered stock savings bank pursuant to the Plan, (i) all of the authorized and
outstanding capital stock of the Savings Bank will be owned by the Company, and
(ii) the Company will have no direct subsidiaries other than the Savings 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's resolutions
or letters of approval. All terms, conditions, requirements and provisions with
respect to the Conversion imposed by the Commission, the OTS and the FDIC, if
any, will have been complied with by the Company and the Savings 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.
(g) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Indiana 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 Offering
Prospectus, and the Company is qualified to do business as a foreign corporation
in any 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 business of the Company.
(h) The Savings Bank is a member of the Federal Home Loan Bank of
Indianapolis ("FHLBIN"); and the deposit accounts of the Savings Bank are
insured by the FDIC up to the applicable limits. 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.
-5-
<PAGE>
(i) The Company and the Savings Bank have good and marketable title to all
assets owned by them which are material to the business of the Company and the
Savings Bank and to those assets described in the Registration Statement and
Offering 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 Offering Prospectus or are not materially significant or important
in relation to the business of the Company and the Savings Bank; and all of the
leases and subleases material to the business of the Company and the Savings
Bank under which the Company or the Savings Bank holds properties, including
those described in the Registration Statement and Offering Prospectus, are in
full force and effect.
(j) The Savings Bank has received an opinion of its counsel, Muldoon,
Murphy & Faucette LLP, with respect to the federal income tax consequences of
the Conversion of the Savings Bank from mutual to stock form, the acquisition of
the capital stock of the Savings Bank by the Company, the sale of the Shares,
and the reorganization of the Savings Bank as described in the Registration
Statement and the Offering Prospectus and an opinion from Olive LLP with respect
to the State of Indiana income tax consequences of the proposed transaction; all
material aspects of the opinions of Muldoon, Murphy & Faucette LLP and Olive LLP
are accurately summarized in the Offering Prospectus; and the facts and
representations upon which such opinions are based are truthful, accurate and
complete, and neither the Savings Bank nor the Company will take any action
inconsistent therewith.
(k) The Company and the Savings 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 Capital Stock of the Savings Bank to the Company and Shares to be sold
by the Company as provided herein and as described in the Offering Prospectus.
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 Savings Bank and this Agreement has been validly executed
and delivered by the Company and the Savings Bank and is the valid, legal and
binding agreement of the Company and the Savings Bank enforceable in accordance
with its terms (except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws relating to
or affecting the enforcement of creditors' rights generally or the rights of
creditors of savings and loan holding companies, the accounts of whose
subsidiaries are insured by the FDIC or by general equity principles regardless
of whether such enforceability is considered in a proceeding in equity or at
law, and except to the extent, if any, that the provisions of Sections 9 and 10
hereof may be unenforceable as against public policy or pursuant to Section 23A
of the Federal Reserve Act).
(l) The Company and the Savings Bank are not in violation of any directive
which has been delivered to the Company or the Savings Bank or of which
management of the Company or the Savings Bank has actual knowledge from the OTS,
the Commission, 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, the Commission and the
FDIC) and except as set forth in the Registration Statement and the Offering
Prospectus, there is no suit or proceeding or, to the knowledge of the Company
or the Savings Bank, charge, investigation or action before or by any court,
regulatory authority or governmental agency or body, pending or, to the
knowledge of the Company or the Savings 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 or which might result in any material adverse change
in the financial condition or results of operations of the Company or the
Savings Bank considered as one enterprise, or which would materially affect
their properties and assets.
(m) The financial statements which are included in the Registration
Statement and which are part
-6-
<PAGE>
of the Offering Prospectus fairly present the financial condition, results of
operations, retained earnings and cash flows of the Savings Bank 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 Title 12 of the Code of Federal Regulations and generally
accepted accounting principles ("GAAP") (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 Savings Bank with the OTS and the FDIC, except that accounting principles
employed in such filings conform to 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 Offering
Prospectus present fairly the information shown therein on a basis consistent
with the audited and unaudited financial statements, if any, of the Savings Bank
included in the Offering Prospectus, and as to the pro forma adjustments, the
adjustments made therein have been properly applied on the basis described
therein.
(n) Since the respective dates as of which information is given in the
Registration Statement and the Offering Prospectus, except as may otherwise be
stated therein: (i) there has not been any material adverse change in the
financial condition of the Company or the Savings Bank, or of the Company and
the Savings Bank considered as one enterprise, or in the earnings, capital, or
properties, of the Company or the Savings Bank, whether or not arising in the
ordinary course of business, (ii) there has not been (A) an increase of greater
than $_________________ in the long term debt of the Savings Bank or (B) an
increase of $_________________________ in non performing assets (consisting of
accruing loans past due 90 days or more, non-accruing loans and foreclosed
assets) or (C) a decrease of $ ________________or more in the allowance for loan
losses or (D) any decrease in total equity or (E) a decrease in net income from
______________________ to date when compared to the like period in ___________
or (F) any change in total assets of the Savings Bank in an amount greater than
$____________________ (excluding the proceeds of stock subscriptions) or (H) any
other material change which would require an amendment to the Offering
Prospectus; (iii) the Savings Bank has not issued any securities or incurred any
liability or obligation for borrowing other than in the ordinary course of
business; (iv) there have not been any material transactions entered into by the
Company or the Savings Bank, except with respect to those transactions entered
into in the ordinary course of business; and (v) the capitalization,
liabilities, assets, properties and business of the Company and the Savings Bank
conform in all material respects to the descriptions thereof contained in the
Offering Prospectus, and neither the Company nor the Savings Bank have any
material liabilities of any kind, contingent or otherwise, except as set forth
in the Offering Prospectus.
(o) As of the date hereof and as of the Closing Date, neither the Company
nor the Savings Bank is in violation of its articles of incorporation or
charter, respectively, or its bylaws (and the Savings Bank will not be in
violation of its charter or bylaws in capital stock form as of the Closing Date)
or in default in the performance or observance of any material obligation,
agreement, covenant, or condition contained in any 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 which would result in a material adverse
change in the condition (financial or otherwise), earnings, capital, properties,
business affairs or business prospects of the Company or Savings Bank or which
would materially affect their properties or assets. 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, the charter and bylaws of the Savings Bank (in either mutual or capital
stock form), or any material contract, lease or other instrument to which the
Company or the Savings Bank has a beneficial interest, or any applicable law,
rule, regulation or order; (ii) violate any authorization, approval, judgment,
decree, order, statute, rule or regulation applicable to the Company or the
Savings Bank; 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 or the Savings Bank.
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<PAGE>
(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 or the
Savings Bank, in the due performance and observance of any term, covenant or
condition of any indenture, mortgage, deed of trust, note, Savings Bank loan or
credit agreement or any other instrument or agreement to which the Company or
the Savings Bank is a party or by which any of them or any of their property is
bound or affected in any respect which, in any such cases, is material to the
Company or the Savings Bank; 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 or the Savings Bank, threatened any action or proceeding wherein
the Company or the Savings Bank would or might be alleged to be in default
thereunder.
(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 Registration Statement under the caption "Capitalization," and no shares of
Common Stock have been or will be issued and outstanding prior to the Closing
Date referred to in Section 2; 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 Offering Prospectus, will be duly and validly issued and fully
paid and non-assessable; the issuance of the Shares will not violate any
preemptive rights; the Shares will be issued in conformity with the provisions
of the Plan, the Offering Prospectus, and the Conversion Regulations; 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 Offering
Prospectus. 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 of the OTS, the Commission
and any necessary qualification or registration under the securities or blue sky
laws of the various states in which the Shares are to be offered and as may be
required under the regulations of the National Association of Securities
Dealers, Inc. ("NASD").
(s) Olive LLP ("Olive"), which has certified the financial statements of
the Savings Bank included in the Registration Statement, are with respect to the
Company and the Savings Bank independent public accountants within the meaning
of the Code of Professional Ethics of the American Institute of Certified Public
Accountants and Title 12 of the Code of Federal Regulations, Section 571.2(c)(3)
and the 1933 Act and the 1933 Act Regulations.
(t) The Company and the Savings Bank have (subject to all properly obtained
extensions) timely filed all required federal and state tax returns, have paid
all taxes that have become due and payable in respect of such returns, have made
adequate reserves for similar future tax liabilities and no deficiency has been
asserted with respect thereto by any taxing authority.
(u) Appropriate arrangements have been made for placing the funds received
from subscriptions for Shares in a special interest-bearing account with the
Savings Bank until all Shares are sold and paid for, with provision for refund
to the purchasers in the event that the Conversion is not completed for whatever
reason or for delivery to the Company if all Shares are sold.
(v) To the knowledge of the Company and the Savings Bank, none of the
Company, the Savings Bank nor employees of the Company or the Savings Bank have
made any payment of funds of the Company or the Savings Bank as a loan to any
person for the purchase of the Shares other than the Employee Stock Ownership
Plan Trust.
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(w) Prior to the Conversion, the Savings Bank was not authorized to issue
shares of capital stock and neither the Company nor the Savings Bank has: (i)
issued any securities within the last 18 months (except for notes to evidence
other Savings Bank loans and reverse repurchase agreements or other
liabilities); (ii) had any material dealings within the twelve 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 the Offering and routine purchases and sales of U.S. government and
agency securities and other investment securities; (iii) entered into a
financial or management consulting agreement except as contemplated hereunder;
and (iv) engaged any intermediary between Capital Resources and the Company and
the Savings Bank in connection with the offering of Common Stock, and no person
is being compensated in any manner for such service.
(x) All pending legal proceedings to which the Company 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 Offering Prospectus, including ordinary
routine litigation incidental to the business are, considered in the aggregate,
not material.
(y) To the knowledge of the Company and the Savings Bank, the Company and
the Savings Bank comply in all material respects with all laws, rules and
regulations relating to environmental protection, and neither the Company nor
the Savings Bank has been notified or is otherwise aware that any of them is
potentially liable, or is considered potentially liable in any material respect,
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, or any similar state or local laws. There are no actions,
suits, regulatory investigations or other proceedings pending or, to the
knowledge of the Company or the Savings Bank, threatened against the Company or
the Savings Bank relating to environmental protection, nor does the Company or
the Savings Bank have any reason to believe any such proceedings may be brought
against any of them.
(z) The Savings Bank has one subsidiary, FFSL Service Corporation, Inc.
Any certificates signed by an officer of the Company or the Savings
Bank and delivered to Capital Resources or its counsel that refer to this
Agreement shall be deemed to be a representation and warranty by the Company or
the Savings Bank to Capital Resources as to the matters covered thereby with the
same effect as if such representation and warranty were set forth herein.
SECTION 5. Capital Resources represents and warrants to the Company
and the Savings Bank that:
(a) Capital Resources is a corporation and is validly existing in good
standing under the laws of the District of Columbia with full power and
authority to provide the services to be furnished to the Company and the Savings
Bank 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 Capital Resources, and this Agreement has
been duly and validly executed and delivered by Capital Resources and is the
legal, valid and binding agreement of Capital Resources, enforceable in
accordance with its terms.
(c) Each of Capital Resources 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 and Capital Resources is a registered
selling agent in the jurisdictions listed in Exhibit A hereto and will remain
registered in such jurisdictions in which the Company is relying on such
registration for the sale of the Shares, until the Conversion is consummated or
terminated.
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(d) The execution and delivery of this Agreement by Capital Resources,
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 Capital Resources or any agreement, indenture
or other instrument to which Capital Resources is a party or by which its
property is bound, or law or regulation by which Capital Resources is bound.
(e) Funds received by Capital Resources to purchase Common Stock will
be handled in accordance with Rule 15c2-4 under the Securities Exchange Act of
1934, as amended.
SECTION 6. Covenants of the Company and Savings Bank. The Company
and the Savings Bank hereby jointly and severally covenant with Capital
Resources as follows:
(a) 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 Capital Resources and its counsel
reasonable time to review such amendment or file any amendment or supplement to
which amendment Capital Resources or its counsel shall reasonably object.
(b) The Savings Bank has filed the Conversion Application with the
OTS. The Savings Bank will not, at any time after the date the Conversion
Application is approved, file any amendment or supplement to the Conversion
Application without providing Capital Resources and its counsel an opportunity
to review such amendment or supplement or file any amendment or supplement to
which amendment or supplement Capital Resources or its counsel shall reasonably
object.
(c) The Company and the Savings 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 Capital Resources and
promptly confirm the notice in writing: (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 the receipt of any comments from the
Commission, the OTS or the FDIC 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 the FDIC or any other governmental entity
for any amendment or supplement to the Registration Statement or for additional
information; (v) of the issuance by the Commission, the OTS, the FDIC or any
other governmental entity of any order or other action suspending the Offering
or the use of the Registration Statement or the Offering Prospectus or any other
filing of the Company and the Savings 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 the FDIC, or any state authority, of any stop order
suspending the effectiveness of the Registration Statement or of the initiation
or threat of initiation or threat of any proceedings for that purpose; or (vii)
of the occurrence of any event mentioned in paragraph (g) below. The Company
and the Savings Bank will make every reasonable effort to prevent the issuance
by the Commission, the OTS or the FDIC, or any state authority of any such order
and, if any such order shall at any time be issued, to obtain the lifting
thereof at the earliest possible time.
(d) The Company and the Savings Bank will deliver to Capital Resources
and to its counsel two conformed copies of each of the following documents, with
all exhibits: the Conversion Application and the Holding Company Application, as
originally filed and of each amendment or supplement thereto, and the
Registration Statement, as originally filed and each amendment thereto. Further,
the Company and the Savings Bank will deliver such additional copies of the
foregoing documents to counsel for Capital Resources as may be
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required for any NASD and blue sky filings. In addition, the Company and the
Savings Bank will also deliver to Capital Resources such number of copies of the
Offering Prospectus, as amended or supplemented, as Capital Resources may
reasonably request.
(e) The Company will furnish to Capital Resources, from time to time
during the period when the Offering 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
Offering Prospectus (as amended or supplemented) as Capital Resources may
reasonably request for the purposes contemplated by the 1933 Act or the 1934 Act
or the respective applicable rules and regulations of the Commission thereunder.
The Company authorizes Capital Resources to use the Offering Prospectus (as
amended or supplemented, if amended or supplemented) for any lawful manner in
connection with the sale of the Shares by Capital Resources.
(f) The Company and the Savings Bank will comply in all material
respects with any and all terms, conditions, requirements and provisions with
respect to the Conversion and the transactions contemplated thereby imposed by
the Commission, by applicable state law and regulations, and by the 1933 Act,
the 1934 Act and the rules and regulations of the Commission promulgated under
such statutes, to be complied with prior to or subsequent to the Closing Date
and when the Offering Prospectus is required to be delivered, the Company and
the Savings Bank will comply in all material respects, at their own expense,
with all requirements imposed upon them by the OTS, the Conversion Regulations,
the FDIC, the Commission, by applicable state law and regulations and by the
1933 Act, the 1934 Act and the rules and regulations of the Commission
promulgated under such statutes, including, without limitation, Regulation M
under the 1934 Act, in each case as from time to 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
Offering Prospectus.
(g) If, at any time during the period when the Offering Prospectus
relating to the Shares is required to be delivered, any event relating to or
affecting the Company or the Savings Bank shall occur, as a result of which it
is necessary or appropriate, in the reasonable opinion of counsel for the
Company and the Savings Bank or in the reasonable opinion of Capital Resources'
counsel, to amend or supplement the Registration Statement or Offering
Prospectus in order to make the Registration Statement or Offering Prospectus
not misleading in light of the circumstances existing at the time it is
delivered to a purchaser, the Company and the Savings Bank will, at their
expense, forthwith prepare, file with the Commission and the OTS and furnish to
Capital Resources a reasonable number of copies of any amendment or amendments
of, or a supplement or supplements to, the Registration Statement or Offering
Prospectus (in form and substance reasonably satisfactory to Capital Resources
and its counsel after a reasonable time for review) which will amend or
supplement the Registration Statement or Offering 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 Offering Prospectus
reasonably is delivered to a purchaser, not misleading. For the purpose of this
Agreement, the Company and the Savings Bank each will timely furnish to Capital
Resources such information with respect to itself as Capital Resources may from
time to time request.
(h) The Company and the Savings Bank will take all necessary actions,
in cooperation with Capital Resources, and furnish to the appropriate agency,
entity, or person, such information as may be required to qualify or register
the Shares for offering and sale by the Company 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 Capital Resources and the Savings
Bank may jointly agree; 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.
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(i) The liquidation account for the benefit of account holders with
account balances of $50 or more as of the applicable record dates will be duly
established and maintained in accordance with the requirements of the OTS.
(j) The Company and the Savings Bank will not sell or issue, contract
to sell or otherwise dispose of, for a period of 180 days after the date hereof,
without Capital Resources' prior written consent, any shares of Common Stock
other than in connection with any plan or arrangement described in the Offering
Prospectus.
(k) The Company shall register its Common Stock under Section 12(g) of
the 1934 Act concurrent with the stock offering pursuant to the Plan and shall
request that such registration be effective upon completion of the Conversion.
