<PAGE> 1
Filed pursuant to
Rule 424(b)(3)
Registration No. 333-18825
PROVIDENT BANCORP, INC.
PROSPECTUS FOR
COMMON STOCK
---------------------------
SOUTH HILLSBOROUGH COMMUNITY BANK
PROXY STATEMENT
---------------------------
This Proxy Statement/Prospectus is being furnished to the holders of the
Common Stock, $2.00 par value per share (the "South Hillsborough Common Stock"),
of South Hillsborough Community Bank ("South Hillsborough") in connection with
the solicitation of proxies by the South Hillsborough Board of Directors for use
at a Special Meeting of Shareholders of South Hillsborough to be held at 6542
U.S. Highway 41 North, Apollo Beach, Florida on February 11, 1997 at 4:00 p.m.
Eastern Standard Time, and at any postponements or adjournments thereof (the
"Special Meeting"). The meeting is for the purpose of considering an Agreement
and Plan of Reorganization ("Reorganization Agreement") and the related Plan of
Merger and Merger Agreement (the "Merger Agreement") whereby a newly-formed
subsidiary of Provident Bancorp, Inc. ("Bancorp") will merge into South
Hillsborough (the "Merger") and all holders of Common Stock of South
Hillsborough will receive Common Stock of Bancorp ("Bancorp Common Stock"). A
copy of the Reorganization Agreement is attached as Annex A.
This Proxy Statement/Prospectus also constitutes part of a Registration
Statement filed by Bancorp with the Securities and Exchange Commission relating
to the shares of Bancorp Common Stock to be issued in the Merger.
Consummation of the Merger is subject, among other things, to approval of
the Merger by the affirmative vote of a majority of the outstanding shares of
South Hillsborough Common Stock at the Special Meeting.
Bancorp Common Stock is traded on the National Market System of The Nasdaq
Stock Market ("Nasdaq") under the symbol "PRBK." On October 7, 1996, the last
trading date prior to public announcement of the signing of the Reorganization
Agreement, the closing sales price for Bancorp Common Stock was $29.50. On
January 8, 1997, the last reported sales price for Bancorp Common Stock was
$36.50. South Hillsborough Common Stock is not publicly traded.
This Proxy Statement/Prospectus and the accompanying Proxy are first being
mailed to shareholders of South Hillsborough on or about January 10, 1997.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is January 10, 1996.
<PAGE> 2
SOUTH HILLSBOROUGH COMMUNITY BANK
6542 U.S. Highway 41 North
Apollo Beach, Florida 33572
January 10, 1997
Dear Shareholder:
On behalf of the Board of Directors, we cordially invite you to attend a
special meeting of shareholders of South Hillsborough Community Bank which will
be held at 4:00 p.m. Eastern Standard Time, on Tuesday, February 11, 1997, at
the main office of South Hillsborough at 6542 U.S. Highway 41 North, Apollo
Beach, Florida 33572. The Special Meeting is being called for the following
purposes:
A. To approve the Agreement and Plan of Reorganization dated as of October
7, 1996, between Provident Bancorp, Inc. and South Hillsborough, and the
related Plan of Merger and Merger Agreement between Provident Interim
Bank, a newly-formed interim bank subsidiary of Bancorp, and South
Hillsborough and agreed to by Bancorp. Pursuant to the Reorganization
Agreement and the Merger Agreement, Provident Interim Bank will merge
into South Hillsborough. At the time the Merger becomes effective, the
issued and outstanding shares of Common Stock, $2.00 par value per
share, of South Hillsborough, including Common Stock issued pursuant to
the Stock Option Plan of South Hillsborough, shall be converted, by
virtue of the Merger, into the right to receive Bancorp Common Stock
having a market value of $7,151,900, or $16.41 for each share of South
Hillsborough Common Stock, based upon the weighted average of the per
share closing bid and asked prices of Bancorp Common Stock as reported
on The Nasdaq Stock Market for the twenty trading days preceding the
closing date. Only whole shares of Bancorp Common Stock will be issued.
Any shareholder otherwise entitled to receive a fractional share will
receive cash in lieu of such fractional share on the same basis. The
proposed Merger is discussed in detail in the accompanying Proxy
Statement/Prospectus and the Reorganization Agreement and the Form of
Merger Agreement which are appended thereto as Annex A and Annex B,
respectively. We urge you to read the entire Proxy Statement/Prospectus.
B. To adjourn the Special Meeting if necessary to solicit additional
proxies.
C. To transact such other business as may properly come before the Special
Meeting or any adjournments thereof. The Board of Directors is not aware
of any other business to come before the Special Meeting.
Pursuant to the Bylaws of South Hillsborough, the Board of Directors has
fixed January 10, 1997 as the record date for the determination of shareholders
entitled to receive notice of, and to vote at, the Special Meeting and any
adjournments thereof. Only holders of record of South Hillsborough Common Stock
at the close of business on such date will be entitled to vote at the Special
Meeting or any adjournments thereof. As more completely described in the Proxy
Statement/Prospectus, dissenting shareholders, who comply with applicable laws,
are entitled to receive payment in cash for the fair market value of their
shares in lieu of receiving Bancorp Common Stock, provided the Merger is
consummated. Such dissenting shareholders will be entitled to payment in cash of
the value of only those shares held by the dissenting shareholders which at the
Special Meeting are voted against the approval of the Reorganization Agreement
and Merger Agreement or with respect to which the shareholder has given written
notice to South Hillsborough at or prior to the Special Meeting that the
shareholder dissents from the Reorganization Agreement and Merger Agreement.
THE REORGANIZATION AGREEMENT AND THE MERGER AGREEMENT MUST BE APPROVED BY
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE ISSUED AND OUTSTANDING SHARES OF SOUTH
HILLSBOROUGH COMMON STOCK ENTITLED TO VOTE. AN ABSTENTION OR FAILURE TO VOTE HAS
THE SAME EFFECT AS A VOTE AGAINST THE PROPOSED MERGER. IT IS, THEREFORE,
IMPORTANT THAT YOU VOTE ON THE MERGER.
EACH SHAREHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE SPECIAL MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
2
<PAGE> 3
IMPORTANT: If your South Hillsborough Common Stock is held in the name of a
brokerage firm or nominee, only they can execute a proxy on your behalf. To
assure that your shares are voted, we urge you to telephone today the individual
responsible for your account at your brokerage firm and obtain instructions on
how to direct him or her to execute a proxy.
If you have any questions, please telephone either Thomas P. Corr or John
G. Munsell at telephone number (813) 645-0886.
Apollo Beach, Florida January 10, 1996
By Order of the Board of Directors
Thomas P. Corr, Chairman
John G. Munsell, President
3
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 6
SUMMARY............................................................................... 8
The Companies....................................................................... 8
The Reorganization Agreement........................................................ 8
Bancorp Common Stock Outstanding.................................................... 8
South Hillsborough Special Meeting.................................................. 8
Recommendation of South Hillsborough's Board of Directors........................... 8
Dissenters' Rights.................................................................. 8
Certain Income Tax Considerations................................................... 8
Comparative Per Share Data.......................................................... 8
SELECTED FINANCIAL DATA............................................................... 10
Provident Bancorp, Inc.............................................................. 10
South Hillsborough Community Bank................................................... 12
BANCORP MARKET PRICE AND DIVIDEND DATA................................................ 13
SOUTH HILLSBOROUGH SPECIAL MEETING.................................................... 14
Purpose of the Special Meeting...................................................... 14
Vote Required to Approve Reorganization Agreement................................... 14
Voting at the Special Meeting....................................................... 14
THE MERGER............................................................................ 15
Background of and Reasons for the Merger -- South Hillsborough...................... 15
Opinion of South Hillsborough's Financial Advisor................................... 16
Certain Federal Income Tax Consequences............................................. 21
Dissenters' Rights.................................................................. 22
Shares Received..................................................................... 23
THE AGREEMENT AND PLAN OF REORGANIZATION.............................................. 24
Terms of the Merger................................................................. 24
Conditions to the Merger............................................................ 24
Termination and Amendment........................................................... 25
Effectiveness of Merger............................................................. 25
PROVIDENT BANCORP, INC................................................................ 26
Introduction........................................................................ 26
Commercial Banking.................................................................. 26
Consumer Banking.................................................................... 26
Other Operations.................................................................... 27
Recent Events....................................................................... 27
SOUTH HILLSBOROUGH COMMUNITY BANK..................................................... 27
Introduction........................................................................ 27
Regulation.......................................................................... 28
Dividends........................................................................... 28
Market for South Hillsborough Common Stock and Dividend History..................... 28
Non-performing Assets............................................................... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 29
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
--
<S> <C>
DESCRIPTION OF CAPITAL STOCKS......................................................... 40
Provident Bancorp, Inc.............................................................. 40
South Hillsborough Community Bank................................................... 41
Material Differences in Rights of Shareholders...................................... 41
LEGAL MATTERS......................................................................... 42
EXPERTS............................................................................... 42
FINANCIAL STATEMENTS.................................................................. F-1
Annex A-- Agreement and Plan of Reorganization between South Hillsborough Community
Bank and Provident Bancorp, Inc.
Annex B-- Form of Plan of Merger and Merger Agreement
Annex C-- Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 of
Provident Bancorp, Inc.
Annex D-- Section 658.44 of the Florida Statutes
</TABLE>
5
<PAGE> 6
AVAILABLE INFORMATION
Bancorp is subject to the informational requirements of the Securities
Exchange Act of 1934 ("Exchange Act") and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission. Such reports, proxy and information statements and other information
filed with the Commission by Bancorp may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices located at the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois, and at
Seven World Trade Center, Suite 1300, New York, New York. Copies of such
material can also be obtained, at prescribed rates, by mail from the Public
Reference Section of the Commission at its Washington, D.C. address set forth
above. In addition, material filed by Bancorp can be obtained and inspected at
the offices of The Nasdaq Stock Market, 9513 Key West Avenue, Rockville,
Maryland 20850, on which Bancorp Common Stock is listed. Bancorp is an
electronic filer, and the Commission maintains a Web site (located at
http://www.sec.gov) that contains reports, proxy statements and other
information regarding registrants that file electronically.
Bancorp has filed with the Commission a Registration Statement on Form S-4
(together with any amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933 with respect to the securities
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which were omitted in
accordance with the rules and regulations of the Commission. Such additional
information may be obtained from the public reference room of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549. Statements contained in this
Prospectus or in any document incorporated by reference in this Prospectus as to
the contents of any contract or other document referred to herein or therein are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS
RELATING TO BANCORP WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE
DOCUMENTS (OTHER THAN THE EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE UPON
REQUEST FROM INVESTOR RELATIONS DEPARTMENT, PROVIDENT BANCORP, INC., 801 LINN
STREET, 855E, CINCINNATI, OHIO 45203, TELEPHONE (513) 345-7102. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY FEBRUARY
4, 1997.
Bancorp's Annual Report on Form 10-K for the fiscal year ended December 31,
1995; Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996, June
30, 1996 and September 30, 1996 and Current Reports on Form 8-K dated September
19, 1996, September 26, 1996, October 3, 1996 and December 13, 1996, all of
which have been filed by Bancorp (File No. 1-8019) with the Commission, are
hereby incorporated by reference in this Prospectus. All documents filed by
Bancorp pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Prospectus and prior to the termination of the offering of the
Securities offered hereby shall be deemed to be incorporated by reference in
this Prospectus from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND THE OFFERING MADE HEREBY AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY BANCORP OR SOUTH HILLSBOROUGH.
6
<PAGE> 7
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A
PROXY OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE ANY
SECURITIES IN ANY JURISDICTION IN WHICH SUCH SOLICITATION OR OFFER MAY NOT
LAWFULLY BE MADE.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT COVER ANY RESALES OF THE BANCORP
COMMON STOCK OFFERED HEREBY TO BE RECEIVED BY SHAREHOLDERS OF SOUTH HILLSBOROUGH
DEEMED TO BE AFFILIATES OF BANCORP OR SOUTH HILLSBOROUGH UPON THE CONSUMMATION
OF THE MERGER. SEE "THE MERGER -- SHARES RECEIVED."
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF BANCORP OR SOUTH
HILLSBOROUGH SINCE THE DATE HEREOF.
7
<PAGE> 8
SUMMARY
The following is a summary of information contained elsewhere herein or
incorporated by reference. All information concerning Bancorp is adjusted for
its 3-for-2 common stock splits effective May 24 and December 19, 1996.
THE COMPANIES
Bancorp is a Cincinnati-based bank holding company with assets of
approximately $6.5 billion. Bancorp's executive offices are located at One East
Fourth Street, Cincinnati, Ohio 45202, telephone (513) 579-2000.
South Hillsborough is a Florida bank located in Apollo Beach, Florida with
assets of approximately $38 million. Its executive offices are located at 6542
U.S. Highway 41 North, Apollo Beach, Florida 33572, telephone (813) 645-0886.
Provident Interim Bank is a subsidiary of Bancorp formed solely for
purposes of the Merger.
THE REORGANIZATION AGREEMENT
If the Merger is approved, a newly-formed interim bank subsidiary of
Bancorp will merge into South Hillsborough and shareholders of South
Hillsborough will receive Bancorp Common Stock with a value of $7,151,900, or
$16.41 for each outstanding share of South Hillsborough, assuming the exercise
of all outstanding stock options. See "The Agreement and Plan of Reorganization"
for a description of the method of computing the market value and number of
shares of Bancorp Common Stock to be issued. On October 7, 1996, the last
trading date prior to announcement of the proposed Merger, the closing sale for
Bancorp's Common Stock was $29.50. The consummation of the Merger is subject to
the satisfaction of certain regulatory conditions. See "The Agreement and Plan
of Reorganization."
BANCORP COMMON STOCK OUTSTANDING
40,655,916 shares at January 1, 1997. The terms of Bancorp's Common Stock
are described under "Description of Capital Stocks."
SOUTH HILLSBOROUGH SPECIAL MEETING
February 11, 1997 at 4:00 p.m., at South Hillsborough's main office, 6542
U.S. Highway 41 North, Apollo Beach, Florida. Approval of the Merger requires
the affirmative vote of a majority of the outstanding South Hillsborough Common
Stock outstanding on the record date for the meeting which is January 10, 1997.
RECOMMENDATION OF SOUTH HILLSBOROUGH'S BOARD OF DIRECTORS
The Board of Directors of South Hillsborough unanimously recommends
approval of the Reorganization Agreement.
DISSENTERS' RIGHTS
Shareholders of South Hillsborough as of the record date who comply with
Section 658.44 of the Florida Banking Code may exercise dissenters' rights. See
"The Merger -- Dissenters' Rights."
CERTAIN INCOME TAX CONSIDERATIONS
The parties expect that the Merger will constitute a tax-free transaction
for federal income tax purposes. See "The Merger -- Certain Federal Income Tax
Consequences."
COMPARATIVE PER SHARE DATA
Bancorp's primary earnings per share were $1.93 for 1995 and $1.40 for the
nine months ended September 30, 1996. South Hillsborough's earnings per share,
adjusted for the exercise of all existing stock
8
<PAGE> 9
options, for the same periods were $.22 and $.12, respectively. Bancorp paid
$.467 per share in dividends in 1995 and $.542 per share in 1996, and its
current rate is $.14 per share per quarter. Bancorp's Board of Directors has
approved an annual dividend rate of $.16 per share commencing with a scheduled
payment in February 1997. South Hillsborough paid $.10 per share in dividends in
1995 and did not pay any dividends in 1996.
9
<PAGE> 10
SELECTED FINANCIAL DATA
PROVIDENT BANCORP, INC.
The following is a summary of selected financial data for Bancorp and
subsidiaries for the five years ended December 31, 1995 and the nine month
periods ended September 30, 1996 and 1995. This summary should be read in
conjunction with the financial statements and notes thereto which are
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Total interest income.... $ 384,677 $ 338,166 $ 462,396 $ 345,829 $ 286,839 $ 287,622 $ 337,571
Net interest income...... 176,488 146,806 202,694 181,958 162,836 145,260 131,325
Provision for loan and
lease losses........... 37,750 9,000 14,000 12,000 12,000 14,663 17,714
Earnings before
cumulative effect of
changes in accounting
principles............. 57,200 52,485 71,860 57,666 51,272 45,764 19,955
Net earnings............. 57,200 52,485 71,860 57,666 51,272 43,618 19,955
Net earnings per common
share: (1)
Primary................ 1.40 1.42 1.93 1.53 1.37
Fully diluted.......... 1.37 1.28 1.75 1.40 1.27
Cash dividends per common
share.................. .402 .344 .467 .418 .365 .302 .237
BALANCE SHEET DATA:
Total loans and leases... 5,047,441 4,646,366 4,896,076 4,204,538 3,389,888 2,900,761 2,802,571
Total assets............. 6,483,920 5,955,257 6,205,351 5,411,491 4,698,433 3,979,888 3,867,854
Total deposits........... 4,418,143 4,051,464 4,178,551 4,068,649 3,231,627 3,130,054 3,203,723
Long-term debt........... 665,579 508,035 820,083 383,433 275,527 38,643 50,966
Total shareholders'
equity................. 471,162 412,435 432,537 359,351 335,892 296,465 216,144
</TABLE>
- ---------------
(1) Historical earnings per share for the years ended December 31, 1992 and 1991
are not presented above because they are not meaningful due to the
conversion merger transactions with four mutual savings and loan
associations in 1992 and the merger of Bancorp's subsidiary, The Provident
Bank, and Hunter Savings Association in 1991.
The unaudited pro forma earnings per common share and the unaudited pro
forma fully diluted earnings per common share before cumulative effect of
changes in accounting principles would have been $1.33 and $1.22,
respectively, and the unaudited pro forma net earnings per common share and
the unaudited pro forma fully diluted net earnings per common share would
have been $1.27 and $1.16, respectively, in 1992. Earnings per share on a
pro forma basis for 1992 assumes the merger of the Mutuals and Bancorp had
occurred on January 1, 1992 and includes the increase in earnings associated
with the investment of the net proceeds raised in regard to the sale of
Bancorp Common Stock in the subscription offerings. The weighted average
shares used in the computation of pro forma net earnings per common share
and the pro forma fully diluted net earnings per common share were
32,143,500 shares and 37,899,000 shares, respectively, in 1992.
10
<PAGE> 11
SELECTED FINANCIAL RATIOS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
(BASED ON AVERAGE BALANCES) 1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED RATIOS:
Performance ratios: (1)
Return on average assets................... 1.21% 1.28% 1.29% 1.24% 1.30% 1.20% 0.54%
Return on average shareholders' equity..... 16.94 18.35 18.37 16.64 16.33 17.05 7.60
Net interest margin (2).................... 3.96 3.82 3.86 4.14 4.41 4.33 3.82
Net interest rate spread (3)............... 3.39 3.23 3.27 3.66 3.95 3.87 3.21
Noninterest expense to average assets
(4)..................................... 2.63 2.50 2.48 2.55 2.79 2.89 2.61
Asset quality ratios: (1)
Nonperforming assets to total loans, leases
and other real estate owned (period end)
(5)........................................ .62 .47 .98 .25 .80 1.40 1.29
Nonperforming loans to total loans and
leases (period end) (6).................... .47 .43 .86 .17 .54 .88 .58
Reserve for loan and lease losses to total
loans and leases (period end).............. 1.26 1.20 1.23 1.24 1.20 1.21 1.10
Reserve for loan and lease losses to
Nonperforming loans (period end)........... 269.87 277.58 142.57 714.29 222.97 138.44 190.37
Net charge-offs to average net loans and
leases.................................. .94 .16 .13 .02 .24 .38 .56
Capital adequacy ratios:
Total shareholders' equity to assets
(period end)............................ 7.27 6.93 6.97 6.64 7.15 7.45 5.59
Tier 1 leverage ratio...................... 7.18 7.13 7.13 7.21 7.88 7.87 5.47
Risk-based capital ratios:
Tier 1 capital.......................... 7.71 7.62 7.52 7.86 8.89 9.20 7.08
Total capital........................... 11.70 12.02 11.77 12.85 12.24 10.71 8.66
</TABLE>
- ---------------
(1) Certain performance and asset quality ratios for September 30, 1996 have
been annualized where applicable.
(2) Net interest margin represents net interest income, on a fully taxable
equivalent basis, divided by average interest earning assets.
(3) Net interest rate spread represents the difference between the average yield
on interest earning assets and the average cost of interest bearing
liabilities, on a fully taxable equivalent basis.
(4) Noninterest expense excludes expenses relating to real estate acquired in
settlement of loans and amortization of intangibles.
(5) Nonperforming assets consist of nonaccruing loans, renegotiated loans and
real estate owned. Real estate owned includes real estate acquired in
settlement of loans, including in-substance foreclosures.
(6) Nonperforming loans consist of nonaccruing loans and renegotiated loans.
11
<PAGE> 12
SOUTH HILLSBOROUGH COMMUNITY BANK
The following is a summary of selected financial data for South
Hillsborough for the five years ended December 31, 1995 and the nine month
periods ended September 30, 1996 and 1995. This summary should be read in
conjunction with the financial statements and notes thereto of South
Hillsborough which are presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income..................... $ 2,266 $ 2,112 $ 2,878 $ 2,057 $ 1,850 $ 1,917 $ 1,998
Net interest income....................... 1,139 1,143 1,510 1,257 1,067 1,020 824
Provision for loan losses................. 31 59 109 39 8 46 62
Earnings before cumulative effect of
changes in accounting principles........ 56 100 104 111 72 249 25
Net earnings.............................. 56 100 104 111 182 249 25
Fully diluted earnings per share.......... .12 .21 .22 .23 .39 .62 .06
Dividends paid per common share........... -- .10 .10 .10 -- -- --
Total loans............................... 22,061 20,112 20,877 19,666 17,889 17,013 14,186
Total assets.............................. 38,346 40,202 40,210 30,559 28,016 27,054 24,374
Total deposits............................ 32,209 35,363 35,435 26,129 23,836 23,059 20,629
Total shareholders' equity................ 4,122 4,192 4,215 4,109 4,054 3,872 3,623
</TABLE>
12
<PAGE> 13
BANCORP MARKET PRICE AND DIVIDEND DATA
Bancorp Common Stock is traded on Nasdaq under the symbol "PRBK." South
Hillsborough Common Stock is not publicly traded. The following table sets
forth, for the periods indicated, quarterly dividends paid by Bancorp and the
high and low closing sales prices for Bancorp Common Stock as reported on
Nasdaq:
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PAID
------ ------ ---------
<S> <C> <C> <C>
Year Ended December 31, 1994:
First Quarter................................................... $15.44 $12.33 $.098
Second Quarter.................................................. 14.33 13.44 .098
Third Quarter................................................... 15.78 14.00 .111
Fourth Quarter.................................................. 15.33 12.67 .111
Year Ended December 31, 1995:
First Quarter................................................... 15.33 13.67 .111
Second Quarter.................................................. 15.56 13.67 .111
Third Quarter................................................... 18.56 15.22 .122
Fourth Quarter.................................................. 21.22 17.89 .122
Year Ended December 31, 1996:
First Quarter................................................... 23.33 20.67 .122
Second Quarter.................................................. 25.33 22.11 .140
Third Quarter................................................... 29.25 22.67 .140
Fourth Quarter.................................................. 38.00 28.83 .140
</TABLE>
On January 8, 1997 the last reported sales price for the Bancorp Common
Stock on Nasdaq was $36.50 per share. As of January 8, 1997 there were
approximately 4,100 holders of record of Bancorp Common Stock which Bancorp
believes represents approximately 7,500 beneficial holders.
13
<PAGE> 14
SOUTH HILLSBOROUGH SPECIAL MEETING
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, shareholders of South Hillsborough will be asked to
vote upon the approval of a Reorganization Agreement between South Hillsborough
and Bancorp dated October 7, 1996. Pursuant to the Reorganization Agreement, a
newly-formed interim bank subsidiary of Bancorp will merge into South
Hillsborough.
If the Merger is approved and consummated, for each share of South
Hillsborough Common Stock, each South Hillsborough shareholder shall receive
Bancorp Common Stock having a market value of $16.41, assuming the exercise of
all outstanding South Hillsborough stock options. The market value will be based
on the weighted average of the closing representative bid and asked prices for
Bancorp Common Stock on Nasdaq for the twenty trading days immediately preceding
the closing date.
South Hillsborough's Board of Directors has unanimously approved the
Reorganization Agreement and recommends that shareholders approve it. The Board
of Directors of South Hillsborough believes that the terms of the Merger are
fair, from a financial point of view, to South Hillsborough's shareholders. See
"The Merger -- Background and Reasons for the Merger -- South Hillsborough."
VOTE REQUIRED TO APPROVE REORGANIZATION AGREEMENT
Approval of the Reorganization Agreement will require the affirmative vote
of a majority of the outstanding shares of South Hillsborough Common Stock.
Abstentions and broker non-votes will be treated as votes that are not cast and,
therefore, will have the same effect as a negative vote.
VOTING AT THE SPECIAL MEETING
Shareholders of record of South Hillsborough at the close of business on
January 10, 1997 are entitled to receive notice of and to vote at the Special
Meeting. At the close of business on January 10, 1997, there were 401,522 shares
of South Hillsborough Common Stock outstanding. Each share of South Hillsborough
Common Stock is entitled to one vote. It is anticipated that 34,303 additional
shares of South Hillsborough Common Stock will be issued pursuant to the
exercise of all its outstanding stock options prior to the Special Meeting. See
"The Agreement and Plan of Reorganization -- Terms of the Merger." Although
those shares will not be entitled to vote at the Special Meeting and will not be
entitled to dissenters' rights, since they will be issued after January 10,
1997, they will receive the Merger consideration, if the Merger is consummated.
Shareholders of South Hillsborough may vote in person or by proxy at the
Special Meeting. Proxies given may be revoked at any time by filing with South
Hillsborough either a written revocation or a duly executed proxy bearing a
later date, or by appearing at the Special Meeting and voting in person. All
shares will be voted as specified on each properly executed proxy. If no choice
is specified, the shares will be voted, as recommended by the Board of
Directors, in favor of the Merger. A proxy will also give authority for voting
the shares in favor of adjournment of the Special Meeting if necessary or upon
any other matter that may come before the Special Meeting. The Board of
Directors of South Hillsborough knows of no other business which will be
presented at the Special Meeting. If such other matters are brought before the
Special Meeting, however, the persons appointed as proxies will have the
discretion to vote those shares in accordance with their judgment.
Proxies may be solicited by phone, mail, facsimile or in person by
officers, directors and employees of South Hillsborough, none of whom will be
specifically compensated for such services. South Hillsborough will bear the
expenses of its proxy solicitation.
