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Pursuant to Rule 424(b)(3)
Registration No. 333-73385
700,000 Shares (Minimum)
900,000 Shares (Maximum)
HCNB Bancorp, Inc.
Common Stock
$10.00 Per Share
---------------
This is an initial public offering of shares of common stock of HCNB
Bancorp, Inc., and no public market currently exists for our common stock. We
are offering these shares to fund the start-up of a new national bank. The
offering price will be $10.00 per share. We will not apply for listing of the
common stock on any stock exchange or on The Nasdaq Stock Market Inc.'s
quotation systems.
Because we are selling these shares on a best efforts, minimum/maximum
basis, we will not sell any shares unless we receive subscriptions for at least
700,000 shares. Until we receive subscriptions for 700,000 shares, investors'
money will be deposited in an escrow account with FMB Bank. The minimum share
purchase is 500 shares, although we may permit smaller purchases in our
discretion. This offering will end on June 30, 1999, or earlier if we sell all
of the shares before that date. In addition, we have the option to extend the
offering until September 30, 1999. We will not extend the offering after
September 30, 1999.
---------------
Investing in the common stock involves substantial risk. You should read
carefully the section called "Risk Factors" beginning on page 3 of this
prospectus.
We will not engage a broker-dealer to sell the common stock in this
offering. Therefore, we will receive all of the offering proceeds without
deducting any commissions or fees.
<TABLE>
<CAPTION>
Total Total
Per Share Minimum Maximum
--------- ---------- ----------
<S> <C> <C> <C>
Public Offering Price.......................... $10.00 $7,000,000 $9,000,000
Underwriting Discounts and Commissions......... None None None
Proceeds to HCNB Bancorp, Inc.................. $10.00 $7,000,000 $9,000,000
</TABLE>
---------------
The common stock does not represent a deposit account or other obligation of
our proposed banking subsidiary. The common stock is not and will not be
insured by the Federal Deposit Insurance Corporation or any other government
agency.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is April 30, 1999.
<PAGE>
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all of the information that
may be important to you. You should read carefully the entire prospectus,
including the information under "Risk Factors", before making any decision to
buy our common stock.
HCNB BANCORP AND HARBOR CAPITAL NATIONAL BANK
HCNB Bancorp, Inc. was incorporated in Maryland on February 24, 1998 to be a
bank holding company. Subject to regulatory approvals, we will use at least
$6,000,000 of the proceeds of this offering to purchase all of the shares of
the common stock of Harbor Capital National Bank, a federally chartered
commercial bank in the process of organization.
A group of individuals active in business, professional, banking, financial
and charitable activities in the Washington D.C. metropolitan area is
organizing Harbor Capital Bank because they believe the banking needs of the
community are not served adequately by existing banks. In particular, Harbor
Capital Bank will emphasize small business lending and meeting the banking
needs of the local Asian-American community. Harbor Capital Bank has not yet
opened and will not do so unless we complete this offering and obtain the
approvals of the Office of the Comptroller of the Currency, Board of Governors
of the Federal Reserve System and Federal Deposit Insurance Corporation to open
as a national bank.
We anticipate that Harbor Capital Bank will open in the second or third
quarter of 1999, although we may encounter any number of delays. Our temporary
offices are located at 1682 East Gude Drive, Suite 102D, Rockville, Maryland
20850 and our telephone number is (301) 251-1020. See "HCNB Bancorp and Harbor
Capital National Bank," "Proposed Business of HCNB Bancorp," and "Proposed
Business of Harbor Capital National Bank" for more information about us, our
proposed banking subsidiary and our business plans.
THE OFFERING
Shares Offered Minimum of 700,000 and maximum of 900,000 shares
of common stock. We must receive acceptable
subscriptions for a minimum of 700,000 shares
before we will sell any shares in this offering.
Subscription Price $10.00 per share
Termination Date June 30, 1999, unless we terminate the offering
earlier or extend it to a date not later than
September 30, 1999.
Minimum Subscription 500 shares ($5,000), although we may permit
smaller subscriptions in our discretion.
Maximum Subscription Five percent (5%) of the total number of shares
sold in the offering, although we may permit
larger purchases in order to ensure the sale of
the minimum number of shares to be sold in the
offering. If you purchase five percent (5%) or
more of the common stock, you must file certain
information or applications with bank regulatory
agencies. We may reduce, or reject, in whole or
in part, any subscription which would require
prior regulatory approval if you have not
obtained that approval prior to the date this
offering terminates. See "The Offering--General".
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Gross Proceeds of the $7,000,000 if the minimum number of shares are
Offering subscribed for. $9,000,000 if the maximum number
of shares are subscribed for.
Use of Proceeds We will use $6,000,000 of the net proceeds of the
offering to purchase all of the shares of common
stock of Harbor Capital Bank ($7,000,000 if the
maximum offering is raised). If we do not
contribute additional net proceeds to Harbor
Capital Bank, we will invest those funds in
insured bank deposits and/or short term U.S.
government and agency securities until we use
those funds for corporate purposes or further
contributions to Harbor Capital Bank's
capitalization.
Harbor Capital Bank will spend the funds received
from HCNB Bancorp to pay certain organizational
and operating costs, to furnish and equip
facilities for Harbor Capital Bank, and for
working capital and general corporate purposes of
Harbor Capital Bank. See "Use of Proceeds."
RISK FACTORS
An investment in the common stock involves substantial risk. You should
read carefully the section called "Risk Factors."
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RISK FACTORS
An investment in the common stock involves substantial risks. You should
carefully read the following, together with the other information in this
prospectus, before making a decision to purchase the common stock.
We Do Not Expect Our Stock Will Have An Active Trading Market. While the
common stock will be freely transferable by most investors in this offering
immediately upon issuance, we do not anticipate an active market for trading
following this offering. An active or established trading market may never
develop. As a result, you may not easily be able to sell your shares of common
stock. We do not plan to apply for listing on an exchange or quotation system
at this time. See "The Offering--Limited Market for Shares" for more
information about trading of our shares.
We Have No Operating History Upon Which To Evaluate Our Future Success, And
We Do Not Expect To Be Profitable Initially. HCNB Bancorp and Harbor Capital
Bank are in the process of organization and neither has any prior operating
history. Our profitability will depend on the results of operations of our
principal asset, Harbor Capital Bank. We expect that Harbor Capital Bank will
incur operating losses during its initial years of operation, and may not
achieve profitability, if at all, for at least two years. If we decide to open
new branch offices, that decision may further delay profitability because of
the increased expenses of expansion and because the branches may not enhance
our results of operations as anticipated.
If Our Regulatory Approvals Are Delayed or Denied, You Could Lose Your
Investment. If offering proceeds are released from escrow but Harbor Capital
Bank fails to receive final regulatory approvals or does not open for any other
reason, we intend to propose that the stockholders approve a plan to liquidate
HCNB Bancorp. If HCNB Bancorp is dissolved, its net assets (generally
consisting of the amounts received in the offering plus any interest earned on
those amounts, less the amount of all costs and expenses incurred by HCNB
Bancorp) would be distributed to stockholders. The amounts distributed in
liquidation to stockholders may be substantially less than the amount they paid
for their shares of stock. It is possible that a stockholder would not receive
any distribution even though officers' and directors' advances were repaid. See
"The Offering" for more information about the effect of a liquidation.
Our Lending Strategy Involves Risks Resulting from Our Choice of Loan
Portfolio. We expect that Harbor Capital Bank's loan portfolio will be made up
largely of commercial business and real estate loans. Harbor Capital Bank also
will offer mortgage loans for owner occupied residential properties. Commercial
real estate, commercial business, construction and consumer loans generally
carry a higher degree of credit risk than residential mortgage loans. See
"Proposed Business of Harbor Capital National Bank--Description of Proposed
Services" for more information about our proposed loan portfolio and the
associated lending risks.
Future Provisions for Loan Losses Could Adversely Affect Our Results of
Operations. Harbor Capital Bank will maintain an allowance for loan losses to
provide for loan defaults and nonperformance. The allowance is based on, among
other things, prior experience with loan losses and an evaluation of the risks
in the current portfolio. Because Harbor Capital Bank is a new bank with no
prior loan experience, future adjustments may be necessary if economic,
operating and other conditions differ substantially from the assumptions used
in making the initial allowance determinations. In addition, we anticipate that
Harbor Capital Bank's provisions for loan losses will increase in the future as
it expands its lending activities. Also, regulatory agencies may require Harbor
Capital Bank to add to the allowance based on their judgments when they conduct
examinations of Harbor Capital Bank.
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We Cannot Guarantee That Our Expansion Strategies Will Be Successful. We
intend to expand our business in the future by opening branches and considering
other opportunities when they arise. If we are not able to expand our business
successfully, our competitive position and our results of operations will
suffer. At this time, we have not identified any new branch locations or other
opportunities. Our success in expanding our business will depend on, among
other things, our ability to obtain regulatory approvals, our access to
capital, our ability to manage growth and our ability to attract and train
qualified employees. We cannot guarantee that we will be able to do any of
these things. See "Proposed Business of Harbor Capital National Bank" for more
information about our business plans.
Government Regulation Might Negatively Impact Our Operating Results. HCNB
Bancorp and Harbor Capital Bank will operate in a highly regulated environment
and will be subject to examination, supervision and comprehensive regulation by
several federal and state regulatory agencies. Banking regulations, designed
primarily for the safety of depositors, may limit the growth of Harbor Capital
Bank and the return to investors by restricting activities such as the payment
of dividends, mergers with or acquisitions by other institutions, investments,
loans and interest rates, interest rates paid on deposits and the creation of
branch offices. Laws and regulations could change at any time, and changes
could adversely affect our business. In addition, the cost of compliance with
regulatory requirements could adversely affect our ability to operate
profitably. See "Supervision and Regulation" for more information about
applicable banking regulations.
Harbor Capital Bank Will Face Substantial Competition Which Could Adversly
Affect Our Growth And Operating Results. Harbor Capital Bank will operate in a
competitive market for financial services and will face intense competition
both in making loans and in attracting deposits. Many of these financial
institutions have been in business for many years, are significantly larger,
have established customer bases and greater financial resources and lending
limits than Harbor Capital Bank and are able to offer certain services that
Harbor Capital Bank is not able to offer. See "Proposed Business of Harbor
Capital National Bank--Competition" for more information about competition in
our market area.
Harbor Capital Bank's Ability To Compete May Suffer If It Cannot Take
Advantage Of Technological Changes. The market for financial services,
including banking services and consumer finance services, is increasingly
affected by advances in technology, including developments in
telecommunications, data processing, computers, automation, Internet-based
banking, telephone banking, debit cards and so-called "smart" cards. We will
not offer computer or telephone banking initially, although many of our
competitors do offer such services. Our ability to compete successfully may
depend on the extent to which we can take advantage of technological changes.
You can find more information about our plans to add services under the caption
"Proposed Business of Harbor Capital National Bank--Description of Proposed
Services."
Our Computer Systems, Or Those Of Our Data Processing Firm Or Our Borrowers,
Could Fail to Operate as of January 1, 2000. The much publicized Year 2000
Issue is the result of computer programs using two digits rather than four to
define a year. Computer programs with date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. Problems with
software used for bank operations could cause disruptions of our operations,
including the temporary inability to process transactions or engage in similar
routine business activities. In addition, the Year 2000 Issue increases
transaction risks with third parties, including customers. If our data
processing system fails, our earnings, cash flows and overall financial
condition could be adversely affected. In addition to risks relating to
internal Year 2000 compliance, we may be vulnerable to the failure of our
borrowers to remedy their own Year 2000 issues. We have provided more
information about the "Year 2000 issue" under the caption "Management's Plan of
Operation--Year 2000."
Our Board of Directors Established An Arbitrary Offering Price, Which May
Not Reflect The Value of an Investment in Our Stock. Our Board of Directors
arbitrarily determined the offering price of the shares offered by this
prospectus. We did not engage an independent investment banking firm to assist
in determining the offering price. The $10.00 per share price bears no
relationship to the assets, earnings, book value or other
4
<PAGE>
established measure of value of HCNB Bancorp or Harbor Capital Bank. In fixing
the price the Board considered primarily the subscription prices of securities
offered by other newly organized financial institutions and bank holding
companies.
