As filed with the Securities and Exchange Commission on March 25, 1999.
Securities Act Registration No. 333 - 72049
Securities and Exchange Commission
Washington, D.C. 20549
Form S-4
Amendment No. 3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEWCO ALASKA, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 6022 92-0166346
- ------------------------------ ---------------------------- -----------------------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
331 Dock St., P.O. Box 7920
Ketchikan, Alaska 99901 907-228-4474
--------------------------------------------------------------------------
(Address and telephone number of registrant's principal executive offices)
William G. Moran, Jr., President and Chief Executive Officer
331 Dock St., P.O. Box 7920
Ketchikan, Alaska 99901 907-228-4474
--------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
Copies of all communications to:
Gordon E. Crim, Esq.
Foster Pepper & Shefelman PLLC
101 S.W. Main St., 15th Floor
Portland, Oregon 97204
Telephone: 503-221-1512
Facsimile: 800-600-1964
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| __________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| __________
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Explanatory Note:
The registrant is currently in organization, and therefore has not yet
issued shares of capital stock, and has no operations or assets. Accordingly, no
financial information for the registrant is included in this registration
statement. All disclosures for the company to be acquired (First Bancorp) are
provided in accordance with General Instruction D.4(c) to Form S-4, disclosures
for transitional small business issuers.
<PAGE>
FIRST BANCORP, INC.
331 Dock Street
P.O. Box 7290
Ketchikan, Alaska 99901
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, APRIL 15, 1999
The meeting of Shareholders of First Bancorp will be held at First
Bank's head office at 331 Dock St., Ketchikan, Alaska, at 11:30 a.m.,
April 15, 1999. At the meeting we will ask you to:
1. Elect four (4) directors;
2. Vote on a proposed reorganization that will allow the corporation
to become an "S-corporation" for income tax purposes; and
3. To transact such other business as may properly come before the
Meeting.
If you were a shareholder of record as of the close of business on
March 24, 1999, you may vote at the meeting.
We cordially invite all shareholders to attend the Meeting personally.
Whether or not you are able to attend, please be sure to sign, date and
promptly return your Proxy in the enclosed pre-paid envelope.
You may revoke your proxy at any time before the vote is taken at the
meeting. You may revoke your proxy by submitting a proxy bearing a later
date, or by notifying the secretary of First Bancorp (personally in writing
or by mail) of your wish to revoke your proxy. You may also revoke your
proxy by oral request if you are present at the meeting.
By order of the Board of Directors
William G. Moran, Jr., President
March 25, 1999
Ketchikan, Alaska
<PAGE>
FIRST BANCORP, INC.
331 Dock Street
P.O. Box 7290
Ketchikan, Alaska 99901
907-225-6101
We are planning to hold our annual shareholders meeting on Thursday,
April 15, 1999, at 11:30 a.m. at the main office of First Bank located at 331
Dock Street, Ketchikan, Alaska.
At the meeting, we will ask shareholders to consider and vote on the
election of four directors and a proposal to reorganize First Bancorp to
become an S corporation for income tax purposes. We want to reorganize as an
S corporation because we can
o Eliminate corporate-level income tax, and
o Reduce administrative costs
We expect to save more than $1.3 million in corporate-level income tax
during the first year after becoming an S corporation, even after costs of
the reorganization of approximately $100,000
Not every First Bancorp shareholder will continue to be a shareholder
after the reorganization. To continue as a shareholder, you must
o Be a citizen or resident of the United States, and
o Own at least 750 shares of First Bancorp stock or be a director of
First Bancorp.
If you do not meet these criteria, we will pay you $175.00 per share in
cash for each share of your First Bancorp common stock.
The Board of Directors of First Bancorp is soliciting your proxy to
vote your shares at the meeting. We sent you this proxy statement to give
you important information about the business that will take place at the
meeting. We are providing this information so that you will be fully
informed when you vote your shares.
You do not need to attend the meeting to vote your shares. Instead,
you may simply complete, sign and return the enclosed proxy.
An investment in First Bancorp common stock involves risks. You should
carefully read the information under "Risk Factors" on page 4 before sending
in your proxy or voting your shares.
You should only rely on the information in this document or in other
documents that we refer you to concerning First Bancorp or the proposed
reorganization. We have not authorized anyone to provide you with
information that is different.
Neither the Securities and Exchange Commission nor any state securities
commission has passed upon the accuracy or adequacy of this Proxy Statement.
Any representation to the contrary is a criminal offense.
March 25, 1999
<PAGE>
TABLE OF CONTENTS
Summary......................................................................1
Business of the Meeting................................................1
Election of Directors...............................................1
The Reorganization..................................................1
You may be entitled to dissent from the reorganization..............2
Voting At The Meeting..................................................2
Voting By Directors And Executive Officers.............................3
Market for the Common Stock..................................................3
Risk Factors.................................................................4
Business of the Meeting......................................................7
Agenda Item 1. Election of Directors..................................7
Information about the directors, nominees and executive officers....7
How we compensate our directors.....................................8
How we compensate our executive officers............................8
Does First Bancorp or First Bank do business with their
directors and officers?................................................9
How much stock do the directors and executive officers hold?..........10
Agenda Item 2. Reorganization to Form a Subchapter S Corporation.....11
What is a Subchapter S Corporation?................................11
Why form a Subchapter S Corporation?...............................11
How will the reorganization be accomplished?.......................11
How much will the reorganization cost?.............................12
Is the cash price fair?............................................12
The Board of Directors recommends a vote FOR the reorganization.......16
Conditions to the reorganization......................................16
You may dissent from the reorganization...............................17
What do I have to do in the reorganization?...........................18
What if I don't want to cash in my shares?............................18
What if I want to sell my shares, but I own more than 750 shares?.....18
What are the tax consequences of the reorganization to me and First
Bancorp?..............................................................18
Accounting treatment of the reorganization............................20
Restrictions on resale of shares......................................20
Voting at the annual meeting................................................21
Selected Historical and Pro Forma Condensed Financial Data..................23
Information About Newco, Inc................................................25
Information About First Bancorp, Inc........................................25
General...............................................................25
Industry..............................................................25
Competition...........................................................26
i
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Properties............................................................26
Employees.............................................................27
Legal Proceedings.....................................................27
Year 2000 Readiness...................................................27
Capital Adequacy......................................................29
Loan Portfolio........................................................31
Investment Portfolio..................................................36
Deposit Liabilities...................................................37
Supervision and Regulation............................................38
Description of Capital Stock................................................40
Certain Legal Matters.......................................................41
Experts.....................................................................41
Appendix A.................................................................A-1
Appendix B.................................................................B-1
Appendix C.................................................................C-1
Index To Consolidated Financial Statements.................................F-1
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<PAGE>
Summary
Business of the Meeting
Election of Directors
At the shareholders' meeting, we will ask you to vote on the election
of four directors.
The Board of Directors is nominating the following individuals for
three-year terms:
William G. Moran, Sr.
Joseph M. Moran
Ernest Anderes
These nominees are currently serving as directors.
In addition, the Board is nominating Kay Sims to fill a currently
existing vacancy on the Board and to serve a term of two years.
The Board recommends that you vote FOR all of the nominees.
The Reorganization
First Bancorp is proposing to reorganize so that we can be treated as
an S corporation for income tax purposes. We want to reorganize as an S
corporation because we can eliminate corporate-level income tax.
We expect to save more than $1.3 million in corporate-level income tax
during the first year we are an S corporation, even after spending
approximately $100,000 in costs for the reorganization.
Not every First Bancorp shareholder will continue to be a shareholder
after the reorganization. To continue as a shareholder, you must
o Be a citizen or resident of the United States, and
o Own at least 750 shares of First Bancorp stock or be a director of
First Bancorp.
We chose to include only shareholders with 750 shares or more to ensure
that we will qualify as an S corporation following the reorganization. If you
do not meet these criteria, we will pay you $175.00 per share in cash for each
share of your First Bancorp common stock. If you meet these criteria, you may
continue as a First Bancorp shareholder. If you are otherwise qualified to
continue as a shareholder but wish to sell your shares, we may purchase your
shares at the discretion of the Board of Directors.
We hired an independent investment advisor to evaluate the common stock
and to recommend a fair cash price. The Board accepted Sheshunoff's
recommendation of $175.00 per share based on Sheshunoff's experience in
evaluating financial institutions and rendering fairness opinions in merger
transactions. For a detailed explanation of how the evaluation was done,
including the qualifications of the independent investment advisor, see
"Reorganization to Form a Subchapter S corporation - Is the cash price fair?"
We have provided a detailed explanation of the terms and conditions of
the reorganization below under "Reorganization to Form a Subchapter S
Corporation." Please read the explanation carefully, and also read the plan
of reorganization in Appendix A.
The holders of at least a majority of the outstanding shares of First
Bancorp must vote in favor of the reorganization for it to be approved. We
also will need state and federal regulatory approvals.
The Board of Directors recommends a vote FOR the reorganization.
Directors will not receive cash for their shares in the reorganization,
but will continue as shareholders. Each director, as a shareholder, has an
interest in paying as little as possible to cash out those shareholders who
1
<PAGE>
are not entitled to remain shareholders. The directors therefore have a
conflict of interest in determining the cash price. For this reason, we
retained an independent financial advisor to determine a fair cash price. By
seeking the advice of an outside expert, the Board believes it is properly
fulfilling its fiduciary duty to all shareholders. See "Reorganization to
Form a Subchapter S corporation - Is the cash price fair?"
You may be entitled to dissent from the reorganization.
If you are not entitled to continue as a First Bancorp shareholder and
you object to the proposed reorganization, state law gives you the right to
dissent and receive the fair value of your First Bancorp shares in cash. The
fair value of your stock would be determined through a statutory appraisal
process and may be more or less than the $175.00 cash price we are paying.
You may not dissent if you are entitled to continue as a First Bancorp
shareholder.
To properly exercise your dissenters' rights under Delaware law, you
must
o give written notice to the President of First Bancorp, before we vote on
the reorganization, that you intend to dissent and demand a statutory
appraisal of your shares, and
o not vote in favor of the proposal.
Any time within 60 days following the reorganization, you may change
your mind and withdraw your dissent and accept the cash payment we are
offering. We have attached a copy of the relevant Delaware statute as
Appendix C.
Based on the opinion of our tax counsel, the tax consequences of the
reorganization will be as follows:
o If you continue as a shareholder, the reorganization will be tax-free.
The proposed transaction will qualify as a tax-free
reorganization. If you continue as a First Bancorp shareholder, you
will recognize no gain or loss for income tax purposes, and your cost
basis and holding period in your stock will not change.
o If we pay you cash for your shares, the cash payment will be taxable.
If you receive cash for your First Bancorp stock, you will
recognize capital gain or loss in an amount equal to the difference
between your cost basis in the stock and the cash you receive.
o If you continue as a shareholder, you may owe tax on your share of First
Bancorp's earnings even if we do not pay you a dividend.
As a shareholder of an S corporation, you will report your pro
rata share of the corporation's net income on your own personal income
tax return. You may owe tax on your share of the corporation's income,
even if the corporation does not pay you a dividend.
Voting At The Meeting
If you were a shareholder of First Bancorp as of the close of business
on March 24, 1999, you may vote at the shareholders' meeting.
You do not have to attend the meeting. You may vote your shares by
proxy if you wish. You may mark the enclosed proxy card to indicate your
vote on the matters presented at the meeting, and the individuals whose names
appear on the proxy card will vote your shares as you instruct.
You may still attend the meeting even if you have submitted a proxy.
2
<PAGE>
If you submit a proxy with no instructions, the named proxy holders
will vote your shares in favor of the nominees for directors and in favor of
the reorganization. In addition, the named proxy holders will vote your
shares in their own discretion on any other business at the meeting.
You may revoke your proxy at any time before the vote is taken at the
meeting.
Voting By Directors And Executive Officers
As of March 24, 1999, directors and executive officers of First Bancorp
beneficially owned 63,049 shares, of which all are entitled to vote. Those
shares constitute 30.3 percent of the total shares outstanding and entitled to
be voted at the meeting. We expect all directors, executive officers and
principal shareholders to vote in favor the Board of Directors' nominees for
directors, and in favor of the reorganization, although they are not obligated
to do so.
Market for the Common Stock
No registered broker/dealer makes a market in First Bancorp common
stock and the stock is not listed on any stock exchange. Trading is
infrequent and we do not consider the few transactions that have occurred to
be an established public market. Generally, First Bancorp common stock is
traded by individuals on a personal basis, and prices reported reflect only
the transactions we know about. Because there is limited information
available, the following data may not accurately reflect the actual market
value of First Bancorp common stock.
<TABLE>
<CAPTION>
Common Stock Prices
Number of Shares ------------------- Cash Dividends
Period Reported as Traded High Low Declared per Share
------ ------------------ ------ ------ ------------------
<S> <C> <C> <C> <C> <C>
Year Ended 1998 822 $ 115 $ 115 $ 5.00
Year Ended 1997 2,496 $ 100 $ 91 $ 5.00
Year Ended 1996 944 $ 95 $ 90 $ 5.00
</TABLE>
As of March 24, 1999, we had approximately 210 shareholders, not including
beneficial owners who hold shares in "street name."
First Bancorp's Dividend Policy. State and federal banking laws and
regulations place restrictions on the payment of dividends by a bank to its
shareholders. See "Information about First Bancorp -- Supervision and
Regulation." Our dividend policy is to review the bank's financial
performance, capital adequacy, regulatory compliance and cash resources on a
quarterly basis, and, if this review is favorable, to declare and pay a cash
dividend to shareholders. Although we expect to continue to pay cash
dividends, future dividends are subject to these limitations and to the
discretion of the Board of Directors, and could be reduced or eliminated.
For the past five years, we have paid a quarterly dividend of $1.25 per share.
3
<PAGE>
Risk Factors
An investment in First Bancorp common stock can involve risks. You
should carefully consider the following risk factors as well as the other
information contained in this proxy statement.
You may owe income tax your share of First Bancorp's income, even if we do
not pay you a dividend.
Following the reorganization, First Bancorp will be an S corporation
for tax years beginning after December 31, 1999.
Subchapter S is a flow-through structure for federal tax purposes and
is similar to a partnership. Like partners in a partnership, shareholders of
an S corporation report their pro rata shares of the corporation's income on
their own personal tax returns. As a result, if you continue as a
shareholder after the reorganization, you may have to pay income tax on your
share of First Bancorp's income, even if we do not pay any portion of that
income to you as a dividend. You may therefore owe income taxes on funds you
do not actually receive.
You may not be able to easily sell or transfer your shares, because the
Certificate of Incorporation prohibits transfers that would disqualify the
company for S corporation tax status.
The purpose of the proposed reorganization is to create a company that
qualifies for treatment as an S corporation under the Internal Revenue Service
Code. In general, shareholders of S corporations can only be individuals,
certain trusts, and employee stock ownership programs, and the number of
shareholders cannot exceed 75. After the reorganization, First Bancorp's
certificate of incorporation will include a provision that restricts the sale
or transfer of shares if, after such sale or transfer, First Bancorp would be
disqualified for treatment as an S corporation. This provision could limit
your ability to easily sell or transfer your shares. See "Description of
Capital Stock."
The market for First Bancorp common stock is illiquid and you may not be able
to sell your shares.
There is no public market for First Bancorp common stock, and we do not
expect a public market to develop. An investor in the shares of First
Bancorp should expect that the market for their shares will remain illiquid
and should expect to hold their shares for an indefinite period of time.
Historically, relatively few shares of the First Bancorp's stock have changed
hands on an annual basis, and we expect that this situation will continue for
the foreseeable future. Moreover, the reorganization will concentrate
ownership in fewer individuals, which will further limit the market for
shares of common stock. See "Market for the Common Stock."
Management stock ownership may diminish shareholders' ability to affect the
results of shareholder votes.
The directors and executive officers of First Bancorp currently
beneficially own 63,049 shares, or 30.3% of First Bancorp's outstanding
shares. We expect all of these shares will be voted in favor of the nominees
for directors and in favor of the reorganization. This significant
concentration of ownership by management may diminish the ability of other
shareholders to affect the outcome of the votes at the shareholder meeting.
First Bancorp will continue to have a potential tax liability that could
discourage a potential acquiror and diminish the value of First Bancorp stock.
Although First Bancorp, as an S corporation, will not be subject to
corporate-level income tax, it will continue to have a potential tax
liability for gains on appreciated assets if those assets are sold during the
first 10 years after conversion to an S corporation. The potential tax
liability may discourage a potential acquiror, or may diminish the value
received by First Bancorp shareholders in a merger transaction. See "What
are the tax consequences?"
4
<PAGE>
Our geographic concentration creates risks of adverse changes in the local
economy.
First Bancorp conducts its business in the communities of southeast
Alaska from Ketchikan to Juneau. Our business is geographically concentrated
in a region that lacks the economic diversity of larger urban areas in the
United States. As a result, adverse economic developments in southeast
Alaska can adversely affect the company's financial condition. The economy
of southeast Alaska is in a period of transition from being dependent on
renewable resources and manufacturing to being focused on seasonal tourism,
service industries and government-sponsored projects. This transition may
result in a decrease in per capita income and a corresponding decrease in
living standards for a significant number of the people living in southeast
Alaska. This decrease in income and economic activity could have a material
adverse effect on our business.
Other banks, credit unions and securities brokers are competing for our
customers.
We compete with several financial institutions, including commercial
banks, thrifts, credit unions, investment brokers and insurance companies,
many of which offer substantially identical products and services as we do,
or have distinct competitive advantages that permit them to attract our
customers. Some of the financial institutions competing in our market area
are significantly larger than First Bancorp. They have extensive operations
in other parts of the state of Alaska as well as other parts of the U.S.
These competitors can conduct wide-ranging advertising campaigns and allocate
assets to much broader geographic regions than we can. By virtue of their
greater capitalization, these institutions also have substantially higher
lending limits. These organizations are also financially capable of offering
a variety of products from trust services to international banking that First
Bank is not prepared to offer. Others, such as credit unions, can offer
rates that are more competitive than ours because of special tax and
regulatory exemptions that lower their operating costs. Although we have
been able to compete effectively in our market area, the changing nature of
the banking industry may increase competition and adversely affect our
profits.
The loss of key personnel could hurt our operations.
The success of First Bancorp is dependent on our ability to attract and
retain high quality management. Our president, William G. Moran, Jr., and
members of his family have a long history with the bank and have developed
the strong relationships with our customers that have been one key to our
success. The loss of Mr. Moran or other senior executive officers could
adversely impact our operations and our ability to attract and retain
customers. In addition, a disruption in senior management could hamper our
ability to be prepared for the year 2000 transition. We do not have
employment contracts with any of our senior management. We maintain key man
life insurance on Mr. Moran and Michael Youngblood, Vice President. Mr.
Youngblood manages our data processing systems and is in charge of our Y2K
readiness program.
Regulatory burdens can limit our growth, profitability and ability to pay
dividends.
Bank holding companies and their subsidiary banks are subject to
extensive regulation. These regulations are generally intended to protect
our deposit customers without regard to our shareholders. Legislation
affecting the financial services industry is under consideration from time to
time in Congress. Regulatory restrictions could limit our ability to compete
and could adversely affect our profitability. Moreover, First Bancorp is
dependent upon its wholly owned bank subsidiary, First Bank, for revenues to
pay operating expenses and to pay dividends to shareholders. First Bank is
subject to a variety of state and federal banking regulations that could
limit its ability to pay dividends to First Bancorp if those payments might
adversely affect the bank's financial condition. See "Description of First
Bancorp - Supervision and Regulation."
5
<PAGE>
Charter provisions may discourage a take-over, preventing a potential
increase in share value.
First Bancorp's certificate of incorporation authorizes the Board of
directors to issue additional shares of authorized but unissued shares of
common stock, as well as options or other rights to acquire shares of stock.
This authority gives the Board of Directors the ability to raise capital and
provides flexibility in financing corporate transactions. The issuance of
additional securities could dilute the ownership interest of existing
shareholders. The existence of stock options or the issuance of additional
stock could also increase the cost of acquiring control of the company, and
could be deemed to be an anti-takeover provision.
The certificate of incorporation and bylaws provide for a staggered
board of directors. Approximately one-third of the director positions are
filled each year. In addition, the removal of a director requires a super
majority vote of either the shareholders or the current directors. These
provisions make it difficult for a dissident shareholder to remove the entire
board of directors at one time, and may have the effect of discouraging
potential acquirers. As a result, you may not benefit from the increase in
share value that a take-over might cause. See "Description of Capital
Stock."
Year 2000 computer problems could interfere with collecting loan payments and
could cause customers to withdraw deposits.
Our operations are substantially dependent on the reliable performance
of our computer systems and software. It is now widely recognized that the
Year 2000 may pose significant problems if date-sensitive computer equipment
and software fail to properly recognize dates after December 31, 1999. These
problems may affect our own computer systems and software and other electronic
devices, as well as those of third-party vendors and significant customers. A
failure of our internal systems to perform properly could cause a disruption
in our business. In addition, similar disruptions in the businesses of our
vendors and significant customers could adversely affect our ability to
collect payments due on outstanding loans or to conduct other normal business
activities. Further, as Y2K has been well publicized, some bank customers may
seek to withdraw significant amounts of funds held on deposit, creating
pressure on the bank's liquidity. We do not expect widespread withdrawals to
occur, but the need to maintain adequate liquidity could have an adverse
effect on our ability to invest in interest-earning assets at that time, which
could adversely affect our earnings in the short term. See "Information about
First Bancorp - Year 2000 Readiness."
6
<PAGE>
Business of the Meeting
Agenda Item 1. Election of Directors
At the meeting, you will be asked to vote on the election of four
directors. Directors are elected by a plurality of votes, which means that
nominees receiving the most votes are elected, regardless of how many votes
they receive. You may not accumulate votes in the election of directors.
The number of directors may be between 5 and 25, with the exact number
to be fixed from time to time by resolution of the Board of Directors. The
Board of Directors has set the number of directors at nine.
Directors are elected in three classes to three-year terms expiring at
consecutive annual meetings of the shareholders or when their successors have
been elected and qualified. Five directors are serving terms that will
expire in 2000 or 2001. Three directors have completed their terms. There is
currently one vacant position. These four positions are open for election,
three for three-year terms, and one for a term of two years.
The Board of Directors is nominating the following individuals for
three-year terms:
William G. Moran, Sr.
Joseph M. Moran
Ernest Anderes
These nominees are currently serving as directors.
In addition, the Board is nominating Kay Sims to fill a currently
existing vacancy on the Board and to serve a term of two years.
If you submit a completed proxy, the individuals named as proxy holders
will vote your shares as you instruct. If you do not specify your choices,
then the persons named in the proxy will vote for the election of the
nominees listed above.
If any of the nominees is not available for election, your shares will
be voted for a substitute nominee chosen by the Board of Directors. We
believe all nominees will be available for election. We recommend a vote FOR
the election of all nominees.
Information about the directors, nominees and executive officers
The following describes certain information about each director, each
nominee for director, and each executive officer of First Bancorp. Following
the reorganization, each of these individuals will continue in their
respective capacities.