14
<PAGE> 15
The only persons who beneficially owned over 5% of the outstanding South
Hillsborough Common Stock are:
<TABLE>
<CAPTION>
PERCENTAGE
NO. OUTSTANDING
NAME OF SHARES SHARES
---- --------- -----------
<S> <C> <C>
Glenda L. Spencer Rev. Trust dated 7/18/95............................ 32,295 8.0%
James R. Thompson..................................................... 20,500 5.1%
Roy C. Tillett........................................................ 25,000 6.2%
George K. Todd, Sr.................................................... 21,390 5.3%
</TABLE>
All directors and executive officers, as a group, excluding the holdings
previously described, own 68,572 shares. All of those persons have indicated
that they, and members of their families, who together beneficially own
approximately 70% of South Hillsborough's outstanding Common Stock, will vote in
favor of the Reorganization Agreement.
THE MERGER
BACKGROUND OF AND REASONS FOR THE MERGER -- SOUTH HILLSBOROUGH
The initial contact between South Hillsborough and Bancorp was suggested by
a banker who knew the senior management of both companies and was aware of the
desire of Bancorp to enter the Florida banking market. A meeting between the
Chairman of South Hillsborough and senior officers of Bancorp took place in
August, 1996 and further discussions indicated to both parties that there were
substantial perceived advantages to an acquisition of South Hillsborough by
Bancorp.
On September 9, 1996, at a special meeting, the Board of Directors of South
Hillsborough determined that it was in the best interest of South Hillsborough
and its shareholders to accept a verbal offer from Bancorp to purchase South
Hillsborough subject to a favorable "fairness opinion" by Alex Sheshunoff & Co.
Investment Banking ("Alex Sheshunoff"). In reaching this decision, South
Hillsborough's Board considered the past growth of South Hillsborough; the
anticipated future growth; and the ability of South Hillsborough to remain
independent while competing effectively with larger institutions in its market.
The Board weighed the impact of a merger on South Hillsborough's shareholders,
customers, the community and the officers and staff of South Hillsborough. It
considered the value of the consideration offered, the assets, obligations,
historical operations and earnings of South Hillsborough and Bancorp; their
respective financial resources, market for and book values of stock, respective
dividend records, capital resources and an evaluation of the future prospects of
South Hillsborough. The Board also considered the consolidation of financial
institutions occurring both regionally and nationally.
The Board of Directors of South Hillsborough believes the acquisition of
South Hillsborough by Bancorp under the terms of the Reorganization Agreement
are in the best interest of South Hillsborough and its shareholders. In
addition, the Board of Directors believes that consummation of the
Reorganization Agreement offers South Hillsborough's shareholders the
opportunity to acquire an equity interest in a larger, more diversified
financial institution and provides marketability for stock that has been
unavailable to most local community banks in the recent past.
The purchase price set forth in the verbal presentation was $7,151,900
which equates to 1.57 times book value (on a fully diluted basis) based upon the
per share book value of $10.50, adjusted to exclude unrealized losses, at June
30, 1996. Following an on-site review of South Hillsborough's books and records
by Bancorp personnel, a special meeting of the Board of Directors of South
Hillsborough was held on September 27, 1996, at which time a representative of
Alex Sheshunoff gave a verbal preliminary opinion that the offer by Bancorp to
purchase South Hillsborough at a price of $7,151,900 appeared to be a fair offer
to South Hillsborough's shareholders subject to their final due diligence which
would include an on-site inspection of both banks. At that time the Board voted
unanimously to empower South Hillsborough's management to negotiate the terms
and conditions of the proposed transaction and to execute the contract between
South Hillsborough and Bancorp with the assistance of South Hillsborough's legal
counsel.
15
<PAGE> 16
Mr. Gordon Campbell, representatives of South Hillsborough's management and
South Hillsborough's legal and financial advisors worked with Bancorp to
complete and execute the Reorganization Agreement on October 7, 1996. In
reaching this decision to accept the offer of Bancorp, the Board of Directors of
South Hillsborough considered the ability of the new institution to provide
increased commercial loan, mortgage loan, consumer loan, trust and other banking
services to the community. The Board placed great emphasis as to the fairness,
from a financial point of view, to South Hillsborough's shareholders of the
consideration being received in the Merger. In that connection, the Board noted
that Alex Sheshunoff would provide a written fairness opinion prior to closing.
Upon careful review and analysis of all the factors described above, no
single factor being substantially more important in the review process than any
other, the Board determined that acceptance of the offer of Bancorp was in the
best interest of South Hillsborough and its shareholders. Accordingly, the Board
voted to accept the offer, subject to the approval of South Hillsborough's
shareholders and the approval of the appropriate government bank regulatory
authorities.
All of the members of South Hillsborough's Board of Directors have
indicated their intention to vote their shares of South Hillsborough's Common
Stock in favor of the Merger. As of September 30, 1996, such individuals
beneficially, directly or jointly owned 167,757 shares, or 41.78% of the
outstanding shares of South Hillsborough Common Stock.
THE BOARD OF DIRECTORS OF SOUTH HILLSBOROUGH HAS UNANIMOUSLY APPROVED THE
MERGER AND RECOMMENDS A VOTE IN FAVOR OF THE APPROVAL OF THE REORGANIZATION
AGREEMENT AND THE MERGER AGREEMENT.
OPINION OF SOUTH HILLSBOROUGH'S FINANCIAL ADVISOR
South Hillsborough retained Alex Sheshunoff based upon its qualifications,
expertise and reputation to provide its opinion of fairness of the consideration
to be received in the merger by South Hillsborough shareholders and related
matters. At the September 27, 1996 meeting of the South Hillsborough Board of
Directors, Alex Sheshunoff rendered its oral opinion to the Board that, as of
such date, the consideration to be received in the Merger was fair from a
financial point of view to the holders of South Hillsborough's Common Stock.
Alex Sheshunoff subsequently confirmed its September 27, 1996 opinion by
delivery to the South Hillsborough Board of a written opinion.
The full text of Alex Sheshunoff's opinion which sets forth, among other
things, assumptions made, procedures followed, matters considered, and
limitations on the review undertaken, is set forth below. South Hillsborough
shareholders are urged to read the Alex Sheshunoff opinion carefully and in its
entirety. Alex Sheshunoff's opinion is addressed to South Hillsborough's Board
of Directors and does not constitute a recommendation to any shareholder of
South Hillsborough as to how such shareholder should vote at the Special
Meeting.
In connection with rendering its written opinion dated as of the date of
this Proxy Statement/Prospectus, Alex Sheshunoff, among other things: (i)
analyzed certain internal financial statements and other financial and operating
data concerning South Hillsborough prepared by the management of South
Hillsborough; (ii) analyzed certain publicly available financial statements,
both audited and unaudited, of South Hillsborough and Bancorp, including those
in their respective Annual Reports for the years ended December 31, 1993, 1994
and 1995, and their Quarterly Reports for the periods ended June 30, 1995,
September 30, 1995, December 31, 1995, March 31, 1996, June 30, 1996, and
September 30, 1996; (iii) analyzed certain financial projections of South
Hillsborough prepared by the management of South Hillsborough; (iv) discussed
the past and current operations and financial condition of South Hillsborough
with senior executives; (v) reviewed the reported stock prices and trading
activity for Bancorp Common Stock; (vi) compared the financial performance of
Bancorp's price and trading activity with that of certain other comparable
publicly-traded companies and their securities; (vii) reviewed and compared
certain security analysis reports of Bancorp Common Stock prepared by various
investment banking firms; (viii) reviewed the financial terms, to the extent
publicly available, of certain comparable precedent transactions; (ix) reviewed
the Reorganization Agreement; and (x) performed such other analyses as deemed
appropriate.
16
<PAGE> 17
In connection with its review, Alex Sheshunoff relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it or
made publicly available, and Alex Sheshunoff has not assumed any responsibility
for independent verification of such information. With respect to the financial
projections, Alex Sheshunoff assumed that they have been reasonably prepared on
the basis reflecting the best currently available estimates and judgments of the
future financial performance of South Hillsborough. Alex Sheshunoff has not made
any independent valuation or appraisal of the assets or liabilities of South
Hillsborough nor has Alex Sheshunoff been furnished with any such appraisals and
Alex Sheshunoff has not examined any individual loan files of South
Hillsborough. With respect to Bancorp, Alex Sheshunoff relied solely upon
publicly available data and discussions conducted with the management of Bancorp
regarding Bancorp's financial condition, performance, and prospects. Alex
Sheshunoff's discussions with the management of Bancorp were limited in scope,
and merely provided background information regarding Bancorp's operations and
the proposed transaction with South Hillsborough. Alex Sheshunoff did not
conduct any independent evaluation or appraisal of the assets, liabilities or
business prospects of Bancorp, and was not furnished with any evaluations or
appraisals, and did not review any individual credit files. Alex Sheshunoff is
not an expert in the evaluation of loan portfolios for the purposes of assessing
the adequacy of the allowances for losses with respect thereto and has assumed
that such allowances for each of the companies are in the aggregate, adequate to
cover such losses. Alex Sheshunoff's opinion is necessarily based on economic,
market and other conditions as in effect on, and the information made available
to Alex Sheshunoff, as of, the date of the opinion.
In connection with rendering its opinion, Alex Sheshunoff performed a
variety of financial analyses. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. Moreover, the evaluation of the
fairness, from a financial point of view, of the consideration to be received by
the holders of South Hillsborough Common Stock is to some extent a subjective
one based on the experience and judgment of Alex Sheshunoff and not merely the
result of mathematical analysis of financial data. Accordingly, notwithstanding
the separate factors summarized below, Alex Sheshunoff believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the evaluation process
underlying its opinion. The ranges of valuations resulting from any particular
analysis described below should not be taken to be Alex Sheshunoff's view of the
actual value of South Hillsborough.
In performing its analyses, Alex Sheshunoff made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of South Hillsborough. The
analyses performed by Alex Sheshunoff are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold. In addition, Alex
Sheshunoff's analyses should not be viewed as determinative of the opinions of
South Hillsborough's Board of Directors or South Hillsborough's management with
respect to the value of South Hillsborough.
The following is a summary of the analyses performed by Alex Sheshunoff in
connection with its opinion delivered to the South Hillsborough's Board of
Directors on September 27, 1996.
ANALYSIS OF SELECTED TRANSACTIONS. Alex Sheshunoff performed an analysis
of premiums paid in selected pending or recently completed acquisitions of
banking organizations in Florida and the Southeast, with comparable
characteristics to the South Hillsborough and Bancorp transaction. Two sets of
comparable transactions were analyzed to ensure a thorough comparison.
The first set of comparable transactions was comprised to reflect the
profitability, asset size and regional location of South Hillsborough. The
guideline transactions specifically consisted of eleven mergers and acquisitions
of banking organizations in the Southeast from January 1, 1995 to October 31,
1996 with seller's total assets less than $100 million, seller's return on
average equity between 0% and 10%, and merger consideration of stock only. The
guideline transactions included the following acquired banks: First National
17
<PAGE> 18
Bank of Union Spring, Granville United Bank, First National Financial,
Tri-County Community Bank, First National Bankshares, Gateway American Bank,
Village Bank, Old North State Bank, Shelby Bank, and FBC Holding Company. The
analysis yielded multiples of the transactions' purchase price relative to: (i)
book value ranging from 1.69 times to 2.49 times with an average of 1.93 times
and a median of 1.85 times (compared with South Hillsborough's multiple of 1.60
times September 30, 1996 book value); (ii) last 12 months earnings ranging from
17.86 times to 38.24 times with an average of 27.47 times and a median of 29.41
times (compared with South Hillsborough's multiple of 124.32 times last 12
months earnings as of September 30, 1996 and 32.24 times projected 1997
earnings); (iii) total assets ranging between 12.05% and 30.38% with an average
of 20.29% and a median of 19.06% (compared with South Hillsborough's multiple of
17.30% of total assets); and (iv) total deposits ranging from 12.91% to 37.13%
with an average of 23.11% and a median of 21.48% (compared with South
Hillsborough's multiple of 20.46% of September 30, 1996 total deposits).
The second set of comparable transactions were comprised to reflect the
asset size, profitability and state of domain for South Hillsborough. These
guideline transactions specifically consisted of nine mergers and acquisitions
of banking organizations in Florida from January 1, 1995 to October 23, 1996
with seller's total assets less than $100 million and return on average equity
between 0% and 10%. The guideline transactions included the following acquired
banks: Riherd Bank, Tri-Community Bank, Prime Bank of Central Florida, Bank of
Florida, Banyan Bank, Gateway American Bank, Ponte Vedra Banking, First
Commercial Finance Corporation, and FBC Holding Company. The analysis yielded
multiples of the transactions' purchase price relative: (i) book value ranging
from 1.53 times to 2.40 times with an average of 1.89 times and a median of 1.77
times (compared with South Hillsborough's multiple of 1.60 times September 30,
1996 book value); (ii) last 12 months earnings ranging from 17.86 times to 34.81
times with an average of 27.93 times and a median of 29.96 times (compared with
South Hillsborough's multiple of 124.32 times last 12 months earnings as of
September 30, 1996 and 32.24 times projected 1997 earnings); (iii) total assets
ranging between 10.81% and 24.09% with an average of 17.70% and a median of
17.80% (compared with South Hillsborough's multiple of 17.30% of total assets);
and (iv) total deposits ranging from 11.69% to 27.49% with an average of 19.72%
and a median of 19.86% (compared with South Hillsborough's multiple of 20.46% of
September 30, 1996 total deposits).
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis, Alex
Sheshunoff estimated the present value of the future stream of after-tax cash
flow that South Hillsborough could produce through the year 2000, under various
circumstances, assuming that South Hillsborough performed in accordance with the
earnings/return projections of management. Alex Sheshunoff estimated the
terminal value for South Hillsborough at the end of the period by applying
multiples of earnings ranging from 8 times to 18 times and then discounting the
cash flow streams, dividends paid to the shareholders (assuming up to 100
percent of earnings are paid out in dividends) and terminal value using
differing discount rates ranging from 16.0% to 20.0% chosen to reflect different
assumptions regarding the required rates of return of South Hillsborough and the
inherent risk surrounding the underlying projections. This discounted cash flow
analysis indicated a range of $8.59 per share to $15.09 per share. This compares
favorably to the South Hillsborough deal value of $16.41 per share.
Alex Sheshunoff also performed a cash flow analysis using an estimated
terminal value for South Hillsborough at the end of the period by applying
multiples of book value ranging from 1.00 times to 2.00 times and then
discounting the cash flow streams, dividends paid to the shareholders (assuming
up to 100 percent of earnings are paid out in dividends) and terminal value
using differing discount rates ranging from 16.0% to 20.0% chosen to reflect
different assumptions regarding the required rates of return of South
Hillsborough and the inherent risk surrounding the underlying projections. This
discounted cash flow analysis indicated a range of $9.19 per share to $15.43 per
share. This compares favorably to the South Hillsborough deal value of $16.41
per share.
COMPARABLE COMPANY ANALYSIS. Alex Sheshunoff compared selected balance
sheet data, asset quality, capitalization and profitability measures and market
statistics using financial data at or for the twelve months ended September 30,
1996 and market data as of September 30, 1996 for Bancorp to a group of selected
bank holding companies which Alex Sheshunoff deemed to be relevant, including
First Commercial Corporation,
18
<PAGE> 19
Deposit Guaranty Corporation, Synovus Financial Corporation, Star Banc
Corporation, Wilmington Trust Corporation, and Zions Bancorporation, all being
bank holding companies with assets between $5 billion and $10 billion and
returns on average equity above 15% (collectively, the "Comparable Composite").
This comparison, among other things, showed that: (i) Bancorp's equity to asset
ratio was 7.27%, compared to an average of 8.46% and a median of 8.56% for the
Comparable Composite; (ii) for the nine-month period ended September 30, 1996,
Bancorp's return on average assets was 1.21%, compared to an average of 1.59%
and a median of 1.59% for the Comparable Composite; (iii) for the nine-month
period ended September 30, 1996, Bancorp's return on average equity was 16.94%,
compared to an average of 18.63% and a median of 18.70% for the Comparable
Composite; (iv) at September 30, 1996 Bancorp's nonperforming loans to gross
loans ratio was 0.46%, compared to an average of 0.54% and a median of 0.46% for
the Comparable Composite; (v) at October 23, 1996 Bancorp's price per share to
book value per share at September 30, 1996 was 2.65 times, compared to an
average of 2.80 times and median of 2.70 times for the Comparable Composite; and
(vi) at October 23, 1996 Bancorp's price per share to last 12 months earnings
per share at September 30, 1996 was 16.20 times, compared to an average of 15.97
times and median of 14.19 times for the Comparable Composite.
Alex Sheshunoff also compared selected stock market results of Bancorp to
the publicly available corresponding data of other composites which Alex
Sheshunoff deemed to be relevant, including SNL's index of all publicly traded
banks and the S&P 500. Results from indexing the S&P 500, SNL's index of all
publicly traded banks, the Comparable Composite, and Bancorp's stock from June
1, 1994 to September 30, 1996, revealed similar relationships in price
movements.
No company or transaction used in the comparable company and comparable
transaction analyses is identical to South Hillsborough or the Merger.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of South Hillsborough and other factors that could
affect the public trading value of the companies to which they are being
compared. Mathematical analysis (such as determining the average or median) is
not in itself a meaningful method of using comparable transaction data or
comparable company data.
As part of its investment banking business, Alex Sheshunoff is regularly
engaged in the valuation of securities in connection with mergers and
acquisitions, private placements, and valuations for estate, corporate and other
purposes. South Hillsborough's Board of Directors decided to retain Alex
Sheshunoff based on its experience as a financial advisor in mergers and
acquisitions of financial institutions, and its knowledge of financial
institutions.
Pursuant to an engagement letter dated September 19, 1996, between South
Hillsborough and Alex Sheshunoff, South Hillsborough agreed to pay Alex
Sheshunoff a $15,000 fairness opinion fee. South Hillsborough has also agreed to
indemnify and hold harmless Alex Sheshunoff and its officers and employees
against certain liabilities in connection with its services under the engagement
letter, except for liabilities resulting from the negligence of Alex Sheshunoff.
19
<PAGE> 20
Alex Sheshunoff rendered the following opinion to the Board of Directors:
ALEX SHESHUNOFF & CO. INVESTMENT BANKING
November 8, 1996
Board of Directors
South Hillsborough Community Bank
P.O. Box 3430
Apollo Beach, Florida 33572
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding shares of common stock of South
Hillsborough Community Bank ("SHCB"), of the consideration (the "Merger
Consideration") to be received by such holders pursuant to the Agreement and
Plan of Reorganization, dated as of October 7, 1996 (the "Merger Agreement"),
which provides for the merger (the "Merger") of Provident Interim Bank, a
wholly-owned subsidiary of Provident Bancorp, Inc. ("Provident") with and into
SHCB. Pursuant to the Merger Agreement, Provident shall establish Provident
Interim Bank as a wholly-owned subsidiary, and shall cause Provident Interim
Bank to be merged with and into SHCB. In consideration for the Merger, the
shareholders of SHCB will receive shares of common stock of Provident equivalent
to $7,151,900 in exchange for their shares of SHCB common stock. For the
purposes of this opinion, the per share transaction price available to current
SHCB shareholders shall be computed net of SHCB purchase options to be
exercised.
In connection with our opinion, we have: (i) analyzed certain internal
financial statements and other financial and operating data concerning SHCB
prepared by the management of SHCB; (ii) analyzed certain publicly available
financial statements, both audited and unaudited, of SHCB and Provident,
including those included in their respective Annual Reports for the three years
ended December 31, 1995, and their Quarterly Reports for the periods ended June
30, 1995, September 30, 1995, March 31, 1996, and June 30, 1996; (iii) analyzed
certain internal financial statements and other financial and operating data
concerning SHCB prepared by the management of SHCB; (iv) analyzed certain
financial projections of SHCB prepared by the management of SHCB; (v) discussed
certain aspects of the past and current business operations, financial condition
and future prospects of SHCB with certain members of its management; (vi)
reviewed reported market prices and historical trading activity of Provident's
common stock; (vii) compared the financial performance of Provident and the
prices and trading activity of Provident's common stock with that of certain
other comparable publicly traded companies and their securities; (viii) reviewed
certain security analysis reports of Provident's common stock prepared by
various investment banking firms; (ix) reviewed the financial terms, to the
extent publicly available, of certain comparable precedent transactions; (x)
reviewed the Merger Agreement; and (xi) performed such other analyses as we have
deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. We have not made an independent evaluation of the assets or
liabilities of SHCB, nor have we been furnished with any such appraisals. With
respect to financial forecasts, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgments of
management of SHCB as to the future financial performance of SHCB. We have
assumed such forecasts and projections will be realized in the amounts and at
the times contemplated thereby. With respect to Provident, we relied solely upon
publicly available data and discussions with management of Provident regarding
Provident's financial condition, performance and prospects. Our discussions with
management of Provident were limited in scope, and merely provided background
regarding the company's operations and proposed transaction with SHCB. We did
not conduct any independent evaluation or appraisal of the assets, liabilities
or business prospects of Provident, we were not furnished with any evaluations
or appraisals, and we did not review any individual credit files of Provident.
We are not experts in the evaluation of loan portfolios for the purposes of
assessing the adequacy of the allowance for losses with
20
<PAGE> 21
respect thereto and have assumed that such allowances for each of the companies
are in the aggregate, adequate to cover such losses.
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information available to us as of, the date hereof.
Events occurring after the date hereof could materially affect the assumptions
used in preparing this opinion.
Our opinion is limited to the fairness, from a financial point of view, to
the holders of SHCB Stock or the Merger Consideration received as stated in the
Merger Agreement and does not address SHCB's underlying business decision to
undertake the Merger. Moreover, this letter, and the opinion expressed herein,
does not constitute a recommendation to any shareholder as to any approval of
the Merger or the Merger Agreement. It is understood that this letter is for the
information of the Board of Directors of SHCB and may not be used for any other
purpose without our prior written consent, except that this opinion may be
included in its entirety in any filing made by SHCB with the Securities and
Exchange Commission with respect to the Merger.
Based on the foregoing and such other matters we have deemed relevant, we
are of the opinion as of the date hereof that the Merger Consideration is fair,
from a financial point of view, to the holders of SHCB Common Stock.
Very truly yours,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
The Reorganization Agreement requires that the opinion be orally confirmed
by Alex Sheshunoff at the closing.
Alex Sheshunoff was paid $300,000 by Bancorp during 1996 for consulting
fees on matters unrelated to South Hillsborough. No further relationship between
Alex Sheshunoff and Bancorp are currently contemplated. Bancorp and South
Hillsborough established the consideration to be received in the Merger without
the assistance of Alex Sheshunoff.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal Federal income tax
consequences of the Merger to holders of South Hillsborough Common Stock and
does not purport to be a complete analysis or listing of all potential tax
effects relevant to the Merger. The discussion does not reflect the individual
tax position of any holder of South Hillsborough Common Stock and does not
address the tax consequences that may be relevant to holders of South
Hillsborough Common Stock with special tax status, including but not limited to
financial institutions, dealers in securities, holders that are not citizens or
residents of the United States, tax-exempt entities and holders that acquired
South Hillsborough Common stock upon the exercise of employee stock options or
otherwise as compensation. Moreover, the discussion does not address any
consequences arising under the laws of any state, locality or foreign
jurisdiction. The discussion is based on the Internal Revenue Code, Treasury
Regulations thereunder and administrative rulings and court decisions as of the
date hereof. All of the foregoing are subject to change and any such change
could affect the continuing validity of this discussion. Holders of South
Hillsborough Common Stock are urged to consult with their own tax advisors
regarding the tax consequences of the Merger to them, including the effects of
Federal, state, local, foreign and other tax laws.
Bancorp and South Hillsborough believe that, if consummated as described
herein, the Merger will constitute a tax-free reorganization within the meaning
of Section 368(a) of the Internal Revenue Code. Accordingly, the following will
be the material Federal income tax consequences of the Merger:
(i) no gain or loss will be recognized by the South Hillsborough
shareholders upon receipt of Bancorp Common Stock in exchange for their South
Hillsborough Common Stock, except that a holder of South
21
<PAGE> 22
Hillsborough Common Stock who receives cash in lieu of a fractional share of
Bancorp Common Stock will recognize gain or loss equal to the difference between
the amount of such cash and the tax basis allocated to such shareholder's
fractional share of Bancorp Common Stock. Such gain or loss will constitute
long-term capital gain or loss if, at the effective time of the Merger, such
shareholder's South Hillsborough Common Stock is held as a capital asset and has
been held for more than one year;
(ii) the tax basis of the Bancorp Common Stock received by the South
Hillsborough shareholders will be the same as the tax basis of such
shareholders' South Hillsborough Common Stock exchanged therefor;
(iii) the holding period of the Bancorp Common Stock in the hands of the
South Hillsborough shareholders will include the holding period of such
shareholders' South Hillsborough Common Stock exchanged therefor, provided that
such South Hillsborough Common Stock is held as a capital asset at the effective
time of the Merger; and
(iv) South Hillsborough shareholders who exercise dissenters' rights and
receive cash will recognize a taxable gain for federal income tax purposes which
will be long or short-term, depending upon the holding period for their South
Hillsborough Common Stock. The exchange of shares for cash upon the exercise of
dissenters' rights could also cause South Hillsborough Common Stock deemed to be
constructively owned by the shareholder and exchanged for Bancorp Common Stock
to be treated as substantially equivalent to a dividend and, therefore, taxed as
ordinary income. Shares owned by spouses, children, grandchildren, parents and
other relatives and by entities that are 50% owned by a shareholder are
generally treated as constructively owned by that shareholder. Persons who
become shareholders through the exercise of stock options after the record date
of January 10, 1997 will not be entitled to dissenters' rights.
DISSENTERS' RIGHTS
Pursuant to Section 658.44 of the Florida Statutes, a copy of which is
attached to this Proxy Statement/Prospectus as Annex D, shareholders of South
Hillsborough as of January 10, 1997, the record date for determining
shareholders entitled to notice of and to vote at the Special Meeting may
dissent from the Merger and receive payment in cash for the fair market value of
their shares in lieu of receiving Bancorp Common Stock. South Hillsborough
shareholders who desire to preserve the right to dissent should review Annex D
carefully because failure to comply with its provisions will result in the loss
of dissenters' rights.
