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Filed Pursuant to Rule 424(b)(3)
Registration No. 33-57681
(FF BANCORP INC. LOGO)
May 1, 1995
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
FF Bancorp, Inc. ("FF Bancorp"), which will be held on May 31, 1995, at 1:00
p.m., local time, at the Edgewater Branch Office of First Federal Savings Bank
of New Smyrna, 1404 South Ridgewood Avenue, Edgewater, Florida 32132.
At the Special Meeting, you will be asked to vote upon and approve the
Agreement and Plan of Merger dated November 22, 1994, as amended by Amendment
thereto dated January 23, 1995, (collectively, the "Merger Plan"), by and
between FF Bancorp and First National Bancorp ("First Bancorp") wherein First
Bancorp is offering to acquire all of the issued and outstanding shares of FF
Bancorp common stock, par value $.01 per share, in an all stock transaction
whereby shareholders of FF Bancorp will receive .825 shares of First Bancorp
common stock, par value $1.00 per share, for each share of FF Bancorp common
stock ("Exchange Offer"). Cash will be paid in lieu of any fractional share
interests.
The proposed merger has been approved by the Board of Directors of FF
Bancorp which has determined that the Exchange Offer is fair to, and in the best
interests of, FF Bancorp and its shareholders and unanimously recommends that
you vote FOR approval of the Merger Agreement.
Consummation of the merger is subject to certain conditions, including the
approval of the Merger Plan by the shareholders of FF Bancorp and the approval
of the merger by various regulatory agencies. The enclosed Notice of Special
Meeting of Shareholders and Proxy Statement-Prospectus describe the Exchange
Offer and provide specific information concerning the Special Meeting. Please
read these materials carefully and consider the information contained in them.
It is very important that your shares be represented at the Special
Meeting, regardless of whether you plan to attend in person. Failure to vote
will have the same effect as a vote against the proposal. Therefore, I urge you
to execute, date and return the enclosed Proxy Card in the enclosed postage-paid
envelope as soon as possible to ensure that your shares will be voted at the
Special Meeting.
We look forward to seeing you at the Special Meeting.
Sincerely,
/s/ Frances R. Ford
-------------------------------
Frances R. Ford
Chairman of the Board
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FF BANCORP, INC.
900 NORTH DIXIE FREEWAY
NEW SMYRNA BEACH, FLORIDA
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of FF
Bancorp, Inc. ("FF Bancorp") has been called by the Board of Directors and will
be held at 1:00 p.m., local time, on May 31, 1995, at the Edgewater Branch
Office of First Federal Savings Bank of New Smyrna, 1404 South Ridgewood Avenue,
Edgewater, Florida, for the purpose of considering and voting upon the following
matters:
(1) To consider and vote upon the proposal to approve the Agreement
and Plan of Merger dated November 22, 1994, as amended by the Amendment
thereto dated January 23, 1995 (collectively referred to as the "Merger
Plan") attached as Exhibit A to the Proxy Statement-Prospectus dated May 1,
1995 between FF Bancorp and First National Bancorp ("First Bancorp")
whereby (i) FF Bancorp will be merged into FNB Subsidiary Corporation (a
corporation incorporated as a subsidiary of First Bancorp to facilitate the
merger) in a forward triangular merger (the "Merger"); (ii) shareholders of
FF Bancorp will receive .825 shares of First Bancorp common stock for each
share of FF Bancorp common stock; and (iii) the assets of FF Bancorp will
be acquired by FNB Subsidiary Corporation, a wholly-owned subsidiary of
First Bancorp;
(2) To approve the adjournment of the Special Meeting to solicit
additional proxies in the event that there are not sufficient votes to
approve the Merger; and
(3) Any other business as may properly be brought before the Special
Meeting or any adjournments thereof. Management at present knows of no
other business to be presented.
The approval of the Merger, which has the support of your Board of
Directors, requires the affirmative vote of a majority (2,352,858 shares) of the
outstanding 4,705,715 shares of FF Bancorp. Only those shareholders of record at
the close of business on April 21, 1995, shall be entitled to notice and to vote
at the Special Meeting of Shareholders, or any adjournments thereof.
For the Board of Directors,
/s/ Frances R. Ford
---------------------------
Frances R. Ford,
Chairman of the Board
New Smyrna Beach, Florida
May 1, 1995
SINCE THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF FF BANCORP
COMMON STOCK IS REQUIRED TO APPROVE THE MERGER PLAN, WE URGE YOU TO SIGN AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING IN PERSON. YOUR PROXY MAY BE REVOKED AT ANY TIME
PRIOR TO ITS EXERCISE IN THE MANNER DESCRIBED IN THE PROXY STATEMENT-PROSPECTUS.
ANY SHAREHOLDER PRESENT AT THE SPECIAL MEETING, INCLUDING ANY ADJOURNMENTS
THEREOF, MAY REVOKE HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT
BEFORE THE SPECIAL MEETING.
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PROXY STATEMENT FOR
FF BANCORP, INC.
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 31, 1995
---------------------
FIRST NATIONAL BANCORP PROSPECTUS FOR 3,885,050 SHARES OF COMMON STOCK OF
FIRST NATIONAL BANCORP WHICH MAY BE ISSUED IN CONNECTION WITH THE MERGER OF FF
BANCORP, INC. INTO FNB SUBSIDIARY CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF
FIRST NATIONAL BANCORP
---------------------
FIRST NATIONAL BANCORP HAS FILED A REGISTRATION STATEMENT WITH THE
SECURITIES AND EXCHANGE COMMISSION COVERING THE MAXIMUM OF 3,885,050 SHARES OF
COMMON STOCK OF FIRST NATIONAL BANCORP TO BE ISSUED TO SHAREHOLDERS OF FF
BANCORP, INC. IN CONNECTION WITH THE FORWARD TRIANGULAR MERGER OF FF BANCORP,
INC., FNB SUBSIDIARY CORPORATION AND FIRST NATIONAL BANCORP. THE MERGER IS
STRUCTURED AS A FORWARD TRIANGULAR MERGER, WHEREIN THE CORPORATION TO BE
ACQUIRED (FF BANCORP, INC.) WILL MERGE INTO A SUBSIDIARY CORPORATION (FNB
SUBSIDIARY CORPORATION) AND IN THE MERGER THE SHAREHOLDERS OF THE CORPORATION TO
BE ACQUIRED WILL EXCHANGE THEIR STOCK FOR STOCK OF THE PARENT (FIRST NATIONAL
BANCORP) OF THE SUBSIDIARY. THIS PROXY STATEMENT ALSO CONSTITUTES A PROSPECTUS
OF FIRST NATIONAL BANCORP FILED AS PART OF SUCH REGISTRATION STATEMENT. SEE "THE
PROPOSED MERGER."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY FIRST NATIONAL BANCORP. THIS PROXY STATEMENT DOES NOT CONSTITUTE
AN OFFER OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE
UNLAWFUL. THE DELIVERY OF THIS PROXY STATEMENT AT ANY TIME DOES NOT IMPLY THAT
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THE SHARES OF COMMON STOCK OF FIRST NATIONAL BANCORP TO BE ISSUED IN CONNECTION
WITH THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION; NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROXY STATEMENT DOES NOT RELATE TO ANY RESALES OF COMMON STOCK OF
FIRST NATIONAL BANCORP RECEIVED BY ANY PERSON UPON CONSUMMATION OF THE MERGER
AND NO PERSON IS AUTHORIZED TO MAKE ANY USE OF THIS PROXY STATEMENT IN
CONNECTION WITH ANY SUCH RESALE.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO FIRST
NATIONAL BANCORP AND ITS SUBSIDIARIES WAS SUPPLIED BY FIRST NATIONAL BANCORP,
AND ALL INFORMATION WITH RESPECT TO FF BANCORP, INC. AND ITS SUBSIDIARIES WAS
SUPPLIED BY FF BANCORP, INC.
THE DATE OF THIS PROXY STATEMENT IS MAY 1, 1995.
<PAGE> 4
AVAILABLE INFORMATION
First National Bancorp ("First Bancorp") is subject to the informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
and information statements and other information filed by First Bancorp can be
inspected and copied at the public reference facilities maintained by the
Commission at the Commission's office at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices in New York (75
Park Place, 14th Floor, New York, New York 10007) and Chicago (Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60621-2511). Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
Additional information regarding First Bancorp and the shares of common
stock offered hereby is contained in the Registration Statement and the exhibits
relating thereto filed with the Commission under the Securities Act of 1933,
which may be inspected without charge at the office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies thereof may be obtained
from the Commission at prescribed rates. This Proxy Statement does not contain
all of the information set forth in the Registration Statement and exhibits
thereto which First Bancorp has filed with the Commission under the Securities
Act of 1933 and to which reference is hereby made for further information with
respect to First Bancorp and the securities offered hereby.
The common stock of First Bancorp, $1.00 par value per share, is listed on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") under the stock symbol "FBAC" and reports and other information
concerning First Bancorp can be inspected at the offices of NASDAQ at NASDAQ
Reports Section, 3rd Floor, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION BY REFERENCE
There are hereby incorporated by reference in this Proxy
Statement-Prospectus the following documents and information heretofore filed by
First Bancorp with the Securities and Exchange Commission pursuant to the
Exchange Act:
1. Annual report on Form 10-K for the year ended December 31, 1994,
filed on March 30, 1995.
2. Current report on Form 8-K dated April 11, 1995 and filed on April
11, 1995.
3. Consolidated financial statements (including related notes and
report of independent auditors), set forth at pages 37 through 56 of First
Bancorp's 1994 Annual Report to Shareholders filed on March 6, 1995.
4. Market, Stock Price and Dividend Information, Stock Price
Information, and Per Share Dividends and Net Income set forth at pages 35
and 36 of the 1994 Annual Report to Shareholders.
5. Selected Financial Data set forth at page 19 of the 1994 Annual
Report to Shareholders.
6. Consolidated Quarterly Financial Information set forth at Note 18
on page 56 of the 1994 Annual Report to Shareholders.
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations and Selected Statistical Information set forth at
pages 18 through 36 of the 1994 Annual Report to Shareholders.
8. Information concerning ownership of First Bancorp stock by certain
beneficial owners and management set forth at Item 12 of the annual report
on Form 10-K for the year ended December 31, 1994 and also set forth on
pages 7 and 8 of First Bancorp's 1995 Annual Meeting Proxy Statement filed
on March 1, 1995.
2
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9. Information concerning First Bancorp directors and executive
officers set forth at Item 10 of the annual report on Form 10-K for the
year ended December 31, 1994 and also set forth on pages 2 through 7 of the
1995 Annual Meeting Proxy Statement.
10. Information concerning First Bancorp executive officer and
director compensation set forth at Item 11 of the annual report on Form
10-K for the year ended December 31, 1994 and also set forth on pages 9
through 18 of the 1995 Annual Meeting Proxy Statement.
11. Information concerning certain relationships and related
transactions relating to First Bancorp set forth at Item 13 of the annual
report on Form 10-K for the year ended December 31, 1994 and also set forth
on page 18 of the 1995 Annual Meeting Proxy Statement.
All documents filed by First Bancorp pursuant to Section 13(a) or 15(d) of
the Exchange Act after the date hereof shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing thereof. 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 Proxy Statement-Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that 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 Proxy Statement-Prospectus.
THIS PROXY STATEMENT-PROSPECTUS IS ACCOMPANIED BY FIRST BANCORP'S 1994
ANNUAL REPORT TO SHAREHOLDERS AND FIRST BANCORP'S 1995 ANNUAL MEETING PROXY
STATEMENT.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS OR PARTS OF
DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
UPON WRITTEN OR ORAL REQUEST OF ANY PERSON TO WHOM THIS PROXY
STATEMENT-PROSPECTUS IS DELIVERED, FIRST BANCORP WILL PROMPTLY FURNISH TO SUCH
PERSON, WITHOUT CHARGE, A COPY OF ANY AND ALL INFORMATION THAT HAS BEEN
INCORPORATED BY REFERENCE HEREIN. SUCH REQUESTS SHOULD BE DIRECTED TO C.
TALMADGE GARRISON, SECRETARY, P.O. DRAWER 937, GAINESVILLE, GEORGIA 30503
(404-503-2104). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY MAY 23, 1995.
Additional information relating to FF Bancorp, Inc. contained in reports
filed with the Securities and Exchange Commission by FF Bancorp, Inc. may be
obtained by stockholders without charge upon written request to the Director of
Stockholder Relations, FF Bancorp, Inc., P.O. Box 430, New Smyrna Beach, Florida
32170-0430.
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PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
INTRODUCTION.......................................................................... 6
RECENT FIRST BANCORP INFORMATION...................................................... 9
SUMMARY OF MERGER..................................................................... 10
Terms of the Agreement and Plan of Merger........................................... 10
Business of the Parties to the Merger............................................... 10
Reasons for the Merger; Recommendation of Board of Directors........................ 10
Opinion of Financial Advisor........................................................ 11
Operations of FF Bancorp and First Bancorp after Merger............................. 11
Regulatory Approval Required........................................................ 12
Vote Required to Approve Merger..................................................... 12
No Dissenter's Rights of Appraisal.................................................. 12
Conversion of FF Bancorp Stock...................................................... 12
Right of Termination of the Merger Plan............................................. 12
Effect of Merger on FF Bancorp Shareholders......................................... 13
Tax Consequences.................................................................... 13
Interests of Certain Persons........................................................ 13
Accounting Treatment................................................................ 14
Expenses of Solicitation and Merger................................................. 14
CONDENSED FINANCIAL INFORMATION....................................................... 15
PER SHARE INFORMATION................................................................. 17
MARKET AND STOCK PRICE INFORMATION.................................................... 19
First Bancorp....................................................................... 19
FF Bancorp.......................................................................... 19
Comparison of Stock Prices.......................................................... 20
FIRST BANCORP AND FF BANCORP PRO FORMA CONDENSED COMBINED BALANCE SHEET INFORMATION
(UNAUDITED)......................................................................... 21
FIRST BANCORP AND FF BANCORP PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)......................................................................... 22
FF BANCORP SELECTED FINANCIAL DATA.................................................... 24
FIRST BANCORP AND FF BANCORP PRO FORMA COMBINED SELECTED FINANCIAL DATA (UNAUDITED)... 26
THE PROPOSED MERGER................................................................... 27
The Agreement and Plan of Merger.................................................... 27
Description of the Merger........................................................... 27
Reasons for the Merger; Recommendation of Board of Directors........................ 28
Opinion of Financial Advisor........................................................ 29
Conversion of FF Bancorp Stock...................................................... 32
Fractional Shares................................................................... 32
Closing Date of the Merger.......................................................... 32
Manner of Surrendering FF Bancorp Stock............................................. 33
Issuance of First Bancorp Shares.................................................... 33
Source of Funds..................................................................... 33
Shareholder Approval................................................................ 33
Conditions of Certain Obligations of FF Bancorp..................................... 34
Conditions of Certain Obligations of First Bancorp.................................. 34
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Conditions of Certain Obligations of Both First Bancorp and FF Bancorp.............. 35
Interests of Certain Persons in the Merger.......................................... 35
Accounting Treatment................................................................ 36
EFFECT OF MERGER ON SHAREHOLDERS...................................................... 36
Preemptive Rights................................................................... 36
Cumulative Voting Rights............................................................ 37
Limitations of Liability and Indemnification of Directors, Officers and Employees... 37
Dividend Restrictions............................................................... 39
Shareholder Voting Rights........................................................... 40
Right of First Bancorp and FF Bancorp to Acquire their Own Shares................... 41
Rights of Dissent and Appraisal..................................................... 41
State Taxation of Shares of Stock................................................... 42
Authorized Capital Stock............................................................ 42
Certain Restrictions on Transfer.................................................... 42
Restrictions on Stock of Both Companies............................................. 43
Commitments to Subsidiary Banks by First Bancorp.................................... 43
Federal Deposit Insurance Corporation Improvement Act of 1991....................... 44
Recent Banking Legislation.......................................................... 44
NO DISSENTER'S RIGHTS OF APPRAISAL.................................................... 44
FEDERAL INCOME TAX CONSEQUENCES....................................................... 44
BUSINESS OF FF BANCORP................................................................ 46
FF BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 60
FF BANCORP SHAREHOLDERS............................................................... 73
Principal Shareholders.............................................................. 73
Shares of Management................................................................ 73
MANAGEMENT OF FIRST BANCORP AND FNB SUBSIDIARY........................................ 75
DESCRIPTION OF STOCK.................................................................. 75
First Bancorp....................................................................... 75
FF Bancorp.......................................................................... 76
EXPERTS............................................................................... 78
LEGAL OPINION......................................................................... 78
INDEMNIFICATION....................................................................... 78
SHAREHOLDER PROPOSALS................................................................. 79
OTHER BUSINESS........................................................................ 79
ADDITIONAL INFORMATION................................................................ 79
FF BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS................... F-1
APPENDIX A --
Agreement and Plan of Merger and Amendment thereto.................................. A-1
APPENDIX B --
Opinion of Professional Bank Services, Inc.......................................... B-1
</TABLE>
5
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PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS OF
FF BANCORP, INC.
TO BE HELD MAY 31, 1995
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation by
the board of directors of FF Bancorp, Inc. of proxies for use at the special
meeting of the shareholders of the company to be held at 1:00 p.m. on Wednesday,
May 31, 1995, at the Edgewater Branch Office of First Federal Savings Bank of
New Smyrna, 1404 South Ridgewood Avenue, Edgewater, Florida. The approximate
date of the mailing of this Proxy Statement to shareholders was May 2, 1995.
At the special meeting, shareholders will vote whether to approve the
Agreement and Plan of Merger as amended by the Amendment thereto (collectively,
the "Merger Plan"). A copy of the Merger Plan is attached hereto as Appendix A.
Under the Merger Plan, FF Bancorp, Inc. ("FF Bancorp") will be merged into FNB
Subsidiary Corporation ("FNB Subsidiary"), a wholly-owned subsidiary of First
National Bancorp ("First Bancorp") recently formed to facilitate the forward
triangular merger, with First Bancorp thereby acquiring FF Bancorp. FF Bancorp
owns all of the outstanding stock of First Federal Savings Bank of New Smyrna
("New Smyrna Bank"), New Smyrna Beach, Florida, and all of the outstanding stock
of First Federal Savings Bank of Citrus County ("Citrus Bank"), Inverness,
Florida, and 98.9% of the outstanding stock of Key Bancshares, Inc. ("Key
Bancshares"), Tampa, Florida. Key Bancshares owns 99.9% of the outstanding stock
of The Key Bank of Florida ("Key Bank"), Tampa, Florida. New Smyrna Bank, Citrus
Bank, Key Bancshares and Key Bank are hereinafter referred to as the "FF
Subsidiaries," and New Smyrna Bank, Citrus Bank and Key Bank are hereinafter
referred to as the "FF Banking Subsidiaries." In the merger of FF Bancorp into
FNB Subsidiary, each outstanding share of common stock of FF Bancorp will be
converted into .825 shares of common stock of First Bancorp. No fractional
shares will be issued, and, if necessary, a cash payment in lieu of fractional
shares will be made by First Bancorp.
As of December 31, 1994, FF Bancorp had authorized 5,000,000 shares of
common stock, with 4,680,897 shares issued and outstanding to approximately 925
shareholders of record. This constitutes FF Bancorp's only class of stock under
which shares are issued and outstanding, with each share entitled to notice of
and to one vote at the FF Bancorp meeting or any adjournment thereof. As of
December 31, 1994, FF Bancorp also had outstanding employee stock options to
purchase 84,318.5 shares, 28,254.8 of which are to be exercised prior to
consummation of the proposed merger or exchanged in return for First Bancorp
shares based on the value of the options, and 56,063.7 of which are to be
converted into options to purchase First Bancorp stock. Only the FF Bancorp
shareholders of record at the close of business on April 21, 1995, will be
entitled to notice of and to vote at the special meeting or any adjournment
thereof.
As of December 31, 1994, First Bancorp had authorized 30,000,000 shares of
common stock, with 16,540,495 shares issued and outstanding to approximately
7,100 shareholders (including approximately 2,000 beneficial owners of shares
held by nominees). This constitutes First Bancorp's only class of stock, with
each share entitled to one vote, except in the case of election of directors, in
which event shareholders have cumulative voting rights.
Any proxy given by shareholders of FF Bancorp pursuant to this solicitation
may be revoked at any time before it is voted by so notifying the President of
FF Bancorp in writing prior to the meeting or by appearance at the meeting and
requesting the right to vote in person, without compliance with any other
formalities.
If the proxy is properly signed and returned by a FF Bancorp shareholder
and is not revoked, it will be voted at the meeting in the manner specified
therein. If a shareholder does not specify how the proxy is to be voted, the
proxy will be voted in accordance with the recommendations of management in
favor of the Merger Plan.
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FF Bancorp and First Bancorp will each pay its own expenses incurred in
connection with this solicitation, including the fees and expenses of legal
counsel and independent auditors and the printing and filing costs incurred in
connection with this Proxy Statement. In addition to solicitation by mail,
directors, officers and regular employees of FF Bancorp may solicit proxies by
telephone, telegram or personal interview, for which they will receive no
compensation in addition to their regular salaries.