The business experience of each of the directors and executive officers
for the past five years has been as follows:
William G. Moran, Sr., age 80, serves as the Chairman of the Board of
Directors. Mr. Moran has been with First Bank for approximately 45 years.
William G. Moran, Jr., age 45, serves as a director, and as the
President and Chief Executive Officer, a position he has had for over 15
years. Mr. Moran is the son of William G. Moran, Sr. and the brother of
Joseph M. Moran, another director.
Joseph M. Moran, age 47, has served as a director of First Bank since
1984. Mr. Moran is an attorney and is president of his law firm, DeLisio
Moran Geraghty & Zobel PC in Anchorage, where he has practiced for over 20
years. Mr. Moran is the son of William G. Moran, Sr., Chairman of the Board
of Directors, and brother of William G. Moran, Jr., President of First
Bancorp.
7
<PAGE>
Ernest J. Anderes, age 70, has served as a director of First Bank since
1975 and of First Bancorp since its inception in 1989. Mr. Anderes has been
the owner of Anderes Oil, Inc. a petroleum products distributor, for over 25
years.
Michael J. Cessnun, age 43, has been a pilot for Alaska Airlines for 18
years. He has served as a director of First Bancorp since 1994.
Michael J. Elerding, age 46, has served as a director since 1990. Mr.
Elerding is the owner of Northern Sales Co. of Alaska, a wholesale food
distributor, and currently serves as its president. Prior to joining that
company in 1983, Mr. Elerding was employed by First Bank as a branch
manager.
Lisa A. Murkowski, age 41, has served as a director since 1990. Ms.
Murkowski is an attorney in Anchorage where she has practiced for the past 10
years. She was recently elected to the Alaska House of Representatives.
Alec W. Brindle, age 33, has served as a director since 1995. Mr.
Brindle is an attorney in Seattle, where he has practiced for the past 5
years.
Kay D. Sims, age 59, is a long-time resident of Ketchikan, and has been
active in the community, both in business and in community service
organizations. Ms. Sims is a managing member of Hospitality Unlimited, LLC,
the owner and operator of the Best Western Landing Hotel and Annabelle's
Famous Keg and Chowder House, in Ketchikan, and the Prospector Hotel in
Juneau.
James C. Sarvela, age 43, serves as Vice President and Chief Financial
Officer, a position he has had for over 10 years. Mr. Sarvela has more than
20 years of banking experience, most of which is with First Bank.
Jack E. Vaughn, age 51, serves as Vice President and Senior Lending
Officer. Mr. Vaughn has over 22 years of banking experience and has been
employed by First Bank since 1985 in various positions, including loan
officer and branch manager.
E. Michael Youngblood, age 48, serves as Vice President and oversees
the Systems Development Department. Mr. Youngblood has been with First Bank
for over 20 years.
The Board of Directors held ten meetings during 1998. All directors,
including those nominated for election, attended at least 75 percent of the
total number of meetings held during 1998.
How we compensate our directors
Each director of First Bancorp serves as a director of First Bank, our
subsidiary bank. The bank compensates the directors for their service, and
the directors do not receive additional compensation for serving as a
director of the holding company. We pay each director of the Bank a fee of
$500 per meeting of the Board of Directors and each non-employee director
$100 for each committee meeting.
How we compensate our executive officers
We compensate our executive officers with a combination of salary,
bonus and other benefits. The table below shows the total compensation
during 1998 of the President and each executive officer that received in
excess of $100,000:
8
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
-------------------------------------------------------
Other * All
Annual Other
Name and Principal Position Year Salary Bonus Compensation Compensation
- ---------------------------------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
William G. Moran, Jr. 1998 $198,721 $105,000 $ 8,459 $ -
President of First Bancorp 1997 $200,214 $100,000 $ 5,684 $ -
Chief Executive Officer, First Bank 1996 $188,905 $ 95,000 $ 4,619 $ -
James C. Sarvela 1998 $110,643 $ 8,000 $ 5,701 $ -
Vice President, Chief Financial Officer 1997 $107,364 $ 7,000 $ 3,949 $ -
1996 $108,779 $ 6,500 $ 3,146 $ -
Jack E. Vaughn 1998 $100,417 $ 7,500 $ 5,278 $ -
Vice President, Senior Lending Officer 1997 $ 97,025 $ 6,500 $ 3,660 $ -
1996 $ 93,711 $ 5,500 $ 2,873 $ -
E. Michael Youngblood 1998 $117,491 $ 8,000 $ 6,153 $ -
Vice President, Systems Administration 1997 $113,892 $ 7,000 $ 4,265 $ -
1996 $110,107 $ 6,500 $ 3,350 $ -
*Contributions to 401(k) and ESOP.
</TABLE>
None of the executive officers received perquisites or other personal
benefits exceeding the lesser of $50,000 or 10% of the respective person's
total annual salary and bonus.
Does First Bancorp or First Bank do business with their directors and
officers?
From time to time, some of the directors and officers of the Bank,
members of their immediate families, and firms and corporations with which
they are associated do business with First Bank. Generally this business
involves ordinary banking transactions, such as borrowings and investments in
time deposits. We make these transactions in the ordinary course of
business, on substantially the same terms, including interest rates paid or
charged and collateral required, as those prevailing at the time for
comparable transactions with unaffiliated persons. Loans to directors and
executive officers do not involve more than the normal risk of collectibility
or have other features that would be disadvantageous to the bank. As of
December 31, 1998, the aggregate outstanding amount of all loans to officers
and directors was approximately $1,619,000, which represented 7% of First
Bancorp's consolidated shareholders' equity at that date. All of these loans
are currently in good standing and are being paid in accordance with their
terms.
9
<PAGE>
How much stock do the directors and executive officers hold?
The following table shows the number of shares that each of the
directors and the named executive officers beneficially owned as of the
Record Date, and the directors and executive officers as a group. The table
also includes those persons that we know beneficially own more than 10% of
the common stock. The number of shares shown are held directly with sole
voting and investment power, unless otherwise indicated.
Number of
Shares
Beneficially Percentage
Name and Position Owned of Class
- --------------------------------------------- ---------------- -----------
William G. Moran Sr., Chairman of the Board 21,793 (1) 10.5%
William G. Moran, Jr., Director, President 28,783 (2) 13.8%
Ernest J. Anderes, Director 1,553 (3) *
Alec W. Brindle, Jr., Director 222 *
Michael J. Cessnun, Director 3,169 (4) 1.5%
Michael J. Elerding, Director 523 (5) *
Joseph M. Moran, Director 8,644 (6) 4.2%
Lisa A. Murkowski, Director 201 (3) *
Kay D. Sims, Nominee for Director 5,996 (4) 2.9%
James C. Sarvela, Chief Financial Officer 322 (7) *
Jack E. Vaughn, Vice President 237 (7) *
E. Michael Youngblood, Vice President 566 (7) *
All directors and executive officers as a 63,049 30.3%
group (11 persons)
_________________
* Less than 1.0%.
(1) Includes shares held jointly with his spouse.
(2) Includes shares held jointly with his spouse. Also includes shares held
by entities of which Mr. Moran is a principal. Also includes shares held
in the Employee Stock Ownership Plan. (3) Does not include shares held
by the Employee Stock Ownership Plan of which this person serves as a
trustee. (4) Includes shares held in a family partnership. (5) Includes
shares held by Northern Sales Co. profit sharing plan. Mr. Elerding is
the owner and president of Northern Sales Co. of Alaska. (6) Includes
shares held jointly with his spouse. Also includes shares held by
entities of which Mr. Moran is a principal. (7) Includes shares held in
the Employee Stock Ownership Plan
10
<PAGE>
Agenda Item 2. Reorganization to Form a Subchapter S Corporation
What is a Subchapter S Corporation?
Subchapter S is a flow through structure for federal income tax purposes
and is similar to a partnership. Like a partner in a partnership, a
shareholder of an S corporation must report on his or her tax return his or
her pro rata share of the corporation's income and deductions. An S
corporation pays no federal or (in many states) state corporate income taxes.
By eliminating federal tax at the corporate level, an S corporation avoids
double taxation of corporate profits that are distributed as dividends to
shareholders.
To qualify for treatment under Subchapter S, a corporation must meet
the following criteria:
o The corporation must have no more than one class of stock
o The corporation must have no more than 75 shareholders
o Shareholders of an S corporation must be natural persons or a qualifying
trust
o Shareholders must be residents or citizens of the U.S.
Why form a Subchapter S Corporation?
The banking industry is undergoing significant changes, among which is
the continuing consolidation through mergers and acquisitions involving both
community banks and large, regional banks. This consolidation results in
larger institutions that have higher lending limits and are able to conduct
advertising and marketing activities on a large scale. The evolution of the
banking industry is increasing the competitive pressures on our bank. We
believe that the reorganization will enable us to be more profitable and
enhance shareholder value by eliminating or reducing the amount of tax on net
income at the corporate level.
Eliminating the Corporate Income Tax. Generally, corporations that
qualify under Subchapter S do not pay income taxes at the corporate level.
Unlike other corporations, which are taxed under Subchapter C of the Internal
Revenue Code, the earnings of an S corporation can be distributed to
shareholders in the form of dividends without any prior reduction to account
for income taxes. This means that more of the net earnings of the
corporation is available for distribution to shareholders or for other
corporate purposes.
For the year ended December 31, 1998, First Bancorp paid or will pay
approximately $1,432,000 in corporate income taxes on pre-tax earnings of
$3,750,979. We paid out $1,041,773 in dividends in 1998. The amount of net
income available for investment and for distributions to shareholders is
significantly reduced by corporate level taxation. In addition, distributions
to shareholders currently are made on an after-tax basis, meaning that all
dividends have been taxed at the corporate level, and are taxed again at the
individual level. This double taxation of dividends significantly reduces
the value of such distributions to shareholders and can adversely affect the
value of the common stock.
How will the reorganization be accomplished?
We have organized a new corporation called Newco Alaska, Inc. solely to
complete the reorganization. Newco is a shell corporation with no assets or
operations. Newco's management consists of the same people who are currently
directors and executive officers of First Bancorp.
Newco and First Bancorp will merge, with Newco being the surviving
corporation. Newco will elect S corporation status prior to the merger, then
change its name to First Bancorp, Inc. upon completion of the merger.
11
<PAGE>
Because this merger is simply a legal procedure, we refer only to First
Bancorp, either before or after the reorganization, and not to Newco as a
separate entity.
Only some of First Bancorp shareholders will continue to be
shareholders of First Bancorp following the reorganization.
You are eligible to continue as a First Bancorp shareholder if you
o are a citizen or resident of the United States, and
o own at least 750 shares of First Bancorp stock or you are a director of
First Bancorp.
If you do not meet these criteria, we will pay you $175.00 per share in
cash for each share of your First Bancorp common stock and you will no longer
be a shareholder of First Bancorp. We chose to include only shareholders with
750 shares or more to reduce the total number of shareholders to less than 75
in order to qualify as an S corporation following the reorganization. As of
March 24, 1999, approximately 50 shareholders hold more than 750 shares. We
expect substantially all shareholders holding more than 750 shares to maintain
their ownership positions prior to and following the reorganization.
How much will the reorganization cost?
We expect the reorganization to cost approximately $100,000 including
fees and expenses paid for professional services, printing and mailing proxy
materials and organizational expenses for Newco. We anticipate that cash
payments to those shareholders who do not continue as First Bancorp
shareholders will total approximately $5,250,000. We have made arrangements
with an unaffiliated financial institution for a $3 million line of credit to
provide funds to cover the costs of the reorganization. First Bancorp will
pay the remaining costs from a dividend from First Bank.
Is the cash price fair?
We hired Alex Sheshunoff & Co Investment Banking, an independent
investment banking firm, to conduct an appraisal of First Bancorp common
stock, to determine a fair value of the common stock and to provide its
opinion of the fairness of the cash price we are paying. Sheshunoff
determined that the cash price of $175.00 per share was a fair value, and has
given us an opinion that the cash price is fair from a financial point of
view, to shareholders who are to receive cash in the reorganization. The
Board accepted Sheshunoff's recommended cash price and did not participate in
the determination of that price.
As part of its investment banking business, Sheshunoff is regularly
engaged in the valuation of securities in connection with mergers and
acquisitions, and valuations for estate, corporate and other purposes. We
retained Sheshunoff based upon its experience in evaluating financial
institutions.
Scope of the analysis
To determine the cash price, Sheshunoff analyzed
o recent merger or acquisition transactions involving comparably sized
financial institutions,
o First Bancorp using a discounted cash flow analysis, and
o market prices of similar financial institutions in the Northwest that
are not involved in merger or acquisition transactions.
Sheshunoff also considered the Alaska economy compared to those of the
states of Oregon and Washington. Based on these analyses and its experience
in evaluating financial institutions, Sheshunoff concluded that $175.00 per
share was a fair price for First Bancorp common stock.
12
<PAGE>
A copy of Sheshunoff's opinion letter is attached as Appendix B. We
urge you to read the opinion carefully. The opinion is not a recommendation
to any shareholder as to how he or she should vote on the proposed
reorganization.
Sheshunoff reviewed and evaluated information about First Bancorp,
including
o First Bancorp's consolidated financial statements,
o budget and financial projections prepared by the management of First
Bancorp, and
o conversations with management regarding recent and projected financial
performance of First Bancorp.
Sheshunoff reviewed First Bancorp's internally generated financial
forecasts as part of its discounted cash flow analysis. Management's
forecasts assumed
o asset growth of approximately 5% per year,
o return on assets of approximately 1.0%,
o net income growth of between 6% and 18% per year, and
o constant dividend payout of 40% of net income per year.
The financial forecasts that we provided to Sheshunoff were developed
for internal planning purposes only, and do not represent any promise or
expectation of future results.
Sheshunoff did not independently verify any of information it used in
its analysis, or any of our assumptions. Sheshunoff did not independently
appraise First Bancorp's assets or liabilities, and did not examine any
individual loan files.
The fairness opinion requires subjective decisions as to which methods
of financial analysis to use. Therefore, the evaluation of the fairness of
the cash payment is subjective and is based on Sheshunoff's experience and
judgment and not merely the result of mathematical analysis. You should not
view the analyses and resulting values described below as indicative of
actual values or future results.
Analysis of Comparable Transactions.
Sheshunoff analyzed the premiums paid in selected pending or recently
completed acquisitions of banking organizations in the United States and in
the Northwestern United States, with comparable characteristics to the First
Bancorp transaction. Two sets of comparable transactions were analyzed to
ensure a thorough comparison.
The first set of comparable transactions consisted of 7 transactions in
Idaho, Montana, Oregon and Washington that were announced within the past two
years and involving institutions with total assets between $100 million and
$300 million. The following table shows the results of that analysis:
<TABLE>
<CAPTION>
Seller Information Announced Deal Information
--------------------------------------------- --------------------------------------------
Total Eqty/ YTD YTD NPAs/ Deal Deal Pr/ Deal Pr/ Deal Deal Pr/
Assets Assets ROAA ROAE Assets Pr/Bk Tg Bk 4-Qtr Pr/Deps Assets
($000) (%) (%) (%) (%) (%) (%) EPS(x) (%) (%)
--------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum $ 298,478 10.57 2.21 26.65 0.62 3.97 3.97 29.78 37.97 32.87
Minimum $ 105,504 6.18 0.67 8.13 - 2.44 2.49 12.03 17.32 16.04
Average $ 165,708 8.01 1.51 18.64 0.22 3.08 3.14 19.93 28.92 24.94
Median $ 107,199 8.00 1.65 21.00 0.01 2.60 2.79 20.32 29.53 26.64
First Bancorp, Inc. $ 254,795 9.10 0.98 11.10 0.19 1.57 1.61 15.72 15.88 14.30
</TABLE>
13
<PAGE>
No sales of banks have been reported in the state of Alaska since
January 1, 1997. The first set of comparable transactions included banks
that sold in locations in closest proximity to First Bancorp's location.
The second set of comparable transactions consisted of 25 mergers and
acquisitions located in the United States that were announced within the past
two years involving institutions with total assets between $200 million and
$300 million. The following table shows the results of that analysis:
<TABLE>
<CAPTION>
Seller Information Announced Deal Information
--------------------------------------------- --------------------------------------------
Total Eqty/ YTD YTD NPAs/ Deal Deal Pr/ Deal Pr/ Deal Deal Pr/
Assets Assets ROAA ROAE Assets Pr/Bk Tg Bk 4-Qtr Pr/Deps Assets
($000) (%) (%) (%) (%) (%) (%) EPS(x) (%) (%)
--------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum $298,478 13.89 2.88 35.30 1.70 5.59 5.59 5.59 57.10 60.56
Minimum $200,916 7.11 0.46 6.88 - 1.85 1.85 1.85 9.35 17.46
Average $241,117 9.43 1.41 15.58 0.55 3.14 3.14 3.28 25.83 29.71
Median $234,257 8.58 1.23 13.51 0.43 3.00 3.00 3.03 23.50 28.68
First Bancorp, Inc. $254,795 9.10 0.98 11.10 0.19 1.57 1.57 1.61 15.72 14.30
</TABLE>
The comparable transactions approach indicated per share valuations for
First Bancorp stock ranging between $154 and $178. These values were
determined using multiples of earnings and book value that Sheshunoff
determined to be appropriate based on the similarities and differences
between First Bancorp and the other institutions.
The table above shows that if First Bancorp shares were valued using
the national sample group's maximum multiples of book value and trailing
four-quarter earnings, the cash price would have been $623 and $635,
respectively. If valued at the minimum multiples, the cash price would have
been $206 and $104, respectively.
The multiples for First Bancorp tended to be lower than many of the
comparable transactions because First Bancorp's return on assets and return on
equity were lower than average for the sample group. In addition, Sheshunoff
noted appreciable differences between the market areas of First Bancorp and
the other institutions.
Discounted Cash Flow Analysis.
Using discounted cash flow analysis, Sheshunoff estimated the present
value of the future stream of after-tax cash flow that First Bancorp could
produce through the year 2003. After-tax cash flow is the maximum dividends
available to shareholders while maintaining capital ratios. The analysis was
done using two different sets of assumptions:
o Intermediate net income growth rate ranging between 6% and 18% through
the year 2003 based on management's projections, with the terminal value
based on a 4% growth rate, and
o Intermediate net income growth rate of 18.5% through the year 2003 based
on the historical average for the past three years, with the terminal
value based on a 4% growth rate.
Sheshunoff estimated the terminal value for First Bancorp at the end
2003 by capitalizing projected earnings for 2003 assuming a long-term growth
rate of 4%, because that rate reasonably could be expected to be sustained
indefinitely. First Bancorp's average historical growth rate for the past
three years was 18.5%. Although the recent historical growth rate is
significantly higher than Sheshunoff's assumed long-term rate, the historical
rate is likely not sustainable; net income for 1998 grew only 5.9% from 1997.
14
<PAGE>
The terminal value was then discounted to present value using a
discount rate of 13%-15%. Sheshunoff believes that this discount rate
reflects the risk of uncertainty associated with the expected cash flow
stream, and represents a rate of return investors would seek from similar
investments with similar risks. Sheshunoff determined the appropriate
discount rate by adjusting the risk-free rate of return by the equity risk
and specific company risk of holding common stock in First Bancorp.
The discounted cash flow analysis based on management's projected 6% -
18% intermediate growth rate indicated a per share value range of $131 to
$162. Based on the three-year historical average growth rate of 18.5%, the
resulting per share value ranged from $181 to $225.
Sheshunoff's analysis was based on assumptions it believes are
appropriate and would give the best indications of estimated value. You
should be aware that a discounted cash flow analysis based on different
assumptions would yield significantly different value indications. For
example, if the terminal value were calculated using a 5% long-term growth
rate, the per share value range would be $141-$175 using management's growth
estimates, and $194-$246 using the 18.5% recent historical growth rate.
Further, applying a discount rate of 11%-13% to the original assumptions
would yield per share values ranging from $162-$211 using mangement's growth
projections and $225-$294 using the recent historical growth rate.
The use of different assumptions illustrates the imprecise nature of
the evaluation process. Sheshunoff chose a 4% long-term growth rate and
13%-15% discount rate on the basis of its judgment and experience in
evaluating financial institutions. As the evaluation process involves
considerable use of judgment, we cannot be sure that the assumptions will
prove accurate.
Comparable Company Analysis
The lack of recent bank acquisitions in the state of Alaska makes
valuations based on comparable institutions located in other states
inconclusive. The economic conditions in Alaska are much different than those
of other states in northwestern United States. Sheshunoff compared selected
financial data and market prices of a group of northwestern bank holding
companies to publicly traded banks in Alaska with assets below $500 million.
There is only one publicly traded bank in Alaska with assets under $500
million.
This comparison showed that the Alaska bank's pricing multiples were
lower than those reported by the other institutions in the group. The
following table illustrates this comparison:
15
<PAGE>
<TABLE>
<CAPTION>
Bank Name Location Ticker Total Equity Return Return Price to Market
Assets to On On LTM Price
($000) Assets Assets Equity Earnings to
(%) (%) (%) Multiple Book Value
(x) (%)
--------------- -------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
American Pacific Bank Portland, OR AMPBB 48,575 9.06 0.87 9.03 9.72 90.21
Cascade Bancorp Bend, OR CACB 286,272 9.19 2.20 22.46 20.35 414.69
Columbia Bancorp The Dalles, OR CBBO 265,802 8.64 1.89 21.02 13.64 271.90
Northern Bank of Commerce Portland, OR NBOC 57,938 8.55 0.89 10.16 25.39 201.11
Northrim Bank Anchorage, AK NRIM 328,836 7.85 1.52 18.28 11.07 177.48
Security Bank Holding Co. Coos Bay, OR SBHC 280,386 10.58 0.95 9.09 13.67 120.03
United Security Bancorp Spokane, WA USBN 404,667 10.09 1.47 14.86 12.20 167.87
VRB Bancorp Rogue River, OR VRBA 308,594 11.03 1.64 14.43 14.35 198.21
Maximum 404,667 11.03 2.20 22.46 25.39 414.69
Minimum 48,575 7.85 0.87 9.03 9.72 90.21
Average 247,634 9.37 1.43 14.92 15.05 205.19
Median 283,329 9.13 1.50 14.65 13.65 187.84
First Bancorp, Inc. Ketchikan, AK 254,795 9.10 0.98 11.10 NA NA
</TABLE>
No company or transaction is identical to First Bancorp or the
reorganization. A valuation analysis necessarily involves subjective
considerations and judgments about the differences between First Bancorp the
companies to which it is being compared. Mathematical analysis is not in
itself a meaningful method of using comparable transaction data or comparable
company data.
We have agreed to pay Sheshunoff a retainer fee of $2,500, and
professional fee of $22,500 upon the delivery of a fair value determination
its opinion of the fairness of the cash price. Sheshunoff's fee is not
contingent upon or affected by its valuation conclusion.
Sheshunoff has for the past several years provided a fair market value
of the shares held by First Bancorp's Employee Stock Ownership Plan. Other
than these activities, there has been no relationship between Sheshunoff and
First Bancorp during the past two years.
You are urged to read the fairness opinion carefully. Sheshunoff's
opinion does not constitute a recommendation as to how you should vote at the
meeting.
