<PAGE>
As filed with the Securities and Exchange Commission on December 15, 2000
Registration No. 333-____________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
First BancTrust Corporation
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(Name of Small Business Issuer in Its Articles of Incorporation)
<TABLE>
<S> <C> <C>
Delaware 6711
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(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
206 South Central Avenue
Paris, Illinois 61944
(217) 465-6381
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(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
Terry J. Howard
President and Chief Executive Officer
First BancTrust Corporation
206 South Central Avenue
Paris, Illinois 61944
(217) 465-6381
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(Name, Address, and Telephone Number of Agent for Service)
Copies to:
Kevin M. Houlihan, Esq. Lori Beresford, Esq.
Stephen M. Ege, Esq. Muldoon, Murphy & Faucette
Elias, Matz, Tiernan & Herrick L.L.P. 5101 Wisconsin Avenue, N.W.
734 15th Street, N.W., 12th Floor Washington, D.C. 20016
Washington, D.C. 20005 (202) 362-0840
(202) 347-0300
---------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
<PAGE>
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE DOLLAR AMOUNT OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED TO BE REGISTERED PER SHARE OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
Common Stock, par 1,388,625 shares(2) $10.00 $13,886,250 $3,666
value $.01 per share
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration
fee.
(2) Includes shares that may be issued in the event of a 15% increase
in the maximum size of the offering.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
PROSPECTUS
FIRST BANCTRUST CORPORATION
(Proposed holding company for First Bank & Trust, S. B.)
Up to 1,207,500 Shares of Common Stock
First Bank & Trust, S.B., is converting from the mutual to the stock
form of organization. As part of this conversion, First BancTrust Corporation is
offering its shares of common stock. First Bank will become a subsidiary of
First BancTrust Corporation, a corporation we recently formed.
================================================================================
TERMS OF THE OFFERING
We are offering a minimum of 892,500 shares and a maximum of 1,207,500
shares. The maximum can be increased by up to 15% to 1,388,625 shares with
regulatory approval.
<TABLE>
<CAPTION>
MINIMUM MAXIMUM, AS ADJUSTED
-------------- --------------------
<S> <C> <C>
Number of shares.............................................. 892,500 1,388,625
Gross offering proceeds....................................... $8,925,000 $13,886,250
Estimated offering expenses................................... $ 516,000 $ 595,000
Estimated net proceeds........................................ $8,409,000 $13,291,250
Estimated net proceeds per share.............................. $ 9.42 $ 9.57
</TABLE>
================================================================================
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS DOCUMENT. AN
INVESTMENT IN THE COMMON STOCK IS SUBJECT TO VARIOUS RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE ILLINOIS OFFICE OF BANKS AND REAL ESTATE NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
We have applied to list the common stock on the Over-the-Counter
Electronic Bulletin Board under the symbol "FBTC." First BancTrust Corporation
must sell a minimum of 892,500 shares of common stock or it will not sell any
shares. First BancTrust Corporation will not sell more than 1,388,625 shares in
the subscription offering. First BancTrust Corporation is offering the shares on
a best efforts basis, and Trident Securities is assisting in the subscription
offering on a best efforts basis.
We have granted depositors of First Bank as of certain dates the right
to purchase our stock before we sell any shares to the general public. If you
wish to exercise this right, we must receive your order no later than 12:00
noon, central time, on March ____________ , 2001. We will offer any remaining
shares in a community offering to persons who do not have these priority rights.
We may begin the community offering at any time beginning _____, 2001 and
terminate the community offering at any time without notice. We will place funds
we receive for stock purchases in a separate savings account at First Bank, and
we will pay interest at our passbook rate on those funds for the period the
funds are held until we complete or terminate the offering.
TRIDENT SECURITIES
A Division of McDonald Investments, Inc.
The date of this prospectus is February ____________ , 2001
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Map of Our Market Area........................................................................... iii
Questions and Answers About the Stock Offering................................................... 1
Summary.......................................................................................... 3
Risk Factors..................................................................................... 7
Selected Consolidated Financial and Other Data................................................... 13
Developments Through December 31, 2000........................................................... 15
Proposed Management Purchases.................................................................... 16
How Our Net Proceeds Will be Used................................................................ 16
We Intend to Pay Quarterly Cash Dividends........................................................ 18
There May Be a Limited Market for Our Common Stock............................................... 19
First Bank Meets All of Its Regulatory Capital Requirements...................................... 19
Our Capitalization............................................................................... 21
Pro Forma Data................................................................................... 23
First Bank Consolidated Statements of Income..................................................... 31
Management's Discussion and Analysis of Financial Condition and Results of
Operations of First Bank....................................................................... 32
Business of First Bank........................................................................... 46
Regulation....................................................................................... 65
Taxation......................................................................................... 73
Management....................................................................................... 76
The Conversion................................................................................... 83
Restrictions on Acquisition of First BancTrust Corporation and First Bank........................ 102
Description of Capital Stock of First BancTrust Corporation ..................................... 111
Description of Capital Stock of First Bank....................................................... 112
Experts.......................................................................................... 113
Legal and Tax Opinions........................................................................... 113
Additional Information........................................................................... 113
Index to Consolidated Financial Statements....................................................... 115
</TABLE>
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
ii
<PAGE>
[MAP TO BE INSERTED WHICH SHOWS THE STATE OF ILLINOIS, WITH A HIGHLIGHT
OF HOME COUNTY SHOWING PARIS, AND ALSO SHOWING THE CITY OF MARSHALL, AND CLARK
AND EDGAR COUNTIES.]
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
The following are frequently asked questions. You should read this
entire prospectus, including the Risk Factors beginning on page 7 and The
Conversion beginning on page 83, for more information.
Q. HOW MANY SHARES OF STOCK ARE BEING OFFERED, AND AT WHAT PRICE?
A. We are offering for sale up to 1,207,500 shares of common stock at a
subscription price of $10.00 per share. We must sell at least 892,500
shares. If the appraised market value of the common stock changes due
to market conditions, then, without notice to you, we may be required
to sell up to 1,388,625 shares.
Q. WHAT PARTICULAR FACTORS SHOULD I CONSIDER WHEN DECIDING WHETHER TO
PURCHASE THE STOCK?
A. There are many important factors for you to consider before making an
investment decision. Therefore, you should read this entire prospectus
before making your investment decision.
Q. WILL DIVIDENDS BE PAID ON THE STOCK?
A. We intend to pay annual dividends of $0.20 per share on our common
stock. We expect to begin paying dividends in the first full quarter
after conversion.
Q. WILL I BE ABLE TO SELL MY STOCK AFTER I PURCHASE IT?
A. We anticipate having our stock quoted on the Over-the-Counter
Electronic Bulletin Board under the symbol "FBTC." However, we expect
the market for our stock will be limited. There can be no assurance
that someone will want to buy your shares or that you will be able to
sell them for more money than you originally paid. There may also be a
wide spread between the bid and asked price for our stock.
Q. WILL MY STOCK BE COVERED BY DEPOSIT INSURANCE OR GUARANTEED BY ANY
GOVERNMENT AGENCY?
A. No. Unlike insured deposit accounts at First Bank, our stock will not
be insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
Q. WHEN IS THE DEADLINE TO SUBSCRIBE FOR STOCK?
A. We must receive a properly signed and completed order form with the
required payment on or before 12:00 noon, central time, on March
____________ , 2001.
Q. CAN THE OFFERING BE EXTENDED?
A. If we do not receive sufficient orders, we can extend the offering
beyond March ____________ , 2001. We must complete any offering to
general members of the public within 45 days after the close of the
subscription offering, unless we receive regulatory approval to further
extend the offering. No single extension can exceed 90 days, and the
extensions may not go beyond March ____________ , 2003.
1
<PAGE>
Q. HOW DO I PURCHASE THE STOCK?
A. First, you should read this Prospectus. Then, complete and return the
enclosed stock order and certification form, together with your
payment. Subscription orders may be delivered in person to our office
during regular banking hours, or by mail in the enclosed envelope
marked STOCK ORDER RETURN. Subscription orders received after the
subscription offering expiration date may be held for participation in
any community offering. If the stock offering is not completed by
____________ , 2001 and is not extended, then all funds will be
returned promptly with interest, and all withdrawal authorizations will
be canceled.
Q. CAN I CHANGE MY MIND AFTER I PLACE AN ORDER TO SUBSCRIBE FOR STOCK?
A. No. After we receive your order form and payment, you may not cancel or
modify your order. However, if we extend the offering beyond
____________ , 2001, you will be able to change or cancel your order.
If you cancel your order, you will receive a prompt refund plus
interest.
Q. HOW CAN I PAY FOR THE STOCK?
A. You have three options: (1) pay cash if it is delivered to us in
person; (2) send us a check or money order; or (3) authorize a
withdrawal from your deposit account at First Bank & Trust (without any
penalty for early withdrawal). Please do not send cash in the mail.
Q. WILL I RECEIVE INTEREST ON MY SUBSCRIPTION PAYMENT?
A. Subscription payments will be placed in an interest-bearing escrow
account at First Bank, and will earn interest at our passbook rate.
Depositors who elect to pay by withdrawal will continue to receive the
stated interest on that account until the funds are withdrawn at the
completion of the conversion.
Q. CAN I SUBSCRIBE FOR SHARES USING FUNDS IN MY INDIVIDUAL RETIREMENT
ACCOUNT OR IRA AT FIRST BANK?
A. You may use First Bank IRA funds to purchase shares, however, you must
first establish a self-directed IRA with an outside trustee to
subscribe for stock using your IRA funds. First Bank is not permitted
to hold stock in any First Bank IRAs. Please call our Stock Information
Center (217-____________ ) to get more information. Please understand
that the transfer of IRA funds takes time, so please make arrangements
as soon as possible.
Q. WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES OF STOCK TO FILL ALL
ORDERS?
A. If there is an oversubscription, then you may not receive any or all of
the shares you want to purchase.
Q. WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE STOCK
OFFERING?
A. For answers to other questions we encourage you to read this
Prospectus. Questions may also be directed to our Stock Information
Center at 217- ____________ Monday through Friday, between the hours of
9:00 a.m. and 4:30 p.m.
TO ENSURE THAT EACH PERSON RECEIVES A PROSPECTUS AT LEAST 48 HOURS
PRIOR TO THE EXPIRATION DATE OF MARCH ____________ , 2001 IN ACCORDANCE WITH
FEDERAL LAW, NO PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO
MARCH ____________ , 2001 OR HAND DELIVERED ANY LATER THAN TWO DAYS PRIOR TO
MARCH ____________ , 2001.
2
<PAGE>
SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read this entire document carefully, including
the financial statements and the notes to financial statements of First Bank.
FIRST BANCTRUST CORPORATION
We formed First BancTrust Corporation in November 2000 as a Delaware
corporation. First BancTrust will be the holding company for First Bank
following the conversion. First BancTrust is not an operating company and has
not engaged in any significant business to date. Our executive offices are
located at 206 South Central Avenue, Paris, Illinois 61944, and our telephone
number is (217) 465-6381.
FIRST BANK & TRUST, S. B.
Founded in 1887 as the Edgar County Building and Loan, First Bank is a
community and customer oriented mutual deposit savings bank organized under the
laws of the State of Illinois. First Bank conducts business out of its main
office and its operations office, both in Paris, Illinois, and one branch office
in Marshall, Illinois. First Bank acquired its Marshall office through a merger
with Edgar County Savings and Loan Association located in Marshall, Illinois in
1990.
First Bank's business consists principally of attracting deposits from
the general public and using those funds to originate loans secured by one- to
four-family residential properties, commercial and industrial loans,
agricultural loans, commercial business loans, agricultural production finance
loans, consumer loans and other loans. Although one-to-four family residential
loans amounted to $46.3 million at September 30, 2000, these loans only
represented 40.7% of the total loan portfolio. When compared to its peer group,
this percentage of one-to-four family loans is atypical. Conversely, a
significant portion of the portfolio consists of commercial and industrial
loans, commercial business loans, agricultural loans and agricultural production
finance loans. First Bank's profitability depends primarily on its net interest
income, which is the difference between the income it receives on loans and
other assets and its cost of funds, which consists of the interest paid on
deposits and borrowings. At September 30, 2000, First Bank had total assets of
$170.5 million, deposits of $129.2 million and total equity of $12.8 million.
OUR CONVERSION TO STOCK FORM
We will convert to an Illinois-chartered stock savings bank from our
current status as an Illinois chartered mutual savings bank and First BancTrust
Corporation will sell shares of its common stock. As part of this transaction
First BancTrust Corporation will become the holding company for First Bank. As a
stock savings bank, we will be subject to the regulation and supervision of the
Illinois Office of Banks and Real Estate, the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System, and the
Securities and Exchange Commission.
With the holding company structure, we will be able to develop
long-term growth opportunities and access the capital markets more easily in the
future. The offering will increase our capital and the amount of funds available
for lending and investment. This will give us greater flexibility to diversify
and expand operations in our current market area and neighboring communities. In
addition, we will be able to compensate our directors, officers and employees in
the form of stock.
3
<PAGE>
HOW WE DETERMINED THE PRICE PER SHARE AND THE OFFERING RANGE
The offering range is based on an independent appraisal of First Bank's
pro forma market value following the conversion by Keller & Company, Inc., an
appraisal firm experienced in appraisals of savings institutions. The pro forma
market value is the estimated market value of First Bank assuming the sale of
shares in this offering. Keller & Company has estimated that in its opinion as
of November 17, 2000, First Bank's estimated market value was between $8,925,000
and $12,075,000, with a midpoint of $10,500,000. The appraisal was based in part
upon First Bank's financial condition and operations and the effect of the
additional capital First Bank will raise from the sale of common stock.
Subject to regulatory approval, First BancTrust Corporation may
increase the amount of common stock offered by up to 15%. Accordingly, at the
minimum of the offering range, First BancTrust Corporation is offering 892,500
shares, and at the maximum, as adjusted, of the offering range First BancTrust
Corporation is offering 1,388,625 shares in the subscription offering. The
appraisal will be updated before First Bank completes the conversion. If the pro
forma market value of the common stock at that time is either below $8,925,000
or above $13,886,250, First BancTrust Corporation will notify subscribers, and
subscribers will have the opportunity to modify or cancel their order. See "The
Subscription Offering-How First Bank Determined the Price Per Share and the
Offering Range" for a description of the factors and assumptions used in
determining the stock price and offering range.
Two of the measures investors use to analyze whether a stock might be a
good investment are the ratio of the offering price to the issuer's "book value"
and the ratio of the offering price to the issuer's annual net income. Keller &
Company considered these ratios, among other factors, in preparing its
appraisal. Book value is the same as total equity, and represents the difference
between the issuer's assets and liabilities. The ratio of the offering price to
First BancTrust's pro forma book value ranges from 46.2% to 58.8%, and the
offering price represents between 9.2 and 12.7 times First BancTrust's pro forma
earnings for the year ended December 31, 1999. See "Pro Forma Data" for a
description of the assumptions we used in making these calculations.
The peer group selected by Keller & Company had a price to book ratio
of 74.8% and traded at 10.8 times the last 12 months earnings, which are higher
than our ratios on a pro forma basis other than our pro forma basic price to
earnings ratio at the maximum and 15% above the maximum of the range for the
year ended December 31, 1999. Our independent appraiser determined that our
value should be lower than the ratios for the peer group would suggest. Keller
reduced our value due to the anticipated absence of an active market for our
stock as well as other factors relating to our financial characteristics and
market area.
USE OF PROCEEDS FROM THE SALE OF OUR COMMON STOCK
We will use the proceeds from the offering as follows:
- 8% will be loaned to our employee stock ownership plan to fund
its purchase of common stock;
- 50% will be invested in First Bank; and
- 42% will be retained by First BancTrust for general corporate
purposes and may be used to pay dividends to stockholders or
to repurchase stock.
The proceeds to be invested in First Bank will be available for general
corporate purposes.
THE AMOUNT OF STOCK YOU MAY PURCHASE
The minimum purchase is 25 shares. You may purchase no more than
$100,000 in any single priority category, and you and any of the following
persons, when combined with your purchases, cannot exceed $200,000:
4
<PAGE>
- persons on joint accounts with you,
- relatives living in your house,
- other persons who have the same address as you on our records,
- companies, trusts or other entities in which you have an
interest or hold a position, or
- other persons who may be acting together with you.
We may decrease or increase the maximum purchase limitation without notifying
you.
HOW WE WILL PRIORITIZE ORDERS IF WE RECEIVE ORDERS FOR MORE SHARES THAN ARE
AVAILABLE FOR SALE
You might not receive any or all of the shares you order. If we receive
orders for more shares than are available, we will allocate stock to the
following persons or groups in order of priority:
- ELIGIBLE ACCOUNT HOLDERS - Our depositors with a balance of at
least $50 at the close of business on June 30, 1999. Any
remaining shares will be offered to:
- OUR EMPLOYEE STOCK OWNERSHIP PLAN. Any remaining shares will
be offered to:
- SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS - Our depositors with a
balance of at least $50 at the close of business on December
31, 2000. Any remaining shares will be offered to:
- OTHER MEMBERS - Our depositors at the close of business on
_____________, 2001.
If the above persons do not subscribe for all of the shares offered, we
will offer the remaining shares to the general public, giving preference to
persons who reside in Edgar and Clark Counties, Illinois.
YOUR SUBSCRIPTION RIGHTS ARE NOT TRANSFERABLE
You may not assign or sell your subscription rights. Any transfer of
subscription rights is prohibited by law. If you exercise subscription rights,
you will be required to certify that you are purchasing shares solely for your
own account and that you have no agreement or understanding regarding the sale
or transfer of shares. We intend to pursue any and all legal and equitable
remedies if we learn of the transfer of any subscription rights. We will reject
orders that we determine to involve the transfer of subscription rights.
BENEFITS TO MANAGEMENT FROM THE OFFERING
Our full-time employees will benefit from the offering through our
employee stock ownership plan. This plan will buy shares of stock with a portion
of the net proceeds of the offering and then allocate the stock to employees
over a period of time, at no cost to the employees. You can find more
information about our employee stock ownership plan by reading the section of
this document entitled "Management - New Stock Benefit Plans - Employee Stock
Ownership Plan." Following the conversion, we also intend to implement a
restricted stock plan and a stock option plan, which will benefit our officers
and directors. These two plans will not be implemented unless we receive
stockholder approval of the plans at least six months after the conversion. If
our restricted stock plan is approved by stockholders, our executive officers
and directors will be awarded shares of common stock at no cost to them. If our
stock option plan is approved by stockholders, stock options will be granted at
no cost to directors and officers, but such persons will be required to pay the
applicable exercise price at the time of exercise in order to receive the shares
of common stock.
5
<PAGE>
The following table summarizes the benefits that directors, officers
and employees may receive from the conversion at the midpoint of the offering
range:
<TABLE>
<CAPTION>
% OF VALUE OF SHARES
SHARES SOLD IN BASED ON
INDIVIDUALS ELIGIBLE THE MIDPOINT
PLAN TO RECEIVE AWARDS OFFERING OF OFFERING RANGE
---------------------------- -------------------------------------------- -------------- ------------------
<S> <C> <C> <C>
Employee stock ownership plan...... All employees 8.0% $840,000
Restricted stock plan.............. Directors, officers and selected employees 4.0 $420,000
Stock option plan.................. Directors, officers and selected employees 10.0 (1)
</TABLE>
-----------------------
(1) Stock options will be granted with a per share exercise price at least
equal to the market price of our common stock on the date of grant. The
value of a stock option will depend upon increases, if any, in the
price of our stock during the life of the stock option.
When combined with the proposed stock purchases by our directors and
officers, the above plans may give our directors and officers effective voting
control following the conversion. See "Risk Factors - Our Directors and Officers
May Have Effective Voting Control."
6
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS DOCUMENT, YOU SHOULD
CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS IN DECIDING WHETHER TO PURCHASE
OUR COMMON STOCK.
HIGHER INTEREST RATES WOULD HURT OUR PROFITABILITY
Our ability to earn a profit depends on our net interest income, which
is the difference between the interest income we earn on our interest-earning
assets, such as mortgage loans, and the interest expense we pay on our
interest-bearing liabilities, such as deposits and borrowings. Our profitability
depends on our ability to manage our assets and liabilities during periods of
changing interest rates.
A sustained increase in market interest rates could adversely affect
our earnings. Because a portion of our loans have fixed interest rates, our net
interest income could be adversely affected when the rates we pay on deposits
and borrowings are increasing. In addition, the market value of our fixed-rate
assets would decline if interest rates increase.
WE ANTICIPATE A LOW RETURN ON OUR EQUITY
Net income divided by average equity, known as "return on equity," is a
ratio many investors use to compare the performance of a financial institution
to its peers. We expect our return on equity to decrease as compared to our
performance in recent years until we are able to increase our balance sheet by
adding loans, thereby increasing net interest income. Our return on equity will
be reduced by increased equity from the conversion and increased expenses due to
added expenses associated with our employee stock ownership plan, our restricted
stock plan, if adopted by stockholders and the costs of being a public company.
OUR FUTURE GROWTH MAY BE LIMITED
Our future growth may be limited. In order to continue growing and
thereby improve our return on equity, we may seek to either open or purchase one
or more new branches. We cannot assure you that we will be able to continue to
grow or successfully integrate any acquired branches. Our ability to establish
new branch offices depends on whether we can identify advantageous locations and
generate new deposits and loans from those locations that will create an
acceptable level of net income. New branches, for example, also typically entail
start-up expenses. Our ability to build or acquire other branches depends on
whether we can identify, acquire and integrate such branches.
OUR CONSUMER LOANS ARE RISKIER THAN OUR MORTGAGE LOANS
Consumer loans involve more risk than mortgage loans because consumer
loans are often either unsecured or secured by assets that depreciate in value.
We have $26.2 million of consumer loans at September 30, 2000, that are not
secured by savings accounts or real estate. Of this amount, we have $22.5
million of vehicle loans at September 30, 2000 that are primarily secured by
recent model used vehicles. Our total consumer loans equaled 23.7% of our total
loan portfolio at September 30, 2000, compared to 25.9% at December 31, 1999.
Our total consumer loans amounted to 15.8% of total assets at September 30,
2000, and 17.3% of total assets at December 31, 1999.
7
<PAGE>
OUR AGRICULTURAL, AGRICULTURAL PRODUCTION AND COMMERCIAL AND INDUSTRIAL LOANS
ARE RISKIER THAN OUR RESIDENTIAL LOANS
At September 30, 2000, we had an aggregate of $39.0 million or 34.3% of
the total loan portfolio in agricultural, agricultural production finance,
commercial business and commercial and industrial loans. These loans generally
involve a higher degree of credit risk than residential mortgages due primarily
to the large amounts loaned to individual borrowers and the type of security
given, if any. Losses incurred on loans to a small number of borrowers could
have a material adverse impact on First Bank's income and financial condition.
Agricultural and agricultural production loans are dependent upon favorable
weather conditions, farm production, cash flow from the property and extremely
competitive world markets for agricultural products. In addition, unlike
residential mortgage loans, commercial real estate and commercial business loans
depend on the cash flow from the property or the business to service the debt.
Cash flow may be significantly affected by general economic conditions.
At September 30, 2000, we had $2.3 million of loans which were 90 or
more days overdue on payment. Of this amount, $1.5 million represented
agricultural production finance loans and $188,000 represented agricultural
loans. In addition, at the same date, we had $832,000 of repossessed assets,
$214,000 of which consisted of farm land. Due in part to these types of loans,
our nonaccruing loans as a percentage of total loans and total assets are higher
than our peers.
In an attempt to reduce the impact of these nonperforming loans on our
operations, we have provided for in the allowance for loan losses the difference
between the fair value of the property securing the loan and the loan's carrying
value. Charge-offs during 1999 amounted to $315,000 on agricultural loans and
$223,000 on agricultural production finance loans. During the nine months ended
September 30, 2000, charge-offs amounted to $175,000 on commercial business
loans and $162,000 on agricultural production finance loans. A worsening or
protracted economic decline in First Bank's market area would increase the
likelihood of additional charge-offs due to credit and market risks and could
create the need for additional loss reserves.
OUR BUSINESS IS CONCENTRATED IN EDGAR AND CLARK COUNTY
We conduct most of our business in Edgar and Clark Counties in
Illinois. Median household and per capita income levels were $25,000 and
$14,000, respectively, in Edgar County and were $28,000 and $14,000,
respectively, in Clark County. These levels are lower than those for Illinois
and the United States, and the unemployment rate in these counties is higher.
Our loans are primarily made to residents of Edgar and Clark County. As a
result, the asset quality of our loan portfolio depends upon the economy and
unemployment rate in our market area.
THERE IS STRONG COMPETITION IN EDGAR AND CLARK COUNTIES, ILLINOIS
Competition in the banking and financial services industry is intense.
Our profitability depends upon our continued ability to successfully compete. We
compete in Edgar and Clark Counties with commercial banks, savings institutions,
credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms. Many of these competitors have
substantially greater resources and lending limits than we do and may offer
certain services that we do not or cannot provide.
8
<PAGE>
OUR STOCK VALUE MAY SUFFER FROM OUR ABILITY TO IMPEDE POTENTIAL TAKEOVERS
Provisions in our corporate documents and in Delaware corporate law, as
well as certain Federal regulations, may make it difficult, and expensive, to
pursue a tender offer, change in control or takeover attempt that our board of
directors opposes. As a result, you may not have an opportunity to participate
in such a transaction, and the trading price of our stock may not rise to the
level of other institutions that are more vulnerable to hostile takeovers.
Anti-takeover provisions include:
- restrictions on acquiring more than 10% of our common stock
and limitations on voting rights;
- the election of members of the board of directors to
three-year terms;
- the absence of cumulative voting by stockholders in the
election of directors;
- provisions governing nominations of directors by stockholders;
- provisions governing the submission of stockholder proposals;
- provisions restricting special meetings of stockholders;
- our ability to issue preferred stock and additional shares of
common stock without stockholder approval;
- super-majority voting provisions for the approval of certain
business combinations; and
- super-majority voting provisions to remove directors without
cause or to amend our corporate documents.
These provisions also will make it more difficult for an outsider to remove our
current board of directors or management. See "Restrictions on Acquisition of
First BancTrust Corporation and First Bank" for a description of anti-takeover
provisions in our corporate documents and under Delaware law and Federal
regulations.
Our directors, executive officers and employees are expected to control
a large amount of stock, which will also impede potential takeovers. Our
directors and executive officers and our employee stock ownership plan intend to
purchase 15.9% of the outstanding shares at the minimum of the offering range
and 13.9% at the maximum of the range. In addition, if we implement a restricted
stock plan with stockholder approval, an additional 4% of the common stock will
be controlled by our directors, officers and employees. These purchases, along
with potential exercises of future stock options, could make it difficult to
obtain majority support for stockholder proposals we oppose. In addition, by
voting these shares we could most likely block the approval of transactions
requiring the approval of 80% or more of the stockholders. Examples of
transactions we could block are certain business combinations or amendments to
our corporate documents. For a description of our employee stock ownership plan,
restricted stock plan and stock option plan, see "Management - New Stock Benefit
Plans."
9
<PAGE>
WE INTEND TO REMAIN INDEPENDENT
We intend to remain independent for the foreseeable future. Because we
do not plan on seeking possible acquirors, it is unlikely that we will be
acquired in the foreseeable future. Accordingly, you should not purchase our
common stock with any expectation that a takeover premium will be paid to you in
the near term.
OUR EMPLOYEE STOCK BENEFIT PLANS WILL INCREASE OUR COSTS
We anticipate that our employee stock ownership plan will purchase 8%
of the common stock issued in the conversion, with funds borrowed from First
BancTrust. The cost of acquiring the employee stock ownership plan shares will
be between $714,000 at the minimum of the offering range and $1.1 million at the
adjusted maximum of the offering range. We will record annual employee stock
ownership plan expenses in an amount equal to the fair value of shares committed
to be released to employees. If shares of common stock appreciate in value over
time, compensation expense relating to the employee stock ownership plan will
increase. We also intend to submit a restricted stock plan to our stockholders
for approval at least six months after completion of the conversion. Our
officers and directors could be awarded (at no cost to them) under the
restricted stock plan up to an aggregate of 4% of the shares issued in the
conversion. Assuming the shares of common stock to be awarded under the plan
cost the same as the purchase price in the conversion, the reduction to
stockholders' equity from the plan would be between $357,000 and $483,000 at
the maximum of the offering range. See "Pro Forma Data" for a discussion of
the increased benefit costs we will incur after the conversion and how these
costs could decrease our return on equity.
OUR EMPLOYEE STOCK BENEFIT PLANS MAY BE DILUTIVE
If the conversion is completed and stockholders subsequently approve a
restricted stock plan and a stock option plan, we will allocate stock to our
officers and directors through these plans. If the shares for the restricted
stock plan are issued from our authorized but unissued stock, your ownership
percentage could be diluted by approximately 3.9% and the trading price of our
stock may be reduced. However, it is our intention to repurchase shares of our
common stock in the open market to fund the restricted stock plan. Your
ownership percentage would also decrease by approximately 9.1% if all potential
stock options are exercised from our authorized but unissued stock. See "Pro
Forma Data" for data on the dilutive effect of the restricted stock plan and
"Management - New Stock Benefit Plans" for a description of the plans.
POSSIBLE INCREASE IN THE OFFERING RANGE WOULD BE DILUTIVE
We can increase the maximum of the offering range by up to 15% to
reflect changes in market or financial conditions or to fill the order of our
employee stock ownership plan. An increase in the offering will decrease our net
income per share and our stockholders' equity per share. This would also
increase the purchase price per share as a percentage of pro forma stockholders'
equity per share and net income per share.
10
<PAGE>
OUR VALUATION IS NOT INDICATIVE OF THE FUTURE PRICE OF OUR COMMON STOCK
We cannot assure you that if you purchase common stock in the offering
you will later be able to sell it at or above the purchase price in the
offering. The final aggregate purchase price of the common stock in the
conversion will be based upon an independent appraisal. The appraisal is not
intended, and should not be construed, as a recommendation of any kind as to the
advisability of purchasing shares of common stock. The valuation is based on
estimates and projections of a number of matters, all of which are subject to
change from time to time. See "The Conversion - How We Determined the Price Per
Share and the Offering Range" for the factors considered by Keller & Company in
determining the appraisal.
OUR STOCK PRICE MAY DECLINE
The shares of common stock offered by this document are not savings
accounts or deposits, are not insured or guaranteed by the Federal Deposit
Insurance Corporation, the Savings Association Insurance Fund or any other
governmental agency, and involve investment risk, including the possible loss of
principal.
Due to possible continued market volatility and to other factors,
including certain risk factors discussed in this document, we cannot assure you
that, following the conversion, the trading price of our common stock will be at
or above the initial per share offering price. Publicly traded stocks, including
stocks of financial institutions, have recently experienced substantial market
price volatility. These market fluctuations may be unrelated to the operating
performance of particular companies whose shares are traded. The purchase price
of our common stock in the offering is based on the independent appraisal by
Keller & Company. After our shares begin trading, the trading price of our
common stock will be determined by the marketplace, and may be influenced by
many factors, including prevailing interest rates, investor perceptions and
general industry and economic conditions.
THERE MAY BE A LIMITED MARKET FOR OUR COMMON STOCK
We expect our stock to be quoted on the Over-the-Counter Electronic
Bulletin Board. However, it is unlikely that an active and liquid trading market
for our stock will develop, due to the small size of the offering and the small
number of stockholders we expect to have. There may be a wide spread between the
bid and asked price for our common stock after the conversion. You should
consider the potentially long-term nature of an investment in our common stock.
WE MAY BE UNABLE TO MAKE TECHNOLOGICAL ADVANCES
Our industry is experiencing rapid changes in technology. In addition
to improving customer services, effective use of technology increases efficiency
and enables financial institutions to reduce costs. Our future success will thus
depend in part on our ability to address our customers' needs by using
technology. We cannot assure you that we will be able to effectively develop new
technology-driven products and services or be successful in marketing these
products to our customers. Many of our competitors have far greater resources
than we have to invest in technology.
11
<PAGE>
OUR OPERATIONS ARE SUBJECT TO REGULATORY AND LEGISLATIVE CHANGES
First Bank is subject to extensive government regulation, supervision
and examination. The regulatory authorities have extensive discretion in
connection with their supervisory and enforcement activities. Any change in
regulation, whether by the Illinois Office of Banks and Real Estate, the Federal
Deposit Insurance Corporation or the U.S. Congress, could have a significant
impact on First Bank and its operations.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables contain certain information concerning the
financial position and results of operations of First Bank. You should read this
information in conjunction with the consolidated financial statements included
in this prospectus. The data presented at September 30, 2000 and for the nine
month periods ended September 30, 2000 and 1999 are derived from unaudited
condensed consolidated financial statements, but in the opinion of management
reflect all adjustments necessary to present fairly the results for this interim
period. These adjustments consist only of normal recurring adjustments. The
results of operations for the nine months ended September 30, 2000 are not
necessarily indicative of the results of operations that may be expected for the
year ending December 31, 2000.
<TABLE>
<CAPTION>
At September 30, At December 31,
---------------- ---------------
2000 1999 1998
---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets.................................. $170,466 $167,783 $154,632
Cash and cash equivalents(1).................. 10,375 12,679 13,357
Investment securities available for sale...... 37,531 33,375 24,200
Loans, net of allowance for loan
losses(2).................................. 111,084 110,402 108,392
Total deposits................................ 129,165 126,579 128,349
Borrowings.................................... 27,532 28,124 12,729
Total equity capital.......................... 12,830 11,988 12,073
Full service offices.......................... 2 2 2
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
------------- ------------
2000 1999 1999 1998
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Total interest income .............. $9,123 $8,540 $11,579 $11,517
Total interest expense ............. 5,359 4,486 6,146 6,386
Net interest income ................ 3,764 4,054 5,433 5,131
Provision for loan losses .......... 585 614 845 674
Net interest income after
provision for loan losses ........ 3,179 3,440 4,588 4,457
Total other income ................. 1,983 1,374 1,860 2,204
Total other expenses ............... 4,119 4,192 5,589 5,145
Income before income tax ........... 1,043 622 859 1,516
Income tax expense ................. 320 141 149 481
Net income ......................... 723 481 710 1,035
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
------------- ------------
2000 1999 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
SELECTED OPERATING RATIOS(3):
PERFORMANCE RATIOS:
Return on average assets ................... 0.59% 0.42 0.46% 0.69%
Return on average equity ................... 7.86 5.37 5.94 8.87
Equity to assets at end of period .......... 7.53 7.42 7.14 7.81
Interest rate spread(4) .................... 2.80 3.44 3.40 3.30
Net interest margin(4) ..................... 3.28 3.85 3.79 3.71
Average interest-earning assets to
average interest-bearing liabilities ..... 110.28 109.64 109.10 108.97
Net interest income after provision
for loan losses to total other
expenses ................................. 77.18 82.06 82.09 86.63
Total other expenses to average total assets 3.36 3.68 3.62 3.42
ASSET QUALITY RATIOS:
Non-performing loans to total
loans at end of period(5) ................ 2.03% 1.16% 1.14% 1.80%
Non-performing assets to
total assets at end of period(5) ......... 1.84 1.17 1.15 1.46
Allowance for loan losses to total
loans at end of period ................... 1.50 1.32 1.41 1.29
Allowance for loan losses to total
non-performing loans at end of
period(5) ................................. 74.15 79.57 123.46 71.34
CAPITAL RATIOS:
Tier 1 risk-based capital ratio ............ 12.07% 11.49% 11.54% 11.48%
Total risk-based capital ratio ............. 13.26 12.48 12.64 12.68
Tier 1 leverage capital ratio .............. 7.91 7.82 7.64 7.76
</TABLE>
---------------------
(1) Consists of cash and short-term interest-bearing deposits.
(2) Reflects allowance for loan losses at September 30, 2000, and at
December 31, 1999 and 1998 of $1.7 million, $1.6 million and $1.4
million, respectively.
(3) With the exception of end of period ratios, all ratios are based on
average monthly balances during the periods and are annualized where
appropriate.
(4) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average rate
on interest-bearing liabilities. Net interest margin represents net
interest income as a percentage of average interest-earning assets.
(5) Non-performing loans consist of non-accrual loans, accruing loans that
are contractually past due 90 days or more, and non-performing assets
consist of non-performing loans and real estate acquired by foreclosure
or deed-in-lieu thereof.
14
<PAGE>
DEVELOPMENTS THROUGH DECEMBER 31, 2000
The selected financial and other data of First Bank set forth below
does not purport to be complete and is qualified in its entirety by reference to
the more detailed financial information contained elsewhere herein.
[TO BE COMPLETED]
15
<PAGE>
PROPOSED MANAGEMENT PURCHASES
The following table sets forth, for each of First BancTrust's directors
and executive officers (and their associates) and for all of the directors and
executive officers as a group, the proposed purchases of common stock, assuming
sufficient shares are available to satisfy their subscriptions. The amounts
include shares that may be purchased through individual retirement accounts.
<TABLE>
<CAPTION>
NUMBER OF
NAME AND TITLE SHARES AMOUNT PERCENT (1)
------------------------- -------- -------- -------
<S> <C> <C> <C>
Robert E. Sprague, Director ........ 10,000 $100,000 .95%
Joseph R. Shroeder, Director ....... 10,000 100,000 .95
Terry T. Hutchinson, Director ...... 10,000 100,000 .95
Christopher M. Eldredge, Director .. 10,000 100,000 .95
John W. Welborn, Director .......... 1,000 10,000 .09
David W. Dick, Director ............ 10,000 100,000 .95
Terry J. Howard, Director, President
and Chief Executive Officer ...... 10,000 100,000 .95
Mary Ann Tucker, Director .......... 10,000 100,000 .95
-------- -------- ----
All directors and executive
officers as a group (eight
persons) .......................... 71,000 $710,000 6.76%
======== ======== ====
</TABLE>
------------------
(1) Based upon the midpoint of the offering range.
In addition, our employee stock ownership plan currently intends to
purchase 8% of the common stock issued in the conversion for the benefit of
officers and employees. Stock options and stock grants may also be granted in
the future to directors, officers and employees upon the receipt of stockholder
approval of First BancTrust's proposed stock benefit plans. See "Management -
New Stock Benefit Plans" for a description of these plans.
HOW OUR NET PROCEEDS WILL BE USED
Although the actual net proceeds from the sale of our common stock
cannot be determined until the conversion is completed, it is presently
anticipated that the net proceeds from the sale of the common stock will be
between $8.4 million and $11.5 million ($13.3 million assuming an increase in
the offering range by 15%). See "Pro Forma Data" and "The Conversion - How We
Determined the Price Per Share and the Offering Range" as to the assumptions
used to arrive at such amounts.
We will use the proceeds from the offering as follows:
- 8% will be loaned to our employee stock ownership plan to fund
its purchase of common stock;
- 50% will be used to purchase all of the common stock of First
Bank; and
16
<PAGE>
- 42% will be retained by First BancTrust for general corporate
purposes.
The loan to our employee stock ownership plan will be $714,000 and
$966,000 at the minimum and maximum of the offering range. Our employee stock
ownership plan will distribute the shares it purchases to our employees as the
loan is repaid over eight years. See "Management - New Stock Benefit Plans -
Employee Stock Ownership Plan."
The net proceeds we use to purchase the capital stock of First Bank
will be used by First Bank for general corporate purposes, including increased
lending activities. On a short-term basis, First Bank may purchase investment
and mortgage-backed securities. The net proceeds received by First Bank will
further strengthen First Bank's capital position, which already exceeds all
regulatory requirements. After the conversion, First Bank's Tier 1 capital ratio
will be 9.72%, based upon the midpoint of the offering range. As a result, First
Bank will continue to be a well-capitalized institution.
We may initially use the remaining net proceeds retained by us to
invest in mortgage-backed securities issued by U.S. Government agencies and
government-sponsored enterprises, municipal securities, U.S. Government and
Federal agency securities of various maturities, deposits in either First Bank
or other financial institutions, or a combination thereof. The net proceeds
retained by us may ultimately be used to:
- support First Bank's lending activities,
- support the future expansion of operations through
establishment of branch offices or other customer facilities,
expansion into other lending markets or diversification into
other banking related businesses, although no such
transactions are specifically being considered at this time,
or
- pay regular or special cash dividends, repurchase the common
stock or pay returns of capital.
Applicable conversion regulations require us to sell common stock in
the conversion in an amount equal to our estimated pro forma market value, as
determined by an independent appraisal. See "The Conversion - How We Determined
the Price Per Share and the Offering Range." As a result, we may be required to
sell more shares in the conversion than we may otherwise desire. To the extent
we have excess capital upon completion of the conversion, we intend to consider
stock repurchases, dividends and tax-free returns of capital to the extent
permitted by the FDIC and deemed appropriate by the Board of Directors. A return
of capital is similar to a cash dividend, except for tax purposes it is an
adjustment to your tax basis rather than income to you.
Stock repurchases will be considered by our Board of Directors after we
complete the conversion based upon then existing facts and circumstances, as
well as applicable statutory and regulatory requirements. Such facts and
circumstances may include the following:
- market and economic factors such as the price at which the
stock is trading in the market, the volume of trading, the
attractiveness of other investment alternatives in terms of
the rate of return and risk involved in the investment, the
ability to increase the
17
<PAGE>
book value and/or earnings per share of the remaining
outstanding shares, and an improvement in our return on
equity;
- the avoidance of dilution to stockholders by not having to
issue additional shares to cover the exercise of stock options
or to fund employee stock benefit plans; and
- any other circumstances in which repurchases would be in the
best interests of First BancTrust and our stockholders.