The principal executive offices of FF Bancorp are located at 900 North
Dixie Freeway, New Smyrna Beach, Florida 32168, and the telephone number at that
address is (904) 428-2466. The principal executive offices of First Bancorp are
located at 303 Jesse Jewell Parkway, Suite 700, Post Office Drawer 937,
Gainesville, Georgia 30503, and the telephone number at that address is (404)
503-2000.
First Bancorp, a Georgia corporation, is a multi-bank holding company
formed in 1981 and subject to regulation by the Board of Governors of the
Federal Reserve System, the Georgia Department of Banking and Finance and the
Securities and Exchange Commission. At the time of First Bancorp's formation,
The First National Bank of Gainesville ("FNBG") became a wholly-owned subsidiary
of First Bancorp. FNBG, which was formed in 1889 as a national banking
association, operates a full service banking, mortgage banking and trust
business in Hall County, Georgia, with a main office, six full service branches
and two stand-alone automated teller machine locations. The First National Bank
of Habersham ("FNBH") became a wholly-owned subsidiary of First Bancorp in
September, 1982. FNBH, which was formed in 1909, operates a full service banking
business in Habersham County, Georgia, with a main office and two full service
branches. Granite City Bank ("GCB") became a wholly-owned subsidiary of First
Bancorp in August 1984. GCB, which was formed in 1928, operates a full service
banking business in Elbert County, Georgia, with a main office and two full
service branches. Bank of Clayton ("BOC") became a wholly-owned subsidiary of
First Bancorp in October 1984. BOC, which was formed in 1904, operates a full
service banking business in Rabun County, Georgia, with a main office and one
full service branch. First National Bank of White County ("FNBW") (formerly The
Peoples Bank) in Cleveland, Georgia, became a wholly-owned subsidiary of First
Bancorp in September, 1985. FNBW, which was formed in 1941 (as The Peoples
Bank), operates a full service banking business in White County, Georgia, with a
main office in Cleveland, Georgia and one full service branch in Helen, Georgia.
In 1986, FNBW, formerly a Georgia state banking institution, was converted to a
national bank, and its name was changed to First National Bank of White County.
First National Bank of Jackson County ("FNBJ") in Jefferson, Georgia, became a
wholly-owned subsidiary of First Bancorp in March 1986. FNBJ, which was formed
in 1908, operates a full service banking business in Jackson County, Georgia
with a main office in Jefferson, Georgia and one full service branch in
Commerce, Georgia. The Citizens Bank of Toccoa, Georgia ("CBT") became a
wholly-owned subsidiary of First Bancorp in December, 1986. CBT, which was
formed in 1951, operates a full service banking business in Stephens County,
Georgia with a main office and one full service branch in Toccoa, Georgia. The
Bank of Banks County ("BBC") became a wholly-owned subsidiary of First Bancorp
in June, 1987. BBC, which was formed in 1974, operates a full service banking
business in Banks County, Georgia with the main office in Homer, Georgia and two
full-service branches. First National Bank of Gilmer County ("FNBGC") (formerly
First State Bank of Gilmer County) became a wholly-owned subsidiary of First
Bancorp in December, 1987. FNBGC, which was formed in 1973 (as First State Bank
of Gilmer County), operates a full service banking business in Gilmer County,
Georgia, with a main office in Ellijay, Georgia and one limited-service branch
in East Ellijay, Georgia. On January 1, 1991, FNBGC, formerly a Georgia state
banking institution, was converted to a national bank, and its name was changed
to First National Bank of Gilmer County. On April 12, 1989 The Peoples Bank of
Forsyth County ("PBF") became a wholly-owned subsidiary of First Bancorp. PBF is
a state banking association, formed in December, 1983, which operates a
full-service banking business in Forsyth County, Georgia, with a main office and
three full service branches. Pickens County Bank ("PCB") became a wholly-owned
subsidiary of First Bancorp on June 30, 1989. PCB, which was formed in 1976,
operates a full service banking business in Pickens County, Georgia, with its
main office located in Jasper, Georgia. First National Bank of Paulding County
("FNBPC") became a wholly-owned subsidiary of First Bancorp on January 30, 1992.
FNBPC, which was formed in 1922, operates a full service banking business in
Paulding County, Georgia, with its main office located in Dallas, Georgia and
with four full service branches, one limited service branch and one stand alone
ATM facility. The Citizens Bank, Ball Ground, Georgia ("CBBG") became a
wholly-owned subsidiary of First Bancorp on October 30, 1992. CBBG, which
7
<PAGE> 10
was formed in 1926, operates a full service banking business in Cherokee County,
Georgia, with its main office located in Ball Ground, Georgia and with three
full service branches. The Bank of Villa Rica ("VRB"), Villa Rica, Georgia,
became a wholly-owned subsidiary of First Bancorp on May 31, 1993. VRB, which
was formed in 1899, operates a full service banking business in Carroll County,
Georgia, with its only office located in Villa Rica, Georgia. The Community Bank
of Carrollton ("CBC") became a wholly-owned subsidiary of First Bancorp on
August 31, 1993. CBC, which was formed in 1987, operates a full service banking
business in Carroll County, Georgia, with its only office located in Carrollton,
Georgia. The Commercial Bank, Douglasville, Georgia ("CBD") became a
wholly-owned subsidiary of First Bancorp on February 28, 1994. CBD, which was
formed in 1928, operates a full service banking business in Douglas County,
Georgia, with its main office in Douglasville, Georgia and with four full
service branches and four limited service branches. The Barrow Bank & Trust
Company ("BBT") became a wholly-owned subsidiary of First Bancorp on July 31,
1994. BBT, which was formed in 1989, operates a full service banking business in
Barrow County, Georgia, with its main office in Winder, Georgia and with one
full service branch. FNB Subsidiary was incorporated in February, 1995, as a
wholly-owned subsidiary of First Bancorp to facilitate the merger with FF
Bancorp.
FF Bancorp was incorporated in Florida in May 1992, became a multiple
savings and loan holding company in July 1992, and became a multiple savings and
loan and one-bank holding company in April 1994. FF Bancorp currently holds all
of the outstanding shares of New Smyrna Bank and Citrus Bank and 98.6% of the
outstanding stock of Key Bancshares, which owns 99.9% of the outstanding shares
of Key Bank. New Smyrna Bank is a federal savings bank, formed in 1935 as a
mutual savings association and converted to a stock savings bank on July 1,
1991. It operates a full-service banking business in Volusia County, Florida.
The main office of New Smyrna Bank is located at 900 North Dixie Freeway, New
Smyrna Beach, Florida, and the building, containing approximately 17,000 square
feet of useable office and banking space, is owned by New Smyrna Bank. New
Smyrna Bank has two branches, one located in New Smyrna Beach and the other
located in Edgewater, Florida. From these offices in Volusia County, New Smyrna
Bank carries on a banking business which consists primarily of making
single-family residential loans and accepting deposits. It also makes secured
and unsecured loans to finance commercial and personal transactions and provides
checking and savings accounts primarily for businesses and residents of Volusia
County. New Smyrna Bank had approximately 77 employees (15 of whom were
officers) as of December 31, 1994.
FF Bancorp also currently holds all of the outstanding shares of Citrus
Bank. Citrus Bank is a federal savings bank, which was formed in 1963 as a
mutual savings association and converted to a stock savings bank on July 8,
1992. It operates a full service banking business in Citrus County, Florida and
also serves customers located in Hernando County and Marion County, Florida. The
main office of Citrus Bank is located at 800 West Main Street, Inverness,
Florida, and the building containing approximately 32,000 square feet of usable
office and banking space, is owned by Citrus Bank. Citrus Bank has three
branches located in Beverly Hills, Crystal River and Homosassa Springs, Florida.
From these offices in Citrus County, Citrus Bank carries on a banking business
which consists primarily of making single-family residential loans and accepting
deposits. It also makes secured and unsecured loans to finance commercial and
personal transactions and provides checking and savings accounts primarily for
businesses and residents of Citrus County. Citrus Bank had approximately 66
employees (14 of whom were officers) as of September 30, 1994.
FF Bancorp also currently holds 98.6% of the outstanding stock of Key
Bancshares, and Key Bancshares currently holds 99.9% of the outstanding stock of
Key Bank. Key Bank is a state banking association which was formed in December
1973 and which operates a full service banking business in the Tampa Bay area of
Florida. The main office of Key Bank is located at 3601 West Waters Avenue,
Tampa, Florida and the building containing approximately 9,000 square feet of
usable office and banking space is owned by Key Bank. Key Bank has one branch,
located in Tampa, Florida. From these offices in the Tampa Bay area, Key Bank
carries on a full service banking business including making secured and
unsecured loans to finance commercial and personal transactions, accepting
deposits and providing checking and savings accounts primarily for businesses
and residents of Hillsborough County. Key Bank had approximately 41 employees
(10 of whom were officers) as of December 31, 1994.
8
<PAGE> 11
RECENT FIRST BANCORP INFORMATION
On April 10, 1995, Richard A. McNeece, Chairman and Chief Executive Officer
of First Bancorp, resigned from his positions with First Bancorp and its
subsidiaries effective June 30, 1995. Peter D. Miller, President and Chief
Administrative and Financial Officer of First Bancorp, has assumed
responsibility for day to day operations until a successor to Mr. McNeece is
elected by the First Bancorp Board of Directors. Upon acceptance of Mr.
McNeece's resignation, the Board of Directors approved certain severance
benefits for Mr. McNeece which have been accrued as an expense for the
three-month period ended March 31, 1995. The effect of such expense is reflected
in the condensed unaudited financial information for First Bancorp for the
quarter ended March 31, 1995, which information is set forth below.
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
---------------------
1995 1994
------- -------
(IN THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
SUMMARY OF INCOME:
Interest income........................................................ $45,632 $37,453
Interest expense....................................................... 20,296 15,232
------- -------
Net interest income.................................................... 25,336 22,221
Provision for losses on loans.......................................... 479 366
------- -------
Net interest income after provision for losses on loans................ 24,857 21,855
Noninterest income..................................................... 6,253 6,896
Noninterest expenses................................................... 22,802 20,371
------- -------
Income before income tax expense....................................... 8,308 8,380
Income tax expense..................................................... 2,229 1,926
------- -------
Net income............................................................. $ 6,079 $ 6,454
======= =======
PER SHARE DATA:
Net income per share................................................... $ .37 $ .40
Cash dividends per share............................................... $ .205 $ .19
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
SUMMARY OF FINANCIAL CONDITION:
Investment securities available-for-sale......................... $ 571,551 $ 549,432
Investment securities held-to-maturity........................... 157,636 157,567
Loans, net....................................................... 1,421,604 1,403,805
All other assets................................................. 249,775 269,744
---------- ------------
Total assets........................................... $2,400,566 $2,380,548
========= ==========
Deposits......................................................... $1,934,819 $1,943,264
Borrowings....................................................... 201,852 185,367
All other liabilities............................................ 23,755 24,960
Shareholders' equity............................................. 240,140 226,957
---------- ------------
Total liabilities and shareholders' equity............. $2,400,566 $2,380,548
========= ==========
</TABLE>
First Bancorp's total assets increased $20.0 million to $2.4 billion, from
December 31, 1994 to March 31, 1995, with growth in loans accounting for $17.8
million of the increase. The growth in assets was funded primarily through an
increase in borrowings. Net income for the quarter ended March 31, 1995 totalled
$6,079,000, a decrease of $375,000 from the $6,454,000 reported for the first
quarter of 1994. Income per share for the first quarter of 1995 was $.37
compared to $.40 for the first quarter of 1994. Net income and income per share
for the first quarter of 1995 were primarily affected by an accrual in the first
quarter of 1995 of the cost of the severance benefits of Mr. McNeece, whose
resignation is described above. If the cost of the severance benefits is
excluded from the first quarter 1995 results, both net income and income per
share would slightly exceed the results reported for the first quarter of 1994.
9
<PAGE> 12
SUMMARY OF MERGER
The following is a summary of the material features of the proposed merger,
which is qualified in its entirety by reference to the Merger Plan attached
hereto as Appendix A and to the other textual information and financial data set
forth elsewhere in this Proxy Statement.
TERMS OF THE AGREEMENT AND PLAN OF MERGER
Pursuant to the Merger Plan, FNB Subsidiary, a Florida business
corporation, has been organized as a wholly-owned subsidiary of First Bancorp.
Under the Merger Plan, FF Bancorp will be merged with and into FNB Subsidiary in
a forward triangular merger, with FNB Subsidiary being the surviving corporation
in the merger under its charter. The name of FNB Subsidiary will be changed to
"FF Bancorp, Inc." in connection with the merger. The surviving corporation will
thereafter be operated as a wholly-owned subsidiary of First Bancorp, and FF
Bancorp as originally incorporated will cease to exist. As a result of the
merger, each outstanding share of common stock of FF Bancorp will be converted
into .825 shares of common stock of First Bancorp.
BUSINESS OF THE PARTIES TO THE MERGER
First Bancorp currently is a multi-bank holding company with its operating
subsidiaries being the following seventeen commercial banks which are all
located in Georgia: The First National Bank of Gainesville, First National Bank
of Habersham, Granite City Bank in Elberton, Georgia, Bank of Clayton, First
National Bank of White County, First National Bank of Jackson County, The
Citizens Bank in Toccoa, Georgia, Bank of Banks County, First National Bank of
Gilmer County, The Peoples Bank of Forsyth County, Pickens County Bank, First
National Bank of Paulding County, Citizens Bank, Ball Ground, Georgia, Bank of
Villa Rica, The Community Bank of Carrollton, The Commercial Bank, Douglasville,
Georgia, and Barrow Bank & Trust Company, Winder, Georgia.
First Bancorp is not engaged in any business other than normal banking and
mortgage banking services provided through its subsidiaries.
Through its subsidiaries, First Bancorp operates a full-service banking
business in Hall, Habersham, Elbert, Rabun, White, Jackson, Stephens, Banks,
Gilmer, Forsyth, Pickens, Paulding, Cherokee, Carroll, Douglas, and Barrow
Counties, Georgia. The First Bancorp subsidiaries provide such customary banking
services as checking and savings accounts, various other types of time deposits,
safe deposit facilities and money transfers. They also finance commercial and
personal transactions by making secured and unsecured loans. Through The First
National Bank of Gainesville, First Bancorp performs corporate, employee benefit
and personal trust services and provides other financial services to its
customers, including permanent residential mortgage loan financing. The First
National Bank of Gainesville engages in various mortgage banking activities
through a division called The Mortgage Source. The First National Bank of
Gainesville also provides data processing services for banking applications to
other banks in the area and services mortgage loans which are owned by certain
outside investors.
FF Bancorp is a multiple savings and loan and one bank holding company with
three subsidiaries, New Smyrna Bank, Citrus Bank, and Key Bancshares, the parent
holding company of Key Bank. Through these subsidiaries, FF Bancorp operates a
full-service banking business in Volusia, Citrus, and Hillsborough Counties,
Florida. The FF Banking Subsidiaries provide such customary banking services as
checking and savings accounts, various other types of time deposits, safe
deposit facilities and money transfers. They also finance commercial and
personal transactions by making secured and unsecured loans and provide other
financial services to their customers. See "BUSINESS OF FF BANCORP."
REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors of FF Bancorp has unanimously approved the Merger
Plan and recommends that the shareholders of FF Bancorp vote in favor of its
approval.
10
<PAGE> 13
In deciding to approve and recommend the Merger Plan, the Board of
Directors concluded that the Merger Plan offered shareholders of FF Bancorp the
opportunity to exchange, at an equitable exchange ratio and on a tax-free basis,
their current equity investment for a more liquid investment in a larger, more
geographically diversified company, whose business philosophy and financial and
managerial resources should allow for continued enhancement of shareholder
value. See "THE PROPOSED MERGER -- Reasons for the Merger; Recommendation of
Board of Directors."
OPINION OF FINANCIAL ADVISOR
Professional Bank Services, Inc. ("PBS") has served as financial advisor to
FF Bancorp in connection with the merger. PBS has delivered to the Board of
Directors of FF Bancorp a written opinion, dated December 16, 1994, to the
effect that the consideration to be received in the merger is fair from a
financial perspective to the holders of FF Bancorp common stock. For additional
information, see "THE PROPOSED MERGER -- Opinion of Financial Advisor." The
opinion of PBS, dated as of December 16, 1994, is attached as Appendix B to this
Proxy Statement. As a condition of consummation of the merger, PBS has also been
engaged to provide the FF Bancorp Board of Directors a confirmation of such
opinion as of a date not more than 20 days nor less than 10 days from the date
of consummation of the merger to the effect that the consideration to be
received in the merger is still fair to the FF Bancorp shareholders as of the
date of confirmation. See "THE PROPOSED MERGER -- Conditions of Certain
Obligations of FF Bancorp."
OPERATIONS OF FF BANCORP AND FIRST BANCORP AFTER MERGER
If the merger is consummated, FF Bancorp will be merged into FNB
Subsidiary, a wholly-owned subsidiary of First Bancorp, and the FF Subsidiaries
will become subsidiaries of FNB Subsidiary and will continue to engage in
substantially the same business and activities in which they are presently
engaged. It is contemplated that, at the time of consummation, the officers and
directors of the FF Subsidiaries will remain those who are currently serving,
except that Frances R. Ford, Chairman of the Board and President of FF Bancorp,
has informed First Bancorp that she intends to resign from her positions with
the FF Subsidiaries after the merger and except that Charles H. Byrd, Vice
Chairman of the Board and Vice President of FF Bancorp, has informed First
Bancorp that he intends to resign from his positions with the FF Subsidiaries
after the merger (except he will serve as Chairman of the Board of New Smyrna
Bank after the merger).
If the Merger Plan is consummated, the merger would have the following
effect on the balance sheet, income, and shares outstanding of First Bancorp.
The information presented is provided on a pro forma basis based upon the
December 31, 1994, consolidated financial statements of FF Bancorp and of First
Bancorp. Total assets of First Bancorp would increase to approximately $2.97
billion on a pro forma basis due to the addition of the assets of FF Bancorp and
its subsidiaries; FF Bancorp's assets would be approximately 19.9% of the total
assets of First Bancorp after the merger. Total deposits of subsidiaries of
First Bancorp would increase to approximately $2.482 billion on a pro forma
basis due to the addition of the deposits of the FF Banking Subsidiaries; the FF
Banking Subsidiaries' deposits would be approximately 21.7% of the total
deposits of First Bancorp after the merger. The maximum number of First Bancorp
shares outstanding would increase to approximately 20,425,000 shares due to the
projected 3,885,050 shares which would be issued to FF Bancorp shareholders in
the merger; the 3,885,050 shares would be approximately 19.0% of outstanding
shares of First Bancorp after the merger. The projections of number of shares
assume that 100% of the shares of FF Bancorp are exchanged for First Bancorp
common stock and include shares which may be issued upon exercise of FF Bancorp
incentive stock options (outstanding as of December 31, 1994) for the purchase
of 28,254.8 shares. See "THE PROPOSED MERGER."
It is First Bancorp's intent that the boards of directors of the FF
Subsidiaries operate as boards mostly made up of directors who are members of
the local community. First Bancorp will continue to be operated as a bank
holding company under the federal Bank Holding Company Act of 1956, as amended,
and the bank holding company laws of Georgia, and as a reporting company under
the Federal Securities Exchange Act of 1934. In addition, after the merger First
Bancorp will also become a multiple savings and loan holding company under the
federal Savings and Loan Holding Company Act, as amended, and the bank holding
company laws of Florida.
11
<PAGE> 14
Under the Merger Plan, First Bancorp has agreed to appoint Charles H. Byrd,
Vice Chairman of FF Bancorp, and Tildon W. Smith, Executive Vice President of FF
Bancorp, to the Board of Directors of First Bancorp at the first scheduled Board
meeting following consummation of the merger.
REGULATORY APPROVAL REQUIRED
The merger is subject to the approval of the Georgia Department of Banking
and Finance, the Board of Governors of the Federal Reserve System, the Florida
Department of Banking and Finance, and the Office of Thrift Supervision.
Applications for those approvals have been filed with these agencies. As of this
time, no formal action has been taken by any of the agencies to approve or
disapprove the transactions. If preliminary approval is granted, final approval
will be subject to, among other things, the approval of the shareholders of FF
Bancorp.
VOTE REQUIRED TO APPROVE MERGER
The affirmative vote of a majority (2,352,858 shares) of the outstanding
shares of FF Bancorp common stock entitled to vote at the special shareholders
meeting is required for approval of the Merger Plan. FF Bancorp directors,
executive officers, and their affiliates own approximately 18% (841,270 shares)
of the outstanding shares of FF Bancorp. The Board of Directors of FF Bancorp
has approved the Merger Plan by the unanimous affirmative vote of the directors
and recommends that shareholders vote in favor of approval. Each director has
also agreed, in a letter agreement with First Bancorp, to vote his shares in
favor of approval of the Merger Plan. The enclosed proxy, if properly executed,
duly returned and not revoked, will be voted in accordance with the instructions
contained therein. If no instructions are given, properly executed and returned
proxies will be voted in favor of the Merger Plan.