The Board of Directors recommends a vote FOR the reorganization
The Board of Directors of the Bank has unanimously approved the
reorganization, and believes the formation of an S-corporation is in the best
interests of the shareholders. If for any reason the Board of Directors
believes that completing the reorganization is inadvisable, then we will not
be required to complete the reorganization. For example, the Board would
likely abandon the reorganization if
o the tax code was amended to diminish the tax advantage of being an S
corporation, or
o the cost of the reorganization would reduce the company's capital to a
level below regulatory minimum.
We have not been approached by any other institution about merging with
or acquiring First Bancorp.
Conditions to the Reorganization
We will not complete the reorganization unless certain conditions are
satisfied. Those conditions, which are described below are:
o Shareholder approval by a majority vote
16
<PAGE>
o Regulatory approval by the Federal Reserve and the Alaska Division of
Banking
Shareholder Approval is Required
The holders of at least a majority of the outstanding shares of First
Bancorp common stock must approve the reorganization. As of March 25, 1999, we
had approximately 210 shareholders, not counting beneficial owners who hold
shares in "street name." As of that date, we had 208,275 shares outstanding,
of which 63,049 were held by directors and executive officers. Those shares
constituted 30.3% of the total shares outstanding. We expect all directors and
executive officers to vote in favor of the reorganization.
Regulatory Approvals
o State Approval. Although the creation of Newco and the merger with First
Bancorp is only a procedural method to complete the reorganization, the
Director of the Alaska Division of Banking must approve Newco to operate
as a bank holding company in the state of Alaska. We are applying to the
Director for such approval, and we anticipate receiving approval in due
course. However, we cannot be sure as to when or if such approval will
be given.
o Federal Approval. The Board of Governors of the Federal Reserve System
has regulatory jurisdiction over bank holding companies and transactions
involving bank holding companies. We are applying to the Federal Reserve
for approval of the reorganization. We believe that the Federal Reserve
will approve the transaction in due course. We cannot be sure, however,
that we will receive approval. We may also encounter delays or other
unfavorable action.
You may dissent from the reorganization
You have the right to dissent from the reorganization if you are not
entitled to continue as a First Bancorp shareholder. Within 120 days after
the reorganization is completed, you may petition the Chancery Court in the
State of Delaware for an appraisal of your shares.
The fair value of your stock determined through the statutory appraisal
process may be more or less than the $175.00 cash price we are paying. You
may not dissent if you are entitled to continue as a First Bancorp
shareholder, because Delaware law provides that if you are to receive shares
of the acquiring company in a merger, you may not dissent from the proposal.
To properly exercise your dissenters' rights under Delaware law, you
must
o give written notice to the President of First Bancorp, before we vote on
the reorganization, that you intend to demand appraisal of your shares,
and
o not vote in favor of the proposal.
If the shareholders approve the reorganization, and you have properly
perfected your dissenters' appraisal rights, we will send you a notice within
10 days after we have completed the reorganization. You may, within 20 days
following the date our notice is mailed to you, demand in writing the
appraisal of your shares.
Any time within 60 days following the reorganization, you may withdraw
your demand for an appraisal and receive the cash price for your shares. We
have attached a copy of the Delaware appraisal statute as Appendix C.
17
<PAGE>
What do I have to do in the reorganization?
We will send to you a letter when the reorganization has been
completed. If you are entitled to continue as a shareholder, you need take
no further action.
If you are not entitled to continue as a First Bancorp shareholder, we
will send you a check for the cash payment. Your First Bancorp stock
certificates will be cancelled, and you do not need to take any further
action.
What if I don't want to cash in my shares?
If you own fewer than 750 shares of First Bancorp common stock and wish
to remain a shareholder, you may purchase shares from other shareholders who
are willing to sell their shares so that you hold at least the minimum of 750
shares. All transactions are the responsibility of individual shareholders and
we cannot guarantee the price or availability of shares for purchase.
What if I want to sell my shares, but I own more than 750 shares?
You are free to sell your shares at any time before we complete the
reorganization. In addition, at the discretion of the Board of Directors, we
will purchase your shares at the cash price, even if you own more than 750
shares. You should notify us immediately after the shareholder meeting if
you intend to request cash for your shares and you are not otherwise entitled
to a cash payment. If you own more than 750 shares and you want to be sure
that we will purchase your shares, you may sell or transfer some of your
shares prior to the reorganization to reduce the number you hold to less than
750 shares.
We will consider all requests for cash payment submitted by those
shareholders not otherwise entitled to receive cash if the requests are
submitted within 10 days following the shareholders' meeting. Assuming that
the Board of Directors in its sole discretion determines that there are
sufficient funds available, we will purchase shares from all shareholders
requesting cash payment.
We will purchase from those shareholders holding the fewest shares
first. We will purchase shares from as many shareholders that wish to sell
their shares as possible so long as we are able without our capital falling
below regulatory minimums. If we purchase your shares, we will only purchase
all, and not less than all, of your shares. We currently expect that we will
purchase approximately 12,000 shares from shareholders holding 750 shares or
more.
If you are otherwise not entitled to receive cash, we reserve the right
not to purchase your shares. We will not purchase your shares if doing so
would cause First Bancorp's capital to fall below the regulatory minimum for
a well-capitalized institution.
What are the tax consequences of the reorganization to me and First
Bancorp?
We have received an opinion from our tax counsel stating that the
reorganization will have the following tax consequences:
18
<PAGE>
Shareholders who continue as shareholders of First Bancorp
If you continue as a First Bancorp shareholder, you will recognize no
gain or loss for income tax purposes, and your cost basis and holding period
in your stock will not change.
As a shareholder of an S corporation, your cost basis in your shares
will fluctuate. If the corporation realizes income that is not distributed,
your basis will increase by the amount not distributed. Distributions, or
dividends paid out, will decrease your basis in the stock. Whether or not we
pay out a dividend, you will be liable for income tax on your share of net
income of the corporation.
Shareholders who receive cash for their First Bancorp shares
If you receive cash for your First Bancorp stock, you will recognize
capital gain or loss in an amount equal to the difference between your cost
basis in the stock and the cash you receive as of the date of the
reorganization.
We urge you to consult your own tax advisor about your own tax matters.
First Bancorp
An S corporation is generally exempt from income tax, and net income is
passed through to its shareholders. A corporation that was a C corporation
and subsequently converted to as S corporation may be taxed on what is known
as built-in gains.
The built-in gains tax is a tax at the corporate level on income or
capital gains realized during the time when the corporation was a C
corporation. This tax is intended to prevent a corporation from
circumventing corporate level tax on appreciated assets by converting to S
status. The tax applies to
o gains recognized on appreciated assets if those assets are disposed of
within 10 years of conversion to S status, and
o income generated as a result of required accounting method changes.
Gains on the sale of assets. We estimate that as of January 1, 1999, we
have built-in gains for assets that have a reasonable likelihood of being
disposed of within 10 years of between $615,000 and $2.7 million. The
potential tax liability ranges from $250,000 to $1,110,000. The lower amount
assumes that Other Real Estate Owned is sold, and includes income realized
from required changes in accounting for the loan loss reserve. The higher
amount assumes the additional sale of real property that we own, a
circumstance we consider highly unlikely. An even greater built-in gains tax
would exist if First Bancorp merged with or was acquired by another
institution in a taxable transaction or if all bank assets were purchased by
another institution during the 10-year period. As of January 1, 1999, the
total estimated built-in gains were approximately $13 million, with a
potential tax liability of approximately $5.33 million. This tax liability
might be viewed unfavorably by a potential acquiror or might reduce the value
received by shareholders in such a transaction.
Loan loss reserve accounting change. As an S corporation, we must
change from the reserve method of accounting for loan losses and adopt the
specific charge-off method. The recapture of the loan loss reserve will
generate built-in gains ratably over the next six years, which may be offset
with built-in losses. As of December 31, 1998, the maximum aggregate
built-in gains tax on the recapture of loan loss reserves would have been
approximately $155,000, payable over six years.
The size of the built-in gains and associated taxes are based on
management's best estimates. The actual built-in gain will be calculated as
of the date we become an S corporation. We expect to minimize recognition of
built-in gains as much as possible, so these estimates may not necessarily be
realized.
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<PAGE>
Accounting treatment of the reorganization
We intend to account for the reorganization as a repurchase of treasury
stock. Under this method of accounting, the assets and liabilities of First
Bancorp are carried forward on a historical basis. The total cash amount
paid to shareholders will be recorded as a reduction in shareholders'
equity. We expect this cash amount to be approximately $5,225,000, assuming
that we purchase approximately 30,000 shares. Actual costs could be as high
as $6 million and as low as $4 million.
Restrictions on resale of shares
After the reorganization, transfers of stock will be prohibited if the
transfer would result in disqualification of First Bancorp for income tax
treatment as an S corporation. See "Description of Capital Stock." Transfers
that would disqualify First Bancorp as an S corporation would be any transfer:
o to a corporation
o to a non-qualifying trust
o to a non-U.S. citizen or non-resident alien or
o that would result in First Bancorp having more than 75 shareholders
After the reorganization, you may sell or transfer any number of your
shares even if you have fewer than 750 shares after the sale. However,
because the transfer of shares is subject to the provisions of the
certificate of incorporation, you should confirm with the company the
validity of any sale or transfer prior to making any such sale or transfer of
your shares. Any purported transfer that would disqualify First Bancorp as
an S corporation will be void, and the transfer will not be recorded on the
shareholder record.
After the reorganization, directors, executive officers and significant
shareholders of First Bancorp may not sell their shares of First Bancorp
common stock, except pursuant to an effective registration statement under
the Securities Act of 1933, or pursuant to the provisions of Rule 144 under
the Securities Act of 1933, unless in the opinion of counsel such shares may
be sold pursuant to an applicable exemption from the registration
requirements of the Securities Act.
Other information is available
We have filed a registration statement on Form S-4, Commission File No.
333 - 72049, with the Securities and Exchange Commission covering the Newco
shares to be issued in the reorganization. This proxy statement serves as
the prospectus portion of the registration statement. Some of the
information filed as part of the registration statement has not been included
in this proxy statement, as permitted by SEC rules. You can inspect and copy
the registration statement at Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20459, or at the
regional offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can also obtain a
copy of the registration statement online from the internet website
maintained by the SEC at http://www.sec.gov.
Agenda Item 3. Other Business
At the meeting, we will report on our business and you will have the
opportunity to ask questions.
We know of no other business for the meeting. In the event other
matters are presented for a vote at the Meeting, the proxy holders will vote
your shares in their discretion.
20
<PAGE>
Voting At The Annual Meeting
Who may vote
If you were a shareholder of First Bancorp as of the close of business
on March 24, 1999, you are entitled to vote at the meeting.
Voting by proxy
You do not have to attend the meeting. You may vote your shares by
proxy if you wish. You may mark the enclosed proxy card to indicate your
vote on the matters presented at the meeting, and the individuals whose names
appear on the proxy card will vote your shares as you instruct.
If you submit a proxy with no instructions, the named proxy holders
will vote your shares voted in favor of the nominees for directors and in
favor of the proposed reorganization. In addition, the named proxy holders
will vote in their discretion on such other matters that may be considered at
the shareholders' meeting. The Board of Directors has named Dorothy Benson
and Kay Gichard as the proxy holders. Their names appear on the proxy form
accompanying this proxy statement. You may name another person to act as
your proxy if you wish, but it is not necessary to do so.
Revoking a proxy
You may revoke your proxy at any time before the vote is taken at the
meeting. You may revoke your proxy by submitting a proxy bearing a later
date or by notifying the secretary of First Bancorp (personally in writing or
by mail) of your wish to revoke your proxy. You may also revoke your proxy
by oral request if you are present at the meeting.
You may still attend the meeting even if you have submitted a proxy.
You should be aware that simply attending the meeting will not, of itself,
revoke a proxy.
Please complete, date, and sign the accompanying proxy and return it
promptly to us in the enclosed, postage-paid envelope, even if you plan to
attend the meeting.
Number of shares that may vote
The authorized capital stock of First Bancorp consists of one million
shares of common stock. As of March 24, 1999, there were 208,275 shares of
common stock issued and outstanding and entitled to vote at the meeting.
How we determine a quorum
Shareholders holding at least a majority of the outstanding shares of
common stock must either attend the meeting or submit proxies to have a
quorum. If you come to the meeting or submit a proxy, but you abstain from
voting on a given matter, we will still count your shares as present for
determining a quorum.
How we count votes
The named proxies will vote your shares as you instruct on your proxy.
We will not count abstentions or broker non-votes for or against a matter
submitted to a vote of shareholders. Each share is entitled to one vote.
A broker non-vote occurs when a broker or other nominee holder, such as
a bank, submits a proxy representing shares that another person actually
owns, and that person has not given voting instructions to the broker or
other nominee. On some matters, such as the election of directors, a broker
21
<PAGE>
or other nominee can vote those shares without instructions from the
beneficial owner. On other matters, such as the proposed reorganization, a
broker may only vote those shares if the beneficial owner gives the broker
voting instructions. We will count broker non-votes as present for
establishing a quorum.
Counting votes in the election of directors
Directors are elected by a plurality of votes, which means that the
nominees that receive the most votes will be elected, regardless of how many
votes each nominee gets. You may not accumulate your votes in electing
directors, but rather, you may vote the total number of shares that you own
for each open director position.
Counting votes for the reorganization
To approve the reorganization, shareholders holding at least a majority
of the outstanding shares of common stock must vote in favor of the
proposal. Therefore, we will count abstentions and broker non-votes as votes
against the proposal.
What if I do not mark my proxy?
If you submit a signed proxy without giving voting instructions, the
named proxies will vote your shares in their discretion. Those individuals
named on the enclosed proxy form intend to vote for the Board of Directors'
nominees for director and in favor of the proposed reorganization. If you do
not sign your proxy, we will not count you as present for determining a
quorum, and we will not count your votes.
How many shares do directors and officers own?
As of the Record Date, we had 210 shareholders of record. Directors
and executive officers of First Bancorp beneficially owned 63,049 shares, of
which all are entitled to vote. Those shares constitute 30.3 percent of the
total shares outstanding and entitled to be voted at the meeting. We expect
all directors, executive officers and principal shareholders to vote for the
Board's nominees for directors, and in favor of the reorganization, although
they are not obligated to do so.
What about shares I own in the Employee Stock Ownership Plan?
If you hold shares of common stock through your participation in the
Employee Stock Ownership Plan, you will be permitted to vote your shares by
giving instructions to the plan trustees. The trustees will collect proxies
or other voting instructions from plan participants and vote the plan's
shares accordingly.
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<PAGE>
Selected Historical and Pro Forma Condensed Financial Data
The following are unaudited selected historical and pro forma financial
information for the year ended December 31, 1998. The pro forma amounts
assume the Reorganization is accounted for as a treasury stock buy-back. You
should read these along with the financial statements and notes thereto
included in this proxy statement.
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1998
-------------------------------------------------------
ASSETS: First Bancorp Adjustments (a) Pro Forma
------------- ------------- -----------
<S> <C> <C> <C>
Cash and due from banks $ 9,783,427 $ (3,250,000) (b) $ 6,533,427
Federal funds sold 9,391,000 - 9,391,000
Investment securities available for sale 100,960,973 - 100,960,973
Investment in Federal Home Loan Bank stock 2,896,900 - 2,896,900
Loans (net) 121,700,705 - 121,700,705
Premises and equipment (net) 5,796,522 - 5,796,522
Accrued interest receivable 1,756,967 - 1,756,967
Other assets 2,508,378 - 2,508,378
------------ ------------ ------------
Total Assets $254,794,872 $ (3,250,000) (b) $251,544,872
============ ============ ============
LIABILITIES & STOCKHOLDERS' EQUITY:
Liabilities:
Deposits:
Demand $ 68,133,335 $ - $ 68,133,335
Savings 48,846,681 - 48,846,681
Time deposits greater than $100,000 60,814,472 - 60,814,472
Other time depsoits 51,733,617 - 51,733,617
------------ ------------ ------------
Total Deposits $229,528,105 $ - $229,528,105
Federal Home Loan bank advances - - -
Other borrowings - $ 1,994,225 (c) $ 1,994,225
Accrued interest payable $ 516,779 - 516,779
Other liabilities 1,557,627 - 1,557,627
------------ ------------ ------------
Total Liabilities $231,602,511 $ 1,994,225 (c) $233,596,736
Stockholders' Equity:
Common stock $ 1,070,200 $ (178,660) (d) $ 891,540
Surplus 6,414,704 (1,070,530) (e) 5,344,174
Undivided profits 16,051,970 (4,523,560) (f) 11,528,410
Treasury stock (at cost) (528,525) 528,525 (d) -
Net unrealized gain on securities availble for sale 184,012 - 184,012
------------ ------------ ------------
Total Stockholders' Equity $ 23,192,361 $ (5,244,225) (a) $ 17,948,136
Total Liabilities & Stockholders' Equity $254,794,872 $ (3,250,000) $251,544,872
------------ ------------ ------------
Total shares outstanding 214,040 178,308
Shares, net of treasury stock 208,275 178,308
Book value per share $ 111.35 $ 100.66
Earnings per share, basic $ 11.12 $ 13.04
</TABLE>
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<PAGE>
(a) Assumes the purchase of 29,967 shares for a total cash expenditure of
$5,224,225, which is management's best estimate. Actual costs could be
as low as $4,000,000 and as high as $6,000,000.
(b) Cash balance is net of purchase less borrowing.
(c) The purchases of shares will be financed in part by borrowings from an
unrelated institution totaling approximately $1,994,225.
(d) Common stock reduced by the par value of shares purchased and
retirement of 5,765 treasury shares.
(e) Surplus reduced by the proportionate amount based upon number of shares
purchased.
(f) Undivided profits reduced by the premium of purchase price in excess of
book value.
24
<PAGE>
Information About Newco, Inc.
Newco was incorporated on January 7, 1999, solely for the purpose of
effecting the reorganization. As of the date of this proxy statement, Newco
has no assets, no operations and no stockholders and has not yet completed
its corporate organization. Prior to the annual meeting, Newco will issue
100 shares of its common stock in exchange for 100 shares of First Bancorp
common stock held by William G. Moran, Jr. At that time, Newco will file an
election to be treated for income tax purposes as a Subchapter S
corporation. Newco will acquire additional stockholders upon consummation of
the merger with First Bancorp.
Information About First Bancorp, Inc.
General
First Bancorp, Inc. is a single-bank holding company located in
Ketchikan, Alaska. The company was organized in 1989 as a holding company
for First Bank, a state chartered, FDIC insured commercial bank. First Bank
is the fifth largest commercial bank in Alaska, currently operating eight
full-service branches in the boroughs of Ketchikan-Gateway, Sitka, Wrangell,
Petersburg, Craig, and Juneau.
First Bank offers commercial banking products and services to small and
medium size businesses, professionals and retail customers in the bank's
market area in southeast Alaska. These products and services include
commercial loans, accounts receivable and inventory financing, SBA loans for
equipment purchases and leasehold improvements, consumer installment loans,
acceptance of deposits, and personal savings and checking accounts. Through
third-party vendors, the bank offers credit life/credit health & accident
insurance to its loan customers. No commissions or other compensation is
paid to any officer for the sale of this insurance. Through a subsidiary,
the bank acts as a title insurance agent.
The bank's deposit accounts are insured by the Federal Deposit
Insurance Corporation. At December 31, 1998, First Bank had assets of
$255 million and deposits of $230 million.
Industry
The commercial banking industry continues to undergo increased
competition, consolidation and change. Non-insured financial service
companies such as mutual funds, brokerage firms, insurance companies,
mortgage companies and leasing companies are offering alternative investment
opportunities for customers' funds or lending sources for their needs. Banks
have been granted extended powers to better compete, including the limited
right to sell insurance and securities products, but the percentage of
financial transactions handled by commercial banks has dropped steadily.
Although the amount of deposits in banks is remaining steady, such deposits
represent less than 20% of household financial assets compared to over 35%
twenty-five years ago. This trend represents a continuing shift to stocks,
bonds, mutual funds and retirement accounts.
Nonetheless, commercial banks are reducing costs by consolidation and
exploring alternative ways of providing bank products. Although new community
banks continue to be organized, bank mergers substantially outstrip
formations. In the last dozen years, the number of commercial banks has
dropped from 14,000 to 9,500, and this trend is expected to continue.
To more effectively and efficiently deliver its products, banks are
opening in-store branches, installing more ATMs and investing in technology
to permit telephone, personal computer and internet banking. While all banks
are experiencing the effects of the changing environment, the manner in which
banks choose to compete is increasing the gap between larger super-regional
25
<PAGE>
banks, committed to becoming national or regional "brand names" providing a
broad selection of products at low cost and with advanced technology, and
community banks which provide most of the same products but with a commitment
to personal service and with local ties to the customers and communities they
serve.
Competition
First Bancorp competes with a full range of modern financial
institutions from commercial banks and thrifts to credit unions, brokerage
outfits, and insurance companies.
The primary commercial banking competition is the National Bank of
Alaska, the First National Bank of Anchorage, and Key Bank. These
organizations are all significantly larger than First Bancorp and have
extensive operations in other parts of the state. Key Bank also has a strong
national presence. These competitors can conduct wide-ranging advertising
campaigns and allocate assets to much broader geographic regions. By virtue
of their greater capitalization, these banks also have substantially higher
lending limits. These organizations are also financially capable of offering
a variety of products from trust services to international banking that First
Bancorp is not prepared to offer.
In addition to commercial banks, First Bancorp competes with a number
of credit unions operating in its market area. In general, these credit
unions tend to be smaller than the commercial banks. However, credit unions
continue to prosper in southeast Alaska as a result of their favorable cost
structure and traditional appeal to a broad section of the population.
Nationwide, surveys indicate that credit unions attract a higher percentage
of high income, well-educated professional customers than their traditional
blue-collar roots would imply. Recent legislation at the national level has
liberalized membership rules. As a result, credit union membership is now
available to virtually anyone living in southeast Alaska. Credit unions
offer many of the same consumer financial products that First Bancorp
offers. These include a full range of consumer loan and deposit products.
Alaska Federal Savings Bank is the only savings bank operating in
southeast Alaska. It currently operates branches in Juneau, Sitka, Wrangell
and Ketchikan. In recent years the laws and regulations affecting savings
banks have been liberalized. As a result, savings banks currently offer
their customers essentially the same products available at a commercial
bank.
In addition to the traditional competitive financial institutions, the
development of alternative financial products and delivery systems such as
internet banking, has disrupted banking's traditional control over the
payments system and expanded the level of competition for financial services
in southeast Alaska. At the same time, deposit disintermediation is a
problem in both the consumer and commercial deposit sectors. Interest rates
on demand and time deposits remain at relatively low levels while the bull
market for stocks has continued to advance. This has encouraged an outflow
of funds from traditional deposit products to alternative investment vehicles
such as mutual funds.
Properties
First Bancorp's principal office is located at the main office of First
Bank in Ketchikan, Alaska. We conduct business through eight full-service
branches located in Ketchikan (2), Craig, Petersburg, Sitka, Wrangell, and
Juneau (2). The Totem Branch in Ketchikan, as well as the Petersburg,
Wrangell and the Mendenhall Branch in Juneau have drive-up windows. We have
nine automated teller machines, of which five are located at branches in
Ketchikan (2), Petersburg and Juneau (2). We own all but four branches. We
have options to extend existing leases on the leased facilities. The eight
branches range in size from approximately 1,000 square feet to slightly more
than 15,000 square feet.