The Company shall maintain the effectiveness of such registration for not less
than three years or such shorter period as permitted 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 (including a
balance sheet and statements of income, stockholders' equity and changes in
financial position or cash flow statement of the Company as at the end of and
for such year, certified by independent public accountants and prepared in
accordance with Regulation S-X under the 1934 Act).
(m) During the period of three years from the date hereof, the Company
will furnish to Capital Resources: (i) a copy of each public 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 Form 10-
KSB, 10-QSB, and 8-K and all proxy statements and annual reports to
stockholders), a copy of each public report of the Company mailed to its
stockholders or filed with the Commission or 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 public documents and information with respect
to the Company or the Savings Bank as Capital Resources may reasonably request,
and (ii) from time to time, such other publicly available information concerning
the Company and the Savings Bank as Capital Resources may reasonably request.
(n) The Company and the Savings Bank will use the net proceeds from
the sale of the Shares in the manner set forth in the Offering Prospectus under
the caption "Use of Proceeds."
(o) Other than as permitted by the Conversion Regulations, the 1933
Act, the 1933 Act Regulations and the laws of any state in which the Shares are
qualified for sale, neither the Company nor the Savings Bank will distribute any
prospectus, offering circular or other offering material in connection with the
offer and sale of the Shares.
(p) The Company will make generally available to its security holders
as soon as practicable, but not later than 90 days after the close of the period
an earnings statement (in form complying with the provisions of Rule 158 under
the 1933 Act) covering a twelve-month period beginning not later than the first
day of the Company's fiscal quarter next following the effective date (as
defined in said Rule 158) of the Registration Statement.
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(q) The Company will maintain quotation of the shares on the NASDAQ
Stock Market effective on the Closing Date.
(r) The Savings Bank will maintain appropriate arrangements for
depositing all funds received from persons mailing subscriptions for or orders
to purchase Shares in the Offering on an interest-bearing basis at the rate
described in the Offering Prospectus until the Closing Date and satisfaction of
all conditions precedent to the release of the Savings Bank's obligation to
refund payments received from persons subscribing for or ordering Shares in the
Offering in accordance with the Plan as described in the Offering 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 Offering Prospectus. The Savings 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 Savings 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 Offering
Prospectus.
(s) The Company will register as a savings and loan holding company
under the HOLA within the period required by applicable law.
(t) The Company and the Savings Bank will take such actions and
furnish such information as are reasonably requested by Capital Resources in
order for Capital Resources to ensure compliance with the "Interpretation of the
Board of Governors of the NASD on Free Riding and Withholding."
(u) The Savings Bank will not amend the Plan of Conversion without
Capital Resources' prior written consent in any manner that, in the reasonable
opinion of Capital Resources, would materially and adversely affect the sale of
the Shares or the terms of this Agreement except as to comply with any
regulatory requirement.
(v) The Company shall advise Capital Resources, if necessary, as to
the allocation of the Shares in the event of an oversubscription and shall
provide Capital Resources with any information necessary to assist Capital
Resources in allocating the Shares in such event and such information shall be
accurate and reliable.
(w) The Company and the Savings Bank shall promptly advise Capital
Resources in writing of all relationships or facts which would render persons
subscribing or purchasing Shares in the Conversion Associates or Acting in
Concert within the meaning of the Conversion Regulations, and shall further
advise Capital Resources of all appropriate limitations on the purchase of
shares by such persons imposed by the Conversion Regulations and such
information furnished shall be accurate and reliable in all material respects.
SECTION 7. Payment of Expenses. Whether or not this Agreement
becomes effective, the Conversion is completed or the sale of the Shares by the
Company is consummated, the Company and Savings Bank jointly and severally agree
to pay directly for or to reimburse Capital Resources for (to the extent that
such expenses have been reasonably incurred by Capital Resources) (a) all filing
fees and expenses incurred in connection with the qualification or registration
of the Shares for offer and sale by the Company under the securities or blue sky
laws of any jurisdictions Capital Resources and the Company may agree upon
pursuant to subsection (i) of Section 6 above, including counsel fees paid or
incurred by the Company, the Savings Bank or Capital Resources in connection
with such qualification or registration or exemption from qualification or
registration; (b) all filing fees in connection with all filings with the NASD;
(c) any stock issue or transfer taxes which may be payable with respect to the
sale of the Shares to purchasers in the Conversion; (d) reasonable and necessary
expenses of the Conversion, including but not limited to, attorneys' fees,
transfer agent, registrar and
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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 (e) out-of-pocket expenses incurred by Capital Resources in connection with
the Conversion or any of the transactions contemplated hereby, including,
without limitation, the fees of its attorneys, and reasonable communication and
travel expenses, as limited by Section 2 hereof.
SECTION 8. Conditions to Capital Resources' Obligations. Capital
Resources' obligations hereunder, as to the Shares to be delivered at the
Closing Date, are subject to the condition that all representations and
warranties and other statements of the Company and the Savings Bank herein are,
at and as of the commencement of the Offering and at and as of the Closing Date,
true and correct in all material respects, the condition that the Company and
the Savings Bank shall have performed in all material respects 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 and the Savings Bank will have
completed the conditions precedent to, and 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 and the Conversion Application approved by the OTS not later than
5:30 p.m. (eastern time) on the date of this Agreement, or with Capital
Resources' 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 Offering Prospectus or the consummation of the
Conversion shall have been issued or proceedings therefore initiated or, to the
Company's or Savings Bank's knowledge, threatened by the Commission, the OTS,
the FDIC or any state authority.
(c) At the Closing Date, Capital Resources shall have received:
(1) The favorable opinion, dated as of the Closing Date addressed
to Capital Resources and for its benefit, of Muldoon, Murphy & Faucette LLP,
counsel for the Company and the Savings Bank dated the Closing Date, addressed
to Capital Resources and in form and substance to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Indiana.
(ii) The Company 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 Offering Prospectus.
(iii) The Savings Bank is a validly existing federally chartered
savings association in mutual form of organization and upon the consummation of
the Conversion will become a duly organized and validly existing federally
chartered savings association in capital stock form of organization, in both
instances duly authorized to conduct its business and own its property as
described in the Registration Statement. The activities of the Savings Bank as
described in the Offering Prospectus, insofar as they are material to the
operations and financial condition of the Savings Bank, are permitted by the
rules and regulations of the OTS or the FDIC and any other federal or state
authorities.
(iv) The Savings Bank is a member of the FLHBIN, and the deposit
accounts of the Savings Bank are insured by the FDIC up to the maximum amount
allowed under law and to the best of such counsel's knowledge no proceedings for
the termination or revocation of such insurance are pending or threatened; and
the
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description of the liquidation account as set forth in the Registration
Statement and the Offering Prospectus under the caption "The Conversion -Effects
of Conversion to Stock Form on Depositors and Borrowers of the Bank -Liquidation
Account" 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 Registration Statement and the Offering Prospectus under the caption
"Capitalization," and, to the best of such counsel's knowledge, 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, will be duly and validly issued and fully paid and non-
assessable; and the issuance of the Shares is not subject to statutory
preemptive rights.
(vi) The issuance and sale of the common stock of the Savings Bank
to the Company have been duly and validly authorized by all necessary corporate
action on the part of the Company and the Savings Bank and, upon payment
therefor in accordance with the terms of the Plan, the common stock of the
Savings Bank will be duly and validly issued, fully paid and non-assessable and
will be owned of record by the Company, free and clear of any mortgage, pledge,
lien, encumbrance or claim (legal or equitable).
(vii) 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 and the Savings
Bank; and this Agreement is a valid and binding obligation of the Company and
the Savings Bank, enforceable in accordance with its terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of savings associations
or savings and loan holding companies, the accounts of whose subsidiaries are
insured by the FDIC or by general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law, and except to
the extent, if any, that the provisions of Sections 9 and 10 hereof may be
unenforceable as against public policy).
(viii) The Plan has been duly adopted by the required vote of the
Directors of the Company and the Savings Bank and, to the best of such counsel's
knowledge based on a certificate of the inspector of elections, by the members
of the Savings Bank.
(ix) Subject to the satisfaction of the conditions to the OTS's
approval of the Conversion and the Company's application to acquire the Savings
Bank, no further approval, registration, authorization, consent or other order
of any regulatory agency, public board or body 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 regulations
of the NASD. The Conversion has been consummated in all material respects in
accordance with the Plan, all applicable provisions of the HOLA, the Conversion
Regulations, Federal and State law and all applicable rules and regulations
promulgated thereunder, and during the course of such counsel's representation
of the Company and the Savings Bank, nothing has come to such counsel's
attention that caused it to believe that the Company and the Savings Bank have
not conducted the Conversion, in all material respects with Plan, all
applicable provisions of the HOLA, the Conversion Regulations, Federal and State
law and all applicable rules and regulations promulgated thereunder.
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(x) The Conversion Application has been approved by the OTS. The
OTS has issued its order of approval under the savings and loan holding company
provisions of the HOLA, and the purchase by the Company of all of the issued and
outstanding capital stock of the Savings Bank has been authorized by the OTS and
no action has been taken, or to counsel's knowledge is pending or threatened, to
revoke any such authorization or approval, by way of judicial review of the
final action of the OTS approving the Conversion Application or in approving the
Holding Company Application or otherwise.
(xi) The Registration Statement is effective under the 1933 Act
and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness has been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission.
(xii) At the time the Conversion Application, including the Offering
Prospectus contained therein, was approved, the Conversion Application including
the Offering Prospectus contained therein (as amended or supplemented, if so
amended or supplemented) complied as to form in all material respects with the
requirements of all applicable federal laws and the rules, regulations,
decisions and orders of the OTS (except as to the financial statements, other
financial data and stock valuation and pro forma information included therein as
to which such counsel need express no opinion); to the best of such counsel's
knowledge, based on conferences with management of and the independent
accountants for the Company and the Savings Bank, and on such investigation of
the corporate records of the Company and the Savings Bank as such counsel
conducted in connection with the preparation of the Registration Statement and
the Conversion Application, all material documents and exhibits required to be
filed with the Conversion Application (as amended or supplemented, if so amended
or supplemented) have been so filed. The description in the Conversion
Application and the Offering Prospectus contained therein of such documents and
exhibits is accurate in all material respects and fairly presents the
information required to be shown.
(xiii) 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 and other financial and
statistical data and stock valuation information 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
Offering Prospectus (other than the financial statements and other financial and
statistical data and the stock valuation and pro forma information 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. To the best of such counsel's knowledge based on the conferences
and document review specified in item (xii) above, all material documents and
exhibits required to be filed with the Registration Statement (as amended or
supplemented, if so amended or supplemented) have been so filed. The description
in the Registration Statement and the Offering Prospectus of such documents and
exhibits is accurate in all material respects and fairly presents the
information required to be shown and during the course of such counsel's
representation of the Company and the Savings Bank, nothing has come to such
counsel's attention that caused it to believe that the Registration Statement
and the Offering Prospectus (other than the financial statements and other
financial and statistical data and the stock valuation information included
therein as to which no opinion need be rendered) do not comply in all material
respects with applicable law.
(xiv) The terms and provisions of the Common Stock of the Company
conform to the description thereof contained in the Registration Statement and
the Offering Prospectus, and the form of certificates used to evidence the
Shares complies with applicable requirements of Indiana law.
(xv) To the best of such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened which are required to be
disclosed in the Registration Statement and the Offering Prospectus, other than
those disclosed therein; provided that for this purpose, any litigation or
governmental
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proceeding is not considered to be "threatened" unless the potential litigant or
governmental authority has manifested to the management of the Company or the
Savings Bank, or to such counsel, a present intention to initiate such
litigation or proceeding.
(xvi) To such counsel's knowledge, the Company and the Savings Bank
are not in violation of any directive from the OTS or the FDIC to make any
material change in the method of conducting their business.
(xvii) The information in the Registration Statement and Offering
Prospectus under the captions "Regulation," "Restrictions on Acquisition of The
Holding Company," "Taxation," "The Conversion," "Description of Capital Stock
of the Holding Company", to the extent that it 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 (except as
to the financial statements and other financial data included therein as to
which such counsel need express no opinion).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the United
States, to the extent such counsel deems proper and specified in such opinion
satisfactory to Capital Resources, upon the opinion of other counsel of good
standing (providing that such counsel states that Capital Resources is justified
in relying upon such specified opinion or opinions), and (B) as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and the Savings Bank and public officials (but not on
conclusions of law which may be set forth in said certificates); provided copies
of any such opinion(s) or certificates are delivered pursuant hereto to Capital
Resources together with the opinion to be rendered hereunder by special counsel
to the Company and the Savings Bank. Such counsel may assume that any agreement
is the valid and binding obligation of any parties to such agreement other than
the Company or the Savings Bank.
(2) The favorable opinion, dated as of the Closing Date addressed to
Capital Resources and for its benefit, of Johnson, Carroll & Griffith, Indiana
counsel for the Company and the Savings Bank dated the Closing Date, addressed
to Capital Resources and in form and substance to the effect that:
(i) The Savings Bank is duly organized as a federally-chartered
savings association in mutual form of organization.
(ii) To such counsel's knowledge, the Company and the Savings Bank
have obtained all licenses, permits and other governmental authorizations
required for the conduct of their respective businesses, except where the
failure to have such licenses, permits or authorizations would not have a
material adverse effect on the business, financial condition operations or
income or business prospects of the Company and the Savings Bank, and all such
licenses, permits and other governmental authorizations are in full force and
effect, and the Company and the Savings Bank are in all material respects
complying therewith.
(iii) To such counsel's knowledge, neither the Company nor the
Savings Bank is in contravention of its articles of incorporation or its
charter, respectively, or its bylaws (and the Savings Bank will not be in
contravention of its charter or bylaws in stock form upon consummation of the
Conversion) or, to such counsel's knowledge, in default or violation of any
obligation, agreement, covenant or condition contained in any material 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 which default or
violation would be material to the business of the Company and the Savings Bank
considered as one enterprise; to such counsel's knowledge, any such default or
violation will not constitute a material breach of, or default under, or result
in the creation or imposition of any material lien, charge or encumbrance upon
any property or assets of the Company or the Savings Bank which are
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material to their business considered as one enterprise, pursuant to any
contract, indenture, mortgage, loan agreement, note, lease or other instrument
to which the Company or the Savings 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 or the
Savings Bank is subject. In addition, such action will not result in any default
or violation of the provisions of the articles of incorporation or bylaws of the
Company or the Savings Bank or to such counsel's knowledge, any applicable law,
act, regulation or order or court order, writ, injunction or decree.
(iv) To such counsel's knowledge, the Company and the Savings Bank
have good and marketable title to all properties and assets described in the
Registration Statement as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the Registration
Statement or are not material in relation to the business of the Company and the
Savings Bank considered as one enterprise; and to the best of such counsel's
knowledge, all of the leases and subleases material to the business of the
Company and the Savings Bank under which the Company and the Savings Bank hold
properties, as described in the Registration Statement, are in full force and
effect.
(v) To such counsel's knowledge, all pending legal and governmental
proceedings to which the Company or the Savings Bank is a party or of which any
of their property is the subject which are not described in the Registration
Statement and the Offering Prospectus, including ordinary routine litigation
incidental to the business, are, considered in the aggregate, not material.
(vi) To such counsel's knowledge, the Company and the Savings Bank
have conducted and are conducting their business 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).
(3) The letter of Muldoon, Murphy & Faucette LLP, counsel for the
Company and the Savings Bank addressed to Capital Resources, dated the Closing
Date, in form and substance to the effect that:
During the preparation of the Conversion Application, the Registration
Statement and the Offering Prospectus, such counsel participated in conferences
with management of, and the independent public accountants for the Company and
the Savings Bank. Based upon such conferences and a review of corporate records
of the Company and the Savings Bank as such counsel conducted in connection with
the preparation of the Registration Statement and Conversion Application,
nothing has come to their attention that would lead them to believe that the
Conversion Application, the Registration Statement, the Offering Prospectus, or
any amendment or supplement thereto (other than the financial statements and
other financial and statistical data and stock valuation information included
therein, as to which such counsel need express no view), 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.
(4) The favorable opinion, dated as of the Closing Date, of Steele,
Silcox, & Browning, P.C., counsel to Capital Resources, with respect to such
matters as Capital Resources may reasonably require. Such opinion may rely upon
the opinions of counsel to the Company and the Savings Bank, and as to matters
of fact, upon certificates of officers and directors of the Company and the
Savings Bank delivered pursuant hereto or as such counsel shall reasonably
request.
(d) At the Closing Date, counsel to Capital Resources shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to render the opinion as herein contemplated, or in
order to evidence the occurrence or completeness of any of the representations
or warranties, or the fulfillment of any of the conditions, herein contained.