No stock will be repurchased by us unless we continue to exceed all
applicable regulatory requirements after the repurchases. The payment of
dividends or repurchase of stock will be prohibited if our net worth would be
reduced below the amount required for the liquidation account to be established
for the benefit of Eligible Account Holders and Supplemental Eligible Account
Holders. As of September 30, 2000, the initial balance of the liquidation
account would be approximately $12.8 million. See "We Intend to Pay Quarterly
Cash Dividends," "The Conversion - Liquidation Rights of Certain Depositors" and
"- Certain Restrictions on Purchase or Transfer of Shares After the Conversion."
OUR NET PROCEEDS MAY VARY BECAUSE TOTAL EXPENSES OF THE CONVERSION MAY
BE MORE OR LESS THAN THOSE ESTIMATED. The net proceeds will also vary if the
number of shares to be issued in the conversion is adjusted to reflect a change
in the estimated pro forma market value of First Bank. Payments for shares made
through withdrawals from existing deposit accounts at First Bank will not result
in the receipt of new funds for investment by us but will result in a reduction
of our interest expense and liabilities as funds are transferred from
interest-bearing certificates or other deposit accounts.
WE INTEND TO PAY QUARTERLY CASH DIVIDENDS
After we complete the conversion, our Board of Directors will have the
authority to declare dividends on the common stock, subject to statutory and
regulatory requirements. We intend to pay quarterly cash dividends on the common
stock at an initial rate of $0.20 per share per annum (representing 2% of the
Purchase Price), commencing with the first full quarter after the conversion.
However, the rate of such dividends and the initial or continued payment thereof
will depend upon a number of factors, including the amount of net proceeds
retained by us in the conversion, investment opportunities available to us,
capital requirements, our financial condition and results of operations, tax
considerations, statutory and regulatory limitations, and general economic
conditions. No assurances can be given that any dividends will be paid or that,
if paid, will not be reduced or eliminated in future periods. Special cash
dividends, stock dividends or tax-free returns of capital may be paid in
addition to, or in lieu of, regular cash dividends.
Dividends from us may eventually depend, in part, upon receipt of
dividends from First Bank, because First BancTrust initially will have no source
of income other than dividends from First Bank, earnings from the investment of
proceeds from the sale of common stock retained by us, and interest payments
with respect to our loan to our employee stock ownership plan.
Any payment of dividends by First Bank to First BancTrust which would
be deemed to be drawn out of First Bank's bad debt reserves would require a
payment of taxes at the then-current tax rate by First Bank on the amount of
earnings deemed to be removed from the reserves for such distribution. First
18
<PAGE>
Bank does not intend to make any distribution to First BancTrust that would
create such a Federal tax liability. See "Taxation."
Unlike First Bank, we are not subject to the above regulatory
restrictions on the payment of dividends to our stockholders, although the
source of such dividends may eventually depend, in part, upon dividends from
First Bank in addition to the net proceeds retained by us and earnings thereon.
We are, however, subject to the requirements of Delaware law, which generally
permits the payment of dividends out of surplus, except when (1) the corporation
is insolvent or would thereby be made insolvent, or (2) the declaration or
payment thereof would be contrary to any restrictions contained in the
certificate of incorporation. If there is no surplus available for dividends, a
Delaware corporation may pay dividends out of its net profits for the then
current or the preceding fiscal year or both, except that no dividend may be
paid if the corporation's assets are exceeded by its liabilities or if its net
assets are less than the amount which would be needed, under certain
circumstances, to satisfy any preferential rights of stockholders.
THERE MAY BE A LIMITED MARKET FOR OUR COMMON STOCK
Because this is our initial public offering, there is no market for our
common stock at this time. After we complete the offering, we anticipate that
our common stock will be traded on the over-the-counter market with quotations
available through the Over-the-Counter Electronic Bulletin Board. Trident has
indicated its intention to make a market in our common stock.
Making a market may include the solicitation of potential buyers and
sellers in order to match buy and sell orders. However, Trident will not be
subject to any obligation with respect to such efforts. The development of a
liquid public market depends upon the existence of willing buyers and sellers,
the presence of which is not within our control or of any market maker. It is
unlikely that an active and liquid trading market for the common stock will
develop due to the relatively small size of the offering and the small number of
stockholders expected following the conversion. In addition, there may be a wide
spread between the bid and ask price for our common stock after the conversion.
Under such circumstances, you should not view the common stock as a short-term
investment. Furthermore, there can be no assurance that you will be able to sell
your shares at or above the purchase price.
FIRST BANK MEETS ALL OF ITS REGULATORY CAPITAL REQUIREMENTS
At September 30, 2000, First Bank exceeded all of its regulatory
capital requirements. The table on the following page sets forth First Bank's
historical capital under generally accepted accounting principles and regulatory
capital at September 30, 2000, and the pro forma capital of First Bank after
giving effect to the conversion, based upon the sale of the number of shares
shown in the table. The pro forma capital amounts reflect the receipt by First
Bank of 50% of the net conversion proceeds, minus the amounts to be loaned to
our employee stock ownership plan and to be contributed to our proposed
restricted stock plan. The pro forma risk-based capital amounts assume the
investment of the net proceeds received by First Bank in assets which have a
risk-weight of 20% under applicable regulations, as if such net proceeds had
been received and so applied at September 30, 2000.
19
<PAGE>
<TABLE>
<CAPTION>
Pro Forma at September 30, 2000 Based on
-------------------------------------------------------------------------------------
892,500 1,050,000 1,207,500 1,388,625
Shares Sold Shares Sold Shares Sold Shares Sold
Historical at at $10.00 at $10.00 at $10.00 at $10.00
September 30, 2000 Per Share Per Share Per Share Per Share
------------------ -------------------- -------------------- -------------------- -------------------
Percent of Percent Percent Percent Percent
Amount Assets(1) Amount of Assets(1) Amount of Assets(1) Amount of Assets(1) Amount of Assets(1)
------ ---------- ------ ------------ ------ ------------ ------ ------------ -------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Historical capital(2) ... $12,830 7.53% $15,964 9.20% $16,550 9.50% $17,136 9.80% $17,809 10.15%
Tier 1 capital:
Actual(3) ............. 13,213 7.75 16,347 9.42 16,933 9.72 17,519 10.02 18,192 10.37
Requirement ........... 6,819 4.00 6,944 4.00 6,967 4.00 6,991 4.00 7,018 4.00
Excess ................ 6,394 3.75 9,403 5.42 9,966 5.72 10,528 6.02 11,174 6.37
Risk-based capital(4):
Actual(3)(5) .......... 14,581 13.32 17,715 16.09 18,301 16.61 18,887 17.12 19,560 17.71
Requirement ........... 8,755 8.00 8,805 8.00 8,814 8.00 8,824 8.00 8,835 8.00
Excess ................ 5,826 5.32 8,910 8.09 9,487 8.61 10,063 9.12 10,725 9.71
</TABLE>
------------------
(1) Based on adjusted total assets of $170.5 million for the purposes of
generally accepted accounting principles and Tier 1 capital
requirements, and net- risk weighted assets of $109.4 million for the
purpose of the risk-based capital requirement.
(2) Represents First Bank's historical capital under generally accepted
accounting principles.
(3) Pro forma capital levels assume receipt by First Bank of 50% of the net
proceeds from the sale of common stock in the subscription offering.
(4) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 20.0% risk-weight.
(5) Historical risk-based capital is composed of Tier 1 capital of $13.2
million plus the allowance for loan losses (limitation of 1.25% of
risk-weighted assets) of $1.4 million.
20
<PAGE>
OUR CAPITALIZATION
The following table presents the historical capitalization of First
Bank at September 30, 2000, and our pro forma consolidated capitalization after
giving effect to the conversion, based upon the sale of the number of shares
shown below and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
First BancTrust - Pro Forma
Based Upon Sale at $10.00 Per Share
------------------------------------------------------------
892,500 1,050,000 1,207,500 1,388,625
Shares Shares Shares Shares(1)
First Bank (Minimum of (Midpoint of (Maximum of (15% above
- Historical Offering Offering Offering Maximum of
Capitalization Range) Range) Range) Offering Range)
-------------- ------------ ------------- ------------- ---------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2) .............. $129,165 $129,165 $129,165 $129,165 $129,165
Borrowings ............... 27,532 27,532 27,532 27,532 27,532
-------- -------- -------- -------- --------
Total deposits and
borrowings ............. $156,697 $156,697 $156,697 $156,697 $156,697
======== ======== ======== ======== ========
Stockholders' equity:
Preferred stock, $.01 par
value, 1,000,000 shares
authorized; none to be
issued ................. -- -- -- -- --
Common stock, $.01
par value, 5,000,000
shares authorized;
shares to be issued as
reflected(3) ........... -- 9 11 12 14
Additional paid-in
capital(3) .............. -- 8,400 9,948 11,497 13,277
Retained earnings(4) ..... 13,416 13,416 13,416 13,416 13,416
Net unrealized loss on
securities available for
sale .................... (586) (586) (586) (586) (586)
Less:
Common stock acquired
by our employee stock
ownership plan(5) .... -- 714 840 966 1,111
Common stock to be
acquired by our
Recognition Plan(6) .. -- 357 420 483 555
-------- -------- -------- -------- --------
Total equity ............. $ 12,830 $ 20,168 $ 21,529 $ 22,890 $ 24,455
======== ======== ======== ======== ========
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
21
<PAGE>
------------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering range of up to 15% to
reflect changes in market and financial conditions before we complete
the conversion or to fill the order of our employee stock ownership
plan.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) The sum of the par value and additional paid-in capital accounts equals
the net conversion proceeds. No effect has been given to the issuance
of additional shares of common stock pursuant to our proposed stock
option plan. We intend to adopt a stock option plan and to submit such
plan to stockholders at a meeting of stockholders to be held at least
six months following completion of the conversion. If the plan is
approved by stockholders, an amount equal to 10% of the shares of
common stock sold in the conversion will be reserved for future
issuance under such plan. See "Pro Forma Data" and "Management - New
Stock Benefit Plans - Stock Option Plan."
(4) The retained earnings of First Bank will be substantially restricted
after the conversion. See "The Conversion - Liquidation Rights."
(5) Assumes that 8% of the common stock will be purchased by our employee
stock ownership plan. The common stock acquired by our employee stock
ownership plan is reflected as a reduction of stockholders' equity.
Assumes the funds used to acquire our employee stock ownership plan
shares will be borrowed from First BancTrust. See Note 1 to the table
set forth under "Pro Forma Data" and "Management - New Stock Benefit
Plans - Employee Stock Ownership Plan."
(6) Gives effect to the recognition plan which we expect to adopt after the
conversion and present to stockholders for approval at a meeting of
stockholders to be held at least six months after we complete the
conversion. No shares will be purchased by the recognition plan in the
conversion, and such plan cannot purchase any shares until stockholder
approval has been obtained. If the recognition plan is approved by our
stockholders, the plan intends to acquire an amount of common stock
equal to 4% of the shares of common stock issued in the conversion, or
35,700, 42,000, 48,300 and 55,545 shares at the minimum, midpoint,
maximum and 15% above the maximum of the offering range, respectively.
The table assumes that stockholder approval has been obtained and that
such shares are purchased in the open market at $10.00 per share. The
common stock so acquired by the recognition plan is reflected as a
reduction in stockholders' equity. If the shares are purchased at
prices higher or lower than the initial purchase price of $10.00 per
share, such purchases would have a greater or lesser impact,
respectively, on stockholders' equity. If the recognition plan
purchases authorized but unissued shares from First BancTrust, such
issuance would dilute the voting interests of existing stockholders by
approximately 3.9%. See "Pro Forma Data" and "Management - New Stock
Benefit Plans - Recognition Plan."
22
<PAGE>
PRO FORMA DATA
We cannot determine the actual net proceeds from the sale of our common
stock until the conversion is completed. However, net proceeds are currently
estimated to be between $8.4 million and $11.5 million (or $13.3 million in the
event the offering range is increased by 15%) based upon the following
assumptions: (1) all shares of common stock will be sold in the subscription
offering; and (2) total expenses, including the marketing fees to be paid to
Trident, will be $516,000 at the minimum of the range, $541,000 at the midpoint
of the range, $566,000 at the maximum of the range and $595,000 at the maximum
of the range, as adjusted. Actual expenses may vary from those estimated.
We calculated pro forma net income and stockholders' equity for the
nine months ended September 30, 2000 and the year ended December 31, 1999,
respectively, as if the common stock to be issued in the offering had been sold
at the beginning of the period. The table assumes that the net proceeds had been
invested at 6.05% and 6.20% for the nine months ended September 30, 2000 and the
year ended December 31, 1999, respectively, which represent the one year U.S.
Treasury Bill rate as of the end of those periods. We assumed a combined
effective federal and state income tax rate of 34%, resulting in an after-tax
yield of 3.99% and 4.09% for the nine months ended September 30, 2000 and the
year ended December 31, 1999, respectively. The effect of withdrawals from
deposit accounts for the purchase of common stock has not been reflected. We
calculated historical and pro forma per share amounts by dividing historical and
pro forma amounts by the indicated number of shares of common stock, as adjusted
to give effect to the shares purchased by our employee stock ownership plan with
respect to the net income per share calculations. See Notes 2 and 4 to the Pro
Forma Data tables. No effect has been given in the pro forma stockholders'
equity calculations for the assumed earnings on the net proceeds. As discussed
under "How Our Net Proceeds Will Be Used," First BancTrust intends to retain 42%
of the net conversion proceeds.
The following pro forma information may not be representative of the
financial effects of the conversion at the date on which the conversion actually
occurs and should not be taken as indicative of future results of operations.
Pro forma stockholders' equity represents the difference between the stated
amount of our assets and liabilities computed in accordance with generally
accepted accounting principles. The pro forma stockholders' equity is not
intended to represent the fair market value of the common stock and may be
different than amounts that would be available for distribution to stockholders
in the event of liquidation. We did not reflect in the tables the possible
issuance of additional shares equal to 10% of the common stock to be reserved
for future issuance pursuant to our proposed stock option plan, nor does book
value give any effect to the liquidation account to be established for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders or
to First Bank's bad debt reserve. See "Management - New Stock Benefit Plans" and
"The Conversion - Liquidation Rights of Certain Depositors." The table does give
effect to the recognition plan, which we expect to adopt following the
conversion and present (together with the stock option plan) to stockholders for
approval at a meeting to be held at least six months after we complete the
conversion. If the recognition plan is approved by stockholders, the recognition
plan intends to acquire an amount of common stock equal to 4% of the shares of
common stock issued in the conversion, either through open market purchases, if
permissible, or from authorized but unissued shares of common stock. The table
assumes that stockholder approval has been obtained and that the shares acquired
by the recognition plan are purchased in the open market at $10.00 per share.
There can be no assurance that stockholder approval of the recognition plan will
be obtained, that the shares will be purchased in the open market or that the
purchase price will be $10.00 per share.
23
<PAGE>
The tables on the following pages summarize historical consolidated
data of First Bank and pro forma data of First BancTrust at or for the date and
period indicated based on the assumptions set forth above and in the table and
should not be used as a basis for projection of the market value of the common
stock following the conversion.
24
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1999
----------------------------------------------------------------------
892,500 1,050,000 1,207,500 1,388,625
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share (15%
(Minimum (Midpoint (Maximum above Maximum
of Range) of Range) of Range) of Range)(8)
------------- ------------- ------------- ------------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds .............................. $ 8,925 $ 10,500 $ 12,075 $ 13,886
Less offering expenses ...................... (516) (541) (566) (595)
-------- ---------- ---------- ----------
Estimated net conversion proceeds ........... 8,409 9,959 11,509 13,291
Less our employee stock ownership plan(1) ... (714) (840) (966) (1,111)
Less our recognition plan ................... (357) (420) (483) (555)
-------- ---------- ---------- ----------
Estimated adjusted net proceeds(2) .......... $ 7,338 $ 8,699 $ 10,060 $ 11,625
======== ========== ========== ==========
Pro forma net income:
Historical ................................ $ 710 $ 710 $ 710 $ 710
Pro forma adjustments:
Income on adjusted net proceeds(2) ....... 300 356 412 476
Our employee stock ownership plan(1) ..... (59) (69) (80) (92)
Our recognition plan(3) .................. (47) (55) (64) (73)
-------- ---------- ---------- ----------
Pro forma net income .................... $ 904 $ 942 $ 978 $ 1,021
======== ========== ========== ==========
Pro forma net income per share(4):
Historical ................................ $ 0.86 $ 0.73 $ 0.63 $ 0.55
Pro forma adjustments:
Income on adjusted net proceeds(2) ...... 0.36 0.36 0.37 0.37
Our employee stock ownership plan(1) .... (0.07) (0.07) (0.07) (0.07)
Our recognition plan (3) ................ (0.06) (0.06) (0.06) (0.06)
-------- ---------- ---------- ----------
Pro forma net income per share ......... $ 1.09 $ 0.96 $ 0.87 $ 0.79
======== ========== ========== ==========
Pro forma basic P/E ratio(4) ................ 9.17x 10.42x 11.49x 12.66x
Number of shares used in calculating net
income per share(4) ....................... 830,025 976,500 1,122,975 1,291,421
Pro forma stockholders' equity:
Historical ................................ $ 11,988 $ 11,988 $ 11,988 $ 11,988
Estimated net conversion proceeds ......... 8,409 9,959 11,509 13,291
Less our employee stock ownership
plan(1) ................................. (714) (840) (966) (1,111)
Less our recognition plan(3) .............. (357) (420) (483) (555)
-------- ---------- ---------- ----------
Pro forma stockholders' equity(5)(6) .... $ 19,326 $ 20,687 $ 22,048 $ 23,613
======== ========== ========== ==========
Pro forma stockholders' equity per share(7):
Historical ................................ $ 13.43 $ 11.42 $ 9.93 $ 8.63
Estimated net conversion proceeds ......... 9.42 9.48 9.53 9.57
Less our employee stock ownership
plan(1) ................................. (0.80) (0.80) (0.80) (0.80)
Less our recognition plan(3) .............. (0.40) (0.40) (0.40) (0.40)
-------- ---------- ---------- ----------
Pro forma stockholders' equity
per share(3)(5)(6) .................... $ 21.65 $ 19.70 $ 18.26 $ 17.00
======== ========== ========== ==========
Pro forma price to book ratio(7) .......... 46.19% 50.76% 54.76% 58.82%
Number of shares used in equity
per share calculations(7) ................. 892,500 1,050,000 1,207,500 1,388,125
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
25
<PAGE>
--------------------
(1) We assumed that 8% of the shares of common stock issued in the
conversion will be purchased by our employee stock ownership plan. We
also assumed that the funds used to acquire such shares will be
borrowed by our employee stock ownership plan from First BancTrust. We
intend to make quarterly contributions to our employee stock ownership
plan over an eight year period in an amount at least equal to the
principal and interest requirement of the debt. The pro forma net
income assumes (a) that the loan to our employee stock ownership plan
is payable over eight years, with our employee stock ownership plan
shares having an average fair value of $10.00 per share in accordance
with SOP 93-6, entitled "Employers' Accounting for Employee Stock
Ownership Plans," of the AICPA, (b) that the loan to our employee stock
ownership plan bears a fixed interest rate of 8.50% and First Bank's
payment of the employee stock ownership plan debt is based upon equal
installments of principal over an eight year period and interest
expense is excluded since it is an intercompany expense, (c) that our
employee stock ownership plan expense for the period is equivalent to
the principal payment for the period and was made at the end of the
period; (d) that 8,925, 10,500, 12,075 and 13,886 shares were committed
to be released with respect to the year ended December 31, 1999, at the
minimum, midpoint, maximum and 15% above the maximum of the offering
range, respectively; (e) in accordance with SOP 93-6 entitled
"Employers' Accounting for Employee Stock Ownership Plans," only our
employee stock ownership plan shares committed to be released during
the period were considered outstanding for purposes of the net income
per share calculations; and (f) the effective tax rate was 34% for the
period. See "Risk Factors - Our Employee Stock Benefit Plans Will
Increase Our Costs" and "Management - New Stock Benefit Plans -
Employee Stock Ownership Plan."
(2) Estimated adjusted net proceeds consist of the estimated net conversion
proceeds, minus (i) the proceeds attributable to the purchase by our
employee stock ownership plan and (ii) the value of the shares to be
purchased by our recognition plan after the conversion, subject to
stockholder approval, at an assumed purchase price of $10.00 per share.
(3) We assumed that the recognition plan purchases 35,700, 42,000, 48,300
and 55,545 shares at the minimum, midpoint, maximum and 15% above the
maximum of the offering range, assuming that: (a) stockholder approval
of the recognition plan is received; (b) the shares were acquired by
the recognition plan at the beginning of the period presented in open
market purchases at $10.00 per share; (c) the amortized expense for the
year ended December 31, 1999 was 20% of the amount contributed; and (d)
the effective tax rate applicable to such employee compensation expense
was 34%. We assumed that 20% of the recognition plan shares vested at
the beginning of the period. If the recognition plan purchases
authorized but unissued shares instead of making open market purchases,
then (a) the voting interests of existing stockholders would be diluted
by approximately 3.9%, and (b) the pro forma net income per share for
the year ended December 31, 1999 would be $1.06, $0.94, $0.85 and
$0.77, and pro forma stockholders' equity per share at December 31,
1999 would be $21.21, $19.33, $17.94 and $16.73, in each case at the
minimum, midpoint, maximum and 15% above the maximum of the offering
range, respectively. See "Management - New Stock Benefit Plans -
Recognition Plan."
26
<PAGE>
(4) Pro forma net income per share calculations are determined by (a)
starting with the number of shares assumed to be sold in the conversion
and (b) in accordance with SOP 93-6, subtracting our employee stock
ownership plan shares which have not been committed for release.
Set forth below is a reconciliation of the number of shares used in
making the net income per share calculations:
<TABLE>
<CAPTION>
Minimum Midpoint Maximum Maximum, As Adjusted
------- -------- ------- --------------------
<S> <C> <C> <C> <C>
Total shares issued .................. 892,500 1,050,000 1,207,500 1,388,625
Less shares sold to our employee stock
ownership plan ..................... (71,400) (84,000) (96,600) (111,090)
---------- ---------- ---------- ----------
Subtotal .......................... 821,100 966,000 1,110,900 1,277,535
Plus our employee stock ownership plan
shares assumed committed to
be released ........................ 8,925 10,500 12,075 13,886
---------- ---------- ---------- ----------
Number of shares used in calculating
pro forma net income per share ..... 830,025 976,500 1,122,975 1,291,421
========== ========== ========== ==========
</TABLE>
(5) We did not give any effect to the issuance of additional shares of
common stock pursuant to our proposed stock option plan, which we
expect to adopt after the conversion and present to stockholders for
approval at a meeting of stockholders to be held at least six months
after we complete the conversion. If the stock option plan is approved
by stockholders, an amount equal to 10% of the common stock issued in
the conversion, or 89,250, 105,000, 120,750 and 138,863 shares at the
minimum, midpoint, maximum and 15% above the maximum of the offering
range, respectively, will be reserved for future issuance upon the
exercise of options to be granted under the stock option plan. The
issuance of authorized but previously unissued shares of common stock
pursuant to the exercise of options under such plan would dilute
existing stockholders' interests. Assuming stockholder approval of the
plan, that all the options were exercised at the beginning of the
period at an exercise price of $10.00 per share, and that the shares to
fund the recognition plan are acquired through open market purchases at
$10.00 per share, (a) pro forma net income per share for the year ended
December 31, 1999, would be $1.02, $0.91, $0.83 and $0.75, and (b) pro
forma stockholders' equity per share at December 31, 1999, would be
$20.59, $18.82, $17.51 and $16.37, in each case at the minimum,
midpoint, maximum and 15% above the maximum of the offering range,
respectively.
(6) The retained earnings of First Bank will be substantially restricted
after the conversion. See "We Intend to Pay Quarterly Cash Dividends"
and "The Conversion - Liquidation Rights of Certain Depositors."
(7) Based on the number of shares sold in the conversion.
(8) Assumes an increase in the number of shares due to a 15% increase in
the maximum of the offering range to reflect changes in market and
financial conditions before we complete the conversion or to fill the
order of our employee stock ownership plan.
27
<PAGE>
<TABLE>
<CAPTION>
At or For the Nine Months Ended September 30, 2000
------------------------------------------------------------------
892,500 1,050,000 1,207,500 1,388,625
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share (15%
(Minimum (Midpoint (Maximum above Maximum
of Range) of Range) of Range) of Range)(8)
------------ ------------ ------------ --------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds .................................. $ 8,925 $ 10,500 $ 12,075 $ 13,886
Less offering expenses .......................... (516) (541) (566) (595)
-------- ---------- ---------- ----------
Estimated net conversion proceeds ............... 8,409 9,959 11,509 13,291
Less our employee stock ownership plan(1) ....... (714) (840) (966) (1,111)
Less our recognition plan ....................... (357) (420) (483) (555)
-------- ---------- ---------- ----------
Estimated adjusted net proceeds(2) .............. $ 7,338 $ 8,699 $ 10,060 $ 11,625
======== ========== ========== ==========
Pro forma net income:
Historical .................................... $ 723 $ 723 $ 723 $ 723
Pro forma adjustments:
Income on adjusted net proceeds(2) ........... 220 261 301 348
Our employee stock ownership plan(1) ......... (44) (52) (60) (69)
Our recognition plan(3) ...................... (35) (42) (48) (55)
-------- ---------- ---------- ----------
Pro forma ................................... $ 864 $ 890 $ 916 $ 947
======== ========== ========== ==========
Pro forma net income per share(4):
Historical .................................... $ 0.87 $ 0.74 $ 0.65 $ 0.56
Pro forma adjustments:
Income on adjusted net proceeds(2) .......... 0.27 0.27 0.27 0.27
Our employee stock ownership plan(1) ........ (0.05) (0.05) (0.05) (0.05)
Our recognition plan (3) .................... (0.04) (0.04) (0.04) (0.04)
-------- ---------- ---------- ----------
Pro forma basic net income per share ....... $ 1.05 $ 0.92 $ 0.83 $ 0.74
======== ========== ========== ==========
Annualized pro forma basic P/E ratio(4) ......... 7.14x 8.15x 9.04x 10.14x
Number of shares used in calculating net
income per share(4) ........................... 827,794 973,875 1,119,956 1,287,950
Pro forma stockholders' equity:
Historical .................................... $ 12,830 $ 12,830 $ 12,830 $ 12,830
Estimated net conversion proceeds ............. 8,409 9,959 11,509 13,291
Less our employee stock ownership plan(1) ..... (714) (840) (966) (1,111)
Less our recognition plan(3) .................. (357) (420) (483) (555)
-------- ---------- ---------- ----------
Pro forma stockholders' equity(5)(6) ........ $ 20,168 $ 21,529 $ 22,890 $ 24,455
======== ========== ========== ==========
Pro forma stockholders' equity per share(7):
Historical .................................... $ 14.38 $ 12.22 $ 10.63 $ 9.24
Estimated net conversion proceeds ............. 9.42 9.48 9.53 9.57
Less our employee stock ownership plan(1) ..... (0.80) (0.80) (0.80) (0.80)
Less our recognition plan(3) .................. (0.40) (0.40) (0.40) (0.40)
-------- ---------- ---------- ----------
Pro forma stockholders' equity
per share(3)(5)(6) ........................ $ 22.60 $ 20.50 $ 18.96 $ 17.61
======== ========== ========== ==========
Pro forma price to book ratio(7) .............. 44.25% 48.77% 52.74% 56.79%
Number of shares used in equity
per share calculations(7) ..................... 892,500 1,050,000 1,207,500 1,388,625
</TABLE>
28
<PAGE>
---------------------
(1) We assumed that 8% of the shares of common stock issued in the
conversion will be purchased by our employee stock ownership plan. We
also assumed that the funds used to acquire such shares will be
borrowed by our employee stock ownership plan from First BancTrust. We
intend to make quarterly contributions to our employee stock ownership
plan over an eight year period in an amount at least equal to the
principal and interest requirement of the debt. The pro forma net
income assumes (a) that the loan to our employee stock ownership plan
is payable over eight years, with our employee stock ownership plan
shares having an average fair value of $10.00 per share in accordance
with SOP 93-6, entitled "Employers' Accounting for Employee Stock
Ownership Plans," of the AICPA, (b) that the loan to our employee stock
ownership plan bears a fixed interest rate of 8.50% and First Bank's
payment of the employee stock ownership plan debt is based on equal
installments of principal over an eight year period and the interest
expense is excluded since it is an intercompany expense, (c) that our
employee stock ownership plan expense for the period is equivalent to
the principal payment for the period and was made at the end of the
period; (d) that 6,694, 7,875, 9,056 and 10,415 shares were committed
to be released with respect to the nine months ended September 30,
2000, at the minimum, midpoint, maximum and 15% above the maximum of
the offering range, respectively; (e) in accordance with SOP 93-6
entitled "Employers' Accounting for Employee Stock Ownership Plans,"
only our employee stock ownership plan shares committed to be released
during the period were considered outstanding for purposes of the net
income per share calculations; and (f) the effective tax rate was 34%
for the period. See "Risk Factors - Our Employee Stock Benefit Plans
Will Increase Our Costs" and "Management - New Stock Benefit Plans -
Employee Stock Ownership Plan."
(2) Estimated adjusted net proceeds consist of the estimated net conversion
proceeds, minus (i) the proceeds attributable to the purchase by our
employee stock ownership plan and (ii) the value of the shares to be
purchased by our recognition plan after the conversion, subject to
stockholder approval, at an assumed purchase price of $10.00 per share.
(3) We assumed that the recognition plan purchases 35,700, 42,000, 48,300
and 55,545 shares at the minimum, midpoint, maximum and 15% above the
maximum of the offering range, assuming that: (a) stockholder approval
of the recognition plan is received; (b) the shares were acquired by
the recognition plan at the beginning of the period presented in open
market purchases at $10.00 per share; (c) the amortized expense for the
nine months ended September 30, 2000 was 20% of the amount contributed;
and (d) the effective tax rate applicable to such employee compensation
expense was 34%. We assumed that 20% of the recognition plan shares
vested at the beginning of the period. If the recognition plan
purchases authorized but unissued shares instead of making open market
purchases, then (a) the voting interests of existing stockholders would
be diluted by approximately 3.9%, and (b) the pro forma net income per
share for the nine months ended September 30, 2000 would be $1.01,
$0.89, $0.80 and $0.72 , and pro forma stockholders' equity per share
at September 30, 2000 would be $22.11, $20.10, $18.61 and $17.32, in
each case at the minimum, midpoint, maximum and 15% above the maximum
of the offering range, respectively. See "Management - New Stock
Benefit Plans - Recognition Plan."
(4) Pro forma net income per share calculations are determined by (a)
starting with the number of shares assumed to be sold in the conversion
and (b) in accordance with SOP 93-6, subtracting our employee stock
ownership plan shares which have not been committed for release.
29
<PAGE>
Set forth below is a reconciliation of the number of shares used in
making the net income per share calculations:
<TABLE>
<CAPTION>
Minimum Midpoint Maximum Maximum, As Adjusted
------- -------- ------- --------------------
<S> <C> <C> <C> <C>
Total shares issued .................. 892,500 1,050,000 1,207,500 1,388,625
Less shares sold to our employee stock
ownership plan ..................... (71,400) (84,000) (96,600) (111,090)
---------- ---------- ---------- ----------
Subtotal .......................... 821,100 966,000 1,110,900 1,277,535
Plus our employee stock ownership plan
shares assumed committed to
be released ........................ 6,694 7,875 9,056 10,415
---------- ---------- ---------- ----------
Number of shares used in calculating
pro forma net income per share .... 827,794 973,875 1,119,956 1,287,950
========== ========== ========== ==========
</TABLE>
(5) We did not give any effect to the issuance of additional shares of
common stock pursuant to our proposed stock option plan, which we
expect to adopt after the conversion and present to stockholders for
approval at a meeting of stockholders to be held at least six months
after we complete the conversion. If the stock option plan is approved
by stockholders, an amount equal to 10% of the common stock issued in
the conversion, or 89,250, 105,000, 120,750 and 138,863 shares at the
minimum, midpoint, maximum and 15% above the maximum of the offering
range, respectively, will be reserved for future issuance upon the
exercise of options to be granted under the stock option plan. The
issuance of authorized but previously unissued shares of common stock
pursuant to the exercise of options under such plan would dilute
existing stockholders' interests. Assuming stockholder approval of the
plan, that all the options were exercised at the beginning of the
period at an exercise price of $10.00 per share, and that the shares to
fund the recognition plan are acquired through open market purchases at
$10.00 per share, (a) pro forma net income per share for the nine
months ended September 30, 2000, would be $0.97, $0.85, $0.77 and
$0.69, and (b) pro forma stockholders' equity per share at September
30, 2000, would be $21.45, $19.55, $18.14 and $16.92, in each case at
the minimum, midpoint, maximum and 15% above the maximum of the
offering range, respectively.
(6) The retained earnings of First Bank will be substantially restricted
after the conversion. See "We Intend to Pay Quarterly Cash Dividends"
and "The Conversion - Liquidation Rights of Certain Depositors."
(7) Based on the number of shares sold in the conversion.
(8) Assumes an increase in the number of shares due to a 15% increase in
the maximum of the offering range to reflect changes in market and
financial conditions before we complete the conversion or to fill the
order of our employee stock ownership plan.
30
<PAGE>
FIRST BANK
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income for each of the years
in the two-year period ended December 31, 1999 are a part of the consolidated
financial statements of First Bank which appear beginning on page F-1 of this
prospectus. The results of operations for the nine months ended September 30,
2000 and 1999, which are unaudited, include all adjustments which, in the
opinion of management, are of a normal recurring nature and are necessary for
fair presentation of these interim periods. The results of operations for the
nine months ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. These
statements should be read in conjunction with the Consolidated Financial
Statements and related Notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
------------- ------------
2000 1999 1999 1998
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable
Taxable ............................................ $ 7,129 $ 7,203 $ 9,665 $ 9,482
Tax Exempt ......................................... 49 59 77 138
Investment Securities
Taxable ............................................ 1,590 1,014 1,465 1,584
Tax Exempt ......................................... 156 140 188 108
Deposits with financial institutions ................. 121 85 120 137
Federal Home Loan Bank stock dividends ............... 78 39 64 68
------- ------- ------- -------
Total interest income ............................ 9,123 8,540 11,579 11,517
------- ------- ------- -------
INTEREST EXPENSE:
Deposits ............................................. 4,315 3,834 5,136 5,325
Federal Home Loan Bank ............................... 1,042 645 1,001 1,043
Other interest expense ............................... 2 7 9 18
------- ------- ------- -------
Total interest expense ........................... 5,359 4,486 6,146 6,386
------- ------- ------- -------
NET INTEREST INCOME .................................. 3,764 4,054 5,433 5,131
Provision for loan losses ............................ 585 614 845 674
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES ............................................. 3,179 3,440 4,588 4,457
------- ------- ------- -------
OTHER INCOME:
Service charges on deposit accounts .................. 318 238 340 279
Loan servicing fees .................................. 157 179 195 206
Other customer fees .................................. 490 417 566 557
Net realized gains (losses) on sales of available-for-
sale securities ................................... (3) 14 14 7
Net gains on loan sales .............................. 482 156 262 654
Brokerage fees ....................................... 140 60 64 103
Abstract and title fees .............................. 228 226 287 269
Other income ......................................... 171 84 133 129
------- ------- ------- -------
Total other income ............................... 1,983 1,374 1,861 2,204
------- ------- ------- -------
OTHER EXPENSE:
Salaries and employee benefits ....................... 2,314 2,407 3,117 3,177
Net occupancy expenses ............................... 123 124 164 144
Equipment expenses ................................... 548 557 742 610
Data processing fees ................................. 369 390 520 286
Deposit insurance expenses ........................... 19 54 72 71
Printing and office supplies ......................... 96 100 133 155
Advertising and promotion ............................ 128 130 183 159
Other expenses ....................................... 522 430 659 543
------- ------- ------- -------
Total other expense .............................. 4,119 4,192 5,590 5,145
------- ------- ------- -------
INCOME BEFORE INCOME TAX ............................. 1,043 622 859 1,516
Income tax expense ................................... 320 141 149 480
------- ------- ------- -------
NET INCOME ........................................... $ 723 $ 481 $ 710 $ 1,035
======= ======= ======= =======
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FIRST BANK
GENERAL
Our profitability depends primarily on our net interest income, which
is the difference between interest and dividend income on interest-earning
assets, principally loans, mortgage-backed securities, investment securities and
interest-earning deposits in other institutions, and interest expense on
interest-bearing deposits and borrowings from the Federal Home Loan Bank of
Chicago. Net interest income is dependent upon the level of interest rates and
the extent to which such rates are changing. Our profitability also depends, to
a lesser extent, on noninterest income, provision for loan losses, general,
administrative and other expenses and federal income taxes.
Our operations and profitability are subject to changes in interest
rates, applicable statutes and regulations and general economic conditions, as
well as other factors beyond our control.
OUR FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CHANGE
We make certain statements in this document as to what we expect may
happen in the future. These statements usually contain the words "believe,"
"estimate," "project," "expect," "anticipate," "intend" or similar expressions.
Because these statements look to the future, they are based on First Bank's
current expectations and beliefs. Actual results or events may differ materially
from those reflected in the forward-looking statements. You should be aware that
our current expectations and beliefs as to future events are subject to change
at any time, and we can give you no assurances that the future events will
actually occur.
OUR EXPOSURE TO CHANGES IN INTEREST RATES
Our ability to maintain net interest income depends upon earning a
higher yield on assets than the rates we pay on deposits and borrowings and
sustaining this positive interest rate spread during fluctuations in prevailing
interest rates. Interest rate sensitivity is a measure of the difference between
amounts of interest-earning assets and interest-bearing liabilities which either
reprice or mature within a given period of time. The difference, or the interest
rate repricing "gap," provides an indication of how an institution's interest
rate spread will be affected by changes in interest rates. A gap is considered
positive when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities, and is considered negative when the amount
of interest-rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest rates,
a negative gap within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities would have the
opposite effect. As of September 30, 2000, the amount of First Bank's
interest-bearing liabilities which were estimated to mature or reprice within
one year exceeded First Bank's interest-earning assets with the same
characteristics by $4.0 million or 2.4% of First Bank's total assets.
32
<PAGE>
QUANTITATIVE ANALYSIS. The following table summarizes the anticipated
maturities or repricing of the Savings Bank's interest-earning assets and
interest-bearing liabilities as of September 30, 2000, based on the information
and assumptions set forth in the notes to the table.
<TABLE>
<CAPTION>
Six to More Than More Than
Within Six Twelve One Year to Three Years Over Five
Months Months Three Years to Five Years Years Total
---------- -------- ----------- ------------- ---------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net(1) ........ $41,225 $24,826 $38,096 $ 5,622 $ 3,025 $112,794
Investment securities(2)(3) .... 5,312 1,641 5,660 8,496 16,422 37,531
Deposits with financial
institutions .................. 4,116 -- -- -- -- 4,116
------- ------- ------- ------- ------- --------
Total interest-earning
assets ...................... 50,653 26,467 43,756 14,118 19,447 154,441
------- ------- ------- ------- ------- --------
Interest-bearing liabilities:
Deposits(4) ..................... 29,992 25,100 33,917 10,812 14,726 114,547
Borrowings ...................... 26,032 -- 1,500 -- -- 27,532
------- ------- ------- ------- ------- --------
Total interest-bearing
liabilities ................. 56,024 25,100 35,417 10,812 14,726 142,079
------- ------- ------- ------- ------- --------
Excess (deficiency) of
interest-earning assets over
interest-bearing liabilities ..... (5,371) 1,367 8,339 3,306 4,721 12,362
------- ------- ------- ------- ------- --------
Cumulative excess of
interest-earning assets over
interest-bearing liabilities .... $(5,371) $(4,004) $ 4,335 $ 7,641 $12,362 $ 12,362
======= ======= ======= ======= ======= ========
Cumulative excess (deficiency)
of interest-earning assets over
interest-bearing liabilities as a
percentage of total assets ...... (3.15)% (2.35)% 2.54% 4.48% 7.25% 7.25%
======= ======= ======= ======= ======= ========
</TABLE>
---------------------------
(1) Fixed-rate loans are included in the periods in which they are
scheduled to be repaid, based on scheduled amortization, adjusted to
take into account estimated prepayments. Adjustable-rate loans are
included in the periods in which interest rates are next scheduled to
reset, adjusted to take into account estimated prepayments.
(2) Reflects repricing, contractual maturity or anticipated call date.
(3) All securities are classified as available for sale.
(4) Adjusted to reflect various decay rate assumptions.
33
<PAGE>
Although interest rate sensitivity gap is a useful measurement and
contributes toward effective asset and liability management, it is difficult to
predict the effect of changing interest rates based solely on that measure. As a
result, management also regularly reviews interest rate risk by forecasting the
impact of alternative interest rate environments on net interest income and net
portfolio value, which is defined as the net present value of a Savings Bank's
existing assets, liabilities and off-balance sheet instruments, and evaluating
such impacts against the maximum potential changes in net interest income and
net portfolio value. The following table presents First Bank's net portfolio
value as of September 30, 2000 prepared by the Office of Banks and Real Estate
of Illinois.