26
<PAGE>
Employees
As of December 31, 1998, we had a total of 106 full-time equivalent
employees. None of the employees are subject to a collective bargaining
agreement. We consider our relationship with our employees to be good.
Legal Proceedings
We are, from time to time, a party to various legal actions arising in
the normal course of business. We are not currently a party to any pending
legal proceeding, which, if determined adversely, would have a material
effect on our business or financial position.
Year 2000 Readiness
First Bank has two primary objectives driving our Year 2000 compliance
efforts:
(1) Compliance - to satisfy bank examiners using guidelines established by
the Federal Finance Institutions Examinations Council (FFIEC) and
(2) Self-assurance - to meet our responsibility to our customers to make
every effort possible to ensure our systems continue to function during
the millennium date change and beyond.
First Bank has undergone two on-site Federal Deposit Insurance
Corporation audits as well as interim audits by telephone. This has involved
nearly all embedded systems, computer software applications, and network
systems. These examinations assist us in determining our progress toward
compliance. During 1999, we will be putting more and more emphasis on the
self-assurance portion of the objectives as compliance goals are met.
A Year 2000 Task Force was designated by the Board of Directors
consisting of Informations Systems Manager E. Michael Youngblood as Chairman
and includes senior department managers. Individual task force members focus
their attentions on various areas regarding Year 2000 issues. The Systems
department conducted an in depth review of all computer and software
currently in use. These systems and applications were cataloged and
prioritized with "Mission Critical" systems receiving top priority for
compliance testing. A full time technical position was created to identify,
track, monitor, and test (or assist in testing) the various systems. The
primary Mission Critical software packages in use by the bank for core
processing are Year 2000 compliant, as certified by their vendors. While
having this certification is beneficial, the bank is still obligated to test
these packages for Year 2000 compliance, and is in the process of doing so.
Moreover, these certifications would only at best serve as a basis for a
legal claim for damages in the event of software failure at the turn of the
year.
We have conducted a review of peripheral equipment, security systems,
telephone systems, and building heating and cooling systems for all branch
locations. We have paid close attention to the task of internal and external
communications, including communicating with and training bank staff as well
as customer communications through general publications or response to direct
inquiries. Our senior lending officer is coordinating risk assessment of our
large commercial borrowers and organized an interview process for each
identified borrower.
First Bank's plan to address Year 2000 issues has been to follow the
guidelines established by the Federal Financial Institutions Examination
Council ("FFIEC"). FFIEC guidelines require the Bank to assess risks and
analyze those systems, software and services provided by third-party
vendors. The Bank's project plan addresses the five phases FFIEC has
identified as critical to Year 2000 readiness. These phases are as follows:
27
<PAGE>
Awareness - This phase requires us to define the problem and set
objectives, as well as establish a task force or committee to develop a
strategic response to the problem. We have completed this phase.
Assessment - In this phase we assess the overall magnitude of the
project, including identifying hardware and software that may be affected,
evaluating the effects of Y2K on our strategic business plan, and formulating
contingency plans. We have completed this phase.
Renovation - In this phase we perform upgrades to hardware and software
that has been identified as critical. We also review our outside vendors for
progress on meeting their Y2K compliance obligations. This phase is
substantially completed.
Validation - This is the testing phase for all systems that have been
evaluated and upgraded as necessary to ensure Y2K compliance. This phase is
substantially completed, and we have not discovered any software that is not
Y2K compliant. We expect to this phase to be completed by June 30, 1999.
Implementation - This is the final phase in which all systems, internal
as well as those of outside vendors, are certified as Year 2000 compliant.
We expect this phase to be completed by June 30, 1999.
The budget created for Year 2000 activities is projected at about
$150,000 over and above hardware and software that require replacement even
without upgrading specifically to Year 2000 compliance. Direct expenses for
compliance are accounted for but personnel time is not tracked separately for
this project. First Bank is prepared to allocate additional resources should
the need become apparent. Cost is not considered a limiting factor in
achieving compliance. We have spent approximately $50,000 on hardware,
software and other costs directly attributable to achieving Year 2000
compliance
The potential exposure to risk is discussed and reviewed at each Task
Force meeting as well as during each report to the Board of Directors. With
systems testing over 80% complete, the Task Force is reassured that it is
meeting its deadlines and that testing methodology appears to be
satisfactory. To date, no significant problems that would adversely affect
processing have been found in mission critical information systems or in any
non-information systems or embedded technology. The remaining testing will
be done as hardware and software upgrades are received during 1999. Though
these upgrades may claim compliance, testing will be conducted to meet our
self-assurance objectives.
As a contingency, First Bank has established lines of credit with the
Federal Reserve Bank of San Francisco, the Federal Home Loan Bank of Seattle,
and with three commercial banks. First Bank has a contractual arrangement
with a disaster recovery provider as an additional back-up. This provider
has equipment similar to equipment used at the bank. We regularly rotate
back-up tapes with them, and we have conducted at least one test with them to
ensure that this is a satisfactory contingency arrangement. A schedule of
additional system back-ups is being developed for implementation in advance
of the date change. Customer communications will be of utmost importance in
order to ease concerns our customers may have regarding Year 2000 readiness.
The Year 2000 date change will not affect FDIC deposit insurance coverage.
Overall, no significant problems are anticipated in achieving Year 2000
compliance.
28
<PAGE>
Capital Adequacy
Under FDIC and Federal Reserve regulations, we must maintain capital,
expressed as a percentage of risk-weighted assets, at certain levels. See
"Information about First Bancorp --Supervision and Regulation." The table
below shows our capital ratios as of December 31, 1998:
<TABLE>
<CAPTION>
First Bancorp Regulatory Minimum After Reorganization
------------- ------------------ --------------------
<S> <C> <C> <C>
Tier 1 risk-based capital ratio 16.51% 4.0% 12.75%
Total risk-based capital ratio 17.56% 8.0% 13.76%
Leverage capital ratio 8.83% 4.0% 7.06%
</TABLE>
29
<PAGE>
Average Balances and Average Rates Earned and Paid
The following table presents, for the periods indicated, information
regarding average balances of assets and liabilities, the total dollar
amounts of interest income from average interest-earning assets and interest
expense on interest-bearing liabilities, the average interest yields earned
or rates paid, net interest income, net interest spread (the difference
between the average yield earned on interest-earning assets and the average
rate paid on interest-bearing liabilities), and the ratio of net interest
income to average earning assets. The table does not reflect any effect of
income taxes. All average balances are based on quarter end balances and all
numbers are in thousands.
<TABLE>
<CAPTION>
Year ended December 31, 1997 Year ended December 31, 1998
------------------------------- -------------------------------
Average Interest Average Average Interest Average
Balance Yield Balance Yield
- ---------------------------------------------------------------------------- -------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Interest bearing bal due from banks $ 8,425 $ 69 0.82% $ 8,779 $ 70 0.80%
Investment securities - taxable 106,059 6,511 6.14% 99,583 6,146 6.17%
Investment securities - tax exempt 1,014 67 6.61% 1,863 106 5.69%
Federal funds sold 7,625 478 6.27% 10,797 550 5.09%
Loans (net including fees) 102,983 11,466 11.13% 116,919 13,088 11.19%
---------- --------- ----- ---------- --------- -----
Total Earning Assets $ 226,106 $ 18,591 8.22% $ 237,941 $ 19,960 8.39%
Cash and non interest balances due from banks 311 300
Fixed assets 5,848 5,938
Other real estate owned 65 236
Intangible assets 217 483
Other assets 3,419 2,887
----------- -----------
Total assets $ 235,966 $ 247,785
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Checking $ 63,450 $ 953 1.50% $ 65,908 $ 933 1.42%
Savings 48,176 1,723 3.58% 46,939 1,633 3.48%
Time deposits 99,934 5,422 5.43% 110,959 5,917 5.33%
Federal funds purchased - - - - - -
Federal Home Loan Bank advances 2,500 136 5.44% 251 37 14.74%
---------- --------- ----- ---------- --------- -----
Total interest bearing liabilities 214,060 8,234 3.85% 224,057 8,520 3.80%
Other Liabilities 1,023 1,064
---------- -----------
Total liabilities 215,083 225,121
Stockholders' Equity:
Common stock 1,070 1,070
Surplus 6,415 6,415
Treasury stock (461) (513)
Unrealized gain (loss) on securities (383) 78
Undivided profits 14,241 15,614
----------- -----------
Total Capital 20,882 22,664
Total Liabilities & Stockholders' Equity $ 235,965 $ 247,785
=========== ===========
Net interest income $ 10,357 $ 11,440
Net interest spread 4.37% 4.59%
Net interest income to earning assets 4.58% 4.81%
</TABLE>
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Lending and Credit Management
Although a risk of nonpayment exists with respect to all loans, certain
specific types of risks are associated with different types of loans. Due to
the nature of our customer base, real estate is frequently a material
component of collateral for the loan portfolio. The expected source of
repayment of these loans is generally the operations of the borrower's
business or personal income, but real estate provides an additional measure
of security. Risks associated with real estate loans include fluctuating
land values, local economic conditions, changes in tax policies, and a
concentration of loans within a limited geographic market area.
We mitigate risk on construction loans by generally lending funds to
customers that have been pre-qualified for long term financing and who are
using contractors acceptable to us. The commercial real estate risk is
further mitigated by making the majority of commercial real estate loans on
owner-occupied properties.
We manage the general risks inherent in the loan portfolio by following
loan policies and underwriting practices designed to result in prudent
lending activities. For example, we generally limit commercial loans to 70%
of the value of the collateral, and residential mortgages, which may be first
or second liens, to 80% of the value of the collateral.
Loan Portfolio
Interest earned on the loan portfolio is a major source of income. Net
loans represented 47.8% of total assets as of December 31, 1998. Although we
strive to serve the credit needs of our service area, our primary focus is on
real estate and commercial loans. We make substantially all of our loans to
customers located within our service area. We have no loans defined as
highly leveraged transactions by the Federal Reserve Bank. We have no
significant agricultural loans.
Commercial real estate loans primarily include owner-occupied
commercial properties occupied by the proprietor of the business conducted on
the premises, and income-producing properties. The primary risks of such
loans include loss of income of the owner or occupier of the property and the
inability of the market to sustain rent levels. Our underwriting standards
attempt to mitigate these risks by requiring a minimum of three consecutive
years of sufficient income generation from the owner or occupier. In
addition, a 70% loan-to-value ratio limitation is expected to provide
sufficient protection against unforeseen circumstances.
Other commercial loans include renewable operating lines of credit,
short-term notes, and equipment financing. These types of loans are
principally at risk due to insufficient business income. Accordingly, we do
not lend to start-up businesses or others lacking operating history, and
require personal guarantees and secondary sources of repayment.
Residential real estate loans include 1-4 family owner- or non-owner
occupied residences, multi-family units, construction and secondary market
loans pending sale. Generally, the risk associated with such loans is the
loss of the borrower's income. We attempt to mitigate the risk by thorough
review of the borrower's credit and employment history, and limit the
loan-to-value ratio to 80% to provide protection in the event of
foreclosure. Installment loans consist of personal, automobile or home
equity loans. We also offer credit cards to our customers. These unsecured
loans carry significantly higher interest rates than secured loans, which
allows us to maintain a higher loss reserve in conjunction with maintaining
strict credit guidelines when considering loan applications. The following
table presents the composition of the loan portfolio, at the dates indicated:
31
<PAGE>
12/31/98 12/31/97
------------- -------------
Mortgage $ 8,653,771 $ 3,592,629
Commercial $ 82,214,463 $ 73,870,604
Consumer $ 32,906,260 $ 30,102,197
------------- -------------
Gross loans $ 123,774,494 $ 107,565,430
Less: Unamortized loan origination fees $ (652,437) $ (636,525)
============= =============
Total loans $ 123,122,057 $ 106,928,905
============= =============
The following table sets forth the maturity distribution and
sensitivity to changes in interest rates of the loan portfolio at December
31, 1998:
<TABLE>
<CAPTION>
One to After
Within one year five years five years Total
--------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Mortgage $ 308,425 $ 239,647 $ 8,105,699 $ 8,653,771
Commercial 12,741,996 36,676,253 32,796,214 82,214,463
Consumer 6,306,945 25,247,132 1,352,183 32,906,260
------------ ------------ ------------ ------------
Total loans $ 19,357,366 $ 62,163,032 $ 42,254,096 $123,774,494
============ ============ ============ ============
Loans at fixed interest rates 12,175,411 51,905,009 10,510,198 74,590,618
Loans at variable interest rates 7,181,955 10,258,023 31,743,898 49,183,876
------------ ------------ ------------ ------------
Total loans $ 19,357,366 $ 62,163,032 $ 42,254,096 $123,774,494
============ ============ ============ ============
</TABLE>
The following table presents information with respect to non-performing
assets:
December 31,
-------------------------
1998 1997
-------- --------
Loans on non-accrual status $ -- $ --
Loan past due > 90 days $265,561 $ 29,973
Other real estate owned $222,123 $259,664
Percentage of non performing
assets to total assets 0.19% 0.12%
Restructured loans $ 56,005 $ 56,005
Interest income that would have been realized on non-accrual or
past-due loans if they had remained current was insignificant.
Allocation of Reserve for Loan Losses
The allowance for loan losses is a general reserve established by
management to absorb unidentified losses in the loan portfolio. In
determining the adequacy of the allowance, management evaluates the
prevailing economic conditions, results of regular examinations and
evaluations of the quality of the loan portfolio by external parties, actual
loan loss experience, the extent of existing risks in the loan portfolio and
other factors. The allowance for impaired loans is based on discounted cash
flows using the loans' initial interest rates, or, if the loan is secured,
the fair value of the collateral.
Future additions to the allowance may be necessary based on changes in
economic conditions and other factors used in evaluating the loan portfolio.
Additionally, various regulatory agencies, as an integral part of their
32
<PAGE>
examination process, periodically review the allowance. Such agencies may
require the recognition of additions to the reserve based on their judgment
of information available to them at the time of their examination.
The following is a summary of the allowance for loan losses as of
December 31:
1998 1997 1996
----------- ----------- -----------
Balance at beginning of year $ 1,293,512 $ 1,103,414 $ 1,383,814
Recoveries of loans
previously charged off 16,225 49,524 18,353
Provision charged to expense 252,000 232,000 215,750
Loans charged off (140,385) (91,426) (514,503)
----------- ----------- -----------
Balance at end of year $ 1,421,352 $ 1,293,512 $ 1,103,414
=========== =========== ===========
Loan Losses and Recoveries
The provision for loan losses charged to operating expense is based on
loan loss experience and such factors that, in management's judgment, deserve
recognition in estimating possible loan losses. Management monitors the loan
portfolio to ensure that the reserve for loan losses is adequate to cover
outstanding loans on non-accrual status and any current loans deemed to be in
serious doubt of repayment according to each loan's repayment plan. The
following table summarizes the reserve for loan losses, and charge-off and
recovery activity:
Year ended December 31,
-------------------------------
1998 1997
------------- -------------
Loans outstanding at end of period $ 123,122,057 $ 106,928,905
------------- -------------
Reserve balance, beginning of period $ 1,293,512 $ 1,103,414
Recoveries $ 16,225 $ 49,524
Loans charged off $ (140,385) $ (91,426)
------------- -------------
Net loans charged off $ (124,160) $ (41,902)
Provision charged to expense $ 252,000 $ 232,000
------------- -------------
Reserve balance, end of period $ 1,421,352 $ 1,293,512
============= =============
33
<PAGE>
Analysis of Net Interest Margin
The following table presents information regarding yields on
interest-earning assets, expense on interest-bearing liabilities, and net
yields (including loan placement fees) on interest-earning assets for the
periods indicated. Averages shown are monthly averages.
<TABLE>
<CAPTION>
Analysis for the years ended 1998 1997 Increase Change
December 31, 1998 and 1997 (Decrease)
------------ ------------- ---------------------------
(amounts in thousands, except percentages)
<S> <C> <C> <C> <C>
Average interest-earning assets $ 237,941 $ 226,106 $ 11,835 5.23%
Average interest-bearing liabilities $ 224,057 $ 214,060 $ 9,997 4.67%
Average yields earned 8.39% 8.22% 0.17% 2.07%
Average rates paid 3.80% 3.85% -0.05% -1.30%
------------ ------------- ------------- ------------
Net interest spread (including loan 4.59% 4.37% 0.22% 5.03%
placement fees)
============ ============= ============= ============
Net interest income to average interest- 4.81% 4.58% 0.23% 5.02%
earning assets
</TABLE>
Interest Sensitivity
Interest sensitivity relates to the effect of changing interest rates
on net interest income. Interest-earning assets which have interest rates
tied to an index, such as prime rate, or which mature in relatively short
periods of time are considered interest-rate sensitive. Interest-bearing
liabilities with interest rates that can be re-priced in a discretionary
manner, or which mature in short periods of time, are also considered
interest-rate sensitive. The differences between the amounts of
interest-sensitive assets and interest-sensitive liabilities, measured at
various time periods, are referred to as sensitivity gaps. As rates change,
these gaps will cause either a beneficial or adverse effect on net interest
income. A negative gap represents a beneficial effect on net interest income
if rates were to fall and an adverse effect if rates were to rise.
Conversely, a positive gap would have a beneficial effect on net interest
income in a rising rate environment and a negative effect if rates fell.
Our policy with regard to interest rate risk is to organize the
components of the balance sheet in such fashion as to maintain net interest
margin and stockholders' equity within the limits of volatility established
from time to time by the Board of Directors.
34
<PAGE>
Estimated Maturity or Repricing
Of Selected Balance Sheet Items
At December 31, 1998
<TABLE>
<CAPTION>
Within One to Over
one year five years five years Total
----------------------------------------------------------------------
Interest earning assets:
<S> <C> <C> <C> <C>
Federal funds sold $ 9,391,000 $ -- $ -- $ 9,391,000
Securities available for sale (at amortized cost) (1) 26,628,844 37,016,471 36,999,688 100,645,003
Other investments 2,905,157 -- -- 2,905,157
Loans (2) 61,359,287 51,905,009 10,510,198 123,774,494
------------- ------------- ------------- -------------
Total interest earning assets 100,284,288 88,921,480 47,509,886 236,715,654
Reserve for unamortized loan fees (652,437) (652,437)
Reserve for loan losses (1,421,352) -- -- (1,421,352)
Unrealized gain on available for sale securities 307,714 -- -- 307,714
Cash and due from banks 9,783,427 -- -- 9,783,427
Other assets 10,061,866 -- -- 10,061,866
------------- ------------- ------------- -------------
Total assets $ 118,363,506 $ 88,921,480 $ 47,509,886 $ 254,794,872
============= ============= ============= =============
=============
Interest bearing liabilities:
Interest bearing demand accounts $ 39,337,775 $ -- $ -- $ 39,337,775
Savings deposits 48,846,681 -- -- 48,846,681
Time deposits 99,456,303 13,091,786 -- 112,548,089
------------- ------------- ------------- -------------
Total interest bearing liabilities 187,640,759 13,091,786 -- 200,732,545
Non-interest bearing demand accounts 28,795,560 -- -- 28,795,560
Other liabilities 2,074,406 -- -- 2,074,406
Stockholders' equity 23,192,361 -- -- 23,192,361
------------- ------------- ------------- -------------
Total liabilities and stockholders' equity $ 241,703,086 $ 13,091,786 $ -- $ 254,794,872
============= ============= ============= =============
=============
Interest sensitivity gap $ (87,356,471) $ 75,829,694 $ 47,509,886
Cumulative interest sensitivity gap $ (87,356,471) $ (11,526,777) $ 35,983,109
Cumulative interest sensitivity gap as -34.29% -4.52% 14.12%
a percentage of total assets
</TABLE>
Notes:
(1) Within the one year category, includes $1,845,223 in variable rate
securites that mature in 1 - 5 years and $8,783,913 in variable rate
securities that mature over 5 years due to repricing
(2) Within the one year category, includes $10,258,023 in variable rate
loans that mature in 1 - 5 years and $31,743,898 in variable rate loans
that mature over 5 years due to repricing
35
<PAGE>
Investment Portfolio
The following table shows the amortized costs, estimated market values,
unrealized gains and unrealized losses of the portfolio of investments as of
December 31, 1997, and 1998:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
--------------------------------------------------------------
1998:
<S> <C> <C> <C> <C>
U.S. Government and federal agencies $ 54,763,462 $ 438,739 $ (24,211) $ 55,177,990
States and political subdivisions 1,707,699 85,846 1,793,545
Corporate securities 8,963,078 80,739 (338) 9,043,479
Mortgage-backed securities 33,796,314 110,906 (496,797) 33,410,423
Other debt securities 1,414,450 1,973 1,416,423
Federal National Mortgage Assn. Stock 8,257 110,856 119,113
==============================================================
Total securities $100,653,260 $ 829,059 $ (521,346) $100,960,973
==============================================================
1997:
U.S. Government and federal agencies $ 77,447,591 $ 379,646 $ (6,562) $ 77,820,675
States and political subdivisions 1,846,350 23,220 1,869,570
Corporate securities 5,607,261 53,236 (2,819) 5,657,678
Mortgage-backed securities 27,053,534 128,857 (951,460) 26,230,931
Other debt securities 500,000 500,000
Federal National Mortgage Assn. Stock 6,727 76,519 83,246
==============================================================
Total securities $112,461,463 $ 661,478 $ (960,841) $112,162,100
==============================================================
</TABLE>
Investment Portfolio Maturity Schedule
The following is a summary of the contractual maturities of investment
securities classified as available for sale at December 31, 1998:
<TABLE>
<CAPTION>
Within One to Five to Due after Amortized Market
Securities available for sale one year five years ten years ten years cost value
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and federal agencies $11,994,028 $ 31,817,815 $ 2,611,247 $ 8,340,372 $ 54,763,462 $ 55,177,990
States and political subdivisions 293,871 191,779 1,222,049 - 1,707,699 1,793,545
Corporate securities 3,057,268 4,028,225 - 1,877,585 8,963,078 9,043,479
Mortgage-backed securities 154,541 2,823,875 5,544,331 25,273,567 33,796,314 33,410,423
Other debt securities 500,000 - - 914,450 1,414,450 1,416,423
======================================================================================
Total securities $15,999,708 $ 38,861,694 $ 9,377,627 $ 36,405,974 $100,645,003 $100,841,860
======================================================================================
</TABLE>
As of December 31, 1998, First Bank had no securities classified as
"held to maturity".
36
<PAGE>
Deposit Liabilities
The following table sets forth the average deposit liabilities for the
years ended:
12/31/98 12/31/97
---------------------------------------
Demand $ 68,133,335 $ 64,669,469
Savings 48,846,681 50,727,050
Time deposits greater than $100,000 60,814,472 53,554,698
Time deposits less than $100,000 51,733,617 50,720,931
=======================================
Total deposits $ 229,528,105 $ 219,672,148
=======================================
As of December 31, 1998, time deposit maturities were as follows:
Time Deposits of All Other
$100,000 or More Time Deposits
Remaining Time to Maturity ---------------- -------------
3 months or less $27,611,027 $31,460,441
3 months to 12 months 28,056,872 12,327,963
1 year to 3 years 2,366,641 4,519,148
Greater than 3 years 2,779,932 3,426,065
=========== ===========
Total time deposits $60,814,472 $51,733,617
=========== ===========
37
<PAGE>
Supervision and Regulation
General
First Bancorp and First Bank are extensively regulated under federal
and state law. These laws and regulations are intended to protect
depositors, not stockholders. You should refer to the specific statutes and
regulations for more information on the state and federal regulatory scheme.