To enforce dissenters' rights under Section 658.44, dissenting shareholders
must vote their shares against approval of the Reorganization Agreement or give
written notice to South Hillsborough prior to or at the Special Meeting, but
before the vote is taken on the Reorganization Agreement, identifying the
shareholder and stating that the shareholder dissents from approval of the
Reorganization Agreement. A shareholder may enforce dissenters' rights with
respect to all or less than all of the shares owned by the shareholder.
On or promptly after the effective time of the Merger, Bancorp may fix an
amount which it considers to be not more than the fair market value of the
shares of South Hillsborough Common Stock and which it will pay to the
dissenting shareholders for their shares. If Bancorp fixes such amount, it shall
offer to pay such amount in cash to the dissenting shareholders for their shares
of South Hillsborough Common Stock. The amount payable by Bancorp pursuant to
any such offer which is accepted by the dissenting shareholders, and the amount
payable to the dissenting shareholders pursuant to an appraisal, shall
constitute a debt of South Hillsborough as the surviving corporation in the
Merger.
The value of the shares of South Hillsborough Common Stock owned by
dissenting shareholders who have not accepted any such offer from Bancorp will
be determined as of the effective time of the Merger by three appraisers. One
appraiser will be selected by the owners of at least two-thirds of such
dissenting shares, the second will be selected by the Board of Directors of
Bancorp, and the third will be selected by the first two appraisers. The value
agreed upon by any two of the appraisers will control and be final and binding
on all parties. If, within 90 days from the effective time of the Merger, for
any reason one or more of the appraisers is not selected as provided in Section
658.44, or the appraisers fail to determine the value of such dissenting shares,
the Florida Department of Banking and Finance will cause an appraisal of such
dissenting shares to be made which will be final and binding on all parties.
Appraisal expenses will be paid by Bancorp.
22
<PAGE> 23
Upon consummation of the Merger, all shares of South Hillsborough Common
Stock shall be canceled and extinguished and dissenting shareholders will cease
to have any rights of a shareholder except the right to be paid the value of
their shares in accordance with Section 658.44.
South Hillsborough shareholders considering exercising dissenters' rights
should consult their tax advisors as to the specific tax consequences to them.
See "The Merger -- Certain Federal Income Tax Consequences."
SHARES RECEIVED
Bancorp shares received in the Merger will be listed for trading on Nasdaq
and may be freely traded by South Hillsborough shareholders who are not
affiliates of South Hillsborough at the time of the Merger. Those persons who
are affiliates will be able to sell their shares through the provisions of Rules
144 and 145 promulgated under the Securities Act of 1933 without the necessity
of observing any holding period for their stock prior to the sale.
23
<PAGE> 24
THE AGREEMENT AND PLAN OF REORGANIZATION
Pursuant to the Reorganization Agreement, Bancorp will acquire South
Hillsborough through the merger of a newly-formed banking subsidiary of Bancorp
into South Hillsborough. A copy of the Reorganization Agreement is attached as
Annex A and this description is qualified by reference thereto. Shareholders of
South Hillsborough are urged to read the Reorganization Agreement.
TERMS OF THE MERGER
The Reorganization Agreement provides in Section 4.3 that shareholders of
South Hillsborough would receive Bancorp Common Stock with a value of 170% of
the book value of South Hillsborough as of June 30, 1996 ($7,151,900), excluding
unrealized losses. Based on 435,825 outstanding shares of South Hillsborough
Common Stock, this amounts to $16.41 per share of South Hillsborough Common
Stock. This number of shares assumes that South Hillsborough will issue, prior
to the effectiveness of the Merger, 34,303 shares of Common Stock through the
exercise of outstanding options held by employees. The average exercise price
for those options is $10.60, but the options will not be exercised for cash but
rather through a cashless exercise in which each person exercising an option
will receive the number of shares called for upon exercise less that number
which, at $16.41 per share, equals the exercise price of the option.
The value of the Bancorp Common Stock will be based on the weighted average
of the closing representative bid and asked prices for Bancorp's Common Stock on
Nasdaq for the twenty trading days immediately preceding the closing of the
Merger. See "Bancorp Market Price and Dividend Data."
By virtue of the Merger, all of the outstanding South Hillsborough Common
Stock will be converted into the right to receive that number of shares of
Bancorp Common Stock that is determined by the formula for consideration
described above. Certificates for shares of Bancorp Common Stock, together with
any dividends declared and paid after the effective date of the Merger, without
interest thereon, will be issued in exchange for South Hillsborough Common Stock
certificates. Instructions for submitting South Hillsborough Common Stock
certificates will be issued upon consummation of the Merger.
No fractional shares of Bancorp Common Stock will be issued in the Merger.
In lieu of fractional shares, holders of South Hillsborough Common Stock will
receive an amount of cash determined by multiplying the price determined in
accordance with the formula described above per share by the fraction of a share
of Bancorp Common Stock to which the holder would otherwise be entitled will be
issued, without interest thereon, at the time of the exchange of share
certificates.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction prior to the
effective time of the Merger of the conditions set forth in Article 5 of the
Reorganization Agreement. These conditions include approval of the
Reorganization Agreement by the respective Boards of Directors of Bancorp and
South Hillsborough, which approvals have been received. In addition, the
Reorganization Agreement must be approved by a majority of the outstanding
shares of South Hillsborough Common Stock at the Special Meeting. Also, the
parties must have received all regulatory approvals required and all notice or
waiting periods required with respect to such approvals must have passed and any
conditions contained in any such approval must have been met. Bancorp and South
Hillsborough have submitted applications regarding the Merger to the Florida
Department of Banking and Finance, the Federal Deposit Insurance Corporation
("FDIC") and the Federal Reserve Board.
In addition, the Registration Statement, of which this Proxy
Statement/Prospectus is a part, shall have been declared effective and no stop
order suspending its effectiveness shall have been received and Bancorp shall
have complied with all applicable state securities laws with respect to the
Merger. None of the parties shall be subject to any order, decree or injunction
of a court or agency joining or prohibiting consummation of the transactions
contemplated by the Reorganization Agreement. The Bancorp Common Stock to be
issued in the Merger shall have been authorized for trading on Nasdaq. Both
Bancorp and South Hillsborough shall
24
<PAGE> 25
have received an opinion of the law firm of Arnold & Porter to the effect that
the Merger will constitute a reorganization under the Internal Revenue Code and
that no gain or loss will be recognized by South Hillsborough shareholders who
exchange all of their Common Stock solely for Bancorp Common Stock except with
respect to cash received in lieu of fractional share interests in Bancorp Common
Stock. In addition, South Hillsborough shall have received the fairness opinion
of Alex Sheshunoff set forth under "The Merger -- Opinion of South
Hillsborough's Financial Advisor," which opinion must be orally confirmed at the
closing.
TERMINATION AND AMENDMENT
The Reorganization Agreement may be terminated, either before or after
approval by shareholders of South Hillsborough, as provided in Article 6 of the
Reorganization Agreement, among other things, by either Bancorp or South
Hillsborough if the other party has in any material respect breached any
covenant or agreement contained in the Reorganization Agreement or any
representation or warranty contained therein, if that failure has or is
reasonably likely to have a material adverse affect upon such party and such
breach has not been cured within thirty days after the date of written notice of
the breach. Either party may terminate the Reorganization Agreement if the
required applications for approval have been denied. Either party may terminate
the Reorganization Agreement if the closing has not occurred by the close of
business on June 30, 1997.
The parties may amend the Reorganization Agreement at any time, but any
amendment affecting the consideration to be paid to South Hillsborough
shareholders must be approved by a majority of the outstanding South
Hillsborough Common Stock.
EFFECTIVENESS OF MERGER
The Merger will become effective at such time as a certificate with respect
to the Merger is issued by the Comptroller of Florida approving the Merger.
25
<PAGE> 26
PROVIDENT BANCORP, INC.
INTRODUCTION
Bancorp is a Cincinnati-based bank holding company formed in 1980 under the
laws of Ohio. Bancorp now offers financial services in 26 states and has
personal property on lease in 14 other states. Bancorp's banking subsidiaries
have 72 branch offices: 57 in the greater Cincinnati area (which includes 9 in
northern Kentucky), 12 in the greater Dayton area, 1 in Columbus, Ohio and 2 in
Cleveland, Ohio. At September 30, 1996, Bancorp had total assets of $6.5 billion
and total shareholders' equity of $471 million. Its lead bank is The Provident
Bank, a full-service commercial bank that operates primarily in the greater
Cincinnati area. At September 30, 1996, The Provident Bank's consolidated total
assets constituted approximately 96% of the consolidated assets of Bancorp.
Bancorp is regulated and supervised as a bank holding company by the Board
of Governors of the Federal Reserve System under the Bank Holding Company Act of
1956. The various bank subsidiaries of Bancorp are subject to regulation and
supervision by the banking authorities of the states in which they are
organized, the Federal Reserve Board and the FDIC. Further information
concerning regulation of Bancorp and its banking subsidiaries is set forth in
Bancorp's Form 10-K for the year ended December 31, 1995. See "Available
Information" and "Incorporation of Certain Documents By Reference."
Bancorp offers a full range of financial services to its commercial and
consumer customers. Bancorp primarily focuses on customers in the local markets
served by its branch network, which allows management to monitor and control
risk better, target and develop new relationships, and expand existing
relationships by providing additional services. Bancorp also attracts deposit
customers located outside of its local market area to supplement its in-market
retail deposit activity.
In addition to The Provident Bank, Bancorp also owns The Provident Bank of
Kentucky, Provident Investment Advisors, Inc., a registered investment advisor,
Provident Mortgage Company, a real estate mortgage broker, Provident Securities
& Investment Co., an NASD broker-dealer, Provident Commercial Group, Inc and
Information Leasing Corp., personal property leasing companies, and Procurement
Alternatives Corp., a lease servicing company.
Bancorp's executive offices are located at One East Fourth Street,
Cincinnati, Ohio 45202 and its telephone number is (513) 579-2000.
COMMERCIAL BANKING
Central to Bancorp's long term strategy is the concept of relationship
banking with commercial customers which emphasizes attracting new small and
middle market customers and cross-selling additional services to established
customers. These services include cash management, loan, letter of credit, trade
financing and corporate trust activities. Bancorp implements this strategy by
attracting and retaining experienced banking officers and rewarding them for
originating loans and cross-selling additional services. In addition, Bancorp's
Corporate Finance Group specializes in the origination of regional and national
loan transactions which are consistent with the overall relationship lending
strategy of Bancorp. Bancorp originates these loan transactions directly, or
participates in loan transactions with other financial institutions. Bancorp and
its equipment finance subsidiaries originate equipment-collateralized loans and
equipment leases to corporate customers on a national basis. These transactions
are originated both directly and through intermediaries.
CONSUMER BANKING
Bancorp offers a full range of financial services to its consumer banking
customers. The goal is to establish a full banking relationship with each
customer. This is accomplished through Bancorp's variety of relationship
accounts, deposit accounts providing pricing incentives and various levels of
services and benefits depending on the needs of and balances maintained by the
customer. These deposit accounts allow Bancorp to offer, more effectively,
additional financial products such as residential first mortgage loans, home
equity loans, retirement accounts, credit cards and automobile loans and leases.
26
<PAGE> 27
In 1995, Bancorp organized Provident Consumer Financial Services ("PCFS"),
a division of The Provident Bank, to originate closed-end, non-conforming home
equity loans on a national basis. PCFS now operates in 26 states and originated
$255 million of loans through September 30, 1996, of which $204 million were
subsequently sold.
OTHER OPERATIONS
Bancorp also provides a variety of other financial services, including a
full range of trust, custodial, asset management, securities brokerage and
mutual fund administration, to its customers.
RECENT EVENTS
In December 1996 Bancorp acquired Information Leasing Corporation, an
equipment leasing company, and related entities for approximately 1,036,000
shares Common Stock and $2,000,000 cash. The businesses acquired have personal
property on lease in 38 states.
In addition, in November, 1996 Provident Capital Trust I, a statutory
Delaware business trust, all of the common securities of which are owned by
Bancorp, issued $100,000,000 in 8.60% Capital Securities. The Capital Securities
qualify as Tier I capital.
SOUTH HILLSBOROUGH COMMUNITY BANK
INTRODUCTION
South Hillsborough received authorization from the Florida Department of
Banking and Finance ("FDBF") to commence business as a Florida-chartered bank on
November 21, 1988. South Hillsborough's deposits are insured by the Bank
Insurance Fund to the maximum extent permitted by the Federal Deposit Insurance
Corporation ("FDIC"). At September 30, 1996, South Hillsborough had
approximately $38.3 million in assets, $32.2 million in deposits and
shareholders' equity of approximately $4.1 million.
South Hillsborough is engaged principally in the general banking business
of attracting deposits from the general public and using such deposits and other
funds to originate retail and commercial loans. Through its three offices
located in Hillsborough County, Florida, South Hillsborough engages in a wide
range of commercial banking activities, including without limitation, the
acceptance of deposits for checking, savings and time deposit accounts, making
of loans and rental of safe deposit boxes. South Hillsborough's lending services
include the making of commercial, real estate and installment loans. Its
operating revenues are derived primarily from interest and fees on its loans and
interest earned on securities of the United States government and agencies, from
interest-bearing time deposits with other banks, and from mortgage backed
securities. Hillsborough County has tourist business and the services offered by
South Hillsborough are subject to some deposit and loan fluctuation due to the
seasonality of winter residents and agricultural production.
The banking industry in the Hillsborough County market is highly
competitive. South Hillsborough competes for loans and deposits with other
financial institutions, most of which are larger than South Hillsborough. The
larger commercial banks, including branches of statewide and regional holding
company banks, possess significantly higher lending authorities and vastly
greater resources with which to attract new business. In addition to competing
with banks and thrifts for deposits, South Hillsborough also competes against
direct investment opportunities available to its deposit customers, such as
corporate securities, mutual funds and other investment vehicles. Additionally,
there are an increasing number of lenders seeking the lending business typically
provided by banks and thrifts. These lenders include insurance companies,
mortgage brokers and small loan companies.
South Hillsborough employs 20 full-time employees.
South Hillsborough's main office is located at 6542 U. S. Highway 41 North,
Apollo Beach, Florida, and its telephone number is (813) 645-0886.
27
<PAGE> 28
REGULATION
South Hillsborough is a banking institution which is chartered by, and
operates in the state of Florida; as such, it is subject to supervision and
regulation by the FDBF. The deposit accounts of South Hillsborough are insured
by the FDIC which gives the FDIC certain enforcement powers over the Bank.
Although South Hillsborough is not a member of the Federal Reserve System, it is
subject to broad federal regulations. Various consumer laws and regulations also
affect the operations of South Hillsborough, including state usury laws,
consumer credit and equal credit laws and fair credit reporting.
The FDBF supervises and regulates all areas of South Hillsborough's
operations including, without limitation, the making of loans, the issuance of
securities, the conduct of the Bank's corporate affairs, capital adequacy
requirements, the payment of dividends and the establishment or closing of
branches.
South Hillsborough is required to maintain reserves against its transaction
accounts. Reserve requirements and the amount of required reserves are subject
to adjustment by the Federal Reserve Board. The Federal Reserve Board also
imposes restrictions on the bank with respect to loans and extensions of credit
to certain related parties and purchases from and other transactions with South
Hillsborough's principal shareholders, officers, directors and affiliates.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), state-chartered institutions, such as South Hillsborough, are
prohibited from conducting activities as principal that are not permitted for
national banks. A bank, however, may engage in an otherwise prohibited activity
if it meets its minimum capital requirements and the FDIC determines that the
activity does not present a significant risk to the deposit insurance fund.
South Hillsborough does not engage in any activities not permitted a national
bank.
FDICIA also enacted a number of other significant bank supervisory and
regulatory reforms, including: (1) a risk-based system for deposit insurance
assessments; (2) the requirement for prompt corrective action in certain
situations; (3) bank interagency adoption of safety and soundness regulations
and accompanying guidelines setting standards for bank operations and
management, asset quality, earnings and stock valuation and employee
compensation; (4) bank interagency adoption of real estate lending guidelines
which require depository institutions to adopt and maintain written real estate
lending policies that comply with these prescribed guidelines; and (5) the Truth
in Saving Act which requires clear and uniform disclosure by depository
institutions of the rates of interest payable on their deposit accounts and the
fees that are assessable against those accounts.
DIVIDENDS
South Hillsborough is subject to legal limitations on the frequency and
amount of dividends that can be paid to its shareholders under Section 658.37 of
Florida Statutes, Banking Code. Under this statute, the Board of Directors,
after making provision for reasonably anticipated future losses, may each year
declare dividends of up to the aggregate net profits of that period combined
with the bank's retained net profits for the preceding two years and, with
approval of the FDBF, declare a dividend from retained net profits which accrued
prior to the preceding two years. Before declaring such dividends, 20% of the
net profits for the preceding period as is covered by the dividend must be
transferred to the surplus fund of the bank until this fund becomes equal to the
amount of the bank's common stock then issued and outstanding. No dividend may
be declared if the bank's net income from the current year combined with the
retained net income from the preceding two years is a loss or if the payment
would cause the bank's capital account to fall below required levels.
Additionally, the Federal Reserve Board may restrict the Bank's ability to pay
dividends if such payment would constitute an unsafe or unsound banking
practice.
MARKET FOR SOUTH HILLSBOROUGH COMMON STOCK AND DIVIDEND HISTORY
South Hillsborough Common Stock is not listed on any organized market or
exchange, and no public market exists for shares of such stock. The following
table sets forth, to the best of South Hillsborough's knowledge, the high and
low sales prices for South Hillsborough's Common Stock for the periods
specified.
28
<PAGE> 29
However, it is possible that purchases and sales of South Hillsborough Common
Stock, of which South Hillsborough is not aware, occurred between private
parties during this period.
<TABLE>
<CAPTION>
HIGH PRICE LOW PRICE DIVIDENDS PAID
---------- --------- --------------
<S> <C> <C> <C> <C>
1994 1st Quarter...... $11.00 $ 11.00 $ --
2nd Quarter...... 11.00 11.00 --
3rd Quarter...... 11.00 11.00 .10
4th Quarter...... 11.50 11.50 --
1995 All Year......... 11.50 11.50 .10
1996 All Year......... 11.50 11.50 --
</TABLE>
As of December 31, 1996, the number of record holders of South Hillsborough
Common Stock was 228.
NON-PERFORMING ASSETS
Non-performing loans consist of loans which are 90 days past due for which
South Hillsborough continues to accrue interest and loans which have been placed
on non-accrual status. The accrual of interest on loans is generally
discontinued when a loan becomes 90 days past due as to principal or interest
payments. In certain instances, management may elect to continue the accrual of
interest when the loan is in the process of collection and the estimated net
realizable value of the collateral is sufficient to cover the principal balance,
accrued interest and collection costs.
The following table summarizes the amount of non-performing loans and
assets and related ratios.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER ------------
30, 1996 1995 1994
------------ ----- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-performing loans:
Loans 90 or more days past due and still accruing
interest................................................. $ -- $ 21 $ 45
Non-accrual loans........................................... 445 171 147
----- ----- -----
445 192 192
Other real estate owned....................................... 52 52 --
----- ----- -----
Total non-performing assets................................... $ 497 $ 244 $192
===== ===== =====
Ratio of non-performing assets to total loans and other real
estate...................................................... 2.25% 1.17% .98%
</TABLE>
South Hillsborough has an internal system for evaluating and grading loans.
Classified assets are those loans which have been graded watch list or
substandard or worse by management or supervisory authorities due to potential
weaknesses in the borrower's ability to repay the loan, the borrower's financial
condition, deficiencies in loan documentation, weaknesses in collateral, or
other factors. At September 30, 1996, $1,179,000 in loans were included on South
Hillsborough Classified Loan List, of which $734,000 were performing loans.
Classified loans at December 31, 1995 and 1994 were $1,338,000 and $754,000,
respectively.
During the third quarter of 1996, the FDIC completed an examination of
South Hillsborough. South Hillsborough's level and classification of identified
potential problem loans were not materially revised as a result of this
regulatory examination process.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis is designed to provide an
understanding of the significant factors that influenced South Hillsborough's
results of operations and financial condition for the nine months ended
September 30, 1996 and 1995 and for the year ended December 31, 1995 as compared
with 1994. This discussion and analysis should be read in conjunction with South
Hillsborough's financial statements and corresponding notes.
29
<PAGE> 30
Florida and, in particular, Hillsborough County, continue to be growing
areas. The asset size growth of South Hillsborough in 1995 in general reflects
the continued growth of its primary business area. In 1995, South Hillsborough
opened its second of two branches as part of a modest expansion strategy.
Loans
At September 30, 1996, total gross loans outstanding amounted to
$22,061,000 compared to $20,877,000 and $19,666,000 at December 31, 1995 and
1994 respectively. The following table presents the loans of South Hillsborough
at the dates noted:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
SEPTEMBER 30,
1996 1995 1994
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
------- ------ ------- ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage:
Secured by 1-4 family residential properties.............. $ 2,234 10 $ 2,238 11 $ 2,746 14
Secured by non-farm, non-residential properties........... 9,519 43 8,666 42 8,029 41
------- --- ------- --- ------- ---
11,753 53 10,904 53 10,775 55
Farm loans.................................................. 5,537 25 5,416 26 4,633 24
Commercial.................................................. 3,756 17 3,608 17 3,410 17
Loans to individuals........................................ 973 5 902 4 819 4
Other....................................................... 42 -- 47 -- 29 --
------- --- ------- --- ------- ---
Total loans................................................. 22,061 100 20,877 100 19,666 100
=== === ===
Allowance for loan losses................................... 324 306 236
------- ------- -------
Net loans................................................... $21,737 $20,571 $19,430
======= ======= =======
</TABLE>
South Hillsborough loan portfolio consists primarily of loans made for farm
and commercial real estate as well as other commercial purposes. At September
30, 1996, real estate-secured loans comprised approximately 75% of the entire
loan portfolio.
The $1,166,000 (5.7%) increase in net loans from December 31, 1995 to
September 30, 1996, reflects South Hillsborough's 1996 growth plans and
associated business development efforts, and was generally spread among all loan
categories.
The following table shows the scheduled principal payments, and/or
repricing opportunity, on loans outstanding at September 30, 1996.
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER
WITHIN ONE YEAR THROUGH 5 YEARS 5 YEARS TOTAL
--------------- --------------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed Interest Rate Loans (1)................ $ 975 $ 6,855 $67 $ 7,897
Variable Interest Rate Loans (1)............. 13,655 64 -- 13,719
------- ------ --- -------
Total................................. $14,630 $ 6,919 $67 $21,616
======= ====== === =======
</TABLE>
(1) These amounts do not include non-accruals.
Allowance for Loan Losses
The allowance for loan losses is established through provisions charged to
the statement of income. Assessing the adequacy of the allowance for loan losses
involves substantial uncertainties and is based upon management's evaluation of
the amounts required to meet estimated charge-offs in the loan portfolio after
weighing various factors.
30
<PAGE> 31
The following table summarizes the changes in the allowance for loan losses
and related ratio:
<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS DECEMBER
ENDED 31,
SEPTEMBER 30, -----------
1996 1995 1994
--------------- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period................................. $306 $236 $208
Loans charged off:
Real estate.................................................. (4) -- --
Loans to individuals......................................... (19) (39) (14)
---- ---- ----
Total Charge Offs.............................................. (23) (39) (14)
Recoveries:
Loans to individuals......................................... 11 1 3
---- ---- ----
Net charge offs................................................ (12) (38) (11)
Provision for loan losses...................................... 30 108 39
---- ---- ----
Balance at end of period....................................... $324 $306 $236
==== ==== ====
Ratio of allowance for loan losses to total loans at end of
period....................................................... 1.47% 1.47% 1.20%
</TABLE>
South Hillsborough's net charge-offs and provision for loan losses
increased in 1995 reflecting the recognition of various problem assets.
South Hillsborough's determination of the adequacy of the allowance for
loan losses is based on an evaluation of the risk characteristics of its loan
portfolio, past loan loss experience, the quality of specific loans, the level
of non-accruing loans, the value of underlying collateral, current economic
conditions, volume, growth of the loan portfolio and other relevant factors.
South Hillsborough maintains the allowance for loan losses at a level
sufficient to absorb estimated losses inherent in the loan portfolio. The
allowance for loan losses is made up of two primary components comprised of
amounts allocated to loans based upon collateral type, loan grade, and
delinquency status, and a general portion designed to supplement the amounts
allocated to specific loan types. For purposes of complying with certain
disclosure requirements, the table below presents, in thousands, an allocation
of the allowance for loan losses among various types of loans. The allowance
shown in the table should not be construed as an indication that charge-offs in
future periods will occur in these amounts or proportions or that the allowance
indicates future charge-off trends.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Real estate............................... $ 245 $ 232 $ 182
Commercial................................ 70 66 47
Loans to individuals...................... 9 8 7
---- ---- ----
Total.............................. $ 324 $ 306 $ 236
==== ==== ====
</TABLE>
31
<PAGE> 32
Other Earning Assets
The following table presents the other earning assets of South
Hillsborough:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Securities Held to Maturity:
U.S. Treasuries......................... $ -- $ 500 $ 500
U.S. Government sponsored agencies...... 4,436 1,500 998
MBS -- Pass through securities.......... 1,984 1,235 817
Securities Available for Sale:
U.S. Treasuries......................... -- -- 251
U.S. Agencies........................... -- -- 430
U.S. Government sponsored agencies...... 3,935 5,593 1,463
Mortgage backed securities.............. 1,428 2,066 329
SBA Pool................................ 93 -- --
Equity securities -- FNMA stock......... 501 -- --
Time deposits............................. 404 501 801
Federal funds sold........................ -- 4,000 2,929
------- ------- ------
$12,781 $15,395 $ 8,518
======= ======= ======
</TABLE>
On January 1, 1994, the Financial Accounting Standards Board issued
Statement 115, "Accounting for Investments in Certain Debt and Equity
Securities" (FAS 115). FAS 115 requires classification of investments into three
categories. Debt securities that South Hillsborough has the positive intent and
ability to hold to maturity are classified as "Held to Maturity" and must be
reported at amortized cost. Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
"Trading" and must be reported at fair value, with unrealized gains and losses
included in earnings. All other debt and equity securities must be considered
"Available for Sale" and reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate component of
shareholders' equity, net of tax effects. South Hillsborough implemented FAS 115
as of January 1, 1994.
South Hillsborough increased its investment securities portfolio during the
first three quarters of 1996 due to lack of loan demand.