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<PAGE>
(e) At the Closing Date, Capital Resources shall receive a certificate
of the Chief Executive Officer and the Chief Financial Officer of the Company
and of the Chief Executive Officer and Chief Financial Officer of the Savings
Bank, dated as of such Closing Date, to the effect that: (i) they have
carefully examined the Offering Prospectus and, in their opinion, at the time
the Offering Prospectus became authorized for final use, the Offering Prospectus
did 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 under which they were made, not misleading; (ii) since the date
the Offering Prospectus became authorized for final use, in their opinion no
event has occurred which should have been set forth in an amendment or
supplement to the Offering Prospectus which has not been so set forth, including
specifically, but without limitation, any material adverse change in the
condition, financial or otherwise, or in the earnings, capital, or properties,
of the Company or the Savings Bank, and the conditions set forth in this Section
8 have been satisfied; (iii) since the respective dates as of which information
is given in the Registration Statement and the Offering Prospectus, there has
been no material adverse change in the condition, financial or otherwise, or in
the earnings, capital, or properties, of the Company or the Savings Bank,
independently, or of the Company and the Savings Bank considered as one
enterprise, whether or not arising in the ordinary course of business; (iv) to
the best knowledge of such officers the representations and warranties in
Section 4 are true and correct with the same force and effect as though
expressly made at and as of the Closing Date; (v) to the best knowledge of such
officers, the Company and the Savings Bank have complied with all material
agreements and satisfied, in all material respects at or prior to the Closing
Date, all obligations required to be met by such date and will in all material
respects comply 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 or Savings Bank,
threatened by the Commission or any state authority; (vii) no order suspending
the Offering, the Conversion, the acquisition of all of the shares of the
Savings Bank by the Company or the effectiveness of the Offering Prospectus has
been issued and to the best knowledge of the Company or Savings Bank, no
proceedings for that purpose have been initiated or threatened by the OTS, the
Commission, the FDIC, or any state authority; and (viii) to the best of their
knowledge, no person has sought to obtain review of the final action of the OTS
approving the Plan.
(f) Prior to and at the Closing Date: (i) in the reasonable opinion of
Capital Resources, there shall have been no material adverse change in the
condition, financial or otherwise, or in the earnings, or the business affairs
or business prospects of the Company or the Savings Bank independently, or of
the Company or the Savings Bank, considered as one enterprise, since the latest
dates as of which such condition is set forth in the Offering Prospectus, except
as referred to therein; (ii) there shall have been no material transaction
entered into by the Company or the Savings Bank from the latest date as of which
the financial condition of the Company or the Savings Bank is set forth in the
Offering Prospectus other than transactions referred to or contemplated therein;
(iii) the Company or the Savings 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 Capital Resources) and which
would reasonably be expected to have a material and adverse effect on the
business, operations or financial condition or income of the Company or the
Savings Bank taken as a whole; (iv) neither the Company nor the Savings Bank
shall have been in default (nor shall an event have occurred which, with notice
or lapse of time or both, would constitute a default) under any provision of and
agreement or instrument relating to any material 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 or the Savings Bank, threatened against the
Company or the Savings Bank or affecting any of their properties wherein an
unfavorable decision, ruling or finding would reasonably be expected to have a
material and adverse effect on the business, operations, financial condition or
income of the Company or the Savings Bank, taken as a whole; and (vi) the Shares
have been qualified or registered for offering and sale under the securities or
blue sky laws of the jurisdictions as Capital Resources shall have requested and
as agreed to by the Company.
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<PAGE>
(g) Concurrently with the execution of this Agreement, Capital
Resources shall receive a letter from Olive, dated the date hereof and addressed
to Capital Resources: (i) confirming that Olive is a firm of independent public
accountants within the meaning of the 1933 Act and the 1933 Act Regulations and
12 C.F.R. (S) 571.2(c)(3) and no information concerning its relationship with or
interests in the Company and the Savings Bank is required to be disclosed in the
Offering Prospectus by the Conversion Regulations or Item 10 of the Registration
Statement, and stating in effect that in Olive's opinion the financial
statements of the Savings Bank as are included in the Offering Prospectus comply
as to form in all material respects with the applicable accounting requirements
of the 1933 Act, the 1934 Act and the related published rules and regulations of
the Commission thereunder and the Conversion Regulations and generally accepted
accounting principles; (ii) stating in effect that, on the basis of certain
agreed upon procedures (but not an audit examination in accordance with
generally accepted auditing standards) consisting of a reading of the latest
available unaudited interim financial statements of the Savings Bank prepared by
the Savings Bank, a reading of the minutes of the meetings of the Board of
Directors and members of the Savings Bank and consultations with officers of the
Savings Bank responsible for financial and accounting matters, nothing came to
their attention which caused them to believe that: (A) during the period from
the date of the latest unaudited summary financial and other data as of and for
the three month period ended December 31, 1998, as set forth under the heading
"Recent Developments" in the Prospectus, there has been (1) any increase in the
long term debt of the Savings Bank or (2) any increase in non-performing assets
(consisting of accruing loans past due 90 days or more, non-accruing loans and
foreclosed assets) or (3) any decrease in the allowance for loan losses or (4)
any decrease in total equity or (5) a decrease in net income when compared to
the like period in the preceding year or (6) any change in total assets of the
Savings Bank in an amount from _____________________________ to
_________________________ greater than $___________________________ (excluding
the proceeds of stock subscriptions); and (iii) stating that, in addition to the
audit examination referred to in its opinion included in the Offering Prospectus
and the performance of the procedures referred to in clause (ii) of this
subsection (g), they have compared with the general accounting records of the
Company and/or the Savings Bank, as applicable, which are subject to the
internal controls of the Company and/or the Savings Bank, as applicable,
accounting system and other data prepared by the Company and/or the Savings
Bank, as applicable, directly from such accounting records, to the extent
specified in such letter, such amounts and/or percentages set forth in the
Offering Prospectus as Capital Resources may reasonably request; and they have
found such amounts and percentages to be in agreement therewith (subject to
rounding).
(h) At the Closing Date, Capital Resources shall receive a letter from
Olive, dated the Closing Date, addressed to Capital Resources, confirming the
statements made by its letter delivered by it pursuant to subsection (g) of this
Section 8, except that the "specified date" referred to in clause (ii)(B)
thereof to be a date specified in such letter, which shall not be more than
three business days prior to the Closing Date.
(i) The Company and the Savings Bank shall not have sustained since
the date of the latest audited financial statements included in the Registration
Statement and Offering Prospectus any loss or interference with its business
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 Offering Prospectus, and since the respective dates as of which
information is given in the Registration Statement and Offering Prospectus,
there shall not have been any material change in the long term debt of the
Company or the Savings Bank other than debt incurred in relation to the purchase
of Shares by the Company's Tax-Qualified Employee Plans, or any change, or any
development involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company or the Savings Bank, otherwise than as set forth or contemplated in
the Registration Statement and Offering Prospectus, the effect of which, in any
such case described above, is in Capital Resources' reasonable judgment
sufficiently material and adverse as to make it impracticable or inadvisable to
proceed with the Subscription or Public Offerings or the delivery of the Shares
on the terms and in the manner contemplated in the Offering Prospectus.
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(j) At or prior to the Closing Date, Capital Resources shall receive
(i) a copy of the letter from the OTS authorizing the use of the Offering
Prospectus, (ii) a copy of the order from the Commission declaring the
Registration Statement effective, (iii) a copy of a certificate from the OTS
evidencing the valid existence of the Savings Bank, (iv) certificates of good
standing from the State of Indiana evidencing the good standing of the Company
and evidencing that the Company is duly qualified to do business in Indiana and
(v) a copy of the letter from the OTS approving the Company's Holding Company
Application.
(k) As soon as available after the Closing Date, Capital Resources
shall receive a certified copy of the Savings Bank's stock charter.
(1) 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 American 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 being fixed, or maximum ranges
for prices for securities being 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
banks or general moratorium on the withdrawal of deposits from commercial
associations or federal savings associations declared by either 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, as to clauses (iii) or (iv), the effect of such hostilities or
decline, in Capital Resources' reasonable judgment, makes it impracticable or
inadvisable to proceed with the Offering or the delivery of the Shares on the
terms and in the manner contemplated in the Registration Statement and the
Offering Prospectus.
All such opinions, certifications, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of Capital Resources and its counsel, satisfactory to Capital Resources
and its counsel. Any certificates signed by an officer or director of the
Company or the Savings Bank and delivered to Capital Resources or its counsel
shall be deemed a representation and warranty by the Company or the Savings Bank
to Capital Resources as to the statements made therein.
If any of the conditions specified in this Section shall not have been
fulfilled when and as required by this Agreement, this Agreement and all of
Capital Resources' obligations hereunder may be canceled by Capital Resources by
notifying the Savings 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, 7, 9 and 10 hereof. Notwithstanding the above, if this Agreement is
canceled pursuant to this paragraph, Capital Resources will be entitled to
retain any compensation already received for consulting services prior to the
closing (including reimbursed expenses as provided herein), and the Company and
the Savings Bank jointly and severally agree to reimburse Capital Resources for
all out-of-pocket expenses, (including without limitation the fees and expenses
of Capital Resources' counsel) reasonably incurred by Capital Resources and
Capital Resources' counsel at its normal rates, in connection with the
preparation of the Registration Statement and the Offering Prospectus, and in
contemplation of the proposed Subscription or Public Offerings to the extent
provided for, and subject to the limitations contained in Sections 2 and 7
hereof.
SECTION 9. Indemnification.
(a) The Company and the Savings Bank jointly and severally agree to
indemnify and hold harmless Capital Resources, its officers, directors, agents
and employees and each person, if any, who controls or is under common control
with Capital Resources 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
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limited to settlement expenses), joint or several, that Capital Resources or any
of them may suffer or to which Capital Resources and any such persons upon
written demand for any expenses (including fees and disbursements of counsel)
incurred by Capital Resources 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, expense, 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), Offering Prospectus (or any amendment or
supplement thereto), the Conversion Application (including any document required
to be furnished therewith), or any Blue Sky application or other instrument or
document of the Company or the Savings Bank or based upon written information
supplied by the Company or the Savings Bank filed in any state or jurisdiction
to register or qualify any or all of the Shares or the subscription rights
applicable thereto 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 with its consent or based upon written or oral
information furnished by or on behalf of the Company or the Savings Bank,
whether or not filed in any jurisdiction in order to qualify or register the
Shares under the securities laws thereof; (ii) arise out of or are 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), Offering Prospectus (or any amendment or
supplement thereto), the Conversion Application (including any document required
to be furnished therewith), 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 statements or alleged untrue material statements
in, or material omission or alleged material omission from, the Registration
Statement (or any amendment or supplement thereto), the Conversion Application
(including any document required to be furnished therewith), any Blue Sky
Application, the Offering Prospectus (or any amendment or supplement thereto),
or Sales Information made in reliance upon and in conformity with written
information furnished to the Company or the Savings Bank by Capital Resources
regarding Capital Resources expressly for use under the captions "The
Conversion--Plan of Distribution for the Subscription, Direct Community, and
Syndicated Community Offerings", and "--Stock Pricing and Number of Shares
Issued" in the Offering Prospectus nor is indemnification required for material
oral misstatements made by Capital Resources, which are not based upon
information provided by the Savings Bank or the Company orally or in writing or
based on information contained in the Registration Statement (or any amendment
or supplement thereto), Offering Prospectus (or any amendment or supplement
thereto), the Conversion Application (including any document required to be
furnished therewith), any Blue Sky Application or Sales Information distributed
in connection with the Conversion. In addition, the Savings Bank and the Company
will not be liable under the foregoing provisions to the extent that the loss,
claim, damage, liability, expense, or actions is expressly found in a final
judgment by a court of competent jurisdiction to have resulted from Capital
Resources' bad faith, willful misconduct, or gross negligence.
(b) Capital Resources agrees to indemnify and hold harmless the
Company and the Savings Bank, their directors and officers, agents, servants and
employees and each person, if any, who controls the Company or the Savings 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,
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 Savings Bank and any such persons upon written demand
for any expenses (including 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, expense, or actions arise out of or
are based upon any untrue statement or alleged untrue statement of a material
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fact contained in the Registration Statement (or any amendment of supplement
thereto), or the Offering Prospectus (or any amendment or supplement thereto),
or the Conversion Application or any Blue Sky Application or Sales Information
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 Capital Resources
obligations under this Section 9(b) shall exist only if and only to the extent
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 Offering Prospectus (or
any amendment or supplement thereto), or the Conversion Application, any Blue
Sky Application or Sales Information in reliance upon and in conformity with
written information furnished to the Company or the Savings Bank by Capital
Resources regarding Capital Resources expressly for use under the captions "The
Conversion - Plan of Distribution for the Subscription, Direct Community, and
Syndicated Community Offerings " and "--Stock Pricing and Number of Shares
Issued" in the Offering Prospectus or in the event of oral misstatements made by
Capital Resources, which are not based upon information provided by the Savings
Bank or the Company orally or in writing or based on information contained in
the Registration Statement (or any amendment or supplement thereto), Offering
Prospectus (or any amendment or supplement thereto), the Conversion Application,
any Blue Sky Application or Sales Information distributed in connection with the
Conversion. In addition, Capital Resources will not be liable under the
foregoing provisions to the extent that the loss, claim, damage, liability,
expense, or actions is expressly found in a final judgment by a court of
competent jurisdiction to have resulted from the Savings Bank's or the Company's
bad faith or gross negligence.
(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 9 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 all indemnified parties in connection with any one action,
proceeding or claim or separate but similar or related actions, proceedings or
claims in the same jurisdiction arising out of the same general allegations or
circumstances.
(d) The agreements contained in this Section 9 and in Section 10
hereof and the representations and warranties of the Company and the Savings
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 Capital
Resources or its officers, directors or controlling persons, agents or employees
or by or on behalf of the Company or the Savings Bank or any officers, directors
or controlling persons, agents or employees of the Company or the Savings Bank
or any controlling person, director or officer of the Company or the Savings
Bank; (ii) delivery of and payment hereunder for the Shares; or (iii) any
termination of this Agreement.
(e) No indemnification by the Savings Bank under Section 9(a) hereof
nor contribution under Section 10 hereof shall be effective if the same shall be
deemed to be in violation of any law, rule or regulation applicable to the
Savings Bank including, without limitation, Section 23A of the Federal Reserve
Act.
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If the indemnification or contribution by the Savings Bank is not effective
pursuant to the preceding sentence, then the indemnification by Capital
Resources pursuant to Section 9(b) shall be given only to the Company, its
directors and officers, agents, servants and employees and not to the Savings
Bank, its directors and officers, agents, servants and employees and the Savings
Bank shall not be entitled to any contribution from Capital Resources pursuant
to Section 10.
SECTION 10. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 9 is due in accordance with its terms but is for any reason unavailable
as a result of Section 9(e) or held by a court to be unavailable from the
Company, the Savings Bank or Capital Resources, the Company, the Savings Bank
and Capital Resources 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 or the Savings Bank or Capital Resources from persons other than
the other party thereto, who may also be liable for contribution) in such
proportion so that Capital Resources is responsible for that portion represented
by the fees paid to Capital Resources 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 Offering and the Company and the Savings 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 9 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 Savings Bank on the one hand and Capital Resources 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
thereof), but also the relative benefits received by the Company and Savings
Bank on the one hand and Capital Resources on the other from the offering as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Savings Bank on the one hand and Capital
Resources on the other shall be deemed to be in the same proportion as the total
gross proceeds from the Offering (before deducting expenses) received by the
Company bear to the total fees (not including expenses) received by Capital
Resources. 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 Savings Bank on the one hand or Capital
Resources 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 Savings Bank and Capital Resources agree that it
would not be just and equitable if contribution pursuant to this Section 10 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this
Section 10. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or action, proceedings or claims in
respect thereof) referred to above in this Section 10 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action, proceeding or claim.
It is expressly agreed that Capital Resources 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 Capital Resources under this Agreement. It is understood that the above-
stated limitation on Capital Resources' liability is essential to Capital
Resources and that Capital Resources relied upon such limitation and 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 Savings
Bank under this Section 10 and under Section 9 shall be in addition to any
liability which the Company and the Savings Bank may otherwise have. For
purposes of this Section 10, each of Capital Resources', the Company's or the
Savings Bank's officers and directors and each person, if any, who controls
Capital Resources or the Company or the Savings Bank within the meaning of
-24-
<PAGE>
the 1933 Act and the 1934 Act shall have the same rights to contribution as the
Company and the Savings 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 10, 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 10. This Section 10
is subject to and limited by the provisions of Section 23A of the Federal
Reserve Act, as applicable.
SECTION 11. Survival of Agreements, Representations and Indemnities.
The respective indemnities of the Company, the Savings Bank and Capital
Resources and the representations and warranties and other statements of the
Company and the Savings 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
Capital Resources, the Company, the Savings Bank or any indemnified person
referred to in Section 9 hereof, and shall survive the issuance of the Shares,
and any legal representative, successor or assign of Capital Resources, the
Savings Bank, and any such indemnified person shall be entitled to the benefit
of the respective agreements, indemnities, warranties and representations.
SECTION 12. Termination. Capital Resources may terminate this
Agreement by giving the notice indicated below in this Section at any time after
this Agreement becomes effective as follows:
(a) In the event the Company fails to sell all of the Shares within
the period specified, 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 Savings 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 Offering Prospectus, and
no party to this Agreement shall have any obligation to the other hereunder,
except for payment by the Savings Bank and/or the Company as set forth in
Sections 2, 7, 9 and 10 hereof.