Our operations may be affected by legislative changes and by the policies of
various regulatory authorities. Any change in applicable laws or regulations
may have a material effect on our business and prospects. We cannot predict
accurately as to the nature or the extent of the effects on its business and
earnings that fiscal or monetary policies, economic control or new federal or
state legislation may have in the future.
First Bancorp
First Bancorp is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, and as such, it is subject to regulation,
supervision and examination by the Federal Reserve. We are required to file
annual reports with the Federal Reserve and to provide the Federal Reserve
such additional information as the Federal Reserve may require.
The Bank Holding Company Act requires prior approval by the Federal
Reserve for the acquisition by a bank holding company of direct or indirect
ownership or control of more than five percent of the voting shares, or
substantially all of the assets, of any bank or any bank holding company.
With certain exceptions, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of any company which is not
a bank or bank holding company and from engaging directly or indirectly in
any activity other than banking or of managing or controlling banks. The
exceptions to this prohibition permit a bank holding company or its non-bank
subsidiaries to engage in certain permitted activities, the more important of
which are: operating a commercial finance company, engaging in mortgage
banking operations, offering credit-related insurance, providing data
processing services, and leasing real and personal property in connection
with credit transactions.
First Bancorp is an "affiliate" of First Bank and is subject to the
provisions of Section 23A of the Federal Reserve Act which set certain limits
with respect to the amount of (1) loans or extensions of credit to, or
investments in, the holding company by the bank, and (2) advances to third
parties collateralized by the securities or obligations of the holding
company.
First Bank
First Bank, as a state-chartered bank with deposits insured by the FDIC
that is not a member of the Federal Reserve System, is subject to the
supervision and regulation of the Alaska Division of Banking and of the
FDIC. These agencies may prohibit the bank from engaging in what they
believe constitute unsafe or unsound banking practices.
The bank is required to submit periodic reports and is subject to
supervision, examination and regulation by the FDIC. The Federal Deposit
Insurance Act requires prior approval from the FDIC of any merger by or with
a state-insured bank. The consumer lending activities of the bank are
regulated by several particularly detailed laws and regulations which impose
disclosure requirements, prohibit discrimination based on race, sex, age,
marital status and other specified classifications and impose other
restrictions on credit practices in general.
The bank is affected by the credit policies of monetary authorities,
including the Federal Reserve System, which regulates the national supply of
bank credit. Such regulation influences overall growth of bank loans,
investments and deposits. The monetary policies of the Federal Reserve have
38
<PAGE>
had a significant effect on the operating results of commercial banks in the
past and are expected to continue to do so in the future.
Dividends
The principal source of First Bancorp's cash revenues is dividends paid
by First Bank. Under Alaska banking law, banks are subject to restrictions
on the payment of cash dividends to their stockholders. A bank may not pay
cash dividends if that payment would reduce the amount of its capital below
that necessary to meet minimum regulatory capital requirements. First Bank
has been paying regular dividends to stockholders, although no assurances can
be given that dividends will continue to be paid
In addition, the appropriate regulatory authorities are authorized to
prohibit banks and bank holding companies from paying dividends that would
constitute an unsafe or unsound banking practice. Neither First Bancorp nor
First Bank is currently subject to any regulatory restrictions on their
dividends other than those noted above.
Capital adequacy
The federal bank regulatory agencies use capital adequacy guidelines in
their examination and regulation of bank holding companies and banks. If the
capital falls below the minimum levels established by these guidelines, the
bank holding company or bank may be denied approval to acquire or establish
additional banks or non-bank businesses or to open facilities.
Effects of government monetary policy
The earnings and growth of our company, including existing and future
activities, is affected not only by general economic conditions, but also by
the fiscal and monetary policies of the federal government, particularly the
Federal Reserve. The Federal Reserve can and does implement national
monetary policy for such purposes as curbing inflation and combating
recession, but its open market operations in U.S. government securities,
control of the discount rate applicable to borrowings from the Federal
Reserve, and establishment of reserve requirements against certain deposits,
influence growth of bank loans, investments and deposits, and also affect
interest rates charged on loans or paid on deposits. We cannot predict
accurately the nature and impact of future changes in monetary policies on
our company.
Changing regulatory structure of the banking industry
The laws and regulations affecting banks and bank holding companies are
currently undergoing significant changes. Bills are now pending or expected
to be introduced in the United States Congress that contain proposals for
altering the structure, regulation, and competitive relationships of the
nation's financial institutions. If enacted into law, these bills could have
the effect of increasing or decreasing the cost of doing business, limiting
or expanding permissible activities (including activities in the insurance
and securities fields), or affecting the competitive balance among banks,
savings associations, and other financial institutions. Some of these bills
would reduce the extent of federal deposit insurance, broaden the powers or
the geographical range of operations of bank holding companies, modify
interstate branching restrictions applicable to national banks, regulate bank
involvement in derivative securities activities, and realign the structure
and jurisdiction of various financial institution regulatory agencies.
39
<PAGE>
Description of Capital Stock
Generally, the rights of stockholders of First Bancorp will not be
affected by the reorganization. As discussed below, certain restrictions
will apply to the transfer of First Bancorp common stock after the
reorganization that do not currently apply to First Bancorp common stock.
The Certificate of Incorporation authorizes one class of capital stock
consisting of one million shares of common stock, $5.00 par value per share.
Stockholders do not have preemptive rights to acquire additional shares of
stock. Each outstanding share of common stock has the same relative rights
and preferences as each other share of common stock, including the rights to
the net assets of the company upon liquidation.
The Board of Directors is authorized to issue or sell additional
capital stock, at its discretion and for fair value, and to issue future cash
or stock dividends, without prior shareholder approval. As of the date of
this proxy statement, there were 208,275 shares of First Bancorp common stock
outstanding.
Shares of the common stock have unlimited voting rights. Each share of
common stock is entitled to one vote on matters considered by the
stockholders. Stockholders may not accumulate votes in the election of
directors.
Certain provisions of the Certificate of Incorporation can only be
amended or repealed if the shareholders, by the affirmative vote of at least
two-thirds of the outstanding shares, approve such action. These provisions
relate to matters concerning the Board of Directors, including removal of
directors, limitation of liability of directors, and indemnification of
directors, officers, employees and agents. The restriction on transfer
described below is also subject to a super-majority, two-thirds vote to amend
or repeal.
Dividends are paid in the discretion of the Board of Directors. See
"Market for the Common Stock."
Limitation of liability and indemnification
The General Corporation Law of the State of Delaware permits a
corporation's Certificate of Incorporation to limit the liability of
directors and indemnification of directors and officers under certain
circumstances. The Certificate of Incorporation provides that directors are
not personally liable to the corporation or its stockholders for monetary
damages for conduct as a director, except for (i) any breach of a director's
duty of loyalty to the corporation, (ii) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of the law,
(iii) any distribution to shareholders which is unlawful, or (iv) any
transaction from which the director received an improper personal benefit.
The Certificate of Incorporation also provides for indemnification of
any person who is or was a party, or is threatened to be made a party, to any
civil, administrative or criminal proceeding because the person is or was a
director or officer of the company or any of its subsidiaries, or is or was
serving at the request of the company as a director, officer, partner, agent
or employee of another corporation. The company will indemnify such person
against expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement, actually and reasonably incurred by that person.
Indemnification is available if:
o the person acted in good faith and in a manner reasonably believed to
not be opposed to the best interests of the company, or
40
<PAGE>
o the act or omission giving rise to such action or proceeding is
ratified, adopted or confirmed by the company, or the company received
the benefit of such actions.
Indemnification is available under this provision of the Certificate of
Incorporation in the case of derivative actions, unless the person is
adjudged to be liable for gross negligence or deliberate misconduct in the
performance of the person's duty to the company.
To the extent a director, officer, employee or agent (including an
attorney) is successful on the merits or otherwise in defense of any action
to which this provision is applicable, the person is entitled to
indemnification for expenses actually and reasonably incurred by the person
in connection with that defense.
Even if indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or other controlling
persons pursuant to the foregoing provisions, we have been informed that in
the opinion of the Securities Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
Anti-takeover provisions
The Certificate of Incorporation contains provisions that could make
more difficult the acquisition of the company by means of a tender offer,
proxy contest, merger or otherwise.
These provisions
o permit the Board of Directors to issue additional stock or options
without shareholder approval, which could dilute the voting power of a
potential acquiror
o establish staggered terms for director positions filled each year
o permit removal of a director only for cause
"Cause" is defined as:
o a breach of the director's duty of loyalty to the corporation,
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
o an unlawful distribution under provisions of the General Corporation Law
of the State of Delaware, or other applicable law, or
o a transaction from which the director received an improper personal
benefit.
These provisions may make it costly or difficult for someone to acquire
control, and more difficult for a dissident shareholder to remove the entire
board of directors at one time.
Restrictions on transfer
Following the reorganization, the transfer of shares will be restricted
if the transfer would cause the corporation to be disqualified for income tax
treatment as a small business corporation under Subchapter S of the Internal
Revenue Code.
Certain Legal Matters
The validity of Newco common stock to be issued in the reorganization
will be passed upon for Newco by Foster Pepper & Shefelman LLP, Portland,
Oregon.
41
<PAGE>
Experts
The consolidated financial statements of First Bancorp, Inc. and
subsidiary as of December 31, 1998 and 1997, and for each of the years in the
three-year period ended December 31, 1998, included in this proxy statement
and in the registration statement have been included in reliance upon the
reports of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of that firm as experts in
accounting and auditing.
42
<PAGE>
Appendix A
Agreement and Plan of Reorganization
This Agreement and Plan of Reorganization (the "Agreement") is entered
into as of this March 15, 1999, by and among First Bancorp, Inc. (the
"Company"), a Delaware corporation with its principal office at 331 Dock
Street, Ketchikan, Alaska, and Newco Alaska, Inc. ("Newco"), a Delaware
corporation with its principal office at 331 Dock Street, Ketchikan, Alaska.
Recitals
A. The Company is a registered bank holding company, and is the sole
stockholder of First Bank (the "Bank"), an Alaska state bank.
B. The Board of Directors of the Company has determined that it
would be in the best interests of the Company, its stockholders, its
customers and those of the Bank to effect a merger with and into Newco, with
Newco to be the surviving corporation.
C. The respective Boards of Directors of the Company and Newco have
agreed to cause the Merger pursuant to the provisions of section 251 of Title
8 of the General Corporation Law of the State of Delaware.
D. The parties intend that the resulting corporation be eligible for
treatment for income tax purposes pursuant to the provisions of Subchapter S
of the Internal Revenue Code of 1986, as amended (the "Code").
Agreement
In consideration of the mutual covenants herein contained, the parties
hereby agree as follows:
1. Definitions. For purposes of this Agreement, the following terms shall
have the definitions given:
1.1 "Director" means the Director of the Alaska Department of
Commerce and Economic Development or his designee.
1.2 "Effective Date" is the date upon which the Merger becomes
effective by filing of a Certificate of Merger with the Secretary of State of
the State of Delaware.
1.3 "Effective Time" is the time at which the Merger becomes
effective as indicated by the filing stamp of the Secretary of State on the
Certificate of Merger.
1.4 "Eligible Stockholder" means a Company stockholder of record as
of the Effective Date who is eligible to be a stockholder of a corporation
taxed pursuant to Subchapter S of the Code, and who either:
o holds, as of the Effective Date, at least 750 shares of Company
common stock, or
o is a director of the Company.
1.5 "Federal Reserve" means the Board of Governors of the Federal
Reserve System, or the Federal Reserve Bank of San Francisco acting upon
authority delegated by the Board of Governors.
1.6 "Merger" means the merger of the Company into Newco on the
Effective Date in accordance with this Agreement and the Certificate of
Merger.
1.7 "Surviving Corporation" means Newco Alaska, Inc. as the
corporation surviving the Merger under the name "First Bancorp, Inc."
A-1
<PAGE>
2. Merger; Transactions Pursuant to the Agreement; Effect of the Merger.
Upon performance of all of the covenants of the parties hereto and
fulfillment or waiver of all of the conditions contained herein
2.1 On the Effective Date, the Company shall be merged with and into
Newco on the terms and conditions set forth in this Agreement. A
Certificate of Merger, executed by the Surviving Corporation in
accordance with Title 8, section 252(c) of the General Corporation
Law of the State of Delaware, shall be filed with the Secretary of
State of the State of Delaware to effect the Merger.
2.2 On the Effective Date, each share of stock of the Company shall be
cancelled and immediately converted into the right to receive,
subject to the terms, conditions and limitations set forth herein,
the consideration as provided in sections 2.4 and 2.5 hereof (the
"Merger Consideration").
2.3 On and after the Effective Date, each share of Newco common stock
outstanding immediately prior to the Effective Date shall be
automatically converted into one share of common stock of the
Surviving Corporation.
2.4 Subject to the terms, conditions and limitations set forth herein,
on the Effective Date, each Eligible Stockholder shall be entitled
to receive one newly issued share of common stock of the Surviving
Corporation in exchange for each share of Company common stock
held of record as of the Effective Date.
2.5 Only Company stockholders who are Eligible Stockholders will be
entitled to receive shares of common stock of the Surviving
Corporation. The Surviving Corporation will pay to each Company
stockholder of record as of the Effective Date who is not an
Eligible Stockholder, cash at the rate of $175.00 per share of
Company common stock. At the sole discretion of the board of
directors of the Surviving Corporation, Company stockholders who
are otherwise Eligible Shareholders may tender all, but not less
than all, of their shares of Company stock to the Surviving
Corporation in exchange for cash at the rate of $175.00 per share,
it being understood that, sufficient funds permitting, such shares
will be purchased from those stockholders holding the fewest
shares first.
2.6 Notwithstanding anything to the contrary herein, each Company
stockholder who has timely and properly perfected his or her right
to dissent from the Merger pursuant to the applicable laws of the
State of Delaware ("Appraisal Laws"), and has not effectively
withdrawn or forfeited his or her right to dissent under the
Appraisal Laws, shall not be entitled to receive the Merger
Consideration, but rather such dissenting stockholder shall be
entitled only to such rights as are granted by the Appraisal Laws.
2.7 At the Effective Time, the corporate existence of the Company
shall, as provided by Delaware law, be merged into and continued
in the Surviving Corporation (formerly named Newco Alaska, Inc.)
and the separate existence of the Company shall terminate.
2.8 At the Effective Time, all right, title and interest of the
Company in and to all of the business, properties (tangible and
intangible), goodwill, rights, choses in action and other assets
of the Company shall be vested in the Surviving Corporation by
virtue of such Merger without any deed or other instrument of
transfer, whether or not reflected on the balance sheets, books of
accounts, or records of the Company or Newco, and the Surviving
Corporation, without any order or action on the part of any court
or otherwise, shall hold and enjoy all such assets in the same
manner and to the same extent as such assets were held or enjoyed
by the Company prior to the Effective Time.
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2.9 At the Effective Time, the Surviving Corporation shall be liable
for all debts, obligations, contracts and other liabilities, of
the Company, matured or unmatured, whether accrued, absolute,
contingent or otherwise, and whether or not reflected or reserved
against on balance sheets, books of accounts, or records of the
Company or Newco, and shall not be released or impaired by the
Merger; and all rights of creditors and other obligees and all
liens on property shall be preserved unimpaired.
2.10 The Certificate of Incorporation, as amended, of Newco in effect
at and as of the Effective Time will be amended to change the name
of the corporation to "First Bancorp, Inc.," and, as so amended,
will be the Certificate of Incorporation of the Surviving
Corporation in the Merger.
2.11 The Bylaws of Newco in effect at and as of the Effective Time will
be the Bylaws of the Surviving Corporation in the Merger.
2.12 As of the Effective Time, the directors and officers of the
Company in office at and as of the Effective Time shall become
directors and officers of the Surviving Corporation with the
respective positions and offices which they previously held in the
Company, until such time as their successors are duly elected.
2.13 After the close of business on the Closing Date, transfers of
shares of Company common stock outstanding prior to the Effective
Time shall not be made on the stock transfer books of the
Surviving Corporation.
3. Representations and Warranties.
3.1 Representations and Warranties of the Company. The Company
represents and warrants to Newco as follows:
3.1.1 The Company is duly organized and validly existing and in
good standing as a business corporation under the laws of its
jurisdiction of incorporation, and the Bank is duly organized and
validly existing and in good standing as a banking corporation under
the laws of its jurisdiction of incorporation and each has all
requisite corporate power and authority to own and operate its
properties and assets, to lease properties used in its business, and to
carry on its business as now conducted.
3.1.2 The Company has all requisite corporate power and
authority to enter into and perform its obligations under this
Agreement and the transactions contemplated hereby and to conduct its
business in the manner now being conducted. Its activities do not
require it to be qualified to do business in any foreign jurisdiction
where the failure to so qualify would have a material adverse effect on
its business, operations or financial condition.
3.1.3 The authorized capital stock of the Company consists of
1,000,000 shares of common stock, of which 208,275 shares are issued
and outstanding as of the date hereof. Other than as described
therein, no other stock options, warrants or rights to purchase or
receive Company securities are outstanding.
3.1.4 None of the execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby will conflict with
or result in the breach of any of the terms, conditions or provisions
of the Certificate of Incorporation or Bylaws of the Company, or of any
existing statute, regulation, order, writ, injunction or decree of any
court or governmental agency, or of any contract, agreement or
instrument to which it is a party or by which it is bound.
3.1.5 There are no actions, suits, proceedings, claims or
governmental investigations pending or, to the knowledge of the
Company, threatened against or affecting the Company before any court,
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administrative officer or agency, other governmental body or
arbitration which might hinder or delay the consummation of the
transactions contemplated by this Agreement.
3.1.6 No representation or warranty by the Company in this
Agreement or in any statement, certificate or schedule furnished or to
be furnished pursuant to this Agreement, including any information
about the Company given with respect to preparation of the proxy
statement for the meeting of the Company's stockholders, or in
connection with the transactions contemplated by this Agreement,
contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary to make the
statements therein or herein not false or misleading.
3.2 Representations and Warranties of Newco. Newco represents and
warrants to the Company as follows:
3.2.1 Newco is, or prior to the effective date of the Merger
will be, a corporation duly organized and validly existing under the
laws of the State of Delaware and has all requisite corporate power and
authority to enter into and perform this Agreement including all
transactions contemplated hereby. There are currently no shares of
capital stock issued and outstanding.
3.2.2 Newco has, or will have, prior to the Effective Date,
issued not less than one share and not more than 200 shares of capital
stock solely for the purpose of completing its corporate organization,
and shall have, prior to the Effective Date, filed with the Internal
Revenue Service an election under section 1362(a) of the Code to be
treated for income taxes as a small business corporation under
Subchapter S of the Code, it being understood that the parties intend
such election to be effective for tax years after December 31, 1999.
3.2.3 There are no outstanding options, warrants, rights,
contracts or commitments relating to the issuance of any shares of
Newco stock other than commitments set forth or referred to herein.
3.2.4 Newco has had no material operations prior to this date.
Other than the commitments as undertaken with respect to this Agreement
and the transactions contemplated thereby, Newco has entered into no
material outstanding contracts, agreements, leases and has incurred no
obligations, contingent or otherwise, except with respect to costs and
expenses incurred in connection with this Agreement and the
transactions contemplated hereby.
3.2.5 Consummation of the transactions contemplated by this
Agreement will not conflict with or result in a breach of any of the
terms, conditions or provisions of the Certificate of Incorporation or
Bylaws of Newco, or of any existing statute, regulation, order, writ,
injunction, ruling or decree or any court or governmental agency, or of
any contract or agreement or instrument to which it is a party or which
it is bound.
3.2.6 On the Effective Date, or within a reasonable time
thereafter, the shares of stock of the Surviving Corporation to be
delivered to the stockholders of the Company pursuant to this Agreement
will be, upon consummation of the transactions, validly issued, fully
paid and non-assessable.
3.2.7 There are no actions, suits, proceedings, claims or
governmental investigations pending or, to the knowledge of Newco,
threatened against or affecting Newco before any court, administrative
officer or agency, other governmental body or arbitration which might
hinder or delay the consummation of the transactions contemplated by
this Agreement.
3.2.8 No representation or warranty by Newco in this Agreement
or in any statement, certificate or schedule furnished or to be
furnished pursuant to this Agreement, including any information about
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Newco given with respect to preparation of the proxy statement for the
meeting of the Company's stockholders, or in connection with the
transactions contemplated by this Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state
any material fact necessary to make the statements therein or herein
not false or misleading.
4. Covenants.
4.1 Covenants of the Company. In addition to any and all other
covenants and undertakings of Newco as may be set forth in this Agreement,
the Company covenants and agrees as follows:
4.1.1 The Company shall call a meeting of its stockholders for
purposes of voting on the Merger and shall cooperate fully with Newco
in obtaining all necessary federal and state regulatory approvals to
effect the Merger.
4.1.2 The Company shall use its best efforts to effectuate the
transactions contemplated hereby and to fulfill the conditions under
this Agreement.
4.2 Covenants of Newco. In addition to any and all other covenants
and undertakings of Newco as may be set forth in this Agreement, Newco
covenants and agrees as follows:
4.2.1 Prior to the Effective Date, Newco will be authorized to
issue such number of shares of common stock as may be needed to perform
this Agreement and shall have obtained all necessary consents and
permits to issue its stock to the stockholders of the Company as
provided herein.
4.2.2 Newco shall call a meeting of its stockholders for
purposes of voting on the Merger, or otherwise obtain the approval by
unanimous written consent of its stockholders to effect the Merger, and
shall cooperate fully with the Company in obtaining all necessary
federal and state regulatory approvals to effect the Merger.
4.2.3 Newco shall promptly file a registration statement with
the Securities and Exchange Commission to register the shares of its
common stock to be issued in the Merger.
4.2.4 Newco shall use its best efforts to obtain a permit under
Title 3 Chapter 2 of the Alaska Administrative Code to conduct business
in the state of Alaska as a bank holding company.
4.2.5. Newco shall use its best efforts to obtain approval from
the Federal Reserve for the transactions set forth herein under the
Bank Holding Company Act of 1956, as amended.
4.2.6 On or after the Effective Date, as and when required by
the provisions of this Agreement, Newco shall issue shares of its stock
to Eligible Stockholders of the Company, and shall otherwise pay such
merger consideration to Company stockholders in accordance with the
provisions of this Agreement.
4.2.7 Newco shall use its best efforts to effectuate the
transactions contemplated hereby and to fulfill the conditions under
this Agreement.