We Do Not Intend To Pay Dividends In The Foreseeable Future. Harbor Capital
Bank will be the wholly owned subsidiary of HCNB Bancorp and, initially, will
be our principal source of revenue. We anticipate that Harbor Capital Bank will
incur losses during its initial phase of operations, and we do not expect to
pay any dividends in the foreseeable future. Even if Harbor Capital Bank and
HCNB Bancorp have earnings in an amount sufficient to pay dividends, we intend
to retain earnings for the purpose of funding the growth of HCNB Bancorp and
Harbor Capital Bank. See "Dividend Policy" and "Supervision and Regulation" for
information about factors affecting our ability to pay dividends.
If We Don't Sell The Minimum Offering, You Will Have Lost The Use Of Your
Subscription Funds While They Are Held In Escrow, And You Will Not Earn
Interest On Funds Held In Escrow . The common stock is being sold through
certain directors of HCNB Bancorp. No broker-dealer will assist us in the
offering. Because the offering is not underwritten, the sale of the minimum
number of shares is not guaranteed. If the minimum number of shares is not
subscribed for, subscriber funds will be returned, without interest or
deduction, but subscribers will have lost the use of their funds during the
offering. If only the minimum number of shares are sold in the offering, we
will have less capital to fund initial operating losses and bank operations and
expansion activities.
We May Not Be Successful In Establishing A New Bank. As a newly organized
institution we will rely on our officers and directors to locate, establish and
outfit appropriate facilities for Harbor Capital Bank, hire staff, develop and
implement marketing and business development strategies and evaluate potential
future lines of business in addition to Harbor Capital Bank's core commercial
banking functions such as consumer finance, leasing, or financial advisory
services. The Board of Directors will have substantial discretion in these
matters, and we cannot guarantee that they will be successful in establishing a
new bank in a competitive market.
HCNB Bancorp Management And Their Affiliates Could Have The Power To Block
Certain Shareholder Approvals. Directors and officers of HCNB Bancorp have
indicated their intention to purchase approximately 18% of the shares if the
minimum number of shares is sold and 14% of the shares if the maximum number of
shares is sold. Directors and officers or persons related or affiliated with
them may purchase additional shares in the offering. If more than 20% of the
shares outstanding after the offering are held by directors, officers and their
affiliates, then this group could, by voting against a proposal submitted to
shareholders, block the approval of any proposal which requires the affirmative
vote of 80% of the shareholders. Those proposals include certain business
combinations and charter amendments. See "Description of Capital Stock" for
more information about shareholder voting and other charter provisions.
When We Issue Additional Stock In The Future, Your Percentage Of Ownership
Of HCNB Bancorp Will Be Reduced. After the offering, we expect to issue stock
to directors as payment of directors fees, and it is likely that we will adopt
a plan to grant options to officers, directors and key employees. In addition,
we may conduct another public offering or private placement of our shares in
the future. The issuance of more shares could have a dilutive effect on your
interest in our earnings and book value.
Some of the information in this prospectus may include "forward-looking
statements." These statements use words such as "may," "will," "expect,"
"anticipate," "plan," "estimate," or similar words, and they discuss our future
expectations, projections of financial results or strategies that are subject
to risks and uncertainties. When you read a forward-looking statement, you
should keep in mind the risk factors described above and any other information
contained in this prospectus which identifies a risk or uncertainty. Our actual
results and the actual outcome of our expectations and strategies could be
different from what we have described in this prospectus because of these risks
and uncertainties.
5
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HCNB BANCORP AND HARBOR CAPITAL NATIONAL BANK
HCNB Bancorp was incorporated under the laws of the State of Maryland on
February 24, 1998, to operate as a bank holding company. We will file an
application with the Board of Governors of the Federal
Reserve System ("Federal Reserve Board") for approval to become a bank holding
company pursuant to the
Bank Holding Company Act of 1956, and to purchase all of the capital stock to
be issued by Harbor Capital Bank. We will also file an application for
insurance of Harbor Capital Bank's deposits with the Federal Deposit Insurance
Corporation ("FDIC").
An application to organize Harbor Capital Bank was filed with the Office of
the Comptroller of the Currency ("OCC") on December 16, 1998. The application
contemplates the sale of all of the shares of Harbor Capital Bank's common
stock to HCNB Bancorp for an aggregate price of $6,000,000. If we raise more
than $7,000,000 in net proceeds in this offering, we may purchase additional
shares of common stock of Harbor Capital Bank, or otherwise contribute such
additional proceeds to Harbor Capital Bank, or retain a portion of the
additional proceeds in HCNB Bancorp. See "Use of Proceeds."
We anticipate that Harbor Capital Bank will open in the second or third
quarter of 1999. Our ability to meet the targeted opening date depends upon a
number of factors which may be beyond our control, including the timely
completion of this offering, approval by the bank regulatory agencies, and
final development of Harbor Capital Bank's facility. Any delay in the
commencement of operations could increase the estimated pre-opening expenses of
Harbor Capital Bank.
Neither HCNB Bancorp nor Harbor Capital Bank has commenced operations and
neither will do so unless this offering is successfully completed and Harbor
Capital Bank meets the conditions of the OCC to receive its certificate of
authority to commence the business of banking, of the FDIC to receive deposit
insurance, and of the Federal Reserve Board to become a member bank. HCNB
Bancorp also must obtain approval from the Federal Reserve Board to become a
bank holding company.
THE OFFERING
General
We are offering for sale a minimum of 700,000 and a maximum of 900,000
shares of common stock, $.01 par value at a price of $10.00 per share. No
shares will be sold unless we receive acceptable subscriptions for a minimum of
700,000 shares. We expect that directors and officers of HCNB Bancorp and
Harbor Capital Bank will purchase approximately 18% of the shares offered if
the minimum number of shares are sold, or 14% if the maximum number of shares
are sold. We must receive subscriptions to purchase shares no later than 5:00
p.m., eastern time, on June 30, 1999, unless we elect to terminate or extend
the offering. We reserve the right to terminate the offering at any time prior
to June 30, 1999, or to extend the expiration date for one two-month period,
without notice to subscribers. However, we will not extend the offering beyond
September 30, 1999.
Investors must subscribe to purchase a minimum of 500 shares (for a minimum
investment of $5,000), subject to our right to permit smaller subscriptions in
our discretion. The purchase of five percent (5%) or more of the common stock
may require the subscriber to provide certain information to, or seek the prior
approval of, the Federal Reserve Board. We will not be required to issue shares
of common stock to any person who, in our opinion, would be required to obtain
prior clearance or approval from the Federal Reserve Board for authority to own
or control such shares. We reserve the right to reduce or reject, in whole or
in part, any subscription which would require prior regulatory application or
approval if such approval has not been obtained prior to the termination date
of the offering.
We will not engage a broker-dealer and will not pay any underwriting
discounts or commissions for the sale of the shares. Directors of HCNB Bancorp
will solicit subscriptions from prospective stockholders. The directors will
not receive any special compensation for such services, but will be reimbursed
for reasonable expenses.
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Method of Subscription
If you wish to purchase shares, you must complete and sign the Subscription
Agreement accompanying this prospectus and deliver the completed Subscription
Agreement to HCNB Bancorp prior to the termination date of the offering,
together with payment in full of the subscription price of all shares
subscribed for. Such payment must be by check or bank draft drawn upon a U.S.
bank, payable to "FMB Bank, Escrow Agent for HCNB Bancorp., Inc." If you wish
to wire funds to our escrow account, you may call HCNB Bancorp at 301/251-1020
to obtain wiring instructions. If paying by uncertified personal check, you
should allow at least five business days prior to the termination date for the
funds to clear. We will deposit all funds in the HCNB Bancorp, Inc. escrow
account. Pending closing of the offering, funds will be invested in bank
accounts, short term certificates of deposit or short-term securities issued or
guaranteed by the United States government.
The address to which Subscription Agreements and payment of the Subscription
Price should be delivered is:
HCNB Bancorp., Inc.
1682 East Gude Drive
Suite 102D
Rockville, Maryland 20850
Attention: William J. Olsen
Telephone No.: (301) 251-1020
THE FULL SUBSCRIPTION PRICE FOR THE SHARES SUBSCRIBED FOR MUST BE INCLUDED
WITH THE SUBSCRIPTION AGREEMENT. FAILURE TO INCLUDE THE FULL SUBSCRIPTION PRICE
WITH THE SUBSCRIPTION AGREEMENT MAY CAUSE US TO REJECT THE APPLICATION.
We recommend that you send your Subscription Agreement and payment by
registered mail, return receipt requested, and allow a sufficient number of
days for delivery and clearance of payment prior to the termination date of the
offering.
Escrow Account; Return of Funds Upon Failure to Complete the Offering or Upon
Liquidation
We established an escrow account at FMB Bank, Baltimore, Maryland, for
deposit of all subscription funds. Subscription funds may be invested
temporarily in bank accounts, short-term certificates of deposit or short-term
securities issued or guaranteed by the United States government. The funds in
the escrow account will not be released until Harbor Capital Bank receives
preliminary regulatory approvals from the OCC and we accept subscriptions for
at least 700,000 shares.
If the offering is not completed because the minimum number of shares is not
subscribed for, all regulatory approvals are not received, or otherwise, all
subscription funds will be returned to investors, without interest or
deduction.
We have the right to break escrow, receive the funds in the escrow account
and issue shares of common stock to subscribers at any time after we receive
acceptable subscriptions for 700,000 shares and the preliminary approval of
Harbor Capital Bank's charter by the OCC. Such preliminary approval does not
authorize Harbor Capital Bank to open for business. That authority will not be
granted until we obtain insurance of Harbor Capital Bank's deposits by the FDIC
and satisfy any other conditions imposed by the OCC. We cannot guarantee that
Harbor Capital Bank will receive final approval to commence business from all
applicable regulatory agencies. If we elect to break escrow prior to Harbor
Capital Bank receiving final approvals to commence business, but such approvals
are not ultimately obtained, your funds will be irrevocably invested in the
common stock. However, we would not be able to implement our plan to own and
operate a newly formed bank. In that event, we would likely begin liquidation
proceedings and distribute investor funds, without interest, as soon as
possible after completion of those proceedings.
The amounts distributed in liquidation to investors may be substantially
less than the amount they paid for their shares of stock. However, officers and
directors who have loaned funds for certain expenses would be repaid in full
prior to any distribution to stockholders. Also, all other expenses incurred
would be paid prior to distributions to stockholders. We cannot estimate what
the amount of liquidation proceeds would be.
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Whether or not the offering is completed, all interest earned on funds held
in escrow will be retained by HCNB Bancorp. By submitting a subscription, you
will forego interest you otherwise could have earned on the funds for the
period during which your funds are held in escrow.
Acceptance and Refunding of Subscriptions
Although subscribers may not revoke their subscriptions, Subscription
Agreements are not binding on us until we accept them. We reserve the right to
reject, in our sole discretion, any Subscription Agreement or to allot a
smaller number of shares than the number for which a person has subscribed. In
determining the number of shares to allot to each subscriber in the event the
offering is oversubscribed, we may take into account the order in which
subscriptions were received, a subscriber's potential to do business with, or
to direct customers
to, Harbor Capital Bank, and our desire to have a broad distribution of stock
ownership, as well as legal or regulatory restrictions.
If we reject all or a portion of any subscription, the escrow agent will
promptly refund to the subscriber the amount submitted with the Subscription
Agreement, without interest or deduction. If for any reason the offering is not
completed, all subscription funds will be promptly refunded to subscribers
without interest or deduction. After all refunds have been made, the escrow
agent, HCNB Bancorp, Harbor Capital Bank and their respective directors,
officers, and agents will have no further liabilities to subscribers.
Certificates representing shares duly subscribed and paid for will be issued
by HCNB Bancorp as soon as practicable after funds are released to HCNB Bancorp
by the escrow agent.
Limited Market for Shares
Except for shares held by HCNB Bancorp's directors and certain officers, the
shares will be freely transferable immediately upon issuance and will not be
subject to any transfer restrictions. We do not anticipate that an active
trading market will develop in the foreseeable future, although the shares
could be bought and sold in the over-the-counter market after the offering. The
shares will not be listed initially on any stock exchange or be designated for
trading on The Nasdaq Stock Market Inc.'s quotation system, although we plan to
apply to have the shares listed on an exchange or designated for trading on
Nasdaq once HCNB Bancorp meets the requirements for approval of such an
application. We cannot predict when HCNB Bancorp will meet the requirements or
whether our application would be accepted. Even if our application is accepted,
we cannot guarantee that an active trading market will ever develop.