<TABLE>
<CAPTION>
Net Portfolio Value
----------------------------------------------------------------------------------------------------------
Estimated
Change in NPV as a Change as a
Interest Rates Estimated Percentage Amount Percentage
(basis points) NPV of Assets of Change of Assets
------------------- ------------- ------------- ----------- ------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
+400 $ 6,604 4.13% $(7,834) (4.90)%
+300 8,831 5.41 (5,607) (3.43)
+200 10,915 6.55 (3,523) (2.11)
+100 12,817 7.55 (1,621) (0.96)
-- 14,438 8.37 -- --
-100 17,734 10.11 3,296 1.88
-200 19,122 10.74 4,684 2.63
-300 20,643 11.42 6,205 3.43
-400 22,416 12.19 7,978 4.34
</TABLE>
34
<PAGE>
QUALITATIVE ANALYSIS. Our ability to maintain a positive "spread"
between the interest earned on assets and the interest paid on deposits and
borrowings can be adversely affected when market rates of interest rise. First
Bank's actions with respect to interest rate risk and its asset/liability gap
management are taken under the guidance of the Investment-Asset/Liability
Committee, which presently consist of various members of our board and senior
management. This committee meets quarterly to review our current composition of
assets and liabilities in light of the prevailing interest rate environment. Our
strategies to reduce the exposure of our earnings to changes in interest rates
and manage the mismatch between asset and liability maturities are described
below.
The most significant aspect of our asset/liability management is our continued
emphasis on adjustable rate loans. Of First Bank's total loan portfolio at
September 30, 2000, $78.4 million or 68.9% have adjustable interest rates.
Adjustable rate loans adjust periodically during the term of the loan and
decrease the risks associated with changes in interest rates. In addition to
originating primarily adjustable-rate loans, First Bank attempts to reduce its
potential exposure to interest rate risk by:
- originating commercial business loans and automobile loans,
which generally have shorter terms to maturity and higher
yields than single-family residential mortgage loans;
- selling conforming fixed-rate mortgage loans with terms
greater than 12 years;
- maintaining a portion of its investment and mortgage-backed
securities with maturities or estimate average lives of less
than five years;
- managing its deposits to establish stable deposit
relationships; and
- extending the terms of its Federal Home Loan Bank advances.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
Total assets increased $2.7 million or 1.6% to $170.5 million at
September 30, 2000 compared to $167.8 million at December 31, 1999. This
increase in total assets was primarily due to an increase in investment
securities available for sale funded by a decrease in cash and cash equivalents
and an increase in deposits. Investment securities available for sale amounted
to $37.5 million at September 30, 2000 compared to $33.4 million at December 31,
1999. The increase of $4.2 million or 12.5% was due to the investment of excess
funds from the decrease in cash and cash equivalents and the increase in
deposits. The other major category of assets, consisting of loans receivable,
increased modestly. Cash and cash equivalents decreased $2.3 million or 18.2% to
$10.4 million at September 30, 2000 and deposits increased $2.6 million or 2.0%
to $129.2 million at September 30, 2000. The increase in total deposits was due
to a $13.8 million increase in demand deposits offset by a decrease in savings
deposits of $1.7 million and a $9.5 million decrease in certificates and other
time deposits. The increase in demand deposits was due primarily to a $15.5
million increase in First Bank's Investor Checking account, which is a demand
deposit account with an interest rate competitive with other money market
accounts. First Bank also experienced a shift in deposits from other
certificates and time deposits to demand deposits due to customers shifting
their deposits to the Investor Checking account from other certificates and time
deposits as they matured. Total equity capital increased $842,000 or 7.0% to
$12.8 million at September
35
<PAGE>
30, 2000 compared to $12.0 million at December 31, 1999. Total equity capital
amounted to 7.5% of total assets at September 30, 2000.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
AND 1999.
GENERAL. First Bank's net income amounted to $723,000 for the nine
months ended September 30, 2000 compared to $481,000 for the nine months ended
September 30, 1999. The increase of $242,000 or 50.3% was due primarily to an
increase in total other income, partially offset by a decrease in net interest
income. These and other significant fluctuations in First Bank's results of
operations are discussed on the following pages.
36
<PAGE>
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND
RATES PAID. The following tables present for the periods indicated the total
dollar amount of interest income from average interest-earning assets and the
resultant yields, as well as the total dollar amount of interest expense on
average interest-bearing liabilities and the resultant rates, and the net
interest margin. The tables do not reflect any effect of income taxes. All
average balances are based on average monthly balances during the periods. First
Bank does not believe that the monthly averages differ significantly from what
the daily averages would be.
<TABLE>
<CAPTION>
At September 30, 2000
------------------------
Balance Yield/Rate
---------- ----------
<S> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable, net(2)....................... $111,084 8.68%
Investment securities.......................... 37,531 6.37
Deposits with financial institutions (3)....... 4,116 6.51
Federal Home Loan Bank stock................... 1,450 7.30
--------- ----
Total interest-earning assets................ 154,181 8.05
----
Non-interest-earning assets...................... 16,285
--------
Total assets................................. $170,466
=======
INTEREST-BEARING LIABILITIES:
Deposits:
Demand....................................... $33,461 5.56
Savings...................................... 7,672 2.00
Certificates of Deposit of $100,000 or more.. 16,617 6.01
Other certificates........................... 56,797 5.69
Borrowings:
Long-term.................................... 26,532 6.37
Short-term................................... 1,000 6.96
--------- ----
Total interest-bearing liabilities............. 142,079 5.63
----
Non-interest-bearing liabilities............... 15,557
--------
Total liabilities............................ 157,636
Total equity capital(4)........................ 12,830
--------
Total liabilities and equity capital......... $170,466
=======
Net average interest-earning assets............
Net interest income; interest rate spread(5)... 2.42%
====
Net interest margin(6).........................
Average interest-earning assets to average
interest-bearing liabilities..................
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------------------------------------------
2000 1999
--------------------------------------- -----------------------------------------
Average Average Average Average
Balance Interest Yield/Rate(1) Balance Interest Yield/ Rate(1)
--------- --------- ------------- --------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars In Thousands)
INTEREST-EARNING ASSETS:
Loans receivable, net(2)....................... $112,058 $7,178 8.54% $110,040 $7,262 8.80%
Investment securities.......................... 35,555 1,746 6.55 26,062 1,154 5.90
Deposits with financial institutions (3)....... 3,859 121 4.18 3,466 85 3.27
Federal Home Loan Bank stock................... 1,424 78 7.30 812 39 6.40
-------- ------ ---- -------- ------ ----
Total interest-earning assets................ 152,896 9,123 7.96 140,380 8,540 8.11
------ ---- ------ ----
Non-interest-earning assets...................... 10,561 11,350
-------- --------
Total assets................................. $163,457 $151,730
======== ========
INTEREST-BEARING LIABILITIES:
Deposits:
Demand....................................... $ 29,583 1,059 4.77 $ 18,049 338 2.50
Savings...................................... 8,680 131 2.01 11,071 195 2.35
Certificates of Deposit of $100,000 or more.. 16,201 590 4.86 15,640 587 5.01
Other certificates........................... 60,639 2,535 5.57 67,249 2,714 5.38
Borrowings:
Long-term.................................... 22,035 972 5.88 12,863 531 5.49
Short-term................................... 1,500 72 6.40 3,167 121 5.09
-------- ------ ---- -------- ----- -----
Total interest-bearing liabilities............. 138,638 5,359 5.16 128,039 4,486 4.67
------ ---- ----- ----
Non-interest-bearing liabilities............... 12,551 11,761
-------- -------
Total liabilities............................ 151,189 139,800
Total equity capital(4)........................ 12,268 11,930
-------- --------
Total liabilities and equity capital......... $163,457 $151,730
======== ========
Net average interest-earning assets............ $ 14,258 $ 12,341
======== ========
Net interest income; interest rate spread(5)... $3,764 2.80% $4,054 3.44%
===== ==== ===== ====
Net interest margin(6)......................... 3.28% 3.85%
==== ====
Average interest-earning assets to average
interest-bearing liabilities.................. 110.28% 109.64%
====== ======
</TABLE>
(FOOTNOTES APPEAR ON PAGE 39)
37
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1999 1998
--------------------------------- -----------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
-------- -------- ---------- ------- -------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable, net(2).......................... $111,405 $ 9,742 8.74% $106,009 $ 9,620 9.07%
Investment securities............................. 27,524 1,653 6.01 27,397 1,692 6.18
Deposits with financial institutions(3)........... 3,593 120 3.34 3,592 137 3.81
Federal Home Loan Bank stock...................... 935 64 6.84 1,094 68 6.22
-------- ------- ---- -------- ------- ----
Total interest-earning assets................... 143,457 11,579 8.07 138,092 11,517 8.34
------- ---- ------- ----
Non-interest-earning assets......................... 10,888 12,387
-------- --------
Total assets.................................... $154,345 $150,479
======== ========
INTEREST-BEARING LIABILITIES:
Deposits:
Demand.......................................... $ 18,900 498 2.63 $ 16,472 378 2.29
Savings......................................... 10,703 244 2.28 11,160 280 2.51
Certificates of Deposit of $100,000 or more..... 15,837 765 4.83 14,977 841 5.62
Other certificates.............................. 67,130 3,630 5.41 66,603 3,826 5.75
Borrowings:
Long-term....................................... 15,552 832 5.35 15,767 961 6.10
Short-term...................................... 3,375 177 5.24 1,750 99 5.66
-------- ------- ---- -------- -------- ----
Total interest-bearing liabilities................ 131,497 6,146 4.67 126,729 6,386 5.04
------- ---- -------- ----
Non-interest-bearing liabilities.................. 10,904 12,081
-------- -------
Total liabilities............................... 142,401 138,810
Total equity capital(4)........................... 11,944 11,669
-------- -------
Total liabilities and equity capital............ $154,345 $150,479
======= =======
Net average interest-earning assets............... $ 11,960 $ 11,363
======== ========
Net interest income; interest rate spread(5)...... $ 5,433 3.40% $ 5,131 3.30%
======= ==== ======= ====
Net interest margin(6)............................ 3.79% 3.71%
==== ====
Average interest-earning assets to average
interest- bearing liabilities.................... 109.10% 108.97%
====== ======
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
38
<PAGE>
------------------------------------
(1) Yields and rates have been annualized where appropriate.
(2) Includes loans held for sale and nonaccruing loans.
(3) Includes interest bearing demand deposits and other interest bearing
deposits.
(4) Includes retained earnings and accumulated other comprehensive income
(loss).
(5) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average rate
on interest-bearing liabilities.
(6) Net interest margin is net interest income divided by net average
interest-earning assets.
39
<PAGE>
RATE/VOLUME ANALYSIS. The following table describes the extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities have affected First Bank's interest income and interest expense
during the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume), and (iii)
total change in rate and volume. The combined effect of changes in both rate and
volume has been allocated proportionately to the change due to rate and the
change due to volume. In calculating this table, out of period items and
adjustments have been excluded. The types and amounts are disclosed in the note
following the table.
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
------------------------------- ------------------------------
2000 vs. 1999 1999 vs. 1998
------------------------------- ------------------------------
Increase Increase
(Decrease) (Decrease)
Due To Total Due To Total
------------------ Increase ------------------ Increase
Yield/Rate Volume (Decrease) Yield/Rate Volume (Decrease)
---------- ------ ----------- ---------- ------ ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable, net ............... $(270) $ 186 $ (84) $(357) $479 $ 122
Investment securities ............... 136 456 592 (47) 8 (39)
Deposits with financial institutions 26 10 36 (17) -- (17)
Federal Home Loan Bank stock ........ 6 33 39 6 (10) (4)
----- ----- ----- ----- ---- -----
Total ............................. (102) 685 583 (415) 477 62
----- ----- ----- ----- ---- -----
INTEREST-BEARING LIABILITIES:
Deposits:
Demand ............................ 424 297 721 75 45 120
Savings ........................... (26) (38) (64) (25) (11) (36)
Certificates of Deposit of $100,000
or more ......................... (24) 27 3 (122) 46 (76)
Other certificates ................ 142 (321) (179) (226) 30 (196)
Borrowings:
Long-term ......................... 39 402 441 (117) (13) (130)
Short-term ........................ 40 (89) (49) (8) 86 78
----- ----- ----- ----- ---- -----
Total ........................... 595 278 873 (423) 183 (240)
----- ----- ----- ----- ---- -----
Increase (decrease) in net interest
income ............................ $(697) $ 407 $(290) $ 8 $294 $ 302
===== ===== ===== ===== ===== =====
</TABLE>
NET INTEREST INCOME. Net interest income is determined by First Bank's
interest rate spread (i.e., the difference between the yields earned on
interest-earning assets and the rates paid on interest-bearing liabilities) and
the relative amounts of interest-earning assets and interest-bearing
liabilities. Net interest income decreased $290,000 or 7.1% to $3.8 million for
the nine months ended September 30, 2000 compared to $4.1 million for the nine
months ended September 30, 1999. Such decrease was primarily due to a decrease
in the average interest rate spread to 2.80% for the nine months ended September
30, 2000 compared to 3.44% for the nine months ended September 30, 1999. For the
same time periods, First Bank's net interest margin decreased from 3.85% to
3.28%.
INTEREST INCOME. Interest income increased $584,000 or 6.8% to $9.1
million for the nine months ended September 30, 2000 compared to $8.5 million
for the same period in 1999. This increase was due primarily to increases in the
average balance of investment securities and loans receivable and,
40
<PAGE>
to a lesser extent, an increase in the yield on investment securities. Such
increases were partially offset by a decrease in the yield earned on loans
receivable. The average balance of investment securities increased $9.5 million
or 36.4% to $35.6 million for the nine months ended September 30, 2000 compared
to $26.1 million for the nine months ended September 30, 1999. The average
balance of loans receivable increased $2.0 million or 1.8% during the same
periods. The yield earned on loans receivable decreased from 8.80% during the
nine months ended September 30, 1999 to 8.54% during the nine months ended
September 30, 2000. The average yield on investment securities increased 65
basis points to 6.55% for the nine months ended September 30, 2000, compared to
5.90% for the same period in 1999. The increase in the average balance of loans
receivable and investment securities was due to the investment of funds
available as a result of the increase in the average balance of borrowings and
deposits. The decrease in the yield on loans was due to a change in loan mix as
a result of an increase in one-to-four family real estate loans which have lower
interest rates and a decrease in agricultural production finance loans which
typically have higher interest rates. The increase in the average yield on
investment securities was primarily due to the purchase of higher yielding
investments during the nine months ended September 30, 2000 reflecting a higher
interest rate environment.
INTEREST EXPENSE. Interest expense increased $874,000 or 19.5% to $5.4
million for the nine months ended September 30, 2000 compared to $4.5 million
for the same period in 1999. Such increase was primarily due to an increase in
the rate paid on demand deposits and increases in the average balance of demand
deposits and long-term borrowings. The average rate paid on demand deposits
increased to 4.77% for the nine months ended September 30, 2000 compared to
2.50% for the same period in 1999, reflecting an increase in the higher rate
Investor Checking accounts. The average balances of demand deposits and
long-term borrowings increased from $18.0 million and $12.9 million,
respectively, for the nine months ended September 30, 1999 to $29.6 million and
$22.0 million, respectively, for the comparable period in 2000. This increase in
the average balance of demand deposits was due to the increased popularity of
the Investor Checking account with rates priced to compete with money market
products. This product was introduced to First Bank's customers in late 1998 and
has increased from a balance of $2.2 million at December 31, 1998 to $26.5
million as of September 30, 2000. These increases were partially offset by a
decrease in the average balance of other certificates from $67.2 million for the
nine months ended September 30, 1999 to $60.6 million for the comparable period
in 2000. This decrease of $6.6 million or 9.8% was due primarily to customers
converting certificates of deposit into higher yielding Investor Checking
accounts.
PROVISION FOR LOSSES ON LOANS. Provisions for losses on loans are
charged to earnings to bring the total allowance for loan losses to a level
considered appropriate by management based on a methodology implemented by First
Bank which is designed to assess, among other things, experience, the volume and
type of lending conducted by First Bank, overall portfolio mix, the amount of
First Bank's classified assets, the status of past due principal and interest
payments, loan-to-value ratios of loans in First Bank's loan portfolio, general
economic conditions, particularly as they relate to First Bank's market area,
and other factors related to the collectibility of First Bank's loan portfolio.
Management of First Bank assesses the allowance for loan losses on a monthly
basis and will make provisions for loan losses as deemed appropriate by
management in order to maintain the adequacy of the allowance for loan losses.
In addition, First Bank has engaged an independent third party to conduct
semi-annual reviews of the loan portfolio. When the collection of a loan becomes
doubtful, or otherwise troubled, First Bank records a loan charge-off equal to
the difference between the fair value of the property securing the loan and the
loan's carrying value. The allowance for loan losses is increased by charges to
earnings and decreased by charge-offs (net of recoveries).
For the nine months ended September 30, 2000 and 1999, the provision
for losses on loans amounted to $585,000 and $614,000, respectively. While First
Bank cannot assure that future charge-offs
41
<PAGE>
and /or additional provisions will not be necessary, First Bank believes that,
as of September 30, 2000, its allowance for loan losses was adequate.
OTHER INCOME. Other income increased $609,000 or 44.3% to $2.0 million
for the nine months ended September 30, 2000 compared to $1.4 million for the
same period in 1999. Such increase was due to increases in service charges on
deposit accounts, other customer fees, net gains on loan sales, brokerage fees
and other miscellaneous income. Service charges on deposit accounts increased
$80,000 or 33.6% as a result of the shift to transactional demand deposits from
time deposits accompanied by an increase in service charges. Other customer fees
increased $73,000 or 17.5%. This increase includes $30,000 for late charges and
other fees on loans, $26,000 for commissions on credit life insurance sales, and
$17,000 for other customer fees such as sales of money orders, cashiers checks
and travelers checks. Net gains on loan sales increased $326,000 or 209.0% as a
result of increased agricultural loan sales. First Bank capitalizes the
servicing fees related to these loan sales and recognizes the capitalized amount
as net gains on loan sales. First Bank estimates the fair value of the servicing
fees based on the servicing fee and the estimated life of the loans sold. The
servicing fees on the agricultural loans averaged 1.5% which is higher than that
of residential mortgage loans sold as a result of the higher cost of servicing
these agricultural loans. Brokerage fees increased $80,000 or 133.3% as a result
of the transfer of approximately $3.1 million of annuity accounts under
management to new product lines now offered by First Charter Service
Corporation, one of First Bank's wholly-owned subsidiaries. This transfer and
the resulting increase in income do not represent a normal recurring event.
Other miscellaneous income increased $89,000 or 107.2% primarily as a result of
an increase in the cash surrender value of life insurance.
OTHER EXPENSES. Other expenses decreased $74,000 or 1.8% to $4.1
million for the nine months ended September 30, 2000 compared to $4.2 million
for the same period in 1999. Such decrease was primarily due to a decrease of
$93,000 or 3.9% in salaries and employee benefits, a $21,000 decrease in data
processing fees, a $35,000 decrease in deposit insurance expense, and a $10,000
decrease in equipment expenses. These decreases were offset by a net increase in
all other expenses of $85,000. Average full time equivalent employees for First
Bank remained constant at approximately 77 during these periods. However, due to
restructuring of the employment mix, First Bank salaries and employee benefits
decreased $178,000 from the nine months ended September 30, 1999 to the same
period ended September 30, 2000. First Bank's decrease in salaries and employee
benefits was offset by an increase of $48,000 and $37,000 to salaries and
employee benefits for First Bank's wholly-owned subsidiaries, Community Finance
Center, Inc. and First Charter Service Corporation, respectively. The decrease
in data processing fees relates to a concerted effort by management to eliminate
any unnecessary services and reports. After the conversion in data processing
providers in late 1998, First Bank was charged for all services and reports
resulting in increased fees. The decrease to deposit insurance relates to a
decrease in the Savings Association Insurance Fund assessment during 2000 for
well-capitalized institutions. Deposit insurance expense decreased from $54,000
for the nine months ended September 30, 1999 to $19,000 for the nine months
ended September 30, 2000. Other miscellaneous expenses increased $93,000 from
$430,000 for the nine moths ended September 30, 1999 to $523,000 for the nine
months ended September 30, 2000. Two major reasons for this increase were
increases in legal and professional fees and loan expenses of $81,000 and
$14,000, respectively. Legal expenses increased $33,000 for the nine months
ended September 30, 1999 compared to the nine months ended September 30, 2000
due to various legal matters. Other professional fees increased $48,000 largely
due to First Bank outsourcing its internal audit and internal loan review
functions, which was partially implemented during 1999 and fully implemented for
2000.
INCOME TAXES. Income taxes amounted to $320,000 and $141,000 for the
nine months ended September 30, 2000 and 1999, respectively, resulting in
effective tax rates of 30.7% and 22.7%,
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<PAGE>
respectively. The difference in the tax rate in 2000 compared to 1999 was
primarily due to a state tax provision in 2000 versus a state tax benefit in
1999.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
1998.
GENERAL. First Bank's net income amounted to $710,000 in 1999 compared
to $1.0 million in 1998. The decrease of $325,000 or 31.4% was due to an
increase in the provision for loan losses, a decrease in other income and an
increase in other expenses, which were partially offset by an increase in net
interest income.
NET INTEREST INCOME. Net interest income increased $302,000 or 5.9% to
$5.4 million for 1999 from $5.1 million for 1998. First Bank's interest rate
spread increased slightly from 3.30% for1998 to 3.40% for 1999. In addition,
First Bank's net interest margin increased slightly to 3.79% for 1999 from 3.71%
for 1998.
INTEREST INCOME. Interest income increased $62,000 to $11.6 million for
1999 compared to $11.5 million for 1998. This increase was primarily due to an
increase in the average balance of loans receivable, substantially offset by a
decrease in the average yield on such assets. The average balance of loans
receivable increased $5.4 million or 5.1% to $111.4 million in 1999 compared to
$106.0 million in 1998. Such increase was due to continued origination of loans,
primarily consumer loans. The average yield on loans receivable decreased to
8.74% for 1999 from 9.07% in 1998 due to a declining interest rate environment.
INTEREST EXPENSE. Interest expense decreased $240,000 or 3.8% to $6.1
million for 1999 compared to $6.4 million in 1998. Such decrease was primarily
due to a decrease in the average rate paid on certificates of deposit of
$100,000 or more, other certificates and long-term borrowings. The decrease in
the average rate paid on certificates of deposit of $100,000 or more and other
certificates was primarily due to a decrease in the rates offered on such
certificates. The decrease in the average rate paid on long-term borrowings was
primarily due to the replacement of higher rate Federal Home Loan Bank
borrowings with lower rate Federal Home Loan Bank borrowings, reflecting lower
market interest rates.
PROVISION FOR LOAN LOSSES. First Bank's provision for loan losses
increased $171,000 or 25.4% to $845,000 for 1999 compared to $674,000 for 1998.
Such increase was due to management's ongoing review of the adequacy of the
allowance for loan losses and the increase in net charge-offs in 1999 of
$454,000 to $678,000 in 1999 compared to $224,000 in 1998.
OTHER INCOME. Other income decreased $343,000 or 15.6% to $1.9 million
for 1999 compared to $2.2 million for 1998. The decrease was primarily due to a
decrease of $393,000 or 60.1% in net gains on loan sales as a result of a
decrease in the volume of residential real estate loans sold.
OTHER EXPENSE. Other expense increased $444,000 or 8.6% to $5.6 million
for 1999 compared to $5.1 million for 1998. Such increase was primarily due to
increases in equipment expense, data processing fees and other miscellaneous
expenses. A decrease in salaries and employee benefits offset these increases.
Equipment expenses and data processing fees increased $132,000 or 21.6%
and $234,000 or 81.8% in 1999 compared to 1998. The increase in equipment
expenses relates to the new lease signed in 1999 for computer equipment.
Equipment rental expense increased $100,000 as a result of this new lease. The
increase in data processing fees relates to the conversion in data processing
providers in late
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<PAGE>
1998. After the conversion, First Bank was charged for all services and reports
which resulted in increased fees over 1998 of 81.7%. Other miscellaneous
expenses increased $116,000 or 21.4% in 1999 compared to 1998 primarily as a
result of an increase of $78,000 in legal and professional fees. Legal expenses
increased $23,000 for 1999 as a result of various legal matters involving First
Bank. Other professional fees increased $55,000 largely due to First Bank
initiating the outsourcing of its internal audit and internal loan review
functions in 1999. These increase were offset by a decrease of $60,000 or 1.3%
in salaries and employee benefits for 1999 compared to 1998. Although average
full time equivalent employees for First Bank remained constant at approximately
79 from 1998 to 1999, the average salary and benefits per full time equivalent
employee decreased 2.6% from $30,200 for 1998 to $29,400 for 1999. This decrease
was due to restructuring of the employment mix.
INCOME TAXES. Income taxes amounted to $149,000 and $48,000 for 1999
and 1998, respectively, resulting in effective tax rates of 17.4% and 31.7%,
respectively. The difference in the tax rate in 1999 compared to 1998 was
primarily due to a state tax benefit in 1999 versus a state tax provision in
1998. In addition, non-taxable income from municipal securities increased
$80,000 from 1998 to 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, First Bank had outstanding commitments to
originate $5.5 million of loans. In addition, as of September 30, 2000, the
total amount of certificates of deposit which were scheduled to mature in the
following 12 months was $45.8 million. First Bank believes that it has adequate
resources to fund all of its commitments and that it can adjust the rate on
certificates of deposit to retain deposits in changed interest rate
environments. If First Bank requires funds beyond its internal funding
capabilities, advances from the Federal Home Loan Bank of Chicago are available
as an additional source of funds.
First Bank is required to maintain regulatory capital sufficient to
meet tier I leverage, tier I risk- based and total risk-based capital ratios of
at least 4.0%, 4.0% and 8.0%, respectively. At September 30, 2000, First Bank
exceeded each of its capital requirements with ratios of 7.9%, 12.0% and 13.3%,
respectively.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein
regarding First Bank have been prepared in accordance with generally accepted
accounting principles, which generally require the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of First Bank's assets and
liabilities are monetary in nature. As a result, interest rates generally have a
more significant impact on First Bank's performance than does the effect of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services, since such prices are
affected by inflation to a larger extent than interest rates.
RECENT ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, was issued in June 1998. This
statement requires that all derivatives be recognized as either assets or
liabilities in the statement of financial condition and that those instruments
be measured at fair value. The accounting for changes in the fair value of a
derivative (that is, gains and
44
<PAGE>
losses) depends on the intended use of the derivative and the resulting
designation. This statement, as amended by Statement of Financial Accounting
Standards No. 137, is effective for fiscal years beginning after June 15, 2000,
although earlier adoption is permitted. First Bank anticipates, based on current
activities, that the adoption of Statement of Financial Accounting Standards No.
133 will not have an effect on its financial position or results of operations.
In October 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 134, ACCOUNTING FOR
MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS
HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE, WHICH AMENDS STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 65, ACCOUNTING FOR CERTAIN MORTGAGE BANKING
ACTIVITIES. This statement conforms the subsequent accounting for securities
retained after the securitization of mortgage loans by a mortgage banking
enterprise with the accounting for such securities by a non-mortgage banking
enterprise. This statement is effective for the first quarter beginning after
December 15, 1998, and did not have any impact on First Bank's financial
position or results of operations as First Bank does not currently securitize
mortgage loans.
In September 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." This
Statement replaces Statement of Financial Accounting Standards No. 125. This
Statement is also effective for the recognition and reclassification of
collateral and for disclosures relating to securitization transactions. This
Statement is effective for fiscal years ending after December 15, 2000. The
adoption of this Statement will not have any impact on First Bank's financial
position or results of operations.
45
<PAGE>
BUSINESS OF FIRST BANK
FIRST BANK'S LENDING ACTIVITIES
GENERAL. At September 30, 2000, the net loan portfolio of First Bank
totaled $111.1 million, representing approximately 65.2% of total assets at that
date. One of the principal lending activities of First Bank is the origination
of one- to four-family (which are also known as single-family) residential
loans. At September 30, 2000, single-family residential loans amounted to $46.3
million or 40.7% of the total loan portfolio. Of this amount, $3.4 million
consisted of second mortgage loans. In addition, First Bank originates
commercial and industrial loans, agricultural loans, commercial business loans,
agricultural production finance loans, consumer loans and tax exempt loans. On a
very limited basis, First Bank offers multi-family loans and construction loans.
The types of loans that First Bank may originate are subject to federal
and state laws and regulations. Interest rates charged on loans are affected
principally by the demand for such loans and the supply of money available for
lending purposes and the rates offered by its competitors. These factors are, in
turn, affected by general and economic conditions, the monetary policy of the
federal government, including the Federal Reserve Board, legislative and tax
policies, and governmental budgetary matters.
A savings institution generally may not make loans to one borrower and
related entities in an amount which exceeds the greater of (i) 15% of its
unimpaired capital and surplus, although loans in an amount equal to an
additional 10% of unimpaired capital and surplus may be made to a borrower if
the loans are fully secured by readily marketable securities, and (ii) $500,000.
At September 30, 2000, First Bank's regulatory limit on loans-to-one borrower
was $2.0 million and its five largest loans or groups of loans-to-one borrower,
including related entities, aggregated $1.2 million, $1.1 million, $1.1 million,
$925,000 and $886,000. Each of First Bank's five largest loans or groups of
loans were performing in accordance with its terms at September 30, 2000.
46
<PAGE>
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of First Bank's loan portfolio by type of loan at the dates
indicated.
<TABLE>
<CAPTION>
At September 30, December 31,
---------------------- -----------------------------------------------------
2000 1999 1998
---- ---- ----
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- -------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to-four family............. $ 46,329(1) 40.72% $ 40,256 35.83% $ 43,321 39.34%
Multi-family................... 303 0.27 414 0.37 291 0.26
Commercial and industrial...... 8,633 7.59 7,784 6.93 5,801 5.27
Construction................... 131 0.12 1,200 1.07 1,305 1.19
Agricultural loans............. 11,873 10.43 10,523 9.36 11,257 10.22
Commercial business.............. 7,529 6.62 7,319 6.51 7,502 6.81
Agricultural production finance.. 10,943 9.61 14,662 13.05 16,357 14.85
Consumer loans:
Vehicle........................ 22,506 19.78 18,223 16.22 15,351 13.94
Consumer finance............... 1,298 1.14 3,745 3.33 2,880 2.62
Share.......................... 773 0.68 1,053 0.94 856 0.78
Other.......................... 2,349 2.06 6,033 5.37 3,913 3.55
Tax exempt loans................. 1,117 0.98 1,156 1.02 1,293 1.17
------- ------ --------- ------ -------- ------
Total loans receivable....... 113,784 100.00% 112,368 100.00% 110,127 100.00%
====== ====== ======
Less:
Undisbursed portion of loans..... 76 70 96
Unearned interest................ 914 312 223
Allowance for loan losses........ 1,710 1,584 1,416
-------- -------- --------
Loans receivable, net.......... $111,084 $110,402 $108,392
======== ======== ========
</TABLE>
------------------
(1) Includes second mortgage loans amounting to $3.4 million at September 30,
2000
ORIGINATION OF LOANS. The lending activities of First Bank are subject
to the written underwriting standards and loan origination procedures
established by the Board of Directors and management. Loan originations are
obtained through a variety of sources, including referrals from real estate
brokers, builders and existing customers. Written loan applications are taken by
loan officers. The loan officers also supervise the procurement of credit
reports, appraisals and other documentation involved with a loan. Property
valuations are performed by independent outside appraisers approved by the Board
of Directors of First Bank.
Under the real estate lending policy of First Bank, a title opinion or
a title insurance policy must be obtained for each real estate loan. First Bank
also requires fire and extended coverage casualty insurance, in order to protect
the properties securing its real estate loans. Borrowers must also obtain flood
insurance policies when the property is in a flood hazard area as designated by
the Department of Housing and Urban Development. First Bank does not require
borrowers to advance funds to an escrow account for the payment of real estate
taxes or hazard insurance premiums.
First Bank's loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. First Bank's loan policy
assigns aggregate lending limits to officers of First Bank depending on the type
of loan and whether the loan is secured or unsecured. These limits range from
$5,000 to $125,000 and are exclusive of the portion of a loan which is sold
without recourse, the portion of each loan guaranteed by
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<PAGE>
a government agency and any real estate mortgage loan on a principal residence
where the loan to value is less than 90%. In addition, executive officers may
combine their lending authority provided that any aggregate extension of credit
over $300,000 requires approval by the Loan Committee of the Board of Directors.
Generally, the Loan Committee is authorized to approve aggregate extensions of
credit up to $800,000. Any extension of credit that will cause the aggregate
loan balance to one borrower to exceed $800,000 must be approved by three
executive officers, the Loan Committee and the Board.
The following table shows total loans originated, sold and repaid
during the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
--------------------------------- --------------------------
2000 1999 1999 1998
---------- ----------- --------- -------
<S> <C> <C> <C> <C>
(In Thousands)
LOAN ORIGINATIONS:
Real estate loans:
One-to-four family............................. $16,373 $19,684 $24,080 $30,138
Multi-family................................... -- 478 568 --
Commercial and industrial...................... 1,131 2,478 2,780 2,692
Construction................................... 30 50 50 --
Agricultural loans............................. 14,861 3,887 4,182 8,344
Commercial business.............................. 4,084 2,755 3,664 10,607
Agricultural production finance.................. 10,127 8,787 11,226 17,881
Consumer loans:
Vehicle........................................ 14,097 11,511 16,476 15,078
Consumer finance .............................. 898 84 1,007 1,193
Share.......................................... 648 -- 859 778
Other.......................................... 1,914 417 3,303 3,519
Tax exempt loans................................. -- -- -- --
------- ------- ------- -------
Total loans originated......................... 64,163 50,131 68,195 90,230
------- ------- ------- -------
SALES AND LOAN PRINCIPAL REDUCTIONS:
Loans sold(1).................................... 9,856 12,126 13,593 16,800
Loan principal reductions........................ 52,852 34,156 52,361 65,876
------- ------- ------- -------
Total loans sold and principal reductions...... 62,708 46,282 65,954 82,676
------- ------- ------- -------
Increase (decrease) due to other items, net(2)..... (773) (387) (231) (188)
------- ------- ------- -------
Net increase (decrease) in loan portfolio.......... $ 682 $ 3,462 $ 2,010 $ 7,366
======= ======= ======= =======
</TABLE>
----------------------
(1) Loans sold consist of agricultural real estate, one-to-four family real
estate, agricultural production finance and vehicle loans.
(2) Other items consist of loans in process, deferred fees, unearned
interest and allowance for loan losses.
Although federal laws and regulations permit savings institutions to
originate and purchase loans secured by real estate located throughout the
United States, First Bank concentrates its lending activity to its primary
market area in Edgar and Clark counties, Illinois. Subject to its loans-to-one
borrower limitation, First Bank is permitted to invest without limitation in
residential mortgage loans and up to 400% of its capital in loans secured by
non-residential or commercial real estate. First Bank may also invest in secured
and unsecured consumer loans in an amount not exceeding 35% of total assets.
This 35% limitation may be exceeded for certain types of consumer loans, such as
home equity and property improvement loans secured by residential real property.
In addition, First Bank may invest up to 10% of its total assets in secured and
unsecured loans for commercial, corporate, business or agricultural purposes.
First Bank has received a waiver from the Illinois Office of Banks and Real
Estate regarding its ability to exceed this 10% limit.
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<PAGE>
MATURITY OF LOAN PORTFOLIO. The following table presents certain
information at September 30, 2000, regarding the dollar amount of loans maturing
in First Bank's portfolio based on their contractual terms to maturity or
scheduled amortization, but does not include potential prepayments. Demand
loans, loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as becoming due within one year. Loan balances do not
include undisbursed loan proceeds, net deferred loan origination costs and
allowance for loan losses.
<TABLE>
<CAPTION>
At September 30, 2000
---------------------------------------------------------------------------
Agricultural
Commercial Production Tax Total
Real Estate Business Finance Consumer Exempt Loans
----------- ---------- ----------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
AMOUNTS DUE IN:
One year or less .................... $ 4,989 $3,876 $ 8,393 $ 3,321 $ -- $ 20,579
More than one year to five years .... 6,417 2,874 2,204 21,333 -- 32,828
More than five years ................ 55,863 779 346 2,272 1,117 60,377
------- ------ ------- ------- ------ --------
Total amount due .................. $67,269 $7,529 $10,943 $26,926 $1,117 $113,784
======= ====== ======= ======= ======= ========
</TABLE>
The following table sets forth the dollar amount of all loans, before
net items, due after September 30, 2000 which have fixed interest rates or which
have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Fixed-Rates Floating or Adjustable-Rates Total
----------- ---------------------------- --------
<S> <C> <C> <C>
(In Thousands)
Real estate loans:
One-to-four family ............... $ 4,806 $41,523(1) $ 46,329
Multi-family ..................... 53 250 303
Commercial and industrial ........ 1,393 7,240 8,633
Construction ..................... 22 109 131
Agricultural loans ............... 2,423 9,450 11,873
Commercial business ................ 1,477 6,052 7,529
Agricultural production finance .... 1,368 9,575 10,943
Consumer loans:
Vehicle .......................... 20,886 1,620 22,506
Consumer finance ................. 912 386 1,298
Share ............................ 161 612 773
Other ............................ 1,902 447 2,349
Tax exempt loans ................... -- 1,117 1,117
-------- ------- --------
Total loans ................... $35,403 $78,381 $113,784
======== ======== ========
</TABLE>
-------------------
(1) Includes First Bank's residential loan product with a fixed rate for
the first ten years which adjusts on an annual basis thereafter.
Scheduled contractual maturities of loans do not necessarily reflect
the actual expected term of the loan portfolio. The average life of mortgage
loans is substantially less than their average contractual terms because of
prepayments. The average life of mortgage loans tends to increase when current
mortgage loan rates are higher than rates on existing mortgage loans and,
conversely, decrease when rates on current mortgage loans are lower than
existing mortgage loan rates (due to refinancing of adjustable-rate and
fixed-rate loans at lower rates). Under the latter circumstance, the weighted
average yield on loans decreases as higher yielding loans are repaid or
refinanced at lower rates.
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. One of the primary
lending activities of First Bank is the origination of loans secured by
single-family residences. At September 30, 2000,
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<PAGE>
$46.3 million or 40.7% of the total loan portfolio, before net items, consisted
of single-family residential loans. Of this amount, $3.4 million amount
consisted of second mortgage loans.
The loan-to-value ratio, maturity and other provisions of the loans
made by First Bank generally have reflected the policy of making less than the
maximum loan permissible under applicable regulations, in accordance with sound
lending practices, market conditions and underwriting standards established by
First Bank. First Bank's present lending policies on one- to four-family
residential mortgage loans generally limit the maximum loan-to-value ratio to
85% of the lesser of the appraised value or purchase price of the property. If
First Bank originates a residential mortgage loan with a loan-to-value in
excess of 90%, First Bank typically requires the borrower to obtain private
mortgage insurance. Residential mortgage loans are amortized on a monthly basis
with principal and interest due each month. The loans generally include
"due-on-sale" clauses.
First Bank's residential mortgage loans have either fixed rates of
interest or interest rates which adjust periodically during the term of the
loan. Fixed-rate loans generally have maturities ranging from 10 to 30 years and
are fully amortizing with monthly loan payments sufficient to repay the total
amount of the loan with interest by the end of the loan term. First Bank's
fixed-rate loans generally are originated under terms, conditions and
documentation which permit them to be sold to U.S. Government-sponsored
agencies, such as the Federal Home Loan Mortgage Corporation, and other
investors in the secondary market for mortgages. First Bank sells substantially
all fixed-rate loans with terms greater than 12 years in the secondary market.
At September 30, 2000, $4.8 million, or 10.4%, of First Bank's single-family
residential mortgage loans were fixed-rate loans.
The adjustable-rate single-family residential mortgage loans currently
offered by First Bank have interest rates which adjust every one, three or five
years in accordance with a designated index such as one-, three- or five-year
U.S. Treasury obligations adjusted to a constant maturity, plus a stipulated
margin. In addition, First Bank offers an adjustable rate mortgage loan with a
fixed-rate for the first ten years which adjusts on an annual basis thereafter.
First Bank's adjustable-rate single-family residential real estate loans
generally have a cap of 2% on any increase or decrease in the interest rate at
any adjustment date, and include a specified cap on the maximum interest rate
over the life of the loan, which cap generally is 6% above the initial rate.
Such loans generally are underwritten based on the initial rate. First Bank's
adjustable-rate loans require that any payment adjustment resulting from a
change in the interest rate of an adjustable-rate loan be sufficient to result
in full amortization of the loan by the end of the loan term and, thus, do not
permit any of the increased payment to be added to the principal amount of the
loan, or so-called negative amortization. At September 30, 2000, $41.5 million
or 89.6% of First Bank's single-family residential mortgage loans were
adjustable-rate loans.
At September 30, 2000, First Bank's second mortgage or home equity
loans amounted to $3.4 million or 3.0% of the total loan portfolio. These loans
are secured by the underlying equity in the borrower's residence. As a result,
First Bank generally requires loan-to-value ratios of 90% or less after taking
into consideration the first mortgage loan held by First Bank. If First Bank
does not own or service the first mortgage, it will limit the total
loan-to-value ratio to 80%. These loans typically have ten year terms with an
interest rate adjustment after five years.
Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
increase, the loan payment by the borrower increases to the extent permitted by
the terms of the loan, thereby increasing the potential for default. Moreover,
as with fixed-rate loans, as interest rates increase, the marketability of the
underlying collateral property may be adversely affected by higher interest
rates. First Bank believes that these risks, which have not
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<PAGE>
had a material adverse effect on First Bank to date, generally are less than the
risks associated with holding fixed-rate loans in an increasing interest rate
environment.