No vote is required by the shareholders of First Bancorp to carry out the
merger; First Bancorp directors, executive officers and their affiliates (in
regard to which they do not disclaim beneficial ownership of shares) own
approximately 7% of the outstanding stock of First Bancorp.
NO DISSENTER'S RIGHTS OF APPRAISAL
Shareholders of FF Bancorp will not have any dissenter's rights of
appraisal in connection with the merger.
CONVERSION OF FF BANCORP STOCK
As a result of the merger, each outstanding share of common stock of FF
Bancorp will be converted into .825 shares of common stock of First Bancorp.
Fractional shares of First Bancorp common stock will not be issued in the
merger. Any FF Bancorp shareholder who would be entitled to a fraction of a
First Bancorp share shall receive a cash payment in lieu of such fractional
share in an amount determined by multiplying the fraction of a share he would
otherwise be entitled to receive by $20.50.
RIGHT OF TERMINATION OF THE MERGER PLAN
The obligations of First Bancorp and FNB Subsidiary to consummate and
effect the merger contemplated by the Merger Plan are subject to the
satisfaction of certain conditions. These conditions are fully described in
Paragraph IX of the Merger Plan attached hereto as Appendix A. The conditions
include, but are not necessarily limited to, certain representations of FF
Bancorp being true; no material adverse financial changes in FF Bancorp or its
subsidiary; and that the transaction will qualify to be accounted for using the
"pooling of interests" method of accounting. See the Merger Plan for the full
text of these conditions. See also "THE PROPOSED MERGER -- Conditions of Certain
Obligations of First Bancorp."
The obligation of FF Bancorp to consummate and effect the merger
contemplated by the Merger Plan is subject to the satisfaction of certain
conditions. These conditions are fully described in Paragraph VIII of the Merger
Plan attached hereto as Appendix A. The conditions include, but are not
necessarily limited to, certain representations of First Bancorp being true; no
material adverse financial changes in First Bancorp; receipt of a
12
<PAGE> 15
fairness opinion from PBS regarding the consideration to be received by the FF
Bancorp shareholders in the merger; receipt from PBS of confirmation of such
fairness opinion as of a date close to the date of consummation; the receipt of
an opinion of Stewart, Melvin & Frost, attorneys-at-law, regarding certain tax
consequences of the merger. See Merger Plan for the full text of these
conditions. See also "THE PROPOSED MERGER -- Conditions of Certain Obligations
of FF Bancorp."
The obligations of First Bancorp, FNB Subsidiary and FF Bancorp under the
Merger Plan are, at the option of either of them, subject to the satisfaction of
certain conditions. These conditions are fully described in Paragraph X of the
Merger Plan attached as Appendix A. The conditions include, but are not
necessarily limited to, FF Bancorp shareholder approval; satisfaction of all
laws, regulations and directives; and the stock of First Bancorp being the
subject of an effective registration statement under the Federal Securities Act
of 1933. See "THE PROPOSED MERGER -- Conditions of Certain Obligations of Both
First Bancorp and FF Bancorp."
The Merger Plan may be terminated based on the failure of the conditions
referred to in the Merger Plan, or the failure to consummate the proposed merger
due to no fault of the terminating party by August 31, 1995.
EFFECT OF MERGER ON FF BANCORP SHAREHOLDERS
If the merger is consummated, the holders of the common stock of FF Bancorp
will become holders of First Bancorp common stock through a stock conversion in
a forward triangular merger as outlined in the Merger Plan. For a comparison of
rights of the shareholders of FF Bancorp and First Bancorp and the effect of
receiving cash in the Merger, please refer to the sections entitled "EFFECT OF
MERGER ON SHAREHOLDERS" and "FEDERAL INCOME TAX CONSEQUENCES."
TAX CONSEQUENCES
Consummation of the merger is conditioned on FF Bancorp receiving an
opinion from Stewart, Melvin & Frost, general counsel to First Bancorp, to the
effect that, under applicable provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), no gain or loss will be recognized for Federal income
tax purposes by FF Bancorp, First Bancorp, FNB Subsidiary, or the shareholders
of FF Bancorp (except in connection with any cash received in lieu of a
fractional share) and to the effect that the merger qualifies as a
"reorganization" under Section 368 of the Code.
Assuming the merger so qualifies as a "reorganization" for Federal income
tax purposes, a FF Bancorp shareholder who receives shares of First Bancorp
common stock (and cash in lieu of a fractional share) in the merger will
recognize no gain or loss (except in connection with any such cash received in
lieu of a fractional share). The basis of the shares of First Bancorp common
stock received by a FF Bancorp shareholder will be the same as the basis of the
shares of FF Bancorp stock exchanged in the merger, and the holding period of
the shares of First Bancorp common stock received by a FF Bancorp shareholder
will include the period during which the surrendered FF Bancorp stock was held
by such shareholder, provided the FF Bancorp stock was held as a capital asset
on the date of the exchange. If the merger qualifies as a Section 368
reorganization, neither First Bancorp, FNB Subsidiary nor FF Bancorp will
recognize gain or loss as a result of the merger. EACH HOLDER OF FF BANCORP
SHARES SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE TAX CONSEQUENCES
OF THE MERGER TO SUCH HOLDER. SEE "FEDERAL INCOME TAX CONSEQUENCES."
INTERESTS OF CERTAIN PERSONS
Under their respective employment agreements, Frances R. Ford, Chairman,
President and Chief Executive Officer of FF Bancorp, and Charles H. Byrd, Vice
Chairman of FF Bancorp, will receive termination payments of approximately
$520,000 and $382,000, respectively, due to the change of control of FF Bancorp
and a change of their respective duties as a result of the merger. Also, in
January and March, 1995, for personal financial reasons Mrs. Ford sold an
aggregate of 40,000 shares of her FF Bancorp common stock to the Vice Chairman
of the Board of Key Bank through a broker. In addition, upon merger the
outstanding options to purchase 56,063 shares of FF Bancorp common stock held by
Tildon W. Smith,
13
<PAGE> 16
Executive Vice President of FF Bancorp, will be converted into options to
purchase 46,252 shares of First Bancorp common stock. See "THE PROPOSED
MERGER -- Interests of Certain Persons in the Merger."
ACCOUNTING TREATMENT
If the proposed merger is consummated, it is contemplated that the
acquisition will be accounted for by First Bancorp using the "pooling of
interests" method of accounting. See "THE PROPOSED MERGER -- Accounting
Treatment."
EXPENSES OF SOLICITATION AND MERGER
First Bancorp, FNB Subsidiary and FF Bancorp will each pay its own expenses
in connection with this solicitation and the transactions contemplated by the
Merger Plan including all fees and expenses of its respective legal counsel and
independent auditors. See the Merger Plan attached hereto as Appendix "A."
14
<PAGE> 17
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
FF BANCORP 1994 1993
------- -------
(IN THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
SUMMARY OF INCOME:
Interest income................................................................ $42,769 $39,746
Interest expense............................................................... 19,886 19,651
------- -------
Net interest income............................................................ 22,883 20,095
Provision for losses on loans.................................................. 1,939 177
------- -------
Net interest income after provision for losses on loans........................ 20,944 19,918
Noninterest income............................................................. 1,031 1,198
Noninterest expenses........................................................... 12,141 9,877
------- -------
Earnings before income taxes and cumulative effect of change in accounting
principle.................................................................... 9,834 11,239
Provision for income tax....................................................... 3,332 4,258
------- -------
Earnings before cumulative effect of change in accounting principle............ 6,502 6,981
Cumulative effect of change in accounting principle............................ -- 824
------- -------
Net earnings................................................................... $ 6,502 $ 7,805
======== ========
PER SHARE DATA:
Earnings before cumulative effect of change in accounting principle............ $ 1.44 $ 1.50
Cumulative effect of change in accounting principle............................ -- 0.18
------- -------
Net earnings................................................................... $ 1.44 $ 1.68
======== ========
Cash dividends................................................................. $ 0.53 $ 0.45
======== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
SUMMARY OF FINANCIAL CONDITION:
Cash, interest-bearing deposits, and federal funds sold.......................... $101,054 $ 95,504
Investment securities available-for-sale......................................... 30,104 23,339
Investment securities held-to-maturity........................................... -- 52,013
Loans, net....................................................................... 420,631 353,756
All other assets................................................................. 38,419 20,249
-------- --------
Total assets............................................................ $590,208 $544,861
========= =========
Deposits......................................................................... $539,194 $490,041
Borrowings....................................................................... -- 5,000
All other liabilities............................................................ 5,519 7,543
Shareholders' equity............................................................. 45,495 42,277
-------- --------
Total liabilities and shareholders' equity.............................. $590,208 $544,861
========= =========
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR
THE YEAR ENDED
DECEMBER 31,
-----------------
1994 1993
----- -----
<S> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Return on average assets............................................................. 1.11% 1.43%
Return on average equity............................................................. 14.53 20.50
Average equity to average assets..................................................... 7.64 6.96
Interest rate spread................................................................. 3.84 3.71
Net interest margin.................................................................. 4.09 3.87
Noninterest expense to average assets................................................ 2.07 1.81
Nonperforming loans and other real estate owned as a percentage of total assets...... 1.35 1.25
Allowance for loan losses as a percentage of total loans, net........................ 1.43 0.74
</TABLE>
15
<PAGE> 18
FIRST BANCORP
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993
-------- --------
(IN THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
SUMMARY OF INCOME:
Interest income........................................................ $163,145 $151,131
Interest expense....................................................... 66,132 62,930
-------- --------
Net interest income.................................................... 97,013 88,201
Provision for losses on loans.......................................... (362) 2,985
-------- --------
Net interest income after provision for losses on loans................ 97,375 85,216
Noninterest income..................................................... 27,081 31,841
Noninterest expenses................................................... 86,639 81,144
-------- --------
Earnings before income tax expense and cumulative effect of accounting
change............................................................... 37,817 35,913
Income tax expense..................................................... 9,683 9,419
-------- --------
Income before cumulative effect of accounting change................... 28,134 26,494
Cumulative effect of accounting change................................. -- 160
-------- --------
Net earnings........................................................... $ 28,134 $ 26,654
======== ========
PER SHARE DATA:
Earnings per share before cumulative effect of accounting change....... $ 1.72 $ 1.67
Net earnings per share................................................. $ 1.72 $ 1.68
Cash dividends per share............................................... $ 0.78 $ 0.71
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
SUMMARY OF FINANCIAL CONDITION:
Investment securities available-for-sale.............................. $ 549,432 $ 410,252
Investment securities held-to-maturity................................ 157,567 139,368
Loans, net............................................................ 1,403,805 1,285,025
All other assets...................................................... 269,744 307,307
---------- ----------
Total assets................................................ $2,380,548 $2,141,952
========= =========
Deposits.............................................................. $1,943,264 $1,764,641
Borrowings............................................................ 185,367 135,144
All other liabilities................................................. 24,960 24,108
Shareholders' equity.................................................. 226,957 218,059
---------- ----------
Total liabilities and shareholders' equity.................. $2,380,548 $2,141,952
========= =========
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED
DECEMBER 31,
--------------------
1994 1993
------ ------
<S> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Return on average assets................................................ 1.24% 1.29%
Return on average equity................................................ 12.51 13.53
Average equity to average assets........................................ 9.90 9.50
Interest rate spread.................................................... 4.29 4.22
Net interest margin..................................................... 4.96 4.89
Noninterest expense to average assets................................... 3.81 3.91
Nonperforming loans and other real estate owned as a percentage of total
assets................................................................ 1.21 1.42
Allowance for loan losses as a percentage of total loans, net........... 1.44 1.65
</TABLE>
16
<PAGE> 19
PER SHARE INFORMATION
The following table sets forth at the dates and for the periods indicated
historical, pro forma, and equivalent pro forma per share information with
respect to book value, net income and cash dividends declared on First Bancorp
and FF Bancorp common stock. The pro forma and equivalent pro forma per share
information gives effect to the proposed acquisition of FF Bancorp under the
pooling of interests method of accounting. In presenting pro forma and
equivalent pro forma per share amounts, First Bancorp data reflects one share of
FF Bancorp common stock as .825 shares of First Bancorp common stock for each of
the 4,709,151.8 shares (4,680,897 shares presently outstanding and 28,254.8
shares to be issued pursuant to options) of FF Bancorp common stock. The pro
forma and equivalent pro forma share information assumes that FF Bancorp
shareholders exchange 100% of their shares for First Bancorp stock. Historical,
pro forma, and equivalent pro forma per share information is also included
giving effect to First Bancorp's 1994 acquisition of Barrow Bancshares, Inc.,
accounted for as a pooling of interests. This table should be read in
conjunction with the financial statements of the organizations and the pro forma
condensed combined balance sheet and statements of income information appearing
elsewhere in this Proxy Statement or incorporated herein by reference.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
BOOK VALUE NET INCOME DECLARED
PER SHARE PER SHARE PER SHARE(1)
---------- ---------- -------------
<S> <C> <C> <C>
HISTORICAL:
FIRST BANCORP
At or for the year ended December 31, 1994.................. $13.72 $ 1.72 $ 0.778
At or for the year ended December 31, 1993.................. N/A 1.68 0.705
At or for the year ended December 31, 1992.................. N/A 1.50 0.64
</TABLE>
<TABLE>
<CAPTION>
CASH
DIVIDENDS
BOOK VALUE NET INCOME DECLARED
PER SHARE PER SHARE PER SHARE(2)
---------- ---------- -------------
<S> <C> <C> <C>
HISTORICAL:
FF BANCORP
At or for the year ended December 31, 1994.................. $ 9.72 $ 1.44 $ .53
At or for the year ended December 31, 1993.................. N/A 1.68 .50
At or for the year ended December 31, 1992.................. N/A 1.24 .30
PRO FORMA:
FIRST BANCORP
At or for the year ended December 31, 1994.................. $13.34 $ 1.71 N/A
At or for the year ended December 31, 1993.................. N/A 1.74 N/A
At or for the year ended December 31, 1992.................. N/A 1.48 N/A
</TABLE>
<TABLE>
<CAPTION>
CASH
DIVIDENDS
BOOK VALUE NET INCOME DECLARED
PER SHARE PER SHARE PER SHARE
---------- ---------- -------------
<S> <C> <C> <C>
EQUIVALENT PRO FORMA PER SHARE INFORMATION:
FF BANCORP(3)
At or for the year ended December 31, 1994.................. $11.01 $ 1.41 $ .64
At or for the year ended December 31, 1993.................. N/A 1.44 .58
At or for the year ended December 31, 1992.................. N/A 1.22 .53
</TABLE>
- ---------------
(1) The primary source of funds of First Bancorp to pay stockholder dividends is
dividends from its subsidiary banks. The subsidiary banks are subject to
certain statutory and regulatory restrictions regarding the payment of
dividends. For a discussion of such restrictions, see Note 14 to
consolidated financial statements on page 53 of First Bancorp's 1994 Annual
Report to Shareholders.
(2) The primary source of funds of FF Bancorp to pay stockholder dividends is
dividends received from the FF Subsidiaries. The FF Subsidiaries are
subject to certain statutory and regulatory restrictions regarding
17
<PAGE> 20
the payment of dividends. For a discussion of such restrictions, see Note
14 to consolidated financial statements of FF Bancorp on pages F-22 and
F-23 of this Proxy Statement. See "EFFECT OF MERGER ON
SHAREHOLDERS -- Dividends Restrictions."
(3) Equivalent pro forma book value and net income per share data for FF Bancorp
were determined by multiplying pro forma amounts for First Bancorp
(including the effect of the 1994 acquisition of Barrow Bancshares, Inc.,
accounted for as a pooling of interests) by the exchange ratio of .825.
Equivalent pro forma dividends per share data for FF Bancorp were
determined by multiplying historical amounts for First Bancorp by the
exchange ratio of .825.
18
<PAGE> 21
MARKET AND STOCK PRICE INFORMATION
FIRST BANCORP
The following table sets forth the high and low sales prices in the
over-the-counter market, where First Bancorp's common stock is traded, for the
period from January 1, 1992 to December 31, 1994. The prices are based upon
trades as shown through the National Association of Securities Dealers Automatic
Quotation System (the "NASDAQ/National Market System"). First Bancorp stock is
traded under the symbol "FBAC." The information regarding First Bancorp has been
adjusted for a three-for-two stock split by First Bancorp effected by the
distribution on November 16, 1992 of a stock dividend of one share of First
Bancorp stock for each two shares outstanding. As of December 31, 1994, there
were approximately 5,100 holders of record of First Bancorp common stock, and
possibly as many as 7,100 beneficial owners if shareholders who own stock in
names of investment firms are considered.
<TABLE>
<CAPTION>
SALES PRICES
-----------------
HIGH LOW
------ ------
<S> <C> <C>
April 27, 1995............................................. $21.50 $21.00
1994
4th Quarter................................................ 20.75 16.62
3rd Quarter................................................ 22.25 20.00
2nd Quarter................................................ 21.50 19.75
1st Quarter................................................ 22.25 20.25
1993
4th Quarter................................................ 21.25 19.50
3rd Quarter................................................ 22.50 19.75
2nd Quarter................................................ 22.25 20.00
1st Quarter................................................ 21.50 17.50
1992
4th Quarter................................................ 17.66 16.75
3rd Quarter................................................ 18.33 15.50
2nd Quarter................................................ 16.17 15.33
1st Quarter................................................ 16.33 15.50
</TABLE>
FF BANCORP
FF Bancorp common stock is listed and principally traded on the
NASDAQ/National Market System under the symbol "FFSB." The following table sets
forth the high and low sales prices for FF Bancorp's common stock, for the
period from July 8, 1992 (the date of beginning operation as a holding company)
to December 31, 1994. The prices are based upon trades as shown on the
NASDAQ/National Market System. The information regarding FF Bancorp has been
adjusted for a three-for-one stock split by FF Bancorp on July 26, 1993 and for
a 10% stock dividend by FF Bancorp declared on September 19, 1994. As of
December 31, 1994, there were approximately 925 holders of record of FF Bancorp
common stock, and
19
<PAGE> 22
possibly as many as 1,075 beneficial owners if shareholders who own stock in
names of investment firms are considered.
<TABLE>
<CAPTION>
SALES PRICES
-----------------
HIGH LOW
------ ------
<S> <C> <C>
April 27, 1995............................................. $17.25 $16.87
1994
4th Quarter................................................ 15.75 12.25
3rd Quarter................................................ 16.00 12.73
2nd Quarter................................................ 13.41 11.02
1st Quarter................................................ 11.81 10.45
1993
4th Quarter................................................ 12.73 10.45
3rd Quarter................................................ 12.95 10.68
2nd Quarter................................................ 11.48 9.89
1st Quarter................................................ 10.11 7.16
1992
4th Quarter................................................ 7.73 6.14
3rd Quarter................................................ 7.39 5.00
</TABLE>
COMPARISON OF STOCK PRICES
A Letter of Intent regarding the acquisition of FF Bancorp by First Bancorp
was signed on October 27, 1994, with public announcement of the merger proposal
being made on October 27, 1994. As of the first business day preceding public
announcement, the closing price of First Bancorp stock was $20.00 per share and
the closing price of FF Bancorp stock was $14.75 per share. Provided below is a
table comparing the market values of First Bancorp stock and FF Bancorp stock as
of the date preceding public announcement of the proposed merger.
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
MARKET VALUE MARKET VALUE VALUE OF
PER PER FF BANCORP SHARE
FIRST BANCORP FF BANCORP ON EQUIVALENT
SHARE SHARE PER SHARE BASIS(1)
------------- ------------ ------------------
<S> <C> <C> <C>
As of October 26, 1994............... $ 20.00 $14.75 $16.50
</TABLE>
- ---------------
(1) Equivalent per share value was determined by multiplying the historical
market value per First Bancorp share by the exchange ratio of .825.
20
<PAGE> 23
FIRST BANCORP AND FF BANCORP
PRO FORMA CONDENSED COMBINED BALANCE SHEET INFORMATION (UNAUDITED)
First Bancorp has entered into the Merger Plan with FF Bancorp which, if
consummated, would result in FF Bancorp becoming a subsidiary of First Bancorp.
Under the Merger Plan, the 4,680,897 outstanding FF Bancorp common shares (as of
December 31, 1994) will be exchanged for 3,861,740 shares of First Bancorp
common stock. Additionally, certain officers and employees of FF Bancorp have
options to purchase 84,318.5 additional shares of FF Bancorp common stock. It is
anticipated that 28,254.8 shares will be issued pursuant to such options which
are not exercisable after the acquisition of FF Bancorp, and that 56,063.7
options which are not required to be exercised prior to the acquisition will be
converted into options to acquire First Bancorp common stock at the .825
exchange ratio proposed for the exchange of outstanding FF Bancorp shares. For
purposes of the pro forma condensed combined balance sheet and statement of
income information, it is anticipated that the 28,254.8 shares to be issued
pursuant to currently exercisable options will be exchanged for 23,310 shares of
First Bancorp common stock. No cash, except cash to be paid for fractional
shares, will be offered in the transaction which will be accounted for as a
pooling-of-interests. The following unaudited pro forma combined balance sheet
information of First Bancorp and FF Bancorp at December 31, 1994 gives effect to
the proposed acquisition of FF Bancorp. The pro forma condensed combined balance
sheet should be read in conjunction with the notes to the pro forma financial
statements and related financial statements of the respective entities appearing
elsewhere or incorporated by reference in this Proxy Statement.