USE OF PROCEEDS
The proceeds to HCNB Bancorp from the sale of the shares will be $7,000,000
if the minimum number of shares are sold, and $9,000,000 if the maximum number
of shares are sold, before deducting expenses of the offering, which are
estimated at $150,000.
We will use $6,000,000 of the net proceeds of the offering to purchase all
of the common stock of Harbor Capital Bank. We will pay all of the
organizational and offering expenses and certain operating costs of HCNB
Bancorp from the proceeds of the offering, including interest on funds advanced
by the organizers, in an estimated aggregate amount of $346,000. The balance of
the proceeds, estimated to be $654,000 if the minimum number of shares is sold,
or $1,654,000 if the maximum number of shares is sold, will be retained by HCNB
Bancorp for general corporate purposes. If more than $7,000,000 of proceeds is
raised in the offering, we may contribute all or a portion of the additional
funds to Harbor Capital Bank and retain a portion of the additional proceeds in
HCNB Bancorp for general corporate purposes. It is possible that we could be
required to contribute more to the capital of Harbor Capital Bank than the
amount currently anticipated as a condition to the approval of Harbor Capital
Bank's charter or the establishment of branches.
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Harbor Capital Bank will apply the proceeds from the sale of its capital
stock to HCNB Bancorp to pay certain organizational and prepaid operating costs
in an estimated amount of $157,600, and to furnish and equip Harbor Capital
Bank's premises at an estimated cost of $538,000. The balance of the proceeds,
estimated at $5,304,400 if the minimum number of shares is sold, or $6,304,400
if the maximum number of shares is sold, will be used to provide working
capital for expansion, to fund lending activities and for general corporate
purposes (including the investment of all or a portion of the working capital
funds in interest-bearing certificates of deposit or other deposits with an
FDIC-insured bank or other types of securities, such as government bonds).
Certain expenses for furnishing and equipping Harbor Capital Bank's premises
and offices may be paid initially through organizer advances, and HCNB Bancorp
will repay the organizer loans reflecting such expenses in cash or shares of
common stock. Currently, we expect that the organizers will elect to accept
repayment in stock. See "Certain Transactions."
The following table reflects the anticipated allocation of the net proceeds
of the offering, after deducting estimated expenses of the offering of
$150,000.
<TABLE>
<CAPTION>
Minimum % of Maximum % of
Amount Proceeds(3) Amount Proceeds(3)
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
HCNB BANCORP:
Net Offering Proceeds........... $6,850,000 100% $8,850,000 100%
Purchase of Stock of
Bank/Capital Contributions(1).. $6,000,000 87.6% $7,000,000 79.1%
Salary and Benefits............. $ 118,000 1.6% $ 118,000 1.2%
Other Operating Costs........... $ 71,000 1.2% $ 71,000 .9%
Interest on Organizer
Advances(2).................... $ 7,000 .1% $ 7,000 *
Working Capital................. $ 654,000 9.5% $1,654,000 18.8%
HARBOR CAPITAL NATIONAL BANK:
Proceeds of Capital
Contributions by HCNB Bancorp.. $6,000,000 100% $7,000,000 100%
Organization Costs.............. $ 72,600 1.2% $ 72,600 1.0%
Premises and Equipment Expense.. $ 453,000 7.6% $ 453,000 6.5%
Prepaid Operating............... $ 85,000 1.4% $ 85,000 1.2%
Expenses
Working Capital................. $5,389,400 89.8% $6,389,400 91.3%
</TABLE>
- --------
(1) HCNB Bancorp reserves the right to not contribute to Harbor Capital Bank
any portion of the proceeds of the offering in excess of $6,000,000.
(2) Represents interest at rate of 5% per annum on amounts actually advanced.
We assume that all organizers will elect to have the principal amount of
their advances repaid in shares of common stock. See "Certain
Transactions."
(3) Percent of proceeds, in the case of Harbor Capital Bank, is calculated on
the basis of percent of proceeds contributed to Harbor Capital Bank by HCNB
Bancorp.
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CAPITALIZATION
The following table shows the pro forma consolidated capitalization of HCNB
Bancorp at December 31, 1998 after giving effect to (i) the sale of 700,000
shares and (ii) the sale of 900,000 shares, at a price of $10.00 per share,
less estimated expenses of $150,000.
<TABLE>
<CAPTION>
Minimum Number Maximum Number
Stockholders' equity (deficit): Actual Of Shares Sold Of Shares Sold
- ------------------------------- --------- -------------- --------------
<S> <C> <C> <C>
Common Stock, $.01 par value;
9,000,000 shares authorized; 700,000
shares outstanding (if minimum number
of shares is sold) and 900,000 shares
outstanding (if maximum number of
shares is sold)...................... -- $ 7,000 $ 9,000
Preferred Stock, $.01 par value;
1,000,000 shares authorized; no
shares outstanding................... -- -- --
Additional paid-in capital............ -- 6,993,000 8,991,000
Retained deficit...................... (128,939) (339,000) (339,000)
--------- ---------- ----------
Total stockholders' equity (deficit).. $(128,939) $6,661,000 $8,661,000
Net tangible book value per share..... -- $ 9.52 $ 9.62
</TABLE>
DIVIDEND POLICY
We expect that HCNB Bancorp will retain any earnings to provide more funds
to operate and expand our business. Therefore, we have no plans to pay any cash
dividends in the foreseeable future. If we decide to pay dividends in the
future, our ability to do so will depend on the ability of Harbor Capital Bank
to pay dividends to HCNB Bancorp. Harbor Capital Bank cannot pay dividends to
HCNB Bancorp unless it complies with certain regulatory requirements regarding
the payment of dividends by a national bank. See "Supervision and Regulation."
In addition, we would consider a number of other factors, including our
earnings prospects, financial condition, and cash needs before deciding to pay
dividends. If you are looking for an investment that pays dividends, you should
not invest in this offering.
PROPOSED BUSINESS OF HCNB BANCORP
HCNB Bancorp expects to file an application to become a bank holding company
with the Federal Reserve Board in the near future. We know of no reason why the
approval from the Federal Reserve Board would not be received, but we cannot
predict when such approval will be received, or if the Federal Reserve Board
will impose any conditions on its approval.
Our principal asset will be our investment in all of the issued and
outstanding capital stock of Harbor Capital Bank. Currently, our principal
business will be commercial banking, through our banking subsidiary. With the
prior approval of the Federal Reserve Board, we could engage in non-banking
activities closely related to the business of banking. For example, with such
approval, we could make and service loans through a consumer finance
subsidiary, or provide other types of commercial financing. Further, the
Federal Reserve Board allows bank holding companies to give investment or
financial advice, lease personal or real property, provide data processing and
courier services, or invest in small business investment companies, among other
permissible activities. If a favorable opportunity is presented, we might
consider such activities, but we are not actively seeking additional
opportunities at this time.
We are new to our market in the Washington, D.C. metropolitan area, but we
believe our board of directors enhances our ability to establish Harbor Capital
Bank successfully and compete in our highly competitive market. Many of our
directors have banking and finance experience. Most of our organizers are
successful members of the Montgomery County business community. In addition,
several of our directors have significant relationships in the local Asian-
American community, where we anticipate Harbor Capital Bank will focus its
marketing efforts initially.
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PROPOSED BUSINESS OF HARBOR CAPITAL NATIONAL BANK
As of the date of this prospectus, Harbor Capital Bank has not been
authorized to conduct banking business and has not engaged in any operations.
The issuance of a charter by the OCC and approval of deposit insurance by the
FDIC will be dependent upon compliance with certain conditions and procedures,
including the sale of Harbor Capital Bank's stock to HCNB Bancorp, the
completion of Harbor Capital Bank's premises, the purchase of certain fidelity
and other insurance, the hiring of staff and the adoption of certain operating
procedures and policies. When those conditions have been satisfied, Harbor
Capital Bank will open for business with its main office in Rockville,
Maryland. Harbor Capital Bank will accept checking and savings deposits, and
offer a wide range of commercial, residential mortgage, consumer/installment
and real estate loans.
We want to be a community bank providing superior, personalized service to
our customers. We will focus on relationship banking, especially in the local
Asian-American community.
The Asian-American community in Montgomery County has grown dramatically. In
the ten year period, 1980-1990, the size of the community grew almost
threefold, according to data compiled by the Montgomery County Parks Department
Research Division. In 1980, the Asian-American community represented 3.9% of
the total population in the county. In 1990 this community represented 8.3%.
This trend continued through the 1990's. In 1994, 9.6% of the county population
was Asian-American. As of 1998, at a majority of the elementary schools within
three miles of Harbor Capital Bank's office, in excess of 20% of the students
were Asian-American, according to data compiled by the Montgomery County Public
Schools Department of Educational Accountability.
The small business environment in Montgomery County also provides an
opportunity for Harbor Capital Bank. Of all the business establishments in the
county, 75% have fewer than 10 employees; 87% have 20 or fewer employees,
according to data compiled by the U.S. Census Bureau. This is the market most
affected by the consolidation of the financial industry over the last decade.
The local banking community has also changed over the years. In the period
of 1991 to 1996, the number of financial institutions doing business in
Montgomery County declined from 69 to 54, and the number of banking locations
declined from 365 to 302, according to data compiled by a nationally recognized
financial institutions advisory firm. The consolidation of the financial
industry, the reduction in local banking offices and the growth of the county
led the organizers to believe the Asian-American and small business markets are
currently underserved.
Bank Location and Market Area
We will be located in Rockville, Maryland and our primary service area will
be Montgomery County, Maryland. Our secondary market area will be the
Washington D.C. region, particularly Washington D.C., Prince George's, Howard
and Frederick Counties in Maryland, and Arlington, Loudon and Fairfax Counties
in Virginia.
Montgomery County comprises 495 square miles and is located in Central
Maryland. It is a suburb of Washington, D.C. and had a population of 810,000
persons in 1996. It is located in the Washington-Baltimore market region, the
4th largest U.S. retail market.
Persons over 25 years of age living in Montgomery County are highly
educated. In 1996, 56% of this population group had college degrees. This
compares to a Washington metropolitan area average of 32% and a national
average of 16%. 27% of this population had advanced degrees. The average
household income was $98,963.
Montgomery County has a diversified economy, including high technology
research and development which ranks with California and Massachusetts. The
technology corridor along Interstate 270 has over 500 major companies and 30
million square feet of new development capacity. The county is the location of
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11
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major federal regulatory agencies and R & D laboratories including National
Institutes of Health, National Institute of Standards and Technology and the
Food and Drug Administration. The county had, in 1996, the highest
concentration of scientists and engineers in the United States.
Montgomery County was, in 1996, the second largest suburban employment
center in the metropolitan area and the first in the State of Maryland. Ten
percent of Montgomery County's workforce was employed in high technology,
topping the ten largest U.S. metropolitan areas. 81.2% of the civilian
workforce was employed in the private sector and 18.8% by federal, state and
local governments. 48% held professional or managerial positions.
Description of Proposed Services
Harbor Capital Bank will offer commercial banking services to its business
and professional clients as well as consumer banking services to individuals.
Harbor Capital Bank will emphasize providing commercial banking services to
businesses but will welcome and provide superior service to individual
customers.
We expect to offer the following lending services:
. Commercial loans for business purposes including working capital,
equipment purchases, real estate, lines of credit, and government contract
financing. Asset-based lending and accounts receivable financing will also
be available on a selective basis. We estimate that commercial loans will
constitute approximately 40% of Harbor Capital Bank's loan portfolio. We
intend to emphasize commercial lending for small businesses and
professionals and we intend to target the Asian-American community
particularly. Unlike residential mortgage loans, which generally are made
on the basis of the borrower's ability to repay using his or her employment
and other income and which are secured by real property which can be valued
easily, commercial business loans are riskier and typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the
repayment of commercial business loans depends substantially on the success
of the business itself. Further, the collateral securing the loans may
depreciate over time, may be difficult to appraise and may fluctuate in
value based on the success of the business.
. Real estate loans, including land development and construction loan
financing, for business and investment purposes. We estimate that real
estate loans will constitute approximately 30% of Harbor Capital Bank's
loan portfolio. We expect that commercial real estate loans will be made to
owner-occupied businesses and developers and builders in our market area.