The following table sets forth the amount of maturities and average yields
of investment securities at September 30, 1996:
<TABLE>
<CAPTION>
AFTER 5 BUT
WITHIN ONE AFTER ONE BUT WITHIN 10 AFTER TEN
YEAR WITHIN 5 YEARS YEARS YEARS
-------------- -------------- -------------- --------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Held to Maturity:
U.S. Government sponsored agencies................. $ -- --% $3,923 5.77% $ 500 5.99% $ -- --%
MBS -- Pass through securities..................... 22 9.50 1,884 6.80 45 9.40 46 9.19
Securities Available For Sale:
U.S. Government sponsored agencies................. -- -- 2,965 6.45 970 6.40 -- --
Mortgage backed securities......................... -- -- 1,042 7.52 -- -- 479 7.07
Other securities................................... -- -- -- -- 501 6.41 -- --
--- ----- ------ ---- - ------ ---- - ---- ---- -
$ 22 9.50% $9,814 6.35% $2,016 6.36% $525 7.26%
=== ===== ====== ===== ====== ===== ==== =====
</TABLE>
The information indicated does not include any assumptions regarding
regular payments or prepayments on South Hillsborough's mortgage backed
securities and collateralized mortgage obligations.
32
<PAGE> 33
Deposits
The following tables present the average deposits of South Hillsborough and
the change therein:
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------------------- -----------------------------------
1996 1995 1995 1994
---------------- ---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------- ------ ------- ------ ------- ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non interest bearing............................. $3,911 11.12 $4,066 13.23 $4,031 12.72 $3,118 13.07
Interest bearing:
NOW deposits................................... 3,074 8.74 2,069 6.73 2,167 6.84 1,955 8.19
Money market deposits.......................... 2,611 7.42 2,879 9.37 2,660 8.39 2,704 11.33
Savings deposits............................... 2,303 6.55 1,798 5.85 1,830 5.78 2,129 8.92
Time deposits.................................. 23,271 66.17 19,924 64.82 20,995 66.27 13,955 58.49
------- ------ ------- ------ ------- ------ ------- ------
$35,170 100.00 $30,736 100.00 $31,683 100.00 $23,861 100.00
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
CHANGE IN AVERAGE DEPOSITS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
COMPARED TO DECEMBER 31, 1995
SEPTEMBER 30, COMPARED TO
1995 DECEMBER 31, 1994
----------------- -----------------
AMOUNT % CHANGE AMOUNT % CHANGE
------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Non interest bearing................................. $(155) (3.81%) $ 913 29.28%
Interest bearing:
NOW deposits....................................... 1,005 48.57 212 10.84
Money market deposits.............................. (268) (9.31) (44) (1.63)
Savings deposits................................... 505 28.09 (299) (14.04)
Time deposits...................................... 3,347 16.80 7,040 50.45
------- ------ ------ ------
$4,434 14.43% $7,822 32.78%
======= ====== ====== ======
</TABLE>
At September 30, 1996, South Hillsborough had total deposits of $32.2
million, a decrease of $3.2 million (9%) since December 31, 1995. This decrease
is reflective of management's decision to allow deposit runoff in light of lower
loan demand. At December 31, 1995, South Hillsborough had total deposits of
$35.4 million, an increase of $9.3 million since December 31, 1994. This growth
in deposits is attributable to the opening of one new branch location in Ruskin
and good growth in the Brandon office during 1995. At year-end 1995, just 7
months after opening, the Ruskin office had grown to over $4 million in
deposits, the Brandon office exceeded $6.6 million.
The following table sets forth, in thousands, the maturity of certificates
of deposit of $100,000 or more at September 30, 1996:
<TABLE>
<S> <C>
3 months or less............................................................ $ 400
Over 3 months but within 1 year............................................. 2,150
Over 1 year................................................................. 1,005
------
$3,555
======
</TABLE>
Short Term Borrowings
South Hillsborough short term borrowings consist solely of federal funds
purchased. The purchase of federal funds are typically done on an overnight
basis from correspondents under pre-approved lines of credit on an as needed
basis. On September 30, 1996, federal funds were purchased overnight in the
amount of $1.4 million. At December 31, 1995 and 1994, there were no short-term
borrowings by the bank.
33
<PAGE> 34
Capital Resources
At September 30, 1996, South Hillsborough had total shareholders' equity of
$4.1 million, a decrease of $93,000 over December 31, 1995. This decrease
derives from a decline in fair market value of "Available for Sale" securities.
At December 31, 1995, South Hillsborough had total shareholders' equity of $4.2
million, an increase of $106,000 over December 31, 1994. This increase derives
from 1995 net after-tax income of $104,000 (less dividends of $40,000) and by an
increase in the fair market value (net of tax effect) of "Available for Sale"
securities.
The following table presents the capital resources and the related ratios
of South Hillsborough as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------
1996 1995 1994
------------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total shareholders' equity.................................... $ 4,121 $4,215 $4,109
Less: unrealized gains (losses) on available for sale
securities............................................... (124) 25 (16)
------- ------- -------
Total Tier 1 capital.......................................... 4,245 4,190 4,125
Plus allowance for loan losses includable as Tier 2
capital.................................................. 324 306 236
------- ------- -------
Total risk based capital...................................... $ 4,569 $4,496 $4,361
======= ======= =======
Shareholder's equity to assets (period end)................... 10.75% 10.48% 13.45%
Tier 1 leverage ratio......................................... 10.87% 10.79% 13.81%
Tier 1 risk-based capital ratio (1)........................... 15.42%
Total risk based capital ratio (1)............................ 16.59%
Return on average assets...................................... .19% .29% .39%
Return on average equity...................................... 1.80% 2.48% 2.72%
Dividend payout ratio......................................... --% 38.53% 36.10%
Average equity to average asset ratio......................... 10.31% 11.58% 14.46%
</TABLE>
- ---------------
(1) For the December 31, 1995 and 1994 Call Report, South Hillsborough only had
to indicate that their total risk-based capital ratio was greater than 8%.
34
<PAGE> 35
Results of Operations
General
The following is a condensed statement of operations for the nine months
ended September 30, 1996 and 1995 and the years ended December 31, 1995 and
1994.
<TABLE>
<CAPTION>
NINE MONTHS ENDING SEPTEMBER 30,
-----------------------------------------
YEAR ENDING DECEMBER 31,
-----------------------------------
1996 1995
------------------- ------------------- 1995 1994
ANNUALIZED ANNUALIZED ---------------- ----------------
% OF % OF % OF % OF
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
------ ---------- ------ ---------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income.......... $2,266 7.53% $2,112 7.92% $2,878 7.92% $2,056 7.26%
Interest expense:
Deposits............... 1,121 3.72 969 3.63 1,368 3.76 799 2.82
Borrowings............. 6 .02 -- -- -- -- -- --
----- ----- ------ ----- ----- ----- ----- -----
Net interest income...... 1,139 3.79 1,143 4.29 1,510 4.16 1,257 4.44
Provision for loan
losses................. 31 .10 58 .22 109 .30 39 .14
----- ----- ----- ----- ----- ----- ----- -----
Net interest income after
loan loss provision.... 1,108 3.69 1,085 4.07 1,401 3.86 1,218 4.30
Non-interest income...... 190 .63 167 .63 221 .61 212 .75
Non-interest expense..... 1,170 3.89 1,080 4.05 1,468 4.04 1,225 4.33
----- ----- ----- ----- ----- ----- ----- -----
Pre-tax income........... 128 .43 172 .65 154 .43 205 .72
Income taxes............. 72 .24 72 .27 50 .14 94 .33
----- ----- ----- ----- ----- ----- ----- -----
Net Income............... $ 56 .19% $ 100 .38% $ 104 .29% $ 111 .39%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Net Interest Income
Net interest income is the difference between interest and fees on earning
assets and interest paid on interest bearing deposits and other interest bearing
liabilities. Net interest income is affected by changes in interest rates earned
and paid, and by changes in the volume of earning assets and interest bearing
liabilities.
35
<PAGE> 36
The following tables summarize the composition of interest-earning assets
and interest-bearing liabilities for the periods shown.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------ ------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans.......................................... $21,470 $1,532 9.51% $19,498 $1,481 10.13%
Federal funds sold............................. 1,723 73 5.65 3,797 165 5.79
Investment securities.......................... 13,625 661 6.47 9,209 466 6.75
------- ------ ---- ------- ------ ----
Total interest earning assets.................. 36,818 2,266 8.21 32,504 2,112 8.66
Non-interest earning assets...................... 3,329 3,048
------- -------
Total assets..................................... $40,147 $35,552
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
NOW............................................ $ 3,074 49 2.13 $ 2,069 33 2.13
Money market................................... 2,611 47 2.40 2,879 61 2.83
Savings........................................ 2,303 43 2.49 1,798 34 2.52
Time........................................... 23,271 982 5.63 19,924 841 5.63
Federal funds purchased........................ 164 6 4.88 -- -- --
------- ------ ---- ------- ------ ----
Total interest bearing liabilities............. 31,423 1,127 4.78 26,670 969 4.84
------ ---- ------ ----
Non-interest bearing liabilities................. 4,585 4,662
------- -------
Total liabilities................................ 36,008 31,332
Shareholders' equity............................. 4,139 4,220
------- -------
Total liabilities and shareholders' equity....... $40,147 $35,552
======= =======
Net interest income.............................. $1,139 $1,143
====== ======
Net yield on interest earnings assets............ 4.12% 4.69%
==== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------ ------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans.......................................... $19,775 $2,004 10.13% $18,923 $1,674 8.85%
Investment securities.......................... 10,268 682 6.64 5,259 313 5.95
Federal funds sold............................. 3,349 192 5.73 1,608 69 4.29
------- ------ ---- ------- ------ ----
Total interest earning assets.................. 33,392 2,878 8.62 25,790 2,056 7.97
Non-interest earning assets...................... 2,950 2,501
------- -------
Total assets..................................... $36,342 $28,291
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
NOW............................................ $ 2,167 46 2.12 $ 1,955 39 1.99
Money market................................... 2,660 74 2.78 2,704 70 2.59
Savings........................................ 1,830 46 2.51 2,129 53 2.49
Time........................................... 20,995 1,202 5.73 13,955 637 4.56
------- ------ ---- ------- ------ ----
Total interest bearing liabilities............. 27,652 1,368 4.95 20,743 799 3.85
------ ---- ------ ----
Non-interest bearing liabilities................. 4,480 3,456
------- -------
Total liabilities................................ 32,132 24,199
Shareholders' equity............................. 4,210 4,092
------- -------
Total liabilities and shareholders' equity....... $36,342 $28,291
======= =======
Net interest income.............................. $1,510 $1,257
====== ======
Net yield on interest earning assets............. 4.52% 4.87%
==== ====
</TABLE>
36
<PAGE> 37
The following table presents the effect on net interest income of changes
from prior period in volume, and rate for the categories and periods indicated.
The effect of a change in volume has been determined by applying the rate in the
current period to the change in volume during the current period. The effect of
a change in rate has been determined by applying the volume in the earlier
period to the change in rate during the current period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, 1996 1995
COMPARED TO 1995 COMPARED TO 1994
-------------------------- --------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ----- ----- ------ ---- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans......................... $144 $ (93) $ 51 $ 78 $252 $330
Investment securities......... 215 (20) 195 329 40 369
Federal funds sold............ (88) (4) (92) 94 29 123
---- ----- ---- ---- ---- ----
Total interest income......... 271 (117) 154 501 321 822
Interest expense
NOW........................... 16 -- 16 5 2 7
Money market.................. (6) (8) (14) (1) 5 4
Savings....................... 9 -- 9 (8) 1 (7)
Time.......................... 141 -- 141 375 190 565
Federal funds purchase........ 6 -- 6 -- -- --
---- ----- ---- ---- ---- ----
Total interest expense........ 166 (8) 158 371 198 569
---- ----- ---- ---- ---- ----
Net interest income........... $105 $(109) $ (4) $130 $123 $253
==== ===== ==== ==== ==== ====
</TABLE>
Non-interest Income
The following table presents the non-interest income of South Hillsborough
for the nine months ended September 30, 1996 and 1995 and the years ended
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------------------- -----------------------------------
CHANGE CHANGE
----------------- -----------------
1996 1995 AMOUNT % 1995 1994 AMOUNT %
---- ---- ------ ------ ---- ---- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fees.......................... $171 $155 $ 16 10.32% $204 $187 $ 17 9.09%
Other......................... 19 13 6 46.15 17 25 (8) (32.00)
---- ---- --- ----- ---- ---- --- ------
$190 $168 $ 22 13.10% $221 $212 $ 9 4.25%
==== ==== === ===== ==== ==== === ======
</TABLE>
Non-interest Expense
The following table presents the non-interest expense of South Hillsborough
for the nine months ended September 30, 1996 and 1995 and the years ended
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------------------- ---------------------------------------
CHANGE CHANGE
---------------- -----------------
1996 1995 AMOUNT % 1995 1994 AMOUNT %
------ ------ ------ ----- ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Personnel..................... $ 618 $ 566 $ 52 9.19% $ 774 $ 597 $177 29.65%
Occupancy..................... 154 145 9 6.21 198 191 7 3.66
Other......................... 398 369 29 7.86 497 437 60 13.73
------ ------ --- ---- ------ ------ ---- -----
$1,170 $1,080 $ 90 8.33% $1,469 $1,225 $244 19.92%
====== ====== === ==== ====== ====== ==== =====
</TABLE>
37
<PAGE> 38
Comparison of the Nine Months Ended September 30, 1995 and 1996
The decline in total assets during the nine month period ended September
30, 1996 reflects management's decision to allow the run-off of deposits due to
the lack of loan demand within our market area. Total assets declined from $40.2
million at year-end 1995 to $38.3 million at September 30, 1996, or 4.64%.
Deposits declined by 9.10% to $32.2 million during the nine month period while
net loans grew modestly to $21.7 million, an increase of 5.67%.
The decrease in net interest income to $1,139,000 for the nine months ended
September 30, 1996 from $1,143,000 for the nine months ended September 30, 1995
reflects a decline in interest rates on loans and investments as well as an
increase in deposits being invested in lower-yielding investment portfolios due
to lack of loan demand in 1996. During the nine months ended September 30, 1996
South Hillsborough recorded loan loss provision expense of $31,000 versus
$59,000 for the nine months ended September 30, 1995, again due to the lack of
increased loan volume.
Non-interest income increased somewhat to $190,000 for the nine months
ended September 30, 1996 from $168,000 for the nine months ended September 30,
1995. This reflects the relative stability of deposit-related service charge
income.
Non-interest expense increased to $1,170,000 for the nine months ended
September 30, 1996 from $1,080,000 for the nine months ended September 30, 1995.
The nine months ended September 30, 1996 reflect the full effect of the branch
which opened in May 1995, whereas the nine-months ended September 30, 1995 did
not. The 8.30% rise in non-interest expense for 1996 over 1995 is due to
increased personnel and occupancy expense for the second branch location.
Comparison of 1994 to 1995
Assets grew by 31.6% in 1995 from $30.6 million at December 31, 1994 to
$40.2 million at December 31, 1995. Growth of the bank's net loan portfolio over
that same time was moderate at 5.9%. Deposits at December 31, 1995 stood at
$35.4 million as compared to $26.1 million at December 31, 1994, an increase of
35.6%. Net income declined slightly in 1995 from $111,000 in 1994 to $104,000 in
1995 due to the opening of our second branch in May 1995.
Net interest income increased by 20.1% in 1995 from $1,257,000 in 1994 to
$1,510,000 in 1995. This increase reflects the growth in both the loan and
investment portfolios and overall deposit growth. The net yield on interest
earning assets declined from 4.87% during 1994 to 4.52% during 1995. The lack of
loan demand required that the bank place funds in the lower yielding investment
portfolio; lack of loan demand also resulted in fewer loan fees from origination
of new loans.
South Hillsborough's loan loss provision increased from $39,000 in 1994 to
$109,000 in 1995. Although chargeoffs and non-accrual loans have been below
peer, the bank felt it prudent to increase the allowance for loan loss to 1.5%
of total loans.
Non-interest income increased from $212,000 in 1994 to $221,000 in 1995
primarily due to an increase in service charges on deposit accounts related to
the growth in the Bank's deposits.
Non-interest expense increased from $1,225,000 in 1994 to $1,469,000 in
1995 due in large part to the addition of the Bank's second branch location
which opened in May 1995. Personnel and occupancy expenses rose due to the
addition of this office. The 19.9% increase in non-interest expense is
consistent with past experience when Hillsborough has opened new branches.
Analysis of Interest Rate Sensitivity
Interest rate sensitivity management seeks to minimize the fluctuation in
net interest income during periods of changing interest rates. The difference
between interest rate sensitive assets and interest rate sensitive liabilities
for a specific period or on a cumulative basis is commonly referred to as a rate
sensitivity "gap". The gap is considered "positive" when rate sensitive assets
exceed rate sensitive liabilities and "negative" when rate sensitive liabilities
exceed rate sensitive assets. Institutions that have a "positive" gap are
38
<PAGE> 39
generally considered to be in a position to benefit from rising rates but to be
adversely affected by falling rates whereas those that have a "negative" gap are
generally considered to be in a position to benefit from falling rates but to be
adversely affected by rising rates.
While gap analysis is a valuable tool in assessing the potential impact of
interest rate changes on net interest income, other factors, such as changes in
balance sheet composition and the interest rate spread relationship between
interest earning assets and interest bearing liabilities, also have an important
impact in determining net income.
The following table sets forth the interest rate sensitivity of South
Hillsborough's assets and liabilities at September 30, 1996. Amounts are
classified as to the earlier of the next possible repricing date or maturity.
<TABLE>
<CAPTION>
IMMEDIATELY
ADJUSTABLE 2 DAYS 3 MONTHS
OR 1 DAY THROUGH THROUGH OVER
MATURITY 3 MONTHS 1 YEAR 1 YEAR TOTAL
----------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Time deposits........................... $ -- $ 100 $ -- $ 304 $ 404
Investment securities................... -- 93 805 11,480 12,378
Loans, net.............................. 13,803 125 887 6,922 21,737
------ ------ ------- ------- -------
Total interest earning assets........... 13,803 318 1,692 18,706 34,519
LIABILITIES:
NOW..................................... 2,529 -- -- -- 2,529
Money market............................ 2,567 -- -- -- 2,567
Savings................................. -- -- -- 2,165 2,165
Time.................................... -- 4,137 10,922 6,687 21,746
Federal funds purchased................. 1,400 -- -- -- 1,400
------ ------ ------- ------- -------
Total interest bearing liabilities...... 6,496 4,137 10,922 8,852 30,407
------ ------ ------- ------- -------
Interest rate sensitivity gap........... 7,307 (3,819) (9,230) 9,854 $ 4,112
=======
------ ------ ------- -------
Cumulative interest rate sensitivity
gap................................... $ 7,307 $3,488 $(5,742) $ 4,112
====== ====== ======= =======
Cumulative interest rate sensitivity gap
as a percentage of interest earning
assets................................ 21% 10% (17)% 12%
</TABLE>
As of September 30, 1996, South Hillsborough continued to be in an asset
sensitive position.
Analysis of Liquidity
Liquidity management involves the ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw funds
or borrowers needing assurance that sufficient funds will be available to meet
their credit needs. South Hillsborough's liquidity is affected by seasonal
factors affecting its deposit base such that South Hillsborough experiences its
greatest liquidity in the winter/spring while conversely experiencing its lowest
liquidity in the summer and fall. South Hillsborough's liquidity ratio, which is
calculated by dividing liquid assets (cash and due from banks, federal funds
sold, and investment securities less federal funds purchased, secured deposits,
and securities sold under agreement to repurchase) into total deposits and debts
payable within one year, less secured deposits, stood at 46.24% at September 30,
1996. Unanticipated liquidity requirements are met primarily by borrowing from
correspondent banks which provide secured and unsecured federal funds lines of
credit. At September 30, 1996, such borrowings amounted to $1,400,000.
39
<PAGE> 40
DESCRIPTION OF CAPITAL STOCKS
PROVIDENT BANCORP, INC.
The terms of Bancorp's Common Stock is governed by the laws of Ohio and
Bancorp's Articles of Incorporation and Code of Regulations.
The following is a summary of certain material provisions of, and is
qualified in its entirety by reference to Ohio law and Bancorp's Articles of
Incorporation and Code of Regulations.
Common Stock
Bancorp's Articles of Incorporation authorize the issuance of 60 million
shares of Common Stock, no par value.
Holders of Bancorp Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders. Shareholders
have the right to cumulate their votes in the election of directors.
Subject to preferences which may be granted to holders of preferred stock,
holders of Bancorp Common Stock are entitled to share in such dividends as the
Board of Directors, in its discretion, may validly declare from funds legally
available. In the event of liquidation, each outstanding share of Bancorp Common
Stock entitles its holder to participate ratably in the assets remaining after
payment of liabilities and preferred stock liquidation preferences.
Holders of Bancorp Common Stock have no preemptive or other rights to
subscribe for or purchase additional shares of any class of stock or any other
securities of Bancorp and there are no redemption or sinking fund provisions
with regard to the Common Stock. All outstanding shares of Bancorp Common Stock
are fully paid, validly issued and non-assessable. The vote of the holders of
two-thirds of all outstanding shares of Bancorp Common Stock is required to
amend the Articles of Incorporation and to approve certain mergers,
reorganizations and similar transactions. The Registrar and Transfer Agent for
Bancorp's Common Stock is The Provident Bank.
Preferred Stock
Bancorp's Articles of Incorporation authorize five million shares of
preferred stock, no par value. Preferred stock may be issued from time to time
in series having such designated preferences and rights, qualifications and
limitations as the Board of Directors may determine without any approval of
shareholders. Preferred stock could be given voting and conversion rights which
would adversely affect the voting power and equity of holders of Bancorp Common
Stock and could have preference to Bancorp Common Stock with respect to dividend
and equity of holders of Bancorp Common Stock and could have preference to
Bancorp Common Stock with respect to dividend and liquidation rights. The
preferred stock could have the effect of acting as an anti-takeover device to
prevent a change of control of Bancorp. Bancorp has 70,272 shares of preferred
stock, designated as its Series D Preferred Stock, outstanding. Each share has a
stated and liquidation value of $100, is convertible into 14.0625 shares of
Bancorp Common Stock, and pays an annual dividend equal to the dividend payable
on 14.0625 shares of Bancorp Common Stock.
Provisions Affecting Business Combinations
Ohio law governs the rights of shareholders of Bancorp. Chapter 1704 of the
Ohio Revised Code may be viewed as having an anti-takeover effect. This statute,
in general, prohibits an "issuing public corporation" (the definition of which
would include the Bancorp) from entering into a "Chapter 1704 Transaction" with
the beneficial owner (or affiliates of such beneficial owner) of 10% or more of
the outstanding shares of the corporation (an "interested shareholder") for at
least three years following the date on which the interested shareholder attains
such 10% ownership, unless the Board of Directors approves, prior to such person
becoming an interested shareholder, either the transaction or the acquisition of
shares resulting in a 10% ownership. A "Chapter 1704 Transaction" is broadly
defined to include, among other things, a merger or
40
<PAGE> 41
consolidation with, a sale of substantial assets to, or the receipt of a loan,
guaranty or other financial benefit (which is not proportionately received by
all shareholders) from the interested shareholder. Following the expiration of
such three-year period, a Chapter 1704 Transaction with the interested
shareholder is permitted only if either (i) the transaction is approved by the
holders of at least two-thirds of the voting power of the corporation (or such
different proportion as is set forth in the corporation's articles of
incorporation), including a majority of the outstanding shares, excluding those
owned by the interested shareholder, or (ii) the business combination results in
the shareholders other than the interested shareholder receiving a prescribed
"fair price" for their shares. One significant effect of Chapter 1704 is to
cause an interested shareholder to negotiate with the board of directors of a
corporation prior to becoming an interested shareholder.
In addition, Section 1707.043 of the Ohio Revised Code requires a person or
entity that makes a proposal to acquire the control of a corporation to repay to
that corporation any profits made from trades in the corporation's stock within
18 months after making the control proposal.
While Bancorp believes that these provisions are in its best interests,
shareholders of South Hillsborough should be aware that such provisions could be
disadvantageous to them because the overall effect of these statutes may be to
render more difficult or discourage the removal of incumbent management or the
assumption of effective control by other persons.
SOUTH HILLSBOROUGH COMMUNITY BANK
The terms of South Hillsborough's Common Stock are governed by the laws of
Florida and South Hillsborough's Articles of Incorporation and Bylaws. The
following is a summary of certain material provisions of, and is qualified in
its entirety by reference to Florida law and South Hillsborough's Articles of
Incorporation and Bylaws.
South Hillsborough's Articles of Incorporation authorize the issuance of
one million shares of Common Stock, $2.00 par value. Holders of South
Hillsborough Common Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of shareholders. Holders of South
Hillsborough Common Stock are entitled to share in such dividends as the Board
of Directors, in its discretion, may validly declare from funds legally
available. In the event of liquidation, dissolution or winding up of the
corporation, each outstanding share of South Hillsborough Common Stock entitles
its holder to participate equally and ratably in the assets remaining after
payment of all debts and liabilities of the corporation.
Holders of South Hillsborough Common Stock have no pre-emptive or other
rights to subscribe for or purchase additional shares of any class of stock or
any other securities of South Hillsborough and there are no redemption or
sinking fund provisions with regard to the Common Stock. Cumulative voting in
the election of directors is not provided. The vote of the holders of a majority
of all outstanding shares of South Hillsborough Common Stock is required to
amend the Articles of Incorporation and to approve certain mergers,
reorganizations and similar transactions. South Hillsborough serves as its own
Registrar and Transfer Agent.
MATERIAL DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Cumulative voting is provided in the election of Bancorp's directors
whereas it is not provided in the election of directors of South Hillsborough.
The vote of two-thirds of all outstanding shares of Bancorp Common Stock is
required to amend Bancorp's Articles of Incorporation and to approve mergers,
reorganizations and similar transactions whereas this requirement is over 50% of
outstanding shares of Common Stock with respect to South Hillsborough. Bancorp's
Articles of Incorporation authorize the issuance of preferred shares and Bancorp
has an outstanding issue of preferred shares as described above. South
Hillsborough's Articles of Incorporation do not provide for the issuance of
preferred stock. Bancorp is governed by certain provisions of Ohio law which may
be described as having an anti-takeover effect as described above whereas no
such provisions apply to South Hillsborough.