<TABLE>
<CAPTION>
FF BANCORP
FIRST FF PRO FORMA PRO FORMA
BANCORP BANCORP ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
(AMOUNTS ARE PRESENTED IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and due from banks............................. $ 84,260 $ 12,173 $ 98 (A) $ 96,531
--
Federal funds sold.................................. 28,908 1,150 -- 30,058
Interest-bearing deposits in other financial
institutions...................................... 16,259 87,731 -- 103,990
Investment securities available-for-sale............ 549,432 30,104 -- 579,536
Investment securities held-to-maturity.............. 157,567 -- -- 157,567
Loans, net.......................................... 1,403,805 420,631 -- 1,824,436
Premises and equipment, net......................... 57,004 9,969 -- 66,973
Other assets........................................ 83,313 28,450 -- 111,763
---------- -------- ----------- ----------
Total assets.............................. $2,380,548 $590,208 $ 98 $2,970,854
========= ======== ========= =========
Deposits............................................ $1,943,264 $539,194 $ -- $2,482,458
Federal funds purchased, securities sold under
agreements to repurchase, and other short-term
borrowings........................................ 105,129 -- -- 105,129
Long-term debt...................................... 80,238 -- -- 80,238
Other liabilities................................... 24,960 5,519 -- 30,479
---------- -------- ----------- ----------
Total liabilities......................... 2,153,591 544,713 -- 2,698,304
---------- -------- ----------- ----------
Common stock........................................ 16,540 47 3,885 (B) 20,425
(48)(B)
1 (A)
Additional paid-in-capital.......................... 67,606 20,673 97 (A) 84,453
(3,923)(B)
Retained earnings................................... 155,541 25,854 -- 181,395
--
Stock held by Management Recognition Plan Trust..... -- (86) 86 (B) --
Net unrealized holding losses on investment
securities available for sale..................... (12,730) (993) -- (13,723)
---------- -------- ----------- ----------
Total shareholders' equity................ 226,957 45,495 98 272,550
---------- -------- ----------- ----------
Total liabilities and shareholders'
equity.................................. $2,380,548 $590,208 $ 98 $2,970,854
========= ======== ========= =========
</TABLE>
21
<PAGE> 24
FIRST BANCORP AND FF BANCORP
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
The following unaudited pro forma condensed combined statements of income
of First Bancorp and FF Bancorp for the year ended December 31, 1994, gives
effect to the proposed acquisition of FF Bancorp for 3,885,050 shares of First
Bancorp common stock. The acquisition of FF Bancorp will be accounted for as a
pooling-of-interests and hence all periods presented reflect combined First
Bancorp and FF Bancorp data. On February 28, 1994, First Bancorp completed its
acquisition of Metro Bancorp, and on April 8, 1994, FF Bancorp completed its
acquisition of Key Bancshares. Both acquisitions were accounted for using the
purchase method of accounting. The combined financial position and results of
operations of Metro Bancorp and Key Bancshares is not significant to the
combined financial position and results of operations of First Bancorp and FF
Bancshares and accordingly, the pro forma effects of Metro Bancorp and Key
Bancshares have not been included in the following pro forma condensed combined
statements of income. The pro forma condensed combined statements of income
should be read in conjunction with the notes to the pro forma financial
statements and separate financial statements and related notes of the respective
entities appearing elsewhere or incorporated herein by reference in this Proxy
Statement. The pro forma financial data has been prepared based upon the
historical financial statements of First Bancorp and FF Bancorp appearing
elsewhere or incorporated by reference in this proxy statement, and there are no
pro forma adjustments required for any of the periods presented. These pro forma
statements may not be indicative of the results that actually would have
occurred if the transactions had been in effect on the dates indicated or which
may be obtained in the future.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1994 1994 1993 1992
----------------------- -------- -------- --------
FIRST FF
BANCORP BANCORP PRO FORMA COMBINED
-------- ------------ ------------------------------
(AMOUNTS ARE PRESENTED IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest income........................... $163,145 $ 42,769 $205,914 $190,870 $200,347
Interest expense.......................... 66,132 19,886 86,018 82,572 100,352
-------- ------------ -------- -------- --------
Net interest income............. 97,013 22,883 119,896 108,298 99,995
Provision for loan losses................. (362) 1,939 1,577 3,162 12,295
Noninterest income........................ 27,081 1,031 28,112 33,075 31,284
Noninterest expenses...................... 86,639 12,141 98,780 91,059 78,621
-------- ------------ -------- -------- --------
Income before income taxes and
cumulative effect of
accounting change............. 37,817 9,834 47,651 47,152 40,363
Income tax expense........................ 9,683 3,332 13,015 13,677 11,429
-------- ------------ -------- -------- --------
Income before cumulative effect
of accounting change.......... 28,134 6,502 34,636 33,475 28,934
-------- ------------ -------- -------- --------
Cumulative effect of accounting
change........................ -- -- -- 984 --
-------- ------------ -------- -------- --------
Net Income...................... $ 28,134 $ 6,502 $ 34,636 $ 34,459 $ 28,934
======== ========== ======== ======== ========
Net income per share based on weighted
average shares.......................... $ 1.71 $ 1.74 $ 1.48
======== ======== ========
Weighted average number of outstanding
shares.................................. 20,280 19,768 19,566
======== ======== ========
</TABLE>
22
<PAGE> 25
NOTES TO FIRST BANCORP AND FF BANCORP
PRO FORMA CONDENSED COMBINED BALANCE SHEET INFORMATION AND
STATEMENTS OF INCOME
The following notes describe the proforma adjustments necessary to reflect
the proposed acquisition of FF Bancorp by First Bancorp. For purposes of the
proforma financial information, it has been assumed that all of the 4,680,897
outstanding shares, at December 31, 1994, of FF Bancorp common stock, will be
acquired by First Bancorp for 3,861,740 shares of First Bancorp common stock.
Additionally, certain directors, officers, and employees of FF Bancorp have
options to purchase 84,318.5 additional shares of FF Bancorp common stock. It is
anticipated that the options which are not exercisable after the merger will be
exercised prior to the acquisition of FF Bancorp, and the remaining options will
be converted into options to acquire First Bancorp common stock at the same
exchange ratio proposed for outstanding FF Bancorp shares.
(A) Reflects the issuance of 28,254.8 shares of FF Bancorp common stock
from the exercise of outstanding options which are not exercisable
after the acquisition of FF Bancorp by First Bancorp.
(B) Reflects the exchange of 4,709,151.8 shares, including 28,254.8 shares
to be issued pursuant to options to be exercised prior to merger, of FF
Bancorp common stock by First Bancorp and the elimination of the common
stock of FF Bancorp.
23
<PAGE> 26
FF BANCORP
SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for each of the
years in the five-year period ended December 31, 1994, other than the
information included under "other data" have been derived from the audited
consolidated financial statements of FF Bancorp. The selected consolidated
financial data should be read in conjunction with the consolidated financial
statements and notes thereto and "FF BANCORP MANAGEMENTS' DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included elsewhere in
this Proxy Statement.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Cash, noninterest-earning................................ $ 12,173 $ 7,644 $ 7,536 $ 5,652 $ 7,514
Investments(1)........................................... 106,466 103,586 97,893 62,264 46,342
Mortgage-backed securities............................... 16,784 63,952 82,329 107,643 75,720
Loans, net............................................... 420,631 353,756 339,757 354,259 366,657
All other assets......................................... 34,154 15,923 20,967 22,755 22,064
-------- -------- -------- -------- --------
Total assets.................................... $590,208 $544,861 $548,482 $552,573 $518,297
========= ========= ========= ========= =========
Deposit accounts......................................... 539,194 490,041 501,096 517,985 497,284
Borrowed funds........................................... -- 5,000 5,000 -- --
All other liabilities.................................... 5,519 7,543 7,670 6,515 4,951
Stockholders' equity..................................... 45,495 42,277 34,716 28,073 16,062
-------- -------- -------- -------- --------
Total liabilities and stockholders' equity...... $590,208 $544,861 $548,482 $552,573 $518,297
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total interest income.................................... $ 42,769 $ 39,746 $ 43,874 $ 48,063 $ 48,921
Total interest expenses.................................. 19,886 19,651 25,398 36,599 38,977
-------- -------- -------- -------- --------
Net interest income...................................... 22,883 20,095 18,476 11,464 9,944
Provision for loan losses................................ 1,939 177 1,011 859 1,096
-------- -------- -------- -------- --------
Net interest income after provision for loan losses...... 20,944 19,918 17,465 10,605 8,848
Noninterest income....................................... 1,031 1,198 1,059 1,381 1,054
Noninterest expenses..................................... 12,141 9,877 9,676 8,907 8,842
-------- -------- -------- -------- --------
Earnings before provision for income taxes and cumulative
effect of change in accounting principle............... 9,834 11,239 8,848 3,079 1,060
Provisions for income taxes.............................. 3,332 4,258 3,320 1,173 764
-------- -------- -------- -------- --------
Earnings before cumulative effect of change in accounting
principle.............................................. 6,502 6,981 5,528 1,906 296
Cumulative effect of change in accounting principle...... -- 824 -- -- --
-------- -------- -------- -------- --------
Net earnings (loss)...................................... $ 6,502 $ 7,805 $ 5,528 $ 1,906 $ 296
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Earnings per share:(2)(3)
Earnings before cumulative effect of change in accounting
principle.............................................. $ 1.44 $ 1.50 $ 1.24 $ .28 $ --
Cumulative effect of change in accounting principle...... -- .18 -- -- --
---------- ---------- ---------- ---------- --------
Net earnings........................................... $ 1.44 $ 1.68 $ 1.24 $ .28 $ --
========== ========== ========== ========== =========
Weighted average number of shares outstanding.............. 4,529,847 4,637,287 4,445,862 3,795,000 --
========== ========== ========== ========== =========
</TABLE>
24
<PAGE> 27
OTHER DATA
<TABLE>
<CAPTION>
AT OR FOR YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
Return on average assets....................................... 1.11% 1.43 1.01 0.34 0.06
Return on average equity....................................... 14.53% 20.50 17.74 8.52 1.74
Dividend payout ratio.......................................... 37.32% 25.96 23.90 19.36 --
Average equity to average assets ratio......................... 7.64% 6.96 5.68 4.08 3.21
Interest rate spread during the year(4)........................ 3.84% 3.71 3.40 2.15 2.02
Net yield on average interest-earning assets................... 4.09% 3.87 3.54 2.20 1.99
Noninterest expenses to average assets......................... 2.07% 1.81 1.77 1.62 1.67
Ratio of average interest-earning assets to average
interest-bearing liabilities................................. 1.07 1.04 1.03 1.01 1.00
Nonperforming loans and real estate owned as a percentage of
total assets................................................. 1.39% 1.25 2.30 2.92 3.12
Allowance for loan losses as a percentage of nonperforming
loans........................................................ 212.95% 133.97 103.07 32.23 37.00
Total shares outstanding(5)(6)................................. 4,680,897 4,367,728 4,341,322 3,795,000 --
Book value per share (5)(6)(7)................................. $9.74 9.72 8.06 7.49 --
Dividends declared per share(5)(6)............................. $.53 .45 .30 .05 --
</TABLE>
- ---------------
(1) Includes interest-earning balances in other banks, federal funds sold, U.S.
government and agency obligations, FHLB stock and marketable equity
securities.
(2) New Smyrna Bank and Citrus Bank were mutual institutions during the year,
therefore, earnings per share is not applicable.
(3) Earnings per share for 1991 includes only the earnings of New Smyrna Bank
from July 1, 1991, the date the institution completed its conversion from a
mutual to stock institution.
(4) Difference between weighted average yield on all interest-earning assets and
weighted average rate on all interest-bearing liabilities.
(5) The Board of Directors approved a three for one stock split on July 26,
1993, all per share amounts reflect this split.
(6) The Board of Directors approved a 10% stock dividend declared July 18, 1994;
all per share amounts reflect this dividend.
(7) Book value per share is not presented for periods prior to 1991 since there
was no outstanding common stock in prior years.
25
<PAGE> 28
FIRST BANCORP AND FF BANCORP
PRO FORMA COMBINED SELECTED FINANCIAL DATA (UNAUDITED)
The following table sets forth unaudited pro forma combined selected
financial data of First Bancorp and FF Bancorp for each of the years ended
December 31, 1994, 1993 and 1992, assuming the merger is consummated and
accounted for under the pooling-of-interests method. The data reflects, in the
opinion of management of First Bancorp, the information necessary to present
fairly the pro forma information set forth herein. The pro forma combined
selected financial data should be read in conjunction with the consolidated
financial statements and notes thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of both First Bancorp and FF
Bancorp appearing elsewhere or incorporated by reference in this Proxy
Statement.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, noninterest-earning.................................. $ 96,531 $ 94,039 $ 73,031
Investments................................................ 871,151 817,360 802,862
Loans, net................................................. 1,824,436 1,638,777 1,566,601
All other assets........................................... 178,736 136,480 134,156
---------- ---------- ----------
Total assets..................................... $2,970,854 $2,686,656 $2,576,650
========= ========= =========
Deposit accounts........................................... $2,482,458 $2,254,473 $2,222,659
Borrowed funds............................................. 185,367 140,144 104,268
All other liabilities...................................... 30,479 31,702 20,262
Stockholders' equity....................................... 272,550 260,337 229,461
---------- ---------- ----------
Total liabilities and stockholders' equity....... $2,970,854 $2,686,656 $2,576,650
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C>
Total interest income................................... $ 205,914 $ 190,870 $ 200,347
Total interest expense.................................. 86,018 82,572 100,352
----------- ----------- -----------
Net interest income..................................... 119,896 108,298 99,995
Provision for loan losses............................... 1,577 3,162 12,295
----------- ----------- -----------
Net interest after provision for loan losses............ 118,319 105,136 87,700
Noninterest income...................................... 28,112 33,075 31,284
Noninterest expenses.................................... 98,780 91,059 78,621
----------- ----------- -----------
Earnings before provision for income taxes and
cumulative effect of change in accounting principle... 47,651 47,152 40,363
Provisions for income taxes............................. 13,015 13,677 11,429
----------- ----------- -----------
Earnings before cumulative effect of change in
accounting principle.................................. 34,636 33,475 28,934
Cumulative effect of change in accounting principle..... -- 984 --
----------- ----------- -----------
Net earnings............................................ $ 34,636 $ 34,459 $ 28,934
========== ========== ==========
Net earnings per share.................................. $ 1.71 $ 1.74 $ 1.48
========== ========== ==========
Dividends declared per share............................ $ .78 $ .71 $ .64
========== ========== ==========
Weighted average number of shares outstanding........... 20,280,000 19,768,000 19,566,000
========== ========== ==========
</TABLE>
26
<PAGE> 29
THE PROPOSED MERGER
THE AGREEMENT AND PLAN OF MERGER
Set forth below is a discussion of the material terms of the proposed
merger. Reference is made to a copy of the Merger Plan set forth in full as
Appendix A hereto for a complete statement of terms of the proposed merger. The
statements contained herein with respect to the Merger Plan are qualified in
their entirety by reference to Appendix A.
DESCRIPTION OF THE MERGER
The Boards of Directors of First Bancorp and FF Bancorp have determined
that it is desirable for First Bancorp and FF Bancorp to enter into the Merger
Plan whereby First Bancorp will acquire FF Bancorp in exchange for First Bancorp
shares in a forward triangular merger.
If the Merger Plan is approved, each outstanding share of common stock of
FF Bancorp will be converted into .825 shares of common stock of First Bancorp.
Under the Merger Plan, First Bancorp has the right to split its stock or to
issue stock dividends prior to the consummation of the merger. The Merger Plan
provides that in such event the number of shares to be issued to FF Bancorp
shareholders will be adjusted proportionately to give the FF Bancorp
shareholders the benefit of any such stock split or stock dividend. First
Bancorp currently has no plans to declare any stock split or stock dividend
prior to consummation of the transactions contemplated by the Merger Plan.
If the Merger Plan is approved by the shareholders of FF Bancorp and by all
regulatory authorities required to approve the merger, then upon consummation of
the merger, FF Bancorp will be merged into FNB Subsidiary, a wholly-owned
subsidiary of First Bancorp, in a forward triangular merger, with First Bancorp
thereby acquiring FF Bancorp in exchange for First Bancorp common stock. Such
merger will be pursuant to the applicable provisions of the Florida Business
Corporation Act (Chapter 607, Florida Statutes (1993)). The articles of
incorporation of FNB Subsidiary will be the articles of incorporation of the
surviving corporation, except the name of the surviving corporation will be
changed to "FF Bancorp Inc." in connection with the merger. The bylaws of FNB
Subsidiary will be the bylaws of the surviving corporation. The corporate
existence of FF Bancorp will end when it is merged into FNB Subsidiary as the
surviving corporation. FNB Subsidiary, as the surviving corporation in the
merger, will continue to be a wholly-owned subsidiary of First Bancorp.
It is contemplated that the established offices and facilities of the FF
Subsidiaries immediately prior to the merger will remain the established offices
and facilities of the FF Subsidiaries, and that the officers, directors, and
employees of the FF Subsidiaries will continue to be the officers, directors,
and employees of the FF Subsidiaries, except that Frances R. Ford, Chairman of
the Board and President of FF Bancorp, has informed First Bancorp that she
intends to resign from her positions with the FF Subsidiaries after the merger
and except that Charles H. Byrd, Vice Chairman of the Board and Vice President
of FF Bancorp, has informed First Bancorp that he intends to resign from his
positions with the FF Subsidiaries after the merger (except he will serve as
Chairman of the Board of New Smyrna Bank after the merger).
All rights, privileges, immunities, powers and franchises of FF Bancorp and
FNB Subsidiary in and to every type of property, real, personal and mixed, and
choses in action will be vested in FNB Subsidiary as the surviving corporation
by virtue of the merger without any deed or other transfer. All property, real,
personal and mixed, including all choses in action, all debts due on whatever
account and all and every other interest or right belonging to or due to each of
the merging corporations including all liens, mortgages, security interests and
properties held as collateral for debts owed such organizations will be vested
in FNB Subsidiary as the surviving corporation without further act or deed; the
title to any real estate, or interest therein, vested in either of the merging
corporations will not revert or be in any way impaired by reason of the merger;
and FNB Subsidiary as the surviving corporation will, thenceforth, be
responsible and liable for all of the liabilities and obligations of FF Bancorp
and FNB Subsidiary. After the merger, FNB Subsidiary will continue to be a
wholly-owned subsidiary of First Bancorp.
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If the Merger Plan is approved and consummated, First Bancorp will own
eighteen subsidiary commercial banks: First National Bank of Jackson County;
First National Bank of Habersham; The First National Bank of Gainesville;
Granite City Bank; Bank of Clayton; First National Bank of White County; The
Citizens Bank, Toccoa; Bank of Banks County; First National Bank of Gilmer
County; The Peoples Bank of Forsyth County; Pickens County Bank; First National
Bank of Paulding County; Citizens Bank, Ball Ground, Georgia; Bank of Villa
Rica; The Community Bank of Carrollton; The Commercial Bank, Douglasville,
Georgia; Barrow Bank & Trust Company, Winder, Georgia; and Key Bank (through FNB
Subsidiary and Key Bancshares). First Bancorp will also own (through FNB
Subsidiary) two federal savings banks: New Smyrna Bank and Citrus Bank.
REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors of FF Bancorp has approved the Merger Plan and
recommends that the shareholders of FF Bancorp vote in favor of its approval.
In deciding to approve and recommend the Merger Plan, the FF Bancorp Board
of Directors considered a number of factors. The material factors considered
were that the exchange ratio was fair, that the exchange would be tax-free, that
continuing changes in corporate management presented an opportunity for new
management to rely on First Bancorp's experienced management, that FF Bancorp
had not reached the necessary size and strength to earn, grow, and compete
effectively in the future and that the proposed merger would create a company
with the necessary size and strength, that the personnel policies of First
Bancorp would be beneficial to FF Bancorp's employees, and that the communities
served by the FF Banking Subsidiaries would benefit from First Bancorp's
philosophy of allowing its subsidiaries to serve their communities in their
individual styles. All factors were considered important and no relative or
specific weights were assigned to them.
The Board of Directors of FF Bancorp believes that the proposed exchange
ratio of .825 shares of First Bancorp stock for each share of FF Bancorp stock,
which was negotiated at arms-length, is fair to the shareholders of FF Bancorp.