Commercial real estate loans usually are larger and present more risk than
residential mortgage loans. Because payments on loans secured by commercial
real estate depend on the successful operation or management of the
properties that secure the loans, repayment is affected significantly by
downturns in the real estate market or in the economy. Construction loans
generally involve a higher degree of credit risk than residential mortgage
loans. Risk of loss on a construction loan depends largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development compared to the estimated cost of construction.
If the estimate of value proves to be inaccurate, the value of the project
when completed could be insufficient to ensure full repayment of the loan.
. Consumer installment loans including automobile and personal loans. In
addition, Harbor Capital Bank will offer personal lines of credit. We
estimate that consumer installment loans will constitute approximately 10%
of Harbor Capital Bank's loan portfolio. Consumer loans may present greater
credit risk than residential mortgage loans, because many consumer loans
are unsecured or are secured by rapidly depreciable assets, such as
automobiles. Repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment of the outstanding loan balance
because of the greater likelihood of damage, loss or depreciation. Consumer
loan collections depend on the borrower's continuing financial stability.
If a borrower suffers personal financial difficulties, the loan may not be
repaid. Also, various federal and state laws, including bankruptcy and
insolvency laws, may limit the amount Harbor Capital Bank can recover on
such loans.
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<PAGE>
. Residential mortgage loans, including first and second mortgage loans
secured by single-family owner-occupied residences. We estimate that
residential mortgage loans will constitute approximately 20% of Harbor
Capital Bank's loan portfolio. We expect that the mortgage loans will
adhere to standards developed by FNMA/FHLMC. We will require private
mortgage insurance for loans in excess of 80% of a property's value and,
generally, we will not make loans with loan-to-value ratios in excess of
90%.
Our deposit services will include business and personal checking accounts,
NOW accounts, and savings/money market accounts. We will offer certificates of
deposits with various rate structures and maturities.
We will offer our customers safe deposit boxes and after hours deposit
services. Initially we will offer one ATM at our Rockville branch. Although we
will not offer computer or telephone banking initially, we anticipate that we
will develop those services in the future. We will consider offering additional
products and services as warranted by customer demand. We believe that our data
processing capability, provided through a third party vendor, is sufficient to
support the introduction of new products and services such as computer and
telephone banking.
Through our correspondent banking relationships, we will be able to offer
wire transfers of funds, international banking services, and certain other
services that our customers may require, especially those in the Asian-American
community.
Source of Business
A philosophy of convenience and personal service forms the basis for Harbor
Capital Bank's business development strategies. We expect to capitalize upon
the extensive business and personal contacts and relationships of our directors
and officers to establish Harbor Capital Bank's initial customer base. To
introduce new customers to Harbor Capital Bank, we will rely on officer-
originated calling programs and customer and shareholder referrals.
Asset Management
Consistent with Harbor Capital Bank's objective to serve the needs of the
business community, we expect that our assets will be concentrated in
commercial and commercial real estate loans. Consistent with the requirements
of prudent banking practices, we will invest assets in amounts we believe to be
adequate in high grade securities to provide liquidity and safety. Loans will
be targeted at 75% or less of deposits (excluding repurchase agreements), and
structured generally with variable rates and/or fixed rates with short
maturities. Investment securities will primarily be United States treasury
securities and securities of the United States government or "quasi-government"
agencies, and certificates of deposits of FDIC-insured institutions.
The risk of nonpayment (or deferred payment) of loans is inherent in
commercial banking. Harbor Capital Bank's marketing focus on small to medium-
sized businesses may result in Harbor Capital Bank assuming lending risks that
are different from those associated with loans to larger companies. Management
of Harbor Capital Bank will carefully evaluate all loan applications and will
attempt to minimize credit risk exposure by use of thorough loan application,
approval and monitoring procedures. However, we cannot guarantee that those
procedures will significantly reduce our lending risks.
Competition
Deregulation of financial institutions and acquisitions of banks across
state lines has resulted in widespread changes in the financial services
industry. This transformation, although occurring nationwide, is particularly
intense in the greater Washington, D.C. metropolitan area.
In our primary market area, we face strong competition from large banks
headquartered outside of Maryland. In addition, we will compete with other
community banks, savings and loan associations, credit
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<PAGE>
unions, mortgage companies, finance companies and others providing financial
services. Many of our competitors can finance extensive advertising campaigns,
maintain extensive branch networks and technology investments, and offer
certain services, such as international banking and trust services, which we
cannot or will not offer initially. Also, larger institutions have
substantially higher lending limits than Harbor Capital Bank will have. Some of
our competitors have other advantages, such as tax exemption in the case of
credit unions, and lesser regulation in the case of mortgage companies and
finance companies.
Employees
We anticipate that Harbor Capital Bank initially will employ approximately
sixteen people, including officers of Harbor Capital Bank. We do not expect to
add more employees during the first year of Harbor Capital Bank's operation.
Properties
HCNB Bancorp entered into a lease as of December 23, 1998 for 4,153 square
feet of space, including two existing drive-through teller lanes, at the
Federal Plaza shopping center located at 1776 East Jefferson Street in
Rockville, Maryland. Our offices will be located there, and Harbor Capital
Bank's only branch and ATM will operate at that location. The lease term began
as of February 18, 1999, and runs for two years. HCNB Bancorp has the option to
extend the term of the lease for one eight-year renewal term. During the first
year of the lease term, HCNB Bancorp will pay monthly rent of $7,267.75. During
the second year of the lease term, HCNB Bancorp will pay monthly rent of
$7,520.39. In addition, HCNB Bancorp will pay its share of taxes, operating
costs and merchants association dues. If all regulatory approvals to begin
banking operations are not obtained within 90 days after the execution of the
lease, then either HCNB Bancorp or the landlord can terminate the lease.
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<PAGE>
MANAGEMENT'S PLAN OF OPERATION
General
As of the date of this prospectus, neither HCNB Bancorp nor Harbor Capital
Bank has commenced operations or engaged in any activities except those related
to the organization and capitalization of HCNB Bancorp and Harbor Capital Bank.
These limited activities have been financed solely by advances, in the amount
of $110,000 as of January 31, 1999, by six organizers of HCNB Bancorp. We
expect these and additional organizer advances to be sufficient to meet our
needs until the offering is completed. See "Certain Transactions."
Once Harbor Capital Bank opens, expected in the second quarter of 1999, we
will begin the banking operations described in this prospectus under the
caption "Proposed Business of Harbor Capital National Bank." We expect that
Harbor Capital Bank will incur approximately $210,000 in expenses in leasehold
improvements for its offices and for furniture, fixtures and equipment for
those offices. We will contract with an outside vendor for Harbor Capital
Bank's data processing. We anticipate a one-time capital expenditure of
$243,000, and annual costs in our first year of operations of approximately
$89,000 for data processing services.
We believe that the proceeds of the offering ($7,000,000 if the minimum
number of shares are sold, and $9,000,000 if the maximum number of shares are
sold), will be sufficient to fund the expenses of establishing and opening
Harbor Capital Bank, and Harbor Capital Bank's and HCNB Bancorp's operations
for at least twelve months after the offering. We do not anticipate a need to
raise additional capital during that period. See "Use of Proceeds."
Year 2000
The Year 2000 poses a significant challenge to all financial institutions
and other businesses because many automated systems may cease to function
normally in 2000 as a result of the way date files are maintained in those
systems. Federal banking regulators have taken a strong position relating to
the financial industry's obligations to manage so-called "Y2K risks."
As a new institution, we are focusing on making certain that any system put
into place is already Y2K compliant. It is our policy to require Y2K warranties
on all systems obtained and installed. Once we obtain warranties of compliance
from the system provider, it will be our responsibility to verify the vendor's
claim.
Our primary concern is the operation of our outside data processing service,
because this service is the backbone of Harbor Capital Bank's operations. Our
contract with the data processing service provider includes a warranty from the
provider that its systems are Y2K compliant and that the transition to the Year
2000 or any other date will not materially adversely affect its ability to
provide the services our contract covers.
Harbor Capital Bank's data processing vendor has undertaken extensive
testing of those operating and application systems which we will use to
determine capacities to transfer and retain data into the year 2000 and beyond.
Our vendor provided us with testing procedures using the actual databases of
ten financial institutions currently being serviced by the vendor. All tests
yielded positive results. If it is deemed necessary, we can request Y2K testing
using Harbor Capital Bank's database, once it is established.
All internal data processing systems, including hardware and software
applications, which have been or will be obtained, have been or will be
warranted as to Y2K compliance. Verification testing for such compliance, in
most cases, has already been performed by our data processing vendor. All
supporting documentation has been provided to us.
We will test internal stand-alone systems such as document preparation
systems after installation. All systems will be analyzed as to the potential
disruptive impact of the Year 2000 computer related malfunctions
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<PAGE>
and testing procedures will be established based upon the risk of non-
compliance. When available, third party testing results will also be obtained
and reviewed for compatibility to Harbor Capital Bank's operations.
We will lease an existing banking office and we will evaluate any existing
systems within that facility for Y2K compliance. For example, in addition to
information systems, we will assess office equipment, security systems, our
vault door and other systems.
All facility systems will be evaluated with regard to the possible impact of
the Year 2000. When a system is determined to be date sensitive, a further
determination will be made as to the possible adverse impact of the Year 2000.
Where it is found that a risk does exist and the effects of non-compliance are
not acceptable to us, corrective actions will be taken.
We also recognize that our customers' Y2K issues may affect our operations.
The ability of a major credit customer to honor a debt obligation could be
impaired if the customer has problems relating to Y2K. We will ask our credit
customers for Y2K representations, and make that part of our loan
documentation. Such representations will be supported by the documented
evaluation of the borrower's Y2K position. A customer questionnaire asks the
commercial loan customer to define how the Year 2000 will impact his
operations. From that questionnaire and discussion with the customer, the loan
officer will rate the customer's vulnerability to Y2K risk. Risk
characteristics will include computer system capacities, business dependency on
outside suppliers/vendors and outsource partners who also have Y2K risk and
whether the customer's industry is computer-related. The loan officer will also
evaluate the borrower's preparedness for the Year 2000. The borrower's actions
should have included an assessment of its particular risk and an action plan to
address its critical Y2K issues. If it is determined that the customer's Y2K
actions are not satisfactory and represent potential credit risk to Harbor
Capital Bank, this may be sufficient reason to decline the loan request.
SUPERVISION AND REGULATION
HCNB Bancorp and Harbor Capital Bank will be subject to extensive regulation
under state and federal banking laws and regulations. These laws impose
specific requirements and restrictions on virtually all aspects of operations,
and generally are intended to protect depositors, not stockholders. The
following discussion is only a summary and you should refer to particular
statutory and regulatory provisions for more detailed information. Any change
in applicable laws or regulations may have a material effect on our business
and prospects. Beginning with the enactment of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 and following in December 1991
with the Federal Deposit Insurance Corporation Act, numerous additional
regulatory requirements have been placed on the banking industry in the past
ten years, and additional changes have been proposed. We cannot predict the
nature or the extent of the effect on our business and earnings that fiscal or
monetary policies, economic conditions, or new federal or state legislation may
have in the future.
HCNB Bancorp
HCNB Bancorp will be a bank holding company registered under the Bank
Holding Company Act of 1956, as amended, and will be subject to supervision by
the Board of Governors of the Federal Reserve System. As a bank holding
company, HCNB Bancorp will be required to file with the Federal Reserve Board
an annual report and such other additional information as the Federal Reserve
Board may require by statute. The Federal Reserve Board may also make
examinations of HCNB Bancorp and each of its subsidiaries.
The Federal Reserve Board must approve, among other things, the acquisition
by a proposed bank holding company of control of more than five percent (5%) of
the voting shares, or substantially all the assets, of any bank or the merger
or consolidation by a bank holding company with another bank holding company. A
bank holding company may acquire control or substantially all the assets of any
bank located in a state other than the home state of the bank holding company,
except where the bank has not been in existence for the minimum period of time
required by state law. If the bank is at least 5 years old, the Federal Reserve
Board may approve the acquisition.