5. Conditions of Closing
5.1 Conditions to Obligations of the Company. The obligations of
the Company under this Agreement to consummate the Merger, shall be subject
to the satisfaction, on or before the Effective Date, of the following
conditions (unless waived by the Company in writing and not required by law):
5.1.1 Approval of the Merger in accordance with law by holders
of a majority of the shares entitled to vote on the Merger of each of
Newco and the Company.
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5.1.2 The absence of any suit, action or proceeding (made or
threatened) against Newco or the Company, or any of their directors or
officers, seeking to challenge, restrain, enjoin, or otherwise affect
this Agreement or the transactions contemplated hereby; seeking to
restrict the rights of the parties or the operation of the business of
the Company or Newco after consummation of the Merger; or seeking to
subject the parties to this Agreement or any of their officers or
directors to any liability, fine, forfeiture or penalty on the ground
that the parties hereto or their directors or officers have violated or
will violate their fiduciary duties to their respective stockholders or
will violate any applicable law or regulation in connection with the
transactions contemplated by this Agreement.
5.1.3 Receipt by Newco of approval from the Federal Reserve to
become a bank holding company pursuant to Section 3(a)(1) of the Bank
Holding company Act of 1956, as amended, and to take the actions herein
provided.
5.1.4 Receipt by Newco of a permit to do business as a bank
holding company in the State of Alaska.
5.1.5 Procurement of all other consents and approvals, and
satisfaction of all other requirements prescribed by law which are
necessary or appropriate for consummation of the transaction.
5.1.6 Except as contemplated hereby, the representations and
warranties of Newco being true at and as of the Effective Date as
though such representations and warranties were made at and as of, such
time period.
5.1.7 Newco having complied with all agreements, covenants and
conditions on its part required by this Agreement to be performed or
complied with prior to or at the Effective Date.
5.1.8 Between the date hereof and the Effective Date, the
absence of any material adverse change in the business, assets,
earnings, operation or condition (financial or otherwise) of Newco,
except changes contemplated by this Agreement and such changes as may
have been previously approved in writing by the Company.
5.1.9 Receipt by the Company of a certificate of the President
of Newco dated as of the Effective Date, certifying the fulfillment of
the conditions specified in Section 5.2 and such other matters with
respect to the fulfillment by Newco of any of the conditions of this
Agreement as the Company may reasonably request on reasonable prior
notice.
5.2 Conditions to Obligations of Newco. The obligations of Newco
under this Agreement to consummate the Merger, shall be subject to the
satisfaction, on or before the Effective Date, of the following conditions
(unless waived by Newco in writing and not required by law):
5.2.1 Approval of the Merger in accordance with law by holders
of a majority of the shares entitled to vote on the Merger of each of
Newco and the Company.
5.2.2 The absence of any suit, action or proceeding (made or
threatened) against Newco or the Company, or any of their directors or
officers, seeking to challenge, restrain, enjoin, or otherwise affect
this Agreement or the transactions contemplated hereby; seeking to
restrict the rights of the parties or the operation of the business of
the Company or Newco after consummation of the Merger; or seeking to
subject the parties to this Agreement or any of their officers or
directors to any liability, fine, forfeiture or penalty on the ground
that the parties hereto or their directors or officers have violated or
will violate their fiduciary duties to their respective stockholders or
will violate any applicable law or regulation in connection with the
transactions contemplated by this Agreement.
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5.2.3 Approval having been received by Newco from the Federal
Reserve to become a bank holding company pursuant to Section 3(a)(1) of
the Bank Holding Company Act of 1956, as amended, and to take the
actions herein provided.
5.2.4 Approval by the Director for Newco to conduct business as a
bank holding company in the State of Alaska.
5.2.5 Procurement of all other consents and approvals, and
satisfaction of all other requirements prescribed by law which are
necessary or appropriate for consummation of the transaction.
5.2.6 Except as contemplated hereby, the representations and
warranties of the Company being true at and as of the Effective Date as
though such representations and warranties were made at and as of such
time period.
5.2.7 The Company having complied with all agreements, covenants
and conditions on their part required by this Agreement to be performed
or complied with prior to or at the Effective Date.
5.2.8 Between the date hereof and the Effective Date, the absence
of any material adverse change in the business, assets, earnings,
operations or condition (financial or otherwise) of the Company, except
changes contemplated by this Agreement and such changes as may have been
previously approved in writing by Newco.
5.2.9 Receipt by Newco of a certificate of the President of the
Company dated as of the Effective Date, certifying the fulfillment of
the conditions specified in Sections 5.1 above and such other matters
with respect to the fulfillment by the Company of any of the conditions
of this Agreement as Newco may reasonably request on reasonable prior
notice.
6. Closing.
The transactions contemplated by this Agreement will close in the office
of Foster Pepper & Shefelman LLP, Portland, Oregon, at such time and on such
date within 31 days following the satisfaction of all conditions prior to
closing set forth in Section 5 (not waived or to be satisfied by delivery of
documents or a state of facts to exist at closing) , as set by notice from
Newco to the Company or such other time and place as the parties may agree.
7. Termination.
7.1 Procedure for Termination. This Agreement may be terminated or
amended at any time before the Effective Date:
7.1.1 By the mutual consent of the Boards of Directors of the
Company and Newco.
7.1.2 By either party acting through its Board of Directors upon
written notice to the other party, if there has been a material
misrepresentation or material breach on the part of the other party in
its representations, warranties and covenants set forth herein or if
there has been any material failure on the part of the other party to
comply with its obligations hereunder which misrepresentation, breach or
failure is not cured within thirty (30) days notice to such other party
of such misrepresentation, breach or failure.
7.1.3 By action of either party acting through its Board of
Directors upon written notice to the other party if any of the
conditions set forth in Section 5 have not been performed at or prior to
December 31, 1999.
7.2 Effect of Termination. In the event this Agreement is terminated
pursuant to Section 7.1, it shall become wholly void and of no further force
and effect and there shall be no liability on the part of either party or its
respective Boards of Directors as a result of such termination or abandonment,
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except as provided herein. Such termination shall not relieve any party of
liability for any default prior to termination.
8. Miscellaneous Provisions.
8.1 Amendment or Modification. Prior to the Effective Date, this
Agreement and the Certificate of Merger may be amended or modified, either
before or after approval by the stockholders of the Company or of Newco, only
by an agreement in writing executed by the parties hereto upon approval of
their respective boards of directors. Notwithstanding the foregoing, no such
amendment or modification shall reduce the amount or modify the form of
consideration to be received by stockholders of the Company pursuant to this
Agreement without the approval of the Company's stockholders.
8.2 Waivers and Extensions. Each of the parties hereto may, by an
instrument in writing, extend the time for or waive the performance of any of
the obligations of the other party hereto or waive compliance by the other
party hereto of any of the covenants or conditions contained herein, except
that no waiver of the required approval by stockholders of Newco and the
Company of this Agreement, or any other condition otherwise required by law,
shall be permitted. No such waiver or extension of time shall constitute a
waiver of any subsequent or other performance or compliance. No such waiver
shall require the approval of the stockholders of any party.
8.3 Expenses. Each of the parties hereto shall pay their respective
expenses in connection with this Agreement and the transactions contemplated
hereby.
8.4 Binding Effect, No Assignment. This Agreement and all the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder, shall be
assigned by either party without the prior written consent of the other party.
8.5 Representations and Warranties. The respective representations and
warranties of each party hereto contained herein shall not be deemed to be
waived or otherwise affected by any investigation made by the other party and,
shall not survive the closing hereof.
8.6 No Benefit to Third Parties. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person or entity,
other than the parties hereto, any right or remedy under or by reason hereof.
8.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
8.8 Entire Agreement. This Agreement, including all of the exhibits
hereto constitute the entire Agreement between the parties with respect to the
Merger and other transactions contemplated hereby and supersedes all prior
agreements and understandings between the parties with respect to such
matters.
8.9 Headings. The article and section headings in this Agreement are for
the convenience of the parties and shall not affect the interpretation of this
Agreement.
8.10 Counterparts. At the convenience of the parties, this Agreement may
be executed in counterparts, and each such executed counterpart shall be
deemed to be an original instrument, but all such executed counterparts
together shall constitute but one Agreement and Plan of Reorganization.
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IN WITNESS WHEREOF, the parties hereto, pursuant to the approval and
authority duly given by resolutions adopted by a majority of their respective
Board of Directors, have each caused this Agreement to be executed by its
authorized officer.
The Company:
First Bancorp, Inc.
By: /s/ William G. Moran, Jr.
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William G. Moran, Jr., President
Newco:
Newco Alaska, Inc.
By: /s/ William G. Moran, Jr.
--------------------------------------
William G. Moran, Jr., President
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Appendix B
Opinion of the Independent Investment Advisor
[ALEX SHESHUNOFF & CO. INVESTMENT BANKING LETTERHEAD]
January 29, 1999
Board of Directors
First Bancorp, Inc.
331 Dock Street
Ketchikan, AK 99901
Members of the Board:
Alex Sheshunoff & Co. Investment Banking ("Sheshunoff") understands
that the Board of Directors of First Bancorp, Inc. ("First Bancorp") has
unanimously approved an Agreement and Plan of Reorganization (the
"Agreement"), as a result of which First Bancorp will merge with a newly
formed corporation (Newco), with Newco being the surviving corporation (the
"Merger"), upon which Newco will change its name to First Bancorp, Inc. As
of the date of this writing, Newco was completing its corporate organization,
and in this process, will elect S Corporation status under the Internal
Revenue Code. In conjunction with the Merger, all shareholders with 750
shares or less will have their shares exchanged for cash in the amount of
$175.00 per share (the "Cash Amount"), through a cash for stock exchange.
The remaining shareholders with more than 750 shares will be entitled to
receive Newco common stock or, at the option of the Board of Directors, the
Cash Amount. The pro-forma number of Newco shareholders, assuming no
shareholders of First Bancorp common stock with more than 750 shares elects
cash in lieu of Newco shares and all shareholders with less than 750 shares
elects to accept the Cash Amount, will total 47.
You have requested Sheshunoff's opinion, as to whether the Cash Amount
to be received by the holders of shares of First Bancorp common stock
pursuant to the Agreement is fair from a financial point of view to such
holders of First Bancorp Common Stock.
In connection with our opinion, Sheshunoff has, among other things:
1. Reviewed a draft copy of the Agreement;
2. Evaluated First Bancorp's consolidated results based upon a review
of its annual financial statements for each of four-years ending
December 31, 1998, 1997, 1996 and 1995;
3. Reviewed Call Report information as of December 1998 for First
Bancorp;
4. Analyzed certain budget and financial projections of First Bancorp
prepared by the management of First Bancorp;
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5. Conducted conversations with executive management regarding recent
and projected financial performance of First Bancorp;
6. Compared First Bancorp's recent operating results with those of
certain other banks in the Northwest region of the United States
which have recently been acquired;
7. Compared First Bancorp's recent operating results with those of
certain other banks in the United States which have recently been
acquired;
8. Compared the pricing multiples for the Cash Amount in the Merger
to those of certain other banks in the Northwest region of the
United States which have recently been acquired;
9. Compared the pricing multiples for the Cash Amount in the Merger
to those of certain other banks in the United States which have
recently been acquired;
10. Analyzed the net present value of the after-tax cash flows First
Bancorp could produce through the year 2003, based on assumptions
provided by management; and,
11. Performed such other analyses as we deemed appropriate.
Sheshunoff has assumed and relied upon without independent verification
the accuracy and completeness of the information supplied or otherwise made
available to it by First Bancorp for the purposes of this opinion.
Sheshunoff has not made an independent evaluation of the assets or
liabilities of First Bancorp, nor has Sheshunoff been furnished with any such
appraisals. With respect to First Bancorp budgets and financial forecasts,
Sheshunoff has assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgments of management of First
Bancorp, as to the future financial performance of First Bancorp, and
Sheshunoff has assumed such forecasts and projections will be realized in the
amounts and at the times contemplated thereby. Sheshunoff has assumed that
obtaining any necessary regulatory approvals and third party consents for the
Merger or otherwise will not have an adverse effect on First Bancorp, or
Newco pursuant to the Agreement. Sheshunoff is not an expert in the
evaluation of loan portfolios for the purpose of assessing the adequacy of
the allowance for losses with respect thereto and has assumed that such
allowances for each of the companies are in the aggregate, adequate to cover
such losses. In addition, Sheshunoff has not reviewed any individual credit
files or made an independent evaluation, appraisal or physical inspection of
the assets or individual properties of First Bancorp, nor has Sheshunoff been
furnished with any such evaluations or appraisals.
Sheshunoff's opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to it, as of
the date hereof. Events occurring after the date hereof could materially
affect the assumptions used in preparing this opinion. Sheshunoff has also
assumed that there are no material changes in First Bancorp's assets,
financial condition, results of operations, business or prospects since the
respective dates of their last financial statements reviewed by it, and that
off-balance sheet activities of First Bancorp will not materially and
adversely impact the future financial position or results of operation of
First Bancorp. Sheshunoff has also assumed the Merger will be completed as
set forth in the Agreement and that no material changes will be made or
restrictions imposed by regulatory or other parties on the terms of the
Agreement.
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Sheshunoff's opinion is limited to the fairness, from a financial point
of view, to the holders of First Bancorp common stock of the Cash Amount and
does not address First Bancorp's underlying business decision to undertake
the Merger. Moreover, this letter, and the opinion expressed herein, does
not constitute a recommendation to any stockholder as to any approval of the
Merger or the Agreement. It is understood that this letter is for the
information of the Board of Directors of First Bancorp and its shareholders
and may not be used for any other purpose without Sheshunoff's prior written
consent, except that this opinion may be included in its entirety in any
filing made by First Bancorp with the Securities and Exchange Commission with
respect to the Merger.
Sheshunoff has no past, present or contemplated interest in First
Bancorp or any of its shares. Sheshunoff will receive a fee for providing
this opinion. Sheshunoff's fee is not dependent on the Cash Amount. For the
past two years, Sheshunoff provided an estimate of the value of minority
shares of First Bancorp held by its Employee Stock Ownership Plan.
Based upon and subject to the foregoing, Sheshunoff is of the opinion
that, as of the date hereof, the Cash Amount to be received by First Bancorp
common stockholders is fair from a financial point of view to the holders of
such shares.
Very truly yours,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
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Appendix C
General Corporation Law of the State of Delaware
s. 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing
pursuant to s. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation' the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to s. 251, 252. 254, 257, 258 or 263 of this title.
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock
which, at the record date fixed to determine the stockholders entitled
to receive notice of and to vote at the meeting of stockholders to act
upon the agreement of merger or consolidation. were either (i) listed
on a national securities exchange or (i) held of record by more than
2,000 stockholders; and further provided that no appraisal rights shall
be available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of s. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or
consolidation pursuant to s. 251, 252, 254, 257, 258 and 263 of this
title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation;
b. Shares of stock of any other corporation which at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or held of record by more than 2,000
stockholders;
c. Cash in lieu of fractional shares of the corporations described
in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash in lieu of
fractional shares described in the foregoing subparagraphs a, b.
and c of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under s. 253 of this title is not
owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
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of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section. shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior
to the meeting. shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsection (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of
this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote
on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to s. 228 or
253 of this title, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10
days thereafter, shall notify each of the stockholders entitled to
appraisal rights of the effective date of the merger or consolidation
and that appraisal rights are available for any or all of the shares of
the constituent corporation, and shall include in such notice a copy of
this section. The notice shall be sent by certified or registered mail,
return receipt requested. addressed to the stockholder at his address
as it appears on the records of the corporation.
Any stockholder entitled to appraisal rights may, within 20 days after
the date of mailing of the notice, demand in writing from the surviving
or resulting corporation the appraisal of his shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the corporation surviving
the merger or resulting from the consolidation a statement setting forth the
aggregate number of shares not voted in favor of the merger or consolidation
and with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Such written statement shall be
mailed to the stockholder within 10 days after his written request for such
C-2
<PAGE>
a statement is received by the surviving or resulting corporation or within
10 days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and
may proceed to trial upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name appears
on the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of
stock to the Register in Chancery, if such is required, may participate fully
in all proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
C-3
<PAGE>
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation. then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (8 Del. C. 1953, s. 262; 56
Del. Laws, c. 50; 56 Del. Laws, c. 186, s. 24; 57 Del. Laws. c. 148, s.s.
27-29; 59 Del. Laws, c 106, s. 12; 60 Del Laws c 371, s.s. 3-12; 63 Del. Laws,
c. 25, s. 14; 63 Del. Laws, c 152, s.s. 1, 2; 64 Del. Laws, c. 112, s.s.
46-54; 66 Del. Laws, c. 136, s.s. 30-32; 66 Del Laws, c. 352, s. 9; 67 Del.
Laws, c 376, s.s. 19, 20)
C-4
<PAGE>
Index To Consolidated Financial Statements
of
FIRST BANCORP, INC. and Subsidiary
Independent Auditors Report.............................................F - 2
Consolidated Balance Sheets at December 31, 1998 and 1997...............F - 3
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996........................................F - 4
Consolidated Statements of Changes in Stockholders' Equity and
Comprehensive Income for the years ended December 31, 1998,
1997 and 1996...........................................................F - 5
Consolidated Statements of Cash Flow for the years ended
December 31, 1998, 1997 and 1996........................................F - 6
Notes to Consolidated Financial Statements..............................F - 7
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
First Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of First
Bancorp, Inc. and subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in stockholders' equity
and comprehensive income, and cash flows for each of the years in the
three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company'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 referred to above
present fairly, in all material respects, the financial position of First
Bancorp, Inc. and subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
January 21, 1999
Anchorage, Alaska
F-2
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
--------------- ---------------
<S> <C> <C> <C>
Cash and due from banks (note 2) $ 9,783,427 9,851,577
Federal funds sold 9,391,000 3,935,000
Investment securities available for sale (note 3) 100,960,973 112,162,100
Investment in Federal Home Loan Bank stock 2,896,900 2,683,000
Loans (note 4) 123,122,057 106,928,905
Less allowance for possible loan losses (note 5) 1,421,352 1,293,512
--------------- ---------------
Net loans 121,700,705 105,635,393
--------------- ---------------
Premises and equipment, net (note 6) 5,796,522 5,687,411
Accrued interest receivable 1,756,967 1,938,811
Other assets (note 8) 2,508,378 1,911,094
--------------- ---------------
Total assets $ 254,794,872 243,804,386
=============== ===============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand $ 68,133,335 64,669,469
Savings 48,846,681 50,727,050
Time deposits of $100,000 or more (note 7) 60,814,472 53,554,698
Other time deposits 51,733,617 50,720,931
--------------- ---------------
Total deposits 229,528,105 219,672,148
Federal Home Loan Bank advances (note 11) -- 1,000,000
Accrued interest payable 516,779 476,715
Other liabilities 1,557,627 1,050,977
--------------- ---------------
Total liabilities 231,602,511 222,199,840
--------------- ---------------
Stockholders' equity:
Common stock of $5 par value. Authorized 1,000,000
shares; issued and outstanding 214,040 shares in
1998 and 1997 1,070,200 1,070,200
Surplus 6,414,704 6,414,704
Undivided profits 16,051,970 14,774,999
Accumulated other comprehensive income - net
unrealized gain on securities available for sale 184,012 (179,617)
Treasury stock, at cost (5,765 shares in 1998 and
5,306 shares in 1997) (528,525) (475,740)
--------------- ---------------
Total stockholders' equity 23,192,361 21,604,546
Commitments and contingencies (notes 10, 11 and 15)
--------------- ---------------
Total liabilities and stockholders' equity $ 254,794,872 243,804,386
=============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
Interest income:
<S> <C> <C> <C>
Interest on loans $ 11,383,100 10,284,722 8,730,271
Interest on federal funds sold 550,272 478,661 533,819
Interest-bearing deposits in other banks 69,617 68,611 62,957
Interest on securities available for sale:
Taxable (note 3) 6,146,080 6,510,753 6,699,638
Exempt from federal income taxes 106,482 66,936 117,335
------------- ------------ ------------
Total interest income 18,255,551 17,409,683 16,144,020
------------- ------------ ------------
Interest expense:
Interest on deposits:
Time deposits of $100,000 or more 2,780,460 2,445,427 2,181,080
Other 5,689,568 5,612,024 5,264,338
Interest on federal funds purchased 12,969 40,288 59,835
Other interest 36,734 135,926 158,029
------------- ------------ ------------
Total interest expense 8,519,731 8,233,665 7,663,282
------------- ------------ ------------
Net interest income 9,735,820 9,176,018 8,480,738
Provision for loan losses (note 5) 252,000 232,000 215,750
------------- ------------ ------------
Net interest income after provision
for loan loss 9,483,820 8,944,018 8,264,988
------------- ------------ ------------
Other operating income:
Net realized gains on sales of securities
available for sale (note 3) 73,149 225,240 17,422
Service charges on deposit accounts 645,722 637,960 676,087
Loan placement fees 1,704,721 1,181,208 1,108,479
Other 1,131,122 848,627 855,653
------------- ------------ ------------
Total other operating income 3,554,714 2,893,035 2,657,641
------------- ------------ ------------
Other operating expenses
Salaries and employee benefits 5,558,140 5,174,585 5,025,104
Occupancy, net 618,077 640,190 669,492
Equipment 1,061,888 960,273 921,256
Federal Deposit Insurance Corporation assessments 15,610 25,365 8,264
Other 2,033,840 1,781,384 1,757,492
------------- ------------ ------------
Total other operating expenses 9,287,555 8,581,797 8,381,608
------------- ------------ ------------
Income before income taxes 3,750,979 3,255,256 2,541,021
Provision for income taxes (note 8) 1,432,235 1,065,956 790,311
------------- ------------ ------------
Net income $ 2,318,744 2,189,300 1,750,710
============= ============ ============
Per share amounts - net income $ 11.12 $ 10.48 $ 8.29
============= ============ ============
Weighted average shares outstanding $ 208,460 208,980 209,986
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
and Comprehensive Income
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
other
Common Undivided Treasury comprehensive
stock Surplus profits stock income Total
------------- ------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 1,058,300 6,316,648 12,917,381 (313,400) 249,388 20,228,317
Comprehensive income:
Net income -- -- 1,750,710 -- -- 1,750,710
Change in unrealized holding loss on
securities available for sale, net
of taxes of $297,543 -- -- -- -- (446,314) (446,314)
-------------
Total comprehensive income 1,304,396
-------------
Cash dividends ($5 per share) -- -- (1,037,909) -- -- (1,037,909)
Purchase of treasury stock, at cost -- -- -- (56,240) -- (56,240)
------------- ------------ ------------ ------------- ------------- -------------
Balance at December 31, 1996 1,058,300 6,316,648 13,630,182 (369,640) (196,926) 20,438,564
Comprehensive income:
Net income -- -- 2,189,300 -- -- 2,189,300
Change in unrealized holding loss on
securities available for sale, net
of taxes of $11,538 -- -- -- -- 17,309 17,309
-------------
Total comprehensive income 2,206,609
-------------
Cash dividends ($5 per share) -- -- (1,044,483) -- -- (1,044,483)
Purchase of 1,125 shares of
treasury stock, at cost -- -- -- (106,100) -- (106,100)
Exercise 2,380 shares of stock
options (note 10) 11,900 98,056 -- -- -- 109,956
------------- ------------ ------------ ------------- ------------- -------------
Balance at December 31, 1997 1,070,200 6,414,704 14,774,999 (475,740) (179,617) 21,604,546
Comprehensive income:
Net income -- -- 2,318,744 -- -- 2,318,744
Change in unrealized holding loss on
securities available for sale, net
of taxes of $243,447 -- -- -- -- 363,629 363,629
-------------
Total comprehensive income 2,682,373
-------------
Cash dividends ($5 per share) -- -- (1,041,773) -- -- (1,041,773)
Purchase of 459 shares of treasury
stock, at cost -- -- -- (52,785) -- (52,785)
------------- ------------ ------------ ------------- ------------- -------------
Balance at December 31, 1998 $ 1,070,200 6,414,704 16,051,970 (528,525) 184,012 23,192,361
============= ============ ============ ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------------- --------------- ----------------
Operating activities:
<S> <C> <C> <C>
Net income $ 2,318,744 2,189,300 1,750,710
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 252,000 232,000 215,750
Provision for losses on other real estate 37,542 3,128 --
Depreciation and amortization 752,609 699,611 687,104
Gain on sale of other real estate -- -- (30,141)
Amortization of investment security premiums 103,822 143,462 196,185
Accretion of investment security discounts (159,566) (171,364) (248,693)
Net investment securities gains (73,149) (225,240) (17,422)
Gain from sale of bank premises and equipment (21,239) -- --
(Increase) decrease in interest receivable 181,844 33,569 110,768
Increase (decrease) in interest payable 40,064 (5,506) 88,948
(Increase) decrease in deferred income taxes 324,701 (34,348) (233,793)
(Increase) decrease in other assets (959,526) (317,178) 550,335
Increase (decrease) in other liabilities 506,650 378,898 (186,306)
---------------- --------------- ----------------
Net cash provided by operating activities 3,304,496 2,926,332 2,883,445
---------------- --------------- ----------------
Investing activities:
Proceeds from sale of securities available for sale 35,011,052 21,993,955 11,498,023
Proceeds from maturity of securities available for sale 67,728,216 57,633,806 75,233,012
Purchase of securities available for sale (91,259,519) (81,689,001) (78,280,496)
Net increase in loans (16,317,313) (15,988,430) (16,601,961)
Purchase of bank premises and equipment (816,481) (639,234) (596,428)
Proceeds from sale of bank premises and equipment (24,000) -- --
Proceeds from sale of other real estate -- -- 30,141
---------------- --------------- ----------------
Net cash used in investing activities (5,678,045) (18,688,904) (8,717,709)
---------------- --------------- ----------------
Financing activities:
Net increase (decrease) in demand deposit and savings accounts 1,583,497 4,127,941 (802,593)
Net increase in time deposits 8,272,460 7,639,208 12,560,246
Net (increase) decrease in federal funds sold (5,456,000) 6,742,000 (1,894,000)
Net decrease in Federal Home Loan Bank advances (1,000,000) (1,000,000) (3,000,000)
Net increase in treasury stock (52,785) (106,100) (56,240)
Proceeds from sale of stock options -- 109,956 --
Cash dividends paid (1,041,773) (1,044,483) (1,037,909)
---------------- --------------- ----------------
Net cash provided by financing activities 2,305,399 16,468,522 5,769,504
---------------- --------------- ----------------
Net increase (decrease) in cash and due from banks (68,150) 705,950 (64,760)
Cash and due from banks at beginning of year 9,851,577 9,145,627 9,210,387
---------------- --------------- ----------------
Cash and due from banks at end of year $ 9,783,427 9,851,577 9,145,627
================ =============== ================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 8,479,667 8,239,171 7,574,333
================ =============== ================
Cash paid during the year for income taxes $ 1,267,000 909,500 784,500
================ =============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(1) Summary of Significant Accounting Policies
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities disclosure of contingent assets and
liabilities as of the date of the balance sheet, and revenue and
expenses for the period. Actual results could differ from those
estimates. The significant policies and estimates applied in the
preparation of these consolidated financial statements are discussed
below.