COMMERCIAL AND INDUSTRIAL LOANS. First Bank's commercial real estate
and industrial loan portfolio primarily consists of loans secured by office
buildings, warehouses, production facilities, retail stores and restaurants
located within First Bank's market area. Commercial real estate and industrial
loans amounted to $8.6 million or 7.6% of the total loan portfolio at September
30, 2000, with an average loan balance of approximately $69,000.
First Bank's commercial real estate loans typically have a
loan-to-value ratio of 75% or less and generally have higher interest rates than
single-family residential mortgage loans. The maximum term of First Bank's
commercial real estate loans is 10 years based on a 20 or 30 year amortization
schedule. Otherwise, First Bank's commercial real estate loans have terms which
are substantially similar to its single-family residential mortgage loans.
Commercial real estate lending is generally considered to involve a
higher degree of risk than one- to four-family residential lending. Such lending
typically involves large loan balances concentrated in a single borrower or
groups of related borrowers for rental or business properties. In addition, the
payment experience on loans secured by income-producing properties is typically
dependent on the success of the operation of the related project and thus is
typically affected by adverse conditions in the real estate market and in the
economy. First Bank generally attempts to mitigate the risks associated with its
commercial real estate lending by, among other things, lending primarily in its
market area and using low loan-to-value ratios in the underwriting process.
AGRICULTURAL LOANS. At September 30, 2000, First Bank's agricultural
loans amounted to $11.9 million or 10.4% of the total loan portfolio. First
Bank's agricultural loans are primarily secured by farm land in its market area
and other counties in Illinois and Indiana contiguous to its market area. First
Bank's agricultural loans have interest rates which adjust every one, three or
five years in accordance with a designated index and are amortized over 20
years. A portion of these loans also include a balloon payment after 10 years.
First Bank's lending policies on agricultural loans originated for its portfolio
generally limit the maximum loan-to-value ratio to 80% of the lesser of the
appraised value or purchase price of the property.
First Bank's agricultural loans generally are originated under terms,
conditions and documentation which permit them to be sold to a variety of
investors in the secondary market. These loans are also underwritten to carry a
government guarantee that covers 90% of any loss on the loan. By way of example,
assume that First Bank originates a conforming $100,000 agricultural loan and
subsequently sells $90,000 of the loan in the secondary market with servicing
retained. Again, assume that the borrower defaults on the loan, and the value of
the property is $50,000. First Bank would purchase the $90,000 portion from the
investor, foreclose on the loan and sell the property for $50,000. This would
result in an initial loss to First Bank of $50,000. However, as a result of the
government guarantee, First Bank would be reimbursed $45,000, representing 90%
of its loss of $50,000. First Bank's out of pocket loss in this example would be
$5,000. If First Bank originates an agricultural loan to be sold in the
secondary market, it may originate the loan with a loan-to-value of 90% of the
lesser of the appraised value or purchase price of the property.
COMMERCIAL BUSINESS LOANS. At September 30, 2000, First Bank's
commercial business loans amounted to $7.5 million or 6.6% of First Bank's loan
portfolio. First Bank's commercial business loans have a term of up to five
years and may have either floating rates tied to First Bank's internal prime
rate or fixed rates of interest. First Bank's commercial business loans are made
to small to medium-sized
51
<PAGE>
businesses within First Bank's market area. A substantial portion of First
Bank's small business loans are secured by perfected security interests in
accounts receivable and inventory or other corporate assets such as equipment.
First Bank also generally obtains personal guarantees from the principals of the
borrower with respect to all commercial business loans. In addition, First Bank
may extend loans for a commercial business purpose which are secured by a
mortgage on the proprietor's home or the business property. Commercial business
loans generally are deemed to involve a greater degree of risk than
single-family residential mortgage loans.
AGRICULTURAL PRODUCTION FINANCE LOANS. At September 30, 2000, First
Bank's agricultural production finance loans amounted to $10.9 million or 9.6%
of the total loan portfolio. These loans are extended to farmers in First Bank's
market area and other counties in Illinois and Indiana contiguous to its market
area for the purchase of equipment, seed, fertilizer, insecticide and other
purposes in connection with agricultural production. First Bank's agricultural
production finance loans have terms of one, three or five years with a fixed
rate of interest. The interest rate is increased with respect to the three and
five year loans due to the increased risk of these loans. The amount of these
loans is based on management's review of the borrower's business plan, prior
performance of the land, marketability of crops and current market prices. First
Bank requires a minimum debt service coverage ratio of 1.1. These loans are
secured by crops, equipment, accounts receivable, inventory and second mortgages
on the farm land.
First Bank's agricultural production finance loans are also generally
originated under terms, conditions and documentation which allow them to be sold
to a variety of investors in the secondary market. These loans also carry a
government guarantee of up to 90% of any loss. If First Bank originates an
agricultural production finance loan to be sold in the secondary market, it will
extend the term of the loan to seven years.
CONSUMER LOANS. First Bank is authorized to make loans for a wide
variety of personal or consumer purposes. At September 30, 2000, $26.9 million
or 23.7% of First Bank's total loan portfolio consisted of consumer loans.
First Bank originates consumer loans in order to provide a full range
of financial services to its customers and because such loans generally have
shorter terms and higher interest rates than residential mortgage loans. The
consumer loans offered by First Bank include vehicle loans, consumer finance
loans, loans secured by deposit accounts in First Bank and other miscellaneous
loans.
First Bank offers vehicle loans on both new and used vehicles, with a
significant portion of the loans secured by recent model used vehicles. The
vehicle loans offered by First Bank have fixed interest rates and terms of up to
seven years for new vehicles and up to five years for used vehicles. Vehicle
loans amounted to $22.5 million or 19.8% of the total loan portfolio at
September 30, 2000. All of First Bank's vehicle loans are directly underwritten
by First Bank. First Bank does not purchase any indirect vehicle loans.
At September 30, 2000, First Bank's consumer finance loans amounted to
$1.3 million or 1.1% of the total loan portfolio. These loans are typically
secured by household items such as furniture and electronic appliances and
equipment. These loans are primarily underwritten based on the collateral and
debt to income ratios. First Bank generally limits the terms of these loans to
three years with a fixed interest rate.
52
<PAGE>
First Bank offers loans secured by deposit accounts in First Bank,
which loans amounted to $773,000 or .68% of First Bank's total loan portfolio at
September 30, 2000. Such loans are originated for up to 90% of the account
balance, with a hold placed on the account restricting the withdrawal of the
account balance. The interest rate on the loan is equal to the interest rate
paid on the account plus 2%. These loans mature on or before the maturity date
of the underlying certificate of deposit.
Other consumer loans primarily consist of unsecured personal loans.
These loans amounted to $2.3 million or 2.1% of the total loan portfolio at
September 30, 2000.
Consumer loans generally have shorter terms and higher interest rates
than mortgage loans but generally involve more credit risk than mortgage loans
because of the type and nature of the collateral and, in certain cases, the
absence of collateral. In addition, consumer lending collections are dependent
on the borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness and personal bankruptcy. In
many cases, any repossessed collateral for a defaulted consumer loan will not
provide an adequate source of repayment of the outstanding loan balance because
of improper repair and maintenance of the underlying security. The remaining
deficiency often does not warrant further substantial collection efforts against
the borrower. First Bank believes that the generally higher yields earned on
consumer loans compensate for the increased credit risk associated with such
loans and that consumer loans are important to its efforts to increase rate
sensitivity, shorten the average maturity of its loan portfolio and provide a
full range of services to its customers.
MULTI-FAMILY RESIDENTIAL LOANS. First Bank also has a relatively small
amount of multi-family (over four units) residential loans. The multi-family
residential mortgage loans are underwritten on substantially the same basis as
its commercial real estate loans, although loan-to-value ratios may be up to
80%. At September 30, 2000, First Bank had $303,000 in multi-family residential
mortgage loans which amounted to .27% of the total portfolio.
CONSTRUCTION LOANS. At September 30, 2000, First Bank had approximately
$131,000 in single-family residential construction loans. The construction loans
of First Bank are comprised largely of loans made to borrowers to construct
individual pre-sold homes. Generally, the construction loan and the permanent
mortgage loan are originated at one closing as a construction/permanent loan.
Interest-only payments are required during the construction period, which is
typically six months.
Construction lending is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, owner-occupied real
estate because of the uncertainties of construction, including the possibility
of costs exceeding the initial estimates and the need to obtain a tenant or
purchaser if the property will not be owner-occupied. First Bank generally
attempts to mitigate the risks associated with construction lending by, among
other things, lending in its market area, using conservative underwriting
guidelines, and monitoring the construction process.
TAX EXEMPT LOANS. First Bank's tax exempt loans amounted to $1.1
million or .98% of the total loan portfolio at September 30, 2000. These loans
represent participation interests in two industrial revenue bonds for a local
business and a local hospital.
LOAN ORIGINATION AND OTHER FEES. In addition to interest earned on
loans, First Bank receives loan origination fees or "points" for originating
loans. Loan points are a percentage of the principal amount of the mortgage loan
and are charged to the borrower in connection with the origination of the loan.
53
<PAGE>
ASSET QUALITY
GENERAL. First Bank mails delinquent notices to borrowers when a
borrower fails to make a required payment within 15 days of the date due.
Additional notices are sent out when a loan becomes 30 days or 60 days past due.
If a loan becomes 90 days past due, First Bank mails a notice indicating that
First Bank will refer it to an attorney within 30 days to commence foreclosure.
In most cases, deficiencies are cured promptly. While First Bank generally
prefers to work with borrowers to resolve such problems, First Bank will
institute foreclosure or other collection proceedings when necessary to minimize
any potential loss.
Loans are placed on non-accrual status when management believes the
probability of collection of interest is insufficient to warrant further
accrual. When a loan is placed on non-accrual status, previously accrued but
unpaid interest is deducted from interest income. As a matter of policy, First
Bank generally discontinues the accrual of interest income when the loan becomes
90 days past due as to principal or interest.
Real estate and other assets acquired by First Bank as a result of
foreclosure or by deed-in-lieu of foreclosure are classified as real estate
owned until sold. First Bank had $832,000 of real estate owned at September
30, 2000. This category consists primarily of farm land which is being
marketed for sale and equipment and accounts receivable for an asphalt plant.
DELINQUENT LOANS. The following table sets forth information concerning
delinquent loans at September 30, 2000, in dollar amounts and as a percentage of
First Bank's total loan portfolio. The amounts presented represent the total
outstanding principal balances of the related loans, rather than the actual
payment amounts which are past due.
<TABLE>
<CAPTION>
September 30, 2000
----------------------------------------------------------------------------------
30-59 90 or More Days
Days Overdue 60-89 Days Overdue Overdue
----------------------- ---------------------- ----------------------
Percent Percent Percent
of Total of Total of Total
Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Real estate loans:
One-to-four family............... $195 0.17% $ 910 0.81% 541 0.49%
Commercial and industrial........ 18 0.02 21 0.02 -- --
Agricultural loans............... 90 0.08 353 0.31 188 0.17
Commercial business................ 12 0.01 8 0.01 2 0.00
Agricultural production finance.... 24 0.02 264 0.24 1,493 1.36
Consumer loans:
Vehicle.......................... 384 0.34 38 0.03 60 0.05
Consumer finance ................. 23 0.02 28 0.02 17 0.01
Other............................ 15 0.01 3 0.01 5 0.01
---- ----- ------ ---- ------ ----
Total loans...................... $761 0.67% $1,625 1.45% $2,306 2.09%
==== ===== ====== ==== ====== ====
</TABLE>
54
<PAGE>
NON-PERFORMING ASSETS. The following table presents information with
respect to First Bank's nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
At September 30, At December 31,
------------------- ---------------------------
2000 1999 1998
------- ------ ------
<S> <C> <C> <C>
(Dollars In Thousands)
NONACCRUING LOANS:
Real estate loans:
One-to-four family........................... $ 541 $ 502 $ 437
Commercial and industrial................... -- 123 83
Agricultural loans........................... 188 355 502
Commercial business............................ 2 123 504
Agricultural production finance................ 1,493 75 392
Consumer loans:
Vehicle ..................................... 60 105 52
Consumer finance ............................ 17 -- 8
Other........................................ 5 -- 7
------ ------ ------
Total nonaccruing loans.................... 2,306 1,283 1,985
------ ------ ------
Real estate owned(1)............................. 832 646 267
------ ------ ------
Total nonperforming assets(2).............. 3,138 1,929 2,252
Troubled debt restructurings..................... 294 54 --
------ ------ ------
Troubled debt restructurings and total
nonperforming assets........................... $3,432 $1,983 $2,252
====== ====== ======
Total nonperforming loans and troubled debt
restructurings as a percentage of total loans.. 2.28% 1.19% 1.80%
Total nonperforming assets and
troubled debt restructurings as a
percentage of total assets..................... 2.01% 1.18% 1.46%
</TABLE>
-----------------------
(1) Real estate owned includes other repossessed assets and the balances
are shown net of related loss allowances.
(2) Nonperforming assets consist of nonperforming loans, impaired loans,
other repossessed assets and real estate owned.
The increase in nonaccruing agricultural production finance loans at
September 30, 2000 compared to December 31, 1999 was due primarily to the
delinquency of one borrower with an outstanding balance of $718,000 at September
30, 2000. This loan has subsequently been paid off.
If the $2.3 million of non-accruing loans of First Bank had been
current in accordance with their terms during the nine months ended
September 30, 2000, the gross income on such loans would have been approximately
$150,000. A total of approximately $83,000 of interest income was actually
collected by First Bank on such loans in the nine months ended September 30,
2000.
CLASSIFIED ASSETS. Federal regulations require that each insured
savings institution classify its assets on a regular basis. In addition, in
connection with examinations of insured institutions, federal examiners have
authority to identify problem assets and, if appropriate, classify them. There
are three classifications for problem assets: "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a higher
possibility of loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset of the institution is not
warranted. Another category designated "special mention" also must be
established and maintained for assets which do not currently expose an insured
institution to a sufficient degree of risk to warrant classification as
substandard, doubtful or loss. Assets
55
<PAGE>
classified as substandard or doubtful require the institution to establish
general allowances for loan losses. If an asset or portion thereof is classified
loss, the insured institution must either establish specific allowances for loan
losses in the amount of 100% of the portion of the asset classified loss, or
charge-off such amount. General loss allowances established to cover possible
losses related to assets classified substandard or doubtful may be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses do not qualify as regulatory capital. Federal
examiners may disagree with an insured institution's classifications and amounts
reserved.
First Bank's total classified assets at September 30, 2000 (excluding
loss assets specifically reserved for) amounted to $4.1 million, $3.2 million of
which was classified as substandard, $479,000 of which was classified doubtful
and $402,000 of which was classified loss. The largest classified assets at
September 30, 2000 consisted of a $718,000 agricultural production finance
loan and a $580,000 commercial real estate loan. The $718,000 loan has
subsequently been paid off.
ALLOWANCE FOR LOAN LOSSES. At September 30, 2000, First Bank's
allowance for loan losses amounted to $1.7 million or 1.50% of the total loan
portfolio. The loan loss allowance is maintained by management at a level
considered adequate to cover estimated losses inherent in the existing portfolio
based on prior loan loss experience, known and probable risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, general economic conditions, and
other factors and estimates which are subject to change over time. While
management believes that it determines the size of the allowance based on the
best information available at the time, the allowance will need to be adjusted
as circumstances change and assumptions are updated. Future adjustments to the
allowance could significantly affect net income.
56
<PAGE>
The following table sets forth information concerning the allocation of
First Bank's allowance for loan losses by loan categories at the dates
indicated.
<TABLE>
<CAPTION>
September 30, December 31,
------------------------ ------------------------------------------------------
2000 1999 1998
------------------------ ------------------------- ------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars In Thousands)
Real estate loans:
One-to-four family........ $ 185 40.74% $ 128 35.83% $ 145 39.34%
Multi-family.............. 20 0.27 21 0.37 22 0.26
Commercial and industrial. 189 7.58 82 6.51 114 6.81
Construction.............. 19 0.12 20 1.07 23 1.19
Agricultural loans........ 26 10.43 26 9.36 38 10.22
Commercial business......... 293 6.61 391 6.93 365 5.27
Agricultural production
finance................... 661 9.61 579 13.05 478 14.85
Consumer loans:
Vehicle .................. 178 19.78 191 16.22 134 13.94
Consumer finance ......... -- 1.14 -- 3.33 -- 2.62
Share..................... -- 0.68 -- 0.94 -- 0.78
Other..................... 139 2.06 146 5.37 99 3.55
Tax-exempt loans.......... -- 0.98 -- 1.02 -- 1.17
-------- ----- ------ ------- ------ -------
Total................... $1,710 100.00% $1,584 100.00% $1,418 100.00%
======== ====== ====== ====== ====== ======
</TABLE>
57
<PAGE>
The following table sets forth an analysis of First Bank's allowance
for loan losses during the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
---------------------- -----------------------
2000 1999 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Dollars In Thousands)
Total loans outstanding................. $113,784 $113,346 $112,368 $110,127
Average loans outstanding, net.......... 112,058 110,040 111,405 106,009
Balance at beginning of period.......... 1,584 1,416 1,416 966
CHARGE-OFFS:
Real estate loans:
One-to-four family.................... -- 156 190 48
Commercial and industrial............. -- -- 16 --
Agricultural loans.................... -- 315 315 --
Commercial business..................... 175 -- 30 --
Agricultural production finance......... 162 88 223 98
Consumer loans:
Vehicle .............................. 87 25 35 27
Other................................. 142 33 75 65
-------- -------- -------- --------
Total charge-offs................. 566 617 884 238
-------- -------- -------- --------
RECOVERIES:
Real estate loans:
One-to-four family.................... -- 73 98 --
Agricultural production finance......... 58 -- 103 --
Consumer loans:
Automobile............................ 17 -- -- 6
Other................................. 32 6 6 8
-------- -------- -------- --------
Total recoveries.................. 107 79 207 14
-------- -------- -------- --------
Net charge-offs......................... (459) (538) (677) (224)
Provision for loan losses............... 585 614 845 674
-------- -------- -------- --------
Balance at end of period................ $ 1,710 $ 1,492 $ 1,584 $ 1,416
======== ======== ======== ========
Allowance for loan losses as a
percent of total loans outstanding.... 1.50% 1.32% 1.45% 1.29%
======== ======== ======== ========
Allowance for loan losses as a
percent of total non-performing loans. 74.15% 66.25% 123.46% 71.34%
======== ======== ======== ========
Ratio of net charge-offs to
average loans outstanding............. 0.41% 0.49% 0.61% 0.21%
======== ======== ======== ========
</TABLE>
INVESTMENT SECURITIES
First Bank has authority to invest in various types of securities,
including mortgage-backed securities, United States Treasury obligations,
securities of various federal agencies and of state and municipal governments,
certificates of deposit at federally-insured banks and savings institutions,
certain bankers' acceptances and federal funds. First Bank's investment strategy
is established by the Investment Committee which presently consists of Messrs.
Sprague, Welborn and Howard and Ellen M. Litteral. The Investment Committee
meets on a quarterly basis and the strategy established by the committee is
implemented by First Bank's President and its Chief Financial Officer. Any
material deviations from the investment strategy requires approval by the
Investment Committee.
58
<PAGE>
The following table sets forth information relating to the amortized
cost and fair value of the Savings Bank's securities all of which are classified
available for sale.
<TABLE>
<CAPTION>
September 30, December 31,
------------------------ -----------------------------------------------------
2000 1999 1998
------------------------ ------------------------ ------------------------
Amortized Amortized Amortized
Cost Fair Value Cost Fair Value Cost Fair Value
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Federal agencies....... $16,997 $16,155 $16,498 $15,563 $14,215 $14,221
State and municipal.... 4,856 4,775 4,015 3,890 3,313 3,433
Mortgage-backed
securities........... 16,112 16,036 13,170 13,030 6,105 6,126
Other securities....... 559 565 886 892 413 420
-------- -------- -------- -------- -------- --------
Total................ $38,524 $37,531 $34,569 $33,375 $24,046 $24,200
======== ======== ======== ======== ======== ========
</TABLE>
The following table sets forth the amount of First Bank's securities
which mature during each of the periods indicated and the weighted average
yields for each range of maturities at September 30, 2000. The amounts reflect
fair value of First Bank's securities at September 30, 2000.
<TABLE>
<CAPTION>
Contractually Maturing
--------------------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted
Under 1 Average Average 6-10 Average Over 10 Average
Year Yield 1-5 Years Yield Years Yield Years Yield Total
------- --------- --------- ------- ----- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(In Thousands)
Federal agencies........... $ -- -- % $7,189 6.01% $ 8,518 6.36% $ 448 6.56% $16,155
State and municipal........ -- -- 29 5.55 1,450 4.77 3,296 4.76 4,775
Mortgage-backed securities. 3,451 6.88 1,615 7.00 6,231 7.05 4,739 7.18 16,036
Other securities........... 565 5.77 -- -- -- -- -- -- 565
------ ------ ------- ------- -------
Total ................... $4,016 $8,833 $16,199 $ 8,483 $37,531
====== ====== ======= ======= =======
</TABLE>
Mortgage-backed securities represent a participation interest in a pool
of one- to four-family or multi-family mortgages. The mortgage originators use
intermediaries (generally U.S. Government agencies and government-sponsored
enterprises) to pool and repackage the participation interests in the form of
securities, with investors receiving the principal and interest payments on the
mortgages. Such U.S. Government agencies and government-sponsored enterprises
guarantee the payment of principal and interest to investors.
Mortgage-backed securities are typically issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as
prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security approximates the life of the underlying
mortgages.
The mortgage-backed securities of First Bank consist of Government
National Mortgage Association securities, Federal Home Loan Mortgage Corporation
securities and Federal National Mortgage Association securities. The Government
National Mortgage Association is a government agency within the Department of
Housing and Urban Development which is intended to help finance
government-assisted housing programs. Government National Mortgage Association
securities are backed by loans insured by the Federal Housing Administration, or
guaranteed by the Veterans Administration, and the timely payment of principal
and interest on Government National Mortgage Association securities are
guaranteed by the Government National Mortgage Association and backed by the
full faith and credit of the U.S. Government. The Federal Home Loan Mortgage
Corporation is a private corporation chartered by the U.S. Government. The
Federal Home Loan Mortgage Corporation
59
<PAGE>
issues participation certificates backed principally by conventional mortgage
loans. The Federal Home Loan Mortgage Corporation guarantees the timely payment
of interest and the ultimate return of principal on participation certificates.
The Federal National Mortgage Association is a private corporation chartered by
the U.S. Congress with a mandate to establish a secondary market for mortgage
loans. The Federal National Mortgage Association guarantees the timely payment
of principal and interest on Federal National Mortgage Association securities.
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association
securities are not backed by the full faith and credit of the United States, but
because the Federal Home Loan Mortgage Corporation and the Federal National
Mortgage Association are U.S. Government-sponsored enterprises, these securities
are considered to be among the highest quality investments with minimal credit
risks.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed
securities are more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of First Bank.
SOURCES OF FUNDS
GENERAL. Deposits are the primary source of First Bank's funds for
lending and other investment purposes. In addition to deposits, principal and
interest payments on loans and mortgage-backed securities are a source of funds.
Loan repayments are a relatively stable source of funds, while deposit inflows
and outflows are significantly influenced by general interest rates and money
market conditions. Borrowings may also be used on a short-term basis to
compensate for reductions in the availability of funds from other sources and on
a longer-term basis for general business purposes.
DEPOSITS. Deposits are attracted by First Bank principally from within
its primary market area. Deposit account terms vary, with the principal
differences being the minimum balance required, the time periods the funds must
remain on deposit and the interest rate.
First Bank obtains deposits primarily from residents of Illinois. First
Bank has not solicited deposits from outside Illinois or paid fees to brokers to
solicit funds for deposit.
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established on a periodic basis. Management determines the rates
and terms based on rates paid by competitors, the need for funds or liquidity,
growth goals and federal and state regulations. First Bank attempts to control
the flow of deposits by pricing its accounts to remain generally competitive
with other financial institutions in its market area.
60
<PAGE>
The following table shows the distribution of and certain other
information relating to First Bank's deposits by type as of the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31,
-------------------- -----------------------------------------------
2000 1999 1998
-------------------- --------------------- ---------------------
Percent Percent Percent
of of of
Amount Deposits Amount Deposits Amount Deposits
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars In Thousands)
Transaction accounts:
Demand deposits......................... $ 48,079 37.2% $ 34,295 27.1% $ 33,530 26.1%
Savings deposits........................ 7,672 5.9 9,379 7.4 10,937 8.5
-------- ----- -------- ------ -------- ------
Total transaction accounts............ 55,751 43.1 43,674 34.5 44,467 34.6
-------- ----- -------- ------ -------- ------
Certificate accounts:
0.00% - 3.99%........................... 35 -- -- -- -- --
4.00% - 5.99%........................... 36,860 28.6 73,096 57.8 63,002 49.1
6.00% - 7.99%........................... 36,519 28.3 9,809 7.7 20,880 16.3
-------- ----- -------- ------ -------- ------
Total certificate accounts............ 73,414 56.9 82,905 65.5 83,882 65.4
-------- ----- -------- ------ -------- ------
Total deposits...................... $129,165 100.0% $126,579 100.0% $128,349 100.00%
======== ===== ======== ===== ======== ======
</TABLE>
The following table sets forth the savings activities of First Bank
during the periods indicated.
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
------------- ---------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
(In Thousands)
Total deposits at beginning of period............ $126,579 $128,349 $119,483
Net deposits (withdrawals)....................... (1,992) (6,559) 3,472
Interest credited................................ 4,578 4,789 5,394
-------- -------- --------
Total deposits at end of period................ $129,165 $126,579 $128,349
======== ======== ========
</TABLE>
The following table shows the interest rate and maturity information
for First Bank's certificates of deposit at September 30, 2000.
<TABLE>
<CAPTION>
Maturity Date
------------------------------------------------------------------------------------------
Interest Rate One Year or Less Over 1-2 Years Over 2-3 Years Over 3 Years Total
-------------------- ---------------- -------------- -------------- ------------ -----
<S> <C> <C> <C> <C> <C>
(In Thousands)
0.00% - 3.99% ....... $ 35 $ -- $ -- $ -- $ 35
4.00% - 5.99% ....... 26,618 4,963 2,967 2,312 36,860
6.00% - 7.99% ....... 19,163 14,013 1,723 1,620 36,519
------- ------- ------ ------ -------
Total $45,816 $18,976 $4,690 $3,932 $73,414
======= ======= ====== ====== =======
</TABLE>
61
<PAGE>
As of September 30, 2000, the aggregate amount of outstanding time
certificates of deposit at First Bank in amounts greater than or equal to
$100,000, was approximately $16.6 million. The following table presents the
maturity of these time certificates of deposit at such dates.
<TABLE>
<CAPTION>
September 30, 2000
------------------
(In Thousands)
<S> <C>
3 months or less........................................................... $ 4,889
Over 3 months through 6 months............................................. 2,247
Over 6 months through 12 months............................................ 4,396
Over 12 months............................................................. 5,085
-------
$16,617
=======
</TABLE>
BORROWINGS. First Bank may obtain advances from the Federal Home Loan
Bank of Chicago upon the security of the common stock it owns in that bank and
certain of its residential mortgage loans and mortgage-backed and other
investment securities, provided certain standards related to creditworthiness
have been met. These advances are made pursuant to several credit programs, each
of which has its own interest rate and range of maturities. Federal Home Loan
Bank advances are generally available to meet seasonal and other withdrawals of
deposit accounts and to permit increased lending.
The following table shows certain information regarding the short-term
borrowings of First Bank at or for the dates indicated:
<TABLE>
<CAPTION>
At or for the Nine Months At or for the Year Ended
Ended September 30, December 31,
------------------------- --------------------------
2000 1999 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Dollars In Thousands)
Federal Home Loan Bank open line of credit:
Average balance outstanding.................. $1,500 $3,167 $3,375 $1,750
Maximum amount outstanding at any
month-end during the period................ 3,500 7,000 7,000 5,000
Balance outstanding at end of period......... $1,000 $6,000 $5,500 $ --
Average interest rate during the period...... 6.40% 5.09% 5.24% 5.66%
Weighted average interest rate at end of
period..................................... 6.96% 5.89% 4.74% 5.13%
</TABLE>
At September 30, 2000, First Bank had $26.5 million of long-term
Federal Home Loan Bank advances secured by first mortgage loans and investment
securities aggregating $45.5 million. Of these borrowings at September 30, 2000,
$18.5 million contractually mature in 2001, $5.0 million contractually mature in
2004 and $3.0 million contractually mature after 2004. In addition, at September
30, 2000, $8.0 million of First Bank's advances were callable as follows: $5.0
million in 2000; $1.5 million in 2001; and $1.5 million in 2003. If these
advances mature or are called in a rising interest rate environment, First Bank
may be required to replace these advances with higher rate advances.
62
<PAGE>
SUBSIDIARIES
At September 30, 2000, First Bank had three subsidiaries, ECS Service
Corporation, First Charter Service Corporation and Community Finance Center,
Inc.
Community Finance Corporation, Inc. is an Illinois chartered
corporation which provides retail consumer loans to First Bank's customers.
Community Finance Corporation, Inc. generated net income (loss) of approximately
$(19,200) and $28,700 during the nine months ended September 30, 2000 and the
year ended December 31, 1999.
ESC Service Corporation is an Illinois chartered corporation which
provides real estate extracting and title service for Edgar and Clark Counties,
Illinois to First Bank's customers. ESC Service Corporation generated net income
of approximately $36,000 and $4,100 during the nine months ended September 30,
2000 and the year ended December 31, 1999.
First Charter Service Corporation is an Illinois chartered corporation
which provides retail sales of uninsured investment products to First Bank's
customers. First Charter Service Corporation generated net income of
approximately $40,100 and $1,100 during the nine months ended September 30, 2000
and the year ended December 31, 1999.
TOTAL EMPLOYEES
First Bank had 68 full-time employees and 10 part-time employees at
September 30, 2000. None of these employees are represented by a collective
bargaining agent, and First Bank believes that it enjoys good relations with its
personnel.
COMPETITION
First Bank faces significant competition both in attracting deposits
and in making loans. Its most direct competition for deposits has come
historically from commercial banks, credit unions and other savings institutions
located in its primary market area, including many large financial institutions
which have greater financial and marketing resources available to them. In
addition, First Bank faces significant competition for investors' funds from
short-term money market securities, mutual funds and other corporate and
government securities. First Bank does not rely upon any individual group or
entity for a material portion of its deposits. The ability of First Bank to
attract and retain deposits depends on its ability to generally provide a rate
of return, liquidity and risk comparable to that offered by competing investment
opportunities.
First Bank's competition for real estate loans comes principally from
mortgage banking companies, commercial banks, other savings institutions and
credit unions. First Bank competes for loan originations primarily through the
interest rates and loan fees it charges, and the efficiency and quality of
services it provides borrowers. Factors which affect competition include general
and local economic conditions, current interest rate levels and volatility in
the mortgage markets. Competition may increase as a result of the continuing
reduction of restrictions on the interstate operations of financial institutions
and the anticipated slowing of refinancing activity.
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<PAGE>
PROPERTIES
The following table sets forth certain information relating to First
Bank's offices at September 30, 2000.
<TABLE>
<CAPTION>
NET BOOK VALUE OF
PROPERTY AND
LEASE LEASEHOLD
OWNED OR EXPIRATION IMPROVEMENTS AT DEPOSITS AT
LOCATION LEASED DATE SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
-------- ------ ---- ------------------ ------------------
<S> <C> <C> <C> <C>
(In Thousands)
101 South Central Avenue..... Owned(1) -- $434 $ --
Paris, Illinois 61944
206 South Central Avenue..... Owned -- 712 87,572
Paris, Illinois 61944
610 North Michigan Avenue.... Owned -- 285 41,593
Marshall, Illinois 62441
</TABLE>
-------------------
(1) This property represents First Bank's operations office.
LEGAL PROCEEDINGS
Other than as discussed below, First Bank is involved in routine legal
proceedings occurring in the ordinary course of business which, in the
aggregate, are believed by management to be immaterial to the financial
condition and results of operations of First Bank.
MERRI L. VOIGT V. FIRST BANK & TRUST, S.B., (United States District
Court, Central District of Illinois). In November 1999, this lawsuit was filed
against First Bank alleging that the plaintiff's employment as compliance
officer was terminated in violation of 12 U.S.C. 1831(j) "Depository Institution
Employee Protection Remedy." The complaint alleges that the plaintiff's
employment was terminated due to communications with the FDIC regarding First
Bank's internal auditing procedures. The plaintiff seeks a declaratory judgment
that First Bank violated 12 U.S.C. 1831(j), a mandatory injunction prohibiting
employees of First Bank from taking prohibited actions with respect to the
plaintiff and re-employment as compliance officer. The lawsuit is currently in
its discovery phase and trial is set for September 10, 2001. Though not yet
quantified, the complaint seeks compensation damages, exemplary damages, legal
expenses and "other" relief. First Bank will vigorously defend the claims made
by the plaintiff and believes that those claims are without merit.
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<PAGE>
REGULATION
THE FOLLOWING DISCUSSION OF CERTAIN LAWS AND REGULATIONS WHICH ARE
APPLICABLE TO FIRST BANCTRUST AND FIRST BANK & TRUST, S. B., AS WELL AS
DESCRIPTIONS OF LAWS AND REGULATIONS CONTAINED ELSEWHERE HEREIN, SUMMARIZES THE
ASPECTS OF SUCH LAWS AND REGULATIONS WHICH ARE DEEMED TO BE MATERIAL TO FIRST
BANCTRUST AND FIRST BANK. HOWEVER, THE SUMMARY DOES NOT PURPORT TO BE COMPLETE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPLICABLE LAWS AND
REGULATIONS.
The following discussion of certain laws and regulations which are
applicable to First BancTrust Corporation and First Bank, as well as
descriptions of laws and regulations contained elsewhere herein, summarizes the
aspects of such laws and regulations which are deemed to be material to First
BancTrust Corporation and First Bank. However, the summary does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
FIRST BANCTRUST CORPORATION
HOLDING COMPANY ACQUISITIONS. When we complete the conversion, First
BancTrust Corporation will become a bank holding company within the meaning of
the Bank Holding Company Act and will be required to register with the Federal
Reserve Board. Federal law generally prohibits a company, without prior Federal
Reserve approval, from acquiring the ownership or control of any bank. In
accordance with Federal Reserve Board policy, the First BancTrust Corporation
will be expected to act as a source of financial strength to First Bank and to
commit resources to support First Bank in circumstances where First BancTrust
Corporation might not do so absent such policy. Under the Bank Holding Company
Act, the First BancTrust Corporation will be subject to periodic examination by
the Federal Reserve Board and will be required to file periodic reports of its
operations and such additional information as the Federal Reserve Board may
require. Because First Bank is chartered under Illinois law, the First BancTrust
Corporation will also be subject to registration with, and regulation by, the
Commissioner under the Illinois Savings Bank Act.
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (the "1999 Act") which repealed Depression-era laws that
generally separated the business of banking from other financial services
including the business of insurance and securities. From time to time other
bills may be introduced in the United States Congress which could result in
additional or in less regulation of the business of the Company and First Bank.
It cannot be predicted at this time whether any such legislation actually will
be adopted or how such adoption would affect the business of the Company or
First Bank.
BANK HOLDING COMPANY ACT ACTIVITIES AND OTHER LIMITATIONS. A bank
holding company is a legal entity separate and distinct from its subsidiary bank
or banks. Normally, the major source of a holding company's revenue is dividends
a holding company receives from its subsidiary banks. The right of a bank
holding company to participate as a stockholder in any distribution of assets of
its subsidiary banks upon their liquidation or reorganization or otherwise is
subject to the prior claims of creditors of such subsidiary banks. The
subsidiary banks are subject to claims by creditors for long-term and short-
term debt obligations, including obligations for Federal funds purchased and
securities sold under repurchase agreements, as well as deposit liabilities.
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989,
in the event of a loss suffered by the FDIC in connection with a banking
subsidiary of a bank holding company (whether due to a default or the provision
of FDIC assistance), other banking subsidiaries of the holding company could be
assessed for such loss.
65
<PAGE>
The Bank Holding Company Act also prohibits a bank holding company,
with certain exceptions, from acquiring more than 5% of the voting shares of any
company that is not a bank and from engaging in any business other than banking
or managing or controlling banks. Under the Bank Holding Company Act, the
Federal Reserve Board is authorized to approve the ownership of shares by a bank
holding company in any company, the activities of which the Federal Reserve
Board has determined to be so closely related to banking or to managing or
controlling banks as to be a proper incident thereto. In making such
determinations, the Federal Reserve Board is required to weigh the expected
benefit to the public, such as greater convenience, increased competition or
gains in efficiency, against the possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices. A bank holding company that becomes a
Financial Holding Company under the 1999 Act is permitted to engage in
activities that are financial in nature or incidental to such financial
activities. The 1999 Act lists certain activities that are considered financial
in nature and permits the Federal Reserve Board to expand that list to include
other activities that are complementary to the activities on the preapproved
list. The preapproved activities include (1) securities underwriting, dealing
and market making; (2) insurance underwriting; (3) merchant banking; and (4)
insurance company portfolio investments.
The Federal Reserve Board has by regulation determined that certain
activities are closely related to banking within the meaning of the Bank Holding
Company Act. These activities include operating a mortgage company, finance
company, credit card company, factoring company, trust company or savings
association; performing certain data processing operations; providing limited
securities brokerage services; acting as an investment or financial advisor;
acting as an insurance agent for certain types of credit-related insurance;
leasing personal property on a full-payout, non-operating basis; providing tax
planning and preparation services; operating a collection agency; and providing
certain courier services. The Federal Reserve Board also has determined that
certain other activities, including real estate brokerage and syndication, land
development, property management and underwriting of life insurance not related
to credit transactions, are not closely related to banking and a proper incident
thereto. However, under the 1999 Act certain of these activities are permissible
for a bank holding company that becomes a Financial Holding Company.
CAPITAL REQUIREMENTS. The Federal Reserve Board has adopted capital
adequacy guidelines for bank holding companies (on a consolidated basis)
substantially similar to those of the FDIC for First Bank. On a pro forma basis
assuming consummation of the conversion, the First BancTrust Corporation's pro
forma Tier 1 and total capital would significantly exceed the Federal Reserve
Board's capital adequacy requirements.
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between a
savings bank and its "affiliates" are subject to quantitative and qualitative
restrictions under Sections 23A and 23B of the Federal Reserve Act and FDIC
regulations. Affiliates of a savings bank include, among other entities, the
savings bank's holding company and companies that are controlled by or under
common control with the savings bank.
In general, the extent to which a savings bank or its subsidiaries may
engage in certain "covered transactions" with affiliates is limited to an amount
equal to 10% of the institution's capital and surplus, in the case of covered
transactions with any one affiliate, and to an amount equal to 20% of such
capital and surplus, in the case of covered transactions with all affiliates. In
addition, a savings bank and its subsidiaries may engage in covered transactions
and certain other transactions only on terms and under circumstances that are
substantially the same, or at least as favorable to the savings bank or its
subsidiary, as those prevailing at the time for comparable transactions with
nonaffiliated companies. A "covered transaction" is defined to include a loan or
extension of credit to an affiliate; a purchase of
66
<PAGE>
investment securities issued by an affiliate; a purchase of assets from an
affiliate, with certain exceptions; the acceptance of securities issued by an
affiliate as collateral for a loan or extension of credit to any party; or the
issuance of a guarantee, acceptance or letter of credit on behalf of an
affiliate.
In addition, Sections 22(h) and (g) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10% stockholder of a bank, and certain affiliated interests of
either, may not exceed, together with all other outstanding loans to such person
and affiliated interests, the bank's loans to one borrower limit (generally
equal to 15% of the institution's unimpaired capital and surplus). Section 22(h)
also requires that loans to directors, executive officers and principal
stockholders be made on terms substantially the same as offered in comparable
transactions to other persons and also requires prior board approval for certain
loans. In addition, the aggregate amount of extensions of credit by a bank to
all insiders cannot exceed the institution's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to executive
officers.
FEDERAL SECURITIES LAWS. First BancTrust Corporation has filed with the
SEC a registration statement under the Securities Act of 1933 for the
registration of the common stock to be issued pursuant to the conversion. Upon
consummation of the conversion, First BancTrust Corporation intends to register
its common stock with the SEC under Section 12(g) of the Securities Exchange Act
of 1934. First BancTrust Corporation will then be subject to the proxy and
tender offer rules, insider trading reporting requirements and restrictions, and
certain other requirements under the Exchange Act. Pursuant to FDIC regulations
and the Plan of Conversion, First BancTrust Corporation has agreed to maintain
such registration for a minimum of three years following the conversion.
The registration under the Securities Act of the shares of common stock
to be issued in the conversion does not cover the resale of such shares. Shares
of common stock purchased by persons who are not affiliates of First BancTrust
Corporation may be sold without registration. Shares purchased by an affiliate
of First BancTrust Corporation will be subject to the resale restrictions of
Rule 144 under the Securities Act. If First BancTrust Corporation meets the
current public information requirements of Rule 144 under the Securities Act,
each affiliate of First BancTrust Corporation who complies with the other
conditions of Rule 144 would be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period, the
greater of (a) 1% of the outstanding shares of First BancTrust Corporation or
(b) the average weekly volume of trading in such shares during the preceding
four calendar weeks.