In assessing the fairness of the exchange ratio, the Board examined the
financial condition and historical performance of First Bancorp and FF Bancorp,
the historical trading prices of First Bancorp stock (and the historical trading
prices for FF Bancorp stock), the dividend payment history of First Bancorp and
FF Bancorp, and other information. Based on that information and its analysis,
the Board concluded that the value of the exchange of .825 First Bancorp shares
for each share of outstanding common stock of FF Bancorp, represented a fair
multiple of the book value, market value and earnings per share of FF Bancorp
stock. The Board has obtained an independent opinion from PBS concerning the
fairness of the exchange ratio. See the subsection entitled "Opinion of
Financial Advisor" immediately following this subsection. See "PER SHARE
INFORMATION", "MARKET AND STOCK PRICE" and other financial information appearing
elsewhere in this Proxy Statement.
The Board of Directors of FF Bancorp believes that the proposed merger will
offer the shareholders of FF Bancorp the opportunity to continue their
investment in FF Bancorp through their investment in First Bancorp, while
enhancing the geographic diversity of that investment. Shareholders of FF
Bancorp currently own an equity interest in a $590 million asset multiple
savings and loan and one-bank holding company operating in three Florida
counties. Following the proposed merger, the shareholders will own an equity
investment in a $2.97 billion asset multiple bank and savings and loan holding
company operating 18 commercial banks and two savings and loan associations
across North Georgia and Central Florida.
The proposed Merger Plan allows shareholders of FF Bancorp to exchange
their current equity interest for common stock of First Bancorp without
recognizing income for federal income tax purposes. Income would be recognized
upon a subsequent sale of the First Bancorp stock received if the sales price
exceeds the shareholder's tax basis in the stock sold. See "FEDERAL INCOME TAX
CONSEQUENCES."
The Board of Directors viewed favorably the enhanced investment liquidity
offered by the proposed Merger Plan. FF Bancorp common stock, like the common
stock of First Bancorp, is traded on the NASDAQ/National Market System. Subject
to certain restrictions applicable to affiliates, the stock of First
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Bancorp after the merger should generally be more marketable, with a wider
market, than the stock of FF Bancorp alone. See "MARKET AND STOCK PRICE
INFORMATION."
First Bancorp's business philosophy emphasizes local management of its
subsidiary banks under the direction of a board of directors comprised primarily
of local citizens. Following the proposed merger the FF Banking Subsidiaries
anticipate that no significant changes will be made to the management or board
of directors of the FF Banking Subsidiaries (except Frances R. Ford, Chairman of
the Board and President of FF Bancorp, has informed First Bancorp that she
intends to resign her positions with the FF Banking Subsidiaries after the
merger and except Charles H. Byrd, Vice Chairman of the Board and Vice President
of FF Bancorp, has informed First Bancorp that he intends to resign from his
positions with the FF Banking Subsidiaries after the merger (except he will
serve as Chairman of the Board of New Smyrna Bank after the merger)). Banking
decisions will continue to be made locally. Centralization of certain non-retail
functions and access to greater financial and other resources of the First
Bancorp organization should allow the FF Banking Subsidiaries to deliver more
efficiently a greater array of banking services than currently offered.
THE BOARD OF DIRECTORS OF FF BANCORP RECOMMENDS THAT FF BANCORP
SHAREHOLDERS VOTE FOR THE MERGER PLAN.
OPINION OF FINANCIAL ADVISOR
Professional Bank Services, Inc. ("PBS") was engaged by FF Bancorp, to
advise its Board of Directors as to the fairness of the consideration, from a
financial perspective, to be paid by First Bancorp to FF Bancorp shareholders
under the Merger Plan. PBS is a bank consulting firm with offices in Louisville,
Nashville, Washington, D.C., and Ocala, Florida. As part of its investment
banking business, PBS is regularly engaged in reviewing the fairness of
financial institution acquisition transactions from a financial perspective and
in the valuation of financial Institutions and other businesses and their
securities in connection with mergers, acquisitions, estate settlements, and
other transactions. Neither PBS nor any of its affiliates has a material
financial interest in FF Bancorp or First Bancorp. PBS was selected to advise
the FF Bancorp Board of Directors based upon its familiarity with Florida
financial institutions and its knowledge of the banking industry as a whole.
PBS performed certain analyses described below and discussed the range of
values for FF Bancorp resulting from such analyses with the Board of Directors
of FF Bancorp in connection with its advice as to the fairness of the
consideration to be paid by First Bancorp.
A preliminary fairness opinion of PBS was delivered to the Board of
Directors of FF Bancorp on December 16, 1994, at a regular meeting of the Board
of Directors. A copy of the fairness opinion, is attached as Appendix B to this
Proxy Statement and should be read in its entirety. PBS was not involved in the
negotiation of the Merger Plan, which was executed on November 22, 1994.
In arriving at its fairness opinion, PBS reviewed certain publicly
available business and financial information relating to FF Bancorp and First
Bancorp. PBS considered certain financial and stock market data of FF Bancorp
and First Bancorp, compared that data with similar data for certain other
publicly-held bank holding companies which own Florida financial institutions,
and considered the financial terms of certain other comparable Florida thrift
transactions that had recently been effected. PBS also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria that it deemed relevant. In connection with its
review, PBS did not independently verify the foregoing information and relied on
such information as being complete and accurate in all material respects.
Financial forecasts prepared by PBS were based on assumptions believed by PBS to
be reasonable and to reflect currently available information. PBS did not make
an independent evaluation or appraisal of the assets of FF Bancorp or First
Bancorp.
PBS was not requested to, and did not, solicit third party indications of
interest in acquiring all or any part of FF Bancorp. PBS reviewed the
correspondence and information provided by FF Bancorp as to the 14 financial
institutions contacted regarding their interest in a merger or acquisition of FF
Bancorp. All the
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institutions contacted by FF Bancorp are located in Florida, have an extensive
market presence in Florida or have publicly expressed an interest in expanding
to Florida.
As part of preparing the fairness opinion, PBS performed a due diligence
review of First Bancorp. As part of the due diligence, PBS reviewed minutes of
Board of Directors and all Board Committees of First Bancorp for 1992, 1993, and
1994 to date of the fairness opinion; minutes of Board of Directors and all
Board Committees of The First National Bank of Gainesville (the "Bank") for
1992, 1993, and 1994 to date of the fairness opinion; reports filed with the
Securities and Exchange Commission by First Bancorp on Forms 10-K, 10-Q and 8-K
for the year ending December 31, 1992 throughout 1993 and 1994 to date of the
fairness opinion; reports of independent auditors for the years ending December
31, 1992 and 1993; management letters from independent auditors for 1992 and
1993 and management's responses thereto; problem loan list for First Bancorp and
the Bank as of December 31, 1993 and any subsequent reports; analysis and
calculation of the Allowance for Loan and Lease Losses as of December 31, 1992
and 1993 and any subsequent analysis for First Bancorp and the Bank; internal
loan review reports issued in 1993 and 1994 to date; internal audit reports
issued in 1993 and 1994 to date; and charter and bylaws of First Bancorp and of
the Bank.
PBS also interviewed senior management, external auditors and general
counsel of First Bancorp regarding operations, performance and the future
prospects of First Bancorp. PBS compared the historical common stock market of
financial institutions headquartered in the Southeast Region of the United
States to First Bancorp.
PBS also performed a due diligence review of FF Bancorp. The due diligence
included a review of Minutes of the Board of Directors and all Board Committees
of FF Bancorp and New Smyrna Bank, reports filed with the Securities and
Exchange Commission by FF Bancorp on Forms 10-K, 10-Q and 8-K, reports of
independent auditors for the years ending December 31, 1992 and 1993, loan data
and 1995 budgets for New Smyrna Bank, Citrus Bank and Key Bank. PBS also
interviewed senior management, external auditors and special legal counsel.
Based on the analyses and studies performed by PBS, certain observations,
which are set forth in this paragraph, were noted that influenced the value
received in the proposed merger with First Bancorp. The FF Banking Subsidiaries
are located considerable distance from each other. It was very difficult to
locate a potential merger partner whose geographic needs were met by FF Bancorp.
Due to anti-trust and anti-competitive factors, certain affiliates or branches
would have to be divested in order to consummate a merger with certain
institutions. Some members of management had plans to retire in the near future.
Recent expansion activities (the acquisitions of Citrus Bank and Key Bank)
present challenges in the future for FF Bancorp. The subsidiaries are run
autonomously with no central management information systems. A significant
increase in overhead expense can be expected in the future due to centralization
of systems and procedures. Intermediate earnings are expected to decline due to
increasing market interest rates and a flattening of the yield curve in relation
to the matching of interest sensitive assets and liabilities of FF Bancorp.
Overhead expense is expected to increase due to management needs and development
of controls and systems for the FF Banking Subsidiaries.
In connection with rendering the fairness opinion and preparing its various
written and oral presentations to FF Bancorp's Board of Directors, PBS performed
a variety of financial analyses, including those summarized below. The summary
set forth below does not purport to be a complete description of the analyses
performed by PBS in this regard. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and therefore, such an opinion is not readily susceptible to
summary description. Accordingly, notwithstanding the separate factors
summarized below, PBS believes that its analyses must be considered as a whole
and that selecting portions of its analyses and the factors considered by it,
without considering all analyses and factors could create an incomplete view of
the evaluation process underlying its opinion. In performing its analyses, PBS
made numerous assumptions with respect to industry performance, business and
economic, conditions and other matters, many of which are beyond FF Bancorp's or
First Bancorp's control. The analyses performed by PBS are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable then suggested by such analyses. In addition,
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analyses relating to the values of businesses do not purport to be appraisals or
to reflect the process by which businesses actually may be sold.
PBS performed an acquisition comparison analysis. In performing this
analysis, PBS reviewed 32 Florida thrift and thrift holding company acquisition
transactions announced since 1990. The purpose of the analysis was to obtain an
evaluation range based on these Florida acquisition transactions. Multiples of
earnings and book value implied by the comparable transactions were utilized in
obtaining a range for the acquisition value of FF Bancorp. In addition to
reviewing recent Florida thrift transactions, PBS performed separate comparable
analyses for acquisitions of Florida thrifts which, like FF Bancorp, had a
return on equity ratio of greater than 12%. The median acquisition values for
the 32 Florida thrift acquisitions, expressed as multiples of both book value
and earnings were 1.55 and 15.2, respectively. The multiples of book value and
earnings for acquisitions of Florida thrifts with return on equity ratios
greater than 12% were 1.61 and 13.0, respectively. Based on the market value of
First Bancorp common stock of $17.50 as of December 16, 1994, the pro forma
market value per share of FF Bancorp common stock is $14.44 or 1.44 times book
value and 8.4 times earnings. At the announcement date First Bancorp's common
stock price was $20.00 per share which equals $16.50 per FF Bancorp common
share. This represents a multiple of book value and a multiple of earnings of
1.65 and 9.6, respectively.
At the announcement date the proposed value to be received by FF Bancorp
was in the 60th percentile for Florida transactions as measured by a multiple of
book value and in the 15th percentile as measured by the price earnings ratio.
At December 16, 1994 the offer was in the 35th percentile based on multiple of
book value and 15th percentile based on a multiple of earnings. Based on Florida
transactions with a return on equity greater than 12% at the announcement date,
the value per share to be received was in the 64th percentile based on book
value and 45th percentile based on earnings and at December 16, 1994 the value
was in the 18th percentile based on the multiple of book value and 36th
percentile based on a multiple of earnings.
The return on equity ratio of FF Bancorp was greater than 19% in 1994. An
analysis was performed of Southeast thrift organizations which sold since 1990
and compared the multiple of book value and multiple of earnings ratios to the
value to be received by FF Bancorp shareholders. The Southeast region included
thrifts located in Florida, North Carolina, Georgia, Alabama and Tennessee. The
median multiple of book value for this list of comparable institutions was 1.52
and the multiple of earnings was 9.26. The proposed value to be received by the
shareholders of FF Bancorp was in the 67th percentile based on book value
multiples and the 53rd percentile based on earnings multiples at the
announcement date and in the 40th percentile at December 16, 1994 on both a
multiple of book and earnings bases.
PBS also performed a discounted earnings analysis. A dividend discount
analysis was performed by PBS pursuant to which a range of stand-alone values of
FF Bancorp was determined by adding (i) the present value of estimated future
dividend streams that FF Bancorp could generate over a five-year period
beginning in 1995 and ending in 1999, and (ii) the present value of the
"terminal value" of FF Bancorp's common equity at the end of 1999. The "terminal
value" of FF Bancorp's common equity at the end of the five-year period was
determined by applying a multiple of 1.52 times the projected terminal year's
book value. The 1.52 multiple represents the median price paid as a multiple of
book value for all thrifts located in the Southeast with return on equity ratios
greater than 15% since 1990. Dividend streams and terminal values were
discounted to present values using a discount rate of 14%. This rate reflects
assumptions regarding the required rate of return of holders or buyers of FF
Bancorp common stock. The value of FF Bancorp, determined by adding the present
value of the total cash flows, was $13.39 per FF Bancorp share, which is less
than the proposed exchange value as of the announcement date and as of December
16, 1994.
PBS also performed a pro forma merger analysis. PBS compared the historical
performance of FF Bancorp to that of First Bancorp and other regional bank
holding companies. This included, among other things, a comparison of
profitability, asset quality and capital adequacy measures. In addition, the
contribution of both FF Bancorp and First Bancorp to the income statement and
balance sheet of the pro forma combined company was analyzed.
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The effect of the merger on the historical and pro forma financial data of
First Bancorp, as well as the projected financial data prepared by PBS, was
analyzed. First Bancorp's historical financial data was compared to pro forma
combined historical and projected earnings and book value per share as well as
other measures of profitability, capital adequacy, and credit quality. Pro forma
shareholders' equity per share of FF Bancorp will increase approximately 10%.
Earnings per share based on trailing four quarter earnings will decrease
approximately 12%; however, projected pro forma earnings per share are expected
to increase. Pro forma dividends per share will increase approximately 14%.
The fairness opinion is directed only to the question of whether the
consideration to be received by FF Bancorp's shareholders under the Merger Plan
is fair and equitable from a financial perspective and does not constitute a
recommendation to any FF Bancorp shareholder to vote in favor of the merger. No
limitations were imposed on PBS regarding the scope of its investigation or
otherwise by FF Bancorp or any of its affiliates.
Based on the results of the various analyses described above, PBS concluded
that the consideration to be paid by First Bancorp to FF Bancorp shareholders
under the Merger Plan is fair and equitable from a financial perspective as of
December 16, 1994. PBS will also provide the FF Bancorp Board of Directors an
updated opinion as to the fairness of the consideration to be paid by First
Bancorp as of a date not more than 20 days nor less than 10 days from the date
of the merger. It is a condition of the merger that PBS opine that the
consideration to be paid is still fair as of the date of the updated opinion.
PBS will receive a fee not to exceed $40,000 from FF Bancorp for all of its
services performed in connection with the merger, including rendering the
fairness opinion. In addition, FF Bancorp has agreed to indemnify PBS and its
directors, officers and employees, from liability in connection with the merger,
and to hold PBS harmless from any losses, actions, claims, damages, expenses or
liabilities related to any of PBS' acts or decisions made in good faith and in
the best interest of FF Bancorp.
CONVERSION OF FF BANCORP STOCK
Upon consummation of the merger, each of the outstanding shares of common
stock of FF Bancorp will be converted into .825 shares of fully paid and
non-assessable common stock of First Bancorp. Please refer to the preceding
section entitled "Reasons for the Merger" for a discussion of how stock values
and prices were arrived at for FF Bancorp and First Bancorp stock. Of course,
First Bancorp and FF Bancorp share prices are subject to market fluctuations.
See "MARKET AND STOCK PRICE INFORMATION".
Owners of five percent or more of FF Bancorp common stock and the FF
Bancorp directors and officers who are shareholders of FF Bancorp will receive
First Bancorp common stock on the same basis as other shareholders of FF
Bancorp. Assuming consummation of the merger and receipt by FF Bancorp
shareholders of .825 First Bancorp shares for each share of FF Bancorp stock, FF
Bancorp shareholders would receive a maximum of 3,885,050 First Bancorp shares,
which would be approximately 19.1% of the shares of First Bancorp common stock
outstanding immediately after consummation of the Merger Plan. See "Description
of the Merger."
IF THE MERGER PLAN IS APPROVED, EACH SHARE OF FF BANCORP COMMON STOCK WILL
BE CONVERTED INTO .825 SHARES OF FIRST BANCORP COMMON STOCK AS A RESULT OF THE
MERGER.
FRACTIONAL SHARES
No fractional shares will be issued. Any shareholder who would be entitled
to a fraction of a First Bancorp share will receive a cash payment in lieu of
such fractional share in an amount determined by multiplying the fraction of a
share he would otherwise be entitled to receive by $20.50.
CLOSING DATE OF THE MERGER
The "Closing Date" of the merger will be the date that the appropriate
documents to consummate the merger ("Closing Documents") are delivered or filed
as required by law or on such later date as the Closing
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Documents may specify. The Closing Documents will be delivered or filed on a
date that is selected by First Bancorp that is not later than the end of the
month during which the later of the following occurs: (i) the expiration date of
any applicable waiting period in connection with approvals of governmental
authorities and (ii) the receipt of all other required approvals, or on such
later date as may be agreed upon by the parties. Under the Merger Plan the
Closing Date shall not be later than August 31, 1995. The parties may, however,
further extend the Closing Date by mutual consent. The Closing Date will be the
effective date of the merger.
MANNER OF SURRENDERING FF BANCORP STOCK
After the effective date of the merger, each holder of a certificate or
certificates representing shares of common stock of FF Bancorp will surrender
such certificates to First Bancorp, and will receive in exchange a certificate
representing the number of shares of First Bancorp stock into which such FF
Bancorp shares have been converted at the conversion ratio set forth in this
Proxy Statement and in the Merger Plan and a First Bancorp check in payment for
any fractional share of First Bancorp stock. After the effective date, until
surrendered, each FF Bancorp certificate shall be deemed for all corporate
purposes to evidence the number of whole shares of First Bancorp common stock
into which the FF Bancorp stock represented by such certificate shall have been
converted, and such certificates, as between the holders and First Bancorp shall
evidence the holder's right to receive First Bancorp stock certificates in
accordance with the Merger Plan.
PLEASE NOTE, HOWEVER, THAT FIRST BANCORP STOCK CERTIFICATES WILL NOT BE
DISTRIBUTED TO FF BANCORP SHAREHOLDERS UNTIL THEIR FF BANCORP CERTIFICATES HAVE
BEEN SURRENDERED TO FIRST BANCORP, AND DIVIDENDS OR OTHER DISTRIBUTIONS PAYABLE
TO FF BANCORP SHAREHOLDERS IN RESPECT OF FIRST BANCORP STOCK INTO WHICH FF
BANCORP STOCK HAS BEEN CONVERTED UNDER THE MERGER PLAN WILL BE RETAINED, WITHOUT
INTEREST, FOR THE ACCOUNT OF SUCH SHAREHOLDERS AND WILL NOT BE PAID UNTIL THEIR
FF BANCORP CERTIFICATES HAVE BEEN SURRENDERED IN EXCHANGE FOR FIRST BANCORP
CERTIFICATES. NO INTEREST WILL BE PAYABLE ON CASH PAYMENTS TO WHICH FF BANCORP
SHAREHOLDERS MAY BE ENTITLED, EITHER BEFORE OR AFTER THE EFFECTIVE DATE UNLESS
SUCH CASH PAYMENTS ARE WITHHELD DUE TO THE NEGLIGENCE OR BAD FAITH OF FIRST
BANCORP.
ISSUANCE OF FIRST BANCORP SHARES
Subject to the terms and conditions of the Merger Plan, First Bancorp will
issue to each FF Bancorp shareholder after the effective date of the merger,
upon surrender of his FF Bancorp stock certificates to First Bancorp accompanied
by properly completed and signed endorsements and transmittal instructions,
certificates representing shares of First Bancorp stock in accordance with the
Merger Plan.
SOURCE OF FUNDS
Consummation of the transaction will be almost entirely a stock for stock
exchange with the only cash payments required being those for fractional shares.
First Bancorp will pay these amounts from internal funds. FF Bancorp currently
does not have any long-term debt outstanding, and therefore no long-term debt of
FF Bancorp will be assumed or paid off by First Bancorp or FNB Subsidiary in the
merger.
SHAREHOLDER APPROVAL
Consummation of the Merger Plan requires the affirmative vote of the
holders of at least a majority of the outstanding shares of common stock of FF
Bancorp. Approval of the shareholders of First Bancorp is not required.
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CONDITIONS OF CERTAIN OBLIGATIONS OF FF BANCORP
Under the Merger Plan, the obligation of FF Bancorp to consummate and
effect the merger contemplated by the Merger Plan is subject to the satisfaction
of certain conditions, including the following:
(a) There shall have been issued an opinion of Stewart, Melvin &
Frost, counsel to First Bancorp, in form and substance reasonably
satisfactory to FF Bancorp, to the effect that, under applicable provisions
of the Internal Revenue Code of 1986, as amended, no gain or loss will be
recognized for federal income tax purposes by FF Bancorp, First Bancorp or
the shareholders of FF Bancorp to the extent that they receive only stock
of First Bancorp in connection with the proposed merger. The opinion will
not state that cash received in exchange for fractional shares will be
nontaxable.