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With certain limited exceptions, a bank holding company is prohibited from
acquiring control of any voting shares 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 managing or controlling banks or furnishing services for
its authorized subsidiaries. A bank holding company may, however, engage in
activities which the Federal Reserve Board has determined by order or
regulation to be so closely related to banking or managing or controlling banks
as to be "properly incident thereto." In making such a determination, the
Federal Reserve Board is required to consider whether the performance of such
activities can reasonably be expected to produce benefits to the public, such
as convenience, increased competition or gains in efficiency, which outweigh
possible adverse effects, such as undue concentration of resources, decreased
or unfair competition, conflicts of interest or unsound banking practices. The
Federal Reserve Board is also empowered to differentiate between activities
commenced de novo and activities commenced by the acquisition, in whole or in
part, of a going concern. Some of the activities that the Federal Reserve Board
has determined by regulation to be closely related to banking include making or
servicing loans, performing certain data processing services, acting as a
fiduciary or investment or financial advisor, and making investments in
corporations or projects designed primarily to promote community welfare.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by statute on any extensions of credit to the bank holding
company or any of its subsidiaries, or investments in their stock or other
securities, and on taking such stock or securities as collateral for loans to
any borrower. Further, a holding company and any subsidiary bank are prohibited
from engaging in certain tie-in arrangements in connection with the extension
of credit. A subsidiary bank may not extend credit, lease or sell property or
furnish any services, or fix or vary the consideration for any of the foregoing
on the condition that: (i) the customer obtain or provide some additional
credit, property or services from or to such bank other than a loan, discount,
deposit or trust service; (ii) the customer obtain or provide some additional
credit, property or service from or to HCNB Bancorp or any other subsidiary of
HCNB Bancorp, or (iii) the customer not obtain some other credit, property or
service from competitors, except for reasonable requirements to assure the
soundness of credit extended.
In accordance with Federal Reserve Board policy, HCNB Bancorp is expected to
act as a source of financial strength to Harbor Capital Bank and to commit
resources to support Harbor Capital Bank in circumstances in which HCNB Bancorp
might not otherwise do so. The Federal Reserve Board may require a bank holding
company to terminate any activity or relinquish control of a nonbank subsidiary
(other than a nonbank subsidiary of a bank) upon the Federal Reserve's
determination that such activity or control constitutes a serious risk to the
financial soundness or stability of any subsidiary depository institution of
the bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid
the depository institution's financial condition.
Harbor Capital National Bank
Harbor Capital Bank, as a national banking association whose accounts will
be insured by the Bank Insurance Fund of the FDIC up to the maximum legal
limits, will be subject to regulation, supervision and regular examinations by
the OCC. Harbor Capital Bank will be a member of the Federal Reserve System,
and, as such, will be subject to certain regulations issued by the Federal
Reserve Board. Harbor Capital Bank also will be subject to applicable banking
provisions of Maryland law, insofar as they do not conflict with or are not
preempted by federal law. The regulations of these various agencies govern most
aspects of Harbor Capital Bank's business, including setting required reserves
against deposits, loans, investments, mergers and acquisitions, borrowing,
dividends and location and number of branch offices.
Competition among commercial banks, savings and loan associations, and
credit unions has increased following enactment of legislation which greatly
expanded the ability of banks and bank holding companies to engage in
interstate banking or acquisition activities. Banks in the Washington,
D.C./Maryland/Virginia area can, subject to limited restrictions, acquire or
merge with a bank in another of the jurisdictions, and can branch
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de novo in any of the jurisdictions. Legislation has been proposed which may
result in nonbanking companies being authorized to own banks, which could
permit companies with resources substantially in excess of HCNB Bancorp's to
compete with HCNB Bancorp and Harbor Capital Bank.
Banking is a business which depends on interest rate differentials. In
general, the differences between the interest paid by a bank on its deposits
and its other borrowings and the interest received by a bank on loans extended
to its customers and securities held in its investment portfolio constitute the
major portion of the bank's earnings. Thus, the earnings and growth of the Bank
will be subject to the influence of economic conditions generally, both
domestic and foreign, and also to the monetary and fiscal policies of the
United States and its agencies, particularly the Federal Reserve Board, which
regulates the supply of money. We cannot predict the nature and timing of
changes in such policies and their impact on Harbor Capital Bank.
Branching and Interstate Banking. Beginning on June 1, 1997, the federal
banking agencies were authorized to approve interstate bank merger transactions
without regard to whether such transaction is prohibited by the law of any
state, unless the home state of one of the banks has opted out of the
interstate bank merger provisions of the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994. Interstate acquisitions of branches will be
permitted only if the law of the state in which the branch is located permits
such acquisitions.
The Riegle-Neal Act authorizes the OCC and FDIC to approve interstate
branching de novo by national and state banks, but only in states which
specifically allow for such branching. The District of Columbia, Maryland and
Virginia have all enacted laws which permit interstate acquisitions of banks
and bank branches and permit out-of-state banks to establish de novo branches.
Capital Adequacy Guidelines. The Federal Reserve Board, the OCC and the FDIC
have all adopted risk based capital adequacy guidelines by which they assess
the adequacy of capital in examining and supervising banks and bank holding
companies and in analyzing bank regulatory applications. Risk-based capital
requirements, determine the adequacy of capital based on the risk inherent in
various classes of assets and off-balance sheet items.
Since December 31, 1992, national banks have been expected to meet a minimum
ratio of total qualifying capital (the sum of core capital (Tier 1) and
supplementary capital (Tier 2)) to risk weighted assets of 8%. At least half of
this amount (4%) should be in the form of core capital. These requirements
apply to Harbor Capital Bank and will apply to HCNB Bancorp once its total
assets equal $150,000,000 or more, it engages in certain highly leveraged
activities or it has publicly held debt securities.
Tier 1 Capital for national banks generally consists of the sum of common
stockholders' equity and perpetual preferred stock (subject in the case of the
latter to limitations on the kind and amount of such stock which may be
included as Tier 1 Capital), less goodwill, without adjustment in accordance
with SFAS 115. Tier 2 Capital consists of the following: hybrid capital
instruments; perpetual preferred stock which is not otherwise eligible to be
included as Tier 1 Capital; term subordinated debt and intermediate-term
preferred stock; and, subject to limitations, general allowances for loan
losses. Assets are adjusted under the risk-based guidelines to take into
account different risk characteristics, with the categories ranging from 0%
(requiring no risk-based capital) for assets such as cash, to 100% for the bulk
of assets which are typically held by a bank holding company, including certain
multi-family residential and commercial real estate loans, commercial business
loans and consumer loans. Residential first mortgage loans on one to four
family residential real estate and certain seasoned multi-family residential
real estate loans, which are not 90 days or more past-due or non-performing and
which have been made in accordance with prudent underwriting standards, are
assigned a 50% level in the risk-weighing system, as are certain privately-
issued mortgage-backed securities representing indirect ownership of such
loans. Off-balance sheet items also are adjusted to take into account certain
risk characteristics.
In addition to the risk based capital requirements, the OCC has established
a minimum 3% Leverage Capital Ratio (Tier 1 Capital to total adjusted assets)
requirement for the most highly-rated national banks, with
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an additional cushion of at least 100 to 200 basis points for all other
national banks, which effectively increases the minimum Leverage Capital Ratio
for such other banks to 4%-5% or more. Under the OCC's regulations, highest-
rated banks are those that the OCC determines are not anticipating or
experiencing significant growth and have well diversified risk, including no
undue interest rate risk exposure, excellent asset quality, high liquidity,
good earnings and, in general, those which are considered a strong banking
organization. A national bank that has less than the minimum Leverage Capital
Ratio requirement must submit to the applicable district office for review and
approval a reasonable plan describing the means and timing by which the bank
will achieve its minimum Leverage Capital Ratio requirement. A national bank
which fails to file such plan is deemed to be operating in an unsafe and
unsound manner, and could be subject to a cease-and-desist order. The OCC's
regulations also provide that any insured depository institution with a
Leverage Capital Ratio that is less than 2% is deemed to be operating in an
unsafe or unsound condition and is subject to potential termination of deposit
insurance. However, such an institution will not be subject to an enforcement
proceeding solely on account of its capital ratios, if it has entered into and
is in compliance with a written agreement with the OCC to increase its Leverage
Capital Ratio to such level as the OCC deems appropriate and to take such other
action as may be necessary for the institution to be operated in a safe and
sound manner. The capital regulations also provide, among other things, for the
issuance by the OCC or its designee(s) of a capital directive, which is a final
order issued to a bank that fails to maintain minimum capital or to restore its
capital to the minimum capital requirement within a specified time period. Such
directive is enforceable in the same manner as a final cease-and-desist order.
Prompt Corrective Action. Each federal banking agency is required to
implement a system of prompt corrective action for institutions which it
regulates. Under applicable regulations, a bank will be deemed to be: (i) "well
capitalized" if it has a Total Risk Based Capital Ratio of 10% or more, a Tier
1 Risk Based Capital Ratio of 6% or more, a Leverage Capital Ratio of 5% or
more and is not subject to any written capital order or directive; (ii)
"adequately capitalized" if it has a Total Risk Based Capital Tier Ratio of 8%
or more, a Tier 1 Risk Based Capital Ratio of 4% or more and a Tier 1 Leverage
Capital Ratio of 4% or more (3% under certain circumstances); (iii)
"undercapitalized" if it has a Total Risk Based Capital Ratio that is less than
8%, a Tier 1 Risk Based Capital Ratio that is less than 4% or a Leverage
Capital Ratio that is less than 4% (3.3% under certain circumstances); (iv)
"significantly undercapitalized" if it has a Total Risk Based Capital Ratio
that is less than 6%, a Tier 1 Risk Based Capital Ratio that is less than 3% or
a Leverage Capital Ratio that is less than 3% or a Leverage Capital Ratio that
is less than 3%; and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2%. We believe
that Harbor Capital Bank will be a "well capitalized" bank if we sell either
the minimum or maximum number of shares in this offering.
An institution generally must file a written capital restoration plan which
meets specified requirements with an appropriate federal banking agency within
45 days of the date the institution receives notice or is deemed to have notice
that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. A federal banking agency must provide the institution with
written notice of approval or disapproval within 60 days after receiving a
capital restoration plan, subject to extensions by the applicable agency.
An institution which is required to submit a capital restoration plan must
concurrently submit a performance guaranty by each company that controls the
institution. Such guaranty is limited to the lesser of (i) an amount equal to
5% of the institution's total assets at the time the institution was notified
or deemed to have notice that it was undercapitalized or (ii) the amount
necessary at such time to restore the relevant capital measures of the
institution to the levels required for the institution to be classified as
adequately capitalized. Such a guaranty expires after the federal banking
agency notifies the institution that it has remained adequately capitalized for
each of four consecutive calender quarters. An institution which fails to
submit a written capital restoration plan within the requisite period,
including any required performance guaranty, or fails in any material respect
to implement a capital restoration plan, is subject to the restrictions in
Section 38 of the FDIA which are applicable to significantly undercapitalized
institutions.
A "critically undercapitalized institution" is to be placed in
conservatorship or receivership within 90 days unless the FDIC formally
determines that forbearance from such action would better protect the deposit
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insurance fund. Unless the FDIC or other appropriate federal banking regulatory
agency makes specific further findings and certifies that the institution is
viable and is not expected to fail, an institution that remains critically
undercapitalized on average during the fourth calendar quarter after the date
it becomes critically undercapitalized must be placed in receivership.
Immediately upon becoming undercapitalized, an institution becomes subject
to statutory provisions which (i) restrict payment of capital distributions and
management fees; (ii) require that the appropriate federal banking agency
monitor the condition of the institution and its efforts to restore its
capital; (iii) require submission of a capital restoration plan; (iv) restrict
the growth of the institution's assets; and (v) require prior approval of
certain expansion proposals. The appropriate federal banking agency for an
undercapitalized institution also may take any number of discretionary
supervisory actions if the agency determines that any of these actions is
necessary to resolve the problems of the institution at the least possible
long-term cost to the deposit insurance fund, subject in certain cases to
specified procedures. These discretionary supervisory actions include:
requiring the institution to raise additional capital; restricting transactions
with affiliates; requiring divestiture of the institution or the sale of the
institution to a willing purchaser; and any other supervisory action that the
agency deems appropriate. These and additional mandatory and permissive
supervisory actions may be taken with respect to significantly undercapitalized
and critically undercapitalized institutions.