41
<PAGE> 42
LEGAL MATTERS
Certain legal matters in connection with the Bancorp Common Stock offered
hereby and certain other legal matters in connection with the offering will be
passed upon for Bancorp by Keating, Muething & Klekamp, P.L.L., Cincinnati,
Ohio. Members of that firm beneficially own 137,708 shares of Bancorp Common
Stock. Certain legal matters in connection with the South Hillsborough Common
Stock and certain other legal matters in connection with the offering will be
passed upon for South Hillsborough by Macfarlane, Ferguson & McMullen, Tampa,
Florida.
EXPERTS
The consolidated financial statements of Bancorp as of December 31, 1994
and December 31, 1995, and for each of the three years in the period ended
December 31, 1995 included in this Prospectus have been so included in reliance
upon the report of Ernst & Young, LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of South Hillsborough as of December
31, 1994 and December 31, 1995, and for each of the two years in the period
ended December 31, 1995 included in this Prospectus have been so included in
reliance upon the report of Wayne Fraser & Company, Certified Public
Accountants, St. Petersburg, Florida, given on the authority of said firm as
experts in accounting and auditing.
42
<PAGE> 43
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS
The Board of Directors and Stockholders
South Hillsborough Community Bank:
We have audited the balance sheets of South Hillsborough Community Bank as
of December 31, 1995 and 1994, and the related statements of income, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these 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 financial statements referred to above present fairly,
in all material respects, the financial position of South Hillsborough Community
Bank as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Fraser & Company
February 13, 1996
F-1
<PAGE> 44
SOUTH HILLSBOROUGH COMMUNITY BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks......................... $ 2,122,706 $ 2,562,513 $ 1,286,789
Federal funds sold.............................. -- 4,000,000 2,929,000
Time deposits................................... 403,723 500,983 800,742
Investment securities (Note 2):
Securities available-for-sale, at fair
value...................................... 5,957,342 7,659,641 2,473,047
Securities held-to-maturity, market value
$6,494,427, $3,274,045 and $2,271,334...... 6,420,323 3,235,138 2,315,793
Loans, net of allowance for loan losses of
$323,768, $306,185 and $235,782 (Note 3)...... 21,736,845 20,570,669 19,429,944
Property and equipment, net (Note 4)............ 761,553 832,686 728,384
Other assets (Note 5)........................... 943,385 848,222 595,438
----------- ----------- -----------
$38,345,877 $40,209,852 $30,559,137
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits................................. $ 3,201,838 $ 4,082,459 $ 3,396,649
NOW deposits.................................... 2,529,118 2,660,798 1,708,552
Money market deposits........................... 2,566,912 2,239,921 3,158,394
Savings deposits................................ 2,164,775 1,928,724 1,998,149
Time deposits (under $100,000).................. 18,191,258 20,668,016 12,562,164
Time deposits ($100,000 and over)............... 3,555,000 3,855,000 3,305,000
----------- ----------- -----------
Total deposits................................ 32,208,901 35,434,918 26,128,908
Federal funds purchased......................... 1,400,000 -- --
Other liabilities (Note 5)...................... 615,394 560,178 321,281
----------- ----------- -----------
Total liabilities............................. 34,224,295 35,995,096 26,450,189
Commitments and contingent liabilities (Note
9)............................................ -- -- --
Common stock $2.00 par value, 1,000,000 shares
authorized, 401,522 shares outstanding........ 803,044 803,044 803,044
Additional paid-in capital...................... 3,212,176 3,212,176 3,212,176
Retained earnings............................... 230,060 174,275 110,227
Unrealized gain (loss) on securities available
for sale, net of deferred income taxes........ (123,698) 25,261 (16,499)
----------- ----------- -----------
Total shareholders' equity.................... 4,121,582 4,214,756 4,108,948
----------- ----------- -----------
$38,345,877 $40,209,852 $30,559,137
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 45
SOUTH HILLSBOROUGH COMMUNITY BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------ ------------------------
1996 1995 1995 1994
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Loans...................................... $1,532,517 $1,480,775 $2,004,243 $1,674,455
Federal funds sold......................... 72,774 165,473 192,488 68,673
Investment securities...................... 660,724 465,713 681,726 313,617
---------- ---------- ---------- ----------
Total interest income................... 2,266,015 2,111,961 2,878,457 2,056,745
Interest expense:
Interest on deposits:
Demand.................................. 96,565 94,269 120,062 109,209
Savings................................. 43,264 33,674 45,996 53,098
Time.................................... 981,903 840,623 1,202,456 637,034
---------- ---------- ---------- ----------
Total interest expense on deposits...... 1,121,732 968,566 1,368,514 799,341
Interest expense on Federal funds
purchased............................... 5,546 -- -- --
---------- ---------- ---------- ----------
Total interest expense.................. 1,127,278 968,566 1,368,514 799,341
---------- ---------- ---------- ----------
Net interest income..................... 1,138,737 1,143,395 1,509,943 1,257,404
Provision for loan losses.................... 30,807 58,628 108,628 39,087
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses........................... 1,107,930 1,084,767 1,401,315 1,218,317
Noninterest income:
Fees....................................... 171,506 154,375 203,775 187,224
Other...................................... 18,775 13,349 17,533 24,863
---------- ---------- ---------- ----------
Total noninterest income................ 190,281 167,724 221,308 212,087
Noninterest expense:
Personnel expense.......................... 618,052 566,550 773,859 596,796
Occupancy expense.......................... 153,604 144,604 197,801 191,360
Other operating expenses................... 398,428 369,237 496,939 436,363
---------- ---------- ---------- ----------
Total noninterest expenses.............. 1,170,084 1,080,391 1,468,599 1,224,519
---------- ---------- ---------- ----------
Income before income taxes................... 128,127 172,100 154,024 205,885
Provision for (benefit of) income taxes
Current.................................... 72,597 89,966 93,814 28,391
Deferred................................... (255) (18,246) (43,990) 66,274
---------- ---------- ---------- ----------
Total income taxes...................... 72,342 71,720 49,824 94,665
---------- ---------- ---------- ----------
Net income................................... $ 55,785 $ 100,380 $ 104,200 $ 111,220
========== ========== ========== ==========
Earnings per share........................... $ .12 $ .21 $ .22 $ .23
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 46
SOUTH HILLSBOROUGH COMMUNITY BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
SECURITIES
AVAILABLE FOR
SALE, NET OF
ADDITIONAL APPLICABLE
COMMON PAID-IN RETAINED DEFERRED
STOCK CAPITAL EARNINGS INCOME TAXES TOTAL
-------- ---------- -------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994....... $803,044 $3,212,176 $ 39,159 $ -- $4,054,379
Effect of change in accounting
principle, net of applicable
deferred income taxes of
$19,735........................ 38,310 38,310
Dividends declared, $.10 per
share.......................... (40,152) (40,152)
Net income....................... 111,220 111,220
Change in unrealized gain (loss)
on securities available for
sale, net of applicable
deferred income taxes.......... (54,809) (54,809)
-------- ---------- -------- -------- ----------
Balance at December 31, 1994..... 803,044 3,212,176 110,227 (16,499) 4,108,948
Dividends declared, $.10 per
share (unaudited).............. (40,152) (40,152)
Net income (unaudited)........... 100,380 100,380
Change in unrealized gain (loss)
on securities available for
sale, net of applicable
deferred income taxes
(unaudited).................... 22,554 22,554
-------- ---------- -------- -------- ----------
Balance at September 30, 1995
(unaudited).................... $803,044 $3,212,176 $170,455 $ 6,055 $4,191,730
======== ========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
SECURITIES
AVAILABLE FOR
SALE, NET OF
ADDITIONAL APPLICABLE
COMMON PAID-IN RETAINED DEFERRED
STOCK CAPITAL EARNINGS INCOME TAXES TOTAL
-------- ---------- -------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Balance of January 1, 1995....... $803,044 $3,212,176 $110,227 $ (16,499) $4,108,948
Dividends declared, $.10 per
share.......................... (40,152) (40,152)
Net income....................... 104,200 104,200
Change in unrealized gain (loss)
on securities available for
sale, net of applicable
deferred income taxes.......... 41,760 41,760
-------- ---------- -------- -------- ----------
Balance at December 31, 1995..... 803,044 3,212,176 174,275 25,261 4,214,756
Net income (unaudited)........... 55,785 55,785
Change in unrealized gain (loss)
on securities available for
sale, net of applicable
deferred income taxes
(unaudited).................... (148,959) (148,959)
-------- ---------- -------- -------- ----------
Balance at September 30, 1996
(unaudited).................... $803,044 $3,212,176 $230,060 $(123,698) $4,121,582
======== ========== ======== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 47
SOUTH HILLSBOROUGH COMMUNITY BANK
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------- --------------------------
1996 1995 1995 1994
---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash flows from operating activities:
Interest received................................ $2,280,709 $1,951,608 $ 2,752,017 $2,013,870
Noninterest income............................... 190,281 167,724 221,308 212,087
Interest paid.................................... (1,148,147) (824,724) (1,283,161) (767,396)
Cash paid for salaries and benefits.............. (618,052) (566,550) (731,163) (596,796)
Other expenditures............................... (546,543) (575,774) (746,549) (700,422)
---------- ---------- ---------- ----------
Net cash provided by operating activities.... 158,248 152,284 212,452 161,343
Cash flows from investing activities:
Net increase (decrease) in time deposits......... 100,000 200,000 300,000 (87,786)
Proceeds from sales and maturities of securities
to be held to maturity......................... 1,724,759 590,052 2,909,927 733,733
Proceeds from sales and maturities of securities
available for sale............................. 4,169,202 1,424,827 5,466,558 3,271,839
Purchase of securities to be held to maturity.... (4,979,948) (3,827,831) (3,827,832) (2,001,444)
Purchase of securities available for sale........ (2,589,068) (5,719,336) (10,542,161) (1,742,643)
Increase in loans................................ (1,196,983) (468,570) (1,249,353) (1,778,022)
Capital expenditures............................. -- (186,363) (188,725) (104,075)
Net change in Federal funds sold................. 5,400,000 381,000 (1,071,000) (1,867,000)
---------- ---------- ---------- ----------
Net cash provided by (used in) investing
activities................................ 2,627,962 (7,606,221) (8,202,586) (3,575,398)
Cash flows from financing activities:
Dividends paid................................... -- (40,152) (40,152) (40,152)
Increase (decrease) in demand deposits........... (880,621) 1,142,422 685,810 (699,511)
Increase (decrease) in NOW deposits.............. (131,680) 890,193 952,246 (206,579)
Increase (decrease) in money market deposits..... 326,991 (730,104) (918,473) 452,123
Increase (decrease) in savings deposits.......... 236,051 (214,184) (69,425) (394,719)
Increase (decrease) in time deposits............. (2,776,758) 8,145,490 8,655,852 3,141,359
---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities................................ (3,226,017) 9,193,665 9,265,858 2,252,521
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents...................................... (439,807) 1,739,728 1,275,724 (1,161,534)
Cash and cash equivalents at beginning of period... 2,562,513 1,286,789 1,286,789 2,448,323
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period......... $2,122,706 $3,026,517 $ 2,562,513 $1,286,789
========== ========== ========== ==========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income..................................... $ 55,785 $ 100,380 $ 104,200 $ 111,220
Adjustments:
(Increase) in cash surrender value of life
insurance................................. (3,269) (4,062) (5,416) (4,452)
Depreciation and amortization................ 71,133 58,583 84,423 61,952
Provision for loan losses.................... 30,807 58,628 108,628 39,087
Accretion (amortization) of investment
security discounts, net of amortization of
premiums.................................. (1,917) (36,916) (46,471) 19,769
(Gain) on sale of investment securities...... (5,586) -- -- (11,031)
(Increase) in other assets................... (59,862) (350,406) (255,868) (251,202)
Increase in other liabilities................ 71,157 326,077 222,956 196,000
---------- ---------- ----------- ----------
Net cash provided by operating
activities.............................. $ 158,248 $ 152,284 $ 212,452 $ 161,343
========== ========== ============ ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Taxes paid....................................... $ 90,495 $ 60,374 $ 67,094 $ --
========== ========== ============ ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 48
SOUTH HILLSBOROUGH COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
South Hillsborough Community Bank (the "Bank") is a state chartered bank
incorporated under the laws of the State of Florida.
A. INVESTMENT SECURITIES
The Bank's investments in securities are classified in the following
categories:
Securities Available-for-Sale: Notes and debentures not classified as
securities to be held to maturity.
Securities to be Held to Maturity: Notes and debentures for which the
Bank has the positive intent and ability to hold to maturity are reported
at cost, adjusted for amortization of premiums and accretion of discounts
which are recognized in interest income over the period to maturity.
Unrealized holding gains and losses, net of tax, on securities
available-for-sale reported as a net amount in a separate component of
stockholders' equity until realized.
Gains and losses on the sale of securities are determined using the
specific identification method.
B. ALLOWANCE FOR LOAN LOSSES
The financial statements include an allowance for estimated losses on loans
based on management's evaluation of the collectability of loans outstanding.
Management has established a policy to discontinue accruing interest (nonaccrual
status) on a loan after it has become 90 days delinquent as to payment of
principal or interest. In addition, a loan will be placed on nonaccrual status
before it becomes 90 days delinquent if management believes that the borrower's
financial condition is such that collection of interest or principal is
doubtful. Loans which are determined to be uncollectible will be charged against
the allowance and subsequent recoveries, if any, will be credited to the
allowance.
C. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation expense is computed on the straight-line basis over the estimated
useful life of each type of asset (three to thirty years). Leasehold
improvements are amortized on the straight-line method over the lease term of
ten years. Additions to premises and equipment and major improvements are
capitalized. Maintenance and repairs are expensed as incurred.
D. INCOME RECOGNITION
Interest income on all loans is accrued based upon the principal amount
outstanding. All significant nonrefundable fees and costs associated with the
origination of loans are deferred and recognized over the life of the loan based
on the interest method.
E. INCOME TAXES
The Bank has adopted Statement of Financial Accounting Standards No.109,
"Accounting for Income Taxes," to account for deferred income taxes. Deferred
taxes are computed based on the tax liability or benefit in future years of the
reversal of temporary differences in the recognition of income or deduction of
expenses for financial and tax reporting purposes.
F-6
<PAGE> 49
SOUTH HILLSBOROUGH COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
F. EARNINGS PER SHARE
Earnings per share is computed by dividing the applicable income amount by
the weighted average number of shares of common stock and common stock
equivalents outstanding during the year.
G. CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks.
H. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
I. COMPARATIVE INFORMATION
Certain items in the 1994 financial information have been reclassified to
conform with current year presentation.
2. INVESTMENT SECURITIES
As of January 1, 1994, the Bank has adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," to account for certain investments in debt securities and
equity securities. Fair value accounting is used for those securities other than
those that the Bank has the positive intent and ability to hold to maturity.
Securities held-to-maturity consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST LOSSES GAINS VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government and Federal
agencies......................... $2,000,000 $ 5,209 $ -- $2,005,209
Mortgage-backed securities......... 1,235,138 33,698 -- 1,268,836
---------- ------- -------- ----------
$3,235,138 $ 38,907 $ -- $3,274,045
========== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST LOSSES GAINS VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government and Federal
agencies......................... $1,498,373 $ -- $(28,608) $1,469,765
Mortgage-backed securities......... 817,420 3,618 (19,469) 801,569
---------- ------- -------- ----------
$2,315,793 $ 3,618 $(48,077) $2,271,334
========== ======= ======== ==========
</TABLE>
Securities available-for-sale consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST LOSSES GAINS VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government and Federal
agencies......................... $5,568,812 $ 24,170 $ -- $5,592,982
Mortgage-backed securities......... 2,049,628 17,031 -- 2,066,659
---------- ------- -------- ----------
$7,618,440 $ 41,201 $ -- $7,659,641
========== ======= ======== ==========
</TABLE>
F-7
<PAGE> 50
SOUTH HILLSBOROUGH COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government and Federal
agencies......................... $2,162,188 $ 1,648 $(20,067) $2,143,769
Mortgage-backed securities......... 335,858 -- (6,580) 329,278
---------- ------- -------- ----------
$2,498,046 $ 1,648 $(26,647) $2,473,047
========== ======= ======== ==========
</TABLE>
The following is a summary of maturities of securities held-to-maturity and
available-for-sale as of December 31, 1995.
<TABLE>
<CAPTION>
SECURITIES SECURITIES
HELD-TO-MATURITY AVAILABLE-FOR-SALE
------------------------ ------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
One year or less................... $ 500,000 $ 502,015 $ -- $ --
After one year through five
years............................ 1,500,000 1,503,194 5,568,812 5,592,982
After five years through ten
years............................ -- -- -- --
After ten years.................... -- -- -- --
Mortgage-backed securities......... 1,235,138 1,268,836 2,049,628 2,066,659
---------- ---------- ---------- ----------
$3,235,138 $3,274,045 $7,618,440 $7,659,641
========== ========== ========== ==========
</TABLE>
During 1995, the proceeds from sales of available-for-sale securities was
$5,466,558. There were no gross realized gains or losses on those sales.
Proceeds from sales of investment securities during 1994 was $3,271,839 and
the gross realized gains were $11,000. There were no gross realized losses on
those sales.
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans are as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Commercial..................................... $ 3,672,702 $ 3,280,001
Mortgage....................................... 16,486,194 15,734,620
Consumer....................................... 717,958 651,105
----------- -----------
20,876,854 19,665,726
Less -- allowance for loan losses.............. (306,185) (235,782)
----------- -----------
$20,570,669 $19,429,944
=========== ===========
Deferred loan fees........................... $ 20,935 $ 9,586
=========== ===========
</TABLE>
Classifications are based on various business considerations such as yield
characteristics and payment terms. Commercial loans include those loans to
businesses and individuals payable on demand or within a specified period of
time. Mortgage loans include primarily intermediate-term loans secured by real
estate and payable in periodic installments. Consumer loans are installment
loans made to both businesses and individuals.
F-8
<PAGE> 51
SOUTH HILLSBOROUGH COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Activity in the allowance for loan loss account was as follows:
<TABLE>
<S> <C>
Balance at January 1, 1994....................................... $208,022
Provision for the year ended December 31, 1994................... 39,087
Charge-offs...................................................... (14,402)
Recoveries....................................................... 3,075
--------
Balance at December 31, 1994..................................... 235,782
Provision for the year ended December 31, 1995................... 108,628
Charge-offs...................................................... (39,079)
Recoveries....................................................... 854
--------
Balance at December 31, 1995..................................... $306,185
========
</TABLE>
The Bank had a nonaccrual loan of approximately $133,500 and $145,700 at
December 31, 1995 and 1994, respectively, for which impairment had not been
recognized. If interest income had been recognized, income would have increased
approximately $13,700 and $3,100 in 1995 and 1994, respectively. The Bank has
retained the right to recapture this interest from the borrower.
Assets that were foreclosed upon during the year are carried at the lower
of cost or fair value less estimated costs to sell. Such assets carried as of
December 31, 1995 amount to approximately $52,300.
4. PROPERTY AND EQUIPMENT
Major classifications of property and equipment are summarized as follows
as of December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land........................................... $ 175,000 $ 175,000
Building....................................... 327,497 327,497
Furniture and fixtures......................... 106,708 80,367
Equipment...................................... 314,038 191,293
Leasehold improvements......................... 142,080 104,085
-------- -----------
1,065,323 878,242
Less -- accumulated depreciation and
amortization................................. (232,637) (149,858)
-------- -----------
$ 832,686 $ 728,384
======== ===========
</TABLE>
Depreciation and amortization expense amounted to $84,423 and $61,952 for
the years 1995 and 1994, respectively.
5. INCOME TAXES
The bank accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SAS 109).
This statement requires that deferred income taxes reflect the tax consequences
on future years of differences between the tax basis of assets and liabilities
and their financial reporting amounts. The measurement of deferred tax assets
and liabilities is based on provisions of the enacted tax law; the effects of
future changes in tax laws or rates is not anticipated. Under FAS 109,
measurement is computed using applicable current tax rates (39% for 1995 and 34%
for 1994).
A deferred tax liability and a deferred tax asset are recognized in the
accompanying balance sheet for the estimated future tax effects attributable to
temporary differences between book and tax reporting and for net operating loss
carryforwards. The amounts included in other assets and other liabilities at
December 31 are as follows:
F-9
<PAGE> 52
SOUTH HILLSBOROUGH COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Current........................................... $101,879 $ 71,600
Long term......................................... 124,560 58,700
Valuation allowance............................... -- --
-------- --------
Net deferred tax assets........................ $226,439 $130,300
======== ========
Deferred tax liability:
Current........................................... $162,731 $ 94,300
Long term......................................... 22,933 14,800
-------- --------
Deferred tax liabilities....................... $185,664 $109,100
======== ========
</TABLE>
After considering all information available, management has concluded it is
more likely than not that all future tax benefits will be realized. Therefore, a
valuation allowance is not considered necessary.
The deferred tax asset results predominantly from a difference in the
provision for loan losses for book and tax purposes. The deferred tax liability
results principally from accounting on a cash basis for tax purposes and an
accrual basis for financial reporting purposes.
Income tax at the statutory rate is reconciled to the Bank's actual
provision as follows:
<TABLE>
<S> <C> <C>
Tax at federal statutory rate......................... $60,070 39.00%
State income tax net of federal tax benefit........... 6,561 4.26%
Nondeductible expenses................................ 42,778 27.77%
Adjustment to cash basis for tax purposes............. 7,560 4.91%
Adjustment for tax depreciation....................... (5,902) (3.83%)
Other................................................. 84 0.05%
Use of contribution carry forward..................... (587) (0.38%)
Difference due to graduated tax rates................. (16,750) (10.87%)
-------- ------
-- --
Current income tax provision.......................... $93,814 60.91%
======= ======
</TABLE>
The Bank used all the available net operating loss carry forward of
$224,917 in 1994.
6. DEFINED CONTRIBUTION PLAN
The Bank has a defined contribution plan which was established in
accordance with the Internal Revenue Code section 401(k). The plan provides that
the Bank may match contributions made by eligible employees up to a specified
maximum. Eligible employees are those that have reached the age of 21 and have
been employed by the Bank at least six months prior to a plan entrance date.
The amount of expense included in the financial statements as of December
31, 1995 and 1994 was approximately $19,400 and $21,000 respectively.
7. DEFERRED COMPENSATION PLAN
In 1994, the Bank purchased a nonqualified executive benefit plan in which
the President of the Bank has elected to defer some of his compensation in
exchange for the Bank's promise to pay a deferred benefit upon his retirement.
This plan is informally linked to a single premium universal life insurance
policy on the life of the President. The Bank is the owner and beneficiary of
the policy. During 1995 and 1994, the Bank incurred approximately $33,400 and
$39,600, respectively, in expense for the deferred compensation plan.
F-10
<PAGE> 53
SOUTH HILLSBOROUGH COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. POST RETIREMENT BENEFIT PLAN
The Bank has a post retirement benefit plan that provides for medical
benefits and life insurance for all regular employees who retiree from the Bank
at or after the age of 65 with ten years of service. Medical benefits are for
twice the length of employee service and life insurance benefit is for 50% of
the life insurance that is in effect as of the date of retirement, also for
twice the length of employee service. The retiree makes no contributions at
retirement for medical benefits; however, if costs increase by more than 10% in
any one -- year, the retiree must pay the incremental cost difference. For life
insurance, the retiree contributes the prevailing group rate for the amount of
coverage.
This plan is accounted for according to the provisions of Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". This standard requires employers
to recognize the expected cost of providing postretirement benefits to future
retirees in the periods in which employee services are rendered, thereby
matching total compensation cost with revenues generated by employee service.
The following schedule shows amounts reported on the balance sheet and the
unrecognized portion of the accumulated benefit obligation:
<TABLE>
<S> <C>
Accrued pension expense as of December 31, 1994....... $ --
Less: Net periodic cost for 1995...................... 12,171
Plus: Actual expenditures for health & life
insurance........................................... 750
Less: Payments from retirees.......................... 56
-------
Accrued pension expense as of December 31, 1995....... $11,477
=======
Accumulated benefit obligation as of December 31,
1994................................................ $39,806
Less: Amount recognized in net periodic cost.......... 1,990
-------
Unrecognized amount as of December 31, 1995........... $37,816
=======
</TABLE>
The Bank has elected to recognize the accumulated benefit obligation as of
December 31,1994 on a straight line basis over 20 years. The current year
amortization of $1,990 has been recognized in the net periodic cost for 1995.
The assumed health care cost trend used to measure the expected cost of
benefits covered by the plan is 9% for 1996 and 1997. The rate will decrease to
5% by 2004.
9. COMMITMENTS AND CONTINGENCIES
The Bank leases its building for the main office under an operating lease
agreement. The term of the lease runs through 1998, with options to renew for
two additional five-year periods. The lease contains provisions for annual rent
adjustments based on the Consumer Price Index.
The Bank entered into an operating lease for its Ruskin branch facilities
in 1995. The lease runs through 2000 with an option to renew for another five
year term. Certain shareholders of the Bank also own the corporation that leases
this building to the Bank.
The Bank also leases certain equipment under operating leases. Initial
lease terms are for five year with certain renewal options.
F-11
<PAGE> 54
SOUTH HILLSBOROUGH COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Minimum future rentals for all operating leases over the remaining
noncancellable lease terms are as follows:
<TABLE>
<S> <C>
1996.................................................. $135,271
1997.................................................. 106,888
1998.................................................. 12,000
1999.................................................. 12,000
2000.................................................. 2,000
--------
$268,159
========
</TABLE>
Operating expenses include equipment rentals of $13,121 and $28,612 in 1995
and 1994, respectively. Occupancy expense includes rentals of $128,811 and
$123,478 in 1995 and 1994, respectively.
The Bank's financial statements do not reflect various commitments and
contingent liabilities which arise in the normal course of business and which
involve elements of credit risk, interest rate risk and liquidity risk. These
commitments and contingent liabilities are commitments to extend credit and
letters of credit. A summary of the Bank's commitments and contingent
liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Commitments to extend credit............................... $1,987,885 $3,007,063
Letters of credit.......................................... 66,422 41,000
---------- ----------
$2,054,307 $3,048,063
========== ==========
</TABLE>
Commitments to extend credit and letters of credit include exposure to some
credit loss in the event of nonperformance of the customer. The Bank's credit
policies and procedures for credit commitments and financial guarantees are the
same as those for extension of credit that are recorded on the balance sheets.
Because these instruments have fixed maturity dates, and because many of
them expire without being drawn upon, they do not generally present any
significant liquidity risk to the Bank. The Bank has not incurred any losses on
its commitments in either 1995 or 1994.