(b) If any of the conditions specified in Section 8 shall not have
been fulfilled when and as required by this Agreement, or by the Closing Date,
or waived in writing by Capital Resources, this Agreement and all of Capital
Resources obligations hereunder may be canceled by Capital Resources by
notifying the Savings 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, 7, 9 and 10 hereof.
(c) If Capital Resources elects to terminate this Agreement as
provided in this section, the Company and the Savings Bank shall be notified as
provided in Section 13 hereof, promptly by Capital Resources by telephone or
telegram, confirmed by letter.
SECTION 13. Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be mailed in writing and if sent to
Capital Resources shall be mailed, delivered or telegraphed and confirmed to
Capital Resources, Inc., 1211 Connecticut Avenue, N.W., Suite 200, Washington,
D.C. 20036 Attention: Catherine K. Rochester (with a copy to Steele Silcox &
Browning, P.C., 1150 Connecticut Ave., NW, Ninth Floor, Washington, D.C. 20036,
Attention: Clark R. Silcox, Esq.) and, if sent to the Company and the Savings
Bank, shall be mailed, delivered or telegraphed and confirmed to the Company and
the Savings Bank at 2200 West Franklin Street, Evansville, Indiana, Attention:
Mr. Harold Duncan (with a copy to Muldoon, Murphy & Faucette LLP, 5101
Wisconsin Avenue, NW, Fifth Floor, Washington, D.C. 20016, Attention: Paul M.
Aguggia, Esq.).
-25-
<PAGE>
SECTION 14. Parties. The Company and the Savings Bank shall be
entitled to act and rely on any request, notice, consent, waiver or agreement
purportedly given on behalf of Capital Resources when the same shall have been
given by the undersigned. Capital Resources shall be entitled to act and rely
on any request, notice, consent, waiver or agreement purportedly given on behalf
or the Company or the Savings Bank, when the same shall have been given by the
undersigned or any other officer of the Company or the Savings Bank. This
Agreement shall inure solely to the benefit of, and shall be binding upon,
Capital Resources and the Company, the Savings Bank and the controlling persons
referred to in Section 9 hereof, 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.
SECTION 15. Closing. The closing for the sale of the Shares shall take
place on the Closing Date at the offices of Muldoon, Murphy & Faucette LLP, 5101
Wisconsin Avenue, NW, Fifth Floor, Washington, D.C. 20016, or such other
location as mutually agreed upon by Capital Resources, the Company and the
Savings Bank. At the closing, the Savings Bank shall deliver to Capital
Resources in next day funds the commissions, fees and expenses due and owing to
Capital Resources as set forth in Sections 2 and 7 hereof and the opinions and
certificates required hereby and other documents deemed reasonably necessary by
Capital Resources shall be executed and delivered to effect the sale of the
Shares as contemplated hereby and pursuant to the terms of the Offering
Prospectus.
SECTION 16. Partial Invalidity. In the event that any term,
provision or covenant herein or the application thereof to any circumstances 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
circumstance 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 17. Construction. This Agreement shall be construed in
accordance with the laws of the District of Columbia.
SECTION 18. 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.
Time shall be of the essence of this Agreement.
If the foregoing correctly sets forth the arrangement among the
Company, the Savings Bank and Capital Resources, please indicate acceptance
thereof in the space provided below for that purpose, whereupon this letter and
Capital Resources' acceptance shall constitute a binding agreement.
Very truly yours,
FIRST BANCORP OF INDIANA, INC.
By: ________________________________
Harold Duncan, President and
Chief Executive Officer
-26-
<PAGE>
FIRST FEDERAL SAVINGS BANK
By: ________________________________
Harold Duncan, President and
Chief Executive Officer
Accepted as of the date first above written.
CAPITAL RESOURCES, INC.
By: _____________________________________
Catherine K. Rochester
President
-27-
<PAGE>
EXHIBIT A
---------
Capital Resources
Broker/Dealer Jurisdictions
California
Colorado
Connecticut
District of Columbia
Florida
Georgia
Iowa
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Minnesota
Missouri
New Jersey
New Mexico
New York
Nevada
North Carolina
Ohio
Oregon
Pennsylvania
South Carolina
Tennessee
Texas
Virginia
West Virginia
Wisconsin
-28-
<PAGE>
EXHIBIT B
(Form of Selected Dealers' Agreement)
1,615,000 - 2,185,000 Shares
(subject to increase up to 2,512,750 shares
in the event of an oversubscription)
FIRST BANCORP OF INDIANA, INC.
(an Indiana corporation)
COMMON STOCK
($0.01 Par Value Per Share)
, 1999
[ ]
[ ]
[ ][ ]. [ ]
Gentlemen:
We have agreed to assist First Bancorp of Indiana, Inc. (the "Company") and
First Federal Savings Bank, a federally chartered mutual savings and loan
association (the "Bank"), in connection with the offer and sale of up to
2,512,750 shares of the Company's common stock, $0.01 par value (the "Shares"),
to be issued in connection with the conversion of the Bank to a federally
chartered stock savings association (the "Conversion"). The total number of
Shares may be decreased to a minimum of 1,615,000 Shares. The Shares, 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____________________________, 1999 (the "Prospectus").
In connection with its Conversion, the Company has offered the Shares in a
Subscription Offering to certain account holders and other members of the Bank
as well as in a Direct Community Offering. The Shares are also be offered in
accordance with the Plan of Conversion by a selling group of broker-dealers.
We are offering the selected dealers (of which you are one) the opportunity
to participate in the solicitation of offers to buy the Shares and we will pay
you a fee in the amount of _________ percent (______%) of the dollar amount of
the Shares sold on behalf of the Company by you, as evidenced by the authorized
designation of your firm on the order form or forms of such Shares accompanying
the funds transmitted for payment therefor to the special account established by
the Company 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 Shares sold on behalf of the Company by you, as evidenced in according
with the preceding sentence. As soon as practicable after the closing date of
the offering, we will remit to you, out of our compensation as provided above,
the fees to which you are entitled hereunder.
Each order form for the purchase of the Shares must set forth the identity
---- --------
and address of each person to whom the certificates for such Shares should be
-------
issued and delivered. Such order form should clearly identify your firm. You
shall instruct any subscriber who elects to send his order form to you to make
any accompanying check payable to "First Bancorp of Indiana, Inc.."
This offer is made subject to the terms and conditions herein set forth and
is made only to selected dealers who are (i) members in good standing of the
National Association of Securities Dealers, Inc.
<PAGE>
("NASD") who are to comply with all applicable rules of the NASD, including
without limitation, the "Free-Riding and Withholding" interpretation (IM-2110-1)
of the Board of Governors of the NASD and Conduct Rule 2740 of the NASD's
Conduct Rules, or (ii) foreign dealers not eligible for membership in the NASD
who agree (A) not to sell any Common Stock within the United States, its
territories or possessions or to persons who are citizens thereof or residents
therein and (B) in making other sales to comply with the above-mentioned NASD
Interpretation and Conduct Rules 2878, 2740, and 2750 as if they were NASD
members, and Conduct Rule 2420 as it applies to non-member brokers or dealers in
a foreign country.
Orders for Shares will be strictly subject to confirmation and we, acting
on behalf of the Company and the Bank, reserve the right in our uncontrolled
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
person is authorized by the Company, 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 the Shares. No selected dealer is authorized to act
as agent for us when soliciting offers to buy the Shares from the public or
otherwise. No selected dealer shall engage in any stabilizing (as defined in
Regulation M promulgated under the Securities Exchange Act of 1934, as amended)
with respect to the Shares during the offering.
We and each selected dealer assisting in selling Shares pursuant hereto
agree to comply with the applicable requirements of the Securities Exchange Act
of 1934, as amended and applicable state rules and regulations. 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
amended, 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.
We and each selected dealer further agree to the extent that our customers
desire to pay for shares with funds held by or to be deposited with us, in
accordance with the interpretation of the Securities Exchange Commission of Rule
15c2-4 promulgated under the Securities Exchange Act of 1934, as amended, either
(a) upon receipt of an executed order form or direction to execute an order on
behalf of a customer, to forward the offering price for the Shares ordered on or
before twelve noon of the 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 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 fifth business day (the "debit
date") following receipt of the confirmation referred to in (i) and (ii) we will
forward completed order forms together with such funds to the Company on or
before twelve noon on the next business day following the debit date for deposit
in a segregated account. We and each selected dealer acknowledge that if the
procedure in (b) is adopted, our customers' funds are not required to be in
their accounts until the debit date. We and each selected dealer agree that no
method of payment, other than as set forth in this paragraph, will be employed
for shares of Shares sold pursuant to this Agreement.
Unless earlier terminated by us, this Agreement shall terminate upon the
closing date of this offering. We may terminate this Agreement or any provisions
hereof at any time by written or telegraphic notice to you. Of course, our
obligation hereunder are subject to the successful completion of the offering.
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
Shares 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 the lack of good faith and for obligations expressly
assumed by us in this Agreement.
<PAGE>
Upon application to us, we will inform you as to the states in which we
believe the Shares have been qualified for sale under, or are exempt from the
requirements of, the respective blue sky law of such states, but we assume no
responsibility or obligation as to your rights to sell Shares 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.
This Agreement shall be construed in accordance with the laws of the
District of Columbia
Please confirm your agreement hereto by signing and returning the
confirmation accompanying this letter at once to us at Capital Resources, Inc.,
1211 Connecticut Ave., NW Suite 200, Washington, D.C. 20036. The enclosed
duplicate copy will evidence the agreement between us.
Sincerely,
CAPITAL RESOURCES, INC.
By:
________________________________
<PAGE>
Exhibit 2.1
FIRST FEDERAL SAVINGS BANK
EVANSVILLE, INDIANA
AMENDED PLAN OF CONVERSION
FROM FEDERAL MUTUAL SAVINGS BANK
TO FEDERAL STOCK SAVINGS BANK
AND FORMATION OF A HOLDING COMPANY
INTRODUCTION
------------
I. General
-------
The Board of Directors of First Federal Savings Bank ("Savings Bank")
desires to attract new capital to the Savings Bank to increase its net worth, to
support future growth, to increase the amount of funds available for other
lending and investment, to provide greater resources for the expansion of
customer services and to facilitate future expansion by the Savings Bank. In
addition, the Board of Directors intends to implement stock option plans and
other stock benefit plans as part of the Conversion in order to attract and
retain qualified directors and officers. It is the further desire of the Board
of Directors to reorganize the Savings Bank as the wholly owned subsidiary of a
holding company to enhance flexibility of operations, diversification of
business opportunities and financial capability for business and regulatory
purposes and to enable the Savings Bank to compete more effectively with other
financial service organizations. Accordingly, on September 16, 1998, the Board
of Directors, after careful study and consideration, adopted by unanimous vote
this Plan of Conversion From Federal Mutual Savings Bank To Federal Stock
Savings Bank And Formation Of A Holding Company ("Plan"), which was subsequently
amended on December 16, 1998, which provides for the conversion of the Savings
Bank from a federally chartered mutual savings bank to a federally chartered
stock savings bank and the concurrent formation of a holding company for the
Savings Bank ("Holding Company").
All capitalized terms contained in the Plan shall have the meanings
ascribed to them in Section II hereof.
Pursuant to this Plan, shares of Conversion Stock will be offered as part
of the Conversion in a Subscription Offering pursuant to nontransferable
Subscription Rights at a predetermined and uniform price first to the Savings
Bank's Eligible Account Holders, second to the Tax-Qualified Employee Stock
Benefit Plans, third to the Savings Bank's Supplemental Eligible Account
Holders, and fourth to Other Members of the Savings Bank. Shares not subscribed
for in the Subscription Offering will be offered as part of the Conversion to
the general public in a Direct Community Offering. Shares still remaining may
then be offered to the general public in a Syndicated Community Offering, an
underwritten public offering, or otherwise. The aggregate Purchase Price of the
Conversion Stock will be based upon an independent appraisal of the Savings Bank
and will reflect the estimated pro forma market value of the Savings Bank as a
subsidiary of the Holding Company.
The Conversion is subject to the regulations of the Director of the OTS
(Part 563b of the Rules and Regulations Applicable to All Savings Banks) as
promulgated pursuant to Section 5(i) of the Home Owners' Loan Act.
Consummation of the Conversion is subject to the approval of this Plan and
the Conversion by the OTS and by the affirmative vote of Members of the Savings
Bank holding not less than a majority of the total votes eligible to be cast at
a special meeting of the Members to be called to consider the Conversion.
No change will be made in the Board of Directors or management of the
Savings Bank as a result of the Conversion.
<PAGE>
II. Definitions
-----------
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: (i) Knowing participation in a joint activity or
-----------------
interdependent 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 for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. A Person (as defined herein) who acts in concert
with another Person ("other party") shall also be deemed to be acting in concert
with any Person who is also acting in concert with that other party, except that
any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in
concert with its trustee or a Person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the Tax-Qualified Employee Benefit Plan will be aggregated.
B. Associate: When used to indicate a relationship with any Person,
---------
means (i) any corporation or organization (other than the Savings Bank or a
majority-owned subsidiary of the Savings Bank, or the Holding Company) of which
such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent 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, except that it does not include a Tax-Qualified Employee Stock Benefit
Plan 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 Savings Bank, any of its subsidiaries, or the Holding Company.
C. Capital Stock: Any and all authorized capital stock in the Converted
-------------
Savings Bank.
D. Common Stock: Any and all authorized common stock in the Holding
------------
Company subsequent to the Conversion.
E. Conversion: (i) Amendment of the Savings Bank's Charter and Bylaws to
----------
authorize issuance of shares of Capital Stock by the Converted Savings Bank and
to conform to the requirements of a Federal stock savings bank under the laws of
the United States and rules and regulations of the OTS; (ii) issuance and sale
of Conversion Stock by the Holding Company in the Subscription Offering and
Direct Community Offering; and (iii) purchase by the Holding Company of all of
the issued and outstanding shares of Capital Stock of the Converted Savings Bank
to be issued in the Conversion immediately following or concurrently with the
close of the sale of all Conversion Stock.
F. Conversion Stock: Holding Company common stock to be issued and sold
----------------
by the Holding Company pursuant to the Plan.
G. Converted Savings Bank: First Federal Savings Bank, in its converted
----------------------
form as a federally chartered stock savings bank.
H. Direct Community Offering: The offering for sale of Conversion Stock
-------------------------
to the public.
I. Eligibility Record Date: June 30, 1997.
-----------------------
J. Eligible Account Holder: Holder of a Qualifying Deposit in the
-----------------------
Savings Bank on the Eligibility Record Date.
K. FDIC: Federal Deposit Insurance Corporation.
----
L. Form AC Application: The application submitted to the OTS on OTS Form
-------------------
AC for approval of the Conversion.
2
<PAGE>
M. H-(e)1 Application: The application submitted to the OTS on OTS Form
------------------
H-(e)1 or, if applicable, Form H-(e)1-S for approval of the Holding Company's
acquisition of all of the Capital Stock of the Converted Savings Bank.
N. Holding Company: A corporation to be formed by the Savings Bank under
---------------
state law for the purpose of becoming a holding company through the issuance and
sale of its stock under the Plan, and concurrent acquisition of 100% of the
Capital Stock of the Converted Savings Bank to be issued pursuant to the Plan.
O. Holding Company Stock: Any and all authorized capital stock of the
---------------------
Holding Company.
P. Local Community: Vanderburgh, Warrick, Posey, Gibson and Spencer
---------------
Counties, Indiana.
Q. Market Maker: A dealer (i.e., any Person who engages directly or
------------
indirectly as agent, broker, or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (ii) is ready, willing and able to effect transactions in reasonable
quantities at his quoted prices with other brokers or dealers.
R. Members: All Persons or entities who qualify as members of the
-------
Savings Bank pursuant to its Charter and Bylaws prior to the Conversion.
S. Officer: An executive officer of the Savings Bank, which includes the
-------
Chairman of the Board, President, Vice President, Secretary, Treasurer or
Principal Financial Officer, Comptroller or Principal Accounting Officer, and
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, the Secretary and the Treasurer as well as any other person
performing similar functions.
T. Order Forms: Forms to be used for the purchase of Conversion Stock
-----------
sent to Eligible Account Holders and other parties eligible to purchase
Conversion Stock in the Subscription Offering pursuant to the Plan.
U. Other Member: Holder of a Savings Account (other than Eligible
------------
Account Holders and Supplemental Eligible Account Holders) as of the Record
Date, and borrowers from the Savings Bank as provided in the Savings Bank's
Federal Mutual Charter who continue as borrowers from the Savings Bank as of the
Record Date.
V. OTS: Office of Thrift Supervision of the United States Department of
---
the Treasury.
W. Person: An individual, corporation, partnership, association, joint
------
stock company, trusts of natural Persons, unincorporated organization or a
government or any political subdivision thereof.