Regulatory Enforcement Authority. The Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA") included substantial
enhancement to the enforcement powers available to federal banking regulators.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions against banking organizations and institution-
affiliated parties, as defined in FIRREA. In general, these enforcement actions
may be initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with regulatory
authorities. FIRREA significantly increased the amount of and grounds for civil
money penalties and requires, except under certain circumstances, public
disclosure of final enforcement actions by the federal banking agencies.
Transactions with Affiliates and Insiders. Harbor Capital Bank will be
subject to the provisions of Section 23A of the Federal Reserve Act, which
place limits on the amount of loans or extensions of credit to, investments in
or certain other transactions with affiliates, and on the amount of advances to
third parties collateralized by the securities or obligations of affiliates.
Section 23A limits the aggregate amount of transactions with any individual
affiliate to ten percent (10%) of the capital and surplus of Harbor Capital
Bank and also limits the aggregate amount of transactions with all affiliates
to twenty percent (20%) of capital and surplus. Loans and certain other
extensions of credit to affiliates are required to be secured by collateral in
an amount and of a type described in Section 23A, and the purchase of low
quality assets from affiliates is generally prohibited.
Harbor Capital Bank also will be subject to the provisions of Section 23B of
the Federal Reserve Act which, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the
transactions are on terms substantially the same, or at least as favorable to
such institution or its subsidiaries, as those prevailing at the time for
comparable transactions with non-affiliated companies. In the absence of
comparable transactions, such transactions may only occur under terms and
circumstances, including credit standards, that in good faith would be offered
to or would apply to non-affiliated companies.
Harbor Capital Bank will be subject to certain restrictions on extensions of
credit to executive officers, directors, certain principal stockholders and
their related interests. Such extensions of credit (i) must be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with third parties and (ii)
must not involve more than the normal risk of repayment or present other
unfavorable features.
Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve Board, the
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FDIC, the OCC or the Office of Thrift Supervision shall evaluate the record of
the financial institutions in meeting the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those institutions. The CRA does not establish
specific lending requirements or programs for financial institutions nor does
it limit an institution's discretion to develop the types of products and
services that it believes are best suited to its particular community,
consistent with the CRA. These factors are considered in evaluating mergers,
acquisitions and applications to open a branch or facility. The CRA also
requires all institutions to make public disclosure of their CRA ratings.
Dividends
The principal source of HCNB Bancorp's revenues will be derived from
dividends received from Harbor Capital Bank. The amount of dividends that may
be paid by Harbor Capital Bank to HCNB Bancorp depends on Harbor Capital Bank's
earnings and capital position and is limited by statute, regulations and
policies. As a national bank, Harbor Capital Bank may not pay dividends from
its paid-in surplus. All dividends must be paid out of undivided profits then
on hand, after deducting expenses, including provisions for loan losses and bad
debts. In addition, a national bank is prohibited from declaring a dividend on
its shares of common stock until its surplus equals its stated capital, unless
there has been transferred to surplus no less than one-tenth of the bank's net
profits for the preceding two consecutive half-year periods (in the case of an
annual dividend). The approval of the OCC is required if the total of all
dividends declared by a national bank in any calendar year exceeds the total of
its net profits for that year combined with its retained net profits for the
preceding two years, less any required transfers to surplus. Under applicable
law, Harbor Capital Bank may not pay a dividend if, after paying the dividend,
it would be undercapitalized.
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MANAGEMENT
Directors and Executive Officers
The executive officers and directors of HCNB Bancorp, Inc. and Harbor
Capital National Bank are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael J. Burke........ 49 Chairman of the Board of HCNB Bancorp and Harbor Capital Bank,
President of HCNB Bancorp
Chi Ping Penny Chow..... 37 Vice President of Harbor Capital Bank, Business Development
Officer of Harbor Capital Bank, Director of the HCNB Bancorp
and Harbor Capital Bank
Michael L. Derr......... 48 Senior Vice President of Harbor Capital Bank, Secretary of
HCNB Bancorp, Chief Operating Officer of Harbor Capital Bank
Harvey S. Fenster....... 65 Director of HCNB Bancorp and Harbor Capital Bank
Wayne A. Harrison....... 49 Director of HCNB Bancorp and Harbor Capital Bank
Li-min Lee.............. 40 Treasurer of HCNB Bancorp, Director of HCNB Bancorp and Harbor
Capital Bank
William J. Olsen........ 48 President of Harbor Capital Bank, Vice President of HCNB
Bancorp, Chief Lending Officer of Harbor Capital Bank,
Director of HCNB Bancorp and Harbor Capital Bank
Robert K. Wang.......... 44 Vice Chairman of the Board of HCNB Bancorp, Director of Harbor
Capital Bank
</TABLE>
William J. Olsen will serve as the president and chief lending officer of
Harbor Capital Bank, and as a vice president of HCNB Bancorp. He is also a
director of HCNB Bancorp and will serve as a director of Harbor Capital Bank.
Mr. Olsen is a credit trained commercial banker with more than 26 years of
experience acquired at money center, regional and community banks. His client
base has included professionals as well as small to middle market businesses,
and his primary responsibilities were to build full service banking
relationships. He moved to the Baltimore-Washington metropolitan area in 1993
and most recently served as a vice president at Crestar Bank, managing the
Maryland region's Professional & Executive and Not-for-Profit new business
efforts.
Michael J. Burke serves as chairman of the board of directors and president
of HCNB Bancorp, and will serve as chairman of the board of directors of Harbor
Capital Bank. Mr. Burke is a certified public accountant and has been the
president since 1996 and a principal since 1971 of Yorke, Burke and Lee, CPA's
P.A. Mr. Burke has been the chief financial officer for The Parvus Company, an
international security company, since 1986, the president of East West
Communications, Inc. since 1984, and the president of Metro Billing Corporation
since 1993. Mr. Burke served as president of Quads Trust Company from 1995 to
1996, and was a director from 1991 to 1996.
Chi Ping Penny Chow will serve as vice president and business development
officer of Harbor Capital Bank. She is a director of HCNB Bancorp, and will be
a director of Harbor Capital Bank. From 1996, until joining the organizing
efforts of Harbor Capital Bank, Ms. Chow was the treasurer of the Development
Bank of Singapore. Ms. Chow was a senior loan processor at Fidelity Mortgage
Services, Inc. from 1992 to 1994, when she was promoted to the position of
manager, which she held from 1994 to 1996.
Michael L. Derr will serve as senior vice president and chief operating
officer of Harbor Capital Bank. He is secretary of HCNB Bancorp. Prior to
joining the organizing efforts of Harbor Capital Bank, Mr. Derr was president
of MLD Consulting, Inc., a bank consulting company, which he founded in 1998.
Mr. Derr previously served as assistant vice president and vice president of
operations at The Bank of Glen Burnie from 1989 to 1998. From 1972 to 1989, Mr.
Derr held various positions, including vice president of operations, at Citizen
Savings Bank, FSB.
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<PAGE>
Harvey S. Fenster is a director of HCNB Bancorp and will be a director of
Harbor Capital Bank. Dr. Fenster has practiced as an orthodontist since 1964,
specializing in orthodontics and dentofacial orthopedics. Dr. Fenster was an
organizer, director and vice chairman of the board of Kennedy Bank & Trust
Company from 1970 to 1982. In addition, Dr. Fenster has been a director of East
West Communications, Inc. since 1985.
Wayne A. Harrison is a director of HCNB Bancorp and will be a director of
Harbor Capital Bank. Since 1983, Mr. Harrison has been the president of H.T.
Harrison & Sons, Inc., a family owned roofing and building contractor which has
been doing business in the Washington, D.C. metropolitan area for over 50
years. Mr. Harrison has served as a director and secretary of East West
Communications, Inc. since 1995.
Li-min Lee serves as treasurer of HCNB Bancorp. She is a director of HCNB
Bancorp and will be a director of Harbor Capital Bank. Ms. Lee is currently a
certified public accountant and a principal of Yorke, Burke and Lee, CPA's PA,
where she has served as the vice president since 1985. Ms. Lee has served as
vice president for Com-Tech International, Inc. since 1996 and as vice
president of Crossover International, LLC since 1996.
Robert K. Wang is vice chairman of the board of directors of HCNB Bancorp
and will be a director of Harbor Capital Bank. Mr. Wang is currently the
chairman and president of Comtech Micro Systems, Inc., which he founded in
1986. Comtech Micro Systems, Inc. specializes in the manufacture and
distribution of micro computers and related products. The company also is an
authorized distributor for major brand personal computers and related products.
Director Compensation
HCNB Bancorp currently does not pay directors' fees. Beginning in the first
month of operations, directors will receive fees for their services, and will
be reimbursed for expenses incurred in connection with their service as
directors. Directors will receive $300 for each Board meeting attended and $100
for each committee meeting attended. We expect that such fees will be paid in
shares of common stock, valued at $10.00 per share, for the foreseeable future.
We expect that Harbor Capital Bank will pay Mr. Burke $25,000 annually,
payable in cash or the shares of HCNB Bancorp's common stock at Mr. Burke's
option, in connection with his duties as Chairman of the Board of Harbor
Capital Bank. Mr. Burke is not a party to an employment or consulting agreement
with either HCNB Bancorp or Harbor Capital Bank and he could resign or be
terminated at any time and for any reason.
Employment and Executive Compensation Arrangements
HCNB Bancorp has entered into a written employment agreement with Mr. Olsen.
Under the Agreement, Mr. Olsen will serve as Vice President of HCNB Bancorp at
an annual base salary of $100,000, subject to annual review. Either HCNB
Bancorp or Mr. Olsen may terminate his employment at any time upon 30 days'
prior written notice, and Mr. Olsen may be terminated for cause at any time
without prior notice. Unless notice is provided otherwise, the Agreement with
HCNB Bancorp will terminate on the effective date of an employment agreement
between Mr. Olsen and Harbor Capital Bank, or on the date HCNB Bancorp's board
of directors decides to terminate this offering. In addition, HCNB Bancorp will
pay Mr. Olsen $10,000 on the date HCNB Bancorp has collected in escrow the
minimum proceeds of this offering or upon a determination by HCNB Bancorp's
board of directors to terminate this offering.
Under the Agreement with Harbor Capital Bank, Mr. Olsen will serve as
President of Harbor Capital Bank at an annual base salary of $100,000, subject
to annual review, and an initial term of three years, automatically renewable
for one year terms unless written notice is provided by either party 90 days
before expiration of a term. However, either Harbor Capital Bank or Mr. Olsen
may terminate his employment at any time upon 30 days' prior written notice,
and Mr. Olsen may be terminated for cause at any time without prior notice.
Harbor Capital Bank will also provide Mr. Olsen with a monthly automobile
allowance and benefits available to other employees.
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HCNB Bancorp has entered into a written employment agreement with Mr. Derr.
Under the Agreement, Mr. Derr will receive an annual base salary of $72,000,
subject to annual review. Either HCNB Bancorp or Mr. Derr may terminate his
employment at any time upon 30 days' prior written notice, and Mr. Derr may be
terminated for cause at any time without prior notice. Unless notice is
provided otherwise, the Agreement with HCNB Bancorp will terminate on the
effective date of an employment agreement between Mr. Derr and Harbor Capital
Bank, or on the date HCNB Bancorp's board of directors decides to terminate
this offering. In addition, HCNB Bancorp will pay Mr. Derr $6,000 upon a
determination by HCNB Bancorp's board of directors to terminate this offering.
Under the Agreement with Harbor Capital Bank, Mr. Derr will serve as Senior
Vice President and Chief Operating Officer of Harbor Capital Bank at an annual
base salary of $72,000, subject to annual review. The Agreement has an initial
term of one year, automatically renewable for additional one year terms unless
written notice is provided by either party 90 days before expiration of a term.
However, either Harbor Capital Bank or Mr. Derr may terminate his employment at
any time upon 30 days' prior written notice, and Mr. Derr may be terminated for
cause at any time without prior notice. Harbor Capital Bank will also provide
Mr. Derr with a monthly automobile allowance and benefits available to other
employees.
Prior to entering into the written agreement described above with HCNB
Bancorp, Mr. Derr was compensated as a consultant at a rate of $6,000 per
month, beginning December 21, 1998. Prior to that date, he was compensated at
an hourly rate of $25.00. As of January 31, 1999, he has received compensation
of $10,105.