FIRST BANK
GENERAL. First Bank is an Illinois-chartered savings bank, the deposit
accounts of which are insured by the Saving Association Insurance Fund of the
FDIC. As a Savings Association Insurance Fund insured, Illinois-chartered
savings bank, the Savings Bank is subject to the examination, supervision,
reporting and enforcement requirements of the Illinois Office of Banks and Real
Estate , as the chartering authority for Illinois savings banks, and the FDIC,
as administrator of the Savings Association Insurance Fund, and to the statutes
and regulations administered by the Illinois Office of Banks and Real Estate and
the FDIC governing such matters as capital standards, mergers, establishment of
branch offices, subsidiary investments and activities and general investment
authority. First Bank is required to file reports with the Illinois Office of
Banks and Real Estate and the FDIC concerning its activities and financial
condition and will be required to obtain regulatory approvals prior to entering
into certain transactions, including mergers with, or acquisitions of, other
financial institutions.
67
<PAGE>
The Illinois Office of Banks and Real Estate and the FDIC have
extensive enforcement authority over Illinois-chartered savings banks, such as
First Bank. This enforcement authority includes, among other things, the ability
to issue cease-and-desist or removal orders, to assess civil money penalties and
to initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe and unsound
practices.
The Illinois Office of Banks and Real Estate has established a schedule
for the assessment of "supervisory fees" upon all Illinois savings banks to fund
the operations of the Illinois Office of Banks and Real Estate. These
supervisory fees are computed on the basis of each savings bank's total assets
(including consolidated subsidiaries) and are payable at the end of each
calendar quarter. A schedule of fees has also been established for certain
filings made by Illinois savings banks with the Illinois Office of Banks and
Real Estate. The Illinois Office of Banks and Real Estate also assesses fees for
examinations conducted by the Illinois Office of Banks and Real Estate's staff,
based upon the number of hours spent by the staff performing the examination.
During the year ended December 31, 1999, First Bank paid approximately $19,800
in supervisory fees and expenses.
INSURANCE OF ACCOUNTS. The deposits of First Bank are insured to the
maximum extent permitted by the Savings Association Insurance Fund, which is
administered by the Federal Deposit Insurance Corporation. As insurer, the FDIC
is authorized to conduct examinations of, and to require reporting by,
FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious threat to the FDIC. The FDIC also has the authority to initiate
enforcement actions against savings banks such as First Bank.
Savings Association Insurance Fund insured institutions are assigned to
one of three capital groups which are based solely on the level of an
institution's capital--"well capitalized," "adequately capitalized," and
"undercapitalized." These capital levels are defined in the same manner as under
the prompt corrective action system discussed below. These three groups are then
divided into three subgroups which reflect varying levels of supervisory
concern, from those banks which are considered to be healthy to those which are
considered to be of substantial supervisory concern. The matrix so created
results in nine assessment risk classifications, with rates ranging prior to
September 30, 1996, from .23% for well capitalized, healthy institutions to .31%
for undercapitalized institutions with substantial supervisory concerns. The
insurance premiums for First Bank for 1999 and the first nine months of 2000
were .23% (per annum) of insured deposits.
Both the Savings Association Insurance Fund and the Bank Insurance Fund
are required by law to maintain a reserve ratio of 1.25% of insured deposits.
The Bank Insurance Fund achieved a fully funded status first, and effective
January 1, 1996 the FDIC substantially reduced the average deposit insurance
premium paid by Bank Insurance Fund insured banks. The deposit insurance
premiums for Bank Insurance Fund member institutions were reduced to zero basis
points (subject to a $2,000 minimum) for institutions in the lowest risk
category, as compared to 23 basis points for Savings Association Insurance Fund
members in the lowest risk category.
On September 30, 1996, new legislation required all Savings Association
Insurance Fund member institutions to pay a one-time special assessment to
recapitalize the Savings Association Insurance Fund, with the aggregate amount
to be sufficient to bring the reserve ratio to 1.25% of insured deposits. The
legislation also provided for the elimination of the premium differential
between Savings Association Insurance Fund insured and Bank Insurance Fund
insured institutions and for the merger of the Bank Insurance Fund and the
Savings Association Insurance Fund, with the merger being conditioned upon the
prior elimination of the thrift charter.
68
<PAGE>
Beginning January 1, 1997, effective Savings Association Insurance
Fund rates generally range from zero basis points to 27 basis points. From
1997 through 1999, Savings Association Insurance Fund members paid 6.4 basis
points to fund the Financing Corporation, while Bank Insurance Fund member
institutions paid approximately 1.3 basis points. First Bank's insurance
premiums, which had amounted to 23 basis points, were thus reduced to 6.4
basis points effective January 1, 1997. Based on First Bank's assessable
deposits in 1998 and 1999, the premium reduction resulted in a pre-tax cost
savings of approximately $183,100 in 1998 and $186,800 in 1999 for First Bank.
The FDIC may terminate the deposit insurance of any insured depository
institution, including First Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of First Bank's deposit insurance.
CAPITAL REQUIREMENTS. The FDIC has promulgated regulations and adopted
a statement of policy regarding the capital adequacy of state-chartered banks
which, like First Bank, are not members of the Federal Reserve System. The
FDIC's capital regulations establish a minimum 3.0% Tier I leverage capital
requirement for the most highly-rated state-chartered, non-member banks, with an
additional cushion of at least 100 to 200 basis points for all other
state-chartered, non-member banks, which effectively will increase the minimum
Tier I leverage ratio for such other banks to 4.0% to 5.0% or more. Under the
FDIC's regulation, highest-rated banks are those that the FDIC 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, which are considered a strong
banking organization, rated composite 1 under the Uniform Financial Institutions
Rating System. Leverage or core capital is defined as the sum of common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and related surplus, and minority interests in consolidated
subsidiaries, minus all intangible assets other than certain qualifying
supervisory goodwill, and certain purchased mortgage servicing rights and
purchased credit and relationships.
The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires the
maintenance of total capital which is defined as Tier I capital and
supplementary (Tier 2 capital) to risk weighted assets of 8%. In determining the
amount of risk-weighted assets, all assets, plus certain off balance sheet
assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the
FDIC believes are inherent in the type of asset or item.
The components of Tier I capital are equivalent to those discussed
above under the 3% leverage standard. The components of supplementary (Tier 2)
capital include certain perpetual preferred stock, certain mandatory convertible
securities, certain subordinated debt and intermediate preferred stock and
general allowances for loan and lease losses. Allowance for loan and lease
losses includable in supplementary capital is limited to a maximum of 1.25% of
risk-weighted assets. Overall, the amount of capital counted toward
supplementary capital cannot exceed 100% of core capital. At September 30, 2000,
First Bank met each of its capital requirements.
A bank which has less than the minimum leverage capital requirement
must, within 60 days of the date as of which it fails to comply with such
requirement, submit to its FDIC regional director for review and approval a
reasonable plan describing the means and timing by which the bank shall achieve
69
<PAGE>
its minimum leverage capital requirement. A bank which fails to file such plan
with the FDIC is deemed to be operating in an unsafe and unsound manner and
could subject the bank to a cease-and-desist order from the FDIC. The FDIC's
regulation also provides that any insured depository institution with a ratio of
Tier I capital to total assets that is less than 2.0% is deemed to be operating
in an unsafe or unsound condition pursuant to Section 8(a) of the Federal
Deposit Insurance Act and is subject to potential termination of deposit
insurance. However, such an institution will not be subject to an enforcement
proceeding thereunder solely on account of its capital ratios if it has entered
into and is in compliance with a written agreement with the FDIC to increase its
Tier I leverage capital ratio to such level as the FDIC 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 FDIC capital regulation also provides, among other
things, for the issuance by the FDIC or its designee(s) of a capital directive,
which is a final order issued to a bank that fails to maintain minimum capital
to restore its capital to the minimum leverage capital requirement within a
specified time period. Such directive is enforceable in the same manner as a
final cease-and-desist order.
At September 30, 2000, First Bank exceeded all of its regulatory
capital requirements, with Tier 1 and risk-based capital ratios of 7.9% and
13.3%, respectively. The following table sets forth First Bank's compliance
with the above-described capital requirements as of September 30, 2000.
<TABLE>
<CAPTION>
Tier 1 Risk-Based
Capital(1) Capital
------------- ----------------
(Dollars in Thousands)
<S> <C> <C>
Capital under generally accepted accounting principles ....... $12,830 $12,830
Additional capital items:
Unrealized loss on securities available
for sale, net of taxes ................................. 586 586
General valuation allowances(2) ........................... -- 1,368
Less disallowed mortgage servicing assets .................... (156) (156)
Less other identifiable intangible assets .................... (47) (47)
------- -------
Regulatory capital ........................................... 13,213 14,581
Minimum required regulatory capital(3) ....................... 6,684 8,755
Excess regulatory capital .................................... 6,529 5,826
Regulatory capital as a percentage ........................... 7.9% 13.3%
Minimum capital required as a
percentage(3) ............................................. 4.0 8.0
Regulatory capital as a percentage
in excess of requirements ................................... 3.9 5.3
</TABLE>
----------------
(1) Does not reflect the 4.0% requirement to be met in order for an
institution to be "adequately capitalized." See "- Prompt Corrective
Action."
(2) General valuation allowances are only used in the calculation of
risk-based capital. Such allowances are limited to 1.25% of
risk-weighted assets.
(3) Tier 1 capital is computed as a percentage of "total assets" as
computed for purposes of this requirement of $170.5 million. Risk-based
capital is computed as a percentage of adjusted risk-weighted assets
of $109.4 million.
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<PAGE>
Any savings bank that fails any of the capital requirements is subject
to possible enforcement actions by the FDIC. Such actions could include a
capital directive, a cease and desist order, civil money penalties, the
establishment of restrictions on the institution's operations, termination of
Federal deposit insurance and the appointment of a conservator or receiver.
Under the Illinois Savings Bank Act, a savings bank, such as First
Bank, must maintain minimum capital of 3% of total assets. The Illinois Office
of Banks and Real Estate may establish higher minimums based upon a savings
bank's history, management or earnings prospects.
DIVIDENDS. Under the Illinois Savings Bank Act, no dividends may be
declared when total capital of a savings bank is less than that required by
Illinois law. Stock dividends may be paid out of retained earnings at any time.
Written approval of the Illinois Office of Banks and Real Estate is required
where a savings bank has total capital of less than 6% of total assets where the
dividend to be declared in any year exceed 50% of the savings bank's net profits
for the year. The Illinois Office of Banks and Real Estate approval is required
before dividends may be declared that exceed a savings bank's net profits in any
year.
PROMPT CORRECTIVE ACTION. The following table shows the amount of
capital associated with the different capital categories set forth in the prompt
corrective action regulations.
<TABLE>
<CAPTION>
TOTAL TIER 1 TIER 1
RISK-BASED RISK-BASED LEVERAGE
CAPITAL CATEGORY CAPITAL CAPITAL CAPITAL
-------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Well capitalized .............................. 10% or more 6% or more 5% or more
Adequately capitalized ........................ 8% or more 4% or more 4% or more
Undercapitalized .............................. Less than 8% Less than 4% Less than 4%
Significantly undercapitalized ................ Less than 6% Less than 3% Less than 3%
</TABLE>
In addition, an institution is "critically undercapitalized" if it has
a ratio of tangible equity to total assets that is equal to or less than 2.0%.
Under specified circumstances, a federal banking agency may reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category (except that the
FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized).
An institution generally must file a written capital restoration plan
which meets specified requirements within 45 days of the date that the
institution receives notice or is deemed to have notice that it is
undercapitalized, significantly undercapitalized or critically undercapitalized.
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 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. In addition,
undercapitalized institutions are subject to various regulatory restrictions,
and the appropriate federal banking agency also may take any number of
discretionary supervisory actions.
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<PAGE>
At September 30, 2000, First Bank was deemed a well capitalized
institution for purposes of the above regulations and as such is not subject to
the above mentioned restrictions.
SAFETY AND SOUNDNESS GUIDELINES. The FDIC and the other federal banking
agencies have established guidelines for safety and soundness, addressing
operational and managerial standards, as well as compensation matters for
insured financial institutions. Institutions failing to meet these standards are
required to submit compliance plans to their appropriate federal regulators. The
FDIC and the other agencies have also established guidelines regarding asset
quality and earnings standards for insured institutions. First Bank believes
that it is in compliance with these guidelines and standards.
COMMUNITY REINVESTMENT ACT AND THE FAIR LENDING LAWS. Savings banks,
such as First Bank, have a responsibility under the Community Reinvestment Act
of 1977 and related regulations of the FDIC to help meet the credit needs of
their communities, including low- and moderate-income neighborhoods. In
addition, the Equal Credit Opportunity Act and the Fair Housing Act (together,
the "Fair Lending Laws") prohibit lenders from discriminating in their lending
practices on the basis of characteristics specified in those statutes. An
institution's failure to comply with the provisions of Community Reinvestment
Act could, at a minimum, result in regulatory restrictions on its activities.
Failure to comply with the Fair Lending Laws could result in enforcement actions
by the FDIC, as well as the Department of Justice.
FEDERAL HOME LOAN BANK SYSTEM. First Bank is a member of the Federal
Home Loan Bank of Chicago, which is one of 12 regional Federal Home Loan Banks
that administers the home financing credit function of savings institutions.
Each Federal Home Loan Bank serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the Federal Home Loan Bank System. It
makes loans to members (i.e., advances) in accordance with policies and
procedures established by the Board of Directors of the Federal Home Loan Bank.
At September 30, 2000, First Bank had $27.5 million of Federal Home Loan Bank
advances. See Notes to Financial Statements.
As a member, First Bank is required to purchase and maintain stock in
the Federal Home Loan Bank of Chicago in an amount equal to at least 1% of its
aggregate unpaid residential mortgage loans or similar obligations at the
beginning of each year. At September 30, 2000, First Bank had $1.5 million in
Federal Home Loan Bank stock, which was in compliance with this requirement.
The Federal Home Loan Banks are required to provide funds for the
resolution of troubled savings institutions and to contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community investment and low- and moderate-income housing projects. These
contributions have adversely affected the level of Federal Home Loan Bank
dividends paid in the past and could do so in the future. These contributions
also could have an adverse effect on the value of Federal Home Loan Bank stock
in the future. The dividend yield on First Bank's Federal Home Loan Bank stock
was 6.84% in 1999 and 6.22% in 1998.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and non-personal time deposits.
As of November 3, 1999, no reserves were required to be maintained on the first
$5.0 million of transaction accounts, reserves of 3% were required to be
maintained against the next $44.3 million of net transaction accounts, and a
reserve of $1.3 million plus 10% against net transaction accounts above this
amount. The above dollar amounts and percentages are subject to periodic
adjustment by the Federal Reserve Board. Because required reserves must be
maintained in the form of vault cash or a noninterest-bearing account at a
Federal Reserve Bank, the
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effect of this reserve requirement is to reduce an institution's earning assets
and constrain its ability to lend.
TAXATION
FEDERAL TAXATION
GENERAL. First BancTrust Corporation and First Bank are subject to the
corporate tax provisions of the Internal Revenue Code, and First Bank is subject
to certain additional provisions which apply to thrifts and other types of
financial institutions. The following discussion of federal taxation is intended
only to summarize certain pertinent federal income tax matters relevant to the
taxation of First BancTrust Corporation and First Bank and is not a
comprehensive discussion of the tax rules applicable to First BancTrust
Corporation and First Bank.
FISCAL YEAR. For federal income tax purposes, First Bank currently
reports its income and expenses on the accrual method of accounting and uses a
tax year ending December 31 for filing its federal income tax returns.
BAD DEBT RESERVES. Savings institutions such as First Bank are
permitted to establish a reserve for bad debts and to make annual additions to
the reserve. As an institution with less than $500 million in assets, First Bank
has elected to use the experience method for computing additions to its bad debt
reserve.
Under the experience method, the deductible annual addition to First
Bank's bad debt reserves is the amount necessary to increase the balance of the
reserve at the close of the taxable year to the greater of (a) the amount which
bears the same ratio to loans outstanding at the close of the taxable year as
the total net bad debts sustained during the current and five preceding taxable
years bear to the sum of the loans outstanding at the close of those six years
or (b) the lower of (i) the balance in the reserve account at the close of the
last taxable year prior to the most recent adoption of the experience method
(the "base year"), except that for taxable years beginning after 1987, the base
year is the last taxable year beginning before 1988, or (ii) if the amount of
loans outstanding at the close of the taxable year is less than the amount of
loans outstanding at the close of the base year, the amount which bears the same
ratio to loans outstanding at the close of the taxable year as the balance of
the reserve at the close of the base year bears to the amount of loans
outstanding at the close of the base year.
Legislation adopted in August 1996 (i) repealed the provision of the
Code which authorized the use of the percentage of taxable income method by
qualifying savings institutions to determine deductions for bad debts, effective
for taxable years beginning after 1995, and (ii) requires that a savings
institution recapture for tax purposes (i.e. take into income) over a six-year
period its applicable excess reserves, which for a savings institution such as
First Bank which is a "small bank," as defined in the Code, generally is the
excess of the balance of its bad debt reserves as of the close of its last
taxable year beginning before January 1, 1996 over the balance of such reserves
as of the close of its last taxable year beginning before January 1, 1988, which
recapture would be suspended for any tax year that begins after December 31,
1995 and before January 1, 1998 (thus a maximum of two years) in which a savings
institution originates an amount of residential loans which is not less than the
average of the principal amount of such loans made by a savings institution
during its six most recent taxable years beginning before January 1, 1996. First
Bank does not believe that these provisions will have a material adverse effect
on First Bank's financial condition or operations.
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The above-referenced legislation also repealed certain provisions of
the Code that only apply to thrift institutions to which Section 593 applies:
(i) the denial of a portion of certain tax credits to a thrift institution; (ii)
the special rules with respect to the foreclosure of property securing loans of
a thrift institution; (iii) the reduction in the dividends received deduction of
a thrift institution ; and (iv) the ability of a thrift institution to use a net
operating loss to offset its income from a residual interest in a real estate
mortgage investment conduit. It is not anticipated that the repeal of these
provisions will have a material adverse effect on First Bank's financial
condition or operations.
At September 30, 2000, the federal income tax reserves of First Bank
included $2.0 million for which no federal income tax has been provided. Because
of these federal income tax reserves and the liquidation account to be
established for the benefit of certain depositors of First Bank in connection
with the conversion, the retained earnings of First Bank are substantially
restricted.
DISTRIBUTIONS. If First Bank distributes cash or property to its
stockholders, and the distribution is treated as being from its accumulated
pre-1988 tax bad debt reserves, the distribution will cause First Bank to have
additional taxable income. A distribution to stockholders is deemed to have been
made from accumulated bad debt reserves to the extent that (a) the reserves
exceed the amount that would have been accumulated on the basis of actual loss
experience, and (b) the distribution is a "non-dividend distribution." A
distribution in respect of stock is a non-dividend distribution to the extent
that, for federal income tax purposes, (i) it is in redemption of shares, (ii)
it is pursuant to a liquidation of the institution, or (iii) in the case of a
current distribution, together with all other such distributions during the
taxable year, it exceeds First Bank's current and post-1951 accumulated earnings
and profits. The amount of additional taxable income created by a non-dividend
distribution is an amount that when reduced by the tax attributable to it is
equal to the amount of the distribution.
MINIMUM TAX. The Code imposes an alternative minimum tax at a rate of
20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The alternative minimum tax is
payable to the extent such AMTI is in excess of an exemption amount. The Code
provides that an item of tax preference is the excess of the bad debt deduction
allowable for a taxable year pursuant to the percentage of taxable income method
over the amount allowable under the experience method. The other items of tax
preference that constitute AMTI include (a) tax exempt interest on newly-issued
(generally, issued on or after August 8, 1986) private activity bonds other than
certain qualified bonds and (b) for taxable years beginning after 1989, 75% of
the excess (if any) of (i) adjusted current earnings as defined in the Code,
over (ii) AMTI (determined without regard to this preference and prior to
reduction by net operating losses). Net operating losses can offset no more than
90% of AMTI. Certain payments of alternative minimum tax may be used as credits
against regular tax liabilities in future years.
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back
net operating losses to the preceding three taxable years and forward to the
succeeding 15 taxable years. Effective for net operating losses arising in tax
years beginning after October 1, 1997, the carryback period is reduced from
three years to two years and the carryforward period is extended from 15 years
to 20 years. At September 30, 2000, First Bank had no net operating loss
carryforwards for federal income tax purposes.
CORPORATE DIVIDENDS-RECEIVED DEDUCTION. The corporate
dividends-received deduction is 80% in the case of dividends received from
corporations with which a corporate recipient does not file a consolidated tax
return, and corporations which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends received or accrued on
their behalf. However, a corporation may deduct 100% of dividends from a member
of the same affiliated group of corporations.
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STATE AND LOCAL TAXATION
STATE OF ILLINOIS. First BancTrust and First Bank will file Illinois
income tax returns. For Illinois income tax purposes, they are taxed at an
effective rate equal to 7.2% of Illinois Taxable Income. For these purposes,
"Illinois Taxable Income" generally means federal taxable income, subject to
certain adjustments (including the addition of interest income on state and
municipal obligations and the exclusion of interest income on United States
Treasury obligations). The exclusion of income on United States Treasury
obligations has the effect of reducing Illinois Taxable Income. First BancTrust
is also required to file an annual report with the State of Illinois.
DELAWARE TAXATION. As a Delaware holding company not earning income in
Delaware, First BancTrust is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
OTHER MATTERS. Federal legislation is introduced from time to time that
would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect First Bank.
First Bank's federal income tax returns for the tax years ended 1999,
1998 and 1997 are open under the statute of limitations and are subject to
review by the IRS. First Bank has not been audited by the IRS during the last
five years.
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MANAGEMENT
MANAGEMENT OF FIRST BANCTRUST CORPORATION
Our Board of Directors is divided into three classes, each of which
contains approximately one- third of the Board. Our directors will be elected by
stockholders for staggered three-year terms, or until their successors are
elected and qualified. No director is related to any other director or executive
officer of First BancTrust or First Bank by first cousin or closer. The
following table sets forth certain information regarding our directors, all of
whom are also directors of First Bank.
<TABLE>
<CAPTION>
Position with First Bank and Director of Year
Principal Occupation During the First Bank Term
Name Age(1) Past Five Years Since Expires
--------------------------- ---------- ------------------------------------ --------------- ------------
<S> <C> <C> <C> <C>
Robert E. Sprague .......... 73 Chairman of the Board. Dentist, Paris, 1990 2002
Illinois.
Joseph R. Schroeder ........ 50 Director. Attorney in private practice 1997 2003
with law firm of Bennett, Schroeder &
Wieck, Marshall, Illinois.
Terry T. Hutchison ......... 47 Director. Manager and owner of 1989 2004
Parkway Furniture Co., Paris, Illinois.
Christopher M. Eldredge .... 43 Director. Former Vice President, Sales, 2000 2003
Illinois Cereal Mills, Inc., Paris,
Illinois.
John W. Welborn ............ 55 Director. Facilities Manager, TRW, 1995 2004
Inc., Marshall, Illinois.
David W. Dick .............. 51 Director, Insurance Agent for Country 1996 2002
Companies Insurance, Bloomington,
Illinois.
Terry J. Howard ............ 53 Director, President and Chief Executive 2000 2002
Officer of the Company. Executive
Vice President of First Bank since May,
1988, President and Chief Executive
Officer of First Bank since June, 1999,
Director since November, 2000.
Mary Ann Tucker ............ 71 Director. Retired former retailer in 1988 2003
Paris, Illinois.
</TABLE>
-------------------
(1) Age as of September 30, 2000.
Directors of First BancTrust initially will not be compensated by us
but will serve with and be compensated by First Bank. It is not anticipated that
separate compensation will be paid to our directors
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until such time as such persons devote significant time to the separate
management of our affairs, which is not expected to occur until we become
actively engaged in additional businesses other than holding the stock of First
Bank. We may determine that such compensation is appropriate in the future.
Our executive officers are elected annually and hold office until their
respective successors have been elected and qualified or until death,
resignation or removal by the Board of Directors. At present, our only executive
officer is Terry Howard, President and Chief Executive Officer.
MANAGEMENT OF FIRST BANK
The directors of First Bank are the same as our directors. Terry Howard
serves as President and Chief Executive Officer and as a director of both First
BancTrust and First Bank. Information concerning the names, ages, principal
occupations during the past five years and term of office of the directors and
of the President of First Bank is set forth under "- Management of First
BancTrust." First Bank's mutual charter requires the Board of Directors to be
elected each year. After the conversion, First Bank's stock charter will require
the Board of Directors to be divided into three classes as nearly equal in
number as possible. The members of each class will be elected for a term of
three years or until their successors are elected and qualified, with one class
of directors elected annually.
Set forth below is information with respect to the principal
occupations during the last five years for the six senior executive officers of
First Bank who do not serve as directors of First Bank.
<TABLE>
<CAPTION>
Position with First Bank and
Principal Occupation During the
Name Age(1) Past Five Years (2)
--------------------------- ---------- -------------------------------------------------------------
<S> <C> <C>
Larry E. Daily ............. 41 Vice President - Commercial Lending; Trust Officer; Farm
Manager. Vice President - Commercial Lending since January
1990. Trust Officer and Farm Manager since August 1993.
Ellen M. Litteral .......... 43 Vice President and Controller. Controller since 1990, Vice
President since March 2000.
Ricky L. Wells ............. 49 Vice President - Consumer Lending. Vice President -
Consumer Lending since November 1993.
Jack B. Franklin ........... 47 Vice President - Operations and Marketing Director. Assistant
Vice President - Consumer Lending from 1995 until March
1998, Vice President - Consumer Lending/Marketing Director
from March 1998 until July 1999, Vice President - Operations
and Marketing Director from July 1999 until the present.
Phyllis A. Webster ......... 46 Vice President - Residential Mortgage Lending. Vice President
- Residential Mortgage Lending since July 1988.
Larry Strohm ............... 47 Vice President - Branch Manager. Vice President since August,
1983.
</TABLE>
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-------------------
(1) Age as of September 30, 2000.
(2) All positions listed are with First Bank.
BOARD MEETINGS AND COMMITTEES
Regular meetings of the Board of Directors of First Bank are held twice
a month and special meetings of the Board of Directors of First Bank are held
from time-to-time as needed. There were 26 meetings of the Board of Directors of
First Bank held during the year ended December 31, 1999. No director, except
Terry Howard and Christopher Eldredge, who were appointed as Directors in
November 2000, attended fewer than 75% of the total number of meetings of the
Board of Directors of First Bank held during 1999, and the total number of
meetings held by all committees of the Board on which the director served during
such year.
The Board of Directors has a separate Executive Committee, Trust
Committee, Investment-Asset/Liability Committee, Audit Committee, EDP Steering
Committee, Compensation Committee, Loan Committee, and Nominating Committee.
The Executive Committee is authorized to act with the same authority as
the Board of Directors between meetings of the Board. The Executive Committee,
composed of Messrs. Sprague and Howard, did not meet during 1999.
The Trust Committee, which consists of five members, reviews the assets
of First Bank's trust accounts, approves all transactions of the trust accounts
and sets investment policy guidelines for First Bank's Investment Services
Department. The Committee, which presently consists of Messrs. Sprague,
Hutchison, Schroeder, Howard, and Daily, met 11 times during 1999.
The EDP Steering Committee oversees the electronic data processing
operations of First Bank. The EDP Steering Committee , composed of Messrs.
Welborn, Hutchison, Franklin and Ms. Tucker, met twice during 1999.
The Compensation Committee determines the compensation levels of the
Chief Executive Officer and the other executive officers by reviewing published
studies of compensation paid to executives performing similar duties for
financial institutions. The Compensation Committee, composed of Messrs.
Hutchison, Dick and Welborn, met once during 1999.
The Loan Committee reviews all loan requests which result in an
aggregate loan balance to one borrower and related entities in excess of
$300,000. The Loan Committee must approve all such loan requests up to $800,000.
Any extension of credit which results in an aggregate loan balance to one
borrower and related entities in excess of $800,000 requires full Board
approval. The Loan Committee , whose membership rotates each month, met 12 times
during 1999.
The Nominating Committee nominates candidates to the Board of Directors
of First Bank. The Nominating Committee , composed Messrs. Hutchison and
Schroeder and Ms.Tucker, met once during 1999.
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DIRECTORS' COMPENSATION
Each outside director of First Bank receives $600 for each regular
meeting of the Board of Directors. Directors also receive $400 for each month
served on the Loan Committee. Directors receive no additional compensation for
service on other committees. Directors are paid one-half their normal fee for
excused absences from meetings.
EXECUTIVE COMPENSATION
The following table shows the compensation paid by First Bank to its
President and Chief Executive Officer and the other executive officer of First
Bank who received a salary and bonus of $100,000 or more during 1999.
<TABLE>
<CAPTION>
Annual Compensation
Name and Principal -------------------------------------------
Position Year Salary Bonus Other(1)
---------------------------------- ---- -------- ------ --------
<S> <C> <C> <C> <C>
Terry J. Howard, President 1999 $100,768 $12,000 $ --
and Chief Executive Officer
Larry E. Daily, Vice 1999 72,000 34,748(2) --
President - Commercial Lending
</TABLE>
---------------------
(1) Annual compensation does not include amounts attributable to other
miscellaneous benefits received by Mr. Howard or Mr. Daily. The costs
to First Bank of providing such benefits during 1999 did not exceed 10%
of the total salary and bonus paid to or accrued for the benefit of
such individual executive officer.
(2) Includes incentive based compensation of $27,248.
PRESENT BENEFIT PLANS
First Bank has a 401(k) Plan in which substantially all employees may
participate. First Bank may contribute to the Plan at the discretion of the
Board of Directors. First Bank also maintains a voluntary employee's benefit
association for the benefit of substantially all of its full-time employees.
Benefits available under the voluntary employee's benefit association include
major medical, life, accidental death and dismemberment, and disability
insurance. These benefits are available to all employees who have attained a
minimum age and length of service. The voluntary employee's benefit association
is funded through voluntary contributions form employees and contributions from
First Bank.
NEW STOCK BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN. We have established our employee stock
ownership plan for our employees to become effective upon the conversion. Our
full-time employees who have been credited with at least 1,000 hours of service
during a 12-month period and who have attained age 21 are eligible to
participate in our employee stock ownership plan.
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As part of the conversion, in order to fund the purchase of up to 8% of
the common stock sold in the offering, we anticipate that our employee stock
ownership plan will borrow funds from us. It is anticipated that such loan will
equal 100% of the aggregate purchase price of the common stock acquired by our
employee stock ownership plan. The loan to our employee stock ownership plan
will be repaid principally from our contributions to our employee stock
ownership plan over a period of 8 years, and the collateral for the loan will be
the common stock purchased by our employee stock ownership plan. The interest
rate for our employee stock ownership plan loan is expected to be a fixed rate
of 8.5%. We may, in any plan year, make additional discretionary contributions
for the benefit of plan participants in either cash or shares of common stock,
which may be acquired through the purchase of outstanding shares in the market
or from individual stockholders, upon the original issuance of additional shares
by First BancTrust or upon the sale of treasury shares by us. Such purchases, if
made, would be funded through additional borrowings by our employee stock
ownership plan or additional contributions from us. The timing, amount and
manner of future contributions to our employee stock ownership plan will be
affected by various factors, including prevailing regulatory policies, the
requirements of applicable laws and regulations and market conditions.
Shares purchased by our employee stock ownership plan with the loan
proceeds will be held in a suspense account and released to participants on a
pro rata basis as debt service payments are made. Shares released from our
employee stock ownership plan will be allocated to each eligible participant's
employee stock ownership plan account based on the ratio of each such
participant's base compensation to the total base compensation of all eligible
employee stock ownership plan participants. Forfeitures will be reallocated
among remaining participating employees and may reduce any amount we might
otherwise have contributed to our employee stock ownership plan. Upon the
completion of three years of service, the account balances of participants
within our employee stock ownership plan will become 20% vested and will
continue to vest at the rate of 20% for each additional year of service
completed by the participant, such that a participant will become 100% vested
upon the completion of seven years of service. Credit is given for years of
service with First Bank prior to adoption of our employee stock ownership plan.
In the case of a "change in control," as defined, however, participants will
become immediately fully vested in their account balances. Benefits may be
payable upon retirement or separation from service. Our contributions to our
employee stock ownership plan are not fixed, so benefits payable under our
employee stock ownership plan cannot be estimated.
Messrs. Howard and Franklin and Ms. Litteral will serve as trustees of
our employee stock ownership plan. Under our employee stock ownership plan, the
trustees must generally vote all allocated shares held in our employee stock
ownership plan in accordance with the instructions of the participating
employees, and unallocated shares will generally be voted in the same ratio on
any matter as those allocated shares for which instructions are given, in each
case subject to the requirements of applicable law and the fiduciary duties of
the trustees.
Generally accepted accounting principles require that any third party
borrowing by our employee stock ownership plan be reflected as a liability on
our statement of financial condition. Since our employee stock ownership plan is
borrowing from us, the loan will not be treated as a liability but rather will
be excluded from stockholders' equity. If our employee stock ownership plan
purchases newly issued shares from us, total stockholders' equity would neither
increase nor decrease, but per share stockholders' equity and per share net
earnings would decrease as the newly issued shares are allocated to our employee
stock ownership plan participants.
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Our employee stock ownership plan will be subject to the requirements
of the Employee Retirement Income Security Act of 1974, and the regulations of
the IRS and the Department of Labor thereunder.
STOCK OPTION PLAN. Following consummation of the conversion, we intend
to adopt a stock option plan, which will be designed to attract and retain
qualified personnel in key positions, provide directors, officers and key
employees with a proprietary interest in us as an incentive to contribute to our
success and reward key employees for outstanding performance. The stock option
plan will provide for the grant of incentive stock options intended to comply
with the requirements of Section 422 of the Internal Revenue Code ("incentive
stock options"), non-incentive or compensatory stock options and stock
appreciation rights (collectively "Awards"). Awards may be granted to our
directors and key employees. The stock option plan will be administered and
interpreted by a committee of the Board of Directors ("Committee"). Unless
sooner terminated, the stock option plan shall continue in effect for a period
of 10 years from the date the stock option plan is adopted by the Board of
Directors.
Under the stock option plan, the Committee will determine which
directors, officers and key employees will be granted Awards, whether options
will be incentive or compensatory options, the number of shares subject to each
Award, the exercise price of each option, whether options may be exercised by
delivering other shares of common stock and when such options become
exercisable. The per share exercise price of an incentive stock option must at
least equal the fair market value of a share of common stock on the date the
option is granted (110% of fair market value in the case of incentive stock
options granted to employees who are 5% stockholders).
At a meeting of our stockholders after the conversion, which under
applicable FDIC policies may be held no earlier than six months after the
completion of the conversion, we intend to present the stock option plan to
stockholders for approval and to reserve an amount equal to 10% of the shares of
common stock sold in the conversion (120,750 shares or 138,863 shares based on
the maximum and 15% above the maximum of the offering range, respectively), for
issuance under the stock option plan. FDIC policies provide that, in the event
such plan is implemented within one year after the conversion, no individual
officer or employee of First Bank may receive more than 25% of the options
granted under the stock option plan and non-employee directors may not receive
more than 5% individually, or 30% in the aggregate of the options granted under
the stock option plan. FDIC policies also provide that the exercise price of any
options granted under any such plan must be at least equal to the fair market
value of the common stock as of the date of grant. Each stock option or portion
thereof will be exercisable at any time on or after it vests and will be
exercisable until 10 years after its date of grant or for periods of up to five
years following the death, disability or other termination of the optionee's
employment or service as a director. However, failure to exercise incentive
stock options within three months after the date on which the optionee's
employment terminates may result in the loss of incentive stock option
treatment.
At the time an Award is granted pursuant to the stock option plan, the
recipient will not be required to make any payment in consideration for such
grant. With respect to incentive or compensatory stock options, the optionee
will be required to pay the applicable exercise price at the time of exercise in
order to receive the underlying shares of common stock. The shares reserved for
issuance under the stock option plan may be authorized but previously unissued
shares, treasury shares, or shares purchased by us on the open market or from
private sources. In the event of a stock split, reverse stock split or stock
dividend, the number of shares of common stock under the stock option plan, the
number of shares to which any Award relates and the exercise price per share
under any option or stock appreciation
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right shall be adjusted to reflect such increase or decrease in the total number
of shares of common stock outstanding. If we declare a special cash dividend or
return of capital after we implement the stock option plan in an amount per
share which exceeds 10% of the fair market value of a share of common stock as
of the date of declaration, the per share exercise price of all previously
granted options which remain unexercised as of the date of such declaration
shall, subject to certain limitations, be proportionately adjusted to give
effect to the special cash dividend or return of capital as of the date of
payment of such special cash dividend or return of capital.
Under current provisions of the Code, the federal income tax treatment
of incentive stock options and compensatory stock options is different. A holder
of incentive stock options who meets certain holding period requirements will
not recognize income at the time the option is granted or at the time the option
is exercised, and a federal income tax deduction generally will not be available
to us at any time as a result of such grant or exercise. With respect to
compensatory stock options, the difference between the fair market value on the
date of exercise and the option exercise price generally will be treated as
compensation income upon exercise, and we will be entitled to a deduction in the
amount of income so recognized by the optionee. Upon the exercise of a stock
appreciation right, the holder will realize income for federal income tax
purposes equal to the amount received by him, whether in cash, shares of stock
or both, and we will be entitled to a deduction for federal income tax purposes
in the same amount.
RECOGNITION PLAN. After the conversion, we intend to adopt a
recognition plan for our directors, officers and employees. The objective of the
recognition plan will be to enable us to provide directors, officers and
employees with a proprietary interest in us as an incentive to contribute to our
success. We intend to present the recognition plan to our stockholders for their
approval at a meeting of stockholders which, pursuant to applicable FDIC
policies, may be held no earlier than six months after the conversion.
The recognition plan will be administered by a committee of our Board
of Directors, which will have the responsibility to invest all funds contributed
to the trust created for the recognition plan (the "Trust"). We will contribute
sufficient funds to the Trust so that the Trust can purchase, following the
receipt of stockholder approval, a number of shares equal to an aggregate of 4%
of the common stock sold in the conversion (48,300 shares or 55,545 shares based
on the maximum and 15% above the maximum of the offering range, respectively).
Shares of common stock granted pursuant to the recognition plan generally will
be in the form of restricted stock vesting at a rate to be determined by our
Board of Directors or a committee thereof. For accounting purposes, compensation
expense in the amount of the fair market value of the common stock at the date
of the grant to the recipient will be recognized pro rata over the period during
which the shares are payable. A recipient will be entitled to all voting and
other stockholder rights, except that the shares, while restricted, may not be
sold, pledged or otherwise disposed of and are required to be held in the Trust.
Under the terms of the recognition plan, recipients of awards will be entitled
to instruct the trustees of the recognition plan as to how the underlying shares
should be voted, and the trustees will be entitled to vote all unallocated
shares in their discretion. If a recipient's employment is terminated as a
result of death or disability, all restrictions will expire and all allocated
shares will become unrestricted. We can terminate the recognition plan at any
time, and if we do so, any shares not allocated will revert to us. Recipients of
grants under the recognition plan will not be required to make any payment at
the time of grant or when the underlying shares of common stock become vested,
other than payment of withholding taxes.
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INDEBTEDNESS OF MANAGEMENT
In the ordinary course of business, First Bank makes loans available to
its directors, officers and employees. Such loans are made in the ordinary
course of business on the same terms, including interest rates and collateral,
as comparable loans to other borrowers. It is the belief of management that
these loans neither involve more than the normal risk of collectibility nor
present other unfavorable features. At December 31, 1999, First Bank had eight
loans outstanding to directors and executive officers of First Bank, or members
of their immediate families. These loans totaled approximately $639,000 or less
than 5% of First Bank's total equity at December 31, 1999.
THE CONVERSION
THE BOARD OF DIRECTORS OF FIRST BANCTRUST AND FIRST BANK HAVE APPROVED
THE PLAN OF CONVERSION, AS HAS THE FDIC AND ILLINOIS OFFICE OF BANKS AND REAL
ESTATE, SUBJECT TO APPROVAL BY THE MEMBERS OF FIRST BANK ENTITLED TO VOTE ON THE
MATTER AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. APPROVAL BY THE FDIC
AND THE ILLINOIS OFFICE OF BANKS AND REAL ESTATE, HOWEVER, DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY SUCH AGENCIES.
GENERAL
On October 16, 2000, the Board of Directors of First Bank unanimously
adopted the Plan, pursuant to which First Bank will be converted from an
Illinois chartered mutual savings bank to a Illinois chartered stock savings
bank to be known as "First Bank & Trust, S. B.," and we will offer and sell our
common stock. All of the common stock of First Bank following the conversion
will be held by First BancTrust, which is incorporated under Delaware law. The
Plan has been approved by the FDIC, subject to, among other things, approval of
the Plan by the members of First Bank. A special meeting has been called for
this purpose to be held on March ____________ , 2001.
In adopting the Plan, the Board of Directors of First Bank determined
that the conversion was advisable and in the best interests of its members and
First Bank. The Board further determined that the interests of certain
depositors in the net worth of First Bank would be equitably provided for and
that the conversion would not have any adverse impact on the reserves and net
worth of First Bank.
We have received approval from the Federal Reserve to become a bank
holding company and to acquire all of the common stock of First Bank to be
issued in connection with the conversion. We plan to retain 42% of the net
proceeds from the sale of the common stock, and to use the remaining proceeds to
purchase all of the then to be issued and outstanding capital stock of First
Bank. Based on the minimum and maximum of the offering range, we intend to use
approximately $714,000 and $966,000, respectively, of the net proceeds retained
by us to loan funds to our employee stock ownership plan to enable our employee
stock ownership plan to purchase up to 8% of the common stock. The conversion
will not be completed unless we sell shares of common stock equal to our
appraised value.