10. RELATED PARTIES
The Bank has entered into transactions with its directors, employees,
significant shareholders and their affiliates (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 to such
related parties at December 31,1995 and 1994 was $2,384,355 and $2,003,539,
respectively.
11. CONCENTRATIONS OF CREDIT
Substantially all of the Bank's loans, commitments and commercial and
standby letters of credit have been granted to customers in the Bank's market
area. Such customers are, generally, depositors of the Bank. The concentrations
of credit by type of loan are set forth in Note 3. Commercial and standby
letters of credit were granted primarily to commercial borrowers. Generally, the
Bank, as a matter of policy, does not extend credit to any single borrower or
group of related borrowers in excess of $500,000.
A significant portion of the Bank's loan portfolio is agriculturally based
and its market area is mostly within the Bank's geographical area.
F-12
<PAGE> 55
SOUTH HILLSBOROUGH COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
12. REGULATORY RESTRICTIONS
The State of Florida banking regulations limit the amount of dividends that
may be paid without prior approval of the Bank's regulatory agency. The Bank
cannot pay dividends in any one year that exceed the sum of net income for that
year plus net income after dividends for the two preceding years.
13. STOCK OPTIONS
Under the Bank's stock option plan, 80,000 shares of common stock were
reserved for issuance to directors and officers and employees. Options for
79,150 shares have been granted with an option price between $10.50 and $11.50.
14. EARNINGS PER SHARE
Earnings per share were computed by dividing net income by the weighted
average number of shares of common stock (401,522 in 1995 and 1994) and common
stock equivalents (79,150 in 1995 and 76,650 in 1994) outstanding during the
year.
* * * *
This statement has not been reviewed, or confirmed for accuracy or relevance, by
the Federal Deposit Insurance Corporation.
F-13
<PAGE> 56
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
SOUTH HILLSBOROUGH COMMUNITY BANK
BANK
AND
PROVIDENT BANCORP, INC.
BUYER
<PAGE> 57
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE 1
DEFINITIONS.............................................................................1
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE BANK..............................................4
2.1 Capital Structure of the Bank..................................................4
2.2 No Subsidiaries................................................................4
2.3 Organization, Standing and Authority of the Bank...............................4
2.4 Authorized and Effective Reorganization Agreement..............................4
2.5 Financial Statements; Minute Books.............................................5
2.6 Material Adverse Change........................................................6
2.7 Absence of Undisclosed Liabilities.............................................6
2.8 Properties.....................................................................6
2.9 Loans..........................................................................6
2.10 Allowance for Loan Losses......................................................7
2.11 Tax Matters....................................................................7
2.12 Employee Benefit Plans.........................................................8
2.13 Certain Contracts..............................................................8
2.14 Legal Proceedings..............................................................9
2.15 Compliance with Laws..........................................................10
2.16 Brokers and Finders...........................................................10
2.17 Insurance.....................................................................10
2.18 Deposit Insurance.............................................................10
2.19 Environmental Liability.......................................................11
2.20 Certain Information...........................................................11
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BUYER............................................11
3.1 Capital Structure of the Buyer................................................11
3.2 Organization, Standing and Authority of the Buyer.............................12
3.3 Organization, Standing and Authority of Interim; Ownership of Interim.........12
3.4 Authorized and Effective Reorganization Agreement.............................12
3.5 SEC Documents; Regulatory Filings.............................................13
3.6 Financial Statements..........................................................13
3.7 Material Adverse Change.......................................................13
3.8 Absence of Undisclosed Liabilities............................................14
3.9 Certain Information...........................................................14
3.10 Brokers and Finders...........................................................14
3.11 Compliance with Laws..........................................................14
ARTICLE 4
COVENANTS..............................................................................15
4.1 Shareholders' Meeting.........................................................15
</TABLE>
<PAGE> 58
-ii-
<TABLE>
<S> <C>
4.2 Proxy Statement; Registration Statement......................................................15
4.3 Plan of Merger...............................................................................16
4.4 Applications.................................................................................16
4.5 Best Efforts.................................................................................16
4.6 Investigation and Confidentiality............................................................17
4.7 Press Releases...............................................................................18
4.8 Covenants of the Bank........................................................................18
4.9 Closing; Articles of Merger..................................................................20
4.10 The Bank Employees...........................................................................20
4.11 Affiliates...................................................................................21
4.12 Nasdaq Application...........................................................................21
4.13 Indemnification of Officers and Directors....................................................21
ARTICLE 5
CONDITIONS PRECEDENT..................................................................................21
5.1 Conditions Precedent - the Buyer and the Bank................................................21
5.2 Conditions Precedent - the Bank..............................................................22
5.3 Conditions Precedent - the Buyer.............................................................23
ARTICLE 6
TERMINATION, WAIVER AND AMENDMENT.....................................................................24
6.1 Termination..................................................................................24
6.2 Effect of Termination........................................................................25
6.3 Survival of Representations, Warranties and Covenants........................................25
6.4 Waiver.......................................................................................25
6.5 Amendment or Supplement......................................................................26
ARTICLE 7
MISCELLANEOUS.........................................................................................26
7.1 Expenses.....................................................................................26
7.2 Entire Agreement.............................................................................27
7.3 No Assignment................................................................................27
7.4 Notices......................................................................................27
7.5 Captions.....................................................................................28
7.6 Counterparts.................................................................................28
7.7 Governing Law................................................................................28
7.8 Specific Performance.........................................................................28
</TABLE>
<PAGE> 59
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Reorganization Agreement")
is made as of October 7 1996 between SOUTH HILLSBOROUGH COMMUNITY BANK, a
Florida banking institution having its principal executive office at 6542 U.S.
Highway 41 North, Apollo Beach, Florida 33572 (the "Bank"), and PROVIDENT
BANCORP, INC., an Ohio corporation having its principal executive office at One
East Fourth Street, Cincinnati, Ohio 45202 (the "Buyer").
W I T N E S S E T H:
WHEREAS, the parties hereto desire that Provident Interim Bank
("Interim"), an interim Florida banking institution to be formed by the Buyer
and the stock of which will be wholly owned by the Buyer, shall be merged with
and into the Bank ("Merger") pursuant to an Agreement and Plan of Merger in the
form attached hereto as Annex A (the "Plan of Merger") and pursuant to which
Plan of Merger the shareholders of the Bank will receive shares of common stock
of the Buyer having an aggregate value equal to Seven Million One Hundred Fifty
One Thousand Nine Hundred Dollars ($7,151,900) in exchange for their shares of
common stock of the Bank and the corporation surviving the Merger (the
"Surviving Corporation") shall become a wholly owned subsidiary of the Buyer;
and,
WHEREAS, the parties hereto desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained, and intending to be
legally bound hereby, the parties hereto do hereby agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Reorganization Agreement, the following terms have
the meanings specified or referred to in this Article 1.
1.1 "Bank Financial Statements" shall mean the balance sheets of the
Bank as of June 30, 1996 and as of December 31, 1995, 1994 and 1993 and the
related statements of income, cash flows and changes in shareholders' equity
(including related notes, if any) for the six months ended June 30, 1996 and
each of the three years ended December 31, 1995, 1994, 1993.
1.2 "Bank Holding Company Act" shall mean the Bank Holding Company Act
of 1956, as amended.
1.3 "Buyer Financial Statements" shall mean the consolidated balance
sheets of the Buyer as of June 30, 1996 and as of December 31, 1995, 1994 and
1993 and the related consolidated statements of income, cash flows and changes
in shareholders' equity (including related notes, if
<PAGE> 60
- 2 -
any) for the six months ended June 30, 1996 and each of the three years ended
December 31, 1995, 1994 and 1993 as filed by the Buyer in SEC Documents.
1.4 "Closing Date" shall mean the date specified pursuant to Section
4.9 hereof as the date on which the parties hereto shall close the transactions
contemplated herein.
1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.6 "Commission" or "SEC" shall mean the Securities and Exchange
Commission.
1.7 "Competing Transaction" shall mean any of the following involving
the Bank (other than the transactions contemplated by this Reorganization
Agreement): (a) any merger, consolidation, share exchange for a controlling
interest, business combination or other similar transaction; (b) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of 15% or more
of the assets of the Bank in a single transaction or series of related
transactions or (c) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
1.8 "Department of Banking" shall mean the Florida Department of
Banking and Finance.
1.9 "Effective Date" shall mean the date specified pursuant to Section
4.9 hereof as the effective date of the Merger.
1.10 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.11 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.12 "FDIA" shall mean the Federal Deposit Insurance Act.
1.13 "FDIC" shall mean the Federal Deposit Insurance Corporation.
1.14 "Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
1.15 "Investment Company Act" means the Investment Company Act of 1940,
as amended.
1.16 "Previously Disclosed" shall mean disclosed prior to the execution
hereof in a letter dated of even date herewith from the Bank and delivered to
the Buyer, which letter shall be in form and substance reasonably acceptable to
the Buyer.
<PAGE> 61
- 3 -
1.17 "Proxy Statement" shall mean the proxy statement and any other
soliciting materials of the Bank (or similar documents) together with any
supplements thereto sent to the shareholders of the Bank to solicit their votes
in connection with this Reorganization Agreement and the Plan of Merger.
1.18 "Registration Statement" shall mean the registration statement
with respect to the Buyer Common Stock to be issued in connection with the
Merger as declared effective by the Commission under the Securities Act.
1.19 "Rights" shall mean warrants, options, rights, convertible
securities and other arrangements or commitments which obligate an entity to
issue, exchange or dispose of any of its capital stock or other equity
interests, and stock appreciation rights, performance units and other similar
stock-based rights whether they obligate the issuer thereof to issue stock or
other securities or to pay cash.
1.20 "SEC Documents" shall mean all reports and registration statements
filed, or required to be filed, by a party hereto pursuant to the Securities
Laws.
1.21 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.22 "Securities Laws" shall mean: the Securities Act; the Exchange
Act; the Investment Company Act; the Investment Advisers Act of 1940, as
amended; the Trust Indenture Act of 1939, as amended; and the rules and
regulations of the Commission promulgated thereunder.
1.23 "Tax" or "Taxes" shall mean all income, gross receipts, gains,
sales, use, employment, franchise, profits, excise, property, value added,
commercial rent or other taxes, fees, stamp taxes and duties, assessments or
charges of any kind whatsoever (whether payable directly or by withholding),
together with any interest and penalties, additions to tax or additional amounts
with respect thereto imposed by any taxing authority.
1.24 "Tax Returns" shall mean all federal, state, local and foreign tax
returns including, without limitation, estimated tax returns, returns required
under Sections 1441-1446 and 6031-6060 of the Code and any regulations
thereunder, and any comparable state and local laws and regulations, withholding
tax returns, FICA and FUTA returns and back-up withholding returns required
under Section 3406 of the Code and the regulations thereunder, and any
comparable state and local laws and regulations.
Other terms used herein are defined in the preamble and the recitals to
this Reorganization Agreement.
<PAGE> 62
- 4 -
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank hereby represents and warrants to the Buyer as follows, which
representations and warranties are qualified in their entirety by the matters
Previously Disclosed:
2.1 Capital Structure of the Bank
The authorized capital stock of the Bank consists of 1,000,000 shares
of common stock, par value $2.00 per share (the "Bank Common Stock"), of which
401,522 shares are issued and outstanding as of the date hereof. All outstanding
shares of the Bank capital stock have been duly issued and are validly
outstanding, fully paid and nonassessable. As of June 30, 1996, 80,000 shares of
Bank Common Stock were reserved for issuance pursuant to stock option and
similar plans and options to acquire 78,050 shares of Bank Common Stock were
issued and outstanding pursuant to such plans. Except for the foregoing and as
Previously Disclosed, there are no Rights authorized, issued or outstanding with
respect to the capital stock of the Bank. None of the shares of the Bank's
capital stock has been issued in violation of the preemptive rights of any
person. Except as Previously Disclosed, there are no shareholder agreements,
voting trusts or other agreements or understandings to which the Bank is a party
or bound or relating to the voting or transfer of shares of the capital stock of
the Bank. There are no outstanding contractual or other obligations of the Bank
to purchase, redeem or otherwise acquire any shares of the capital stock of the
Bank.
2.2 No Subsidiaries
Except as Previously Disclosed, the Bank does not own, directly or
indirectly, or have Rights to acquire, directly or indirectly, 5% or more of the
outstanding capital stock or other voting securities or other equity interests
of any corporation, bank, savings association, partnership, joint venture,
limited liability company or other organization.
2.3 Organization, Standing and Authority of the Bank
The Bank is a duly organized Florida banking institution, validly
existing and in good standing under applicable laws. The Bank has full power and
authority to carry on its business as now conducted. The Bank is not required to
be qualified to do business in any other jurisdiction of the United States or
any foreign jurisdiction. The Bank has all material federal, state and local
governmental authorizations necessary for it to own or lease its properties and
assets and to carry on its business as it is now being conducted.
2.4 Authorized and Effective Reorganization Agreement
(a) The Bank has all requisite corporate power and authority to enter
into and perform all of its obligations under this Reorganization Agreement.
The execution and delivery of this
<PAGE> 63
- 5 -
Reorganization Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of the Bank, subject to approval thereof by the
shareholders of the Bank to the extent required by applicable law and the
Articles of Incorporation and By-Laws of the Bank and subject to approval by the
Florida Department of Banking.
(b) Upon the execution of the Plan of Merger and at all times
thereafter until the Closing Date, the Bank will have all requisite corporate
power and authority to enter into and perform all of its obligations under the
Plan of Merger, and the execution and delivery of the Plan of Merger and the
consummation of the transactions contemplated thereby (at the time of such
execution) will have been duly and validly authorized by all necessary corporate
action in respect thereof on the part of the Bank, except that the affirmative
vote of the holders of a majority of the outstanding shares of the Bank Common
Stock is required to approve the Plan of Merger pursuant to applicable Florida
law.
(c) The Board of Directors of the Bank has directed that this
Reorganization Agreement and, following its execution, the Plan of Merger be
submitted to the Bank's shareholders for approval at a special meeting to be
held as soon as practicable.
(d) This Reorganization Agreement constitutes a legal, valid and
binding obligation of the Bank and the Plan of Merger, upon the execution and
delivery thereof by the parties thereto, will constitute a legal, valid and
binding obligation of the Bank, in each case enforceable against it in
accordance with their respective terms, subject to receipt of shareholder
approval and, as to enforceability, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(e) Neither the execution and delivery of this Reorganization
Agreement or of the Plan of Merger, nor consummation of the transactions
contemplated hereby or thereby, nor compliance by the Bank with any of the
provisions hereof or thereof shall (i) conflict with or result in a breach of
any provision of the Articles of Incorporation or By-laws of the Bank, (ii)
except as Previously Disclosed, constitute or result in a breach of any material
term, condition or provision of, or constitute a default under, or give rise to
any right of termination, cancellation or acceleration with respect to, or
result in the creation of any lien, charge or encumbrance upon any property or
asset of the Bank pursuant to, any material note, bond, mortgage, indenture,
license, agreement or other instrument or obligation, or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Bank.
2.5 Financial Statements; Minute Books
The Bank Financial Statements, except as noted therein, fairly
present in all material respects the financial position of the Bank as of the
dates indicated and the results of operations of the Bank for the periods then
ended in conformity with generally accepted accounting principles
<PAGE> 64
- 6 -
applied on a consistent basis, except that any interim financial statements
included in the Bank Financial Statements are subject to normal year-end
adjustments, none of which will be material, and except for the absence of
certain footnote information in the interim financial statements. The books and
records of the Bank fairly reflect in all material respects the transactions to
which it is a party or by which its properties are subject or bound. Such books
and records have been properly kept and maintained and are in compliance in all
material respects with all applicable legal and accounting requirements. The
minute books of the Bank contain accurate records of all corporate actions of
its shareholders and Board of Directors (including any Executive Committee or
other committee of its Board of Directors).
2.6 Material Adverse Change
The Bank has not suffered any material adverse change in its
financial condition, results of operations or business since June 30, 1996 and,
to the knowledge of the Bank, no fact or condition exists that could reasonably
be expected to cause such a material adverse change other than the transactions
contemplated by this Reorganization Agreement and the reasonable expenses
incurred by the Bank in connection therewith.
2.7 Absence of Undisclosed Liabilities
The Bank has no liability (contingent or otherwise) that is material
to the Bank, or that, when combined with all similar liabilities, would be
material to the Bank, except as disclosed in the Bank Financial Statements or as
Previously Disclosed or as incurred in the ordinary course of the Bank's
business consistent (both as to quality and quantity) with past practice.
2.8 Properties
The Bank has good and marketable title free and clear of all liens,
encumbrances, charges, defaults or equitable interests to all of the properties
and assets, real and personal, reflected on the Bank Financial Statements as
being owned by the Bank as of December 31, 1995 or acquired after such date,
except (i) liens for taxes not yet due and payable, (ii) pledges to secure
deposits and other liens incurred in the ordinary course of banking business,
(iii) such imperfections of title, easements and encumbrances, if any, as are
not material in character, amount or extent and that do not materially interfere
with the use of such properties or assets by the Bank and (iv) dispositions and
encumbrances for reasonably adequate consideration in the ordinary course of
business. All leases pursuant to which the Bank, as lessee, leases real or
personal property are valid and subsisting in accordance with their respective
terms.
2.9 Loans
Each loan reflected as an asset in the Bank Financial Statements as
of June 30, 1996, and each loan entered into subsequent thereto, (i) is
evidenced in all material respects by notes,
<PAGE> 65
- 7 -
agreements or other evidences of indebtedness which are true, genuine and what
they purport to be, (ii) to the extent secured, has been secured by valid liens
and security interests which have been perfected, and (iii) is the legal, valid
and binding obligation of the obligor named therein, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles. Except as Previously Disclosed, the Bank is
not a party to any loan, including any loan guaranty, with any director,
executive officer or 5% shareholder of the Bank or any person, corporation or
enterprise controlling, controlled by or under common control with any of the
foregoing.
2.10 Allowance for Loan Losses
The allowance for loan losses reflected on the Bank Financial
Statements, as of their respective dates, is adequate in all material respects
under the requirements of generally accepted accounting principles to provide
for reasonably anticipated losses on outstanding loans.
2.11 Tax Matters
(a) The Bank has timely federal income tax returns for each year
through December 31, 1995 and has timely filed, or caused to be filed, all other
federal, state, local Tax Returns required to be filed with respect to the Bank.
(b) All Taxes due in respect of any tax periods have been paid or
adequate reserves have been established for the payment of such Taxes and, as of
the Closing Date, all Taxes due in respect of any subsequent tax periods
(including any periods ending on or prior to the Closing Date) will have been
paid or adequate reserves will have been established for the payment thereof.
The Bank will not have any material liability for any Taxes in excess of the
amounts so paid or reserves or accruals so established. No audit examination or
deficiency or refund litigation with respect to such returns is pending.
(c) All federal, state and local Tax Returns filed by the Bank are
complete and accurate in all material respects. The Bank is not delinquent in
the payment of any Tax, assessment or governmental charge, and the Bank has not
requested any extension of time within which to file any Tax Returns in respect
of any fiscal year or portion thereof which have not since been filed. No
deficiencies for any Tax, assessment or governmental charge have been asserted
or assessed (tentatively or otherwise) or, to the knowledge of the Bank,
proposed against the Bank which have not been settled and paid. There are
currently no agreements in effect with respect to the Bank to extend the period
of limitations for the assessment or collection of any Tax.
(d) Termination of the employment of any employee of the Bank
following consummation of the transactions contemplated hereby will not cause
the Bank to make or to be
<PAGE> 66
- 8 -
required to make any "excess parachute payment" as that term is defined in
Section 280G of the Code.
2.12 Employee Benefit Plans
(a) The Bank has Previously Disclosed true and complete copies of all
qualified pension or profit-sharing plans, any deferred compensation,
consulting, bonus or group insurance contract or any other incentive, welfare or
employee benefit plan or agreement maintained for the benefit of employees or
former employees of the Bank, and will make available to the Buyer (i) the most
recent actuarial and financial reports prepared with respect to any plans
qualified under Section 401(a) of the Code, (ii) the most recent annual reports
filed with any government agency and (iii) all rulings and determination letters
and any open requests for rulings or letters that pertain to any plan qualified
under Section 401(a) of the Code.
(b) Neither the Bank (nor any pension plan maintained by it) has
incurred or reasonably expects to incur any material liability to the Internal
Revenue Service with respect to any plan qualified under Section 401(a) of the
Code. The Bank has never sponsored, participated in or maintained any defined
benefit pension plan. The Bank has never participated in a "multiemployer plan"
(as defined in ERISA).
(c) A favorable determination letter has been issued by the Internal
Revenue Service with respect to each "employee pension plan" (as defined in
Section 3(2) of ERISA) of the Bank which is intended to be a qualified plan to
the effect that such plan is qualified under Section 401 of the Code and tax
exempt under Section 501 of the Code. No such letter has been revoked or
threatened to be revoked and the Bank does not know of any ground on which such
revocation may be based. Such plans have been operated in all material respects
in accordance with their terms and applicable law.
(d) No prohibited transaction (which shall mean any transaction
prohibited by Section 406 of ERISA and not exempt under Section 408 of ERISA)
has occurred with respect to any "employee benefit plan" (as defined in Section
3(3) of ERISA) maintained by the Bank which would result in the imposition,
directly or indirectly, of an excise tax under Section 4975 of the Code or the
correction of which would have a material adverse effect on the financial
condition, results of operations or business of the Bank.
(e) The actuarial present value of accrued benefit obligations,
whether or not vested, under each "employee pension plan" maintained by the Bank
did not exceed as of the most recent actuarial valuation date the then current
fair market value of the assets of such plan and no material adverse change has
occurred with respect to the funded status of any such plan since such date.
2.13 Certain Contracts
<PAGE> 67
- 9 -
(a) Except as Previously Disclosed, the Bank is neither a party to,
nor is it bound by, (i) any material agreement, arrangement or commitment,
whether or not made in the ordinary course of business, other than loans or loan
commitments made in the ordinary course of the banking business of the Bank,
(ii) any agreement, indenture or other instrument relating to the borrowing of
money by the Bank or the guarantee by the Bank of any such obligation, other
than instruments relating to transactions entered into in the customary course
of the banking business of the Bank and reflected in the Bank Financial
Statements, (iii) any agreement, arrangement or commitment relating to the
employment of a consultant or the employment, election, retention in office or
severance of any present or former director or officer, or (iv) any contract,
agreement or understanding with a labor union, in the case of each of clauses
(i) through (iv), inclusive, whether written or oral.
(b) The Bank is not in default under any material agreement,
commitment, arrangement, lease, insurance policy or other instrument, whether
entered into in the ordinary course of business or otherwise, and whether
written or oral, and there has not occurred any event that, with the lapse of
time or giving of notice or both, would constitute such a default.
(c) Since December 31, 1995, the Bank has neither incurred nor paid
any obligation or liability that would be material to the Bank, except
obligations incurred or paid in connection with transactions in the ordinary
course of business of the Bank consistent with its past practices or except as
Previously Disclosed or reflected in the Bank Financial Statements.
(d) Except as Previously Disclosed, the Bank is not a party to any
transaction (other than agreements Previously Disclosed in connection with
Section 2.9 hereof) with (i) any person who has been an executive officer or a
director of the Bank since January 1, 1993, (ii) any spouse of any such officer
or director, (iii) any parent, child, brother, sister, or other family relation
of any such officer or director who has the same principal residence as such
officer or director, (iv) any corporation or other entity of which any such
officer or director or any such family relation is an officer, director,
partner, or greater than 5% shareholder (based on percentage ownership of voting
stock) or (v) any "affiliate" or "associate" of any such persons or entities (as
such terms are defined in the rules and regulations promulgated under the
Securities Act), including, without limitation, (x) any transaction involving a
contract, agreement, or other arrangement providing for the employment of,
furnishing of materials, products or services by, rental of real or personal
property from, or otherwise requiring payments to, any such person or entity,
and (y) loans (including any loan guaranty) outstanding at the date hereof, but
not (z) deposit accounts maintained at the Bank in the ordinary course of its
banking business.
2.14 Legal Proceedings
Except as Previously Disclosed, there are no actions, suits or
proceedings instituted, pending or, to the knowledge of the Bank, threatened
against the Bank or against any asset, interest or right of the Bank that would,
if determined adversely to the Bank, have a material adverse effect on the Bank.
To the knowledge of the Bank, there are no actual or threatened actions, suits
or
<PAGE> 68
- 10 -
proceedings which present a claim to restrain or prohibit the transactions
contemplated herein or to impose upon the Buyer, the Bank or any of their
respective subsidiaries or affiliates any material cost or obligation in
connection therewith. There are no actions, suits proceedings instituted,
pending or, to the knowledge of the Bank, threatened against any present or
former director or executive officer of the Bank that might give rise to a claim
for indemnification that would, if determined adversely to the Bank, have a
material adverse effect on the Bank, and, to the knowledge of the Bank, there is
no reasonable basis for any such action, suit or proceeding.
2.15 Compliance with Laws
Except as Previously Disclosed, the Bank is in compliance in all
material respects with all statutes and regulations applicable to the conduct of
its business, and neither the Bank nor, to the knowledge of the Bank, any
director or officer thereof has received notification from any agency or
department of federal, state or local government (i) asserting a material
violation of any such statute or regulation, (ii) threatening to revoke any
license, franchise, permit or government authorization or (iii) restricting or
in any way limiting its operations. The Bank is not subject to any regulatory or
supervisory cease and desist order, agreement, directive, memorandum of
understanding or commitment, and it has not received any communication
requesting that it enter into any of the foregoing. Without limiting the
generality of the foregoing, the Bank has timely filed all currency transaction
reports required to be filed and taken all other actions required under the
Currency and Foreign Transactions Reporting Act, codified at 31 U.S.C.
section 5301 ET SEQ., and its implementing regulations.
2.16 Brokers and Finders
Except as Previously Disclosed, neither the Bank nor any of its
officers, directors or employees has employed any broker, finder or financial
advisor or incurred any liability for any fees or commissions in connection with
the transactions contemplated herein or the Plan of Merger.
2.17 Insurance
The Bank has Previously Disclosed a complete and accurate summary of
all insurance policies and bonds maintained by the Bank. Except as Previously
Disclosed, the Bank has not received any notice of a premium increase or
cancellation with respect to any of its insurance policies or bonds and, within
the last three years, the Bank has not been refused any insurance coverage
sought or applied for, and the Bank has no reason to believe that existing
insurance coverage cannot be renewed as and when the same shall expire, upon
terms and conditions as favorable as those presently in effect, other than
possible increases in premiums or unavailability in coverage that have not
resulted from any extraordinary loss experience of the Bank.