HCNB Bancorp currently pays Ms. Chow $45,000 annually, and Harbor Capital
Bank will assume the obligation to pay Ms. Chow's salary after it opens, in
connection with her duties as Vice President and Business Development Officer
of Harbor Capital Bank. Ms. Chow is not a party to an employment agreement with
either HCNB Bancorp or Harbor Capital Bank and she could resign or be
terminated at any time and for any reason.
Securities Ownership of Management
To date, we have not issued any shares of capital stock. We anticipate that
officers and directors, as a group, will purchase approximately 18% of the
shares in this offering if the minimum number of shares is sold and 14% of the
shares if the maximum number of shares is sold, including up to 48,000 shares
which may be issued to certain organizers of HCNB Bancorp and Harbor Capital
Bank in repayment of funds advanced by those people. See "Certain
Transactions."
CERTAIN TRANSACTIONS
Six of the organizers of HCNB Bancorp and Harbor Capital Bank have made
loans, totaling $110,000 as of January 31, 1999, to fund certain organizational
and prepaid operating expenses until we can raise funds in this offering. We
expect that these six organizers will loan an additional $370,000 between
February and April of 1999. We will repay these loans only from the proceeds of
this offering, but the lenders may choose to be repaid in shares of common
stock valued at $10.00 per share. We will pay interest of 5% per annum on the
amount of any loaned funds. We believe that all of the lenders will request
repayment of their loans in shares of common stock, valued at $10.00 per share.
If that is the case, we will issue up to 48,000 shares of common stock,
assuming that a total of $480,000 is loaned by the organizers.
We anticipate that our directors and officers and the business and
professional organizations with which they are associated will have banking
transactions with Harbor Capital Bank in the ordinary course of business. It
will be our policy that any loans and loan commitments will be made in
accordance with applicable laws and on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons of comparable credit standing. Loans to
directors and officers must
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<PAGE>
comply with Harbor Capital Bank's lending policies and statutory lending
limits, and directors with a personal interest in any loan application will be
excluded from considering any such loan application.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of nine million (9,000,000) shares of
common stock, $0.01 par value, and one million (1,000,000) shares of preferred
stock, $0.01 par value. No shares are issued as of the date of this prospectus.
The following summary of certain terms of the common stock and preferred stock
is not complete and you may refer to our Charter and Bylaws, copies of which
are available for inspection.
In general, shareholders or subscribers for our stock have no personal
liability for the debts and obligations of HCNB Bancorp because of their status
as shareholders or subscribers, except to the extent that the subscription
price or other agreed consideration for the stock has not been paid.
Common Stock
We are authorized to issue nine million (9,000,000) shares of common stock,
par value $0.01 per share. Upon completion of the offering, a minimum of
700,000 and a maximum of 900,000 shares of common stock will be issued and
outstanding. All shares of common stock offered will be duly authorized and
will, upon payment as described in this prospectus, be fully paid and
nonassessable. Subject to all the rights of holders of any other class or
series of stock, holders of common stock will be entitled to receive dividends
if and when the Board of Directors of HCNB Bancorp declares dividends from
funds legally available. In addition, holders of common stock share ratably in
the net assets of HCNB Bancorp upon the voluntary or involuntary liquidation,
dissolution or winding up of HCNB Bancorp, after distributions are made to
anyone with more senior rights.
In general, each outstanding share of common stock entitles the holder to
vote for the election of directors and on all other matters requiring
shareholder action, and each share is entitled to one vote. There is no
cumulative voting in the election of directors, which means that the holders of
a majority of the outstanding shares of common stock can elect all of the
directors then standing for election and the holders of the remaining shares
will not be able to elect any directors.
Holders of common stock have no conversion, sinking fund, redemption rights
or preemptive rights to subscribe for any securities of HCNB Bancorp or Harbor
Capital Bank.
Our Charter grants to the Board of Directors the right to classify or
reclassify any unissued shares of common stock from time to time by setting or
changing the designations, preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption. Accordingly, the Board of Directors could authorize
the issuance of additional shares of common stock with terms and conditions
which could have the effect of discouraging a takeover or other transaction
which some of our shareholders might believe to be in their best interests or
in which they might receive a premium for their shares of common stock over the
market price of such shares. As of the date hereof, we have no plans to
classify or reclassify any unissued shares of the common stock.
Preferred Stock
We are authorized to issue one million (1,000,000) shares of preferred
stock, par value $0.01 per share. Shares of preferred stock may be issued from
time to time by the Board of Directors in one or more series. Prior to issuance
of shares of each series the Board of Directors is required by the Maryland
General Corporation Law (MGCL) to fix for each series the designation,
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms or conditions of
redemption. The Board of Directors could authorize the issuance of shares of
preferred stock with terms and conditions which could have the effect of
discouraging a takeover or other transaction which some of our shareholders
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<PAGE>
might believe to be in their best interests or in which they might receive a
premium for their shares of common stock over the market price of such shares.
As of the date hereof, we have no present plans to issue any preferred stock.
Anti-Takeover Provisions
Extraordinary Transactions. Pursuant to the MGCL, a corporation generally
cannot amend its charter (except in compliance with specific provisions of the
MGCL), consolidate, merge, sell, lease or exchange all or substantially all of
its assets, engage in a share exchange or liquidate, dissolve or wind-up unless
such acts are approved by the affirmative vote of at least two-thirds of the
shares entitled to vote on the matter, unless a lesser or greater percentage is
set forth in the corporation's charter. Our Charter requires that some of these
matters be approved by the affirmative vote at least 80% of all the votes
entitled to be cast. However, only a majority vote is required to approve the
liquidation, dissolution or winding up of HCNB Bancorp, or the amendment of our
Charter unless the provision to be amended relates to the classification of the
Board of Directors or the super majority approval of certain extraordinary
transactions. Those amendments would require the 80% affirmative vote.
Classification of the Board of Directors. Our Charter and Bylaws provide for
seven (7) directors. The number of directors may be increased or decreased by
the Board of Directors but may not be less than three (3). At the first annual
meeting of the shareholders, the directors will be divided into three classes--
Class A, Class B and Class C--each class to consist of an equal number of
directors, or as nearly equal as possible. Each director will serve for a term
ending on the date of the third annual meeting following the annual meeting at
which such director was elected. However, the Class A Directors first chosen
shall hold office for one year or until the first annual meeting following
their election, the Class B Directors first chosen shall hold office for two
years or until the second annual meeting following their election and the Class
C Directors first chosen shall hold office for three years or until the third
annual meeting following their election. We believe that classification of the
Board of Directors will help to assure the continuity and stability of HCNB
Bancorp's business strategies and policies as determined by the Board of
Directors.
Removal of Directors. Our Charter and Bylaws provide that a director may
only be removed by the affirmative vote of at least 80% of the votes entitled
to be cast in the election of directors.
Summary of Anti-takeover Provisions. The above described provisions included
in our Charter and Bylaws are designed to encourage potential acquirors to
negotiate directly with our Board of Directors and to discourage takeover
attempts. Such provisions may discourage non-negotiated takeover attempts which
certain shareholders could deem to be in their best interests.
For example, the classified director provision could have the effect of
making the removal of incumbent directors more time consuming and difficult,
which could discourage a third party from making a tender offer or otherwise
attempting to obtain control of HCNB Bancorp, even though such an attempt might
be beneficial to HCNB Bancorp and its shareholders. In general, more than one
annual meeting of shareholders will be required to effect a change in a
majority of the Board of Directors. Thus, the classified board provision could
increase the likelihood that incumbent directors will retain their positions.
Holders of common stock have no right to cumulative voting for the election of
directors. Consequently, at each annual meeting of shareholders, the holders of
a majority of the shares of common stock will be able to elect all of the
successors of the class of directors whose term expires at that meeting.
The provision that directors may be removed only by the affirmative vote of
at least 80% of the votes entitled to be cast in the election of directors,
when coupled with the provision in the Bylaws authorizing the Board of
Directors to fill vacant directorships, precludes shareholders from removing
incumbent directors except upon a substantial affirmative vote and filling the
vacancies created by such removal with their own nominees.
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Business Combinations. Under the MGCL, certain "business combinations"
between a Maryland corporation and an "Interested Stockholder" (as described in
the MGCL) are prohibited for five years after the most recent date on which the
Interested Stockholder became an Interested Stockholder, unless an exemption is
available. Thereafter a business combination must be recommended by the board
of directors of the corporation and approved by the affirmative vote of at
least: (i) 80% of the votes entitled to be cast by holders of outstanding
voting shares of the corporation; and (ii) two-thirds of the votes entitled to
be cast by holders of outstanding voting shares of the corporation other than
shares held by the Interested Stockholder with whom the business combination is
to be effected, unless the corporation's stockholders receive a minimum price
(as described in the MGCL) for their shares and the consideration is received
in cash or in the same form as previously paid by the Interested Stockholder
for its shares. These provisions of Maryland law do not apply, however, to
business combinations that are approved or exempted by the board of directors
prior to the time that the Interested Stockholder becomes an Interested
Stockholder. They also do not apply if the company has fewer than 100
beneficial owners of stock.
Control Share Acquisitions. The MGCL provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the shares
entitled to be voted on the matter, excluding shares of stock owned by the
acquiror or by officers or directors who are employees of the corporation.
"Control shares" are voting shares of stock which, if aggregated with all other
such shares of stock previously acquired by the acquiror, or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
except solely by virtue of a revocable proxy, would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third; (ii) one-third
or more but less than a majority; or (iii) a majority of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A "control
share acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses
and delivery of an "acquiring person statement"), may compel the corporation's
board of directors to call a special meeting of stockholders to be held within
50 days of demand to consider the voting rights of the shares. If no request
for a meeting is made, the corporation may itself present the question at any
stockholders' meeting.
Unless the charter or bylaws provide otherwise, if voting rights are not
approved at the meeting or if the acquiring person does not deliver an
acquiring person statement within 10 days following a control share acquisition
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition or of any meeting of stockholders at which the voting
rights of such shares are considered and not approved. Moreover, unless the
charter or bylaws provides otherwise, if voting rights for control shares are
approved at a stockholders' meeting and the acquiror becomes entitled to
exercise or direct the exercise of a majority or more of all voting power,
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
Transfer Agent
We presently intend to serve as our own transfer agent after the offering.
SHARES ELIGIBLE FOR FUTURE SALE
All shares sold in this offering will be freely tradeable without
restriction, except for any shares purchased by an "affiliate" of HCNB Bancorp.
Those shares will be subject to the resale limitations set forth in Securities
and Exchange Commission Rule 144. Prior to this offering, we have not issued
any shares of stock.
27
<PAGE>
No market exists now for our shares, and we do not expect one to develop in the
foreseeable future. However, if a market did develop, the sale of a substantial
number of shares in that market could decrease the prevailing market price of
our stock and also could impair our ability to raise more funds in the future.
All of HCNB Bancorp's officers and directors are considered "affiliates"
within the meaning of Rule 144 and will, therefore, be subject to the
applicable resale limitations of that Rule with respect to the shares purchased
in this offering. In general, the number of shares that can be sold by each
affiliate in brokers' transactions, (as that term is used in Rule 144) within
any three month period may not exceed the greater of (i) one percent (1%) of
the outstanding shares as shown by the most recent report or statement
published by HCNB Bancorp, or (ii) the average weekly reported volume of
trading in the shares on all national securities exchanges and/or reported
through the automated quotation system of a registered securities association
during the four calendar weeks preceding the sale.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for HCNB Bancorp by Ober, Kaler, Grimes & Shriver, P.C.,
Baltimore, Maryland.
EXPERTS
The audited financial statements of HCNB Bancorp, Inc. for the period ending
December 31, 1998 included in this prospectus have been included in reliance
upon the report of Jameson & Associates, independent certified public
accountants, and upon the authority of that firm as experts in accounting and
auditing.
HOW TO FIND ADDITIONAL INFORMATION
We are a newly organized company and to date have not issued any capital
stock or engaged in any business operations. We are not currently required to
file reports with the Securities and Exchange Commission, although we will do
so after this offering. We will furnish stockholders with annual reports
containing audited financial statements. We may also send other reports to keep
stockholders informed of our business.