The Plan provides generally that we will offer shares of common stock
for sale in the Subscription Offering to First Bank's Eligible Account Holders,
our employee stock ownership plan, Supplemental Eligible Account Holders, and
Other Members of First Bank. In addition, subject to the prior rights of holders
of subscription rights, we may elect to offer the shares of common stock not
subscribed for in the Subscription Offering, if any, for sale in a Community
Offering commencing prior to or upon completion of the Subscription Offering.
See "- Subscription Offering and Subscription
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Rights" and "- Community Offering." We have the right to accept or reject, in
whole or in part, any orders to purchase shares of common stock received in the
Community Offering.
The aggregate price of the shares of common stock to be issued in the
conversion will be within the offering range, which was determined based upon an
independent appraisal of the estimated pro forma market value of the common
stock. The offering range is currently $8,925,000 to $12,075,000. All shares of
common stock to be issued and sold in the conversion will be sold at the same
price. The independent appraisal will be affirmed or, if necessary, updated
before we complete the conversion. The appraisal has been performed by Keller &
Company, a consulting firm experienced in the valuation and appraisal of savings
institutions. See "- How We Determined the Price Per Share and the Offering
Range" for more information as to how the estimated pro forma market value of
the common stock was determined.
The following discussion of the conversion summarizes the material
aspects of the Plan of Conversion. The summary is qualified in its entirety by
reference to the provisions of the Plan. A copy of the Plan is available for
inspection at the offices of First Bank and at the offices of the FDIC. The Plan
is also filed as an exhibit to the Registration Statement of which this document
is a part, copies of which may be obtained from the SEC. See "Additional
Information."
PURPOSES OF CONVERSION
As a mutual savings bank, First Bank does not have stockholders and has
no authority to issue capital stock. By converting to the capital stock form of
organization, First Bank will be structured in the form used by commercial
banks, most business entities and a growing number of savings institutions. The
conversion will result in an increase in the capital base of First Bank and
First BancTrust, which will support the operations of First Bank and First
BancTrust.
The conversion will permit First Bank's customers and possibly other
members of the local community and of the general public to become equity owners
and to share in our future. The conversion will also provide additional funds
for lending and investment activities, provide funds to build a new branch,
facilitate future access to the capital markets, enhance our ability to
diversify and expand into other markets, and enable First Bank to compete more
effectively with other financial institutions.
The holding company form of organization will provide additional
flexibility to diversify our business activities through existing or newly
formed subsidiaries, or through acquisition of or mergers with other financial
institutions, as well as other companies. Although there are no current
arrangements, understandings or agreements regarding any such opportunities, we
will be in a position after the conversion, subject to regulatory limitations
and our financial position, to take advantage of any such opportunities that may
arise.
After the conversion, the unissued common and preferred stock
authorized by our Articles of Incorporation will permit us, subject to market
conditions and applicable regulatory approvals, to raise additional equity
capital through further sales of securities, and to issue securities in
connection with possible acquisitions. At the present time, we have no plans
with respect to additional offerings of securities, other than the possible
issuance of additional shares to the recognition plan or upon exercise of stock
options. After the conversion, we will also be able to use stock-related
incentive programs to
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attract and retain executive and other personnel for itself and its
subsidiaries. See "Management - New Stock Benefit Plans."
EFFECTS OF CONVERSION
GENERAL. Before the conversion, each depositor in First Bank has both a
deposit account in the institution and a pro rata ownership interest in the net
worth of First Bank, which interest may only be realized in the event of a
liquidation of First Bank. However, this ownership interest is tied to the
depositor's account and has no tangible market value separate from such deposit
account. A depositor who reduces or closes his account receives nothing for his
ownership interest in the net worth of First Bank, which is lost to the extent
that the balance in the account is reduced.
Consequently, the depositors of First Bank normally cannot realize the
value of their ownership interest, which has realizable value only in the
unlikely event that First Bank is liquidated. In such event, the depositors of
record at that time, as owners, would share pro rata in any residual surplus and
reserves of First Bank after other claims, including claims of depositors to the
amount of their deposits, are paid.
When First Bank converts to stock form, permanent nonwithdrawable
capital stock will be created to represent the ownership of the net worth of
First Bank, and First Bank will become a wholly owned subsidiary of First
BancTrust Corporation. The common stock of First Bank and First BancTrust
Corporation is separate and apart from deposit accounts of First Bank and cannot
be and is not insured by the FDIC or any other governmental agency. Certificates
will be issued to evidence ownership of the permanent stock of First Bank and
First BancTrust Corporation. The stock certificates of First BancTrust
Corporation will be transferable, and therefore the stock may be sold or traded
if a purchaser is available with no effect on any account the seller may hold in
First Bank.
CONTINUITY. While the conversion is being accomplished, the normal
business of First Bank of accepting deposits and making loans will continue
without interruption. First Bank will continue to be subject to regulation by
the FDIC and the Illinois Office of Banks and Real Estate. After the conversion,
First Bank will continue to provide services for depositors and borrowers under
current policies by its present management and staff.
The directors and officers of First Bank at the time of the conversion
will continue to serve as directors and officers of First Bank after the
conversion. The directors and officers of First BancTrust consist of individuals
currently serving as directors and officers of First Bank, and they will retain
their positions in First Bank after the conversion.
EFFECT ON DEPOSIT ACCOUNTS. Under the Plan, each depositor in First
Bank at the time of the conversion will automatically continue as a depositor
after the conversion, and each such deposit account will remain the same with
respect to deposit balance, interest rate and other terms, except to the extent
that funds in the account are withdrawn to purchase the common stock and except
with respect to voting and liquidation rights. Each such account will be insured
by the FDIC to the same extent as before the conversion. Depositors will
continue to hold their existing certificates, passbooks and other evidences of
their accounts.
EFFECT ON LOANS. No loan outstanding from First Bank will be affected
by the conversion, and the amount, interest rate, maturity and security for each
loan will remain as they were contractually fixed prior to the conversion.
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EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors of First
Bank are members of, and have voting rights in, First Bank as to all matters
requiring membership action. When we complete the conversion, depositors will
cease to be members and will no longer be entitled to vote at meetings of First
Bank. After the conversion, all voting rights in First Bank will be vested in
First BancTrust as the sole stockholder of First Bank. Exclusive voting rights
with respect to First BancTrust will be vested in the holders of common stock.
Depositors of First Bank will not have voting rights in us after the conversion,
except to the extent that they become stockholders of us.
TAX EFFECTS. To complete the conversion, we must receive rulings or
opinions with regard to federal and Illinois income taxation which indicate that
the conversion will not be taxable for federal or Illinois income tax purposes
to us or First Bank's Eligible Account Holders or Supplemental Eligible Account
Holders, except as discussed below. We have received favorable opinions
regarding the federal and Illinois income tax consequences of the conversion.
See "- Tax Aspects."
EFFECT ON LIQUIDATION RIGHTS. If First Bank were to liquidate, all
claims of First Bank's creditors (including those of depositors, to the extent
of their deposit balances) would be paid first. Thereafter, if there were any
assets remaining, members of First Bank would receive such remaining assets, pro
rata, based upon the deposit balances in their deposit accounts at First Bank
immediately prior to liquidation. In the unlikely event that First Bank were to
liquidate after the conversion, all claims of creditors (including those of
depositors, to the extent of their deposit balances) would also be paid first,
followed by distribution of the "liquidation account" to certain depositors (see
"- Liquidation Rights of Certain Depositors"), with any assets remaining
thereafter distributed to us as the holder of First Bank's capital stock.
Pursuant to the rules and regulations of the FDIC, a post-conversion merger,
consolidation, sale of bulk assets or similar combination or transaction with
another insured savings institution would not be considered a liquidation and,
in such a transaction, the liquidation account would be required to be assumed
by the surviving institution.
HOW WE DETERMINED THE PRICE PER SHARE AND THE OFFERING RANGE
The Plan of Conversion requires that the purchase price of the common
stock must be based on the appraised pro forma market value of the common stock,
as determined on the basis of an independent valuation. First Bank has retained
Keller & Company to make such valuation. For its services in making such
appraisal and assistance in preparing a business plan, Keller's fees and
out-of-pocket expenses are estimated to be $40,000. First Bank has agreed to
indemnify Keller and any employees of Keller who act for or on behalf of Keller
in connection with the appraisal and the business plan against any and all loss,
cost, damage, claim, liability or expense of any kind (including claims under
federal and state securities laws) arising out of any misstatement or untrue
statement of a material fact or an omission to state a material fact in the
information supplied by First Bank to Keller, unless Keller is determined to be
negligent or otherwise at fault.
An appraisal has been made by Keller in reliance upon the information
contained in this document, including the Financial Statements. Keller also
considered the following factors, among others:
- the present and projected operating results and financial
condition of First BancTrust and First Bank and the economic
and demographic conditions in First Bank's existing marketing
area;
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- certain historical, financial and other information relating
to First Bank;
- a comparative evaluation of the operating and financial
statistics of First Bank with those of other similarly
situated publicly traded savings institutions located in
Illinois and other regions of the United States;
- the aggregate size of the offering of the common stock;
- the impact of the conversion on First Bank's net worth and
earnings potential;
- the proposed dividend policy of First BancTrust and First
Bank; and
- the trading market for securities of comparable institutions
and general conditions in the market for such securities.
In determining the amount of the appraisal, Keller reviewed First
Bank's price/earnings ("P/E"), price/book ("P/B") and price/assets ("P/A")
ratios on a pro forma basis giving effect to the net conversion proceeds to the
comparable ratios for a peer group consisting of ten thrift holding companies.
The peer group included companies with
- assets below $400 million,
- non-performing assets below 2.50% of total assets,
- loans receivable equal to at least 50.0% of total assets,
- equity equal to more than 6.0% of assets but less than 15.0%
of assets,
- price/earnings ratios equal to an average of 10.78 and ranging
from 7.71 to 18.04, and
- positive core earnings for the most recent 12 months.
Three of the resulting peer group members are located in Ohio, two
in Illinois, two in Indiana, two in Missouri and one in Iowa. At the midpoint
of the appraisal, First Bank's pro forma P/E and P/A ratios as of or for the
trailing twelve months ended September 30, 2000 were 8.83x and 5.81%,
respectively, compared to ratios for the peer group of 10.78x and 6.98%,
respectively. Also at the midpoint of the appraisal, First Bank's pro forma
P/B ratio at December 31, 1999 was 48.91%, compared to 54.5% for recently
completed conversions listed on major stock exchanges.
On the basis of the foregoing, Keller gave us an opinion, dated
November 17, 2000, that the estimated pro forma market value of the common stock
ranged from a minimum of $8,925,000 to a maximum of $12,075,000, with a midpoint
of $10,500,000. We determined that the common stock should be sold at $10.00 per
share, resulting in a range of 892,500 to 1,207,500 shares of common stock being
offered. The offering range may be amended with the approval of the FDIC, if
required, or if necessitated by subsequent developments in our financial
condition or market conditions generally, or to fill the order of our employee
stock ownership plan. In the event the offering range is updated to amend the
value of First Bank below $8,925,000 or above $13,886,250 (the maximum of the
offering range, as adjusted by 15%), the new appraisal will be filed with the
SEC by post-effective amendment.
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In the event we receive orders for common stock in excess of
$12,075,000 (the maximum of the offering range) and up to $13,886,250 (the
maximum of the offering range, as adjusted by 15%), we may be required by the
FDIC to accept all such orders. No assurances, however, can be made that we will
receive orders for common stock in excess of the maximum of the offering range
or that, if such orders are received, that all such orders will be accepted
because the final valuation and number of shares to be issued are subject to the
receipt of an updated appraisal from Keller which reflects the increase in the
valuation and the approval of such increase by the FDIC. In addition, an
increase in the number of shares above 1,207,500 shares will first be used, if
necessary, to fill the order of our employee stock ownership plan. There is no
obligation or understanding on the part of management to take and/or pay for any
shares in order to complete the conversion.
KELLER'S VALUATION IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SUCH SHARES.
KELLER DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER
INFORMATION PROVIDED BY FIRST BANK, NOR DID KELLER VALUE INDEPENDENTLY THE
ASSETS OR LIABILITIES OF FIRST BANK. THE VALUATION CONSIDERS FIRST BANK AS A
GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION
VALUE OF FIRST BANK. MOREOVER, BECAUSE SUCH VALUATION IS NECESSARILY BASED UPON
ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO
CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING
COMMON STOCK IN THE CONVERSION WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT
PRICES AT OR ABOVE THE INITIAL PURCHASE PRICE OF $10.00 PER SHARE.
Before we complete the conversion, the maximum of the offering range
may be increased up to 15% and the number of shares of common stock may be
increased to up to 1,388,625 shares to reflect changes in market and financial
conditions or to fill the order of our employee stock ownership plan, without
the resolicitation of subscribers. See "- Limitations on Common Stock Purchases"
as to the method of distribution and allocation of additional shares that may be
issued in the event of an increase in the offering range to fill unfilled orders
in the Subscription Offering.
No sale of shares of common stock in the conversion may be consummated
unless Keller first confirms that nothing of a material nature has occurred
which, taking into account all relevant factors, would cause it to conclude that
the Purchase Price is materially incompatible with the estimate of the pro forma
market value of a share of common stock upon completion of the conversion. If
such is not the case, a new offering range may be set and a new Subscription and
Community Offering may be held or such other action may be taken as we determine
and the FDIC may permit or require.
Depending upon market or financial conditions, the total number of
shares of common stock may be increased or decreased without a resolicitation of
subscribers, provided that the aggregate gross proceeds are not below the
minimum or more than 15% above the maximum of the offering range. In the event
market or financial conditions change so as to cause the aggregate Purchase
Price of the shares to be below the minimum of the offering range or more than
15% above the maximum of such range, purchasers will be resolicited. In any
resolicitation, purchasers will be permitted to continue, modify or rescind
their orders. If no election is made by a purchaser prior to the expiration of
the resolicitation offering, the purchaser's order will be rescinded and any
funds paid will be promptly refunded with interest at First Bank's passbook rate
of interest, and withdrawal authorizations will be canceled. Any change in the
offering range must be approved by the FDIC. If the number of shares of common
stock issued in the conversion is increased due to an increase of up to 15% in
the offering range to reflect changes in market or financial conditions or to
fill the order of our employee stock ownership plan,
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persons who subscribed for the maximum number of shares will be given the
opportunity to subscribe for the adjusted maximum number of shares. See "-
Limitations on Common Stock Purchases."
An increase in the number of shares of common stock as a result of an
increase in the estimated pro forma market value would decrease both a
subscriber's ownership interest and our pro forma net income and stockholders'
equity on a per share basis while increasing pro forma net income and
stockholders' equity on an aggregate basis. A decrease in the number of shares
of common stock would increase both a subscriber's ownership interest and our
pro forma net income and stockholders' equity on a per share basis while
decreasing pro forma net income and stockholders' equity on an aggregate basis.
See "Risk Factors - Possible Increase in the Offering Range Would Be Dilutive"
and "Pro Forma Data."
The appraisal report of Keller has been filed as an exhibit to our
Registration Statement and First Bank's Application for Conversion, of which
this prospectus is a part, and is available for inspection in the manner set
forth under "Additional Information."
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of common stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority:
(1) Eligible Account Holders,
(2) Our employee stock ownership plan,
(3) Supplemental Eligible Account Holders, and
(4) Other Members of First Bank.
All subscriptions received will be subject to the availability of common stock
after satisfaction of all subscriptions of all persons having prior rights in
the Subscription Offering and to the maximum and minimum purchase limitations
set forth in the Plan of Conversion and as described below under "- Limitations
on Common Stock Purchases."
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder
will receive, without payment therefor, first priority, nontransferable
subscription rights to subscribe for in the Subscription Offering up to the
greater of
(a) $100,000 of common stock,
(b) one-tenth of one percent (0.10%) of the total offering of
shares of common stock or
(c) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of common
stock to be issued by a fraction, of which the numerator is
the amount of the Eligible Account Holder's qualifying deposit
and the denominator of which is the total amount of qualifying
deposits of all Eligible Account Holders,
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in each case as of the close of business on June 30, 1999 (the "Eligibility
Record Date"), subject to the overall purchase limitations. See "- Limitations
on Common Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions, shares first will be allocated among subscribing Eligible Account
Holders so as to permit each such Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
equal to the lesser of the number of shares subscribed for or 100 shares.
Thereafter, any shares remaining after each subscribing Eligible Account Holder
has been allocated the lesser of the number of shares subscribed for or 100
shares will be allocated among the subscribing Eligible Account Holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective eligible deposits bear to the total amount of eligible deposits of
all subscribing Eligible Account Holders whose subscriptions remain unfilled,
provided that no fractional shares shall be issued. Subscription Rights of
Eligible Account Holders will be subordinated to the priority rights of
Tax-Qualified Employee Stock Benefit Plans to purchase shares in excess of the
maximum of the offering range.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in fewer shares being
allocated than if all accounts had been disclosed. The subscription rights of
Eligible Account Holders who are also directors or officers of First Bank or
their associates will be subordinated to the subscription rights of other
Eligible Account Holders to the extent attributable to increased deposits in the
year preceding June 30, 1999.
PRIORITY 2: EMPLOYEE STOCK OWNERSHIP PLAN. Our employee stock ownership
plan will receive, without payment therefor, second priority, nontransferable
subscription rights to purchase, in the aggregate, up to 10% of the common
stock, including any increase in the number of shares of common stock after the
date hereof as a result of an increase of up to 15% in the maximum of the
offering range. Our employee stock ownership plan intends to purchase 8% of the
shares of common stock, or 71,400 shares and 96,600 shares based on the minimum
and maximum of the offering range, respectively. Subscriptions by our employee
stock ownership plan will not be aggregated with shares of common stock
purchased directly by or which are otherwise attributable to any other
participants in the Subscription and Community Offerings, including
subscriptions of any of First Bank's directors, officers, employees or
associates thereof. In the event that the total number of shares offered in the
conversion is increased to an amount greater than the number of shares
representing the maximum of the offering range ("Maximum Shares"), our employee
stock ownership plan will have a priority right to purchase any such shares
exceeding the Maximum Shares up to an aggregate of 10% of the common stock. See
" - Limitations on Common Stock Purchases" and "Risk Factors - Possible Increase
in the Offering Range Would Be Dilutive."
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by
Eligible Account Holders and our employee stock ownership plan, each
Supplemental Eligible Account Holder will receive, without payment therefor,
third priority, nontransferable subscription rights to subscribe for in the
Subscription Offering up to the greater of
(a) $100,000 of common stock,
(b) one-tenth of one percent (0.10%) of the total offering of
shares of common stock or
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(c) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of common
stock to be issued by a fraction, of which the numerator is
the amount of the Supplemental Eligible Account Holder's
qualifying deposit and the denominator of which is the total
amount of qualifying deposits of all Supplemental Eligible
Account Holders,
in each case as of the close of business on December 31, 2000 (the "Supplemental
Eligibility Record Date"), subject to the overall purchase limitations. See "-
Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions of all Supplemental Eligible Account Holders, available shares
first will be allocated among subscribing Supplemental Eligible Account Holders
so as to permit each such Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
equal to the lesser of the number of shares subscribed for or 100 shares.
Thereafter, any shares remaining available will be allocated among the
Supplemental Eligible Account Holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective eligible deposits bear to the
total amount of eligible deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled, provided that no fractional
shares shall be issued.
PRIORITY 4: OTHER MEMBERS. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account
Holders, our employee stock ownership plan and Supplemental Eligible Account
Holders, each Other Member will receive, without payment therefor, fourth
priority, nontransferable subscription rights to subscribe for common stock in
the Subscription Offering up to the greater of
(a) $100,000 of common stock or
(b) one-tenth of one percent (0.10%) of the total offering of
shares of common stock,
in each case subject to the overall purchase limitations. See "- Limitations on
Common Stock Purchases."
In the event the Other Members subscribe for a number of shares which,
when added to the shares subscribed for by Eligible Account Holders, our
employee stock ownership plan and Supplemental Eligible Account Holders, is in
excess of the total number of shares of common stock offered in the conversion,
available shares first will be allocated so as to permit each subscribing Other
Member, to the extent possible, to purchase a number of shares sufficient to
make his total allocation equal to the lesser of the number of shares subscribed
for or 100 shares. Thereafter, any remaining shares will be allocated among such
subscribing Other Members on a pro rata basis in the same proportion as each
Other Member's subscription bears to the total subscriptions of all subscribing
Other Members, provided that no fractional shares shall be issued.
EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription
Offering will expire at 12:00 noon, central time, on March ____________ , 2001
(the "Expiration Date"), unless extended for up to 45 days or for such
additional periods by us as may be approved by the FDIC. The Subscription
Offering may not be extended beyond March ____________ , 2003. Subscription
rights which have not been exercised prior to the Expiration Date (unless
extended) will become void.
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We will not execute orders until at least the minimum number of shares
of common stock (892,500 shares) have been subscribed for or otherwise sold. If
all shares have not been subscribed for or sold within 45 days after the
Expiration Date, unless such period is extended with the consent of the FDIC,
all funds delivered to First Bank pursuant to the Subscription Offering will be
returned promptly to the subscribers with interest and all withdrawal
authorizations will be canceled. If an extension beyond the 45-day period
following the Expiration Date is granted, we will notify subscribers of the
extension of time and of any rights of subscribers to modify or rescind their
subscriptions.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of Eligible Account Holders, our employee
stock ownership plan, Supplemental Eligible Account Holders and Other Members of
First Bank, we may elect to offer such shares either prior to or upon completion
of the Subscription Offering to certain members of the general public, with
preference given to natural persons residing in Clark and Edgar Counties,
Illinois (such natural persons referred to as "Preferred Subscribers"). Such
persons may purchase up to the greater of
(a) $100,000 or 10,000 shares of common stock, or
(b) one-tenth of one percent (0.10%) of the total offering of
shares of common stock,
in each case subject to the maximum purchase limitations. See "- Limitations on
Common Stock Purchases." THIS AMOUNT MAY BE INCREASED AT OUR SOLE DISCRETION TO
UP TO 5% OF THE TOTAL OFFERING OF SHARES IN THE SUBSCRIPTION OFFERING. THE
OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING
CATEGORY IS SUBJECT TO OUR RIGHT, IN OUR SOLE DISCRETION, TO ACCEPT OR REJECT
ANY SUCH ORDERS IN WHOLE OR IN PART EITHER AT THE TIME OF RECEIPT OF AN ORDER OR
AS SOON AS PRACTICABLE FOLLOWING THE EXPIRATION DATE.
If there are not sufficient shares available to fill the orders of
Preferred Subscribers after completion of the Subscription and Community
Offerings, such stock will be allocated first to each Preferred Subscriber whose
order is accepted by us, in an amount equal to the lesser of 100 shares or the
number of shares subscribed for by each such Preferred Subscriber, if possible.
Thereafter, unallocated shares will be allocated among the Preferred Subscribers
whose accepted orders remain unsatisfied in the same proportion that the
unfilled subscription of each bears to the total unfilled subscriptions of all
Preferred Subscribers whose accepted orders remain unsatisfied, provided that no
fractional shares shall be issued. Orders for common stock in the Community
Offering will first be filled to a maximum of 2% of the total number of shares
of common stock sold in the conversion and thereafter any remaining shares shall
be allocated on an equal number of shares basis per order until all orders have
been filled. If there are any shares remaining, shares will be allocated to
other members of the general public who subscribe in the Community Offering
applying the same allocation described above for Preferred Subscribers.
SYNDICATED COMMUNITY OFFERING
The Plan of Conversion provides that, if necessary, all shares of
common stock not purchased in the Subscription and Community Offerings, if any,
may be offered for sale to the general public in a Syndicated Community Offering
through selected dealers managed by Trident Securities acting as our agent in
the sale of the common stock. We have the right to reject orders, in whole or in
part, in our sole
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discretion in the Syndicated Community Offering. Neither Trident Securities nor
any registered broker-dealer shall have any obligation to take or purchase any
shares of common stock in the Syndicated Community Offering; however, Trident
Securities has agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering. Common stock sold in the Syndicated Community
Offering will be sold at a purchase price per share which is the same price as
all other shares being offered in the conversion. No person will be permitted to
subscribe in the Syndicated Community Offering for shares of common stock with
an aggregate purchase price of more than $100,000.
It is estimated that the selected dealers will receive a negotiated
commission based on the amount of common stock sold by the selected dealer,
payable by us. During the Syndicated Community Offering, selected dealers may
only solicit indications of interest from their customers to place orders with
us as of a certain date (the "Order Date") for the purchase of shares of common
stock. When and if we and Trident Securities believe that enough indications and
orders have been received in the offering to consummate the conversion, Trident
Securities will request, as of the Order Date, selected dealers to submit orders
to purchase shares for which they have received indications of interest from
their customers. Selected dealers will send confirmations of the orders to such
customers on the next business day after the Order Date. Selected dealers will
debit the accounts of their customers on a date which will be three business
days from the Order Date ("Debit Date"). Customers who authorize selected
dealers to debit their brokerage accounts are required to have the funds for
payment in their account on but not before the Debit Date. On the next business
day following the Debit Date, select dealers will remit funds to the account
that we will establish for each selected dealer. After payment has been received
by us from selected dealers, funds will earn interest at First Bank's passbook
savings rate until the conversion is completed. In the event the conversion is
not completed, funds will be returned promptly with interest to the selected
dealers, who, in turn, will promptly credit their customers' brokerage account.
The Syndicated Community Offering may close at any time after the
Expiration Date at our discretion, but in no case later than March _______,
2001, unless further extended with the consent of the FDIC. The offering may
not be extended beyond March _______ , 2003.
PERSONS WHO CANNOT EXERCISE SUBSCRIPTION RIGHTS
We will make reasonable efforts to comply with the securities laws of
all states in the United States in which persons entitled to subscribe for stock
pursuant to the Plan reside. However, we are not required to offer stock in the
Subscription Offering to any person who resides in a foreign country or resides
in a state of the United States with respect to which:
- the number of persons otherwise eligible to subscribe for
shares under the Plan who reside in such jurisdiction is
small;
- the granting of subscription rights or the offer or sale of
shares of common stock to such persons would require any of
First BancTrust and First Bank or our officers, directors or
employees, under the laws of such jurisdiction, to register as
a broker, dealer, salesman or selling agent or to register or
otherwise qualify its securities for sale in such jurisdiction
or to qualify as a foreign corporation or file a consent to
service of process in such jurisdiction; and
- such registration, qualification or filing in our judgment
would be impracticable or unduly burdensome for reasons of
costs or otherwise.
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Where the number of persons eligible to subscribe for shares in one state is
small, we will base our decision as to whether or not to offer the common stock
in such state on a number of factors, including but not limited to the size of
accounts held by account holders in the state, the cost of registering or
qualifying the shares or the need to register First BancTrust, its officers,
directors or employees as brokers, dealers or salesmen.
LIMITATIONS ON COMMON STOCK PURCHASES
The Plan includes the following limitations on the number of shares of
common stock which may be purchased in the conversion:
(1) No fewer than 25 shares of common stock may be purchased,
to the extent such shares are available;
(2) Each Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of (a) $100,000
or 10,000 shares of common stock, (b) one-tenth of one percent (0.10 %)
of the total offering of shares of common stock or (c) 15 times the
product (rounded down to the next whole number) obtained by multiplying
the total number of shares of common stock to be issued by a fraction,
of which the numerator is the amount of the qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Eligible Account Holders, in each case as of
the close of business on the Eligibility Record Date, with clauses (a)
and (b) above subject to the overall limitation in clause (6) below;
(3) Our employee stock ownership plan may purchase in the
aggregate up to 10% of the shares of common stock, including any
additional shares issued in the event of an increase in the offering
range, although at this time it intends to purchase only 8% of such
shares;
(4) Each Supplemental Eligible Account Holder may subscribe
for and purchase in the Subscription Offering up to the greater of (a)
$100,000 or 10,000 shares of common stock, (b) one-tenth of one percent
(0.10%) of the total offering of shares of common stock or (c) 15 times
the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common stock to be issued by
a fraction, of which the numerator is the amount of the qualifying
deposit of the Supplemental Eligible Account Holder and the denominator
is the total amount of qualifying deposits of all Supplemental Eligible
Account Holders, in each case as of the close of business on the
Supplemental Eligibility Record Date, with clauses (a) and (b) above
subject to the overall limitation in clause (6) below;
(5) Each Other Member or any person purchasing shares of
common stock in the Community Offering may subscribe for and purchase
in the Subscription Offering or Community Offering, as the case may be,
up to the greater of (a) $100,000 or 10,000 shares of common stock or
(b) one-tenth of one percent (0.10%) of the total offering of shares of
common stock, subject to the overall limitation in clause (6) below;
(6) Except for our employee stock ownership plan and certain
Eligible Account Holders and Supplemental Eligible Account Holders
whose subscription rights are based upon the amount of their deposits,
the maximum number of shares of common stock subscribed for or
purchased in all categories of the conversion by any person, together
with associates of and
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groups of persons acting in concert with such persons, shall not exceed
$200,000 or 20,000 shares of common stock issued in the conversion, or
1.7% at the maximum of the offering range; and
(7) No more than 32.3% of the total number of shares offered
for sale in the conversion may be purchased by directors and officers
of First Bank and their associates in the aggregate, excluding
purchases by our employee stock ownership plan.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
First Bank, the individual amount permitted to be subscribed for may be
increased up to a maximum of 5% of the number of shares sold in the conversion
at our sole discretion. If such amount is increased, subscribers for the maximum
amount will be, and certain other large subscribers in our sole discretion may
be, given the opportunity to increase their subscriptions up to the then
applicable limit.
In the event of an increase in the total number of shares of common
stock offered in the conversion due to an increase in the offering range of up
to 15% (the "Adjusted Maximum"), the additional shares will be allocated in the
following order of priority in accordance with the Plan:
(1) to fill our employee stock ownership plan's subscription
of 8% of the Adjusted Maximum number of shares;
(2) in the event that there is an oversubscription by Eligible
Account Holders, to fill unfulfilled subscriptions of Eligible Account
Holders, inclusive of the Adjusted Maximum;
(3) in the event that there is an oversubscription by
Supplemental Eligible Account Holders, to fill unfulfilled
subscriptions of Supplemental Eligible Account Holders, inclusive of
the Adjusted Maximum;
(4) in the event that there is an oversubscription by Other
Members, to fill unfulfilled subscriptions of Other Members, inclusive
of the Adjusted Maximum; and
(5) to fill unfulfilled subscriptions in the Community
Offering to the extent possible, inclusive of the Adjusted Maximum.
The term "associate" of a person is defined to include the following:
(a) any corporation or other organization (other than First
BancTrust and First Bank or a majority-owned subsidiary of First Bank)
of which such person is a director, officer or partner or is directly
or indirectly the beneficial owner of 10% or more of any class of
equity securities;
(b) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as
trustee or in a similar fiduciary capacity, provided, however, that
such term shall not include any tax-qualified employee stock benefit
plan of First BancTrust and First Bank in which such person has a
substantial beneficial interest or serves as a trustee or in a similar
fiduciary capacity; and
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(c) any relative or spouse of such person, or any relative of
such spouse, who either has the same home as such person or who is a
director or officer of us or any of our subsidiaries.
The term "acting in concert" is defined to mean (1) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement, or (2) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. We
may presume that certain persons are acting in concert based upon, among other
things, joint account relationships, common addresses on First Bank's records
and the fact that such persons have filed joint Schedules 13D or 13G with the
SEC with respect to other companies.
MARKETING ARRANGEMENTS
We have engaged Trident as a financial advisor and marketing agent in
connection with the offering of the common stock, and Trident has agreed to use
its best efforts to solicit subscriptions and purchase orders for shares of
common stock in the conversion. Trident is a member of the National Association
of Securities Dealers, Inc. ("NASD") and an SEC-registered broker-dealer.
Trident is headquartered in Raleigh, North Carolina, and its telephone number is
(919) 781-8900. Trident will provide various services including, but not limited
to, (1) training and educating First Bank's directors, officers and employees
regarding the mechanics and regulatory requirements of the stock sales process;
(2) providing its employees to staff the Stock Information Center to assist
First Bank's customers and internal stock purchasers and to keep records of
orders for shares of common stock; and (3) targeting our sales efforts,
including assisting in the preparation of marketing materials.
Based upon negotiations with us concerning fee structure, Trident will
receive a management fee of $20,000 and a commission equal to 1.75% of the
aggregate dollar amount of stock sold in the subscription and community
offerings, excluding certain shares sold to our employee stock ownership plan
and our directors, officers and employees, as well as their associates, both
payable upon consummation of the conversion. In the event that a selected
dealers agreement is entered into in connection with a Syndicated Community
Offering, First Bank will pay to such selected dealers a fee at the commission
rate to be agreed upon by Trident and us, for shares sold by an NASD member firm
pursuant to a selected dealers agreement. Fees to Trident and to any other
broker-dealer may be deemed to be underwriting fees, and Trident and such
broker-dealers may be deemed to be underwriters. Trident will also be reimbursed
for its reasonable legal fees and out-of-pocket expenses in an amount not to
exceed $40,000, subject to unforseen circumstances. We have agreed to indemnify
Trident and each person, if any, who controls Trident against all losses,
claims, damages or liabilities, joint or several, and all legal and other
expenses reasonably incurred by them in connection with certain claims that may
arise as a result of the conversion, including liabilities under the Securities
Act, except those that are due to Trident's willful misconduct or gross
negligence.
Our directors and executive officers may participate in the
solicitation of offers to purchase common stock by mailing written materials to
members of First Bank and other prospective investors, responding to inquiries
of prospective investors, and performing ministerial or clerical work. In each
jurisdiction in which the securities laws require that the offer and/or sale of
the common stock be made through a broker-dealer registered in such
jurisdiction, all written materials will be mailed under cover of a letter from
Trident. Other employees of First Bank may participate in the offering in
ministerial capacities or providing clerical work in effecting a sales
transaction. Such other employees have been instructed not to solicit offers to
purchase common stock or provide advice regarding the purchase of
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common stock. Questions of prospective purchasers will be directed to executive
officers or registered representatives. We will rely on Rule 3a4-1 under the
Exchange Act, and sales of common stock will be conducted within the
requirements of Rule 3a4-1, so as to permit officers, directors and employees to
participate in the sale of common stock. We will not compensate our officers,
directors or employees in connection with their participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the common stock.
PROCEDURE FOR PURCHASING SHARES IN THE SUBSCRIPTION AND COMMUNITY OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date (unless extended) in accordance with Rule 15c2-8 of
the Exchange Act, no prospectus will be mailed any later than five days prior to
such date or hand delivered any later than two days prior to such date.
Execution of the order form will confirm receipt or delivery in accordance with
Rule 15c2-8. Order forms will only be distributed with a prospectus.
To purchase shares in the Subscription and Community Offerings, an
executed order form with the required payment for each share subscribed for, or
with appropriate authorization for withdrawal from a deposit account at First
Bank (which may be given by completing the appropriate blanks in the order
form), must be received by First Bank by noon, central time, on the Expiration
Date (unless extended). In addition, we will require a prospective purchaser to
execute a certification in the form required by applicable FDIC regulations in
connection with any sale of common stock. Order forms which are not received by
such time or are executed defectively or are received without full payment (or
appropriate withdrawal instructions) are not required to be accepted. Copies of
order forms, order forms unaccompanied by an executed certification form,
payments from other private third parties and wire transfers are also not
required to be accepted. We have the right to waive or permit the correction of
incomplete or improperly executed forms, but do not represent that we will do
so. Once received, an executed order form may not be modified, amended or
rescinded without our consent, unless the conversion has not been completed
within 45 days after the end of the Subscription Offering, unless such period
has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the Eligibility
Record Date (June 30, 1999) or the Supplemental Eligibility Record Date
(December 31, 2000) and depositors as of the close of business on the Voting
Record Date (____________ , 2001) must list all accounts on the stock order form
giving all names in each account and the account numbers. FAILURE TO LIST ALL OF
YOUR ACCOUNTS MAY RESULT IN FEWER SHARES BEING ALLOCATED TO YOU THAN IF ALL OF
YOUR ACCOUNTS HAD BEEN DISCLOSED.
Payment for subscriptions may be made (1) in cash if delivered in
person at the main office of First Bank, 206 South Central Avenue, Paris,
Illinois 61944, (2) by check or money order, or (3) by authorization of
withdrawal from deposit accounts maintained with First Bank. Interest will be
paid on payments made by cash, check or money order at First Bank's passbook
rate of interest from the date payment is received until the conversion is
completed or terminated. If payment is made by authorization of withdrawal from
deposit accounts, the funds authorized to be withdrawn from a deposit account
will continue to accrue interest at the contractual rates until completion or
termination of the conversion, but a hold will be placed on such funds, thereby
making them unavailable to the depositor until completion or termination of the
conversion.
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If a subscriber authorizes First Bank to withdraw the amount of the
purchase price from his deposit account, First Bank will do so as of the
effective date of the conversion. First Bank will waive any applicable penalties
for early withdrawal from certificate accounts. If the remaining balance in a
certificate account is reduced below the applicable minimum balance requirement
at the time that the funds actually are transferred under the authorization, the
certificate will be canceled at the time of the withdrawal, without penalty, and
the remaining balance will earn interest at the passbook rate.
Our employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes. Instead, our employee stock
ownership plan may pay for the shares of common stock subscribed for by it at
the Purchase Price upon consummation of the Subscription and Community
Offerings, provided that there is a valid loan commitment in force from the time
of its subscription until such time. The loan commitment may be from an
unrelated financial institution or First BancTrust to lend to our employee stock
ownership plan, at the completion of the conversion, the aggregate purchase
price of the shares for which our employee stock ownership plan subscribed.
Owners of self-directed IRAs may use the assets of such IRAs to
purchase shares of common stock in the Subscription and Community Offerings,
provided that such IRAs are not maintained at First Bank. Persons with IRAs
maintained at First Bank must have their accounts transferred to an unaffiliated
institution or broker to purchase shares of common stock in the Subscription and
Community Offerings. In addition, applicable regulations require that officers,
directors and 10% stockholders who use self-directed IRA funds to purchase
shares of common stock in the Subscription and Community Offerings make such
purchases for the exclusive benefit of the IRAs. Any interested parties wishing
to use IRA funds for stock purchases are advised to contact the Stock
Information Center for additional information and allow sufficient time for the
account to be transferred as required.
Certificates representing shares of common stock purchased will be
mailed to purchasers at the last address of such persons appearing on the
records of First Bank, or to such other address as may be specified in properly
completed order forms, as soon as practicable following consummation of the
conversion. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
You may not transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of your subscription rights issued
under the Plan or the shares of common stock to be issued upon their exercise.
You may exercise your subscription rights only for your own account. If you
exercise your subscription rights, you will be required to certify that you are
purchasing shares solely for your own account and that you have no agreement or
understanding regarding the sale or transfer of such shares. Federal regulations
also prohibit any person from offering or making an announcement of an offer or
intent to make an offer to purchase such subscription rights or shares of common
stock prior to the completion of the conversion.
WE WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT WE
BECOME AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS
KNOWN BY US TO INVOLVE THE TRANSFER OF SUCH RIGHTS.
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LIQUIDATION RIGHTS OF CERTAIN DEPOSITORS
In the unlikely event of a complete liquidation of First Bank in its
present mutual form, each depositor of First Bank would receive his pro rata
share of any assets of First Bank remaining after payment of claims of all
creditors (including the claims of all depositors to the withdrawal value of
their accounts). Each depositor's pro rata share of such remaining assets would
be in the same proportion as the value of his deposit account was to the total
value of all deposit accounts in First Bank at the time of liquidation. After
the conversion, each depositor, in the event of a complete liquidation of First
Bank, would have a claim as a creditor of the same general priority as the
claims of all other general creditors of First Bank. However, except as
described below, his claim would be solely in the amount of the balance in his
deposit account plus accrued interest. He would not have an interest in the
value or assets of First Bank above that amount.
The Plan provides for the establishment, upon the completion of the
conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
First Bank's retained earnings as of the date of its latest statement of
financial condition contained in the final prospectus utilized in the
conversion. As of September 30, 2000, the initial balance of the liquidation
account would be approximately $12.8 million. Each Eligible Account Holder and
Supplemental Eligible Account Holder, if he were to continue to maintain his
deposit account at First Bank, would be entitled, upon a complete liquidation of
First Bank after the conversion, to an interest in the liquidation account prior
to any payment to First BancTrust as the sole stockholder of First Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder would have an
initial interest in such liquidation account for each deposit account, including
passbook accounts, NOW accounts, money market deposit accounts, and certificates
of deposit, held in First Bank at the close of business on June 30, 1999, or
December 31, 2000, as the case may be. Each Eligible Account Holder and
Supplemental Eligible Account Holder will have a pro rata interest in the total
liquidation account for each of his deposit accounts based on the proportion
that the balance of each such deposit account on the June 30, 1999, eligibility
record date (or the December 31, 2000, supplemental eligibility record date, as
the case may be) bore to the balance of all deposit accounts in First Bank on
such dates.
If, however, on any December 31 annual closing date of First Bank,
commencing December 31, 2001, the amount in any deposit account is less than the
amount in such deposit account on June 30, 1999 or December 31, 2000, as the
case may be, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the claims of general creditors (including
the claims of all depositors to the withdrawal value of their accounts) and the
above liquidation rights of Eligible Account Holders and Supplemental Eligible
Account Holders are satisfied would be distributed to First BancTrust as the
sole stockholder of First Bank.