(a) Consolidation
The consolidated financial statements include the accounts of First
Bancorp, Inc. and its wholly-owned subsidiary, First Bank, and its
wholly-owned subsidiaries, Dock Street Building Corporation and Dock
Street Title Agency, Incorporated (Company). All significant
intercompany accounts and transactions have been eliminated. The
Company's primary market area is Southeast Alaska where the majority
of its activities has been with Alaska businesses and individuals.
(b) Reclassifications
Certain prior year balances have been changed to conform to the
present year presentation.
(c) Investments
Securities available for sale are stated at fair value with
unrealized holding gains and losses excluded from earnings and
reported as a net amount in a separate component of other
comprehensive income. Securities are classified as available for
sale when management intends to hold the securities for an
indefinite period of time or when the securities may be utilized for
tactical asset/liability purposes and may be sold from time to time
to effectively manage interest rate exposure and resultant
prepayment risk and liquidity needs.
Federal Home Loan Bank stock is carried at cost which is its
redeemable (fair) value since the market for this stock is limited.
Premiums are amortized (deducted) and discounts are accreted (added)
to interest income on investment securities using methods that
approximate the level-yield method. Gains and losses on sales of
securities are computed using the specific-identification method of
determining the cost of securities sold.
F-7
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(d) Loans
Loans are stated at the principal amount outstanding. Interest on
loans is taken into income when earned. Loan origination fees
received in excess of direct origination costs are deferred and
amortized to income by a method approximating the level-yield method
over the estimated loan term.
Interest income on loans is recorded on an accrual basis until an
interest or principal payment is more than 90 days past due and in
the opinion of management the collectibility of such income becomes
doubtful. The deferral or nonrecognition of interest does not
constitute forgiveness of the borrower's obligation.
(e) Allowance for Loan Losses
The allowance for loan losses is a general reserve established by
management to absorb unidentified losses in the Company's loan
portfolio. In determining the adequacy of the allowance, management
evaluates prevailing economic conditions, results of regular
examinations and evaluations of the quality of the loan portfolio by
external parties, actual loan loss experience, the extent of
existing risks in the loan portfolio and other pertinent factors.
The allowance for impaired loans is based on discounted cash flows
using the loans' initial interest rates or, if the loan is secured,
the fair value of the collateral.
Future additions to the allowance may be necessary based on changes
in economic conditions and other factors used in evaluating the loan
portfolio. Additionally, various regulatory agencies, as an
integral part of their examination process, periodically review the
allowance. Such agencies may require the recognition of additions
to the allowance based on their judgment of information available to
them at the time of their examination.
(f) Loan Servicing
The cost of mortgage servicing rights is amortized in proportion to,
and over the period of, estimated net servicing revenues.
Impairment of mortgage servicing rights is assessed based on the
fair value of those rights. Fair values are estimated using
discounted cash flows based on a current market interest rate. The
amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights exceed their fair value.
(g) Other Real Estate
Other real estate represents properties acquired through foreclosure
or its equivalent. Prior to foreclosure, the carrying value is
adjusted to the lower of cost or fair market value of the real
estate to be acquired by a charge to the allowance for loan losses.
Any subsequent reduction in carrying value is charged against
operating expenses.
F-8
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(h) Premises and Equipment
Premises and equipment are stated at cost, less amortization and
accumulated depreciation. Depreciation expense on leasehold
improvements is computed by use of the straight-line method over the
shorter of the estimated useful lives of the assets or leasehold
improvements. Expenditures for remodeling, improvements and
construction are capitalized, while expenditures for maintenance and
repairs are charged to expense.
(i) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which the temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(j) Net Income Per Share
Per share amounts are calculated based on the weighted average
number of shares and common share equivalents outstanding during
each year. Outstanding stock options are common stock equivalents
and therefore are included in the calculation of the weighted
average number of shares outstanding, if dilutive.
(k) Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial
statements. Comprehensive income consists of net income and net
unrealized gains (losses) on securities and is presented in the
consolidated statements of stockholders' equity and comprehensive
income. The statement requires only additional disclosures in the
consolidated financial statements; it does not affect the Company's
financial position or results of operations. Prior year financial
statements have been reclassified to conform to the requirements of
SFAS No. 130.
(2) Cash and Due from Banks
The Company is required to maintain a $200,000 minimum average daily
balance with the Federal Reserve Bank (FRB) for purposes of settling
financial transactions and charges for FRB services. The Company is
also required to maintain sufficient cash balances or deposits with the
FRB to meet its statutory reserve requirements. The reserve requirement
for the two-week maintenance period, which included December 31, 1998
was satisfied by cash on hand in the Company's vault and on deposit with
the FRB.
F-9
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(3) Investment Securities
The following is a comparative summary of investment securities
available for sale at December 31:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
------------------ -------------- --------------- -----------------
1998:
<S> <C> <C> <C> <C>
U.S. Government and federal agencies $ 54,763,462 438,739 (24,211) 55,177,990
States and political subdivisions 1,707,699 85,846 -- 1,793,545
Corporate securities 8,963,078 80,739 (338) 9,043,479
Mortgage-backed securities 33,796,314 110,906 (496,797) 33,410,423
Other debt securities 1,414,450 1,973 -- 1,416,423
Federal National Mortgage
Association stock 8,257 110,856 -- 119,113
------------------ -------------- --------------- -----------------
$ 100,653,260 829,059 (521,346) 100,960,973
================== ============== =============== =================
1997:
U.S. Government and federal agencies 77,447,591 379,646 (6,562) 77,820,675
States and political subdivisions 1,846,350 23,220 -- 1,869,570
Corporate securities 5,607,261 53,236 (2,819) 5,657,678
Mortgage-backed securities 27,053,534 128,857 (951,460) 26,230,931
Other debt securities 500,000 -- -- 500,000
Federal National Mortgage
Association stock 6,727 76,519 -- 83,246
------------------ -------------- --------------- -----------------
$ 112,461,463 661,478 (960,841) 112,162,100
================== ============== =============== =================
</TABLE>
The amortized cost and market value of available for sale debt securities at
December 31, 1998, are distributed by contractual maturity as shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
F-10
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Securities Within One to Five to Due after Amortized Market
available for sale one year five years ten years ten years cost value
---------------- ---------------- --------------- ----------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and
federal agencies $ 11,994,028 31,817,815 2,611,247 8,340,372 54,763,462 55,177,990
State and political
subdivisions 293,871 191,779 1,222,049 -- 1,707,699 1,793,545
Corporate securities 3,057,268 4,028,225 -- 1,877,585 8,963,078 9,043,479
Mortgage-backed
securities 154,541 2,823,875 5,544,331 25,273,567 33,796,314 33,410,423
Other debt securities 500,000 -- -- 914,450 1,414,450 1,416,423
---------------- ---------------- --------------- ----------------- ------------------ -----------------
$ 15,999,708 38,861,694 9,377,627 36,405,974 100,645,003 100,841,860
================ ================ =============== ================= ================== =================
</TABLE>
Proceeds from sales of available for sale securities during 1998, 1997 and 1996
were $35,011,052, $21,993,955, and $11,498,023, respectively. Gross gains of
$94,602, $241,917, and $37,437 and gross losses of $21,453, $16,677, and $20,015
were realized on those sales for the years ended December 31, 1998, 1997 and
1996, respectively.
Market value of investment securities of approximately $45,753,000 and
$49,630,000 are pledged to secure public deposits at December 31, 1998 and 1997,
respectively.
A summary of taxable interest on securities available for sale for the year
ended December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ---------------- ----------------
<S> <C> <C> <C>
U.S. Treasury securities $ 1,534,168 1,288,127 1,321,549
Obligations of U.S. Government
agencies and corporations 3,943,459 4,674,469 4,738,098
Other 668,453 548,157 639,991
--------------- ---------------- ----------------
$ 6,146,080 6,510,753 6,699,638
=============== ================ ================
</TABLE>
F-11
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(4) Loans
The Company's primary market area is Southeast Alaska, where the majority
of its lending is with Alaska businesses and individuals. Approximately
66% of the Company's loans at December 31, 1998, are for general
commercial uses, including timber, tourism, retail and small businesses.
Substantially all of these loans are collateralized and repayment is
expected from the borrowers' cash flow or, secondarily, the collateral.
The Company's exposure to credit loss, if any, is the outstanding amount
of the loan if the collateral is proved to be of no value.
The carrying amount of the loan portfolio is as follows at December 31:
1998 1997
------------ ------------
Mortgage $ 8,653,771 3,592,629
Commercial 82,214,463 73,870,604
Consumer 32,906,260 30,102,197
------------ ------------
123,774,494 107,565,430
Less unamortized loan origination fees 652,437 636,525
------------ ------------
$ 123,122,057 106,928,905
============ ============
The following table sets forth the maturity distribution and sensitivity
to changes in interest rates of the Company's loan portfolio at December
31, 1998.
Within One to After
one year five years five years Total
------------ ------------ ------------ --------------
Mortgage $ 308,425 239,647 8,105,699 8,653,771
Commercial 12,741,996 36,676,253 32,796,214 82,214,463
Consumer 6,306,945 25,247,132 1,352,183 32,906,260
------------ ------------ ------------ --------------
$ 19,357,366 62,163,032 42,254,096 123,774,494
============ ============ ============ ==============
Loans at fixed
interest rates 12,175,411 51,905,009 10,510,198 74,590,618
Loans at variable
interest rates 7,181,955 10,258,023 31,743,898 49,183,876
------------ ------------ ------------ --------------
$ 19,357,366 62,163,032 42,254,096 123,774,494
============ ============ ============ ==============
F-12
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
The Company has and will continue to have banking transactions with its
directors, officers, principal shareholders and its associates in the ordinary
course of business. It is Company policy that all such loan transactions be on
the same terms, including interest rates and collateral, as those prevailing at
the same time for comparable transactions with others. An analysis of these loan
transactions at December 31 follows:
1998 1997
----------- -----------
Balance at beginning of year $ 2,646,307 1,968,729
Net additions (deletions) 113,032 677,578
----------- -----------
Balance at end of year $ 2,759,339 2,646,307
=========== ===========
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others was $100,712,256 and $86,690,480 at December 31, 1998 and
1997, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing, and included in demand deposits, were approximately $461,236 and
$522,896 at December 31, 1998 and 1997, respectively.
Mortgage servicing rights of $379,422, $153,286, and $152,203 were capitalized
during 1998, 1997, and 1996, respectively. The carrying value of unamortized
mortgage servicing rights of $576,021 and $277,281 approximates its fair value
as of December 31, 1998 and 1997, respectively. Amortization of mortgage
servicing rights was $80,682, $19,029, and $9,179 in 1998, 1997, and 1996,
respectively.
(5) Allowance for Loan Losses
A summary of the allowance for loan losses as of December 31 follows:
1998 1997 1996
----------- ------------ ------------
Balance at beginning of year $ 1,293,512 1,103,414 1,383,814
Recoveries on loans previously
charged off 16,225 49,524 18,353
Provision charged to expense 252,000 232,000 215,750
Loans charged off (140,385) (91,426) (514,503)
----------- ------------ ------------
Balance at end of year $ 1,421,352 1,293,512 1,103,414
=========== ============ ============
The amount of any impaired loans is insignificant at December 31, 1998 and 1997.
The Company had no loans on nonaccrual status at December 31, 1998 and 1997.
F-13
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(6) Premises and Equipment
A summary of premises and equipment at December 31 follows:
1998 1997
----------- -----------
Company premises $ 4,742,278 4,703,952
Land 1,542,083 1,451,608
Equipment 4,869,636 4,279,667
----------- -----------
11,153,997 10,435,227
Less accumulated depreciation (5,357,475) (4,747,816)
----------- -----------
$ 5,796,522 5,687,411
=========== ===========
(7) Deposits
Time deposits in amounts of $100,000 or more and their remaining
maturities at December 31 are as follows:
1998 1997
Three months or less $ 27,611,027 26,496,631
Three through twelve months 28,056,872 22,251,443
Over twelve months 5,146,573 4,806,624
----------- ------------
$ 60,814,472 53,554,698
=========== ============
F-14
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(8) Income Taxes
Components of income tax expense (benefit) are as follows:
Current Deferred Total
----------- ---------- ------------
1998:
Federal $ 1,084,889 78,004 1,162,893
State 266,092 3,250 269,342
----------- ---------- ------------
$ 1,350,981 81,254 1,432,235
=========== ========== ============
1997:
Federal 1,010,936 (44,073) 966,863
State 100,906 (1,813) 99,093
----------- ---------- ------------
$ 1,111,842 (45,886) 1,065,956
=========== ========== ============
1996:
Federal 687,354 54,000 741,354
State 39,207 9,750 48,957
----------- ---------- ------------
$ 726,561 63,750 790,311
=========== ========== ============
The actual tax expense for 1998, 1997 and 1996 differs from the "expected" tax
expense for those years (computed by applying the U.S. Federal statutory tax
rate of 34% to earnings before income taxes) as follows:
1998 1997 1996
----------- ---------- ----------
Computed "expected" income taxes $ 1,275,333 1,106,787 863,947
State income taxes 177,767 65,401 32,300
Tax-exempt interest (69,838) (49,834) (37,867)
Other 48,973 (56,398) (68,069)
----------- ---------- ----------
$ 1,432,235 1,065,956 790,311
=========== ========== ==========
F-15
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
The components of and changes in the net deferred tax asset (liability) are as
follows:
<TABLE>
<CAPTION>
(Deferred (Deferred
expense) expense)
Dec.31,1996 benefit Dec.31,1997 benefit Dec.31,1998
------------- ------------- -------------- -------------- ----------------
Deferred tax assets:
<S> <C> <C> <C> <C> <C>
Bad debt deduction $ 266,104 76,018 342,122 51,392 393,514
Loan fees 249,259 6,624 255,883 6,397 262,280
Depreciation 17,633 150,973 168,606 19,292 187,898
Other real estate owned 41,879 (22,489) 19,390 15,092 34,482
Unrealized loss (gain) on
available sale
investment securities 131,284 (11,538) 119,746 (243,447) (123,701)
Other 37,109 (12,351) 24,758 14,886 39,644
------------- ------------- -------------- -------------- ----------------
Total gross deferred
tax assets 743,268 187,237 930,505 (136,388) 794,117
------------- ------------- -------------- -------------- ----------------
Deferred tax liabilities:
Federal Home Loan
Bank stock dividends (424,994) (78,993) (503,987) (85,988) (589,975)
Accretion on bonds (6,774) (19,925) (26,699) 17,768 (8,931)
Loan servicing rights (57,496) (53,971) (111,467) (120,093) (231,560)
------------- ------------- -------------- -------------- ----------------
Total deferred
tax liabilities (489,264) (152,889) (642,153) (188,313) (830,466)
------------- ------------- -------------- -------------- ----------------
Valuation allowance -- -- -- -- --
------------- ------------- -------------- -------------- ----------------
Net deferred
tax asset $ 254,004 34,348 288,352 (324,701) (36,349)
============= ============== ================
Amounts attributed to gain (loss)
on available for sale investment
securities and recorded as a
reduction to unrealized
holding gain or loss 11,538 243,447
------------- --------------
$ 45,886 (81,254)
============= ==============
</TABLE>
A valuation allowance on a deferred tax asset is provided when it is more likely
than not that some portion of the deferred tax asset will not be realized. The
Company has available tax planning strategies, anticipates future taxable income
and historically has had taxable income; accordingly, a valuation allowance was
not established in the current year. The net deferred tax asset is included in
other assets.
F-16
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(9) Comprehensive Income
At December 31, 1998, the related tax effects allocated to each component
of other comprehensive income follows:
<TABLE>
<CAPTION>
Before Tax Net of
tax amount (expense) benefit tax amount
------------------ ------------------- -------------------
<S> <C> <C> <C>
Unrealized holding gains on securities
available for sale arising during 1998 $ 680,225 272,781 407,444
Less: reclassification adjustment for
gains and losses realized in net income 73,149 29,334 43,815
------------------ ------------------- -------------------
Net unrealized gains 607,076 243,447 363,629
================== =================== ===================
</TABLE>
(10) Employee Benefit Plans
On January 1, 1992, the Company merged approximately 60% of its profit
sharing plan into the existing noncontributory defined contribution 401(k)
retirement plan. Contributions made to the 401(k) plan and charged to
expense amounted to $100,000, $75,000 and $60,000 in 1998, 1997 and 1996,
respectively.
Concurrently, the Company established an employee stock ownership plan
(ESOP) with the remaining 40% of the profit sharing plan's assets.
Contributions made to the ESOP and charged to expense amounted to $75,000,
$50,000 and $40,000 in 1998, 1997 and 1996, respectively.
Participation in the plans is available to employees who have completed
six months of service with the Company.
(11) Commitments and Contingencies
General
The Company from time to time may be a defendant in legal proceedings
related to the conduct of its banking business. In the opinion of
management, the Company's financial position and results of operations
will not be affected materially by the final outcome of any present legal
proceedings.
F-17
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Lease
The Company is obligated under noncancelable operating leases for premises, some
of which have renewal options. Net future minimum rental payments required under
the lease are as follows:
Year ending
December 31 Amount
------------- ----------
1999 $ 220,596
2000 197,801
2001 159,156
2002 159,156
2003 142,068
Thereafter 134,845
----------
$ 1,013,622
==========
Rental expense amounted to $198,385, $196,950, and $191,739 in 1998,
1997 and 1996, respectively.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Company enters into various types
of transactions which involve financial instruments with off-balance sheet
risk. These instruments include commitments to extend credit and standby
and commercial letters of credit and are not reflected in the accompanying
balance sheets. These transactions may involve, to varying degrees, credit
and interest rate risk in excess of the amount, if any, recognized in the
balance sheets. The Company applies the same credit standards to these
contracts as it uses in its lending process. Management does not
anticipate any loss to result from these commitments.
As of December 31, the Company's off-balance sheet credit risk exposure is
the contractual amount of commitments to extend credit and letters of
credit, is as follows:
1998 1997
---------- -----------
Off-balance sheet commitments:
Commitments to extend credit $ 8,741,433 10,240,000
Standby and commercial
letters of credit 395,120 575,785
Line of Credit
The Company has a line of credit up to 20% of assets or approximately
$51,000,000 at December 31, 1998 with the Federal Home Loan Bank (FHLB).
There is no outstanding balance on the credit line at December 31, 1998.
The Company has pledged its FHLB stock and other assets as collateral on
the line of credit.
(12) Regulatory Matters
The Federal Deposit Insurance Corporation has established risk-based
standards for evaluating a bank's capital adequacy. These standards
require the Company to maintain minimum ratio of qualifying total capital
to risk weighted assets of 8% of which at least 4% must be in the form of
F-18
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
core capital (TIER 1). Management believes as of December 31, 1998 and
1997, that the Bank meets all capital adequacy requirements. TIER 1
capital includes the bank's stockholders' equity, minus all intangible
assets. The Bank's actual capital amounts at December 31 are as follows:
1998 1997
-------- ---------
Total risk-based capital ratio 17.6% 17.7%
TIER 1 risk-based capital ratio 16.5% 17.8%
Leverage capital ratio 8.8% 8.9%
(13) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair value
disclosures as defined under SFAS No. 107, Disclosures About Fair Value of
Financial Instruments:
Cash and due from banks and federal funds sold - the carrying
amounts reported in the balance sheet represent their fair values.