X. Plan: This Plan of Conversion, which provides for the conversion of
----
the Savings Bank from a federally chartered mutual savings bank to a federally
chartered capital stock savings bank as a wholly owned subsidiary of the Holding
Company, as originally adopted by the Board of Directors or as amended in
accordance with the terms hereof.
Y. Qualifying Deposit: The deposit balance in any Savings Account, and
------------------
any certificate of deposit, any demand deposit account and any noninterest-
bearing deposit account, as of the close of business on the Eligibility Record
Date or the Supplemental Eligibility Record Date, as applicable; provided,
however, that no account with a deposit balance of less than $50.00 on such date
shall constitute a Qualifying Deposit.
Z. Record Date: Date which determines which Members are entitled to vote
-----------
at the Special Meeting.
3
<PAGE>
AA. Registration Statement: The registration statement on SEC Form S-1 or
----------------------
other applicable form filed by the Holding Company with the SEC for the purpose
of registering the Conversion Stock under the Securities Act of 1933, as
amended.
BB. Savings Account(s): Withdrawable deposit(s) in the Savings Bank or
------------------
the Converted Savings Bank.
CC. Savings Bank: First Federal Savings Bank, in its present form as a
------------
federally chartered mutual savings bank.
DD. SEC: Securities and Exchange Commission.
---
EE. Special Meeting: The special meeting of Members called for the
---------------
purpose of considering the Plan for approval.
FF. Subscription Offering: The offering of Conversion Stock to Eligible
---------------------
Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Members under the Plan.
GG. Subscription Rights: Nontransferable, non-negotiable, personal rights
-------------------
of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members to purchase Conversion
Stock.
HH. Supplemental Eligibility Record Date: The last day of the calendar
------------------------------------
quarter preceding the approval of the Plan by the OTS.
II. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit
------------------------------------
in the Savings Bank (other than an Officer or director of the Savings Bank or
their Associates) on the Supplemental Eligibility Record Date.
JJ. Syndicated Community Offering: The offering for sale by a syndicate
-----------------------------
of broker-dealers to the general public of shares of Conversion Stock not
purchased in the Subscription Offering and the Direct Community Offering.
KK. Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
-----------------------------------------
defined contribution plan of the Savings Bank or Holding Company, such as an
employee stock ownership plan, bonus plan, profit-sharing plan or other plan,
which, with its related trust, meets the requirements to be "qualified" under
section 401 of the Internal Revenue Code. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
III. Steps Prior to Submission of the Plan to the Members for Approval
-----------------------------------------------------------------
Prior to submission of the Plan to the Members for approval, the Savings
Bank must receive approval from the OTS of the Form AC Application. Prior to
such regulatory approval:
A. The Board of Directors shall adopt the Plan by a vote of not less than
two-thirds of its entire membership.
B. The Savings Bank shall notify the Members of the adoption of the Plan
by publishing legal notice in a newspaper having a general circulation in each
community in which the Savings Bank maintains an office.
C. A press release relating to the proposed Conversion may be submitted
to the local media.
D. Copies of the Plan as adopted by the Board of Directors shall be made
available for inspection at each office of the Savings Bank.
4
<PAGE>
E. The Savings Bank shall cause the Holding Company to be incorporated
under state law and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
F. As soon as practicable following the adoption of this Plan, the
Savings Bank shall file the Form AC Application, and the Holding Company shall
file the Registration Statement and the H-(e)1 Application. Upon filing the
Form AC Application, the Savings Bank shall publish legal notice of the filing
of the Form AC Application in a newspaper having a general circulation in each
community in which the Savings Bank maintains an office and/or by mailing a
letter to each of its Members, and shall publish such other notices of the
Conversion as may be required in connection with the H-(e)1 Application and by
the regulations and policies of the OTS.
G. The Savings Bank shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which shall
state that the Conversion will not result in any gain or loss for Federal income
tax purposes to the Savings Bank or its Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members. Receipt of a favorable opinion or
ruling is a condition precedent to completion of the Conversion.
IV. Meeting of Members
------------------
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Savings Bank's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Savings Bank shall distribute proxy solicitation materials
to all Members and beneficial owners of accounts held in fiduciary capacities
where the beneficial owners possess voting rights, as of the Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation ("Proxy Statement") and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a prospectus ("Prospectus") as provided in Paragraph V
below. The Savings Bank shall also advise each Eligible Account Holder and
Supplemental Eligible Account Holder not entitled to vote at the Special Meeting
of the proposed Conversion and the scheduled Special Meeting, and provide a
postage prepaid card on which to indicate whether he wishes to receive the
Prospectus, if the Subscription Offering is not held concurrently with the proxy
solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy. The OTS shall be notified
promptly of the actions of the Members.
V. Summary Proxy Statement
-----------------------
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-face type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage
prepaid card or other written communication requesting supplemental information.
Without prior approval of the OTS, the Special Meeting shall not be held less
than 20 days after the last day on which the supplemental information statement
is mailed to requesting Members. The supplemental information statement may be
combined with the Prospectus if the Subscription Offering is commenced
concurrently with or during the proxy solicitation of Members for the Special
Meeting.
VI. Offering Documents
------------------
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Direct Community
Offering concurrently with or during the proxy solicitation of Members. The
Holding Company may close the Subscription Offering before the Special Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon approval of the Plan by the Members at the Special Meeting. The Savings
Bank's proxy solicitation materials may require Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members to return to the Savings
Bank by a reasonable certain date a postage prepaid card
5
<PAGE>
or other written communication requesting receipt of a Prospectus with respect
to the Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation materials. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Savings Bank may transmit, not
more than 30 days prior to the commencement of the Subscription Offering, to
each Eligible Account Holder, Supplemental Eligible Account Holder and other
eligible subscribers who had been furnished with proxy solicitation materials a
notice which shall state that the Savings Bank is not required to furnish a
Prospectus to them unless they return by a reasonable date certain a postage
prepaid card or other written communication requesting the receipt of the
Prospectus.
Prior to commencement of the Subscription Offering, the Direct Community
Offering and the Syndicated Community Offering, the Holding Company shall file
the Registration Statement. The Holding Company shall not distribute the final
Prospectus until the Registration Statement containing same has been declared
effective by the SEC and the Prospectus has been declared effective by the OTS.
VII. Combined Subscription and Direct Community Offering
---------------------------------------------------
Instead of a separate Subscription Offering, all Subscription Rights may be
exercised by delivery of properly completed and executed Order Forms to the
Savings Bank or selling group utilized in connection with the Direct Community
Offering and the Syndicated Community Offering. If a separate Subscription
Offering is not held, orders for Conversion Stock in the Direct Community
Offering shall first be filled pursuant to the priorities and limitations stated
in Paragraph IX.C., below.
VIII. Consummation of the Conversion
------------------------------
After receipt of all orders for Conversion Stock, the amendment of the
Savings Bank's Federal Mutual Charter and Bylaws to authorize the issuance of
shares of Capital Stock and to conform to the requirements of a federal stock
savings bank, as approved by the Members at the Special Meeting will be declared
effective by the OTS. At such time, the Conversion Stock will be issued and
sold by the Holding Company, the Capital Stock to be issued in the Conversion
will be issued and sold to the Holding Company, and the Converted Savings Bank
will become a wholly owned subsidiary of the Holding Company. The Converted
Savings Bank will issue to the Holding Company 1,000 shares of its common stock,
representing all of the shares of Capital Stock to be issued by the Converted
Savings Bank, and the Holding Company will make payment to the Converted Savings
Bank of that portion of the aggregate net proceeds realized by the Holding
Company from the sale of the Conversion Stock under the Plan as may be
authorized or required by the OTS.
IX. Stock Offering
--------------
A. Number of Shares
----------------
The number of shares of Conversion Stock to be offered pursuant to the Plan
shall be determined initially by the Board of Directors of the Savings Bank and
the Board of Directors of the Holding Company in conjunction with the
determination of the Purchase Price (as that term is defined in Paragraph IX.B.
below). The number of shares to be offered may be subsequently adjusted by the
Board of Directors prior to completion of the offering.
B. Independent Evaluation and Purchase Price of Shares
---------------------------------------------------
All shares of Conversion Stock sold in the Conversion, including shares
sold in any Direct Community Offering, shall be sold at a uniform price per
share, referred to herein as the "Purchase Price." The Purchase Price shall be
determined by the Board of Directors of the Savings Bank and the Board of
Directors of the Holding Company immediately prior to the simultaneous
completion of all such sales contemplated by this Plan on the basis of the
estimated pro forma market value of the Converted Savings Bank and the Holding
Company at such time. The
6
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estimated pro forma market value of the Converted Savings Bank and the Holding
Company shall be determined for such purpose by an independent appraiser on the
basis of such appropriate factors not inconsistent with the regulations of the
OTS. Immediately prior to the Subscription Offering, a subscription price range
shall be established which shall vary from 15% above to 15% below the average of
the minimum and maximum of the estimated price range. The maximum subscription
price (i.e., the per share amount to be remitted when subscribing for shares of
Conversion Stock) shall then be determined within the subscription price range
by the Board of Directors of the Savings Bank. The subscription price range and
the number of shares to be offered may be revised after the completion of the
Subscription Offering with OTS approval without a resolicitation of proxies or
Order Forms or both.
C. Method of Offering Shares
-------------------------
Subscription Rights shall be issued at no cost to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members pursuant to priorities established by this Plan and
the regulations of the OTS. In order to effect the Conversion, all shares of
Conversion Stock proposed to be issued in connection with the Conversion must be
sold and, to the extent that shares are available, no subscriber shall be
allowed to purchase less than 25 shares; provided, however, that if the purchase
price is greater than $20.00 per share, the minimum number of shares which must
be subscribed for shall be adjusted so that the aggregate actual purchase price
required to be paid for such minimum number of shares does not exceed $500.00.
The priorities established for the purchase of shares are as follows:
1. Category 1: Eligible Account Holders
-------------------------------------
a. Each Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Eligible Account Holder to purchase that
number of shares of Conversion Stock which is equal to the greater of the
maximum purchase limitation established for the Direct Community Offering,
one-tenth of one percent of the total offering or 15 times the product
(rounded down to the next whole number) obtained by multiplying the total
number of shares of Conversion Stock to be issued 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 Qualifying
Deposits of all Eligible Account Holders. If the allocation made in this
paragraph results in an oversubscription, shares of Conversion Stock shall
be allocated among subscribing Eligible Account Holders so as to permit
each such account holder, to the extent possible, to purchase a number of
shares of Conversion Stock sufficient to make his total allocation equal to
100 shares of Conversion Stock or the total amount of his subscription,
whichever is less. Any shares of Conversion Stock not so allocated shall
be allocated among the subscribing Eligible Account Holders on an equitable
basis, related to the amounts of their respective Qualifying Deposits as
compared to the total Qualifying Deposits of all subscribing Eligible
Account Holders.
b. Subscription Rights received by Officers and directors of the
Savings Bank and their Associates, as Eligible Account Holders, based on
their increased deposits in the Savings Bank in the one-year period
preceding the Eligibility Record Date shall be subordinated to all other
subscriptions involving the exercise of Subscription Rights pursuant to
this Category.
2. Category 2: Tax-Qualified Employee Stock Benefit Plans
------------------------------------------------------
a. Tax-Qualified Employee Stock Benefit Plans shall receive,
without payment, nontransferable Subscription Rights to purchase in the
aggregate up to 8% of the Conversion Stock, including shares of Conversion
Stock to be issued in the Conversion as result of an increase in the
estimated price range after commencement of the Subscription Offering and
prior to the completion of the Conversion. The Subscription Rights granted
to Tax-Qualified Stock Benefit Plans shall be subject to the availability
of shares of Conversion Stock after taking into account the shares of
7
<PAGE>
Conversion Stock purchased by Eligible Account Holders; provided, however,
that in the event the number of shares offered in the Conversion is
increased to an amount greater than the maximum of the estimated price
range as set forth in the Prospectus ("Maximum Shares"), the Tax-Qualified
Employee Stock Benefit Plans shall have a priority right to purchase any
such shares exceeding the Maximum Shares up to an aggregate of 8% of the
Conversion Stock. Tax-Qualified Employee Stock Benefit Plans may use funds
contributed or borrowed by the Holding Company or the Savings Bank and/or
borrowed from an independent financial institution to exercise such
Subscription Rights, and the Holding Company and the Savings Bank may make
scheduled discretionary contributions thereto, provided that such
contributions do not cause the Holding Company or the Savings Bank to fail
to meet any applicable capital requirements.
3. Category 3: Supplemental Eligible Account Holders
--------------------------------------------------
a. In the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Form AC Application
filed prior to OTS approval, then, and only in that event, each
Supplemental Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Supplemental Eligible Account Holder to
purchase that number of shares of Conversion Stock which is equal to the
greater of the maximum purchase limitation established for the Direct
Community Offering, one-tenth of one percent of the total offering or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be issued by
a fraction of which the numerator is the amount of the Qualifying Deposit
of the Supplemental Eligible Account Holder and the denominator is the
total amount of the Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders.
b. Subscription Rights received pursuant to this category shall
be subordinated to Subscription Rights granted to Eligible Account Holders
and Tax-Qualified Employee Stock Benefit Plans.
c. Any Subscription Rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Category Number 1
shall reduce to the extent thereof the Subscription Rights to be
distributed pursuant to this Category.
d. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock shall be
allocated among the subscribing Supplemental Eligible Account Holders as
follows:
(1) Shares of Conversion Stock shall be allocated so as to
permit each such Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares of Conversion Stock
sufficient to make his total allocation (including the number of
shares of Conversion Stock, if any, allocated in accordance with
Category Number 1) equal to 100 shares of Conversion Stock or the
total amount of his subscription, whichever is less.
(2) Any shares of Conversion Stock not allocated in
accordance with subparagraph (1) above shall be allocated among the
subscribing Supplemental Eligible Account Holders on an equitable
basis, related to the amounts of their respective Qualifying Deposits
as compared to the total Qualifying Deposits of all subscribing
Supplemental Eligible Account Holders.
8
<PAGE>
4. Category 4: Other Members
--------------------------
a. Other Members shall receive, without payment, Subscription
Rights to purchase shares of Conversion Stock, after satisfying the
subscriptions of Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans and Supplemental Eligible Account Holders pursuant to
Category Nos. l, 2 and 3 above, subject to the following conditions:
(1) Each such Other Member shall be entitled to subscribe
for the greater of the maximum purchase limitation established for the
Direct Community Offering or one-tenth of one percent of the total
offering.
(2) In the event of an oversubscription for shares of
Conversion Stock pursuant to Category No. 4, the shares of Conversion Stock
available shall be allocated among the subscribing Other Members pro rata
on the basis of the amounts of their respective subscriptions.
D. Direct Community Offering and Syndicated Community Offering
-----------------------------------------------------------
1. Any shares of Conversion Stock not purchased through the exercise
of Subscription Rights set forth in Category Nos. 1 through 4 above may be
sold by the Holding Company to Persons under such terms and conditions as
may be established by the Savings Bank's Board of Directors with the
concurrence of the OTS. The Direct Community Offering may commence
concurrently with or as soon as possible after the completion of the
Subscription Offering and must be completed within 45 days after completion
of the Subscription Offering, unless extended with the approval of the OTS.
No Person, including Persons on a joint account, may purchase shares of
Conversion Stock in the Direct Community Offering having an aggregate
purchase price of more than $150,000. The right to purchase shares of
Conversion Stock under this Category is subject to the right of the Savings
Bank or the Holding Company to accept or reject such subscriptions in whole
or in part. In the event of an oversubscription for shares in this
Category, the shares available shall be allocated among prospective
purchasers pro rata on the basis of the amounts of their respective orders.
The offering price for which such shares are sold to the general public in
the Direct Community Offering shall be the Purchase Price.
2. Orders received in the Direct Community Offering first shall be
filled up to a maximum of 2% of the Conversion Stock and thereafter
remaining shares shall be allocated on an equal number of shares basis per
order until all orders have been filled.
3. The Conversion Stock offered in the Direct Community Offering
shall be offered and sold in a manner that will achieve the widest
distribution thereof. Preference shall be given in the Direct Community
Offering to natural Persons and trusts of natural Persons residing in the
Local Community.
4. Subject to such terms, conditions and procedures as may be
determined by the Savings Bank and the Holding Company, all shares of
Conversion Stock not subscribed for in the Subscription Offering or ordered
in the Direct Community Offering may be sold by a syndicate of broker-
dealers to the general public in a Syndicated Community Offering. No
Person, including Persons on a joint account, may purchase shares of
Conversion Stock in the Syndicated Community Offering having an aggregate
purchase price of more than $150,000. Each order for Conversion Stock in
the Syndicated Community Offering shall be subject to the absolute right of
the Savings Bank and the Holding Company 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 after completion of the Syndicated Community Offering. The
Savings Bank and the Holding Company may commence the Syndicated Community
Offering concurrently with, at any time during, or as soon as practicable
after the end of the Subscription Offering and/or Direct Community
Offering, provided that the Syndicated Community Offering
9
<PAGE>
must be completed within 45 days after the completion of the Subscription
Offering, unless extended by the Savings Bank and the Holding Company with
the approval of the OTS.
5. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Direct
Community Offering cannot be effected, or in the event that any
insignificant residue of shares of Conversion Stock is not sold in the
Subscription Offering, Direct Community Offering or Syndicated Community
Offering, the Savings Bank and the Holding Company 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.
6. In the event a Direct Community Offering or Syndicated Community
Offering do not appear feasible, the Savings Bank will immediately consult
with the OTS to determine the most viable alternative available to effect
the completion of the Conversion. Should no viable alternative exist, the
Savings Bank may terminate the Conversion with the concurrence of the OTS.
E. Limitations Upon Purchases
--------------------------
The following additional limitations and exceptions shall be imposed upon
purchases of shares of Conversion Stock:
1. No Person, together with Associates of or Persons Acting in
Concert with such Person, may purchase in the aggregate more than the
overall maximum purchase limitation of $220,000 of Conversion Stock issued
in the Conversion (exclusive of any shares issued pursuant to an increase
in the range of minimum and maximum aggregate values within which the
aggregate amount of Conversion Stock issued in the Conversion will fall),
except that Tax-Qualified Employee Stock Benefit Plans may purchase up to
8% of the total Conversion Stock issued and shares held or to be held by
the Tax-Qualified Employee Stock Benefit Plans and attributable to a Person
shall not be aggregated with other shares purchased directly by or
otherwise attributable to such Person.
2. Officers and directors of the Savings Bank and Associates thereof
may not purchase in the aggregate more than 33% of the shares issued in the
Conversion.
3. The Savings Bank's and Holding Company's Boards of Directors will
not be deemed to be Associates or a group of Persons Acting in Concert with
other directors or trustees solely as a result of membership on the Board
of Directors.
4. The Savings Bank's Board of Directors, with the approval of the
OTS and without further approval of Members, may, as a result of market
conditions and other factors, increase or decrease the purchase limitation
in paragraphs 1 and 4 above or the number of shares of Conversion Stock to
be sold in the Conversion. If the Savings Bank or the Holding Company, as
the case may be, increases the maximum purchase limitations or the number
of shares of Conversion Stock to be sold in the Conversion, the Savings
Bank or the Holding Company, as the case may be, is only required to
resolicit Persons who subscribed for the maximum purchase amount and may,
in the sole discretion of the Savings Bank or the Holding Company, as the
case may be, resolicit certain other large subscribers. If the Savings
Bank or the Holding Company, as the case may be, decreases the maximum
purchase limitations or the number of shares of Conversion Stock to be sold
in the Conversion, the orders of any Person who subscribed for the maximum
purchase amount 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.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the purchase limitations
under the Plan or otherwise imposed by law, rule or regulation. In the
10
<PAGE>
event that such purchase limitations are violated by any Person (including any
Associate or group of Persons affiliated or otherwise Acting in Concert with
such Person), the Holding Company shall have the right to purchase from such
Person at the actual Purchase Price per share all shares acquired by such Person
in excess of such purchase limitations or, if such excess shares have been sold
by such Person, to receive from such Person the difference between the actual
Purchase Price per share paid for such excess shares and the price at which such
excess shares were sold by such Person. This right of the Holding Company to
purchase such excess shares shall be assignable by the Holding Company.
F. Restrictions On and Other Characteristics of the Conversion Stock
-----------------------------------------------------------------
1. Transferability. Conversion Stock purchased by Officers and
---------------
directors of the Savings Bank and officers and directors of the Holding
Company shall not be sold or otherwise disposed of for value for a period
of one year from the date of Conversion, except for any disposition (i)
following the death of the original purchaser or (ii) resulting from an
exchange of securities in a merger or acquisition approved by the
regulatory authorities having jurisdiction.
The Conversion Stock issued by the Holding Company to such Officers
and directors shall bear a legend giving appropriate notice of the one-year
holding period restriction. Said legend shall state as follows:
"The shares 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 prior thereto
without a legal opinion of counsel that said transfer is permissible
under the provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions
to the transfer agent of the Holding Company Stock with respect to the
foregoing restrictions. Any shares of Holding Company Stock subsequently
issued as a stock dividend, stock split or otherwise, with respect to any
such restricted stock, shall be subject to the same holding period
restrictions for such Persons as may be then applicable to such restricted
stock.
2. Subsequent Purchases by Officers and Directors. Without prior
----------------------------------------------
approval of the OTS, if applicable, officers and directors of the Savings
Bank and officers and directors of the Holding Company, and their
Associates, shall be prohibited for a period of three years following
completion of the Conversion from purchasing outstanding shares of Holding
Company Stock, except from a broker or dealer registered with the SEC.
Notwithstanding this restriction, purchases involving more than 1% of the
total outstanding shares of Holding Company Stock and purchases made and
shares held by a Tax-Qualified or non-Tax-Qualified Employee Stock Benefit
Plan which may be attributable to such directors and Officers may be made
in negotiated transactions without OTS permission or the use of a broker or
dealer.
3. Repurchase and Dividend Rights. For a period of three years
------------------------------
following the consummation of the Conversion, any repurchases of Holding
Company Stock by the Holding Company from any Person shall be subject to
the then applicable rules and regulations and policies of the OTS. The
Converted Savings Bank may not declare or pay a cash dividend on or
repurchase any of its Capital Stock if the result thereof would be to
reduce the regulatory capital of the Converted Savings Bank below the
amount required for the liquidation account described in Paragraph XIII.
Further, any dividend declared or paid on the Capital Stock shall comply
with the then applicable rules and regulations of the OTS.
4. Voting Rights. After the Conversion, holders of Savings Accounts
-------------
in and obligors on loans of the Converted Savings Bank will not have voting
rights in the Converted Savings Bank. Exclusive voting rights with respect
to the Holding Company shall be vested in the holders of Holding Company
Stock; holders of Savings Accounts in and obligors on loans of the
Converted Savings Bank will not have any voting rights
11
<PAGE>
in the Holding Company except and to the extent that such Persons become
stockholders of the Holding Company, and the Holding Company will have
exclusive voting rights with respect to the Converted Savings Bank's
Capital Stock.
G. Mailing of Offering Materials and Collation of Subscriptions
------------------------------------------------------------
The sale of all shares of Conversion Stock offered pursuant to the Plan
must be completed within 24 months after approval of the Plan at the Special
Meeting. After approval of the Plan by the OTS and the declaration of the
effectiveness of the Prospectus, the Holding Company shall distribute
Prospectuses and Order Forms for the purchase of shares of Conversion Stock in
accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days nor
more than 45 days from the date of mailing, unless extended, properly to
complete, execute and return the Order Form to the Holding Company or the
Savings Bank. Self-addressed, postage prepaid, return envelopes shall accompany
all Order Forms when they are mailed. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the prescribed time
limits shall be deemed a waiver and a release by such eligible subscriber of any
rights to purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion must be completed within 45 days after the last
day of the Subscription Offering, unless extended by the Holding Company with
the approval of the OTS.
H. Method of Payment
-----------------
Payment for all shares of Conversion Stock may be made in cash, by check or
by money order, or if a subscriber has a Savings Account(s) in the Savings Bank,
such subscriber may authorize the Savings Bank to charge the subscriber's
Savings Account(s). Notwithstanding the foregoing, the Savings Bank may require
that payment for subscriptions of $25,000 or more (or such greater amount as
the President of the Savings Bank may determine) must be by certified or
cashier's check, money order or account withdrawal. The Savings Bank shall
pay interest at not less than the passbook rate on all amounts paid in cash or
by check or money order to purchase shares of Conversion Stock in the
Subscription Offering from the date payment is received until the Conversion is
completed or terminated. The Savings Bank is not permitted knowingly to loan
funds or otherwise extend any credit to any Person for the purpose of purchasing
Conversion Stock.
If a subscriber authorizes the Savings Bank to charge the subscriber's
Savings Account(s), the funds shall remain in the subscriber's Savings
Account(s) and shall continue to earn interest, but may not be used by such
subscriber until the Conversion is completed or terminated, whichever is
earlier. The withdrawal shall be given effect only concurrently with the sale
of all shares of Conversion Stock proposed to be sold in the Conversion and only
to the extent necessary to satisfy the subscription at a price equal to the
aggregate Purchase Price. The Savings Bank shall allow subscribers to purchase
shares of Conversion Stock by withdrawing funds from certificate accounts held
with the Savings Bank without the assessment of early withdrawal penalties,
subject to the approval, if necessary, of the applicable regulatory authorities.
In the case of early withdrawal of only a portion of such account, the
certificate evidencing such account shall be canceled if the remaining balance
of the account is less than the applicable minimum balance requirement. In that
event, the remaining balance shall earn interest at the passbook rate. This
waiver of the early withdrawal penalty is applicable only to withdrawals made in
connection with the purchase of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, along with evidence of a loan commitment from a
financial institution for the purchase of shares, if applicable, during the
Subscription Offering and by making payment for the shares on the date of the
closing of the Conversion.
12
<PAGE>
I. Undelivered, Defective or Late Order Forms; Insufficient Payment
----------------------------------------------------------------
If an Order Form (i) is not delivered and is returned to the Holding
Company or the Savings Bank by the United States Postal Service (or the Holding
Company or Savings Bank is unable to locate the addressee); (ii) is not returned
to the Holding Company or Savings Bank, or is returned to the Holding Company or
Savings Bank after expiration of the date specified thereon; (iii) is
defectively completed or executed; or (iv) is not accompanied by the total
required payment for the shares of Conversion Stock subscribed for (including
cases in which the subscribers' Savings Accounts are insufficient to cover the
authorized withdrawal for the required payment), the Subscription Rights of the
Person to whom such rights have been granted shall not be honored and shall be
treated as though such Person failed to return the completed Order Form within
the time period specified therein. Alternatively, the Holding Company or
Savings Bank may, but shall not be required to, waive any irregularity relating
to any Order Form or require the submission of a corrected Order Form or the
remittance of full payment for the shares of Conversion Stock subscribed for by
such date as the Holding Company or Savings Bank may specify. Subscription
orders, once tendered, shall not be revocable. The Holding Company's and
Savings Bank's interpretation of the terms and conditions of the Plan and of the
Order Forms shall be final.
J. Members in Non-Qualified States or in Foreign Countries
-------------------------------------------------------
The Holding Company and the Savings Bank will make reasonable efforts to
comply with the securities laws of all states in the United States in which
persons entitled to subscribe for stock pursuant to the Plan reside. However,
the Holding Company and the Savings Bank are not required to offer stock in the
Subscription Offering to any person who resides in a foreign country or resides
in a state of the United States with respect to which (i) a small number of
persons otherwise eligible to subscribe for shares of Common Stock reside in
such state; or (ii) the Holding Company or the Savings Bank determines that
compliance with the securities laws of such state would be impracticable for
reasons of cost or otherwise, including but not limited to a request or
requirement that the Holding Company and the Savings Bank or their officers,
directors or trustees register as a broker, dealer, salesman or selling agent,
under the securities laws of such state, or a request or requirement to register
or otherwise qualify the Subscription Rights or Common Stock for sale or submit
any filing with respect thereto in such state. Where the number of persons
eligible to subscribe for shares in one state is small relative to other states,
the Holding Company and the Savings Bank will base their decision as to whether
or not to offer the Common Stock in such state on a number of factors, including
the size of accounts held by account holders in the state, the cost of reviewing
the registration and qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the Holding
Company, its officers, directors or employees as brokers, dealers or salesmen.
X. Federal Stock Charter and Bylaws
--------------------------------
As part of the Conversion, a Federal Stock Charter and Bylaws will be
adopted to authorize the Converted Savings Bank to operate as a federal stock
savings bank. By approving the Plan, the Members of the Savings Bank will
thereby approve the Federal Stock Charter and Bylaws. Prior to completion of
the Conversion, the Federal Stock Charter and Bylaws may be amended in
accordance with the provisions and limitations for amending the Plan under
Paragraph XVII below. The effective date of the adoption of the Federal Stock
Charter and Bylaws shall be the date of the issuance of the Conversion Stock,
which shall be the date of consummation of the Conversion.
XI. Post Conversion Filing and Market Making
----------------------------------------
In connection with the Conversion, the Holding Company shall register the
Conversion Stock with the SEC pursuant to the Securities Exchange Act of 1934,
as amended, and shall undertake not to deregister such Conversion Stock for a
period of three years thereafter.
13
<PAGE>
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the shares of its
stock. The Holding Company shall also use its best efforts to list its stock
through The Nasdaq Stock Market or on a national or regional securities
exchange.
XII. Status of Savings Accounts and Loans Subsequent to Conversion
-------------------------------------------------------------
All Savings Accounts shall retain the same status after Conversion as these
accounts had prior to Conversion. Each Savings Account holder shall retain,
without payment, a withdrawable Savings Account(s) after the Conversion, equal
in amount to the withdrawable value of such holder's Savings Account(s) prior to
Conversion. All Savings Accounts will continue to be insured by the Savings
Association Insurance Fund of the FDIC up to the applicable limits of insurance
coverage. All loans shall retain the same status after the Conversion as they
had prior to the Conversion. See Paragraph IX.F.4. with respect to the
termination of voting rights of Members.
XIII. Liquidation Account
-------------------
After the Conversion, holders of Savings Accounts shall not be entitled to
share in any residual assets in the event of liquidation of the Converted
Savings Bank. However, the Savings Bank shall, at the time of the Conversion,
establish a liquidation account in an amount equal to its total net worth as of
the date of the latest statement of financial condition contained in the final
Prospectus. The function of the liquidation account shall be to establish a
priority on liquidation and, except as provided in Paragraph IX.F.3 above, the
existence of the liquidation account shall not operate to restrict the use or
application of any of the net worth accounts of the Converted Savings Bank.
The liquidation account shall be maintained by the Converted Savings Bank
subsequent to the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Converted Savings Bank. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to each Savings Account held, have a related
inchoate interest in a portion of the liquidation account balance
("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and/or a Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's Qualifying Deposit in the
Savings Account and the denominator is the total amount of the Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders. Such initial subaccount balance shall not be increased, and it shall
be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing date subsequent to the Eligibility Record Date is less than the lesser
of (i) the deposit balance in such Savings Account at the close of business on
any other annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
a downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Converted Savings Bank, each
Eligible Account Holder and Supplemental Eligible Account Holder shall be
entitled to receive a liquidation distribution from the liquidation account in
the amount of the then current adjusted subaccount balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another Federally-insured institution
14
<PAGE>
in which the Converted Savings Bank is not the surviving institution shall be
considered to be a complete liquidation. In any such transaction, the
liquidation account shall be assumed by the surviving institution.
XIV. Regulatory Restrictions on Acquisition of Holding Company
---------------------------------------------------------
A. OTS regulations provide that for a period of three years following
completion of the Conversion, no Person (i.e, individual, a group Acting in
Concert, a corporation, a partnership, a Savings Bank, a joint stock company, a
trust, or any unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution or its holding company) shall directly, or
indirectly, offer to purchase or actually acquire the beneficial ownership of
more than 10% of any class of equity security of the Holding Company without the
prior approval of the OTS. However, approval is not required for purchases
directly from the Holding Company or the underwriters or selling group acting on
its behalf with a view towards public resale, or for purchases not exceeding 1%
per annum of the shares outstanding. Civil penalties may be imposed by the OTS
for willful violation or assistance of any violation. Where any Person,
directly or indirectly, acquires beneficial ownership of more than 10% of any
class of equity security of the Holding Company within such three-year period,
without the prior approval of the OTS, stock of the Holding Company 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 the stockholders for a vote. The
provisions of this regulation shall not apply to the acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company.
B. The Holding Company may provide in its articles/certificate of
incorporation, or similar document, a provision that, for a specified period of
up to five years following the date of the completion of the Conversion, no
Person shall directly or indirectly offer to acquire or actually acquire the
beneficial ownership of more than 10% of any class of equity security of the
Holding Company. Such provisions would not apply to acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company. The Holding Company may provide in its articles/certificate
of incorporation, or similar document, for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XV. Directors and Officers of the Converted Savings Bank
----------------------------------------------------
The Conversion is not intended to result in any change in the directors or
Officers. Each Person serving as a director of the Savings Bank at the time of
Conversion shall continue to serve as a member of the Converted Savings Bank's
Board of Directors, subject to the Converted Savings Bank's Federal Stock
Charter and Bylaws. The Persons serving as Officers immediately prior to the
Conversion will continue to serve at the discretion of the Board of Directors in
their respective capacities as Officers of the Converted Savings Bank. In
connection with the Conversion, the Savings Bank and the Holding Company may
enter into employment agreements on such terms and with such officers as shall
be determined by the Boards of Directors of the Savings Bank and the Holding
Company.
XVI. Executive Compensation
----------------------
The Savings Bank and the Holding Company may adopt, subject to any required
approvals, executive compensation or other benefit programs, including but not
limited to compensation plans involving stock options, stock appreciation
rights, restricted stock grants, employee recognition programs and the like.