(b) As of the date of the merger, there shall have occurred no
material adverse change in the financial condition or results of operations
of First Bancorp from that represented in the consolidated unaudited
financial statements of First Bancorp as of September 30, 1994, which were
provided to FF Bancorp prior to execution of the Merger Plan, and there
shall not have occurred any loss or damage to any of First Bancorp's
properties or assets which would materially impair its ability to conduct
its business after the merger as it is now being conducted.
(c) The representations of First Bancorp contained in the Merger Plan
shall be true in all material respects as of the date of the merger.
(d) A preliminary fairness opinion shall have been received by FF
Bancorp from Professional Bank Services, Inc. ("PBS") prior to the
distribution of this Proxy Statement to FF Bancorp shareholders, to the
effect that the consideration to be received by FF Bancorp shareholders
pursuant to paragraph II of the Merger Plan is fair to the shareholders
from a financial point of view and such opinion shall not have been
withdrawn or materially modified prior to the vote of the shareholders. In
addition, FF Bancorp shall have received a confirmation of the fairness
opinion from PBS, dated not more than 20 days nor less than 10 days from
the date of the merger, that the consideration to be received by FF Bancorp
shareholders is still fair to the shareholders as of the date of the
confirmation.
CONDITIONS OF CERTAIN OBLIGATIONS OF FIRST BANCORP
Under the Merger Plan, the obligations of First Bancorp and FNB Subsidiary
to consummate and effect the merger contemplated by the Merger Plan are subject
to the satisfaction of certain conditions, including the following:
(a) The representations of FF Bancorp contained in the Merger Plan
shall be true in all material respects as of the date thereof and as of the
time of the merger.
(b) FF Bancorp shall have performed all agreements and covenants
required by the Merger Plan to be performed by it at or prior to the
merger.
(c) As of the proposed date of the merger, there shall have occurred
no material adverse change in the financial condition or results of
operations of FF Bancorp and the Florida Subsidiaries, taken as a whole,
from that presented in the unaudited financial statements of FF Bancorp and
the Florida Subsidiaries as of September 30, 1994, which were provided to
First Bancorp prior to execution of the Merger Plan, and there shall not
have occurred any loss or damage to any of their properties or assets,
taken as a whole, which would materially adversely affect their financial
condition, taken as a whole, or impair their ability to conduct their
businesses, taken as a whole, after the merger as now being conducted.
(d) First Bancorp shall have received an opinion of KPMG Peat Marwick
LLP in form and substance reasonably satisfactory to the Board of Directors
of First Bancorp to the effect that the transactions contemplated by the
Merger Plan may be accounted for by First Bancorp using the "pooling of
interests" method of accounting.
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CONDITIONS OF CERTAIN OBLIGATIONS OF BOTH FIRST BANCORP AND FF BANCORP
Under the Merger Plan, the obligations of First Bancorp, FNB Subsidiary and
FF Bancorp to consummate the merger contemplated by the Merger Plan are, at the
option of either of them, subject to the following conditions having been
satisfied:
(a) The holders of at least a majority of the shares of issued and
outstanding stock of FF Bancorp shall have voted in favor of the merger at
the special meeting of the shareholders duly called and held with respect
thereto pursuant to proper notice of such meeting accompanied by a proper
proxy statement.
(b) Any and all orders, permits, approvals, licenses or qualifications
from authorities administering federal laws or laws of any state or other
political subdivision having jurisdiction required for the consummation of
the transaction contemplated by the Merger Plan shall have been obtained.
The Merger Plan and the sale or exchange of the shares therein contemplated
must be in compliance with regulations and directives of all governmental
agencies having jurisdiction.
(c) At the time of mailing the Proxy Statements to shareholders of FF
Bancorp and thereafter through the closing date, the First Bancorp stock to
be received by FF Bancorp shareholders upon the conversion of their stock
shall be the subject of an effective registration statement under the
Federal Securities Act of 1933 and shall be duly registered or qualified
under the securities laws of all states in which registration or
qualification is required, or must be exempt therefrom.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
There are currently outstanding employment agreements, dated July 9, 1992,
between New Smyrna Bank and Frances R. Ford, Chairman, President and C.E.O. of
FF Bancorp and Chairman and C.E.O. of New Smyrna Bank, and Charles H. Byrd, Vice
Chairman of FF Bancorp and President of New Smyrna Bank, respectively. The
employment agreements were initially for a three year term with a provision for
renewal for successive one-year terms at each anniversary date of the
commencement of the respective employment agreements. The employment agreements
provide for termination payments to become payable upon the occurrence of
certain events, including a change of control of FF Bancorp as a result of a
merger, coupled with the occurrence of a change in the employment terms for the
particular officer. First Bancorp has, under the merger agreement, specifically
acknowledged and agreed that the termination payment provisions of the
respective employment agreements for Frances R. Ford and Charles H. Byrd will be
triggered upon consummation of the merger due to the change of control and the
simultaneous changes which First Bancorp will require to be made in the
employment terms for these officers under the agreements. Mrs. Ford will be
resigning from her positions as Chairman and C.E.O. of New Smyrna Bank and will
no longer be actively engaged in the management of New Smyrna Bank. In the case
of Mr. Byrd, his duties and terms of employment will change upon consummation of
the merger. Mr. Byrd will remain with New Smyrna Bank, but with reduced duties
and responsibilities. He will be Chairman of the Board, but will no longer be an
officer of the bank. The amounts which the respective employment agreements
require to be paid to Mrs. Ford and Mr. Byrd following consummation of the
merger are determined by a formula contained in the agreements. New Smyrna Bank
is required to pay an amount equal to the aggregate present value of the product
of (i) the average aggregate annual compensation paid and includable in Mrs.
Ford's or Mr. Byrd's respective gross income for federal income tax purposes
during the five calendar years preceding the taxable year in which the date of
termination occurs, multiplied by (ii) 2.99, with each such payment to be made
in lump sum. The payments which Mrs. Ford and Mr. Byrd will be entitled to
receive under their respective employment agreements following consummation of
the merger are estimated to be $520,000 and $382,000, respectively.
Tildon W. Smith, Executive Vice President of FF Bancorp, holds options to
purchase 56,063 common stock shares of FF Bancorp. Stock options for 18,688
shares are currently exercisable. The remaining stock options become exercisable
on a cumulative basis over two years, except that the options become exercisable
immediately in the event of a change of control of FF Bancorp. Under the terms
of the Merger Plan, if the merger is consummated, the 56,063 FF Bancorp options
will be converted, by application of the .825 exchange ratio, into options to
purchase 46,252 shares of First Bancorp common stock; 40,837 shares of which may
be purchased at a price of $4.59 per share and 5,415 shares of which may be
purchased at a price of $5.83 per
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share. Based on the "high" sales price of $20.25 for First Bancorp stock on
April 10, 1995, said options to purchase 46,252 shares of First Bancorp stock
would have an aggregate value of approximately $718,000 to Mr. Smith.
Upon consummation of the merger, Mr. Smith will serve as a director and as
Vice President and Assistant Secretary of FNB Subsidiary, and Mr. Byrd will
serve as a director of FNB Subsidiary. Mr. Smith and Mr. Byrd will also serve as
directors of First Bancorp after the merger.
In January and March, 1995, for personal financial reasons Mrs. Ford sold
an aggregate of 40,000 shares of her FF Bancorp common stock to the Vice
Chairman of the Board of Key Bank through a broker.
ACCOUNTING TREATMENT
First Bancorp will account for the merger as a pooling-of-interests
transaction in accordance with generally accepted accounting principles, which,
among other things, requires that the number of shares of FF Bancorp stock
acquired for cash in lieu of fractional shares, or otherwise, not exceed 10% of
the outstanding shares of FF Bancorp stock. Under this accounting treatment,
assets and liabilities of FF Bancorp would be added to those of First Bancorp at
their recorded book values, and the shareholders' equity of the two companies
would be combined in First Bancorp's consolidated balance sheet. Financial
statements of First Bancorp issued after consummation of the merger will be
restated to reflect the consolidated operations of First Bancorp and FF Bancorp
as if the merger had taken place prior to the periods covered by the financial
statements.
EFFECT OF MERGER ON SHAREHOLDERS
If the proposed merger is consummated, the holders of the common stock of
FF Bancorp will receive common stock of First Bancorp, in exchange for their FF
Bancorp shares. The rights of holders of common stock of First Bancorp are
governed by the provisions of the Georgia Business Corporation Code and federal
and state laws regulating bank holding companies.
Upon conversion of a shareholder's FF Bancorp stock into First Bancorp
stock, the shareholder's percentage of equity ownership in First Bancorp will be
substantially less than his or her present percentage of equity ownership in FF
Bancorp. Shareholders will receive dividend distributions in the form of cash,
stock or other property on each share of FF Bancorp stock converted into shares
of First Bancorp stock if, when and in the form that such dividends are declared
by the Board of Directors of First Bancorp.
After the merger, the former shareholders of FF Bancorp will have no
continuing interest in the assets or business of FF Bancorp and the Florida
Subsidiaries except as shareholders of First Bancorp.
PREEMPTIVE RIGHTS
First Bancorp Common Stock
Shareholders of First Bancorp do not have the preemptive right to subscribe
for additional shares in proportion to the number of shares of capital stock
owned at the time any increase in outstanding stock is authorized. Consequently,
an offering of First Bancorp stock, after the merger, could result in an
existing shareholder's percentage of ownership being reduced by an increase in
the number of outstanding shares. In addition, shares of First Bancorp can be
issued by authorization of the Board of Directors of First Bancorp without any
approval of the shareholders, except in certain instances prescribed by the
Georgia Business Corporation Code.
FF Bancorp Common Stock
Like First Bancorp shareholders, shareholders of FF Bancorp do not have the
preemptive right to subscribe for additional shares at the time any increase in
outstanding stock is authorized. Shares of FF Bancorp can be issued by
authorization of the Board of Directors of FF Bancorp without any approval of
the shareholders, except in certain instances prescribed by the Florida Business
Corporation Act.
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CUMULATIVE VOTING RIGHTS
First Bancorp Common Stock
The shareholders of First Bancorp have cumulative voting rights in the
election of directors, that is, the right to vote the number of shares owned by
them for as many persons as there are directors to be elected, or to accumulate
such shares and give one candidate as many votes as the number of directors to
be elected multiplied by the number of their shares shall equal, or to
distribute them on the same principle among as many candidates as they shall
desire. The purpose of cumulative voting is to allow minority shareholders a
better chance to elect representation on the Board of Directors which is closer
in proportion to their stock ownership. The voting upon other transactions by
the shareholders of First Bancorp is on the basis of one vote for each share
without any cumulative voting rights.
FF Bancorp Common Stock
Shareholders of FF Bancorp have no cumulative voting rights in the election
of directors; for all purposes each holder of record of shares of common stock
of FF Bancorp is entitled to one vote for each share of common stock outstanding
in his name on the books of the corporation.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND
EMPLOYEES
First Bancorp
The bylaws of First Bancorp provide for the indemnification of directors
and officers of the corporation. The provisions allow indemnification of such
persons for reasonable expenses and damages incurred in connection with any
action, suit or proceeding, civil or criminal, to which they shall be made a
party by reason of their being or having been a director, officer or employee.
However, no person shall be indemnified or reimbursed in relation to any matter
in such action, suit or proceeding as to which he shall be finally adjudged to
have been guilty of or liable for gross negligence, willful misconduct, or
criminal acts. These indemnification provisions are in addition to
indemnification otherwise provided under the Georgia Business Corporation Code
(O.C.G.A. Section 14-2-851), which is hereinafter described.
First Bancorp's bylaws also provide for the purchase of insurance for the
purpose of such indemnification. First Bancorp currently provides this insurance
coverage under a directors and officers reimbursement policy with a $12,000,000
aggregate coverage limit.
The Georgia Business Corporation Code (O.C.G.A. Section 14-2-851), provides
that an officer or director may be indemnified (1) in the case of actions by
third persons, if he acted in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, in regard to criminal
actions, he had no reasonable cause to believe that his conduct was unlawful and
(2) in the case of actions by or on behalf of the corporation, if he acted in
good faith and in a manner he reasonably believed to be in the best interests of
the corporation unless he has been adjudged liable for negligence or misconduct
in the performance of his duty to the corporation and the court in which such
action is brought has not determined that he should, nevertheless, be
indemnified.
In addition to the above-described indemnification provisions, the articles
of incorporation of First Bancorp have provisions limiting the liability of
directors. As permitted by Georgia law, the articles of incorporation of First
Bancorp were amended in 1990 to limit the standards of conduct required of
directors by providing that no director shall be personally liable to the
corporation or its shareholders for monetary damages for breach of duty of care
or other duty as a director; provided, however, that this provision does not
eliminate or limit the liability of a director:
(a) For any appropriation, in violation of his duties, of any business
opportunity of the corporation;
(b) For acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(c) For the types of liabilities set forth in Official Code of Georgia
Annotated Section 14-2-832 (relating primarily to improper dividends or
other distributions by the corporation);
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(d) For any transaction from which the director derives an improper
personal benefit; or
(e) For any liability or expenses related to any action or omission by
a director occurring prior to the adoption of the amendment.
Further, the right of First Bancorp or its shareholders to seek injunctive
or other equitable relief not involving monetary damages is not limited by the
above provisions.
FF Bancorp
The articles of incorporation of FF Bancorp provide for indemnification of
directors and officers of the corporation. The articles provide that each person
who was or is made a party or is threatened to be made a party to or is involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative ("proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of FF Bancorp or is or was serving at the request of FF Bancorp as a director,
officer, employee or agent of another corporation, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by FF Bancorp to the
fullest extent authorized by the Florida Business Corporation Act as the same
exists or may be amended against all expenses, liability and loss (including
attorney's fees, judgements, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
however, that FF Bancorp shall indemnify any such person seeking indemnity in
connection with an action, suit or proceeding (or part thereof) was authorized
by the Board of Directors of FF Bancorp. The Florida Business Corporation Act
authorizes indemnification in such circumstances if such person acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Such
right shall be a contract right and shall include the right to be paid by FF
Bancorp expenses incurred in defending any such proceeding in advance of its
final disposition; provided, however, that, the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of such
proceeding, shall be made only upon delivery to FF Bancorp of an undertaking, by
or on behalf of such director or officer, to repay all amounts so advanced if it
should be determined ultimately that such director or officer is not entitled to
be indemnified.
In addition, the articles of incorporation of FF Bancorp provide that the
rights conferred on any person by the articles shall not be inclusive of any
other right which such person may have or hereafter acquire under any statute,
other provision of the articles of incorporation, bylaws of FF Bancorp,
agreement, vote of stockholders or disinterested directors or otherwise.
Also, the articles provide that FF Bancorp may maintain insurance, at its
expense, to protect itself and any such director, officer, employee or agent of
FF Bancorp or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not FF
Bancorp would have the power to indemnify such person against such expense,
liability or loss under the Florida Business Corporation Act. FF Bancorp
presently provides this insurance coverage under a directors and officers
liability insurance policy with a $3,000,000 aggregate coverage limit.
In addition, the articles provide that a director of FF Bancorp shall not
be personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Florida Business
Corporation Act, or (iv) for any transaction from which the director derived an
improper personal benefit. The articles further provide that if the Florida
Business Corporation Act is amended after approval by the stockholders of an
article to authorize corporate action further eliminating or limiting the
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personal liability of directors, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the Florida Business Corporation Act, as so amended.
DIVIDEND RESTRICTIONS
First Bancorp
Under the Georgia Business Corporation Code, dividends may be declared and
distributed by First Bancorp as long as:
(a) such distribution would not render First Bancorp unable to pay its
debts as they become due in the usual course of business; or
(b) such distribution would not cause First Bancorp's total assets to
be less than the sum of its total liabilities plus the amount that would be
needed, if First Bancorp were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution (no preferential rights presently exist).
The source for payment of dividends by First Bancorp generally is dividends
to First Bancorp from its bank subsidiaries. Dividends to First Bancorp from its
bank subsidiaries are subject to applicable banking law dividend restrictions,
which in the case of its national bank subsidiaries, would include those
restrictions applicable to national banks. The Board of Directors of First
Bancorp makes the decision whether to issue dividends to its shareholders
(including those shareholders receiving First Bancorp stock pursuant to the
Merger Plan) based upon the earnings of all of its subsidiaries and based upon
the need to retain earnings at the holding company level. The amount of cash
dividends available from the bank subsidiaries for payment in 1995 without prior
approval of bank regulators is approximately $31,870,000, plus 1995 net earnings
of the six subsidiary national banks.
FF Bancorp
The primary source of payment of dividends by FF Bancorp is dividends from
the FF Subsidiaries, which are restricted by statute and regulation. See Note 14
of the consolidated financial statements of FF Bancorp on page F-27 of this
Proxy Statement. However, assuming the proposed Merger Plan is approved, the
merger would affect dividend payments of each of the FF Subsidiaries in that
allowable dividends declared by each such board from time to time would be paid
to FF Bancorp, which would pay allowable dividends to First Bancorp.
FF Bancorp is a legal business entity separate and distinct from its
subsidiary Key Bancshares and the other FF Subsidiaries. The dividend
restrictions applicable to FF Bancorp under the Florida Business Corporation Act
are the same as those set forth above for First Bancorp under Georgia law.
As stated above, the principal source of cash flow of FF Bancorp, including
cash flow to pay dividends on FF Bancorp Common Stock, is dividends from the FF
Subsidiaries. There are statutory and regulatory limitations on the payment of
dividends by both the savings banks and the commercial bank. In general, the
ability of New Smyrna Bank and Citrus Bank to pay a dividend to FF Bancorp is
governed by the capital distribution regulations of the office of Thrift
Supervision ("OTS"), and the ability of Key Bank to pay a dividend is governed
by the Florida Statutes, Chapter 658. In addition, the payment of dividends by
these banks is restricted by the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA").
The OTS capital distribution regulations impose limitations upon all
capital distributions by savings institutions, such as cash dividends, payments
to repurchase or otherwise acquire its shares, payments to shareholders of
another institution in a cash-out merger and other distributions charged against
capital. The rule establishes three tiers of institutions based primarily on an
institution's capital level. An institution which exceeds all capital
requirements before and after the proposed capital distribution ("Tier 1
Association") and which has not been advised by OTS that it is in need of more
than normal supervision could, after notice to OTS, but without the approval of
OTS, make capital distributions during a calendar year equal to the greater of:
(i) 100% of its net income to date during the calendar year, plus the amount
that would reduce by one-half
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its "surplus capital ratio" (the excess capital over its capital requirements at
the beginning of the calendar year), or (ii) 75% of the savings institution's
net income for the previous four quarters. Any additional capital distributions
require prior regulatory approval. As of December 31, 1994, FF Bancorp's thrift
subsidiaries were both Tier 1 Associations. OTS can prohibit capital
distribution by a savings institution, which would otherwise be permitted by
regulation, if OTS determines that such distribution would constitute an unsafe
or unsound practice. In addition, the thrift subsidiaries would be prohibited
from making a capital distribution under FDICIA if, after the distribution, the
thrift subsidiaries would have: (i) a total risk-based capital ratio of less
than 8%; (ii) a Tier 1 risk-based capital ratio of less than 4%; or (iii) a
leverage ratio of less than 4% (3% if the thrift subsidiaries were assigned
CAMEL 1 Ratings).
A Florida chartered commercial bank may not pay cash dividends that would
cause its capital to fall below the minimum amount required by federal or
Florida law. Otherwise, a commercial bank may pay a dividend out of the total
current net profits plus retained net profits of the preceding two years to the
extent it deems expedient, except as described below. First, 20% of the net
profits in the preceding two year period may not be paid in dividends but must
be retained to increase capital surplus until such surplus equals the amount of
common and preferred stock issued and outstanding. In addition, no bank may pay
a dividend at any time when the net earnings in the current year when combined
with retained net earnings from the preceding two years produces a loss. The
ability of Key Bank to pay dividends also depends in part on the FDICIA capital
requirements in effect at such time and the ability of Key Bank to comply with
such requirements.
The amount of cash dividends and capital available for distribution from FF
Subsidiaries for payment in 1995 is approximately $17,000,000.
SHAREHOLDER VOTING RIGHTS
First Bancorp
A majority vote of the shareholders is required under the Georgia Business
Corporation Code for the approval of certain mergers and consolidations, for the
sale, exchange or lease of substantially all the assets, or for the dissolution
of First Bancorp. A majority vote of the shareholders is also required to
increase the amount of authorized capital stock of First Bancorp. However, First
Bancorp may enter into merger transactions without shareholder approval pursuant
to Section 14-2-1103 of the Georgia Business Corporation Code if (i) First
Bancorp is the surviving corporation, (ii) the merger will not effect any change
in or amendment to its articles of incorporation, (iii) each share of First
Bancorp outstanding immediately prior to the effectiveness of the merger is to
remain outstanding and unchanged after the merger, and (iv) either no new shares
of First Bancorp are to be issued or any new shares of First Bancorp to be
issued under the plan of merger may be issued by the Board of Directors without
further authorization by the shareholders of First Bancorp.