2.18 Deposit Insurance
<PAGE> 69
- 11 -
The Bank is an insured bank as defined in the FDIA, and the Bank has
paid all assessments and filed all reports required by the FDIA.
2.19 Environmental Liability
There is no legal, administrative, arbitral or other proceedings, or,
to the knowledge of the Bank, claim, action, cause of action, or governmental
investigation of any nature seeking to impose, or that could result in the
imposition, on the Bank of any liability arising under any local, state or
federal environmental statute, regulation or ordinance including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, pending or threatened against the Bank, which liability
might have a material adverse effect on the financial condition, results of
operations or business of the Bank; except as Previously Disclosed, to the
knowledge of the Bank, there is no reasonable basis for any such proceeding,
claim, action or governmental investigation that would impose any such
liability; and the Bank is not subject to any agreement, order judgment decree
or memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any such liability.
2.20 Certain Information
The information provided by the Bank to the Buyer for use in the
Registration Statement, other than information subject to Section 3.9 hereof, at
the time the Proxy Statement is mailed to shareholders of the Bank up to and
including the time of the Bank Shareholders' meeting to vote upon the Merger,
(i) shall comply in all material respects with the applicable provisions of the
regulations of the Securities Laws and (ii) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Bank as follows:
3.1 Capital Structure of the Buyer
The authorized capital stock of the Buyer consists at June 30, 1996
of Sixty Million (60,000,000) shares of common stock, no par value (the "Buyer
Common Stock"), of which Twenty Six Million Three Hundred Forty Four Thousand
Three Hundred Ninety Five (26,344,395) shares were issued and outstanding and
none of which shares were held in treasury, and Five Million (5,000,000) shares
of preferred stock, of which Seventy Thousand Two Hundred Seventy Two (70,272)
shares of Series D preferred stock were issued and outstanding. All outstanding
shares of the Buyer's capital stock have been duly issued and are validly
outstanding, fully paid and
<PAGE> 70
- 12 -
nonassessable. None of the shares of the Buyer's capital stock has been issued
in violation of the preemptive rights of any person. The shares of the Buyer
Common Stock to be issued in connection with the Merger have been duly
authorized and, when issued in accordance with the terms of this Reorganization
Agreement and the Plan of Merger, will be validly issued, fully paid,
nonassessable and free and clear of any preemptive rights. As of June 30, 1996,
____ shares of the Buyer Common Stock were reserved for issuance in connection
with option plans and other Rights. Except as previously disclosed to the Bank
or as set forth in the Buyer's SEC Documents, there are no Rights authorized,
issued or outstanding with respect to the capital stock of the Buyer.
3.2 Organization, Standing and Authority of the Buyer
The Buyer is a duly organized corporation, validly existing and in
good standing under the laws of the State of Ohio, with full power and authority
to carry on its business as now conducted. The Buyer is registered as a bank
holding company under the Bank Holding Company Act.
3.3 Organization, Standing and Authority of Interim; Ownership of
Interim.
Upon the formation of Interim, (i) Interim will be a duly organized
Florida banking institution, validly existing and in good standing under
applicable laws, and (ii) the outstanding shares of capital stock of Interim
will be validly issued, fully paid, nonassessable and owned directly by the
Buyer free and clear of all liens, claims and encumbrances.
3.4 Authorized and Effective Reorganization Agreement
(a) The Buyer has all requisite corporate power and authority to
enter into and perform all of its obligations under this Reorganization
Agreement. The execution and delivery of this Reorganization Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of the Buyer.
(b) Upon the execution of the Plan of Merger and at all times
thereafter until the Closing Date, the Buyer will have all requisite corporate
power and authority to enter into and perform all of its obligations under the
Plan of Merger, and the execution and delivery of the Plan of Merger and the
consummation of the transactions contemplated thereby (at the time of such
execution) will have been duly and validly authorized by all necessary corporate
action in respect thereof on the part of the Buyer.
(c) Upon the formation thereof, Interim will have all requisite
corporate power and authority to enter into and perform all of its obligations
under the Plan of Merger and, prior to the execution of the Plan of Merger, the
execution and delivery of the Plan of Merger and the consummation of the
transactions contemplated thereby will have been duly and validly authorized by
all necessary corporate action in respect thereof on the part of Interim.
<PAGE> 71
- 13 -
(d) This Reorganization Agreement constitutes a legal, valid and
binding obligation of the Buyer and the Plan of Merger, upon the authorization,
execution and delivery thereof by the parties thereof, will constitute a legal,
valid and binding obligation of the Buyer and Interim, respectively, in each
case enforceable against it in accordance with their respective terms, subject
as to enforceability to bankruptcy, insolvency, fraudulent conveyance and other
laws of general applicability relating to or affecting creditors' rights and to
general equity principles.
(e) Neither the execution and delivery of this Reorganization
Agreement, in the case of the Buyer, or the Plan of Merger, in the case of the
Buyer and Interim, nor consummation of the transactions contemplated hereby or
thereby, nor compliance by the Buyer or Interim with any of the provisions
hereof or thereof shall (i) conflict with or result in a breach of any provision
of the Articles of Incorporation, By-laws or Regulations (as the case may be) of
the Buyer or Interim, (ii) constitute or result in a breach of any term,
condition or provision of, or constitute a default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result in
the creation of any lien, charge or encumbrance upon any property or asset of
the Buyer or Interim pursuant to, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation, any of which would be material to
the Buyer's business operations or financial condition or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Buyer or Interim.
3.5 SEC Documents; Regulatory Filings
The Buyer has filed all SEC Documents required by the Securities Laws
and such SEC Documents complied, as of their respective dates, in all material
respects with the Securities Laws. The Buyer and each subsidiary of the Buyer
that is a depository institution has filed all reports required by statute or
regulation to be filed with any federal or state bank regulatory agency and such
reports were prepared, in all material respects, in accordance with the
applicable statutes, regulations and instructions in existence as of the date of
filing of such reports.
3.6 Financial Statements
The Buyer Financial Statements fairly present in all material
respects the consolidated financial position of the Buyer as of the dates
indicated and the results of operations, changes in shareholders' equity and
cash flows of the Buyer for the periods then ended in conformity with generally
accepted accounting principles applied on a consistent basis except as disclosed
therein and except that any interim statements included in the Buyer Financial
Statements are subject to normal year-end adjustments, none of which will be
material.
3.7 Material Adverse Change
The Buyer has not suffered any material adverse change in its
financial condition, results of operations or business since June 30, 1996 and,
to the knowledge of Buyer, no fact or condition
<PAGE> 72
- 14 -
exists that could reasonably be expected to cause such a material adverse change
other than the transactions contemplated by this Reorganization Agreement and
the reasonable expenses incurred by the Buyer in connection therewith.
3.8 Absence of Undisclosed Liabilities
The Buyer has no liability (contingent or otherwise) that is material
to the Buyer, or that, when combined with all similar liabilities, would be
material to the Buyer, except as disclosed in the Buyer Financial Statements.
3.9 Certain Information
(a) The information provided by the Buyer to the Bank for use in the
Proxy Statement, at the time the Proxy Statement is mailed to shareholders of
the Bank and at all subsequent times up to and including the time of the Bank
shareholders' meeting to vote upon the Merger, shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
(b) When the Registration Statement or any post-effective amendment
thereto shall become effective, and at all times subsequent to such
effectiveness up to and including the time of the Buyer shareholders' meeting to
vote upon the Merger, such Registration Statement and all amendments or
supplements thereto, with respect to all information set forth therein furnished
by the Buyer relating to the Buyer, (i) shall comply in all material respects
with the applicable provisions of the Securities Laws, and (ii) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading.
3.10 Brokers and Finders
Neither the Buyer nor any of its officers, directors or employees,
has employed any broker, finder or financial advisor or incurred any liability
for any fees or commissions in connection with the transactions contemplated
herein or the Plan of Merger, except fees payable to Mr. Gordon Campbell.
3.11 Compliance with Laws
The Buyer is in compliance in all material respects with all statutes
and regulations applicable to the conduct of its business, and neither the Buyer
nor, to the knowledge of the Buyer, any director or officer thereof has received
notification from any agency or department of federal, state or local government
(i) asserting a material violation of any such statute or regulation, (ii)
<PAGE> 73
- 15 -
threatening to revoke any license, franchise, permit or government authorization
or (iii) restricting or in any way limiting its operations. The Buyer is not
subject to any regulatory or supervisory cease and desist order, agreement,
directive, memorandum of understanding or commitment, and it has not received
any communication requesting that it enter into any of the foregoing. Without
limiting the generality of the foregoing, the Buyer has timely filed all
currency transaction reports required to be filed and taken all other actions
required under the Currency and Foreign Transactions Reporting Act, codified at
31 U.S.C. section 5301 ET SEQ., and its implementing regulations.
ARTICLE 4
COVENANTS
4.1 Shareholders' Meeting
The Bank shall submit this Reorganization Agreement and the Plan of
Merger to its shareholders for approval at a special meeting to be duly called,
commenced and held as soon as practicable. The Board of Directors of the Bank
shall, in accordance with applicable law, include in the Proxy Statement its
recommendation that the Bank's shareholders vote in favor of the transactions
contemplated hereby and by the Plan of Merger.
4.2 Proxy Statement; Registration Statement
In connection with any solicitations of approval by the shareholders
of the Bank of this Reorganization Agreement and the transactions contemplated
hereby, the Bank and the Buyer shall file with the SEC and with the appropriate
state governmental offices under the securities or "blue sky" laws of such
states, shall use all reasonable efforts to respond to the comments of the staff
of the Commission (the "Staff") or such state governmental offices and have
cleared by the Commission under the Exchange Act and shall promptly thereafter
mail to the Bank's shareholders, proxy solicitation materials, including a
letter to shareholders, notice of meeting, proxy statement and appropriate
related forms of proxies with respect to the Bank's shareholders' meeting. Such
Proxy Statement shall also constitute a prospectus of the Buyer with respect to
the shares of Buyer common stock to be issued in the Merger (such proxy
statement and prospectus, together with all amendments and supplements thereto,
are referred to herein as the "Proxy Statement/Prospectus"), and shall be a part
of a registration statement (the "Registration Statement") to be filed by the
Buyer with the Commission for the purpose of registering the public offering of
such shares of Buyer common stock under the Securities Act. The Buyer shall file
promptly such Registration Statement and shall use its best efforts to respond
to the comments of the Staff with respect thereto and to have it declared
effective by the Commission. The Buyer shall notify the Bank promptly of the
receipt of any comments of the Staff and of any request by the Staff for
amendments or supplements to the Proxy Statement/Prospectus or the Registration
Statement or for additional information, and shall supply the Bank with copies
of all correspondence between the Buyer or its representatives, on the one hand,
and the Commission or members of the Staff, on the other hand, with respect to
the Proxy Statement/Prospectus, the Registration Statement or the transactions
contemplated hereby.
<PAGE> 74
- 16 -
Each of the Bank and the Buyer shall correct promptly any information
specifically provided by it for inclusion in the Proxy Statement/Prospectus
which shall have become false or misleading in any material respect. Each of the
Bank and the Buyer shall take all steps necessary to file or to cause to be
filed with the Commission and have declared effective or cleared by the
Commission any amendment or supplement to the Registration Statement or the
Proxy Statement/Prospectus so as to correct the same and to cause the
Registration or the Proxy Statement/Prospectus as so corrected to be
disseminated to the shareholders of the Bank as and to the extent required by
applicable law. The Registration Statement and the Proxy Statement/Prospectus
shall comply as to form in all material respects with the provisions of the
Securities Act, the Exchange Act and other applicable law.
4.3 Plan of Merger
The Plan of Merger shall provide that the shareholders of the Bank
shall receive, in the aggregate, shares of Buyer Common Stock having a value
(based on the weighted average of the closing representative bid and asked
prices for Buyer Common Stock on the NASD National Market System for the twenty
(20) trading days immediately preceding the Closing Date) equal to one hundred
seventy percent (170%) of the book value of the Bank as of June 30, 1996, which
is Seven Million One Hundred Fifty One Thousand Nine Hundred Dollars
($7,151,900).The terms of the Plan of Merger are incorporated herein by
reference. The Bank shall execute and deliver the Plan of Merger as soon as
practicable following the Buyer's request therefor.
4.4 Applications
As promptly as practicable after the date hereof, the Buyer shall submit any
requisite applications for prior approval of the transactions contemplated
herein and in the Plan of Merger (i) to the Federal Reserve Board pursuant to
the Bank Holding Company Act, and (ii) to the Department of Banking pursuant to
Florida Statutes section 658.01 ET. SEQ., and each of the parties hereto shall
submit any applications, notices or other filings to any other state or federal
government agency, department or body the approval of which is required for
consummation of the Merger. The Buyer and the Bank each represents and warrants
to the other that all information concerning it and its directors, officers and
shareholders included (or submitted for inclusion) in any such application and
furnished by it shall be true, correct and complete in all material respects.
4.5 Best Efforts
(a) The Buyer and the Bank shall each use its best efforts in good
faith to (i) furnish such information as may be required in connection with the
preparation of the documents referred to in Sections 4.2 and 4.4 above and (ii)
take or cause to be taken all action necessary or desirable on its part so as to
permit consummation of the Merger at the earliest possible date, including,
without limitation, (1) obtaining the consent or approval of each individual,
partnership, corporation, association or other business or professional entity
whose consent or approval is required for
<PAGE> 75
- 17 -
consummation of the transactions contemplated hereby, provided that the Bank
shall not agree to make any payments or modifications to agreements in
connection therewith without the prior written consent of the Buyer, except
where such payment or modification would not have a material adverse effect on
the Bank, and (2) requesting the delivery of appropriate opinions, consents and
letters from its counsel and independent auditors. No party hereto shall take or
fail to take, or to the best of its ability permit to be taken or omitted to be
taken by any third persons, any action that would substantially impair the
prospects of completing the Merger pursuant to this Reorganization Agreement and
the Plan of Merger, that would materially delay such completion, or that would
adversely affect the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
(b) The Bank shall give prompt notice to the Buyer, and the Buyer
shall give prompt notice to the Bank, of (i) the occurrence, or failure to
occur, of any event which occurrence or failure would be likely to cause any
representation or warranty contained in this Reorganization Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Closing Date and (ii) any material failure of the Buyer or the Bank, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder, and each party shall use all
reasonable efforts to remedy such failure.
(c) Each party shall provide and shall request its auditors to
provide the other party with such historical financial information regarding it
(and related audit reports and consents) as the other party may reasonably
request for securities disclosure purposes.
4.6 Investigation and Confidentiality
The Bank and the Buyer will each keep the other advised of all
material developments relevant to its business and to the consummation of the
transactions contemplated herein. The Bank and the Buyer may make or cause to be
made such investigation of the financial and legal condition of the other as
such party reasonably deems necessary or advisable in connection with the
transactions contemplated herein and in the Plan of Merger, provided, however,
that such investigation shall be reasonably related to such transactions and
shall not interfere unnecessarily with normal operations. The Bank and the Buyer
agree to furnish the other and the other's advisors with such financial data and
other information with respect to its business and properties as such other
party shall from time to time reasonably request. No investigation pursuant to
this Section 4.6 shall affect or be deemed to modify any representation or
warranty made by, or the conditions to the obligations to consummate the Merger
of, any party hereto. Each party shall, and shall cause its directors, officers,
attorneys and advisors to, maintain the confidentiality of all information
obtained in such investigation which is not otherwise publicly disclosed by the
other party, said undertaking with respect to confidentiality to survive any
termination of this Agreement pursuant to Section 6.1 hereof. In the event of
termination of this Reorganization Agreement, each party shall return to the
furnishing party or destroy and certify the destruction of all information
previously furnished in connection with the transactions contemplated by this
Reorganization Agreement.
<PAGE> 76
- 18 -
4.7 Press Releases
The Bank and the Buyer shall agree with each other as to the form and
substance of any press release related to this Reorganization Agreement and the
Plan of Merger or the transactions contemplated hereby or thereby, and shall
consult each other as to the form and substance of other public disclosures
related thereto, provided, however, that nothing contained herein shall prohibit
either party, following notification to the other party, from making any
disclosure which its counsel deems necessary.
4.8 Covenants of the Bank
(a) Prior to the Closing Date, and except as otherwise provided for
by this Reorganization Agreement, the Plan of Merger or consented to or approved
by the Buyer, the Bank shall use its reasonable efforts to preserve its
properties, business and relationships with customers, employees and other
persons.
(b) Except with the prior written consent of the Buyer, between the
date hereof and the Effective Date, the Bank shall not:
(1) carry on its business other than in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted;
(2) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock (other than regular dividends with
respect to the Bank Common Stock in accordance with past practices);
(3) issue any shares of its capital stock or permit any
treasury shares to become outstanding, incur any additional debt obligation or
other obligation for borrowed money, other than in the ordinary course of
business of the Bank consistent with past practice;
(4) issue, grant or authorize any Rights or effect any
recapitalization, reclassification, stock dividend, stock split or like change
in capitalization;
(5) amend its Articles of Incorporation or By-laws;
(6) merge with any other corporation, savings association or
bank or permit any other corporation, savings association or bank to merge into
it or consolidate with any other corporation, savings association or bank;
acquire control over any other firm, bank, corporation, savings association or
organization; or create any subsidiary;
(7) fail to comply in any material respect with any material
laws, regulations, ordinances or governmental actions applicable to it and to
the conduct of its business; enter into any
<PAGE> 77
- 19 -
material swap, hedge or other similar off-balance sheet transaction; waive or
release any material right or cancel or compromise any material debt or claim;
restructure, extend or modify any loan Previously Disclosed pursuant to the
second sentence of Section 2.9 hereof or that would have been required to have
been so disclosed if it had been outstanding at June 30, 1996, waive or release
any right or cancel or compromise any debt or claim in connection with any such
loan, or make any new loan that would have been required to have been so
disclosed if it had been outstanding at June 30, 1996;
(8) except for the sale of securities in the ordinary course
of business for liquidity purposes, liquidate or sell or dispose of any material
assets or acquire any material assets; make any capital expenditures in excess
of $50,000 in the aggregate; or establish new branches or other similar
facilities; or enter into or modify any leases or other contracts that involve
annual payments by the Bank that exceed $25,000 in any instance or $50,000 in
the aggregate;
(9) increase the rate of compensation of, pay or agree to
pay any bonus to, or provide any other employee benefit or incentive to, any of
its directors, officers or employees except in accordance with the Bank's
standard compensation and benefits practices; enter into, modify or extend any
employment or severance contracts with any of its present or former directors,
officers or employees; or enter into or substantially modify (except as may be
required by applicable law) any pension, retirement, stock option, stock
purchase, stock appreciation right, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees;
(10) change its lending, investment, asset, liability
management or other material banking policies in any material respect except as
may be required by changes in applicable law, regulation or regulatory
directives;
(11) change its methods of accounting in effect at December
31, 1995, except as required by changes in generally accepted accounting
principles concurred in by its independent certified public accountants or
change any of its methods of reporting income and deductions for federal income
tax purposes from those employed in the preparation of its federal income tax
returns for the year ended December 31, 1995, except as required by changes in
law or applicable regulations;
(12) solicit, encourage or initiate inquiries or proposals
with respect to any acquisition or purchase of all or a substantial portion of
the assets of, or a substantial equity interest in, the Bank or any business
combination with the Bank, or furnish any information relating to or in
connection with any such inquiries or proposals, other than as contemplated by
this Reorganization Agreement; or authorize or permit any officer, director,
agent or affiliate of it to do any of the above; or fail to notify the Buyer
immediately if any such inquiries or proposals are
<PAGE> 78
- 20 -
received by, any such information is required from, or any such negotiations or
discussions are sought to be initiated with the Bank; or
(13) agree to do any of the foregoing.
(c) As soon as practicable, the Bank shall cause (i) financial
statements to be prepared in conformity with generally accepted accounting
principles for whatever full fiscal year periods are necessary to comply with
the requirements of Form S-4 under the Securities Act, with respect to this
transaction, and with the other requirements of the rules and regulations under
the Securities Act and the Exchange Act as may be applicable to the Buyer, (ii)
its independent public accountants to perform an audit of such financial
statements in conformity with generally accepted auditing standards, and (iii)
its independent public accountants to consent to the use of their opinion with
respect to such financial statement in registration statements filed by the
Buyer under the Securities Act.
4.9 Closing; Articles of Merger
The transactions contemplated by this Reorganization Agreement and
the Plan of Merger shall be consummated at a closing to be held at such location
as the parties may agree on the third business day following satisfaction of the
conditions to consummation of the Merger set forth in Section 5.1 hereof or such
later date as may be agreed by the Bank and the Buyer. The Merger shall be
effective at the time and date the Articles of Merger are filed.
4.10 The Bank Employees
All employees of the Bank as of the Effective Date shall become
employees of the Buyer or a subsidiary of the Buyer. Nothing in the
Reorganization Agreement shall give any employee of the Bank a right to
continuing employment with the Buyer after the Effective Date. As soon as
practicable after the Effective Date, the Buyer shall provide or cause to be
provided to all employees of the Bank who remain employed by the Buyer benefits
which in the aggregate are no less favorable than those generally afforded to
other employees of the Buyer holding similar positions, provided that for
purposes of determining eligibility for and vesting of such employee benefits,
service with the Bank prior to the Effective Date shall be treated as service to
the same extent as if such persons had been employees of the Buyer or affiliates
of the Buyer, and provided further that this Section 4.10 shall not be construed
(i) to limit the ability of the Buyer and its affiliates to terminate the
employment of any employee or to review employee benefits programs from time to
time and to make such changes as they deem appropriate or (ii) to require the
Buyer or its affiliates to provide employees or former employees with
post-retirement medical benefits.
<PAGE> 79
- 21 -
4.11 Affiliates
The Buyer and the Bank shall cooperate and use their best efforts to
identify those persons who may be deemed to be "affiliates" of the Bank and the
Buyer within the meaning of Rule 145 promulgated by the Commission under the
Securities Act. The Bank shall use its best efforts to cause each Bank affiliate
so identified to deliver to the Buyer after their receipt of the Proxy
Statement, but no later than 30 days prior to the Effective Date, a written
agreement providing that such person will not dispose of the Buyer Common Stock
received in the Merger except in compliance with the Securities Act and the
rules and regulations promulgated thereunder.
4.12 Nasdaq Application
The Buyer shall apply to have the shares of the Buyer Common Stock
that may be issued in the Merger authorized for trading on the Nasdaq National
Market System.
4.13 Indemnification of Officers and Directors
For a period of six (6) years after the effective time of the Merger,
the Buyer shall, with respect to actions and omissions occurring prior to that
effective time, maintain in full force the indemnification and advancement of
expenses scheme for the Bank's officers and directors set forth in the Bank's
By-Laws. With respect to actions and omissions occurring subsequent to the
effective time of the Merger, the Buyer shall, to the extent permitted by
applicable law, cause the corporation surviving the Merger to maintain in full
force and effect an indemnification and advancement of expenses scheme for the
officers and directors of the corporation surviving the Merger substantially
equivalent to that maintained by the Buyer for its officers and directors.
ARTICLE 5
CONDITIONS PRECEDENT
5.1 Conditions Precedent - the Buyer and the Bank
The respective obligations of the Bank to effect the Merger, or of
the Buyer to cause Interim to effect the Merger, shall be subject to
satisfaction or waiver of the following conditions at or prior to the Closing
Date:
(a) All corporate action necessary to authorize the execution,
delivery and performance of this Reorganization Agreement and the Plan of Merger
and consummation of the transactions contemplated hereby and thereby shall have
been duly and validly taken, including without limitation the approvals of the
shareholders of the Bank in accordance with applicable law;
(b) The parties hereto shall have received all regulatory approvals
required or deemed necessary in connection with the transactions contemplated by
this Reorganization Agreement and
<PAGE> 80
- 22 -
the Plan of Merger, all notice periods and waiting periods required after the
granting of any such approvals shall have passed and all conditions contained in
any such approval required to have been satisfied prior to consummation of such
transactions shall have been satisfied, provided, however, that no such approval
shall have imposed any condition or requirement which, in the reasonable opinion
of the Buyer materially and adversely affects the anticipated economic business
benefits to the Buyer of the transactions contemplated by this Reorganization
Agreement taken as a whole;
(c) The Registration Statement (including any post-effective
amendment thereto) shall be effective under the Securities Act, and no
proceeding shall be pending or to the knowledge of the Buyer threatened by the
Commission to suspend the effectiveness of such Registration Statement, and the
Buyer shall have received all state securities or "blue sky" permits or other
authorizations, or confirmations as to the availability of an exemption from
registration requirements as may be necessary;
(d) None of the parties hereto or to the Plan of Merger shall be
subject to any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the transactions
contemplated by this Reorganization Agreement and the Plan of Merger;
(e) The shares of the Buyer Common Stock that may be issued in the
Merger shall have been authorized for trading on the Nasdaq National Market
System; and
(f) The Buyer and the Bank shall have received an opinion of Arnold &
Porter substantially to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion, (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and (ii) no gain
or loss will be recognized by a shareholder of the Bank who exchanges all of
shareholder's Bank Common Stock solely for the Buyer Common Stock in the Merger
(except with respect to cash received in lieu of a fractional share interest in
the Buyer Common Stock).
5.2 Conditions Precedent - the Bank
The obligations of the Bank to effect the Merger shall be subject to
satisfaction of the following additional conditions at or prior to the Closing
Date unless waived by the Bank pursuant to Section 6.4 hereof:
(a) The representations and warranties of the Buyer set forth in
Article 3 hereof shall be true and correct in all material respects as of the
date of this Reorganization Agreement and as of the Closing Date as though made
on and as of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except (i) as otherwise contemplated by this Reorganization Agreement or
consented to in writing by the Bank and (ii) insofar as the failure of any
representation and warranty to be true and correct does not have, and is not
reasonably likely to have, a material adverse effect on the Buyer;
<PAGE> 81
- 23 -
(b) The Buyer shall have in all material respects performed all
obligations and complied with all covenants required by this Reorganization
Agreement and the Plan of Merger;
(c) The Buyer shall have delivered to the Bank a certificate, dated
the Closing Date and signed by its President and Chief Executive Officer or
Executive Vice President to the effect that the conditions set forth in this
section have been satisfied;
(d) The Bank shall have received an opinion of Keating, Muething &
Klekamp, dated the Closing Date, as to such matters as the Bank may reasonably
request with respect to the transactions contemplated hereby and by the Plan of
Merger; and
(e) The Bank shall have received the favorable written fairness
opinion of Alex Sheshunoff & Company Investment Banking with respect to the
merger and this Reorganization Agreement prior to the mailing of the Proxy
Statement, which opinion shall be orally confirmed at the Closing.