XVII. Amendment or Termination of Plan
--------------------------------
If necessary or desirable, the Plan may be amended by a two-thirds vote
of the Savings Bank's Board of Directors, at any time prior to submission of the
Plan and proxy materials to the Members. At any time after submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Board of Directors
15
<PAGE>
only with the concurrence of the OTS. The Plan may be terminated by a two-thirds
vote of the Board of Directors at any time prior to the Special Meeting, and at
any time following such Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors may modify or terminate the Plan upon the
order of the regulatory authorities without a resolicitation of proxies or
another meeting of the Members.
In the event that mandatory new regulations pertaining to conversions are
adopted by the OTS prior to the completion of the Conversion, the Plan shall be
amended to conform to the new mandatory regulations without a resolicitation of
proxies or another meeting of Members. In the event that new conversion
regulations adopted by the OTS prior to completion of the Conversion contain
optional provisions, the Plan may be amended to utilize such optional provisions
at the discretion of the Board of Directors without a resolicitation of proxies
or another meeting of Members.
By adoption of the Plan, the Members authorize the Board of Directors to
amend and/or terminate the Plan under the circumstances set forth above.
XVIII. Expenses of the Conversion
--------------------------
The Holding Company and the Savings Bank shall use their best efforts to
assure that expenses incurred in connection with the Conversion shall be
reasonable.
XIX. Contributions to Tax-Qualified Plans
------------------------------------
The Holding Company and/or the Savings Bank may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Savings Bank to fail to meet its regulatory
capital requirements.
* * *
16
<PAGE>
Exhibit 5.1
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE LLP]
January 26, 1999
Board of Directors
First Bancorp of Indiana, Inc.
2200 W. Franklin Street
Evansville, Indiana 47712
Re: The offering of up to 2,512,750 shares of
First Bancorp of Indiana, Inc. Common Stock
-------------------------------------------
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Indiana law in
connection with the conversion of First Federal Savings Bank (the "Bank"), a
federally-chartered savings bank, from the mutual form of ownership to a
federally-chartered capital stock savings bank (the "Conversion"), and the
related subscription offering, community offering and syndicated community
offering (the "Offerings") by First Bancorp of Indiana, Inc., an Indiana
corporation (the "Company"), of up to 2,185,000 shares of its common stock, par
value $.01 per share ("Common Stock") (2,512,750 shares if the Estimated
Valuation Range is increased up to 15% to reflect changes in market and
financial conditions following commencement of the Offerings).
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's articles of incorporation filed with the
Secretary of State of Indiana on November 19, 1998 (the "Articles of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission initially on
December 11, 1998 (the "Registration Statement"); the ESOP trust agreement and
the ESOP loan agreement; resolutions of the Board of Directors of the Company
(the "Board") concerning the organization of the Company, the Offerings and
designation of a Pricing Committee of the Board, and the form of stock
certificate approved by the Board to represent shares of Common Stock. We have
also been furnished a certificate of the Indiana Secretary of State certifying
the Company's good standing as an Indiana corporation. Capitalized terms used
but not defined herein shall have the meaning given them in the Articles of
Incorporation.
1
<PAGE>
Board of Directors
First Bancorp of Indiana, Inc.
January 26, 1999
Page 2
In rendering this opinion, we have relied upon the opinion of Johnson,
Carroll and Griffith as to matters of Indiana law, upon which opinion we believe
you are justified in relying. We have examined the opinion of Johnson, Carroll
and Griffith, which opinion is in form satisfactory to us.
We understand that the Company will lend to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds the ESOP Trust will use to
purchase shares of Common Stock for which the ESOP Trust subscribes pursuant to
the Offerings and, for purposes of rendering the opinion set forth in paragraph
2 below, we assume that: (a) the Board of Directors of the Company has duly
authorized the loan to the ESOP Trust (the "Loan"); (b) the ESOP serves a valid
corporate purpose for the Company; (c) the Loan will be made at an interest rate
and on other terms that are fair to the Company; (d) the terms of the Loan will
be set forth in customary and appropriate documents including, without
limitation, a promissory note representing the indebtedness of the ESOP Trust to
the Company as a result of the Loan; and (e) the closing for the Loan and for
the sale of Common Stock to the ESOP Trust will be held after the closing for
the sale of the other shares of Common Stock sold in the Offerings and the
receipt by the Company of the proceeds thereof.
Based upon and subject to the foregoing, and limited in all respects to
matters of Indiana law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Indiana.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common Stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP Trust) will be duly authorized and, when such shares are sold and paid for
or granted in accordance with the terms set forth in the Prospectus and such
resolution of the Pricing Committee, will be validly issued, fully paid and
nonassessable.
The following provisions of the Articles of Incorporation may not be given
effect by a court applying Indiana law, but in our opinion the failure to give
effect to such provisions will not affect the duly authorized, validly issued,
fully paid and nonassessable status of the Common Stock:
1. (a) Sections 3.04(3) and 3.04(6) of Article Three, which grant
the Board the authority to construe and apply the provisions of
those Articles, and Section 3.04(4) of Article Three, to the
extent that subsection obligates any person to provide to the
Board the information such subsection authorizes the Board to
demand, in each case to the extent, if any, that a court applying
Indiana law were to impose equitable limitations upon such
authority; and
2
<PAGE>
Board of Directors
First Bancorp of Indiana, Inc.
January 26, 1999
Page 3
(b) Article Six, which authorizes the Board to consider the effect of
any offer to acquire the Company on constituencies other than
stockholders in evaluating any such offer.
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form S-1 and the Form AC and to the use of the name of our firm
where it appears in the Registration Statement, Form AC and Prospectus.
Very truly yours,
/s/ MULDOON, MURPHY & FAUCETTE LLP
MULDOON, MURPHY & FAUCETTE LLP
3
<PAGE>
Exhibit 5.2
[JOHNSON, CARROLL AND GRIFFITH LETTERHEAD]
December 21, 1998
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Indiana law in
connection with the conversion of First Federal Savings Bank, a federally-
chartered savings bank (the "Bank"), from the mutual form of ownership to stock
form of ownership (the "Conversion"), and the subscription and community
offering (the "Offering"), in connection with the Conversion, by First Bancorp
of Indiana, Inc., an Indiana corporation (the "Company"), of up to 2,512,750
shares of its common stock, par value $.01 per share (the "Common Stock").
In connection with your request for our opinion, you have provided to us,
and we have reviewed, the Company's articles of incorporation (the "Articles of
Incorporation"), its bylaws, the Registration Statement filed with the
Securities and Exchange Commission in connection with the Offering (the
"Registration Statement"), including the prospectus constituting a part thereof
(the "Prospectus"), resolutions of the Board of Directors of the Company (the
"Board") concerning , inter alia, the organization of the Company, the Offering
----- ----
and the designation of a Pricing Committee of the Board (the "Pricing
Committee"), and the form of stock certificate approved by the Board to
represent shares of Common Stock. We have also obtained a certificate of the
Indiana Secretary of State as to the Company's good standing as an Indiana
corporation. Capitalized terms used but not defined herein shall have the
meanings given them in the Articles of Incorporation.
We understand that the Company will loan to the Bank's Employee Stock
Ownership Plan (the "ESOP") the funds the ESOP will use to purchase the shares
of Common Stock for which the ESOP has subscribed as part of the Offering. In
this regard, we have assumed, for purposes of rendering the opinion set forth in
paragraph 2 below, that: (a) the Board has duly authorized the loan to the ESOP
(the "Loan"); (b) the Loan serves a valid corporate purpose; (c) the Loan will
be made at an interest rate and on other terms that are fair to the Company; (d)
the terms of the Loan will be set forth in customary and appropriate documents
including, without limitation, a promissory note representing the indebtedness
of the ESOP to the Company as a result of the Loan; and (e) the closing for the
Loan and for the sale of Common Stock to the ESOP will be held after the closing
for the sale of the other shares of Common Stock sold in the Offering and the
receipt by the Company of the proceeds thereof.
We call your attention to the fact that the opinions expressed herein are
limited in all respects to matters of Indiana corporate law. We express no
opinion concerning the requirements of any other law, rule or regulation, state
or federal, applicable to the Bank, the Company, the
<PAGE>
Muldoon, Murphy & Faucette
December 21, 1998
Page 2
Offering, or the Conversion, including, without limitation, those applicable to
federally chartered savings associations or their holding companies.
Based upon and subject to the foregoing, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Indiana, with the
corporate power and authority to own its property and conduct its business as
now conducted as described in the Prospectus.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common Stock to be sold in the Offering, the Common
Stock to be issued in the Offering (including the shares to be issued to the
ESOP) will be duly authorized and, when such shares are sold and paid for in
accordance with the terms set forth in the Prospectus and such resolution of the
Pricing Committee, and certificate representing such shares in the form provided
to us are duly and properly issued, will be validly issued, fully paid and non-
assessable, with no personal liability for the payment of the Company's debts
arising solely by virtue of the ownership thereof; such issuance and sale will
not be in violation of or subject to any preemptive rights provided for by
Indiana law or by the Articles of Incorporation.
The following provisions of the Articles of Incorporation may not be given
effect by a court applying Indiana law, but in our opinion the failure to give
effect to such provisions will not affect the duly authorized, validly issued,
fully paid and non-assessable status of the Common Stock:
(a) Sections 3.04(3) and 3.04(6) of Article Three, which grant the Board
the authority to construe and apply the provisions of those Articles and Section
3.04(4), to the extent that provision obligates any person to provide to the
Board the information such subsection authorizes the Board to demand, to the
extent, if any, that a court applying Indiana law were to impose equitable
limitations upon the authority of the directors of the Company under such
provisions.
(b) Article Six of the Articles of Incorporation, which purports to permit
the Board to consider the effect of any offer to acquire the Company on
constituencies other than stockholders in evaluating any such offer.
Very truly yours,
JOHNSON, CARROLL AND GRIFFITH
Professional Corporation
By /s/ Edwin W. Johnson
-------------------------------------
Edwin W. Johnson
<PAGE>
Exhibit 8.1
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE LLP]
January 15, 1999
Board of Directors
First Bancorp of Indiana, Inc.
2200 West Franklin Street
Evansville, Indiana 47712
Board of Directors
First Federal Savings Bank
2200 West Franklin Street
Evansville, Indiana 47712
Re: Federal Tax Consequences of the Conversion of First Federal Savings
Bank of Evansville, Indiana from a Federal-chartered Mutual Savings
Bank to a Federal-chartered Stock Savings Bank and the Offer and Sale
of Common Stock of First Bancorp of Indiana, Inc. (the "Conversion")
To the Members of the Board of Directors:
You have requested an opinion regarding the federal income tax consequences
of the proposed conversion of First Federal Savings Bank (the "Bank") from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank and the acquisition of the Converted Bank's capital stock by First Bancorp
of Indiana, Inc., an Indiana corporation (the "Holding Company"), pursuant to
the plan of conversion adopted by the Board of Directors on September 16, 1998
and subsequently amended on December 16, 1998 (the "Plan of Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Directors
January 15, 1999
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard factual representations of the
Holding Company and the Bank concerning the Holding Company and the Bank as well
as the transaction ("Representations"). These Representations are required to
be furnished prior to the execution of this letter and again prior to the
closing of the Conversion. We will rely upon the accuracy of the
Representations of the Holding Company and the Bank and the statements of facts
contained in the examined documents, particularly the Plan of Conversion. We
have also assumed the authenticity of all signatures, the legal capacity of all
natural persons and the conformity to the originals of all documents submitted
to us as copies. Each capitalized term used herein, unless otherwise defined,
has the meaning set forth in the Plan of Conversion. We have assumed that the
Conversion will be consummated strictly in accordance with the terms of the Plan
of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description of
the Conversion. These documents as well as the Representations to be provided
by the Holding Company and the Bank are incorporated in this letter as part of
the statement of the facts.
First Federal Savings Bank, with its headquarters in Evansville, Indiana,
is a federally-chartered mutual savings bank. As a mutual savings bank, the
Bank has never been authorized to issue stock. Instead, the proprietary
interest in the reserves and undivided profits of the Bank belong to the deposit
account holders of the Bank, hereinafter sometimes referred to as
"shareholders." A shareholder of the Bank has a right to share, pro rata, with
respect to the withdrawal value of his respective deposit account in any
liquidation proceeds distributed in the event the Bank is ever liquidated. In
addition, a shareholder of the Bank is entitled to interest on his account
balance as fixed and paid by the Bank.
In order to provide organizational and economic strength to the Bank, the
Board of Directors has adopted the Plan of Conversion whereby the Bank will
convert itself into a federally-chartered stock savings bank (the "Converted
Bank"), the stock of which will be held entirely by the Holding Company.
Assuming that the Holding Company form of organization is utilized, the Holding
Company will acquire the stock of the Bank by purchase, in exchange for the
Conversion proceeds that are not permitted to be retained by the Holding
Company. The Holding Company will apply to the Office of Thrift Supervision
("OTS") to retain up to 50% of the proceeds received from the Conversion. The
aggregate sales price of the Common Stock issued in the Conversion will be based
on an independent appraiser's valuation of the estimated pro forma market value
of the Holding Company and the Converted Bank. The Conversion and sale of the
Common Stock will be subject to applicable regulatory approval and the approval
by the affirmative vote of a majority of the Members.
<PAGE>
Board of Directors
January 15, 1999
Page 3
The Bank shall establish at the time of Conversion a liquidation account in
an amount equal to its net worth as of the latest practicable date prior to
Conversion. The liquidation account will be maintained by the Bank for the
benefit of the Eligible Account Holders and Supplemental Eligible Account
Holders who continue to maintain their deposit accounts at the Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder shall hold,
with respect to his Savings Account, a related inchoate interest in a portion of
the liquidation account balance, in relation to his deposit account balance on
the Eligibility Record Date and/or Supplemental Eligibility Record Date or to
such balance as it may be subsequently reduced, as provided in the Plan of
Conversion.
In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those to
Account Holders to the extent of their deposit accounts), each Eligible Account
Holder and Supplemental Eligible Account Holder shall be entitled to receive a
liquidating distribution from the liquidation account, in the amount of the then
adjusted subaccount balance for his deposit accounts then held, before any
liquidation distribution may be made to any holders of the Bank's capital stock.
No merger, consolidation, purchase of bulk assets with assumption of Savings
Accounts and other liabilities, or similar transaction with a Federal Deposit
Insurance Corporation ("FDIC") institution, in which the Bank is not the
surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the liquidation account shall be assumed by the
surviving institution.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), including applicable
regulations thereunder and current judicial and administrative authority. Any
future amendments to the Code or applicable regulations, or new judicial
decisions or administrative interpretations, any of which could be retroactive
in effect, could cause us to modify our opinion. No opinion is expressed herein
with regard to the federal, state, or city tax consequences of the Conversion
under any section of the Code except if and to the extent specifically
addressed.
FEDERAL TAX OPINION
-------------------
Based upon the Representations and the other factual information referred
to in this letter, and assuming the transaction occurs in accordance with the
Plan of Conversion, and taking into consideration the limitations noted
throughout this opinion, it is our opinion that under current federal income tax
law:
<PAGE>
Board of Directors
January 15, 1999
Page 4
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a shareholder
in a mutual savings bank is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Bank from a mutual
savings bank to a stock savings bank is a tax-free reorganization
since it is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see Rev.
Rul. 80-105, 1980-1 C.B. 78). Neither the Bank nor the Converted Bank
shall recognize gain or loss as a result of the Conversion. The Bank
and the Converted Bank shall each be "a party to a reorganization"
within the meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock or by the Holding Company upon the receipt of money from the
sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Section 362(b) of the Code).
(4) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Bank on the
issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
in exchange for their deposit accounts in the Bank or to the other
depositors on the issuance to them of withdrawable deposit accounts
(Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a)). Gain realized, if any, by the
Eligible Account Holders and Supplemental Eligible Account Holders on
the distribution to them of nontransferable subscription rights to
<PAGE>
Board of Directors
January 15, 1999
Page 5
purchase shares of Common Stock will be recognized but only in an
amount not in excess of the fair market value of such subscription
rights (Section 356(a)). Eligible Account Holders and Supplemental
Eligible Account Holders will not realize any taxable income as a
result of the exercise by them of the nontransferable subscription
rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other shareholders of the Bank will be the same as the basis of
their deposit accounts in the Bank surrendered in exchange therefor
(Section 358(a)(1) of the Code). The basis of the interests in the
liquidation account of the Converted Bank to be received by the
Eligible Account Holders of the Bank shall be zero (Rev. Rul. 71-233,
1971-1 C.B. 113). The basis of the Holding Company Common Stock to its
stockholders will be the purchase price thereof plus the basis, if
any, of nontransferable subscription rights (Section 1012 of the
Code). Accordingly, assuming the nontransferable subscription rights
have no value, the basis of the Common Stock to the Eligible Account
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. The holding period of the Common Stock purchased
pursuant to the exercise of subscription rights shall commence on the
date on which the right to acquire such stock was exercised
(Section 1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the Representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members have a fair market value of zero. We understand that
you have received a letter from Capital Resources Group, Inc. that the
subscription rights do not have any value. We express no view regarding the
valuation of the subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Bank may be taxable on the distribution of the subscription
rights.