TAX ASPECTS
Completion of the conversion is expressly conditioned upon prior
receipt of either a ruling or an opinion of counsel with respect to federal tax
laws, and either a ruling or an opinion with respect to Illinois tax laws, to
the effect that consummation of the transactions contemplated hereby will not
result in a taxable reorganization under the provisions of the applicable codes
or otherwise result in any adverse
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tax consequences to us or to account holders receiving subscription rights,
except to the extent, if any, that subscription rights are deemed to have fair
market value on the date such rights are issued.
Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C., has issued an
opinion to us to the effect that, for federal income tax purposes:
(1) First Bank's change in form from mutual to stock ownership
will constitute a reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code and we will not recognize any gain or loss as a
result of the conversion;
(2) no gain or loss will be recognized by us upon the purchase
of First Bank's capital stock by First BancTrust;
(3) no gain or loss will be recognized by Eligible Account
Holders and Supplemental Eligible Account Holders upon the issuance to
them of deposit accounts in First Bank in its stock form plus their
interests in the liquidation account in exchange for their deposit
accounts in the mutual Bank;
(4) assuming the non-transferable subscription rights to
purchase common stock have no value, the tax basis of the depositors'
deposit accounts in First Bank immediately after the conversion will be
the same as the basis of their deposit accounts immediately prior to
the conversion;
(5) assuming the non-transferable subscription rights to
purchase common stock have no value, the tax basis of each Eligible
Account Holder's and Supplemental Eligible Account Holder's interest in
the liquidation account will be zero; and
(6) the tax basis to the stockholders of the common stock
purchased in the conversion will be the amount paid therefor, and the
holding period for the shares of common stock purchased by such persons
will begin on the date of consummation of the conversion if purchased
through the exercise of subscription rights and on the day after the
date of purchase if purchased in the Community Offering.
Olive LLP, Decatur, Illinois, has also advised us that the foregoing tax effects
of the conversion under Illinois law are substantially the same as they are
under federal law.
In the opinion of Keller, the subscription rights do not have any
value, based on the fact that such rights are acquired by the recipients without
cost, are nontransferable and of short duration, and afford the recipients the
right only to purchase the common stock at a price equal to its estimated fair
market value, which will be the same price as the Purchase Price for the
unsubscribed shares of common stock. If the subscription rights granted to
eligible subscribers are deemed to have an ascertainable value, receipt of such
rights would be taxable probably only to those eligible subscribers who exercise
the subscription rights (either as a capital gain or ordinary income) in an
amount equal to such value, and we could recognize gain on such distribution.
Eligible subscribers are encouraged to consult with their own tax advisor as to
the tax consequences in the event that such subscription rights are deemed to
have an ascertainable value.
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Unlike private rulings, an opinion is not binding on the IRS, and the
IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
DELIVERY OF CERTIFICATES
Certificates representing common stock issued in the conversion will be
mailed by our transfer agent to the persons entitled thereto at the addresses of
such persons appearing on the stock order form as soon as practicable following
consummation of the conversion. Any certificates returned as undeliverable will
be held by us until claimed by persons legally entitled thereto or otherwise
disposed of in accordance with applicable law. Until certificates for common
stock are available and delivered to subscribers, such subscribers may not be
able to sell the shares of common stock for which they have subscribed, even
though trading of the common stock may have commenced.
REQUIRED APPROVALS
Various approvals of the Illinois Office of Banks and Real Estate and
the FDIC are required in order to consummate the conversion. The FDIC and the
Illinois Office of Banks and Real Estate approved the Plan of Conversion,
subject to approval by First Bank's members and other standard conditions. The
Federal Reserve Board has also approved our holding company application, subject
to certain standard conditions.
We are required to make certain filings with state securities
regulatory authorities in connection with the issuance of common stock in the
conversion.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER THE CONVERSION
All shares of common stock purchased in connection with the conversion
by any of our directors or executive officers will be subject to a restriction
that the shares not be sold for a period of one year following the conversion,
except in the event of the death of such director or executive officer or
pursuant to a merger or similar transaction approved by the FDIC. Each
certificate for restricted shares will bear a legend giving notice of this
restriction on transfer, and appropriate stop-transfer instructions will be
issued to our transfer agent. Any shares of common stock issued at a later date
within this one year period as a stock dividend, stock split or otherwise with
respect to such restricted stock will be subject to the same restrictions. Our
directors and executive officers will also be subject to the insider trading
rules promulgated pursuant to the Exchange Act as long as the common stock is
registered pursuant to Section 12(g) of the Exchange Act.
Purchases of our common stock by our directors, executive officers and
their associates during the three-year period following completion of the
conversion may be made only through a broker or dealer registered with the SEC,
except with the prior written approval of the FDIC. This restriction does not
apply, however, to negotiated transactions involving more than 1% of our
outstanding common stock or to certain purchases of stock pursuant to an
employee stock benefit plan, such as our employee stock ownership plan, or by
any non-tax-qualified employee stock benefit plan, such as the recognition plan.
Any repurchases of common stock by First BancTrust in the future will
be subject to the receipt of any necessary approvals from the Illinois Office of
Banks and Real Estate and/or the Federal Reserve Board and will be subject to
any applicable regulations and policies of those agencies.
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RESTRICTIONS ON ACQUISITION OF FIRST BANCTRUST CORPORATION
AND FIRST BANK
GENERAL
As described below, our Certificate of Incorporation and Bylaws and our
and First Bank's benefit plans, together with provisions of Delaware corporate
law, may have anti-takeover effects. In addition, regulatory restrictions may
make it difficult for persons or companies to acquire control of either the
First BancTrust or First Bank. Below is a summary of certain material
restrictions on acquisitions of First BancTrust and First Bank.
RESTRICTIONS IN FIRST BANCTRUST'S CERTIFICATE OF INCORPORATION AND BYLAWS
GENERAL. A number of provisions of the First BancTrust's Certificate of
Incorporation and Bylaws deal with matters of corporate governance and certain
rights of stockholders. The following discussion is a general summary of certain
provisions of the First BancTrust's Certificate of Incorporation and Bylaws
which might be deemed to have a potential "anti-takeover" effect. These
provisions may have the effect of discouraging a future takeover attempt which
is not approved by the Board of Directors but which individual First BancTrust
stockholders may deem to be in their best interests or in which stockholders may
receive a substantial premium for their shares over then current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have an opportunity to do so. Such provisions will also render the
removal of the current Board of Directors or management of the First BancTrust
more difficult. The following description of certain of the provisions of the
Certificate of Incorporation and Bylaws of First BancTrust is necessarily
general and reference should be made in each case to such Certificate of
Incorporation and Bylaws, which are incorporated herein by reference. See
"Additional Information" as to how to obtain a copy of these documents.
LIMITATION ON VOTING RIGHTS. Article 12.B. of First BancTrust's
Certificate of Incorporation provides that no person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of
(i) more than 10% of the issued and outstanding shares of any
class of an equity security of First BancTrust, or
(ii) any securities convertible into, or exercisable for, any of
our equity securities if, assuming conversion or exercise by
such person of all securities of which such person is the
beneficial owner which are convertible into, or exercisable
for, such equity securities (but of no securities convertible
into, or exercisable for, such equity securities of which such
person is not the beneficial owner), such person would be the
beneficial owner of more than 10% of any class of an equity
security of First BancTrust.
The terms "person" and "beneficial ownership" are broadly defined to prevent
circumvention of this restriction.
The foregoing restrictions do not apply to the following:
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(i) any offer with a view toward public resale made exclusively to
us by underwriters or a selling group acting on our behalf,
(ii) any tax-qualified employee benefit plan or arrangement
established by us, First Bank and any trustee of such a plan
or arrangement, or
(iii) any other offer or acquisition approved in advance by the
affirmative vote of two-thirds of our entire Board of
Directors.
In the event that shares are acquired in violation of Article 12.B., all shares
beneficially owned by any person in excess of 10% are considered "Excess Shares"
and may not be counted as shares entitled to vote and may not be voted by any
person or counted as voting shares in connection with any matters submitted to
stockholders for a vote, and our Board of Directors may cause such Excess Shares
to be transferred to an independent trustee for sale on the open market or
otherwise, with the expenses of such trustee to be paid out of the proceeds of
sale.
BOARD OF DIRECTORS. Article 7.A. of our Certificate of Incorporation
contains provisions relating to the Board of Directors and provides, among other
things, that the Board of Directors must be divided into three classes as nearly
equal in number as possible, with the term of office of one class expiring each
year. See "Management - Management of First BancTrust." The classified Board is
intended to provide for continuity of the Board of Directors and to make it more
difficult and time consuming for a stockholder group to fully use its voting
power to gain control of the Board of Directors without the consent of the
incumbent Board of Directors. Cumulative voting in the election of directors is
not permitted.
Directors may be removed only for cause at a duly constituted meeting
of stockholders called expressly for that purpose upon the vote of the holders
of at least 80% of the total votes eligible to be cast by stockholders. Cause
for removal shall exist only if the director whose removal is proposed has been
either declared of unsound mind by order of a court, convicted of a felony or of
an offense punishable by imprisonment for a term of more than one year by a
court of competent jurisdiction, or deemed liable by a court of competent
jurisdiction for gross negligence or misconduct in the performance of such
director's duties to First BancTrust. Any vacancy occurring in the Board of
Directors for any reason (including an increase in the number of authorized
directors) may be filled by the affirmative vote of a majority of the remaining
directors, whether or not a quorum of the Board of Directors is present, or the
sole remaining director of First BancTrust, and a director appointed to fill a
vacancy shall serve until the expiration of the term to which he was appointed.
First BancTrust's Bylaws govern nominations for election to the Board,
and require all nominations for election to the Board of Directors other than
those made by the Board to be made by a stockholder eligible to vote at an
annual meeting of stockholders who has complied with the notice provisions.
Written notice of a stockholder nomination must be delivered to, or mailed to
and received at, our principal executive offices not later than 120 days prior
to the anniversary date of the immediately preceding annual meeting, provided
that, with respect to the first scheduled annual meeting following completion of
the conversion, notice must be received no later than the close of business on
Wednesday, November 28, 2001. Each such notice must set forth the following:
(i) the name, age, business address and residence address of the
stockholder submitting the nomination and of the person
nominated;
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(ii) the principal occupation or employment of the stockholder
submitting the nomination and of the person nominated;
(iii) the class and number of shares of First BancTrust's stock
beneficially owned by the person submitting the nomination,
by any person who is acting in concert with or who is an
affiliate or associate of such stockholders (as such terms
are defined in our Certificate of Incorporation), by any
person who is a member of any group with such stockholders
with respect to our stock or who is known by such
stockholder to be supporting such nominee(s) on the date the
notice is given to us, by each person being nominated, and
by each person who is in control of, is controlled by or is
under common control with any of the foregoing persons (if
any of the foregoing persons is a partnership, corporation,
limited liability company, association or trust, information
must be provided regarding the name and address of, and the
class and number of shares of our stock which are
beneficially owned by, each partner in such partnership,
each director, executive officer and stockholder in such
corporation, each member in such limited liability company
or association, and each trustee and beneficiary of such
trust, and in each case each person controlling such entity
and each partner, director, executive officer, stockholders,
member or trustee of any entity which is ultimately in
control of such partnership, corporation, limited liability
company, association or trust);
(iv) a representation that the stockholder is a holder of record of
our stock entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice;
(v) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(vi) such other information regarding the stockholder submitting
the notice, each nominee proposed by such stockholder and any
other person covered by clause (iii) of this paragraph as
would be required to be included in a proxy statement filed
pursuant to the proxy rules of the SEC; and
(vii) the consent of each nominee to serve as a director of First
BancTrust if so elected.
Our Certificate of Incorporation provides that the personal liability
of the directors and officers of First BancTrust for monetary damages is
eliminated to the fullest extent permitted by Delaware law. Delaware Law
currently provides that directors (but not officers) of corporations that have
adopted such a provision will not be so liable, except:
(i) for any breach of the director's duty of loyalty to the
corporation or its shareholders,
(ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law,
(iii) for the payment of certain unlawful dividends and the making
of certain stock purchases or redemptions, or
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(iv) for any transaction from which the director derived an
improper personal benefit. This provision would absolve
directors of personal liability for negligence in the
performance of their duties, including gross negligence. It
would not permit a director to be exculpated, however, for
liability for actions involving conflicts of interest or
breaches of the traditional "duty of loyalty" to First
BancTrust and its stockholders, and it would not affect the
availability of injunctive or other equitable relief as a
remedy.
Our Bylaws provide that we shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer or employee of First BancTrust or any predecessor of First BancTrust, or
is or was serving at the request of First BancTrust or any predecessor of First
BancTrust as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise. Such indemnification is
furnished to the full extent permitted by law against expenses (including
attorneys' fees), judgments, fines, excise taxes and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding. The indemnification provisions also permit us to pay
reasonable expenses in advance of the final disposition of any action, suit or
proceeding as authorized by the Board of Directors, provided that the
indemnified person undertakes to repay us if it is ultimately determined that
such person was not entitled to indemnification.
The rights of indemnification provided in our Certificate of
Incorporation are not exclusive of any other rights which may be available under
our Bylaws, any insurance or other agreement, by vote of stockholders or
directors (regardless of whether directors authorizing such indemnification are
beneficiaries thereof) or otherwise. In addition, the Certificate of
Incorporation authorizes us to maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of First BancTrust, whether or not
we would have the power to provide indemnification to such person. These
provisions are designed to reduce, in appropriate cases, the risks incident to
serving as a director, officer, employee or agent and to enable us to attract
and retain the best personnel available.
The provisions regarding director elections and other provisions in the
Certificate of Incorporation and Bylaws are generally designed to protect the
ability of the Board of Directors to negotiate with the proponent of an
unfriendly or unsolicited proposal to take over or restructure First BancTrust
by making it more difficult and time-consuming to change majority control of the
Board, whether by proxy contest or otherwise. The effect of these provisions
will be to generally require at least two (and possibly three) annual
stockholders' meetings, instead of one, to effect a change in control of our
Board of Directors even if holders of a majority of First BancTrust's capital
stock believed that a change in the composition of the Board of Directors was
desirable. Because a majority of the directors at any given time will have prior
experience as directors, these requirements will help to ensure continuity and
stability of our management and policies and facilitate long-range planning for
our business. The provisions relating to removal of directors and filling of
vacancies are consistent with and supportive of a classified board of directors.
The procedures regarding stockholder nominations will provide the Board
of Directors with sufficient time and information to evaluate a stockholder
nominee to the Board and other relevant information, such as existing
stockholder support for the nominee. The proposed procedures, however, will
provide incumbent directors advance notice of a dissident slate of nominees for
directors and will make it easier for the Board to solicit proxies resisting
such nominees. This may make it easier for the
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incumbent directors to retain their status as directors, even when certain
stockholders view the stockholder nominations as in the best interests of First
BancTrust or our stockholders.
AUTHORIZED SHARES. Article 4 of the Certificate of Incorporation
authorizes the issuance of 5,000,000 shares of common stock and 1,000,000 shares
of preferred stock. The shares of common stock and preferred stock were
authorized in an amount greater than that to be issued in the conversion to
provide First BancTrust's Board of Directors with as much flexibility as
possible to effect, among other transactions, financings, acquisitions, stock
dividends, stock splits and employee stock options. However, these additional
authorized shares may also be used by the Board of Directors consistent with its
fiduciary duty to deter future attempts to gain control of First BancTrust. The
Board of Directors also has sole authority to determine the terms of any one or
more series of preferred stock, including voting rights, conversion rates, and
liquidation preferences. As a result of the ability to fix voting rights for a
series of preferred stock, the Board has the power, to the extent consistent
with its fiduciary duty, to issue a series of preferred stock to persons
friendly to management in order to attempt to block a post-tender offer merger
or other transaction by which a third party seeks control, and thereby assist
management to retain its position. Our Board currently has no plans for the
issuance of additional shares, other than the issuance of additional shares
pursuant to stock benefit plans.
MEETINGS OF STOCKHOLDERS. Our Certificate of Incorporation provides
that any action required or permitted by Delaware law or the Certificate of
Incorporation to be approved by or consented to by our stockholders, must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by written consent by stockholders in lieu of a meeting of
stockholders. The Certificate of Incorporation further provides that, with
limited exceptions, special meetings of stockholders may be called only by a
three-fourths vote of the Board of Directors.
STOCKHOLDER PROPOSALS. Our Bylaws provide that only such business as
shall have been properly brought before an annual meeting of stockholders shall
be conducted at the annual meeting. In order to be properly brought before an
annual meeting following completion of the conversion, business must be:
(a) brought before the meeting by or at the direction of the Board
of Directors, or
(b) otherwise properly brought before the meeting by a stockholder
who has given timely and complete notice in writing to us.
For stockholder proposals to be included in First BancTrust's proxy materials,
the stockholder must comply with all the timing and informational requirements
of Rule 14a-8 of the Exchange Act. With respect to stockholder proposals to be
considered at the annual meeting of stockholders but not included in our proxy
materials, the stockholder's notice must be delivered to or mailed and received
at our principal executive offices not less than 120 days prior to the
anniversary date of the immediately preceding annual meeting; provided, however,
that with respect to the first scheduled annual meeting following completion of
the conversion, such written notice must be received by us not later than the
close of business on November 28, 2001. A stockholder's notice shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
certain information as specified in Section 2.14 of the Bylaws, including:
(a) a brief description of the proposal desired to be brought
before the annual meeting,
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(b) the name and address, as they appear on our books, of the
stockholder proposing such business, and, to the extent known,
any other stockholders known by such stockholder to be
supporting such proposal,
(c) the class and number of shares of First BancTrust which are
beneficially owned by the stockholder; and, to the extent
known, by any other stockholders known by such stockholder to
be supporting such proposal on the date of such stockholder
notice,
(d) the identification of any person retained to make stockholder
solicitations or recommendations with respect to such
proposal, and
(e) any material interest of the stockholder in such proposal.
The procedures regarding stockholder proposals are designed to provide the Board
with sufficient time and information to evaluate a stockholder proposal and
other relevant information, such as existing stockholder support for the
proposal. The proposed procedures, however, will give incumbent directors
advance notice of a stockholder proposal. This may make it easier for the
incumbent directors to defeat a stockholder proposal, even when certain
stockholders view such proposal as in the best interests of First BancTrust or
its stockholders.
EVALUATION OF OFFERS. Our Certificate of Incorporation provides that
our Board of Directors, when evaluating any offer from another party to:
(i) make a tender or exchange offer for any equity security of
First BancTrust,
(ii) merge or consolidate First BancTrust with another corporation
or entity or
(iii) purchase or otherwise acquire all or substantially all of the
properties and assets of the First BancTrust,
may, consistent with the exercise of its fiduciary duties and in connection with
the exercise of its judgment in determining what is in our best interest and our
stockholders, give due consideration, to the extent permitted by law, not only
to the price or other consideration being offered, but also to all other
relevant factors, including:
- the financial and managerial resources and future prospects of
the other party,
- the possible effects on our business, subsidiaries, employees,
customers, suppliers and creditors,
- the effects on the communities in which we and our
subsidiaries' facilities are located.
By having these standards in our Certificate of Incorporation, the Board of
Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in our best interest, even if
the price offered is significantly greater than the then market price of our
stock.
STOCKHOLDER APPROVAL OF MERGERS AND CERTAIN OTHER EXTRAORDINARY
TRANSACTIONS. Article 11 of our Certificate of Incorporation provides that any
action taken by stockholders under Subchapter
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IX of the Delaware General Corporation Law (which relates to merger or
consolidation transactions) and Subchapter X (which relates to sale of assets,
dissolution and winding up transactions) must, with certain exceptions,
generally be approved by the affirmative vote of at least 80% of the votes
eligible to be cast by stockholders. The supermajority 80% vote requirement of
Article 11 of the Certificate of Incorporation is not applicable to any
transaction approved in advance by at least two-thirds of our entire Board of
Directors. Where the Board of Directors so approves a transaction, only such
stockholder approval as is specified under Delaware law is required. The
Delaware General Corporation Law requires the approval of the Board of Directors
and the holders of a majority of our outstanding stock entitled to vote for
mergers of consolidations, and for sales, leases or exchanges of all
substantially all of our assets. The Delaware General Corporation Law permits us
to merge with another corporation without obtaining the approval of our
stockholders if:
(i) we are the surviving corporation of the merger;
(ii) the merger agreement does not amend our Certificate of
Incorporation;
(iii) each share of our stock outstanding immediately prior to the
effective date of the merger is to be an identical outstanding
or treasury share of First BancTrust after the merger; and
(iv) any authorized but unissued shares or treasury shares of
common stock to be issued or delivered under the plan of
merger plus those initially issuable upon conversion of any
other securities or obligations to be issued or delivered
under such plan do not exceed 20% of the shares of the common
stock outstanding immediately prior to the effective date of
the merger.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Article 13 of our
Certificate of Incorporation generally provides that any amendment of the
Certificate of Incorporation must be approved first by a majority of the Board
of Directors and then by the holders of at least 80% of the shares entitled to
vote in an election of directors. However, the approval of only a majority of
the shares of First BancTrust entitled to vote in an election of directors is
required for any amendment previously approved by at least two-thirds of the
entire Board of Directors.
Our Bylaws may be amended by a majority of the Board of Directors or by
the affirmative vote of a majority of the total shares entitled to vote in an
election of directors, except that the affirmative vote of at least 80% of the
total shares entitled to vote in an election of directors is required to amend,
adopt, alter, change or repeal any provision inconsistent with certain specified
provisions of the Bylaws.
DELAWARE CORPORATION LAW
In addition to the provisions contained in our Certificate of
Incorporation, the Delaware General Corporation Law includes certain provisions
applicable to Delaware corporations like First BancTrust which may have an
anti-takeover effect. Such provisions include requirements relating to certain
business combinations.
The Delaware General Corporation Law imposes certain restrictions on
business combinations between First BancTrust and large shareholders.
Specifically, the Delaware General Corporation Law prohibits a "business
combination" (as defined to include mergers, sales and leases of assets,
issuances of securities and similar transactions) between First BancTrust or a
subsidiary and an "interested
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shareholder" (generally the beneficial owner of 15% or more of our common stock)
within three years after the person or entity becomes an interested shareholder,
unless:
(i) prior to the person or entity becoming an interested
shareholder, the business combination or the transaction
pursuant to which such person or entity became an interested
shareholder was approved by our Board of Directors,
(ii) upon consummation of the transaction in which the interested
shareholder became such, the interested shareholder holds at
least 85% of our common stock (excluding shares held by
persons who are both officers and directors and shares held by
certain employee benefit plans), or
(iii) the business combination is approved by our Board of Directors
and by the holders of at least two-thirds of the outstanding
First BancTrust common stock, excluding shares owned by the
interested shareholders.
One of the effects of these provisions may be to prevent highly
leveraged takeovers, which depend upon obtaining access to the acquired
corporation's assets to support or repay acquisition indebtedness and certain
coercive acquisition tactics. By requiring approval of the holders of two-thirds
of the shares held by disinterested shareholders for business combinations
involving an interested shareholder, these provisions may prevent any interested
shareholder from taking advantage of its position as a substantial, if not
controlling, shareholder and engaging in transactions with First BancTrust that
may not be fair to our other shareholders or that may otherwise not be in our
best interests, our shareholders and other constituencies.
For similar reasons, however, these provisions may make more difficult
or discourage an acquisition of First BancTrust, or the acquisition of control
of First BancTrust by a principal shareholder, and thus the removal of incumbent
management. In addition, to the extent that these provisions discourage
takeovers that would result in the change of our management, such a change may
be less likely to occur.
ANTI-TAKEOVER EFFECTS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS AND
MANAGEMENT REMUNERATION ADOPTED IN THE CONVERSION
The foregoing provisions of our Certificate of Incorporation and Bylaws
and Delaware law could have the effect of discouraging an acquisition of First
BancTrust or stock purchases in furtherance of an acquisition, and could
accordingly, under certain circumstances, discourage transactions which might
otherwise have a favorable effect on the price of our common stock. In addition,
such provisions may make First BancTrust less attractive to a potential acquiror
and/or might result in stockholders receiving a lesser amount of consideration
for their shares of common stock than otherwise could have been available.
The Board of Directors believes that the provisions described above are
prudent and will reduce vulnerability to takeover attempts and certain other
transactions that are not negotiated with and approved by our Board of
Directors. The Board of Directors believes that these provisions are in the best
interests of First BancTrust and its future stockholders. In the Board of
Directors' judgment, the Board of Directors is in the best position to determine
the true value of your company and to negotiate more effectively for what may be
in the best interests of its stockholders. Accordingly, the Board of Directors
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believes that it is in the best interests of First BancTrust and its future
stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors and that these provisions will encourage such negotiations
and discourage hostile takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at prices reflective of the true value of First BancTrust
and where the transaction is in the best interests of all stockholders.
Despite the Board of Directors' belief as to the benefits to First
BancTrust's stockholders of the foregoing provisions, these provisions also may
have the effect of discouraging a future takeover attempt in which stockholders
might receive a substantial premium for their shares over then current market
prices and may tend to perpetuate existing management. As a result, stockholders
who might desire to participate in such a transaction may not have an
opportunity to do so. The Board of Directors, however, has concluded that the
potential benefits of these provisions outweigh their possible disadvantages.
The Board of Directors of First BancTrust and First Bank are not aware
of any effort that might be made to acquire control of First Bank or First
BancTrust.
REGULATORY RESTRICTIONS
CHANGE IN BANK CONTROL ACT. The Change in Bank Control Act provides
that no person, acting directly or indirectly or through or in concert with one
or more other persons, may acquire control of a bank holding company unless the
Federal Reserve has been given 60 days' prior written notice. The Bank Holding
Company Act provides that no company may acquire "control" of a bank holding
company without the prior approval of the Federal Reserve. Any company that
acquires such control becomes a bank holding company subject to registration,
examination and regulation by the Federal Reserve. Pursuant to Federal
regulations, control of a bank holding company is conclusively deemed to have
been acquired by, among other things, the acquisition of more than 25% of any
class of voting stock of the institution or the ability to control the election
of a majority of the directors of an institution. The Federal Reserve:
(i) may prohibit an acquisition if the acquisition would result in
a monopoly, or would be in furtherance of one, or
substantially lessen competition, or be in restraint of trade,
unless it finds that the anti-competitive effects are clearly
outweighed in the public interest by the probable effect of
the transaction in meeting the convenience and needs of the
community to be served;
(ii) in every case, must take into consideration the financial and
managerial resources, including the competence, experience,
and integrity of the officers, directors, and principal
shareholders of the acquiring company, and the future
prospects of First BancTrust and First Bank, and the
convenience and needs of the community to be served;
(iii) must disapprove any application if the acquiring company fails
to assure the Federal Reserve that it will provide the
information necessary for the Federal Reserve to enforce
banking laws respecting the acquiror or, if the application
involves a foreign bank, the foreign bank is not subject to
comprehensive supervision or regulation on a consolidated
basis by the appropriate authorities in the foreign bank's
home country.
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DESCRIPTION OF CAPITAL STOCK OF FIRST BANCTRUST CORPORATION
GENERAL
We are authorized to issue 6,000,000 shares of capital stock, of which
5,000,000 are shares of common stock, par value $.01 per share and 1,000,000 are
shares of preferred stock, par value $.01 per share. We currently expect to
issue up to a maximum of 1,388,625 shares of common stock and no shares of
preferred stock in the conversion. Each share of our common stock issued in the
conversion will have the same relative rights as, and will be identical in all
respects with, each other share of common stock issued in the conversion. Upon
payment of the purchase price for the common stock in accordance with the Plan
of Conversion, all such stock will be duly authorized, fully paid and
nonassessable based on the laws and regulations in effect as of the date of
consummation of the conversion.
THE COMMON STOCK OF FIRST BANCTRUST WILL REPRESENT NONWITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY
THE FDIC.
COMMON STOCK
DISTRIBUTIONS. We can pay dividends if, as and when declared by our
Board of Directors, subject to compliance with limitations which are imposed by
law. See "Dividend Policy." The holders of our common stock will be entitled to
receive and share equally in such dividends as may be declared by our Board of
Directors out of funds legally available therefor. If we issue preferred stock,
the holders may have a priority over the holders of the common stock with
respect to dividends.
VOTING RIGHTS. Upon completion of the conversion, the holders of our
common stock will possess exclusive voting rights. They will elect our Board of
Directors and act on such other matters as are required to be presented to them
under Delaware law or our Certificate of Incorporation or as are otherwise
presented to them by the Board of Directors. Each holder of common stock will be
entitled to one vote per share and will not have any right to cumulate votes in
the election of directors. Cumulative voting means that holders of stock of a
corporation are entitled, in the election of directors, to cast a number of
votes equal to the number of shares which they own multiplied by the number of
directors to be elected. Because a stockholder entitled to cumulative voting may
cast all of his votes for one nominee or disperse his votes among nominees as he
chooses, cumulative voting is generally considered to increase the ability of
minority stockholders to elect nominees to a corporation's board of directors.
Under certain circumstances, shares in excess of 10.0% of the issued and
outstanding shares of our common stock may be considered "Excess Shares" and,
accordingly, not be entitled to vote. See " -- Limitation on Voting Rights." If
we issue preferred stock, holders of the preferred stock may also possess voting
rights.
LIQUIDATION. In the event of any liquidation, dissolution or winding up
of First Bank, First BancTrust Corporation, as holder of First Bank's capital
stock, would be entitled to receive, after payment or provision for payment of
all debts and liabilities of First Bank (including all deposit accounts and
accrued interest thereon) and after distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders (see "The Conversion - Liquidation Rights"), all assets of First
Bank available for distribution. In the event of our liquidation, dissolution or
winding up, the holders of our common stock would be entitled to receive, after
payment
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or provision for payment of all its debts and liabilities, all of our assets
available for distribution. If preferred stock is issued, holders of that stock
may have a priority over the holders of the common stock in the event of
liquidation or dissolution.
PREEMPTIVE RIGHTS. Holders of our common stock will not be entitled to
preemptive rights with respect to any shares which may be issued. The common
stock is not subject to redemption.
PREFERRED STOCK
None of the shares of our authorized preferred stock will be issued in
the conversion. Such stock may be issued with such preferences and designations
as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights which could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control. We have no
present plans to issue preferred stock.
DESCRIPTION OF CAPITAL STOCK OF FIRST BANK
GENERAL
The Amended and Restated Charter of First Bank authorizes the issuance
of capital stock consisting of 100 shares of common stock, par value $1.00 per
share. Each share of common stock of First Bank will have the same relative
rights as, and will be identical in all respects with, each other share of
common stock. After the conversion, the Board of Directors will be authorized to
approve the issuance of common stock up to the amount authorized by the Amended
and Restated Charter without the approval of the First BancTrust's stockholders.
Upon conversion, all of the issued and outstanding common stock of First Bank
will be held by us as First Bank's sole stockholder. The capital stock of First
Bank will represent nonwithdrawable capital, will not be an account of an
insurable type, and will not be insured by the FDIC. Presented below is a
description of all aspects of First Bank's capital stock which are deemed
material to an investment decision with respect to the conversion.
DIVIDENDS
The holders of First Bank's common stock will be entitled to receive
and to share equally in such dividends as may be declared by First Bank's Board
of Directors out of funds legally available therefore. See "Dividend Policy" for
certain restrictions on the payment of dividends.
VOTING RIGHTS
Immediately after the conversion, we will possess exclusive voting
rights in First Bank. Each holder of shares of common stock will be entitled to
one vote for each share held, and there shall be no right to cumulate votes.
LIQUIDATION
In the event of any liquidation, dissolution, or winding up of First
Bank, the holders of common stock will be entitled to receive, after payment of
all First Bank's debts and liabilities (including all deposit accounts and
accrued interest thereon), and distribution of the balance in the special
liquidation
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account to Eligible Account Holders and Supplemental Eligible Account Holders,
all assets of First Bank available for distribution in cash or in kind. If
additional preferred stock is issued subsequent to the conversion, the holders
thereof may also have priority over the holders of common stock in the event of
liquidation or dissolution.
PREEMPTIVE RIGHTS; REDEMPTION
Holders of First Bank's common stock will not be entitled to preemptive
rights for any shares of First Bank which may be issued. The common stock will
not be subject to redemption. Upon receipt by First Bank of the full specified
purchase price therefor, the common stock will be fully paid and nonassessable.
EXPERTS
The consolidated financial statements of First Bank as of December 31,
1999 and 1998 and for the years ended December 31, 1999 and 1998 included in
this prospectus have been included herein in reliance upon the report of
Olive LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
Keller & Company has consented to the publication herein of the summary
of its report to us setting forth its opinion as to the estimated pro forma
market value of the common stock to be outstanding upon completion of the
conversion and its opinion with respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the common stock and the federal income tax
consequences of the conversion will be passed upon for us by Elias, Matz,
Tiernan & Herrick L.L.P., Washington, D.C., our special counsel. The Illinois
income tax consequences of the conversion will be passed upon for us by Olive
LLP, Decatur, Illinois. Certain legal matters will be passed upon for Trident by
Muldoon, Murphy & Faucette, Washington, D. C.
ADDITIONAL INFORMATION
We have filed with the SEC a Registration Statement under the
Securities Act with respect to the common stock offered hereby. As permitted by
the rules and regulations of the SEC, this prospectus does not contain all the
information set forth in the Registration Statement. Such information, including
the appraisal report which is an exhibit to the Registration Statement, can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material can
be obtained from the SEC at prescribed rates. In addition, the SEC maintains a
web site that contains registration statements and other reports regarding
registrants that file electronically with the SEC (such as First BancTrust). The
address of the SEC's web site is http://www.sec.gov. The statements contained in
this prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement summarize the provisions of such contracts
or other documents which are deemed to be material. However, such summary is, of
necessity, a brief description of the provisions and is not necessarily
complete; each such statement is qualified by reference to such contract or
document.
113
<PAGE>
First Bank has filed an Application for Conversion with the Illinois
Office of Banks and Real Estate with respect to the conversion. This prospectus
omits certain information contained in that application. The application may be
examined at the principal office of the Illinois Office of Banks and Real
Estate, 310 S. Michigan Avenue, Suite 2130, Chicago, Illinois 60604-4278 and 500
E. Monroe Street, Springfield, Illinois 62701-1532.
In connection with the conversion, we will register our common stock
with the SEC under Section 12(g) of the Exchange Act, and, upon such
registration, First BancTrust and the holders of our stock will become subject
to the proxy and tender offer rules, insider trading reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, and certain other requirements of the Exchange Act. Under
the Plan, we have undertaken that we will not terminate such registration for a
period of at least three years following the conversion.
114
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report............................................................. F-1
Consolidated Balance Sheet .............................................................. F-2
Consolidated Statements of Income ....................................................... 31
Consolidated Statements of Equity Capital ............................................... F-3
Consolidated Statements of Cash Flows ................................................... F-4
Notes to Consolidated Financial Statements............................................... F-6
</TABLE>
All financial statement schedules are omitted because the required
information either is not applicable or is shown in the financial statements or
in the notes thereto.
First BancTrust Corporation was incorporated in November 2000. Its
current capitalization is $1,000, and it has engaged in only minimal activities
to date; accordingly, the financial statements of First BancTrust have been
omitted because of their immateriality.
115
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
First Bank & Trust, SB and Subsidiaries
Paris, Illinois
We have audited the accompanying consolidated balance sheet of First Bank &
Trust, SB and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, equity capital, and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of First
Bank & Trust, SB and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Olive LLP
Decatur, Illinois
February 28, 2000
F-1
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
SEPTEMBER 30 -------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 6,309,382 $ 8,631,287 $ 7,857,353
Interest-bearing demand deposits 4,065,838 4,047,699 5,499,840
----------------------------------------------------------------
Cash and cash equivalents 10,375,220 12,678,986 13,357,193
Interest-bearing deposits 50,310 50,000
Investment securities available for sale 37,530,964 33,374,600 24,199,632
Loans held for sale 477,014
Loans, net of allowance for loan losses of $1,710,101
(unaudited), $1,583,872 and $1,416,478
111,083,993 110,401,695 108,391,596
Premises and equipment 2,636,055 2,787,102 2,787,525
Federal Home Loan Bank stock 1,449,900 1,400,000 625,000
Foreclosed assets 832,092 645,766 266,898
Other assets 6,507,274 6,495,032 4,477,448
----------------------------------------------------------------
Total assets $170,465,808 $167,783,181 $154,632,306
================================================================
LIABILITIES
Deposits
Noninterest bearing $ 14,617,940 $ 13,945,916 $ 14,453,116
Interest bearing 114,547,216 112,632,621 113,895,762
----------------------------------------------------------------
Total deposits 129,165,156 126,578,537 128,348,878
Short-term borrowings 1,000,000 5,500,000
Long-term debt 26,532,460 22,624,400 12,729,047
Advances by borrowers for taxes and insurance 9,850 183,900 180,158
Other liabilities 928,496 908,163 1,300,984
----------------------------------------------------------------
Total liabilities 157,635,962 155,795,000 142,559,067
----------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
EQUITY CAPITAL
Retained earnings 13,415,565 12,692,718 11,982,764
Accumulated other comprehensive income (loss) (585,719) (704,537) 90,475
----------------------------------------------------------------
Total equity capital 12,829,846 11,988,181 12,073,239
----------------------------------------------------------------
Total liabilities and equity capital $170,465,808 $167,783,181 $154,632,306
================================================================
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY CAPITAL
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE RETAINED COMPREHENSIVE
INCOME (LOSS) EARNINGS INCOME (LOSS) TOTAL
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1998 $10,947,437 $ 81,646 $11,029,083
Comprehensive income
Net income $1,035,327 1,035,327 1,035,327
Other comprehensive income, net of tax
Unrealized gains on securities, net of
reclassification adjustment 8,829 8,829 8,829
------------
Comprehensive income $1,044,156
============
---------------------------------------------------------
BALANCES, DECEMBER 31, 1998 11,982,764 90,475 12,073,239
Comprehensive loss
Net income $ 709,954 709,954 709,954
Other comprehensive loss, net of tax
Unrealized losses on securities, net of
reclassification adjustment (795,012) (795,012) (795,012)
------------
Comprehensive loss $ (85,058)
============
---------------------------------------------------------
BALANCES, DECEMBER 31, 1999 12,692,718 (704,537) 11,988,181
Comprehensive income (unaudited)
Net income for the nine months ended
September 30, 2000 (unaudited) $ 722,847 722,847 722,847
Other comprehensive income, net of tax
Unrealized gains on securities, net of
reclassification adjustment (unaudited) 118,818 118,818 118,818
------------
Comprehensive income (unaudited) $ 841,665
============
---------------------------------------------------------
BALANCES, SEPTEMBER 30, 2000 (UNAUDITED) $13,415,565 $(585,719) $12,829,846
=========================================================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------
2000 1999 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 722,847 $ 480,511 $ 709,954 $ 1,035,327
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 584,500 613,821 844,982 674,286
Depreciation and amortization 280,349 240,720 346,115 363,694
Deferred income tax (34,777) (39,372) (21,387) 11,102
Investment securities amortization (accretion),
net 17,977 24,100 32,077 (42,429)
Investment securities (gains) losses 3,056 (13,671) (13,671) (6,711)
Net gains on sale of loans (481,894) (156,401) (261,378) (653,834)
Loans originated for sale (9,374,106) (11,969,599) (13,331,622) (16,146,166)
Proceeds on loans sold 9,856,000 12,126,000 13,593,000 16,800,000
Net (gains) losses on sales of premises and
equipment (4,295) 12,016 (6,558) (381)
Net (gain) loss on sales of foreclosed assets (33,504) 79,383 79,383
Change in
Other assets (60,033) 238,380 (1,443,728) (894,984)
Other liabilities 20,333 (473,242) (392,821) 339,154
-----------------------------------------------------------------------
Net cash provided by operating activities 1,496,453 1,162,646 134,346 1,479,058
-----------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in interest-bearing time deposits (50,310) 50,000 50,000 (20,000)
Purchases of securities available for sale (7,461,166) (13,355,938) (17,601,008) (20,645,000)
Proceeds from maturities of securities available
for sale 2,504,921 5,124,386 6,151,963 19,955,030
Proceeds from sales of securities available for 980,234 908,190 908,190 2,875,727
sale
Proceeds from maturities of securities held to
maturity 714,716
Purchases of Federal Home Loan Bank stock (49,900) (625,000) (775,000)
Proceeds from sale of Federal Home Loan Bank stock
475,000
Net changes in loans (2,092,767) (4,496,151) (3,365,204) (8,939,226)
Proceeds from sales of foreclosed assets 673,147 528,886 528,886 272,812
Purchases of premises and equipment (125,007) (301,172) (349,654) (217,423)
</TABLE>
F-4
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------
2000 1999 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Proceeds from sale of premises and equipment 10,520 10,520 127,925
-----------------------------------------------------------------------
Net cash used by investing activities (5,620,848) (12,156,279) (14,441,307) (5,400,439)
-----------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing, interest-bearing demand
and savings deposits $ 12,077,265 $(6,320,336) $ (793,094) $ 5,440,415
Certificates of deposit (9,490,646) (263,442) (977,247) 3,425,156
Short-term borrowings (4,500,000) 6,000,000 5,500,000
Proceeds from Federal Home Loan Bank advances 18,500,000 14,500,000 18,500,000 8,000,000
Repayment of Federal Home Loan Bank advances (14,500,000) (8,000,000) (8,500,000) (9,000,000)
Repayment of other borrowings (91,940) (101,529) (104,647) (98,948)
Net change in advances by borrowers for taxes and
insurance (174,050) (149,904) 3,742 14,728
-----------------------------------------------------------------------
Net cash provided by financing activities 1,820,629 5,664,789 13,628,754 7,781,351
-----------------------------------------------------------------------
Net change in cash and cash equivalents (2,303,766) (5,328,844) (678,207) 3,859,970
Cash and cash equivalents, beginning of year 12,678,986 13,357,193 13,357,193 9,497,223
-----------------------------------------------------------------------
Cash and cash equivalents, end of year $ 10,375,220 $ 8,028,349 $12,678,986 $13,357,193
=======================================================================
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 5,266,225 $ 4,444,398 $ 6,108,493 $ 6,480,180
Income tax paid 230,746 87,851 97,251 629,400
Loan balances transferred to real estate owned
and repossessions 825,969 897,147 987,137 535,210
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Bank & Trust, SB (Bank) and its
wholly owned subsidiaries, ECS Service Corporation, First Charter Service
Corporation and Community Finance Center, Inc., conform to generally accepted
accounting principles and reporting practices followed by the thrift industry.