Shares of First Bancorp stock may be issued by authorization of the Board
of Directors of First Bancorp without any approval of the shareholders, except
in certain instances prescribed by the Georgia Business Corporation Code.
Therefore, in most cases the Board of Directors will be able to issue shares of
First Bancorp stock for any lawful corporate purpose without the approval of the
shareholders, and the shareholders will not have any preemptive right to acquire
such shares in proportion to their ownership interest in First Bancorp.
As stated above, shareholders of First Bancorp have cumulative voting
rights in the election of directors; otherwise each share is entitled to one
vote on all corporate matters.
FF Bancorp
Unlike First Bancorp, a 60% vote of the outstanding shares of common stock
is required under FF Bancorp's Articles of Incorporation for the sale, exchange
or lease of substantially all the assets in certain situations, for certain
mergers and consolidations, or for a voluntary dissolution of FF Bancorp in
certain situations. However, if any such proposed action has the prior approval
of a majority of the Board of Directors, only a majority vote of the outstanding
shares of common stock is required. Reference should be made to the section
entitled "DESCRIPTION OF STOCK -- FF Bancorp" in this Proxy Statement for a
complete
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description of voting approval requirements. Under Florida law and the Articles
of Incorporation of FF Bancorp, only a majority vote of the outstanding shares
of common stock is required for approval of the proposed merger.
Like First Bancorp, shares of FF Bancorp stock may be issued by
authorization of the Board of Directors of FF Bancorp without any approval of
its shareholders, except in certain instances prescribed by the Florida Business
Corporation Act.
Amendments to FF Bancorp Articles must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock, provided, however, that an affirmative vote of at least 60% of the
outstanding voting stock entitled to vote (after giving effect to the provision
limiting voting rights) is required to amend or repeal certain provisions of FF
Bancorp Articles, including the provisions relating to approval of certain
business combinations, calling special meetings, the number and classification
of directors, director and officer indemnification by FF Bancorp and amendment
of FF Bancorp Bylaws and FF Bancorp Articles.
Unlike First Bancorp, FF Bancorp shareholders do not have cumulative voting
rights in the election of directors. Each share of FF Bancorp common stock is
entitled to one vote on all corporate matters requiring shareholder vote.
RIGHT OF FIRST BANCORP AND FF BANCORP TO ACQUIRE THEIR OWN SHARES
Under the Georgia Business Corporation Code, First Bancorp has the right to
acquire its own shares by gift, bequest, merger, consolidation, or exchange of
its shares, and by purchase if purchased out of unreserved and unrestricted
earned surplus available therefor.
Like First Bancorp, FF Bancorp has the right to acquire its own shares
under the Florida Business Corporation Act.
RIGHTS OF DISSENT AND APPRAISAL
Under the Georgia Business Corporation Code, the shareholders of First
Bancorp have the right to dissent from certain (but not all) mergers or
consolidations to which First Bancorp is a party, any sale or other disposition
of all or substantially all of the property and assets of First Bancorp, any
amendment of the Articles of Incorporation which would generally adversely
affect a shareholder regarding his voting rights, dividend rights and rights
upon redemption or liquidation, and any amendment of the Articles of
Incorporation which would result in the payment of cash for a shareholder's
shares, such as a redemption of a class of stock. There is no right of dissent
with respect to a plan of merger or share exchange or a proposed sale or
exchange of property if the shares entitled to be voted with respect to any such
proposed action are either registered on a national securities exchange or held
of record by not fewer than 2,000 shareholders. The right of dissent of a
shareholder of First Bancorp who votes against any of the above actions and
otherwise complies with applicable legal requirements entitles him to be paid
the fair value of his shares in cash. First Bancorp is required to make an offer
to the dissenting shareholder of what the corporation believes is the fair value
of his shares. If agreement cannot be reached as to the price to be paid, then
First Bancorp is required to petition the Superior Court of the county where
First Bancorp is located for a determination of the fair value of the shares.
The determination by the Superior Court is final.
Under the Florida Business Corporation Act, FF Bancorp shareholders have
substantially the same right to dissent from corporate actions as set forth
above. However, under Florida law there is also no right to dissent with respect
to a plan of merger or share exchange if the shares entitled to be voted with
respect to any such proposed action are designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. Consequently, FF Bancorp shareholders do not have the
right to dissent and be paid cash for the fair value of their shares with
respect to the proposed merger with First Bancorp.
Certain merger transactions, such as that contemplated by the Merger Plan,
do not require the consent of shareholders of First Bancorp and do not trigger
dissenters rights of First Bancorp shareholders.
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STATE TAXATION OF SHARES OF STOCK
Shares of common stock of FF Bancorp are generally subject to personal
property taxes in Florida; shares of common stock of First Bancorp will
generally be subject to such taxes in Florida on the same basis. Shares of
common stock of First Bancorp, being stock of a corporation organized under
Georgia law, are generally exempt from personal property taxes in Georgia. Under
the laws of other jurisdictions, the shares of common stock of FF Bancorp and/or
First Bancorp may also be subject to personal property taxes. In connection with
voting on the proposed Merger Plan, FF Bancorp shareholders should determine
whether taxation of their stock ownership under local law or state law as
applicable to them will change.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of First Bancorp consists of 30,000,000 shares
of common stock, $1.00 par value per share, of which 16,540,495 shares were
issued and outstanding as of December 31, 1994. The authorized capital stock of
FF Bancorp consists of 5,000,000 shares of authorized common stock, $.01 par
value per share, with 4,680,897 shares issued and outstanding as of December 31,
1994 and 2,500,000 shares of authorized preferred stock, $.01 par value per
share, with no preferred shares outstanding. As of such date, FF Bancorp also
had outstanding employee stock options to purchase 84,318.5 shares, 28,254.8 of
which are not exercisable after consummation of the proposed merger.
CERTAIN RESTRICTIONS ON TRANSFER
First Bancorp
The First Bancorp stock which is being offered to FF Bancorp shareholders
pursuant to the Merger Plan is being registered pursuant to the Federal
Securities Act of 1933, subject to Securities and Exchange Commission Rule 145
(Reg. Section 230.145). Subparagraphs (c) and (d) of Rule 145 provide
limitations on the ability of certain persons to re-offer or re-sell shares
acquired in a business combination transaction unless those securities are
subsequently registered under the Securities Act of 1933 or an exemption from
registration is available for the proposed offer and sale. Under Rule 145(c) any
person who is an "affiliate" of FF Bancorp at the time the Merger Plan is
submitted to the shareholders who offers the securities of First Bancorp which
are acquired pursuant to the Merger Plan will be deemed to be an underwriter
within the meaning of Section 2(11) of the Securities Act of 1933 and,
therefore, subject to the registration provisions of the 1933 Act. However,
notwithstanding the provisions of Rule 145(c), Rule 145(d) provides that such
person shall not be deemed to be an underwriter if (1) the securities are sold
by such person in accordance with the provisions of paragraphs (c), (e), (f) and
(g) of Rule 144; or (2) such person is not an affiliate of the issuer of the
securities (First Bancorp), has been the beneficial owner of the securities for
at least two (2) years and meets the requirements of paragraph (c) of Rule 144;
or (3) such person has not been an affiliate of the issuer of the securities for
at least three (3) months and has been the beneficial owner of the securities
for at least three (3) years. Beneficial ownership of the First Bancorp stock
will be deemed to commence upon acquisition of the shares pursuant to the Merger
Plan (not at the time of acquisition of the FF Bancorp stock) and is subject to
certain tolling provisions.
Apart from Rule 145, Rule 144 more generally provides that shares held by
"affiliates" of an issuer (First Bancorp) will be subject to resale restrictions
as provided in Rule 144.
An "affiliate" of a corporation is a person that directly or indirectly
controls or is controlled by or is under common control with the corporation.
The term "control" does not require majority voting control of common stock but
rather means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a person, whether through the
ownership of voting securities, by contracts or otherwise. Subject to the above
guidelines, the determination of who is an "affiliate" is inherently a factual
question determined on a case-by-case basis. Any shareholder holding a
significant block of shares, any director of a company or its subsidiaries or
any officer engaged in significant policy-making functions may be deemed an
affiliate under these rules and should seek the advice of counsel on this issue
prior to engaging in a transaction potentially subject to these rules.
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<PAGE> 45
Paragraphs (c), (e), (f) and (g) of Rule 144 provide the following
conditions to the ability of an affiliate to resell his shares:
(1) Rule 144(c) requires that there shall be available adequate
current public information with respect to First Bancorp (First Bancorp has
agreed in the Merger Plan that this requirement will be met);
(2) The amount of the securities sold within any three (3) month
period may not exceed the greater of (i) one percent (1%) of the shares of
Bancorp outstanding or (ii) the average weekly reported volume of trading
in such securities on all national exchanges and/or reported through the
automated quotation system of a registered securities association during
the four (4) calendar weeks preceding the filing of the notice required by
Rule 144 to be filed or, if no such notice is required, the date of the
order to execute the transaction by the broker or market maker; and
(3) The securities must be sold in "brokers' transactions" within the
meaning of Section 4(4) of the Securities Act of 1933, or in transactions
directly with the "market maker" as that term is defined in Section
3(a)(38) of the Securities Exchange Act of 1934, and the person selling the
securities must not solicit or arrange for the solicitation of orders to
buy the securities or make any payment in connection with the offer or sale
of the securities to any person other than the broker who executes the
order to sell the securities.
As a result of the merger, there will be two individual FF Bancorp
shareholders who will receive more than 1% of the outstanding shares of First
Bancorp common stock following the proposed merger, and there will be two
institutional investors in FF Bancorp who will receive more than 1% of the
outstanding shares of First Bancorp common stock following the proposed merger.
RESTRICTIONS ON STOCK OF BOTH COMPANIES
The Securities and Exchange Commission has stated that risk sharing is an
essential element in meeting the criteria for pooling of interests accounting
treatment, which is the treatment to be applied to the merger contemplated by
the Merger Plan. Generally, the Commission has stated that it will consider that
the risk sharing will have occurred if no "affiliate" of either company in a
business combination sells or in any other way reduces his risk relative to any
shares of common stock beginning thirty (30) days prior to the date of
consummation of the Merger Plan through such time as financial results covering
at least thirty (30) days of post-merger combined operations have been
published. Thus, no affiliate of First Bancorp or FF Bancorp will be able to
sell, transfer or dispose of First Bancorp shares or FF Bancorp shares during
the period generally beginning thirty (30) days prior to the date of
consummation of the Merger Plan and ending on the date on which financial
results covering at least thirty (30) days of post-merger combined operations
have been published as described above. Pursuant to the Merger Plan, First
Bancorp has agreed to publish such post-merger financial data within thirty (30)
days following the end of the first full calendar month following consummation
of the merger.
COMMITMENTS TO SUBSIDIARY BANKS BY FIRST BANCORP
Under the Federal Reserve's policy, First Bancorp is expected to act as a
source of financial strength to its subsidiary banks and to commit resources to
support its subsidiary banks in circumstances when it might not do so absent
such policy. In addition, any capital loans by First Bancorp to any of its
subsidiary banks would also be subordinate in right of payment to depositors and
to certain other indebtedness of such bank.
As a result of the enactment of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA"), a depository institution insured by the
FDIC can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC after August 9, 1989 in connection with (i) the default of
a commonly controlled, FDIC-insured depository institution or (ii) any
assistance provided by the FDIC to a commonly controlled, FDIC-insured
depository institution in danger of default. "Default" is defined generally as
appointment of a conservator or receiver, and "in danger of default" is defined
generally as the existence of certain conditions indicating that a "default" is
likely to occur in the absence of regulatory assistance. All of
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<PAGE> 46
First Bancorp's subsidiary depository institutions are FDIC-insured depository
institutions within the meaning of FIRREA.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
Section 302 of the Federal Deposit Insurance Corporation Improvement Act of
1991 (FDICIA) required the FDIC to establish a risk-based assessment system by
July 1, 1993 and to implement it by January 1, 1994. The FDIC has chosen to
implement a risk-based assessment system effective January 1, 1993, which
provides the FDIC with the opportunity to evaluate the impact and effectiveness
of various components of the risk-based system on a continuous basis.
Under the final rule, the risk-based assessment system is designed as a
matrix system where each insured depository institution pays an assessment rate
based on the combination of its capital and supervisory condition. An
institution is assigned to one of three capital categories based on its call
report filed for the period ending six months prior to each semiannual period
(semiannual periods being every January 1 and July 1). The capital categories
are defined in the same way as the capital categories established to determine
if prompt corrective action is needed to improve the capital of a depository
institution.
Institutions are also assigned to one of three supervisory categories based
on supervisory evaluations by the institution's primary federal regulator and
supplemented by other information including call report data and debt ratings.
FDICIA also provides for the payment of deposit insurance premiums based on
the specific risk category to which each bank is assigned.
RECENT BANKING LEGISLATION
The State of Georgia has allowed regional interstate banking by permitting
banking organizations in certain Southeastern states to acquire Georgia banking
organizations, if Georgia banking organizations were allowed to acquire banking
organizations in their states (commonly known as the "Southeast Compact"). As a
result of the Southeast Compact, banking organizations in other Southeastern
states have entered the Georgia market through acquisitions of many Georgia
institutions. Those acquisitions were subject to federal and Georgia approval.
Banking organizations outside of the Southeast Compact were prevented from
acquiring banking institutions in Georgia, and Georgia institutions were
prevented from acquiring banks outside of this region. On March 16, 1994, the
Georgia General Assembly passed legislation effective July 1995 to allow
interstate banking, by removing the Southeast Compact barrier effective July
1995.
The State of Florida had a similar law allowing regional interstate banking
within the same Southeastern states. Florida recently enacted new legislation
allowing interstate banking, by removing the Southeast Compact barrier effective
May 1, 1995.
The federal Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, became law on September 29, 1994. The Interstate Banking Act will allow
banks and bank holding companies throughout the United States to acquire
out-of-state banks after September 29, 1995, and out-of-state branches through
interstate mergers, beginning June 1, 1997.
NO DISSENTER'S RIGHTS OF APPRAISAL
Pursuant to the Florida Business Corporation Code, holders of FF Bancorp
common stock will not have any dissenter's rights of appraisal in connection
with the merger.
FEDERAL INCOME TAX CONSEQUENCES
Consummation of the merger is conditioned on FF Bancorp receiving an
opinion from Stewart, Melvin & Frost, general counsel to First Bancorp, that the
merger will be a "reorganization" within the meaning of Section 368 of the
Internal Revenue Code of 1986 (the "Code"), and as to certain other tax
consequences of
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<PAGE> 47
the merger. Such opinion shall be in form and substance satisfactory to the
Board of Directors of FF Bancorp. The required opinion, which is dated February
8, 1995, has been delivered to FF Bancorp. The discussion below fairly
summarizes the matters covered in such opinion.
Assuming that the merger will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code, it will have the following federal
income tax consequences:
1. A FF Bancorp shareholder receiving shares of First Bancorp common
stock (and, if applicable, cash in lieu of a fractional share of First
Bancorp common stock) on the conversion of his FF Bancorp shares in the
merger will recognize no gain or loss, except in connection with any cash
received in lieu of a fractional share of First Bancorp common stock. The
tax basis of the shares of First Bancorp stock received upon the conversion
will be the same as the tax basis of the FF Bancorp shares converted in the
merger, except for possible adjustment due to any cash received in lieu of
a fractional share. If the FF Bancorp shares were held as capital assets,
the holding period of the shares of First Bancorp common stock received,
will include the holding period of the FF Bancorp shares converted.
2. Upon a FF Bancorp shareholder's receipt of shares of First Bancorp
common stock and cash in lieu of a fractional share of First Bancorp common
stock in the merger, the cash will, in general, be treated as received in
exchange for such fractional share and not as a dividend. Gain or loss
recognized as a result of that exchange will be capital gain or loss if the
fractional share would have been a capital asset if it had been received by
the FF Bancorp shareholder.
3. The basis of the shares of First Bancorp common stock received by a
FF Bancorp shareholder will be the same as the basis of the shares of FF
Bancorp stock exchanged in the merger, and the holding period of the shares
of First Bancorp common stock received by a FF Bancorp shareholder will
include the period during which the surrendered FF Bancorp stock was held
by such shareholder, provided the FF Bancorp stock was held as a capital
asset on the date of the exchange.
4. Neither FF Bancorp nor First Bancorp will recognize gain or loss as
a result of the merger.
5. In the case of a corporate shareholder of FF Bancorp, the tax
consequences described in Paragraphs 1 through 3 are generally applicable.
EACH HOLDER OF FF BANCORP SHARES SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER, INCLUDING
THE EFFECT OF STATE AND LOCAL TAXES.
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<PAGE> 48
BUSINESS OF FF BANCORP
GENERAL
FF Bancorp was incorporated under the laws of the state of Florida on May
12, 1992 for the purpose of becoming a savings and loan holding company through
the acquisition of New Smyrna Bank and Citrus Bank. FF Bancorp became a multiple
savings and loan holding company on July 28, 1992 when New Smyrna Bank became a
wholly-owned subsidiary of FF Bancorp through an exchange of shares and Citrus
Bank was acquired in a conversion and reorganization wherein Citrus Bank
converted from a federal mutual savings and loan association to a federal
savings bank and was acquired by FF Bancorp through an exchange of shares. Both
acquisitions were accounted for as poolings of interests.
On April 8, 1994, FF Bancorp acquired Key Bancshares, the parent company of
Key Bank, a state-chartered commercial bank located in Tampa, Florida. The
acquisition was accounted for as a purchase, since FF Bancorp offered a
combination of cash and stock to Key Bancshares shareholders. FF Bancorp
retained Key Bancshares as a subsidiary bank holding company, and FF Bancorp
became a multiple savings and loan and one bank holding company.
Reference should be made to the FF Bancorp consolidated financial
statements and the FF Bancorp Management's Discussion and Analysis of Financial
Condition and Results of Operations, appearing elsewhere in this Proxy Statement
and providing disclosure of FF Bancorp's financial condition and performance.
FF Bancorp is managed by a Board of Directors which currently consists of
five individuals. There is included in this proxy statement under the heading
"FF BANCORP SHAREHOLDERS" information which discloses the current members of the
Board of Directors and the executive officers of FF Bancorp, their current
status or title(s), and their individual share ownership in FF Bancorp.
FF BANCORP SUBSIDIARIES
FF Bancorp carries on its business operations through its four
subsidiaries. New Smyrna Bank, Citrus Bank and Key Bank conduct the normal
business of a federal savings bank or commercial bank, which is primarily
receiving deposits and funds and using them to make loans and investments. New
Smyrna Bank, Citrus Bank and Key Bank try to maintain a positive margin between
earnings on funds loaned or invested and the cost of funds to the banks in order
to cover expenses of operation and provide a profit for payment of dividends and
accumulations of capital.
New Smyrna Bank conducts business from its main office in New Smyrna Beach,
Florida and its branch office in Edgewater, Florida. New Smyrna Bank was founded
in 1935 as a mutual savings association and converted to a stock savings bank on
July 1, 1991. New Smyrna Bank's financial condition and operating results are
consolidated into FF Bancorp's financial statements. New Smyrna Bank,
individually, at December 31, 1994, had total assets of $310 million, total
deposits of $283 million, and equity capital of $24 million.
Citrus Bank conducts business from its main office in Inverness, Florida
and its three branch offices located in Beverly Hills, Crystal River, and
Homosassa Springs, Florida. Citrus Bank was founded in 1963 as a mutual savings
association and converted to a stock savings bank on July 8, 1992, and was
acquired by FF Bancorp on that same date. Citrus Bank's financial condition and
operating results are consolidated into FF Bancorp's financial statements.
Citrus Bank, individually, at December 31, 1994, had total assets of $212
million, total deposits of $195 million, and equity capital of $15 million.
Key Bancshares was organized on November 24, 1982 as the parent holding
company of Key Bank, a commercial bank which was chartered on December 14, 1973.
FF Bancorp acquired Key Bancshares and its subsidiary Key Bank on April 8, 1994.
Key Bank conducts business from its main office in Tampa, Florida and a branch
office which is also located in Tampa. Key Bancshares' and Key Bank's financial
condition and operating results are consolidated into FF Bancorp's financial
statements. Key Bank, individually at
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<PAGE> 49
December 31, 1994, had total assets of $67 million, total deposits of $62
million, and equity capital of $5 million.
Shown below are certain key financial disclosures for the two savings banks
and one commercial bank subsidiaries of FF Bancorp at December 31, 1994.
<TABLE>
<CAPTION>
FF BANKING SUBSIDIARIES
-------------------------------
NEW SMYRNA CITRUS KEY
BANK BANK BANK
---------- -------- -------
<S> <C> <C> <C>
BALANCE SHEET ($ IN 000'S):
Total Assets........................................... $310,287 $211,794 $67,213
Total Loans............................................ 234,862 138,893 46,876
Earning Assets......................................... 301,499 190,199 60,091
Total Deposits......................................... 283,182 194,651 61,771
Common Equity.......................................... 24,165 15,290 4,782
Primary Capital/Assets.................................