5.3 Conditions Precedent - the Buyer
The obligations of the Buyer to cause Interim to effect the Merger
shall be subject to satisfaction of the following additional conditions at or
prior to the Closing Date unless waived by the Buyer pursuant to Section 6.4
hereof:
(a) The representations and warranties of the Bank set forth in
Article 2 hereof shall be true and correct in all material respects as of the
date of this Reorganization Agreement and as of the Closing Date as though made
on and as of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except (i) as otherwise contemplated by this Reorganization Agreement or
consented to in writing by the Buyer and (ii) insofar as the failure of any
representation and warranty to be true and correct does not have, and is not
reasonably likely to have, a material adverse effect on the Bank.
(b) The Bank shall have in all material respects performed all
obligations and complied with all covenants required by this Reorganization
Agreement and the Plan of Merger;
(c) The Bank shall have delivered to the Buyer a certificate, dated
the Closing Date and signed by its Chairman or its President and Chief Executive
Officer to the effect that the conditions set forth in this section have been
satisfied;
(d) The Buyer shall have received an opinion or opinions of
MacFarlane, Ferguson & McMullen, dated the Closing Date, as to such matters as
the Buyer may reasonably request with respect to the transactions contemplated
hereby and by the Plan of Merger;
<PAGE> 82
- 24 -
(e) All Rights relating to the capital stock of the Bank shall have
been either fully exercised prior to the Closing or canceled without any
consideration therefor payable by the Bank or the Buyer.
ARTICLE 6
TERMINATION, WAIVER AND AMENDMENT
6.1 Termination
This Reorganization Agreement and the Plan of Merger may be
terminated, either before or after approval by the shareholders of the Bank:
(a) At any time on or prior to the Effective Date, by the mutual
consent in writing of the parties hereto;
(b) At any time on or prior to the Closing Date, by the Buyer in
writing, if the Bank has, or by the Bank in writing, if the Buyer has, in any
material respect, breached (i) any covenant or agreement contained herein or in
the Plan of Merger or (ii) any representation or warranty contained herein if
the failure of any such representation and warranty to be true and correct has,
or is reasonably likely to have, a material adverse effect upon the Buyer or the
Bank, and in either case if such breach has not been cured by the earlier of 30
days after the date on which written notice of such breach is given to the party
committing such breach or the Closing Date;
(c) At any time, by either party hereto in writing, if the
applications for prior approval referred to in Section 4.4 hereof have been
denied, and the time period for appeals and requests for reconsideration has
run;
(d) At any time, by either party hereto in writing, if the
shareholders of the Bank do not approve the transactions contemplated herein at
the annual or special meetings duly called for that purpose;
(e) At any time, by either party in writing, if such party determines
in good faith that any condition precedent to such party's obligations to
consummate the Merger is or would be impossible to satisfy, provided that the
terminating party has given the other party written notice with respect thereto
at least 10 days prior to such termination and has given the other party a
reasonable opportunity to discuss the matter with a view to achieving a mutually
acceptable resolution; or
(f) By either party hereto in writing, if the Closing Date has not
occurred by the close of business on June 30, 1997.
<PAGE> 83
- 25 -
6.2 Effect of Termination
In the event this Reorganization Agreement or the Plan of Merger is
terminated pursuant to Section 6.1 hereof, this Reorganization Agreement and
Plan of Merger shall become void and have no effect, except that (i) the
provisions relating to confidentiality and expenses set forth in Sections 4.6
and 7.1 hereof, respectively, shall survive any such termination and (ii) a
termination pursuant to Section 6.1(b) shall not relieve the breaching party
from liability for an uncured willful breach of a covenant or agreement giving
rise to such termination.
6.3 Survival of Representations, Warranties and Covenants
All representations, warranties and covenants in this Reorganization
Agreement and the Plan of Merger or in any instrument delivered pursuant hereto
or thereto shall expire on, and be terminated and extinguished at, the Effective
Date other than covenants that by their terms are to survive or be performed
after the Effective Date, provided that no such representations, warranties or
covenants shall be deemed to be terminated or extinguished so as to deprive the
Buyer or the Bank (or any director, officer or controlling person thereof) of
any defense in law or equity which otherwise would be available against the
claims of any person, including, without limitation, any shareholder or former
shareholder of either the Buyer or the Bank, the aforesaid representations,
warranties and covenants being material inducements to the consummation by the
Buyer, Interim and the Bank of the transactions contemplated herein.
6.4 Waiver
Except with respect to any required shareholder or regulatory
approval, the Buyer and the Bank, respectively, by written instrument signed by
an executive officer of such party, may at any time (whether before or after
approval of this Reorganization Agreement and the Plan of Merger by the
shareholders of the Buyer and the Bank) extend the time for the performance of
any of the obligations or other acts of the Bank, on the one hand, or the Buyer,
on the other hand, and may waive (i) any inaccuracies of such parties in the
representations or warranties contained in this Reorganization Agreement, the
Plan of Merger or any document delivered pursuant hereto or thereto, (ii)
compliance with any of the covenants, undertakings or agreements of such
parties, or satisfaction of any of the conditions precedent to its obligations,
contained herein or in the Plan of Merger or (iii) the performance by such
parties of any of its obligations set out herein or therein; provided, however,
that no such waiver executed after approval of this Reorganization Agreement and
the Plan of Merger by the shareholders of the Buyer or the Bank shall change the
number of shares of the Buyer Common Stock into which each share of the Bank
Common Stock shall be converted pursuant to the Merger.
<PAGE> 84
- 26 -
6.5 Amendment or Supplement
This Reorganization Agreement and the Plan of Merger may be amended
or supplemented at any time by mutual agreement of the parties hereto, in the
case of this Reorganization Agreement, or thereto, in the case of the Plan of
Merger. Any such amendment or supplement must be in writing and approved by
their respective boards of directors and the Bank or officers authorized thereby
and shall be subject to the proviso in Section 6.4 hereof.
ARTICLE 7
MISCELLANEOUS
7.1 Expenses
(a) Except in any of the circumstances contemplated in Section
7.1(b), the Buyer shall bear and pay all reasonable costs and expenses incurred
in connection with the transactions contemplated in this Reorganization
Agreement, including fees and expenses of financial consultants, accountants and
counsel and shall bear and pay all costs and expenses incurred in connection
with printing the Registration Statement and joint Proxy Statement and
prospectus of the Buyer and the Bank.
(b) The Bank and the Buyer each acknowledge that the other has spent,
and will be required to spend, substantial time and effort in examining the
business, properties, affairs, financial condition and prospects of the other,
has incurred, and will continue to incur, substantial fees and expenses in
connection with such examination, the preparation of this Reorganization
Agreement and the accomplishment of the transactions contemplated hereby, and
will be unable to evaluate and, possibly, make investments in or acquire other
entities due to the limited number of personnel available for such purpose and
the constraints of time. Therefore, to induce the Buyer to enter into this
Reorganization Agreement, (i) if the Buyer terminates this Reorganization
Agreement pursuant to Section 6.1(b) or 6.1(c) by reason of the Bank's failure
to meet any condition contained in Section 5.3(a) or 5.3(b) due to the Bank's
knowing and intentional misrepresentation or knowing and intentional breach of
warranty or breach of any covenant or agreement, and within eight (8) months
from the date of termination a Competing Transaction is consummated or the Bank
shall have entered into an agreement or an agreement in principle which if
consummated would constitute a Competing Transaction or (ii) if the Bank or the
Buyer terminates this Reorganization Agreement pursuant to Section 6.1(d)
because this Reorganization Agreement did not receive the requisite vote of the
Bank stockholders and within eight (8) months from the date of termination a
Competing Transaction is consummated or the Bank shall have entered into an
agreement which if consummated would constitute a Competing Transaction, then
the Bank shall pay to the Buyer a fee in the amount of $250,000, not as a
penalty but as full and complete liquidated damages. Upon payment of such fee,
the Bank shall have no further liability to the Buyer at law or equity. The fee
shall be payable to the Buyer notwithstanding that any action taken by the Board
of Directors of the
<PAGE> 85
- 27 -
Bank which may give rise to the obligation to pay the fee may have been taken in
accordance with the fiduciary duties of the Board of Directors. Any payment
required pursuant to this Section 7.1(b) shall be made as promptly as
practicable, but in no event later than two business days after the date it
becomes payable hereunder and shall be made by wire transfer of immediately
available funds to an account designated by the Buyer. In the event that the
Buyer is entitled to the fee, the Bank shall also pay the Buyer interest at the
rate of 6% per year on any amounts that are not paid when due, plus all costs
and expenses in connection with or arising out of the enforcement of the
obligation of the Bank to pay the fee or such interest.
7.2 Entire Agreement
This Reorganization Agreement and the Plan of Merger contain the
entire agreement between the parties with respect to the transactions
contemplated hereunder and thereunder and supersede all prior arrangements or
understandings with respect thereto, written or oral, other than documents
referred to herein or therein. The terms and conditions of this Reorganization
Agreement and the Plan of Merger shall inure to the benefit of and be binding
upon the parties hereto and thereto and their respective successors. Nothing in
this Reorganization Agreement or the Plan of Merger, expressed or implied, is
intended to confer upon any party, other than the parties hereto and thereto,
and their respective successors, any rights, remedies, obligations or
liabilities.
7.3 No Assignment
No party hereto may assign any of its rights or obligations under
this Reorganization Agreement to any other person.
7.4 Notices
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
facsimile transmission or overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If to the Bank:
South Hillsborough Community Bank
6542 U.S. Highway 41 North
Apollo Beach, Florida 33572
Attention: Thomas P. Corr
John G. Munsell
<PAGE> 86
- 28 -
<TABLE>
<S> <C>
With a required copy to:
MacFarlane, Ferguson & McMullen
2300 First Florida Tower
111 Madison Street, P.O. Box 1531
Tampa, Florida 33801
Attention: Stephen H. Reynolds
If to the Buyer:
Provident Bancorp, Inc.
One East Fourth Street
Cincinnati, Ohio 45202
Attention: Jerry L. Grace, Sr. Vice President & Treasurer
With a required copy to:
Keating, Muething & Klekamp and Provident Bancorp, Inc.
1800 Provident Tower Fourth Floor
One East Fourth Street One East Fourth Street
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
Attention: Edward E. Steiner Attention: Mark E. Magee, Esq.
</TABLE>
7.5 Captions
The captions contained in this Reorganization Agreement are for
reference purposes only and are not part of this Reorganization Agreement.
7.6 Counterparts
This Reorganization Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
7.7 Governing Law
This Reorganization Agreement shall be governed by and construed in
accordance with the laws of the State of Florida applicable to agreements made
and entirely to be performed within such jurisdiction, except to the extent
federal law may be applicable.
7.8 Specific Performance
<PAGE> 87
- 29 -
Each party shall be entitled to seek and to obtain specific
performance of the transactions contemplated by this Reorganization Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Reorganization Agreement to be executed in counterparts
by their duly authorized officers and their corporate seal to be hereunto
affixed and attested by their officers thereunto duly authorized, all as of the
date and year first above written.
Attest PROVIDENT BANCORP, INC.
/s/ Mark E. Magee BY /s/ Jerry L. Grace
- --------------------------------------- -------------------------
Mark E. Magee Jerry L. Grace
(SEAL)
Attest SOUTH HILLSBOROUGH COMMUNITY
BANK
/s/ John G. Munsell BY /s/ Thomas P. Corr
- -------------------------------------- -------------------------
John G. Munsell Thomas P. Corr
(SEAL)
<PAGE> 88
SCHEDULE A
----------
ARTICLES OF INCORPORATION OF THE SURVIVING BANK
-----------------------------------------------
ARTICLE I
---------
The name of the corporation shall be SOUTH HILLSBOROUGH COMMUNITY
BANK and its initial place of business shall be at 6542 U.S. Highway 41 North
in the City of Apollo Beach, in the County of Hillsborough and State of Florida.
ARTICLE II
----------
The general nature of the business to be transacted by this
corporation shall be: That of a general commercial banking business with all the
rights, powers and privileges granted and conferred by the Florida Banking Code,
regulating the organization, powers and management of banking corporations
including trust powers if duly authorized.
ARTICLE III
-----------
The total number of shares authorized to be issued by the corporation
shall be 10,000. Such shares shall be of a single class and shall have a par
value of $80 per share. The corporation shall operate with at least $800,000 in
paid-in common capital stock to be divided into 10,000 shares. The amount of
surplus with which the corporation will be not less than $3,000,000 and the
amount of undivided profits, not less than $200,000, all of which (capital
stock, surplus and undivided profits) shall be paid in cash.
ARTICLE IV
----------
The term for which said corporation shall exist shall be perpetual
unless terminated pursuant to the Florida Banking Code.
ARTICLE V
---------
The number of directors shall not be fewer than five (5).
ARTICLE VI
----------
The directors of the Corporation shall be protected against personal
liability to the fullest extent permitted by Florida law, including, without
limitation, the provisions of Section 607.0831, Florida Statutes, or any
successor statutes.
ARTICLE VII
-----------
<PAGE> 89
The Corporation shall indemnify its directors and officers to the
fullest extent permitted by Florida law and shall also advance
litigation-related expenses to directors and officers upon receipt of the
undertaking described in Section 607.0850(6), Florida Statutes (as in effect on
November 7, 1996).
<PAGE> 90
PLAN OF MERGER AND MERGER AGREEMENT
PROVIDENT INTERIM BANK
(IN ORGANIZATION)
WITH AND INTO
SOUTH HILLSBOROUGH COMMUNITY BANK
UNDER THE CHARTER OF
SOUTH HILLSBOROUGH COMMUNITY BANK
UNDER THE TITLE OF
THE PROVIDENT BANK OF FLORIDA
(RESULTING FINANCIAL INSTITUTION)
THIS AGREEMENT made between PROVIDENT INTERIM BANK (hereinafter
referred to as "Provident") an interim financial institution to be organized
under the laws of the State of Florida and SOUTH HILLSBOROUGH COMMUNITY BANK
(hereinafter referred to as "SHCB"), a financial institution organized under the
laws of the State of Florida, with its main office located at 6542 U.S. Highway
41 North, Apollo Beach, County of Hillsborough, in the State of Florida, and two
(2) branch offices located at 6687 Oakfield Drive, Brandon, Florida 33511 and
301 North Tamiami Trail, Ruskin, Florida 33570 with Total Capital Accounts of
$4,038,000, divided into shares of Capital stock, each with $2.00 par
value, Surplus $3,212,000, and Undivided Profits of $192,000 as of June 30,
1996, each acting pursuant to a resolution of its Board of Directors, adopted by
the vote of a majority of its directors, pursuant to the authority given in
accordance with the provisions of Section 658.40 through 658.45, Florida
Statutes, witnesseth as follows:
SECTION 1.
Provident shall be merged into SHCB under the charter of SHCB.
SECTION 2.
The name of the Resulting Financial Institution shall be "South
Hillsborough Community Bank." The Resulting Financial Institution will not
exercise trust powers until so authorized.
SECTION 3.
The business of the Resulting Financial Institution shall be that of a
general commercial banking business. The business shall be conducted by the
Resulting Financial Institution at its main
<PAGE> 91
- 2 -
office which shall be located at 6542 U.S. Highway 41 North, Apollo Beach,
County of Hillsborough, in the State of Florida, and at each existing branch
office located at 668 Oakfield Drive, Brandon, Florida 33511 and 301 North
Tamiami Trail, Ruskin, Florida 33570.
SECTION 4.
The amount of Total Capital Accounts of the Resulting Financial
Institution shall be equal to the combined total capital accounts of all of the
merging or constituent financial institutions as stated in the preamble of this
agreement, adjusted, however for normal earnings and expenses between September
30, 1996, and the effective time of the merger.
SECTION 5.
All assets of each of Provident and SHCB, as they exist at the
effective time of the merger, shall pass to and vest in the Resulting Financial
Institution without any conveyance or other transfer; and the Resulting
Financial Institution shall be considered the same business and corporate entity
as each constituent financial institution with all the rights, powers, and
duties of each constituent financial institution and the Resulting Financial
Institution shall be responsible for all the liabilities of every kind and
description of each of the financial institutions existing as of the effective
time of the merger.
SECTION 6.
Provident shall contribute to the Resulting Financial Institution
acceptable assets as provided in Agreement and Plan of Reorganization by and
between SHCB and Provident Bancorp dated October 8, 1996 (the "Agreement").
At the effective of the merger, SHCB shall have on hand assets as
provided in the Agreement.
SECTION 7.
Of the capital stock of the Resulting Financial Institution, the
presently outstanding One Thousand (1,000) shares of capital stock of Provident,
each of $1.00 par value, shall become outstanding as there shall be One Thousand
(1,000) shared of Resulting Financial Institution, each of $800.00 par value,
and the holder thereof shall retain its present rights therein; and the
shareholders of SHCB, shall, in the aggregate, be entitled to receive that
number of shares of common stock of the Provident Bancorp, Inc., no par value
per share ("Provident Common Stock"), having a value (based on the weighted
average of the closing representative bid and asked prices for Provident Common
Stock on the NASD National Market System) as provided in the Agreement.
<PAGE> 92
- 3 -
SECTION 8.
The owners of SHCB shares which voted against the approval of the
merger shall be entitled to receive their value in cash, if and when the merger
becomes effective. The value of such shares of SHCB shall be determined in
accordance with Section 658.44, Florida Statutes.
SECTION 9.
Neither of the financial institutions shall declare or pay any dividend
to its shareholders between the date of this agreement and the time at which the
merger shall become effective, nor dispose of any of its assets in any other
manner except in the normal course of business and for adequate value.
SECTION 10.
The following named persons shall serve as the Board of Directors and
executive officers of the Resulting Financial Institution until the next annual
meeting of shareholders or until such time as their successors have been elected
and have qualified.
Board of Directors
------------------
Executive Officers
------------------
SECTION 11.
This agreement may be terminated by the unilateral action of the Board
of Directors of any constituent financial institution prior to the approval of
the stockholders of the said constituent financial institution or by the mutual
consent of the Board of all constituent institutions after the shareholders of
the constituent financial institution have ratified this agreement and approved
the merger. Since time is of the essence to this agreement, if for any reason
the transaction shall not have been consummated by June 30, 1997, this agreement
shall terminate automatically as of that date unless extended in writing prior
to said date by mutual action of the Boards of Directors of the constituent
financial institutions.
SECTION 12.
This agreement shall be ratified and confirmed by the affirmative vote
of the shareholders of each of the financial institutions owing at least a
majority of its capital stock outstanding, at a meeting to be held on the call
of the Directors or as otherwise provided by the bylaws, and the merger shall
become effective at the time specified in a Certificate to be issued by the
Comptroller of Florida, pursuant to 658.45, Florida Statutes, under the seal of
his office, approving the merger.
<PAGE> 93
- 4 -
SECTION 13.
This agreement is also subject to the following terms and conditions:
(a) The Florida Department of Banking and Finance shall have approved
this Agreement to Merge and shall have issued all other necessary authorizations
and approvals of the merger, including a Certificate of Merger.
(b) The appropriate federal regulatory agency and applicable state
agencies shall have approved the merger and shall have issued all other
necessary authorizations and approvals for the merger, and any statutory waiting
period shall have expired.
SECTION 14.
Effective as of the time this merger shall become effective as
specified in the Certificate of Merger to be issued by the Comptroller of
Florida, the Articles of Incorporation of the resulting Financial Institution
shall read as follows:
[See Schedule A to Annex A of this Proxy Statement/Prospectus]
<PAGE> 94
ANNEX C
[ANNEX C TO THIS PROXY STATEMENT/PROSPECTUS IS INCORPORATED BY REFERENCE TO
PROVIDENT BANCORP, INC.'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1996. SHAREHOLDERS OF SOUTH HILLSBOROUGH COMMUNITY BANK WILL RECEIVE COPIES OF
SUCH FORM 10-Q AS ANNEX C]
<PAGE> 95
ANNEX D
FLORIDA STATUTES
TITLE XXXVIII. BANKS AND BANKING
CHAPTER 658. BANKING CODE: BANKS AND TRUST COMPANIES
658.44. Approval by stockholders; rights of dissenters; preemptive rights
(1) The Department shall not issue a certificate of merger to a
resulting state bank or trust company unless the plan of merger and merger
agreement, as adopted by a majority of the entire board of directors of each
constituent bank or trust company, and as approved by each appropriate federal
regulatory agency and by the department, has been approved:
(a) By the stockholders of each constituent national bank as provided
by, and in accordance with the procedures required by, the laws of the United
States applicable thereto, and
(b) After notice as hereinafter provided, by the affirmative vote or
written consent of the holders of at least a majority of the shares entitled to
vote thereon of each constituent state bank or state trust company, unless any
class of shares of any constituent state bank or state trust company is entitled
to vote thereon as a class, in which event as to such constituent state bank or
state trust company the plan of merger and merger agreement shall be approved by
the stockholders upon receiving the affirmative vote or written consent of the
holders of a majority of the shares of each class of shares entitled to vote
thereon as a class and of the total shares entitled to vote thereon. Such vote
of stockholders of a constituent state bank or state trust company shall be at
an annual or special meeting of stockholders or by written consent of the
stockholders without a meeting as provided in s. 607.0704.
Approval by the stockholders of a constituent bank or trust company of a plan of
merger and merger agreement shall constitute the adoption by the stockholders of
the articles of incorporation of the resulting state bank or state trust company
as set forth in the plan of merger and merger agreement.
(2) Written notice of the meeting of, or proposed written consent
action by, the stockholders of each constituent state bank or state trust
company shall be given to each stockholder of record, whether or not entitled to
vote, and whether the meeting is an annual or a special meeting or whether the
vote is to be by written consent pursuant to s. 607.0704, and the notice shall
state that the purpose or one of the purposes of the meeting, or of the proposed
action by the stockholders without a meeting, is to consider the proposed plan
of merger and merger agreement. Except to the extent provided otherwise with
respect to stockholders of a resulting bank or trust company pursuant to
subsection (7), the notice shall also state that dissenting stockholders will be
entitled to payment in cash of the value of only those shares held by the
stockholders:
(a) Which at a meeting of the stockholders are voted against the
approval of the plan of merger and merger agreement;
(b) As to which, if the proposed action is to be by written consent of
stockholders pursuant to s. 607.0704, such written consent is not given by the
holder thereof; or
(c) With respect to which the holder thereof has given written notice
to the constituent state bank or trust company, at or prior to the meeting of
the stockholders or on or prior to the date specified for action by the
stockholders without a meeting pursuant to s. 607.0704 in the notice of such
proposed action, that the stockholder dissents from the plan of merger and
merger agreement.
Hereinafter in this section, the term "dissenting shares" means and includes
only those shares, which may be all or less than all the shares of any class
owned by a stockholder, described in paragraphs (a), (b), and (c).
(3) On or promptly after the effective date of the merger, the
resulting state bank or trust company, or a bank holding company which, as set
out in the plan of merger or merger agreement, is offering shares rights,
obligations, or other securities or property in exchange for shares of the
constituent banks or trust companies, may fix an amount
<PAGE> 96
which it considers to be not more than the fair market value of the shares of a
constituent bank or trust company and which it will pay to the holders of
dissenting shares of that constituent bank or trust company and, if it fixes
such amount, shall offer to pay such amount to the holders of all dissenting
shares of that constituent bank or trust company. The amount payable pursuant to
any such offer which is accepted by the holders of dissenting shares, and the
amount payable to the holders of dissenting shares pursuant to an appraisal,
shall constitute a debt of the resulting state bank or state trust company.
(4) The owners of dissenting shares who have accepted an offer made
pursuant to subsection (3) shall be entitled to receive the amount so offered
for such shares in cash upon surrendering the stock certificates representing
such shares at any time within 30 days after the effective date of the merger,
and the owners of dissenting shares, the value of which is to be determined by
appraisal, shall be entitled to receive the value of such shares in cash upon
surrender of the stock certificates representing such shares at any time within
30 days after the value of such shares has been determined by appraisal made on
or after the effective date of the merger.
(5) The value of dissenting shares of each constituent state bank or
state trust company, the owners of which have not accepted an offer for such
shares made pursuant to subsection (3), shall be determined as of the effective
date of the merger by three appraisers, one to be selected by the owners of at
least two-thirds of such dissenting shares, one to be selected by the board of
directors of the resulting state bank, and the third to be selected by the two
so chosen. The value agreed upon by any two of the appraisers shall control and
be final and binding on all parties. If, within 90 days from the effective date
of the merger, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such
dissenting shares, the department shall cause an appraisal of such dissenting
shares to be made which will be final and binding on all parties. The expenses
of appraisal shall be paid by the resulting state bank or trust company.
(6) Upon the effective date of the merger, all the shares of stock of
every class of each constituent bank or trust company, whether or not
surrendered by the holders thereof, shall be void and deemed to be canceled, and
no voting or other rights of any kind shall pertain thereto or to the holders
thereof except only such rights as may be expressly provided in the plan of
merger and merger agreement or expressly provided by law.
(7) The provisions of subsection (6) and, unless agreed by all the
constituent banks and trust companies and expressly provided in the plan of
merger and merger agreement, subsections (3), (4), and (5) are not applicable to
a resulting bank or trust company or to the shares or holders of shares of a
resulting bank or trust company the cash, shares, rights, obligations, or other
securities or property of which, in whole or in part, is provided in the plan of
merger or merger agreement to be exchanged for the shares of the other
constituent banks or trust companies.
(8) The stock, rights, obligations, and other securities of a resulting
bank or trust company may be issued as provided by the terms of the plan of
merger and merger agreement, free from any preemptive rights of the holders of
any of the shares of stock or of any of the rights, obligations, or other
securities of such resulting bank or trust company or of any of the constituent
banks or trust companies.
(9) After approval of the plan of merger and merger agreement by the
stockholders as provided in subsection (1), there shall be filed with the
department, within 30 days after the time limit in s. 658.43(5), a fully
executed counterpart of the plan of merger and merger agreement as so approved
if it differs in any respect from any fully executed counterpart thereof
theretofore filed with the department, and copies of the resolutions approving
the same by the stockholders of each constituent bank or trust company,
certified by the president, or chief executive officer if other than the
president, and the cashier or corporate secretary of each constituent bank or
trust company, respectively, with the corporate seal impressed thereon.