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all
<PAGE>
the information and Representations referred to herein. Any change in the
transaction could cause us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form AC
Application for Conversion of the Bank and the references to and summary of this
opinion in such Application for Conversion. We also consent to the inclusion
of this opinion as an exhibit to the Form H-(e)1-S Application of First Bancorp
of Indiana, Inc. and the references to and summary of this opinion in that
Form H-(e)1-S.
Sincerely,
/s/ MULDOON, MURPHY & FAUCETTE LLP
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
Exhibit 8.2
[OLIVE LLP LETTERHEAD APPEARS HERE]
January 15, 1999
Board of Directors
First Bancorp of Indiana, Inc.
2200 West Franklin Street
Evansville, Indiana 47712
Board of Directors
First Federal Savings Bank of Evansville
2200 West Franklin Street
Evansville, Indiana 47712
Gentlemen:
This document sets forth our opinion regarding the State of Indiana income tax
consequences of the proposed conversion of First Federal Savings Bank ("Bank")
from a federally-charted mutual savings bank form of organization to a
federally-charted stock savings bank ("Savings") and the acquisition of the Bank
by First Bancorp of Indiana, Inc. ("Holding Company").
Capitalized terms used herein which are not expressly defined shall have the
meaning ascribed to them in the federal tax opinion dated January 15, 1999 from
the law firm Muldoon, Murphy & Faucette LLP.
Scope of Opinion
- ----------------
In arriving at our opinion, we have relied solely upon the factual information
contained in the January 15, 1999 federal tax opinion letter from Muldoon,
Murphy & Faucette LLP, the representations concerning the proposed transaction
by Holding Company and Bank management delineated in the January 15, 1999
federal tax opinion letter (of the law firm of Muldoon, Murphy & Faucette LLP)
and other representation and discussions with Holding Company and Bank
management.
Opinion
- -------
Based solely on the factual information contained in the aforementioned
sources, and representations of Holding Company and Bank management, in our view
the proposed conversion of Bank into Savings will constitute a reorganization
transaction for State of Indiana purposes under the principles of IRC
368(a)(1)(F). Neither Bank nor Savings shall recognize gain or loss as a result
of the conversion.
<PAGE>
January 15, 1999
Page Two
Likewise, due to the tax-free nature of the transaction for Indiana tax
purposes, the remaining opinions as expressed in the federal tax opinion will
result in identical treatment for Indiana purposes.
Other Limitations of Oipinion
- -----------------------------
No opinion is expressed concerning the income tax treatment of the transaction
under any provision of federal law or any other state taxing jurisdiction, or as
to the tax treatment of any conditions existing at the time of, or effects from,
the transaction not specifically discussed above.
We consent to the inclusion of this opinion as an exhibit to the Registration
Statement on Form S-1 of the Holding Company and the Form AC Application for
Conversion of the Bank and the references to and summary of this opinion in such
Registration Statement and Application for Conversion. We also consent to the
inclusion of this opinion as an exhibit to the Form H-(e)1-S Application of
First Bancorp of Indiana, Inc. and the reference to and summary of this opinion
in that Form H-(e)1-S.
Very truly yours,
OLIVE LLP
/s/ Douglas E. Born, CPA
Douglas E. Born, CPA
Partner
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the inclusion of our report dated August 12, 1998, except for
note 16 as to which the date is September 16, 1998, on the consolidated
financial statements of First Federal Savings Bank and Subsidiary (Bank) as of
June 30, 1998 and for the three years then ended, and to the reference made to
us under the heading "Experts" in the Application of Conversion filed by the
Bank with the Office of Thrift Supervisor and in the Registration Statement on
Form S-1 filed by First Bancorp of Indiana, Inc. with the United States
Securities and Exchange Commission.
/s/ OLIVE LLP
Evansville, Indiana
January 27, 1999
<PAGE>
Exhibit 23.5
[JOHNSON, CARROL AND GRIFFITH LETTERHEAD]
CONSENT
We hereby consent to the references to this firm and our opinions in: the
Registration Statement on Form S-1 filed by First Bancorp of Indiana, Inc. (the
"Company"), Evansville, Indiana and all amendments thereto; in the Form H-(e)1-S
for the Company, and all amendments thereto; and in the Application for
Conversion on Form AC filed by First Federal Savings Bank (the "Bank"), and all
amendments thereto, relating to the conversion of the Bank from a federally-
chartered mutual savings bank to a federally-chartered stock savings bank, the
concurrent issuance of the Bank's outstanding capital stock to the Company, a
holding company formed for such purpose, and the offering of the Company's
common stock.
JOHNSON, CARROLL AND GRIFFITH
Professional Corporation
By:/s/ Edwin W. Johnson
---------------------------------------
Edwin W. Johnson
Dated this 26th day of January, 1999
<PAGE>
Exhibit 99.5
----------------------
Stock Offering Expires
12:00 noon
________________, 1999
----------------------
Stock Center
First Bancorp of Indiana, Inc.
(Proposed Holding Company for First Federal Savings Bank)
STOCK ORDER FORM
- --------------------------------------------------------------------------------
NUMBER OF SHARES
- --------------------------------------------------------------------------------
Number of Shares Purchase Price Total Payment Due
------------------------- -------------------------
X $10.00
------------------------- -------------------------
The minimum number of shares that may be subscribed for is 25 and the maximum
number you may purchase together with related entities or persons acting with
you in the conversion is 22,000 shares. Management has the discretion to
increase or decrease the purchase limit within regulations. ORDERS OF $25,000 OR
MORE MUST BE PAID BY FIRST FEDERAL SAVINGS BANK ACCOUNT WITHDRAWALS, CERTIFIED
FUNDS, CASHIER'S CHECK OR MONEY ORDER.
- --------------------------------------------------------------------------------
METHOD OF PAYMENT
- --------------------------------------------------------------------------------
[_] Enclosed is a check or money order made payable to FIRST FEDERAL SAVINGS
BANK for $____________. *Do not mail cash.* Please take cash payment in
person to First Federal Savings Bank.
[_] I authorize First Federal Savings Bank to withdraw the indicated amounts
from the following First Federal Savings Bank accounts and understand that
the amounts will not otherwise be available for withdrawal.
<TABLE>
<CAPTION>
Account Number Amount
- ----------------------------------------------------------
<S> <C>
$ (Call the Stock Center for IRA transactions.)
- ----------------------------------------------------------
$ There will be no penalty for early withdrawals of
- ---------------------------------------------------------- funds used to order stock.
$
- ----------------------------------------------------------
Total Withdrawal $
-----------------------------
</TABLE>
- --------------------------------------------------------------------------------
PURCHASER INFORMATION
- --------------------------------------------------------------------------------
[_] Check here if you are a director, officer or employee of First Federal
Savings Bank or a member of their immediate families in the same household.
[_] Check here if you were a depositor with $50.00 or more on June 30, 1997,
December 31, 1998, or January 29, 1999 or had a loan from First Federal
Savings Bank on March 16, 1988 that continued to be outstanding on
January 29, 1999. If you check this box please enter all your account
information for each of these dates on reverse side: (If you need additional
space, please attach a separate sheet.)
[_] I am not acting in concert with any other persons purchasing stock in the
conversion nor are any of my associates purchasing stock.
[_] I am acting in concert with the following purchasers and/or the following
purchasers are my associates:_______________, _______________,
_______________.
- --------------------------------------------------------------------------------
STOCK REGISTRATION
- --------------------------------------------------------------------------------
Please review the guidelines on the back of this form. Print the name(s) in
which you want the stock registered and the mailing address for the
registration. Names must appear exactly as on your account at First Federal
Savings Bank if you are subscribing as an Eligible Account Holder, Supplemental
Account Holder or Other Member.
SUBSCRIPTION RIGHTS ARE NOT TRANSFERABLE.
- ----------------------------------------
<TABLE>
Form of ownership: Please check one.
<S> <C> <C>
[_] Individual [_] Tenants in common [_] Uniform Transfers to Minors Act
[_] Joint Tenants [_] Corporation or partnership [_] Uniform Gifts to Minors Act
[_] Other ________________ [_] Fiduciary _______________________
please specify adoption date
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Name Evening Telephone
- ------------------------------------------------------------------------------------------------------------------
Name Daytime Telephone
- ------------------------------------------------------------------------------------------------------------------
Street Address County of Residence
- ------------------------------------------------------------------------------------------------------------------
City State Zip Social Security or Tax I.D. No.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NASD AFFILIATION
- --------------------------------------------------------------------------------
Please read the NASD Affiliation section on the reverse side of this form: Check
if applicable and initial where indicated.
[_] Check here if you are a member of the National Association of Securities
Dealers, Inc. (NASD) or a person associated with an NASD member or a
partner with a securities brokerage firm or a member of the immediate
family of any such person to whose support such person contributes
directly or indirectly or if you have an account in which an NASD member or
person associated with an NASD member has a beneficial interest. In
accordance with the conditions for an exception from the interpretation, I
agree (i) not to sell, transfer or hypothecate this stock for a period of 90
days following issuance and (ii) to report this subscription in writing to
the applicable NASD member I am associated with within one day of payment of
the stock.
*_____________________(INITIAL)
- --------------------------------------------------------------------------------
ACKNOWLEDGEMENTS
- --------------------------------------------------------------------------------
To purchase stock in the Subscription Offering, this fully completed Stock Order
Form must be actually received by First Federal Savings Bank no later than 12:00
noon , local time on _______, 1999 unless extended, otherwise this Stock Order
Form and all subscription rights will be void. Completed Stock Order Forms,
together with the required payment or withdrawal authorization and signed
Certification, may be delivered to First Federal Savings Bank or may be mailed
to the address indicated on the enclosed business reply envelope. All rights
exercisable hereunder are not transferable and shares purchased upon exercise of
such rights must be purchased for the account of the person exercising such
rights. The undersigned certifies that this stock order is for my account only
and there is no agreement or understanding regarding the transfer of my
subscription rights or any further sales or transfer of these shares.
It is understood that this Stock Order Form will be accepted in accordance with,
and subject to, the terms and conditions of the Plan of Conversion of First
Federal Savings Bank described in the accompanying Prospectus, receipt of which
is hereby acknowledged at least 48 hours prior to delivery of this Stock Order
Form to First Federal Savings Bank. If the minimum number shares cannot be sold,
all orders will be canceled and funds received as payment will be returned
promptly.
The undersigned agrees that after receipt by First Federal Savings Bank this
Stock Order Form may not be modified, withdrawn or canceled (unless the
conversion is not completed by________, 1999) and if First Federal Savings Bank
has been given authorization to withdraw a specified amount from deposit
accounts at First Federal Savings Bank as payment for the shares, the amount
authorized for withdrawal shall not otherwise be available for withdrawal by the
undersigned.
I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS
NOT INSURED OR GUARANTEED BY THE SAIF, THE FDIC OR THE FEDERAL GOVERNMENT.
Under penalty of perjury, I certify that the Social Security or Tax ID Number on
this Stock Order Form is true, correct and complete and that I am not subject to
back-up withholding.
- --------------------------------------------------------------------------------
SIGN BELOW (YOU MUST ALSO READ AND SIGN THE CERTIFICATION ON THE REVERSE SIDE TO
PURCHASE STOCK).
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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 ON THE FRONT AND BACK. x
-----------------------------------------------------------------------
Authorized Signature Title (if applicable) Date
IF YOU NEED HELP COMPLETING THIS FORM, YOU
MAY CALL THE STOCK CENTER AT (812)436-4777. x
-----------------------------------------------------------------------
Authorized Signature Title (if applicable) Date
-----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
NOTE: Failure to list all of your accounts may result in fewer shares being
allocated to you in the event of an over subscription.
<TABLE>
<CAPTION>
Name(s) on Accounts Account Number Name(s) on Accounts Account Number
- ------------------------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------- -------------------------------------------------------------
- ------------------------------------------------------------- -------------------------------------------------------------
- ------------------------------------------------------------- -------------------------------------------------------------
- ------------------------------------------------------------- -------------------------------------------------------------
- ------------------------------------------------------------- -------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
GUIDELINES FOR REGISTERING STOCK
- --------------------------------------------------------------------------------
For reasons of clarity and standardization, the stock transfer industry
has developed uniform stock ownership registrations which we will use in issuing
your stock certificate. Common ownership registrations are explained below. If
you have any questions about how your First Bancorp of Indiana, Inc. stock
should be registered, see your legal advisor.
To ensure correct registration, please follow the instructions for the
ownership you select:
- --------------------------------------------------------------------------------
GENERAL INSTRUCTIONS: . Include the first name, middle initial, and last
name of each person listed. Avoid the use of an
initial in place of the first name.
. Do not use titles such as ("Mr.," "Mrs.," "Dr.,"
etc.)
. Omit words that do not affect ownership rights
such as "special account" "personal property,"
etc.
- --------------------------------------------------------------------------------
INDIVIDUAL: INSTRUCTIONS: Print the first name, middle
initial, and last name of the person in whose name
the stock is to be registered. You may not list
beneficiaries for this ownership.
- --------------------------------------------------------------------------------
JOINT TENANTS: Joint Tenancy with Right of Survivorship
identifies two or more persons as owners of the
stock. Upon the death of one of the owners,
ownership automatically passes to the surviving
tenant(s).
INSTRUCTIONS: Print the first name, middle
initial, and last name of each joint tenant. You
may not list beneficiaries for this ownership.
- --------------------------------------------------------------------------------
TENANTS IN COMMON: Tenants in Common identifies two or more persons
as owners of the stock. Upon the death of one co-
tenant, ownership of the stock passes to the heirs
of the deceased co-tenant and the surviving co-
tenant(s).
INSTRUCTIONS: Print the first name, middle
initial, and last name of each co-tenant. You may
not list beneficiaries for this ownership.
- --------------------------------------------------------------------------------
FIDUCIARIES: Generally, fiduciary relationships (such as
Conservatorship, Legal Trust, Guardianship, 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
conservator, personal representative, etc.
On 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 above "Adoption Date," 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.
EXAMPLE OF A FIDUCIARY REGISTRATION: John D. Smith
Trustee for Tom A. Smith Under Agreement Dated
6/6/74.
PLEASE NOTE THAT "TOTTEN TRUST" AND "PAYABLE ON
DEATH" OWNERSHIPS MAY NOT BE USED IN REGISTERING
STOCK. For example, stock cannot be registered as
"John Doe Trustee for Jane Doe" or "John Doe
Payable on Death to Jane Doe."
- --------------------------------------------------------------------------------
UNIFORM GIFTS TO For Indiana residents and residents of many
MINORS ACT/UNIFORM states, stock may be held in the name of a
TRANSFERS TO MINORS: custodian for the benefit of a minor under the
Uniform Transfers to Minors Act. For residents of
some other states, stock may be held in a similar
type of ownership under the Uniform Gifts 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: If you are a Indiana resident and
wish to register stock in this ownership, check
"Uniform to Minors Act." For other states, 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.
- --------------------------------------------------------------------------------
NASD AFFILIATION: Please refer to the NASD AFFILIATION statement on
the face of this form. If applicable, initial
where indicated and check the box. The National
Association of Securities Dealers, Inc.
Interpretation With Respect to Free-Riding and
Withholding (the "Interpretation") restricts the
sale of a "hot issue" (securities that trade at a
premium in the aftermarket) to NASD members,
persons associated with NASD members (i.e., an
owner, director, officer, partner, employee or
agent of a NASD member) and certain members of
their families. Such persons are requested to
indicate that they will comply with certain
conditions required for an exemption from the
restrictions.
- --------------------------------------------------------------------------------
CERTIFICATION: I/WE ACKNOWLEDGE THAT THIS SECURITY IS NOT A
DEPOSIT OR AN ACCOUNT AND IS NOT FEDERALLY
INSURED, AND IS NOT GUARANTEED BY FIRST BANCORP
OF INDIANA, INC. OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that this security is federally
insured or guaranteed, or is as safe as an insured
deposit, I/we should call the Office of Thrift
Supervision Regional Director, Central Regional
Office, at (312) 917-5000
I/We further certify that before purchasing the
common stock, par value $0.01 per share, of First
Bancorp of Indiana, Inc., I/we received a
PROSPECTUS that contains disclosure concerning the
nature of the security being offered and describes
the risks involved in the investment, including,
among others (1)____________; (2)____________;
(3)____________; (4)____________; (5)____________;
(6) ____________; (7)____________;
(8)____________; (9)____________;
(10)____________; (11)____________;
(12)____________. See "Risk Factors" on pages __
through __ of the Prospectus.
<TABLE>
<S> <C>
SIGNATURE:________________________________ SIGNATURE:________________________________
PRINT NAME:_______________________________ PRINT NAME:________________________________
</TABLE>
BY EXECUTING THIS CERTIFICATION, THE INVESTOR IS NOT WAIVING ANY RIGHTS UNDER
THE FEDERAL SECURITIES LAWS.