We have filed a Registration Statement on Form SB-2 with the Securities and
Exchange Commission and this prospectus is included in the Registration
Statement. This prospectus does not contain all of the information contained in
the Registration Statement. You can read the Registration Statement and the
exhibits to the Registration Statement at the following public reference
facilities of the Securities and Exchange Commission: 450 Fifth Street, NW,
Room 1024, Washington, DC 20549; 7 World Trade Center, Suite 1300, New York,
New York, 10048; and the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You can obtain copies of the Registration
Statement and the exhibits for a fee from the Public Reference Room of the
Securities and Exchange Commission, 450 Fifth Street, NW, Room 1024,
Washington, DC 20549. You may call 1-800-SEC-0330 to obtain information on the
operation of the Public Reference Room. These materials also may be accessed
via the Securities and Exchange Commission's Internet web site. The address of
that web site is http://www.sec.gov.
No one is authorized to give you information that is not included in this
prospectus. If someone gives you any other information you should not rely upon
it because we may not have authorized the use of that information. We may
deliver this prospectus to a prospective investor or sell shares of common
stock in this offering even if the information in this prospectus changes after
the date on the cover of the prospectus. This prospectus is not an offer to
sell the common stock and is not soliciting an offer to buy the common stock in
any state where the offer or sale is not permitted.
28
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................... F-2
Balance Sheet at December 31, 1998.......................................... F-3
Statement of Operations..................................................... F-4
Statement of Changes in Stockholders' Deficit............................... F-5
Statement of Cash Flows..................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of
HCNB Bancorp, Inc. (A Development Stage Company)
We have audited the accompanying balance sheet of HCNB Bancorp, Inc. (A
Development Stage Company) (a Maryland corporation), as of December 31, 1998
and the related statements of operations, changes in stockholders' deficit and
cash flows for the period from February 24, 1998 (inception) to December 31,
1998. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based
upon our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of HCNB Bancorp, Inc. (A Development
Stage Company) as of December 31, 1998, and the results of its operations and
its cash flows for the period from February 24, 1998 (inception) to December
31, 1998 in conformity with generally accepted accounting principles.
JAMESON & ASSOCIATES P.A.
Baltimore, Maryland
February 26, 1999
F-2
<PAGE>
HCNB BANCORP, INC.
(A Development Stage Company)
BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash................................................................ $ 8,341
Due from insiders................................................... 20,000
Deposit............................................................. 19,422
---------
Total assets.................................................... 47,763
=========
Liabilities and Stockholders' Equity
Liabilities
Accounts payable and accrued expenses............................. 56,702
Advances from insiders............................................ 120,000
---------
Total liabilities............................................... 176,702
=========
Contingencies (Note 1)
Stockholders' deficit
Common stock, par value $0.01 per share, 9,000,000 shares
authorized; 0 shares issued and outstanding...................... --
Preferred stock, par value $0.01 per share, 1,000,000 shares
authorized; 0 shares issued and outstanding...................... --
Additional paid-in capital........................................ --
Deficit accumulated during development stage...................... (128,939)
---------
Total stockholders' deficit..................................... (128,939)
---------
Total liabilities and stockholders' deficit..................... $ 47,763
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HCNB BANCORP, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
For the Period from February 24, 1998 (Inception) to December 31, 1998
<TABLE>
<S> <C>
Revenues............................................................ $ --
---------
Expenses
Legal and other professional fees................................. 109,380
Fees.............................................................. 17,600
Other............................................................. 1,959
---------
128,939
---------
Loss before income tax benefit...................................... (128,939)
Income tax benefit.................................................. --
---------
Net loss............................................................ $(128,939)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HCNB BANCORP, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Period from February 24, 1998 (Inception) to December 31, 1998
<TABLE>
<CAPTION>
Common
Stock Surplus Deficit
------ ------- ---------
<S> <C> <C> <C>
Balances at February 24, 1998........................ $-- $-- $ --
Net loss............................................. -- -- (128,939)
---- ---- ---------
Balances at December 31, 1998........................ $-- $-- $(128,939)
==== ==== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HCNB BANCORP, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the Period from February 24, 1998 (Inception) to December 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities
Net income (loss)................................................ $(128,939)
Adjustments to reconcile net loss to net cash used by operating
activities
Increase in accounts payable..................................... 56,702
---------
(72,237)
---------
Cash flows from investing activities
Cash paid for deposits........................................... (19,422)
---------
Cash flows from financing activities
Advances from insiders........................................... 100,000
---------
Increase in cash................................................... 8,341
Cash, beginning of period.......................................... --
---------
Cash, end of period................................................ $ 8,341
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
HCNB BANCORP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Organization
HCNB Bancorp, Inc. (the Company) was incorporated under the laws of the
State of Maryland on February 24, 1998, primarily to hold all the capital stock
of a proposed new national bank with the name Harbor Capital National Bank (the
Proposed Bank). As of December 31, 1998, the Company has not been capitalized
and is not required to be capitalized to be a corporation under Maryland law.
The Company will be capitalized as a result of the contemplated initial public
offering discussed in Note 2. The Proposed Bank will be formed by the Company's
purchase of approximately $6,000,000 of the Proposed Bank common stock. The
Proposed Bank will operate as a community-oriented bank concentrating on real
estate, consumer loan products, small business loans and deposit services from
its headquarters in Rockville, Maryland, and anticipates that it will open for
business in the second quarter of 1999. Qualifying deposits in the Proposed
Bank will be insured by the Federal Deposit Insurance Corporation.
At the date of these financial statements, the Company's operations have
been limited to obtaining regulatory approval and earning interest on excess
funds. The Company has not had any operating activities or incurred any
operating expenses. The Proposed Bank will begin operations once all regulatory
approvals are received from authorities.
As the Proposed Bank is a start-up operation, there can be no assurance that
the Proposed Bank can attract sufficient depositors or issue sufficient quality
loans to operate at a profit. There is also no assurance that the Company will
be able to raise sufficient capital to capitalize the Proposed Bank. The
Company is subject to other risks and uncertainties, including interest rate
risk.
2. Significant Accounting Policies
Advances from insiders
Certain insiders of the Company have loaned money to the Company for
organizational costs and cost associated with the Offering. Such persons will
be reimbursed out of the proceeds of the Offering or be repaid in shares of the
Company's common stock.
Income taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The Company has
not provided for a tax provision for the period ended December 31, 1998, as the
Company is anticipating a loss for the year end and anticipates a 100%
valuation allowance on the tax benefit generated from the loss.
Use of estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities in the
financial statements and the disclosures of contingent assets and liabilities.
While actual results could differ from those estimates, management believes
that actual results will not be materially different from amounts provided in
the accompanying financial statements.
Contemplated initial public offering
The Company intends to issue between 700,000 and 900,000 shares of common
stock at $10 per share pursuant to a registration statement filed with the
Securities and Exchange Commission.
F-7
<PAGE>
HCNB BANCORP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Due from Insiders
Certain officers and directors of the Company agreed to loan money to the
Company for organization and initial operating costs. At December 31, 1998,
$20,000 was due but not advanced. The amount subsequently was received and
deposited by the Company in January and February 1999.
4. Lease and Lease Deposit
The Company entered into a lease agreement on December 23, 1998 to lease
banking facilities and offices in Rockville, Maryland. The lease is for a two
year period with an option to renew for 8 years. The rental commitment is as
follows:
<TABLE>
<CAPTION>
Lease
year Annual rental
----- -------------
<S> <C>
1 $87,213
2 $90,245
</TABLE>
F-8
<PAGE>
EXHIBIT A
SUBSCRIPTION AGREEMENT
This Subscription Agreement is entered into in connection with the offer and
sale (the "Offering") of up to 900,000 shares (the "Shares") of Common Stock,
par value $0.01 per share, of HCNB Bancorp, Inc., a corporation incorporated
under the laws of the State of Maryland (the "Company"), for a purchase price
of $10.00 per share.
WITNESSETH:
1. Purchase of Shares. The undersigned agrees to purchase the number of
Shares set forth below and tenders the amount required to purchase such number
of Shares by check, bank draft or money order drawn to the order of "FMB Bank,
Escrow Agent for HCNB Bancorp, Inc."
2. Acknowledgments. The undersigned acknowledges and agrees that:
(a) The Company has established a minimum subscription of 500 shares
($5,000).
(b) The undersigned has received a copy of the Company's prospectus
dated (the "Prospectus"). By executing this Subscription
Agreement, the undersigned acknowledges and agrees to all of the terms and
conditions of the Offering as described in the Prospectus. This
Subscription Agreement is not binding until accepted by the Company. The
Company reserves the right to accept or reject, in whole or in part and in
its sole discretion, any Subscription Agreement. The Company shall notify
the subscriber by mail of its acceptance or rejection, in whole or in part,
of this Subscription Agreement.
(c) Following acceptance by the Company, subscriptions are binding on
subscribers and may not be revoked by subscribers except with the consent
of the Company.
(d) The Company reserves the right to cancel accepted Subscription
Agreements at any time and for any reason until the satisfaction of the
conditions of the Offering.
(e) The Company may, in its sole discretion, allocate shares among
subscribers in the event of an oversubscription for the Shares.
3. Representations and Warranties. The undersigned represents and warrants
that he/she:
(a) Is aware that no federal or state agency has made any finding or
determination as to the fairness for public investment in, or any
recommendation or endorsement of, the Shares.
(b) Understands that the Company has no financial or operating history
and that the Shares, as an investment, involve a high degree of risk, as
described in the Prospectus.
(c) Is aware that (i) there is no market for the Shares and that there
can be no assurance that a market will develop and (ii) it may not be
possible to liquidate his investment in the Shares readily.
(d) Has adequate means of providing for his current needs and possible
personal contingencies and has no need for liquidity in this investment.
(e) Has carefully read the entire Prospectus, particularly the "Risk
Factors" section therein, and has had the opportunity to ask questions and
receive answers with regard thereto.
(f) Is a resident of Connecticut, Delaware, the District of Columbia,
Florida, Maryland, New Jersey, New York, Pennsylvania or Virginia.
THE SHARES OF COMMON STOCK BEING OFFERED BY THE PROSPECTUS ARE NOT SAVINGS
ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION INSURANCE FUND, THE BANK
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
A-1
<PAGE>
The Shares purchased by the undersigned shall be registered as specified
below. If Shares are to be issued in more than one name, please specify whether
ownership is to be as tenants in common, joint tenants with right of
survivorship, community property, etc. If Shares are to be held in joint
ownership, all joint owners should sign this Subscription Agreement. If Shares
are to be issued in the name of one person for the benefit of another, please
indicate whether registration should be as trustee or custodian for such other
person.
IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement
on the date set forth below.
Date: ,1999 ______________________________ (SEAL)
Signature of Subscriber
Number of Shares Subscribed for: ____
(at $10 per Share)
Total Subscription Price: $ _________ _____________________________________
Print Name(s) in which Shares are to
be Registered
Address of Subscriber:
_____________________________________
_____________________________________
Social Security/Taxpayer
Identification Number
_____________________________________
Telephone Number and Area Code
_____________________________________
ACCEPTANCE
The foregoing subscription is hereby acknowledged and accepted as to
shares.
Date: , 1999
HCNB Bancorp, Inc.
By: _________________________________
Authorized Officer
A-2
<PAGE>
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No one has been authorized to give any information or to make any
representations in connection with this offering, other than those contained in
this prospectus. You may not assume that we have authorized any other
information or representations. The delivery of this prospectus and the sale of
our common stock does not mean that there has been no change in our affairs
since the date of this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy securities in any state where the offer or sale
is not permitted.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 1
Risk Factors............................................................... 3
HCNB Bancorp and Harbor Capital National Bank.............................. 6
The Offering............................................................... 6
Use of Proceeds............................................................ 8
Capitalization............................................................. 10
Dividend Policy............................................................ 10
Proposed Business of HCNB Bancorp.......................................... 10
Proposed Business of Harbor Capital National Bank.......................... 11
Management's Plan of Operation............................................. 15
Supervision and Regulation................................................. 16
Management................................................................. 22
Certain Transactions....................................................... 24
Description of Capital Stock............................................... 25
Shares Eligible for Future Sale............................................ 27
Legal Matters.............................................................. 28
Experts.................................................................... 28
How to Find Additional Information......................................... 28
Index to Financial Statements.............................................. F-1
Exhibit A--Subscription Agreement.......................................... A-1
</TABLE>
Until July 29, 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligations to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HCNB Bancorp, Inc.
Common Stock
$10.00 Per Share
700,000 Shares (Minimum)
900,000 Shares (Maximum)
--------------
PROSPECTUS
--------------
April 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