The more significant of the policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Bank operates under a state savings bank charter and provides full banking
services. As a state chartered savings bank, the Bank is subject to regulation
by the Illinois Office of Banks and Real Estate and the Federal Deposit
Insurance Corporation.
The Bank generates commercial, mortgage and consumer loans and receives deposits
from customers located primarily in Edgar and Clark Counties, as well as the
surrounding communities. The Bank's loans are generally secured by specific
items of collateral including real property, consumer assets and business
assets. Although the Bank has a diversified loan portfolio, a substantial
portion of its debtors' ability to honor their contracts is dependent upon
economic conditions in the agriculture industry.
CONSOLIDATION -- The consolidated financial statements include the accounts of
the Bank and subsidiaries after elimination of all material intercompany
transactions and accounts.
INVESTMENT SECURITIES -- Debt securities are classified as held to maturity when
the Bank has the positive intent and ability to hold the securities to maturity.
Securities held to maturity are carried at amortized cost. Debt securities not
classified as held to maturity are classified as available for sale. Securities
available for sale are carried at fair value with unrealized gains and losses
reported separately in accumulated other comprehensive income (loss), net of
tax.
Amortization of premiums and accretion of discounts are recorded using the
interest method as interest income from securities. Gains and losses on sales of
securities are determined on the specific-identification method.
Loans held for sale are carried at the lower of aggregate cost or market. Market
is determined using the aggregate method. Net unrealized losses, if any, are
recognized through a valuation allowance by charges to income based on the
difference between estimated sales proceeds and aggregate cost.
F-6
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. In applying the provisions of
Statement of Financial Accounting Standards (SFAS) No. 114, the Bank considers
its investments in 1-4 family residential loans and consumer installment loans
to be homogeneous and therefore excluded from separate identification for
valuation of impairment. The accrual of interest on impaired loans is
discontinued when, in management's opinion, the borrower may be unable to meet
payments as they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed when considered uncollectible. Interest income is
subsequently recognized only to the extent cash payments are received. Certain
loan fees and direct costs are being deferred and amortized as an adjustment of
yield on the loans.
Allowances for loan and real estate losses are maintained to absorb losses based
on management's continuing review and evaluation of the portfolio and its
judgment as to the impact of economic conditions on the portfolios. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolios, the current condition and amount of loans
and foreclosed real estate outstanding, and the probability of collecting all
amounts due. Impaired loans are measured by the present value of expected future
cash flows, or the fair value of the collateral of the loan, if collateral
dependent.
The determination of the adequacy of the allowance for loan losses and the
valuation of real estate is based on estimates that are particularly susceptible
to significant changes in the economic environment and market conditions.
Management believes that, as of December 31, 2000, the allowance for loan losses
and carrying value of foreclosed real estate are adequate based on information
currently available. A worsening or protracted economic decline in the area
within which the Bank operates would increase the likelihood of additional
losses due to credit and market risks and could create the need for additional
loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based principally on the
estimated useful lives of the assets. Maintenance and repairs are expensed as
incurred while major additions and improvements are capitalized. Gains and
losses on dispositions are included in current operations.
Federal Home Loan Bank stock is a required investment for institutions that are
members of the Federal Home Loan Bank (FHLB) system. The required investment in
the common stock is based on a predetermined formula.
Foreclosed assets are carried at the lower of cost or fair value less estimated
selling costs. When foreclosed assets are acquired, any required adjustment is
charged to the allowance for loan losses. All subsequent activity is included in
current operations.
Servicing rights on originated loans are capitalized by allocating the total
cost of the loans between the servicing rights and the loans based on their
relative fair value. The original amount capitalized and net cash gains on the
sales are recognized as a gain and included as gain on sale of loans in the
income statement. Capitalized servicing rights are amortized in proportion to
and over the period of estimated servicing revenues. The amortization of the
capitalized servicing rights is offset by the servicing fees received and is
included as loan services fees in the income statement.
F-7
<PAGE>
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Bank
files consolidated income tax returns with its subsidiaries.
Reclassifications of certain amounts in the December 31, 1999 and 1998,
consolidated financial statements have been made to conform to the September 30,
2000, presentation.
F-8
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank. The reserve required at September 30, 2000 (Unaudited)
and December 31, 1999 was $1,013,000 and $609,000, respectively.
NOTE 3 -- INVESTMENT SECURITIES
<TABLE>
<CAPTION>
2000
-------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 30 COST GAINS LOSSES VALUE
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Available for sale
Federal agencies $16,997,160 $ 7,507 $ (849,471) $16,155,196
State and municipal 4,856,202 32,131 (113,077) 4,775,256
Mortgage-backed securities 16,112,234 65,150 (141,290) 16,036,094
Other securities 558,504 5,914 564,418
-------------------------------------------------------------------------
Total available for sale $38,524,100 $110,702 $(1,103,838) $37,530,964
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Available for sale
Federal agencies $16,498,080 $ (934,697) $15,563,383
State and municipal 4,014,898 $ 28,279 (153,558) 3,889,619
Mortgage-backed securities 13,169,518 7,449 (147,440) 13,029,527
Other securities 886,234 5,837 892,071
-------------------------------------------------------------------------
Total available for sale $34,568,730 $ 41,565 $(1,235,695) $33,374,600
=========================================================================
</TABLE>
F-9
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
Federal agencies $14,215,165 $ 31,573 $(25,576) $14,221,162
State and municipal 3,313,519 120,583 (786) 3,433,316
Mortgage-backed securities 6,104,715 64,067 (42,972) 6,125,810
Other securities 412,882 6,462 419,344
-------------------------------------------------------------------------
Total available for sale $24,046,281 $222,685 $(69,334) $24,199,632
=========================================================================
</TABLE>
The amortized cost and fair value of securities available for sale at September
30, 2000 (unaudited) and December 31, 1999, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
-----------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
One to five years $ 7,427,035 $ 7,218,350 $ 7,323,552 $ 7,050,388
Six to ten years 10,569,123 9,968,066 11,157,448 10,522,298
After ten years 3,857,204 3,744,036 2,031,978 1,880,316
-----------------------------------------------------------------------
21,853,362 20,930,452 20,512,978 19,453,002
Mortgage-backed securities 16,112,234 16,036,094 13,169,518 13,029,527
Other asset-backed securities 558,504 564,418 886,234 892,071
-----------------------------------------------------------------------
Totals $38,524,100 $37,530,964 $34,568,730 $33,374,600
=======================================================================
</TABLE>
Securities with a carrying value of approximately $19,504,817, $19,520,747 and
$12,698,000 were pledged at September 30 (unaudited), and December 31, 1999 and
1998, to secure certain deposits and for other purposes as permitted or required
by law. In addition, all otherwise unpledged securities are pledged along with
qualified first mortgage loans as collateral for Federal Home Loan Bank
advances.
Proceeds from sales of securities available for sale during the nine months
ended September 30, 2000 and 1999 (Unaudited), and the years ended December 31,
1999 and 1998, were $980,234, $908,190, $908,190 and $2,875,727. Gross gains of
$7,492, $13,671, $13,671 and $19,048 and gross losses of $10,548, $0, $0 and
$12,337 were realized on those sales. There were no sales of securities held to
maturity. The tax expense (benefit) related to the sales of securities available
for sale were approximately $(1,253), $5,605, $5,605 and $2,752.
On March 31, 1998, all debt securities classified as held to maturity were
transferred from held to maturity to available for sale to provide liquidity for
future loan funding. The transferred securities had a carrying value of
$12,352,411 and a fair value of $12,386,800. There were no securities
transferred between classifications during the nine months ended September 30,
2000 (unaudited) and December 31, 1999.
F-10
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- LOANS AND ALLOWANCE
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Commercial and industrial loans $ 7,528,557 $ 7,319,294 $ 7,502,071
Real estate loans (includes $11,873,437 (unaudited), $10,522,936
and $11,256,844 secured by farmland) 67,139,574 58,976,818 60,670,891
Construction loans 130,520 1,200,357 1,305,131
Agricultural production financing and other loans to farmers 10,942,437 14,661,980 16,356,972
Individuals' loans for household and other expenditures 26,926,112 29,053,641 23,000,029
Tax-exempt loans 1,117,340 1,154,816 1,292,071
-----------------------------------------------------------
113,784,540 112,366,906 110,127,165
Undisbursed portion of loans (76,126) (69,540) (96,224)
Unearned interest (914,320) (311,799) (222,867)
Allowance for loan losses (1,710,101) (1,583,872) (1,416,478)
-----------------------------------------------------------
Total loans $111,083,993 $110,401,695 $108,391,596
===========================================================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------
2000 1999 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Allowance for loan losses
Balances, beginning of period $1,583,872 $1,416,478 $1,416,478 $ 966,173
Provision for losses 584,500 613,821 844,982 674,286
Loans charged off (565,551) (617,234) (883,982) (238,368)
Recoveries 107,280 78,934 206,394 14,387
------------------------------------------------------------------------------
Balances, end of period $1,710,101 $1,491,999 $1,583,872 $1,416,478
==============================================================================
</TABLE>
F-11
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information on impaired loans is summarized below.
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-------------------------------------------------------
2000 1999 1998
-------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Impaired loans with an allowance $1,043,459 $1,457,923 $1,556,083
Impaired loans for which the discounted cash flows or collateral
value exceeds the carrying value of the loan 4,470,324 3,529,470 3,728,627
-------------------------------------------------------
$5,513,783 $4,987,393 $5,284,710
=======================================================
Allowance for impaired loans (included in the Bank's
allowance for loan losses) $ 407,458 $ 404,273 $ 189,246
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
---------------------------------------------------------------------
2000 1999 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Average balance of impaired loans $5,335,741 $4,827,688 $5,136,052 $3,756,781
Interest income recognized on impaired loans 345,828 253,730 351,633 246,515
Cash-basis interest included above 281,287 241,044 346,265 225,231
</TABLE>
NOTE 5 -- PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Land $ 478,142 $ 461,952 $ 429,819
Buildings and land improvements 2,033,462 2,024,890 1,890,544
Leasehold improvements 229,344 226,862 226,862
Furniture and equipment 3,493,745 3,395,982 3,265,853
-------------------------------------------------------
Total cost 6,234,693 6,109,686 5,813,078
Accumulated depreciation and amortization (3,598,638) (3,322,584) (3,025,553)
-------------------------------------------------------
Net $ 2,636,055 $ 2,787,102 $ 2,787,525
=======================================================
</TABLE>
F-12
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -- OTHER ASSETS AND OTHER LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Other assets
Interest receivable
Investment securities $ 329,759 $ 239,413 $ 229,027
Mortgage-backed securities 94,733 74,524 34,274
Loans 1,709,163 1,763,193 1,998,017
Cash value of insurance 1,879,708 1,813,000
Loan servicing assets 1,607,277 1,469,467 1,494,179
Income tax refundable 46,437 170,668 244,524
Deferred income tax asset 489,360 536,759
Prepaid expenses and other 350,837 428,008 477,427
-------------------------------------------------------
Total $6,507,274 $6,495,032 $4,477,448
=======================================================
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Other liabilities
Interest payable
Deposits $128,975 $ 37,027 $ 74,389
Other borrowings 133,585 132,067 57,148
Pass through payments received on loans sold 202,498 352,586 376,943
Accrued expenses and other liabilities 463,438 386,483 792,504
-------------------------------------------------------
Total $928,496 $908,163 $1,300,984
=======================================================
</TABLE>
NOTE 7 -- DEPOSITS
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
----------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Demand deposits $ 48,079,224 $ 34,295,008 $ 33,529,814
Savings deposits 7,671,921 9,378,872 10,937,160
Certificates and other time deposits of $100,000 or more
16,616,971 16,577,102 17,517,922
Other certificates and time deposits 56,797,040 66,327,555 66,363,982
----------------------------------------------------------------
Total deposits $129,165,156 $126,578,537 $128,348,878
================================================================
</TABLE>
F-13
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certificates and other time deposits maturing in period ending September 30,
2000:
<TABLE>
<CAPTION>
SEPTEMBER 30
2000
----------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C>
2001 $45,815,265
2002 18,976,541
2003 4,689,731
2004 1,614,196
2005 2,090,986
Thereafter 227,292
--------------------
Total $73,414,011
====================
</TABLE>
Certificates and other time deposits maturing in periods ending December 31,
1999:
<TABLE>
<CAPTION>
DECEMBER 31
1999
-------------------------------------------------------------------------------------------------------
<S> <C>
2000 $62,110,610
2001 12,272,924
2002 3,268,841
2003 3,538,872
2004 1,040,320
Thereafter 673,090
--------------------
Total $82,904,657
====================
</TABLE>
NOTE 8 -- SHORT-TERM BORROWINGS
The Bank has an open line of credit with the Federal Home Loan Bank (FHLB) of
which $1,000,000 and $5,500,000 had been extended as of September 30, 2000
(unaudited) and December 31, 1999. The interest rate as of September 30, 2000
(unaudited) and December 31, 1999 was 6.96% and 4.74% and is adjusted daily. The
line is secured by qualifying first mortgage loans and investment securities
pledged by the Bank which also secure the long-term debt with the FHLB. The Bank
may borrow up to 60% of the pledged collateral in combined short-term and
long-term debt with the FHLB.
F-14
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Federal Home Loan Bank (FHLB) advances, fixed and
variable rates ranging from 5.05% to 6.80% at
September 30, 2000, due at various dates through
February 2008 $26,500,000 $22,500,000 $12,500,000
Contract for deed 32,460 42,067 54,294
Other borrowings 82,333 174,753
-----------------------------------------------------------
Total long-term debt $26,532,460 $22,624,400 $12,729,047
===========================================================
</TABLE>
The Federal Home Loan Bank advances are secured by first-mortgage loans and
investment securities totaling $45,466,000 and $45,702,000 as of September 30,
2000 (unaudited) and December 31, 1999. Advances are subject to restrictions or
penalties in the event of prepayment. The Bank has $18,000,000 in callable FHLB
borrowings as of December 31, 1999 with a weighted average interest rate of
5.34%. These callable advances are subject to being called as follows:
$15,000,000 in 2000; $1,500,000 in 2001; and $1,500,000 in 2003. The Bank has
$8,000,000 in callable FHLB borrowings as of September 30, 2000 (unaudited) with
a weighted average interest rate of 5.66%. These callable advances are subject
to being called as follows: $5,000,000 in 2000; $1,500,000 in 2001; and
$1,500,000 in 2003.
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-------------------------------------
Contractual maturities of long-term debt in periods ending 2000 1999
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
2000 $ 3,288 $ 1,095,228
2001 18,513,600 13,600
2002 14,342 14,342
2003 1,230 1,230
2004 5,000,000 17,500,000
Thereafter 3,000,000 4,000,000
-------------------------------------
$26,532,460 $22,624,400
=====================================
</TABLE>
During 1993, the Bank purchased real estate for building expansion. The real
estate was purchased on a contract for deed over a period of ten years. The
interest rate was 6.25% through January 15, 1998 and 5.53% thereafter.
During 1997, ECS Service Corporation, the Bank's wholly owned subsidiary,
purchased and began operation of a title company. Terms of the purchase require
ECS to make equal annual principal and interest payments of approximately
$94,000 over three years through January, 2000 at a rate of 7.00%.
F-15
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- LOAN SERVICING
Under the Bank's agreement to sell mortgage loans to certain investors, the Bank
guarantees their performance for a nine-month period subsequent to the sale
date. At December 31, 1999 and 1998, approximately $137,000 and $953,000 of
these sold loans were within the guarantee period. At September 30, 2000
(unaudited) there were no loans sold within the guarantee period.
Loans serviced for others are not included in the accompanying consolidated
statement of financial condition. The unpaid principal balances of these loans
consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Mortgage loan portfolio serviced for
FHLMC $32,333,192 $33,004,581 $30,841,237
IHDA 10,473,469 9,300,207 8,398,378
Farmer MAC 1,452,227 2,242,752 3,383,033
GSC Group 14,367,454 12,299,595 7,655,823
Other investors 1,151,943 2,193,747 4,746,516
--------------------------------------------------------
$59,778,285 $59,040,882 $55,024,987
=========================================================
</TABLE>
The aggregate fair value of capitalized servicing rights at September 30, 2000
(unaudited), and December 31, 1999 and 1998 totaled $1,607,277, $1,469,467 and
$1,494,179. Comparable market values were used to estimate fair value. For
purposes of measuring impairment, risk characteristics including product type,
investor type, and interest rates, were used to stratify the originated mortgage
servicing rights.
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------------------------
2000 1999 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Servicing Rights
Balance, beginning of period $1,469,467 $1,494,179 $1,494,179 $1,133,865
Servicing rights capitalized 469,651 119,957 231,887 567,068
Amortization of servicing rights (331,841) (220,180) (256,599) (206,754)
-----------------------------------------------------------------------
Balance, end of period $1,607,277 $1,393,956 $1,469,467 $1,494,179
=======================================================================
</TABLE>
F-16
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 -- INCOME TAX
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------
2000 1999 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income tax expense
Currently payable
Federal $347,410 $194,922 $190,066 $ 428,500
State 7,367 (14,359) (19,219) 40,835
Deferred
Federal (28,839) (32,650) (17,751) 11,102
State (5,938) (6,722) (3,636)
-----------------------------------------------------------------------
Total income tax expense $320,000 $141,191 $149,460 $ 480,437
=======================================================================
Reconciliation of federal statutory to actual tax
expense
Federal statutory income tax at 34% $354,568 $211,379 $292,201 $ 515,360
Tax exempt interest (52,884) (53,807) (74,500) (100,816)
Effect of state income taxes 943 (13,913) (15,084) 26,951
Increase in cash surrender value of life insurance (22,681)
Other 40,054 (2,468) (53,157) 38,942
-----------------------------------------------------------------------
Actual tax expense $320,000 $141,191 $149,460 $ 480,437
=======================================================================
</TABLE>
F-17
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A cumulative net deferred tax asset (liability) is included in other assets
(liabilities). The components of the asset (liability) are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Reserve for uncollected interest $ 29,176 $ 17,824 $ 25,492
Differences in accounting for loan losses 520,919 472,329 501,041
Unrealized loss on securities available for sale 407,417 489,593
Deferred compensation and other benefits 49,814
Other 44,911 45,913 746
-------------------------------------------------------
Total assets 1,052,237 1,025,659 527,279
-------------------------------------------------------
LIABILITIES
Differences in depreciation methods (219,257) (215,567) (209,007)
Deferred premium on loan sales (2,749) (10,678) (13,474)
FHLB stock dividends (43,418) (11,602) (11,602)
Capitalized mortgage servicing rights (296,045) (249,399) (221,699)
Unrealized gain on securities available for sale (62,876)
Other (1,408) (1,654) (45,718)
-------------------------------------------------------
Total liabilities (562,877) (488,900) (564,376)
-------------------------------------------------------
$ 489,360 $ 536,759 $ (37,097)
=======================================================
</TABLE>
Retained earnings include approximately $2,000,000 as of September 30, 2000
(unaudited) and as of December 31, 1999 and 1998 for which no deferred federal
income tax liability has been recognized. This amount represents an allocation
of income to bad debt deductions as of March 31, 1987, for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt losses or
adjustments arising from carryback of net operating losses would create income
for tax purposes only, which income would be subject to the then-current
corporate income tax rate. The unrecorded deferred income tax liability on the
above amount was approximately $800,000 as of September 30, 2000 (unaudited) and
as of December 31, 1999 and 1998.
F-18
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 -- OTHER COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
2000
-----------------------------------------------
BEFORE-TAX TAX NET-OF-TAX
NINE MONTHS ENDED SEPTEMBER 30 (UNAUDITED) AMOUNT EXPENSE AMOUNT
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during the year $197,938 $(80,923) $117,015
Less:
Reclassification adjustment for losses realized in net income (3,056) 1,253 (1,803)
-----------------------------------------------
Other comprehensive income $200,994 $(82,176) $118,818
===============================================
</TABLE>
<TABLE>
<CAPTION>
1999
------------------------------------------------
BEFORE-TAX TAX NET-OF-TAX
YEAR ENDED DECEMBER 31 AMOUNT BENEFIT AMOUNT
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized losses on securities:
Unrealized holding losses arising during the year $(1,333,810) $546,864 $(786,946)
Less:
Reclassification adjustment for gains realized in net income 13,671 (5,605) 8,066
------------------------------------------------
Other comprehensive loss $(1,347,481) $552,469 $(795,012)
================================================
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------
BEFORE-TAX TAX NET-OF-TAX
YEAR ENDED DECEMBER 31 AMOUNT EXPENSE AMOUNT
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during the year $56,069 $(22,994) $33,075
Less:
Reclassification adjustment for gains realized in net income 6,711 (2,752) 3,959
Transfer of securities from held to maturity to available
for sale 34,389 (14,102) 20,287
------------------------------------------------
Other comprehensive income $14,969 $ (6,140) $ 8,829
================================================
</TABLE>
F-19
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 -- COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit, which are not
included in the accompanying financial statements. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the financial
instruments for commitments to extend credit is represented by the contractual
or notional amount of those instruments. The Bank uses the same credit policies
in making such commitments as it does for instruments that are included in the
consolidated balance sheet.
Financial instruments whose contract amount represents credit risk were as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Mortgage loan commitments $1,817,190 $1,090,283 $2,320,454
Consumer loan commitments 465,816 368,251 370,182
Commercial loan commitments, including unused
lines of credit 3,171,860 8,842,367 5,465,885
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies, but may include residential real estate,
income-producing commercial properties, or other assets of the borrower.
Two former employees have filed two separate lawsuits against the Bank involving
various accusations. Both cases are currently in preliminary stages of
litigation. Based on the current status of the litigation, the Bank's attorneys
have advised that they are unable to express an opinion as to the ultimate
dispositions of the claims. They are also unable to estimate the potential
losses that could be incurred if there are unfavorable outcomes. As such, no
accrual for loss from these actions has been recognized in the accompanying
financial statements.
In addition, the Bank and subsidiaries are also subject to claims and lawsuits
which arise primarily in the ordinary course of business. It is the opinion of
management that the disposition or ultimate determination of such possible
claims or lawsuits will not have a material adverse effect on the consolidated
financial position of the Bank.
F-20
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 -- REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies and is assigned to a capital category. The assigned
capital category is largely determined by three ratios that are calculated
according to the regulations: total risk adjusted capital, Tier 1 capital, and
Tier 1 leverage ratios. The ratios are intended to measure capital relative to
assets and credit risk associated with those assets and off-balance sheet
exposures of the entity. The capital category assigned to an entity can also be
affected by qualitative judgments made by regulatory agencies about the risk
inherent in the entity's activities that are not part of the calculated ratios.
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At September 30, 2000 (unaudited)
and December 31, 1999 and 1998, the Bank is categorized as well capitalized and
met all subject capital adequacy requirements. There are no conditions or events
since September 30, 2000 that management believes have changed the Bank's
classification.
The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
2000
--------------------------------------------------------------------------
REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL(1) CAPITALIZED(1)
--------------------------------------------------------------------------
SEPTEMBER 30 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total capital(1) (to risk-weighted assets) $14,581 13.3% $8,755 8.0% $10,944 10.0%
Tier 1 capital(1) (to risk-weighted assets) 13,213 12.1 4,377 4.0 6,566 6.0
Tier 1 capital(1) (to average assets) 13,213 7.9 6,684 4.0 8,355 5.0
</TABLE>
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------------
REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL(1) CAPITALIZED(1)
--------------------------------------------------------------------------
DECEMBER 31 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total capital(1) (to risk-weighted assets) $13,526 12.5% $8,634 8.0% $10,793 10.0%
Tier 1 capital(1) (to risk-weighted assets) 12,346 11.4 4,317 4.0 6,476 6.0
Tier 1 capital(1) (to average assets) 12,346 7.6 6,527 4.0 8,159 5.0
</TABLE>
F-21
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------------------
REQUIRED FOR ADEQUATE TO BE WELL
ACTUAL CAPITAL(1) CAPITALIZED(1)
--------------------------------------------------------------------------
DECEMBER 31 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total capital(1) (to risk-weighted assets) $12,625 12.4% $8,162 8.0% $10,202 10.0%
Tier 1 capital(1) (to risk-weighted assets) 11,769 11.5 4,081 4.0 6,121 6.0
Tier 1 capital(1) (to average assets) 11,769 7.8 6,052 4.0 7,565 5.0
</TABLE>
---------------------------
(1) As defined by regulatory agencies
NOTE 15 -- BENEFIT PLANS
The Bank has a 401(k) Plan in which substantially all employees may participate.
The Bank may contribute to the plan at the discretion of the Board of Directors.
The Bank's expense for the plan was $36,870, $63,936, $56,878 and $119,148 for
the nine months ended September 30, 2000 and 1999 (unaudited) and the years
ending December 31, 1999 and 1998.
The Bank also maintains a voluntary employee's benefit association (VEBA) for
the benefit of substantially all of its full-time employees. Those benefits
available under the VEBA include major medical, life, accidental death and
dismemberment, and disability insurance. These benefits are available to all
employees who have attained a minimum age and length of service. The VEBA is
funded through voluntary contributions from employees and contributions of the
Bank. Bank contributions totaled $195,000, and $176,800 for the nine months
ended September 30, 2000 and 1999 (unaudited), $245,060 and $171,664 for the
years ended December 31, 1999 and 1998. The VEBA has been determined to be a
tax-exempt organization with its fiscal year ending December 31.
During 2000, the Bank adopted a defined benefit deferred director fee plan
covering certain directors and employees. The following table sets forth the
Plan's funded status and amounts recognized in the Bank's consolidated financial
statements as of and for the period ended September 30, 2000 (unaudited).
<TABLE>
<CAPTION>
SEPTEMBER 30 2000
-------------------------------------------------------------------------------------------------------
<S> <C>
Benefit obligation $ 22,556
Fair value of plan assets 0
-------------
Funded status $(22,556)
============
Accrued benefit cost recognized in the balance sheet $(22,556)
</TABLE>
F-22
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30 2000
-------------------------------------------------------------------------------------------------------
<S> <C>
Benefit cost $22,556
Employee contribution 0
Benefits paid 0
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30 2000
-------------------------------------------------------------------------------------------------------
<S> <C>
Weighted average assumptions
Discount Rate 8.0%
Expected return on Plan assets 0.0%
Rate of compensation increase 0.0%
</TABLE>
NOTE 16 -- RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with certain directors, executive
officers, and their affiliates or associates (related parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve more than normal credit risk
or present other unfavorable features. The aggregate amount of loans, as
defined, to such related parties was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Beginning of period $ 600,743 $ 514,959 $ 862,063
New loans, including renewals 191,476 292,188 53,440
Repayments, including renewals (152,900) (206,404) (400,544)
-------------------------------------------------------
Balance $ 639,319 $ 600,743 $ 514,959
=======================================================
</TABLE>
Deposits from related parties held by the Bank at September 30, 2000
(unaudited), December 31, 1999 and 1998 totaled $664,411, $491,315, and
$468,228.
NOTE 17 -- LEASES
The Bank has several noncancellable operating leases, primarily for equipment,
that expire over the next three years. These leases generally contain renewal
options for a period of two years and require the Bank to pay all executory
costs such as taxes, maintenance, and insurance. Rental expense for these leases
consisted of $100,267, $100,267, $133,689 and $45,260 for the nine months ended
September 30, 2000 and 1999 (unaudited) and the years ended December 31, 1999
and 1998.
F-23
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments under operating leases are:
<TABLE>
<CAPTION>
SEPTEMBER 30
2000
---------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C>
2000 $115,585
2001 6,266
-------------------
Total $121,851
===================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
1999
---------------------------------------------------------------------------------------------------
<S> <C>
2000 $133,689
2001 88,429
-------------------
Total $222,118
===================
</TABLE>
NOTE 18 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS -- The fair value of cash and cash equivalents
approximates carrying value.
INTEREST-BEARING DEPOSITS -- The fair value of interest-bearing deposits
approximates carrying value.
SECURITIES -- Fair values are based on quoted market prices.
MORTGAGE LOANS HELD FOR SALE -- Fair values are based on quoted market prices.
LOANS -- For both short-term loans and variable-rate loans that reprice
frequently and with no significant change in credit risk, fair values are based
on carrying values. The fair value for other loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality.
INTEREST RECEIVABLE/PAYABLE -- The fair values of interest receivable/payable
approximate carrying values.
CASH SURRENDER VALUE OF LIFE INSURANCE -- Fair values are based on estimated net
realizable value.
FHLB STOCK -- Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
F-24
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEPOSITS -- The fair values of noninterest-bearing and interest-bearing demand
accounts and savings accounts are equal to the amount payable on demand at the
balance sheet date. The carrying amounts for variable rate, fixed-term
certificates of deposit approximate their fair values at the balance sheet date.
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on such time deposits.
SHORT-TERM BORROWINGS -- Short-term borrowings represents a FHLB line of credit.
The rate approximates market rates, thus the fair value approximates carrying
value.
LONG-TERM DEBT -- The fair values of these borrowings are estimated using a
discounted cash flow calculation, based on current rates for similar debt. For
long-term debt consisting of adjustable instruments tied to a variable market
interest rate, fair value approximates carrying value.
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE -- The fair value
approximates the carrying value.
OFF-BALANCE SHEET COMMITMENTS -- Commitments include commitments to originate
mortgage, consumer, and commercial loans and commitments to sell mortgage loans
and are generally of a short-term nature. The fair value of such commitments are
based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties' credit
standing.
The estimated fair values of the Bank's financial instruments are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
------------------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 10,375,220 $ 10,375,220 $ 12,678,986 $ 12,678,986 $ 13,357,193 $ 13,357,193
Interest-bearing deposits 50,310 50,310 50,000 50,000
Investment securities available for 37,530,964 37,530,964 33,374,600 33,374,600 24,199,632 24,199,632
sale
Loans held for sale 477,014 477,014
Loans, net 111,083,993 107,610,423 110,401,695 108,938,010 108,391,596 108,640,000
Interest receivable 2,133,655 2,133,655 2,077,130 2,077,130 2,261,318 2,261,318
Federal Home Loan Bank stock 1,449,900 1,449,900 1,400,000 1,400,000 625,000 625,000
Cash surrender value of life 1,879,708 1,879,708 1,813,000 1,813,000
insurance
LIABILITIES
Deposits 129,165,156 129,333,135 126,578,537 126,989,845 128,348,878 128,713,172
Short-term borrowings 1,000,000 1,000,000 5,500,000 5,500,000
Long-term debt 26,532,460 26,497,789 22,624,400 22,314,958 12,729,047 12,875,000
Interest payable 262,560 262,560 169,094 169,094 131,537 131,537
Advances by borrowers for taxes
and insurance 9,850 9,850 183,900 183,900 180,158 180,158
OFF-BALANCE SHEET ITEMS -- COMMITMENTS 0 0 0 0 0 0
</TABLE>
F-25
<PAGE>
FIRST BANK & TRUST, SB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 -- PLAN OF CONVERSION AND OTHER MATTERS
On October 16, 2000, the Board of Directors of the Bank adopted a Plan of
Conversion to convert from a state mutual savings bank to an Illinois stock
savings bank with the concurrent formation of a holding company. The conversion
will be accomplished through the amendment of the Bank's charter and the sale of
the proposed holding company's common stock in an amount equal to the
consolidated pro forma market value of the holding company and the Bank after
giving effect to the conversion. A subscription offering of the shares of common
stock will be offered initially to the Bank's eligible deposit account holders,
then to other members of the Bank. Any shares of the holding company's common
stock not sold in the subscription offering will be offered for sale to the
general public, giving preference to the Bank's market area.
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to its retained earnings as of the latest statement of financial
condition appearing in the final prospectus. The liquidation account will be
maintained for the benefit of eligible depositors who continue to maintain their
accounts at the Bank after the conversion. The liquidation account will be
reduced annually to the extent that eligible depositors have reduced their
qualifying deposits. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation, each eligible depositor will be entitled to receive a distribution
from the liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. The liquidation account balance is
not available for payment of dividends.
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the conversion. If the conversion is not completed, all costs will be
charged to expense.
NOTE 20 -- UNAUDITED FINANCIAL STATEMENTS
The accompanying consolidated statement of financial condition as of September
30, 2000, and the statement of equity capital for the nine months ended
September 30, 2000, and the statements of income and cash flows for the nine
months ended September 30, 2000 and 1999 are unaudited, but management is of the
opinion that all adjustments consisting only of normal recurring accruals,
necessary for a fair presentation of the results of the periods reported, have
been included in the accompanying financial statements. The results of
operations for the nine months ended September 30, 2000, are not necessarily
indicative of those expected for the remainder of the year.
F-26
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. IF THE LAWS OF
YOUR STATE OR OTHER JURISDICTION PROHIBIT US
FROM OFFERING OUR COMMON STOCK TO YOU,
THEN THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF OUR COMMON STOCK. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE
HEREUNDER SHALL IMPLY THAT THERE HAS BEEN
NO CHANGE IN OUR AFFAIRS SINCE ANY OF THE
DATES AS OF WHICH INFORMATION IS FURNISHED
HEREIN OR SINCE THE DATE HEREOF.
OUR TABLE OF CONTENTS IS LOCATED ON THE
INSIDE OF THE FRONT COVER PAGE OF THIS
DOCUMENT.
UNTIL MARCH ____________ , 2001 OR 90
DAYS AFTER COMMENCEMENT OF THE
SYNDICATED COMMUNITY OFFERING, IF ANY,
WHICHEVER IS LATER, ALL DEALERS EFFECTING
TRANSACTIONS IN OUR COMMON STOCK MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO ANY
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,207,500 Shares
(Anticipated Maximum)
(Subject to Increase to Up to
1,388,625 Shares)
FIRST BANCTRUST CORPORATION
(PROPOSED HOLDING COMPANY FOR
FIRST BANK & TRUST, S. B.)
COMMON STOCK
---------------------
PROSPECTUS
---------------------
TRIDENT SECURITIES
February ____________ , 2001
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC filing fees.......................................................................... $ 3,666
Illinois Office of Banks and Real Estate................................................. 10,000
Nasdaq filing fees....................................................................... 10,000
Printing, postage and mailing ........................................................... 75,000
Legal fees............................................................................... 115,000
Accounting fees.......................................................................... 100,000
Appraiser's fees......................................................................... 40,000
Conversion agent fees and expenses....................................................... 20,000
Miscellaneous............................................................................ 11,334
--------
TOTAL.................................................................................... $385,000
========
</TABLE>
In addition to the foregoing expenses, Trident Securities, a Division
of McDonald Investments, Inc., will receive a management fee of $20,000 and a
commission equal to 1.75% of the aggregate dollar amount of stock sold in the
subscription and community offerings, excluding certain shares sold to First
Bank's employee stock ownership plan and its directors, officers and employees.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their capacity
as such. The Certificate of Incorporation and the Bylaws of Peoples Community
Bancorp provide that the directors, officers, employees and agents of Peoples
Community Bancorp shall be indemnified to the full extent permitted by law. Such
indemnity shall extend to expenses, including attorneys' fees, judgments, fines
and amounts paid in the settlement, prosecution or defense of the foregoing
actions.
Article 10 of the Registrant's Certificate of Incorporation provides as
follows:
ARTICLE 10. INDEMNIFICATION. The Corporation shall indemnify its
directors, officers, employees, agents and former directors, officers, employees
and agents, and any other persons serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, association,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees, judgments, fines and amounts paid in settlement)
incurred in connection with any pending or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative, with
respect to which such director, officer, employee, agent or other person is a
party, or is threatened to be made a party, to the full extent permitted by the
General Corporation Law of the State of Delaware, provided, however, that the
Corporation shall
<PAGE>
not be liable for any amounts which may be due to any person in connection with
a settlement of any action, suit or proceeding effected without its prior
written consent or any action, suit or proceeding initiated by any person
seeking indemnification hereunder without its prior written consent. The
indemnification provided herein (i) shall not be deemed exclusive of any other
right to which any person seeking indemnification may be entitled under any
bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
any other capacity, and (ii) shall inure to the benefit of the heirs, executors
and administrators of any such person. The Corporation shall have the power, but
shall not be obligated, to purchase and maintain insurance on behalf of any
person or persons enumerated above against any liability asserted against or
incurred by them or any of them arising out of their status as corporate
directors, officers, employees, or agents whether or not the Corporation would
have the power to indemnify them against such liability under the provisions of
this Article 10.
Article VI of the Registrant's Bylaws provides as follows:
6.1 INDEMNIFICATION. The Corporation shall provide indemnification to
its directors, officers, employees, agents and former directors, officers,
employees and agents and to others in accordance with the Corporation's
Certificate of Incorporation.
6.2 ADVANCEMENT OF EXPENSES. Reasonable expenses (including attorneys'
fees) incurred by a director, officer or employee of the Corporation in
defending any civil, criminal, administrative or investigative action, suit or
proceeding described in Section 6.1 may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
Board of Directors only upon receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that the person
is not entitled to be indemnified by the Corporation.
6.3 OTHER RIGHTS AND REMEDIES. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Corporation's Certificate of
Incorporation, any agreement, vote of stockholders or disinterested directors or
otherwise, both as to actions in their official capacity and as to actions in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of the heirs, executors and administrators of such person.
6.4 INSURANCE. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer of employee of the Corporation, or is or was serving
at the request of the corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of its
Certificate of Incorporation or this Article VI.
II-2
<PAGE>
6.5 MODIFICATION. The duties of the Corporation to indemnify and to
advance expenses to a director, officer or employee provided in this Article VI
shall be in the nature of a contract between the Corporation and each such
person, and no amendment or repeal of any provision of this Article VI shall
alter, to the detriment of such person, the right of such person to the advance
of expenses or indemnification related to a claim based on an act or failure to
act which took place prior to such amendment or repeal.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) LIST OF EXHIBITS (filed herewith unless otherwise noted)
<TABLE>
<S> <C>
1.1 Engagement Letter with Trident Securities, a Division of McDonald Investments, Inc.
1.2 Form of Agency Agreement with Trident Securities, a Division of McDonald Investments, Inc.*
2.1 Plan of Conversion
3.1 Certificate of Incorporation of First BancTrust Corporation
3.2 Bylaws of First BancTrust Corporation
4.0 Form of Stock Certificate of First BancTrust Corporation
5.0 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: legality
8.1 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: Federal tax matters*
8.2 Opinion of Olive LLP re: Illinois tax matters*
8.3 Letter of Keller & Company, Inc. re: Subscription Rights
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included in Exhibits 5.0 and 8.1, respectively)
23.2 Consent of Olive LLP re: First Bank
23.3 Consent of Keller & Company, Inc.
24.0 Power of Attorney (included in signature pages)
27.0 Financial Data Schedule
99.1 Appraisal Report of Keller & Company, Inc.*
99.2 Subscription Order Form and Instructions *
99.3 Additional Solicitation Material *
99.4 Proxy Statement for First Bank
</TABLE>
--------------------
* To be filed by amendment.
II-3
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as not applicable or not required under
the rules of Regulation S-X.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of the securities offered would not exceed that which was
registered) and any deviation from the low or high and the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424 (b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes to furnish stock
certificates to or in accordance with the instructions of the respective
purchasers of the common stock, so as to make delivery to each purchaser
promptly following the closing under the Plan of Conversion.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
II-4
<PAGE>
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST BANCTRUST CORPORATION
By: /S/TERRY J. HOWARD
----------------------------------
Terry J. Howard
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby makes, constitutes and appoints Terry J. Howard his true and lawful
attorney with full power to sign for such person and in such person's name and
capacity indicated below, and with full power of substitution, any and all
amendments to this registration statement, hereby ratifying and confirming such
person's signature as it may be signed by said attorney to any and an all
amendments.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/S/TERRY J. HOWARD President and Chief Executive December 14, 2000
---------------------------------- Officer and Director
Terry J. Howard
/S/ELLEN LITTERAL Vice President and Principal December 14, 2000
---------------------------------- Accounting Officer
Ellen Litteral
/S/ROBERT E. SPRAGUE Chairman of the Board December 14, 2000
----------------------------------
Robert E. Sprague
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C> <C>
/S/JOSEPH R. SCHROEDER Director December 14, 2000
---------------------------------
Joseph R. Schroeder
/S/TERRY T. HUTCHINSON Director December 14, 2000
----------------------------------
Terry T. Hutchison
/S/CHRISTOPHER M. ELDREDGE Director December 14, 2000
--------------------------------
Christopher M. Eldredge
/S/JOHN W. WELBORN Director December 14, 2000
---------------------------------
John W. Welborn
/S/DAVID W. DICK Director December 14, 2000
--------------------------------
David W. Dick
/S/MARY ANN TUCKER Director December 14, 2000
---------------------------------
Mary Ann Tucker
</TABLE>
II-7