Investment securities - fair values for investment securities are
based on quoted market prices, where available. If quoted market
prices are not available, fair values are based on quoted market
prices of comparable instruments. Investments in the Federal Reserve
Bank (FRB) and FHLB are recorded at cost, which also represents fair
market value.
Loans - for variable-rate loans that reprice frequently, fair values
are based on carrying amounts. Fair values of residential mortgages
with commitments to sell within 90 days are based on the amounts
receivable under the commitments. An estimate of the fair value of
the remaining portfolio is based on discounted cash flow analyses
applied to pools of similar loans, using weighted average coupon
rate, weighted average maturity, and interest rates currently being
offered for similar loans. The carrying amount of accrued interest
receivable approximates its fair value.
Deposit liabilities - the fair values of demand and savings deposits
are equal to the carrying amount at the reporting date. The carrying
amount for variable rate time deposits approximate their fair value.
Fair values for fixed rate time deposits are estimated using a
discounted cash flow calculation that applies currently offered
interest rates to a schedule of aggregate expected monthly
maturities of time deposits. The carrying amount of accrued interest
payable approximates its fair value.
Short-term borrowings - for FHLB advances and Federal funds
purchased with maturities less than 90 days, the carrying amount
represents their fair value. For FHLB advances and federal funds
purchased with maturities longer than 90 days, fair values are
estimated using a discounted cash flow calculation using current
interest rates for similar borrowings.
Commitments to Extend Credit and Standby Letters of Credit - The
fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness
of the counterparties. For fixed-rate loan commitments, fair value
also considers the difference between current levels of interest
F-19
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
rates and the committed rates. The fair value of letters of credit
is based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligation
with the counterparties at the reporting date.
Limitations - Fair value estimates are made at a specific point in
time, based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the
Company's entire holdings of a particular financial instrument.
Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments
and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value of financial instruments is as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------ -------------------------------
Carrying Fair Carrying Fair
amount value amount value
--------------- -------------- --------------- ---------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and due from banks $ 9,783,427 9,783,427 9,851,577 9,851,577
Federal funds sold 9,391,000 9,391,000 3,935,000 3,935,008
Investment securities 100,960,973 100,960,973 112,162,100 112,162,100
Loans 123,744,494 125,101,850 107,565,430 107,762,461
Accrued interest receivables 1,756,967 1,756,967 1,938,811 1,938,811
Financial liabilities:
Deposits 229,528,105 229,929,659 219,672,148 220,007,410
Accrued interest payable 516,779 516,779 476,715 476,715
Short-term borrowings -- -- 1,000,000 1,000,000
Unrecognized financial instruments:
Commitments to extend credit 8,741,433 87,414 10,240,000 102,400
Standby and commercial letters
of credit 395,120 3,951 575,785 5,856
</TABLE>
F-20
<PAGE>
FIRST BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(14) Quarterly Results of Operations
(in thousands except per share data. Unaudited.)
<TABLE>
<CAPTION>
Quarter ended
---------------------------------------------------------------
1998 Dec. 31 Sept. 30 June 30 Mar. 31
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Total interest income $ 4,657 4,659 4,511 4,429
Total interest expense 2,136 2,189 2,130 2,065
-------------- -------------- ------------- --------------
Net interest income 2,521 2,470 2,381 2,364
Provision for loan losses 48 72 60 72
Other operating income 915 909 882 776
Other operating expense 2,485 2,233 2,273 2,297
Securities gains 13 16 44 --
-------------- -------------- ------------- --------------
Income before income taxes 916 1,090 974 771
Income taxes 523 387 247 275
-------------- -------------- ------------- --------------
Net income $ 393 703 727 496
============== ============== ============= ==============
Earnings per share $ 1.88 3.37 3.49 2.38
============== ============== ============= ==============
Quarter ended
---------------------------------------------------------------
1997 Dec. 31 Sept. 30 June 30 Mar. 31
-------------- -------------- ------------- --------------
Total interest income $ 4,576 4,483 4,301 4,050
Total interest expense 2,209 2,097 2,006 1,922
-------------- -------------- ------------- --------------
Net interest income 2,367 2,386 2,295 2,128
Provision for loan losses 48 72 56 56
Other operating income 254 971 813 630
Other operating expense 1,635 2,407 2,293 2,247
Securities gains -- 135 87 3
-------------- -------------- ------------- --------------
Income before income taxes 938 1,013 846 458
Income taxes 383 341 158 184
-------------- -------------- ------------- --------------
Net income $ 555 672 688 274
============== ============== ============= ==============
Earnings per share $ 2.65 3.22 3.29 1.31
============== ============== ============= ==============
</TABLE>
(15) Subsequent Event
In January 1999, the Board of Directors approved a reorganization plan for
First Bancorp, Inc. This plan is intended to convert the Company into a
Subchapter S under the Internal Revenue Code. Additionally, this plan
would require that the Company re-purchase a portion of their stock with a
value ranging from $4 to 6 million. This plan is to be voted on by the
Company's stockholders in March 1999.
F-21
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
As a Delaware corporation, Newco, Inc. is subject to the General
Corporation Law of the State of Delaware. Under Delaware law, a corporation
may provide in its Certificate of Incorporation or in its Bylaws for the
indemnification of directors and officers against liability where the
director or officer has acted in good faith and with a reasonable belief that
actions taken were in the best interests of the corporation or at least not
adverse to the corporation's best interests and, if in a criminal proceeding,
the individual had no reasonable cause to believe that the conduct in
question was unlawful. A corporation may not indemnify an officer or
director against liability in connection with a claim by or in the right of
the corporation in which such officer or director was adjudged liable to the
corporation or in connection with any other proceeding in which the officer
or director was adjudged liable for receiving an improper personal benefit,
however a corporation may indemnify against the reasonable expenses
associated with such proceeding. A corporation may not indemnify against
breaches of the duty of loyalty. The Business Corporation Act provides for
mandatory indemnification of directors against all reasonable expenses
incurred in the successful defense of any claim made or threatened whether or
not such claim was by or in the right of the corporation. A court may order
indemnification if it determines that the director or officer is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances whether or not the director or officer met the good faith and
reasonable belief standards of conduct set out in the statute. Unless
otherwise stated in the Articles of Incorporation, officers of the
corporation are also entitled to the benefit of the above statutory
provisions.
Delaware law also provides that the corporation may, by so providing in
its Certificate of Incorporation, eliminate or limit the personal liability
of a director to the corporation or its shareholders for monetary damages for
conduct as a director, provided that the Certificate of Incorporation may not
eliminate or limit liability for any breach of the director's duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, any unlawful distribution, or any
transaction from which the director received an improper personal benefit.
In accordance with Delaware law, the Certificate of Incorporation of
Newco, Inc. provides that directors are not personally liable to the
corporation or its shareholders for monetary damages for conduct as a
director, except for (i) any breach of a director's duty of loyalty to the
corporation, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) any
distribution to shareholders which is unlawful, or (iv) any transaction from
which the director received an improper personal benefit.
The Certificate of Incorporation also provides for indemnification of
any person who is or was a party, or is threatened to be made a party, to any
civil, administrative or criminal proceeding by reason of the fact that the
person is or was a director or officer of the corporation or any of its
subsidiaries, or is or was serving at the request of the corporation as a
director, officer, partner, agent or employee of another corporation or
entity, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement, actually and reasonably incurred by that person
if (i) the person acted in good faith and in a manner reasonably believed to
not be opposed to the best interests of the corporation, or (ii) the act or
omission giving rise to such action or proceeding is ratified, adopted or
confirmed by the corporation, or the benefit thereof was received by the
corporation. Indemnification is available under this provision of the
Certificate of Incorporation in the case of derivative actions, unless the
person is adjudged to be liable for gross negligence or deliberate misconduct
in the performance of the person's duty to the corporation. To the extent a
director, officer, employee or agent (including an attorney) is successful on
the merits or otherwise in defense of any action to which this provision is
applicable, the person is entitled to indemnification for expenses actually
and reasonably incurred by the person in connection with that defense.
Item 21. Exhibits and Financial Statement Schedules
The exhibits filed with this registration statement are listed on
the Exhibit Index.
II-3
<PAGE>
Item 22. Undertakings
The undersigned registrant hereby undertakes that:
(A) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
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 director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the 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.
(B) For determining any liability under the Act, the registrant will
treat the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant under Rule 424(b)(1),
or (4), or 497(h) under the Act as part of this registration statement
as of the time the Commission declared it effective.
(C) For determining any liability under the Act, the registrant will
treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
(D) The registrant will supply, by means of an post-effective
amendment all information concerning the transaction and the company
being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Ketchikan, State of
Alaska, on March 18, 1999.
Newco Alaska, Inc.
By /s/ William G. Moran, Jr.
--------------------------------------
William G. Moran, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on March 18, 1999:
/s/ James C. Sarvela
James C. Sarvela, Vice President and Chief Financial Officer
(Principal accounting officer)
/s/ James C. Sarvela
- -------------------------------------
James C. Sarvela, Vice President and
Chief Financial Officer
(Principal accounting officer)
/s/ William G. Moran, Jr.
- ------------------------------------- ---------------------------------------
William G. Moran, Sr., Director William G. Moran, Jr., Director
/s/ Ernest J. Anderes* /s/ Michael J. Cessnun*
- ------------------------------------- ---------------------------------------
Ernest J. Anderes, Director Michael J. Cessnun, Director
/s/ Joseph M. Moran* /s/ Michael J. Elerding*
- ------------------------------------- ---------------------------------------
Joseph M. Moran, Director Michael J. Elerding, Director
/s/ Lisa A. Murkowski*
- ------------------------------------- ---------------------------------------
Lisa A. Murkowski, Director Alec W. Brindle, Jr., Director
*by: /s/ William G. Moran, Jr.
-------------------------------
William G. Moran, Jr.,
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit
2.0 Agreement and Plan of Reorganization by and between First Bancorp, Inc.
and Newco, Inc. (Included in this Registration Statement as Appendix A
to the Proxy Statement).
3.1 Certificate of Incorporation of Newco Alaska, Inc.*
3.2 Bylaws of Newco Alaska, Inc.*
4.0 Specimen Common Stock Certificate
5.0 Opinion of Foster Pepper & Shefelman LLP regarding legality of shares to
be issued in the Reorganization
8.0 Opinion of Foster Pepper & Shefelman PLLC regarding tax matters
10.1 Lease, dated April 24, 1989, by and between Clifford White et al and
First Bank, relating to the Wrangell branch *
10.2 Lease, dated April 20, 1990, by and between Sealaska Corporation and
First Bank, relating to the Downtown (Juneau) branch *
10.3 Lease, dated July 1, 198, by and between ADV Properties and First Bank,
relating to the Mendenhall Mall (Juneau) branch *
10.4 Agreement of Lease, dated August 11, 1980, by between The Sitka
Professional Center I and First Bank, relating to the Sitka branch *
23.1 Consent of KPMG LLP relating to Financial Statements of First Bancorp,
Inc.
23.2 Consent of Alex Sheshunoff & Co. Investment Banking *
23.3 Consent of Foster Pepper & Shefelman LLP relating to opinion regarding
legality (included in Exhibit 5.0)
23.4 Consent of Foster Pepper & Shefelman PLLC relating to opinion regarding
tax matters (included in Exhibit 8.0)
24.0 Powers of Attorney *
99.1 Fairness Opinion of Alex Sheshunoff Investment Bankers (included in this
Registration Statement as Appendix B to the Proxy Statement)
99.2 Form of Proxy to be sent to stockholders of First Bancorp *
* Previously filed
EXHIBIT 4.0
SPECIMEN STOCK CERTIFICATE
No. _________ First Bancorp, Inc. Number of Shares
(Organized Under the Laws of ________________
the State of Delaware)
This certifies that
is the owner of _______________________ fully paid and non-assessable shares
of common stock, par value $5.00 per share, of
FIRST BANCORP, INC.
Hereinafter called the "company," transferable on the books
of the company by the holder thereof in person or by his
duly authorized attorney upon surrender of this certificate
properly endorsed.
The amount of common stock is set forth on the nbooks of
the company. The shares represented by this certificate
are transferable only on the stock transfer books of the
company by the holder of record thereof, or by his duly
authorized attrorney or legal representative, upon the
surrender of this certificate properly endorsed.
[SEAL] In Witness Whereof, the company has caused this certificate
to be signed by its duly authorized officers, its its seal
is to be hereunto affixed.
Dated ______________________
Authorized Signature Authorized Signature
Ex. 4.0 - Page 1
<PAGE>
FIRST BANCORP, INC.
The shares represented by this certificate are issued subject to the
provisions of the certificate of incorporation and bylaws of First Bancorp,
Inc. (the "company") as from time to time amended (copies of which are on
file at the principal executive offices of the company).
The company will furnish to any stockholder upon request and without
charge a full statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each authorized
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights to the extent that the same
may have been fixed, and of the authority of the board of directors to
designate the same with respect ot other series. Such request may be made to
the company.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as
tenants in common
(Name) CUST (Name) (State) UNIF GIFT MIN ACT-
_______________________ Custodian ______________________
(Cust) (Minor)
Under _______________ Uniform Gift to Minors Act
State
Additional abbreviations may also be used though not in the above list
For value received, __________________________________________________________
Please insert Social Security or other number identifying number of
assignee__________________________ hereby sell, assign and transfer unto
________________________________________________ shares of the common stock
represented by the within certificate, and do hereby irrevocably constitute
and appoint ____________________________________ attorney, to transfer the
said stock on the books of the within named company, with full power of
substitution in the premises.
Dated______________________
In the presence of: (L.S.)
Notice: The signature(s) to this assignment must correspond with the
name(s) as written upon the face of the certificate in every
particular, without alteration or enlargement or any change
whatsoever.
Ex. 4.0 - Page 2
<PAGE>
Exhibit 5.0
[FOSTER PEPPER & SHEFELMAN LLP LETTERHEAD]
March 24, 1999
Board of Directors
Newco Alaska, Inc.
331 Dock St.
Ketchikan, Alaska 99907
Re: Reorganziation of First Bancorp
Ladies and Gentlemen:
The undersigned has acted as counsel to Newco Alaska, Inc. (the
"Company") in the preparation and filing of a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act of 1933, as
amended, covering shares (the "Shares") of the Company's Common Stock to be
issued to shareholders of First Bancorp, Inc., in connection with the
reorganization of First Bancorp, pursuant to an Agreement and Plan of
Reorganization (the "Agreement"), dated March 15, 1999, by and between the
Company and First Bancorp.
In the course of our representation we have examined the Registration
Statement, the Agreement, copies of the Certificate of Incorporation, Bylaws,
and excerpts of minutes of meetings of the Boards of Directors of the
Company. We have also received from officers of the Company certain
representations concerning factual matters. We have reviewed such documents
and have made such review of laws as we consider necessary for purposes of
this opinion.
We have relied as to matters of fact upon the above documents and
investigation. We have assumed without investigation the genuineness of all
signatures and the authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents submitted to us as
certified or photostatic copies.
Based upon the foregoing and subject to the qualifications and
exceptions heretofore and hereinafter set forth, we are of the opinion that,
when the Registration Statement has been declared effective, the applicable
provisions of state securities laws have been complied with, the
reorganization is consummated and the Company has issued the Shares in the
manner as provided by the Agreement and as described the Registration
Statement, the Shares will be validly issued and fully paid, and
non-assessable.
The opinion herein expressed are specifically subject to and qualified
by the following:
This opinion is limited to the General Corporation Law of the State of
Delaware and applicable federal laws of the United States of America and to
the facts bearing on this opinion as they exist on the date of this letter.
Ex. 5.0 - Page 1
<PAGE>
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the heading
"Legal Matters" in the prospectus.
Very truly yours,
/s/ Foster Pepper & Shefelman LLP
FOSTER PEPPER & SHEFELMAN LLP
Ex. 5.0 - Page 2
<PAGE>
Exhibit 8.0
[LETTERHEAD OF FOSTER PEPPER & SHEFELMAN PLLC]
March 24, 1998
First Bancorp, Inc.
331 Dock Street
P.O. Box 7290
Ketchikan, AK 99901
Re: Merger Pursuant to Agreement and Plan of Reorganization Among
First Bancorp, Inc. and Newco Alaska, Inc.
Ladies and Gentlemen:
We have acted as counsel to First Bancorp, Inc., a Delaware corporation
(the "Company"), in connection with the proposed merger (the "Merger") of
Company with and into Newco Alaska, Inc., a Delaware corporation ("Newco"),
pursuant to the terms of the Agreement and Plan of Reorganization dated as of
March 15, 1999 by and among Company and Newco (the "Merger Agreement"). This
opinion is being delivered to you in connection with the Merger Agreement.
Except as otherwise provided, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement and the exhibits thereto or in the
letters delivered to Foster Pepper & Shefelman LLP by Company and Newco
containing certain representations relevant to the opinion (the
"Representations Letters"). All section references, unless otherwise
indicated, are to the United States Internal Revenue Code of 1986, as amended
(the "Code").
You have requested our opinion regarding certain federal income tax
consequences of the Merger. In our capacity as counsel to Company in the
Merger, and for purposes of rendering this opinion, we have examined and
relied upon the registration statement on Form S-4, which includes the Joint
Proxy Statement and Prospectus relating to the Merger Agreement (the
"Registration Statement"), the Merger Agreement and the exhibits thereto, the
Representation Letters, and such other documents as we considered relevant
for purposes of this opinion. In our examination, we have assumed the
authenticity of all documents submitted to us as originals, the accuracy of
all documents submitted to us as copies and the authenticity of the originals
of such copies, the genuineness of signatures, and the legal capacity of
signatures.
We have assumed that all parties to the Merger Agreement and to any
other documents examined by us have acted, and will act, in accordance with
the terms of such Merger Agreement and documents and that the Merger will be
Ex. 8.0 - Page 1
<PAGE>
consummated at the Effective Date pursuant to the terms and conditions set
forth in the Merger Agreement without the waiver or modification of any such
terms and conditions. Furthermore, we have assumed that all representations
contained in the Merger Agreement, as well as those representations contained
in the Representation Letters, are, and at the Effective Date will be, true
and complete in all material respects. We have also assumed that as to all
matters for which a person or entity has represented that such person or
entity is not a party to, does not have, or is not aware of, any plan,
intention, understanding, or agreement, there is no such plan, intention,
understanding, or agreement. We have not attempted to verify independently
such representations, but in the course of our representation, nothing has
come to our attention that would cause us to question the accuracy thereof.
In rendering our opinion, we have considered the applicable provisions
of the Code, Treasury Regulations promulgated or proposed thereunder (the
"Regulations"), current published administrative positions of the Internal
Revenue Service ("Rulings"), and existing judicial authorities. New
developments in the Regulations, Rulings, judicial authorities or legislative
changes occurring after the Effective Date may have an adverse impact upon
the opinions expressed herein. Nevertheless, we undertake no responsibility
to advise you of any developments after the Effective Date in the application
or interpretation of the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
Internal Revenue Service ("IRS") or any court. Thus, no assurances can be
given that a position taken in reliance on our opinion will not be challenged
by the IRS or rejected by a court.
This opinion addresses only the specific United States federal income
tax consequences of the Merger set forth below, and does not address any
other federal, state, local, or foreign income, estate, gift, transfer,
sales, use, excise or other tax consequences that may result from the Merger
or any other transaction (including any transaction undertaken in connection
with the Merger). We express no opinion regarding the tax consequences of
the Merger to shareholders of Company that are subject to special tax rules,
such as dealers in securities, banks, insurance companies, tax-exempt
organizations and non-United States persons.
On the basis of, and subject to the foregoing, and in reliance upon the
representations and assumptions described above, we are of the following
opinion:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a)(1) of the Code and Company and Newco will be parties to such
reorganization within the meaning of Section 368(b) of the Code;
Ex. 8.0 - Page 2
<PAGE>
2. No gain or loss will be recognized by Company or Newco solely as
a result of the Merger;
3. No gain or loss will be recognized by the shareholders of Company
upon the exchange of Company stock solely for shares of Newco stock in the
Merger, except to the extent that cash, if any, is received in lieu of
fractional shares of Newco stock;
4. Cash received by the shareholders of Company in lieu of
fractional shares of Newco stock will be treated as received as a
distribution in redemption of such fractional shares, as if such fractional
shares had been issued in the Merger and then redeemed by Newco; such a
shareholder will recognize gain or loss equal to the difference between the
cash received and the shareholder's tax basis in that fractional share, and
that gain or loss will be capital gain or loss if the fractional share would
have been a capital asset in the hands of the shareholder (See Section 302 of
the Code; Rev. Rul. 66-365, 1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2 C.B.
574);
5. The tax basis of the shares of Newco stock received (including
the fractional share interests) by the shareholders of Company in the Merger
will be equal to the tax basis of the shares of Company stock exchanged
therefor in the Merger;
6. The holding period for the shares of Newco stock received by the
shareholders of Company will include the holding period for the shares of
Company stock exchanged therefor in the Merger, provided that the shares of
Company stock are held as capital assets at the Effective Date;
7. Cash received by a shareholder of Company who has perfected
dissenters' rights under the relevant provisions of the General Corporation
Laws of the State of Delaware as to his or her Company stock will be treated
as a distribution in redemption of such shares (see Section 302 of the Code);
8. A Company shareholder who receives cash in exchange for Company
stock will recognize gain or loss in an amount equal to the difference
between the cash received and the shareholder's tax basis in the shares of
Company stock exchanged therefor; provided that the shares of Company stock
exchanged are held as capital assets at the Effective Date, such gain or loss
shall be a capital gain or loss;
9. If Newco, within ten (10) years of converting to an S corporation
disposes of an asset: (a) that it acquired from Company in the Merger, or
(b) that it held immediately prior to the conversion to an S corporation, it
will be subject to tax on any net recognized built-in gain attributable to
such asset; and
Ex. 8.0 - Page 3
<PAGE>
10. Newco will be required to include in its taxable income, ratably
over six years, the built-in gain generated from the recapture of the loan
loss reserve as the result of the change from the reserve method of
accounting for loan losses to the specific charge-off method.
No opinion is expressed as to any other consequences of the Merger
except as specifically set forth herein, and this opinion may not be relied
upon except with respect to the consequences specifically discussed herein.
This opinion is being delivered to you solely in connection with the
Merger Agreement and may be relied upon by Newco Alaska, Inc. and First
Bancorp, Inc. and its shareholders. It may not be relied upon for any other
purpose or by any other person or entity, and may not be made available to any
other person or entity without our prior written consent. We hereby consent to
the filing of this opinion as an exhibit to the Registration Statement, and
further consent to the use of our name in the Registration Statement in
connection with references to this opinion and the tax consequences of the
Merger. In giving this consent, however, we do not hereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
/s/ Foster Pepper & Shefelman PLLC
FOSTER PEPPER & SHEFELMAN PLLC
Ex. 8.0 - Page 4
<PAGE>
[CONSENT OF KPMG LLP]
The Board of Directors
First Bancorp, Inc.:
We consent to the use of our reports included herein and to the reference
to our firm under the headings "Experts" in the Registration Statement, Form
S-4.
/s/ KPMG LLP
Anchorage, Alaska
March 15, 1999