INCOME STATEMENT (YTD 12/31/94; $ IN 000'S):
Net Interest Income.................................... $ 11,504 $ 9,184 $ 1,578
Noninterest Income..................................... 725 (230) 536
Net Revenue............................................ 12,229 8,954 2,114
Noninterest Expense.................................... 5,388 3,979 2,135
Loan Loss Provision.................................... 1,322 -- 617
Pre Tax Income......................................... 5,519 4,975 (21)
Net Income............................................. 3,431 3,483 (13)
</TABLE>
- ---------------
Note: Individual bank financial information is based on unaudited financial data
at December 31, 1994. Reference should be made to the FF Bancorp financial
statements included in this Proxy Statement for information on a
consolidated basis.
MARKET AREA AND COMPETITION
FF Bancorp, through New Smyrna Bank, conducts business in Volusia County,
which includes the cities of New Smyrna Beach, Daytona Beach, DeLand and
Edgewater. Among the major industries in Volusia County are manufacturing,
wholesale and retail trade, and government services. Volusia County continues to
be a rapidly growing county with a growth rate which far exceeds the national
rate. In September 1993, based on a report by the Florida Banker's Association,
New Smyrna Bank estimated that its deposits totaled 42% of aggregate deposits
held in all financial institutions in New Smyrna Beach and Edgewater, Florida.
Citrus Bank's primary market area consists of Citrus County in West Central
Florida, with additional business coming from Hernando and Marion Counties.
Citrus County is located on Florida's west coast. The economy of Citrus County
is based on commerce, agriculture, service industries, and tourism. The
population base is heavily comprised of retirees. The growth rate for Citrus
County in the past has far exceeded the growth rate of Florida and the nation.
Citrus Bank is the second largest financial institution in Citrus County, based
on a report of the Florida Banker's Association, as of September 30, 1993. Due
to capital deficiency problems in 1988 when assets reached $324 million, Citrus
Bank has downsized to $212 million at December 31, 1994, and Citrus Bank now
exceeds all of its regulatory capital requirement ratios.
Key Bank's primary market area consists of the county of Hillsborough which
includes the city of Tampa where the bank is located. Key Bank's deposit size of
$62 million does not constitute a very large portion of the $8.1 billion Tampa
market deposit total. Key Bank's thrust is to develop a retail and small
business segment in the rapidly growing north Tampa region while also attempting
to service the medium size commercial market. FF Bancorp's strategy is for Key
Bank to draw on the strength and size of New Smyrna Bank and Citrus Bank to
accommodate commercial lending overlines.
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<PAGE> 50
Shown below are certain selected demographics for the FF Bancorp
subsidiaries' market areas. The demographics for New Smyrna Bank include only
New Smyrna Beach and Edgewater communities, not Volusia County.
<TABLE>
<CAPTION>
FF BANKING SUBSIDIARIES(1)
----------------------------------
NEW
SMYRNA CITRUS KEY
ISSUES BANK BANK BANK
---------------------------------------------------- -------- ---------- ----------
<S> <C> <C> <C>
SELECTED DEMOGRAPHICS
Population.......................................... 35,229 105,188 834,054
% Change Pop 1980-90................................ 43% 71% 29%
Number Households................................... 15,034 45,813 167,922
Median Age.......................................... 39.4 50.8 33.0
% Pop > 65 Years Old................................ 23% 31% 12%
Per Capita Income................................... $ 13,288 $ 12,151 $ 14,203
Average Household Income............................ 34,729 30,838 40,032
Median Household Income............................. 24,818 21,285 28,417
Median House Price.................................. 69,397 66,085 73,057
% Homes Built 80-90................................. 38% 49% 37%
Total Market Deposits(2)............................ $695,198 $1,372,515 $8,055,625
Bank Deposits(2).................................... 286,959 194,986 60,344
Percent Market Share................................ 41% 14% *
Position in Market.................................. 1st 3rd *
Number Facilities................................... 3 4 2
Deposits Per Facility(2)............................ $ 95,653 $ 48,747 $ 30,172
</TABLE>
- ---------------
(1) Bank financial information is based on unaudited financial data at December
31, 1993.
(2) Dollars in thousands.
* Key Bank's market share and position in market are insignificant.
LENDING ACTIVITIES
At December 31, 1994, FF Bancorp's net loans totaled $421 million. The net
loans at New Smyrna Bank, Citrus Bank and Key Bank individually were $235
million, $139 million, and $47 million, respectively. Net loans outstanding
represented approximately 71% of the total assets of $590 million of FF Bancorp
at December 31, 1994. FF Bancorp's policy is to originate loans solely within
its primary market areas. Single-family residential loans have comprised
approximately 92% of the total loan portfolio of New Smyrna Bank and Citrus Bank
consolidated over the past few years. Commercial real estate loans, including
multi-family residential loans and land loans, total approximately 7% of the
total loan portfolio of New Smyrna Bank and Citrus Bank with the balance of
approximately 1% of the portfolio being in consumer installment loans and other
loans. Key Bank's net loan portfolio of $47 million is comprised of
approximately 57% in commercial loans which are secured primarily by real
estate, 11% in other commercial and industrial loans, 27% in residential
mortgage loans, and 3% in consumer and other loans. Key Bank grants loans
primarily to borrowers in the Tampa Bay area. Key Bank experienced problems in
its loan portfolio in 1993 and 1992 when charge-offs of $1.1 million and $1.9
million, respectively, were made against the allowance for credit losses. Key
Bank management has addressed those problems, and management believes the
problem loans have been identified and further losses will not be as significant
as in 1993 and 1992.
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<PAGE> 51
The following table sets forth information concerning FF Bancorp's loan
portfolio on a consolidated basis by type of loan at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
--------------- --------------- --------------- --------------- ---------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL REAL ESTATE LOANS:
One-to-four family................. $357,964 81.9% $324,902 88.5% $311,809 88.9% $321,672 88.6% $331,583 88.1%
Construction one-to-four family.... 10,172 2.3 10,317 2.8 7,818 2.2 7,513 2.1 7,823 2.1
Commercial real estate loans
(including multi-family and land
loans)........................... 61,382 14.0 27,154 7.4 26,816 7.7 28,295 7.8 30,314 8.1
CONSUMER AND OTHER LOANS:
Installment(1)..................... 5,830 1.3 2,662 .7 2,252 .6 3,137 .8 3,017 .8
Savings account.................... 1,959 .5 2,197 .6 2,176 .6 2,568 .7 3,330 .9
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans................ $437,307 100.0% $367,232 100.0% $350,871 100.0% $363,185 100.0% $376,067 100.0%
-------- ===== -------- ===== -------- ===== -------- ===== -------- =====
LESS:
Loans in process................... (6,672) (6,350) (4,376) (2,999) (2,721)
Unearned discounts and loan
origination fees................. (3,969) (4,400) (4,155) (4,219) (4,537)
Allowance for loan losses.......... (6,035) (2,726) (2,583) (1,708) (2,152)
-------- -------- -------- -------- --------
Net loans.................. $420,631 $353,756 $339,757 $354,259 $366,657
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Consists primarily of second mortgage loans and automobile loans.
The following table reflects the contractual principal repayment periods of
FF Bancorp's loan portfolio on a consolidated basis at December 31, 1994.
<TABLE>
<CAPTION>
REAL SAVINGS
ESTATE REAL ESTATE ACCOUNT AND
MORTGAGE CONSTRUCTION INSTALLMENT
YEARS ENDED DECEMBER 31, LOANS LOANS LOANS TOTAL
------------------------------------------- -------- ------------ ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1995....................................... $ 6,088 $ 765 $ 1,596 $ 8,449
1996....................................... 27,002 601 1,107 28,710
1997....................................... 6,082 544 425 7,051
1998-1999.................................. 12,016 7 2,876 14,899
2000-2004.................................. 31,199 187 1,074 32,460
2005-2009.................................. 61,490 15 148 61,653
2010 and thereafter........................ 275,469 8,053 563 284,085
-------- ------------ ----------- --------
Total............................ $419,346 $ 10,172 $ 7,789 $437,307
======== ========= ========= ========
</TABLE>
Of the $428.9 million in loans due after 1995, 66.2% of such loans have
fixed interest rates and 33.8% have adjustable interest rates. Scheduled
contractual principal repayments of loans do not reflect the actual life of such
assets because of prepayments and the effect of rate changes.
ORIGINATION, PURCHASE AND SALE OF LOANS
Although there are no restrictions on where it can do business, FF Bancorp
originates loans primarily in the market areas in which New Smyrna Bank, Citrus
Bank and Key Bank operate. FF Bancorp's policy is to originate all loans for its
portfolio and in general, FF Bancorp does not engage in the sale of whole loans
or participations. However, FF Bancorp's fixed-rate residential mortgage loans
are originated on terms which permit their sale to the Federal Home Loan
Mortgage Corporation and other investors in the secondary market. Loans are
primarily originated through salaried loan officers who operate from FF Bancorp
subsidiaries in all banking locations. The residential real estate loan
originations are attributable to depositors, other existing customers,
advertising, and referrals from real estate brokers and developers. The
commercial
49
<PAGE> 52
loan originations are primarily originated from existing clients and customer
sales calls while consumer loan origination is attributable largely to
depositors and walk-in customers. All of the loan applications are evaluated by
staff at the main offices to ensure compliance with FF Bancorp underwriting
standards. All loan activities are subject to written, nondiscriminatory
underwriting standards and loan origination procedures prescribed by management
and the Board of Directors. The underwriting standards meet the lending
requirements of regulatory agencies applicable to savings banks and commercial
banks.
The following table sets forth total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992 1991
------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ORIGINATION:
Residential real estate:
One-to-four family loans...................... $42,719 $41,017 $ 27,159 $ 16,753
Construction one-to-four family loans......... 25,194 15,795 15,242 12,804
Commercial real estate loans
(including multi-family and land loans).... 9,705 5,510 2,058 5,113
Consumer and other loans...................... 5,941 2,765 2,539 2,684
------- ------- -------- --------
Total loans originated................ 83,559 65,087 46,998 37,354
------- ------- -------- --------
Purchase of Key Bancshares, Inc................. 43,256 -- -- --
Other purchases................................. 5,160 2,389 -- 1,379
------- ------- -------- --------
Total loans purchased................. 48,416 2,389 -- 1,379
------- ------- -------- --------
Total loans originated and
purchased........................... 131,975 67,476 46,998 38,733
------- ------- -------- --------
Sales and principal reductions:
Loans sold.................................... -- -- 3,264 2,392
Loan principal reductions..................... 61,900 51,115 56,048 49,223
------- ------- -------- --------
Total loans sold and principal
reductions.......................... 61,900 51,115 59,312 51,615
------- ------- -------- --------
Increase (decrease) in loans receivable (before
net items).................................... $70,075 $16,362 $(12,314) $(12,882)
======= ======= ======== ========
</TABLE>
LOAN FEE INCOME
In addition to interest earned on loans, FF Bancorp receives income through
fees in connection with loan origination, loan modifications and late payments
and for miscellaneous services related to its loans. Income from these
activities varies from period to period with the volume and type of loans
originated, which, in turn, is dependent on prevailing mortgage interest rates
and their effect on the demand for loans in FF Bancorp's market served areas.
Loan origination fees are calculated as a percentage of the amount loaned
and are typically up to three points (one point being equivalent to 1% of the
principal amount of the loan) on residential mortgage loans. Fees are also
charged on some commercial or business related loans. All loan origination fees
are deferred and amortized into income over the contractual life of the loan
using a method which approximates the level yield method. If a loan is prepaid
or refinanced, all remaining deferred fees with respect to such loan are taken
into income at such time. Some fees, such as late payment fees, are not on a
deferred basis.
The accounting for nonrefundable fees and costs associated with originating
and acquiring loans is governed by Statement of Financial Accounting Standards
("SFAS") 91, promulgated by the Financial Accounting Standards Board ("FASB").
SFAS 91 requires that loan origination fees be offset against certain related
direct loan origination costs and that the resulting net amount be deferred and
amortized over the life of the related loans as an adjustment to the yield of
such related loans. In addition, commitment fees are required to be offset
against related direct costs, and the resulting net amount is recognized either
over the life
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<PAGE> 53
of the related loans as an adjustment to the yield, if the commitment is
exercised, or upon expiration of the commitment, if the commitment expires
unexercised.
NONPERFORMING LOANS AND REAL ESTATE OWNED
Loans made by New Smyrna Bank and Citrus Bank are primarily single family
residential loans while loans made by Key Bank are approximately 68% commercial
and industrial, 25% residential mortgage loans and the balance are consumer or
other loans. Since single family residential loans comprise approximately 92% of
the total portfolio this discussion of nonperforming loans and real estate owned
is primarily concerning those loans. However, other loans including commercial
and personal are handled in primarily the same manner. When a borrower fails to
make a required payment on a loan, the borrower is first contacted by mail. If a
payment on a loan has not been received by the tenth day from the payment due
date, subsequent notices are mailed, with follow-up contacts made thereafter. In
most cases, the delinquencies are cured promptly. If the delinquency exceeds 90
days and is not cured through normal collection procedures, more formal measures
are instituted to remedy the default, including the commencement of foreclosure
proceedings. FF Bancorp will attempt to negotiate with the delinquent borrower
to establish a satisfactory payment schedule.
If foreclosure is effected, the property is sold at a public auction in
which FF Bancorp may participate as a bidder. If FF Bancorp is the successful
bidder, the acquired real estate property is then included in FF Bancorp's "real
estate owned" account until it is sold. Savings institutions are permitted under
federal regulations to finance sales of real estate owned by "loans to
facilitate," which may involve more favorable interest rates and terms than
generally would be granted under FF Bancorp's underwriting guidelines.
Loans are placed on nonaccrual status when, in the judgment of management,
the probability of collection of interest is deemed to be insufficient to
warrant further accrual. When a loan is placed on nonaccrual status, previously
accrued but unpaid interest is deducted from interest income. As a matter of
policy, FF Bancorp does not accrue interest on loans past due 90 days or more.
Consumer loans more than 120 days delinquent are required to be written off in
accordance with federal regulations.
Real estate acquired by FF Bancorp as a result of foreclosure or by deed in
lieu of foreclosure is classified as real estate owned until it is sold. When
property is acquired, it is recorded at the lower of cost or fair value at the
date of acquisition and any write-down resulting therefrom is charged to the
allowance for loan losses. Similar treatment is accorded to the collateral for
loans or securities which have been deemed to constitute in-substance
foreclosures. In-substance foreclosures represent loans which, in substance, are
considered repossessed even though formal foreclosure proceedings have not been
completed. The carrying value of in-substance foreclosures is the lower of its
estimated fair value or the balance of the related loan. Although the collateral
for the loans has not been repossessed, the borrower has little or no equity in
the collateral at its current estimated fair value, proceeds for repayment are
expected to come only from the operation or sale of the collateral, and either
the borrower has abandoned control of the project or it is doubtful the borrower
will rebuild equity in the collateral or repay the loan by other means in the
foreseeable future. The amounts ultimately recoverable from in-substance
foreclosures can differ materially from the amounts used in arriving at the net
carrying value of the assets because of future market factors beyond FF
Bancorp's control or changes in FF Bancorp's strategy for recovering its
investment. All costs incurred in maintaining the property are capitalized
between the date the loan becomes delinquent and the date of acquisition. After
the date of acquisition, all costs incurred in maintaining the property are
expenses and costs incurred for the improvement or development of such property
are capitalized if there is adequate equity to fair value.
The following table sets forth certain information regarding nonaccrual
loans and real estate owned, including in-substance foreclosure, the ratio of
such loans and real estate owned to total assets as of the dates
51
<PAGE> 54
indicated, and certain other related information for FF Bancorp. FF Bancorp did
not have any troubled debt restructurings at any of the dates presented.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NONACCRUAL LOANS:
Residential:
One-to-four family loans................. $1,818 $2,035 $ 2,123 $ 3,475 $ 3,213
Construction one-to-four family loans.... 72 -- -- 669 1,104
Commercial real estate loans (including
multi-family and land)................ 703 -- 353 844 1,464
Consumer and other loans................. 235 -- 30 126 --
------ ------ ------- ------- -------
Total nonaccrual loans........... 2,828 2,035 2,506 5,114 5,781
------ ------ ------- ------- -------
ACCRUING LOANS 90 DAYS OR MORE PAST DUE:
Residential:
One-to-four family loans................. 6 -- -- 185 32
Commercial real estate loans (including
multi-family and land)................ -- -- -- -- --
------ ------ ------- ------- -------
Total accruing loans 90 days or
more past due.................. 6 -- -- 185 32
------ ------ ------- ------- -------
Total nonperforming loans........ $2,834 $2,035 $ 2,506 $ 5,299 $ 5,813
====== ====== ======= ======= =======
Total nonperforming loans to
total assets................... .48% .37% .46% .96% 1.12%
====== ====== ======= ======= =======
Real estate owned:
Real estate acquired by foreclosure or
deed in lieu of foreclosure........... $3,344 $1,563 $ 5,473 $ 6,692 $ 7,660
Real estate held for investment.......... -- 21 42 101 534
In-substance foreclosures................ 2,723 3,949 5,618 5,813 3,726
Allowance for loss on real estate
owned................................. (704) (764) (1,033) (1,759) (1,540)
------ ------ ------- ------- -------
Total real estate owned, net..... $5,363 $4,769 $10,100 $10,847 $10,380
====== ====== ======= ======= =======
Total nonperforming loans and
real estate owned.............. $8,197 $6,804 $12,606 $16,146 $16,193
====== ====== ======= ======= =======
Total nonperforming loans and
real estate owned, net to total
assets......................... 1.39% 1.25% 2.30% 2.92% 3.12%
====== ====== ======= ======= =======
</TABLE>
- ---------------
See Note (4) to the consolidated financial statements for information about the
interest income which would have been recorded under the original terms of such
loans and the amount actually recorded.
ALLOWANCE FOR LOSSES ON LOANS AND REAL ESTATE OWNED
Reserves for losses on delinquent loans are established when management of
FF Bancorp determines that losses are expected to be incurred on such loans. The
allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determinations of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth and composition of the loan portfolio, and other relevant factors. The
allowance is increased by provisions for loan losses which are charged against
income.
Although management believes that the allowance for loan losses was
adequate, FF Bancorp's provisions are based on the current and currently
anticipated future operating conditions, thereby causing these estimates to be
susceptible to changes that could result in a material adjustment to results of
operations in the near term. Recovery of the carrying value of such loans is
dependent to a great extent on economic, operating and other
52
<PAGE> 55
conditions that may be beyond FF Bancorp's control. Therefore, actual losses in
future periods could differ materially from amounts provided in the current
period and could result in a material adjustment to future result of operations.
The following table sets forth information with respect to activity in FF
Bancorp's allowance for loan losses during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans outstanding, net...... $399,968 $345,037 $346,550 $359,726 $369,402
======== ======== ======== ======== ========
Allowance at beginning of period.... $ 2,726 $ 2,583 $ 1,708 $ 2,151 $ 3,326
-------- -------- -------- -------- --------
Key Bancshares, Inc. purchase....... 1,858 -- -- -- --
-------- -------- -------- -------- --------
Charge-offs:
Residential real estate:
Conventional loans............. 371 48 130 807 420
Construction loans............. -- -- -- -- 680
Commercial real estate loans... 190 -- 4 422 1,170
Consumer loans................. 47 -- 2 73 1
-------- -------- -------- -------- --------
Total loans charged-off... 608 48 136 1,302 2,271
-------- -------- -------- -------- --------
Recoveries.......................... 120 14 -- -- --
-------- -------- -------- -------- --------
Net charge-offs................... 488 34 136 1,302 2,271
-------- -------- -------- -------- --------
Provisions for loan losses charged
to operating expenses............. 1,939 177 1,011 859 1,096
-------- -------- -------- -------- --------
Allowance at end of year............ $ 6,035 $ 2,726 $ 2,583 $ 1,708 $ 2,151
======== ======== ======== ======== ========
Ratio of net charge-offs to average
loans outstanding................. .12% .01% .04% .36% .61%
======== ======== ======== ======== ========
Ratio of allowance to period-end
loans............................. 1.43% .77% .76% .48% .59%
======== ======== ======== ======== ========
</TABLE>
A loan or portion thereof is charged off against the allowance when
management has determined that losses on such loans are probable. Recoveries on
any loans charged off in prior periods are credited to the allowance. The ratio
of net charge-offs to average loans outstanding declined each year from 1990
through 1993 and management decreased the provision to the allowance in 1993.
The decrease in the level of loan loss provision in 1993 was generally
consistent with management's conclusion that the residential real estate market
in FF Bancorp's market areas continued to improve, and with management's
assessment of the relative risk associated with the composition of the loan
portfolio, which is comprised predominantly of first mortgage loans on single
family residential property.
In 1994, following the purchase of Key Bancshares and adoption of new loan
loss policies, the provision for loan losses was increased. The provision for
loan losses is charged to earnings to bring the total allowance to a level
deemed appropriate by management and is based upon historical experience, the
volume and type of lending conducted by FF Bancorp, industry standards, the
amount of nonperforming loans, general economic conditions, particularly as they
relate to FF Bancorp's market areas, and other factors related to the
collectibility of FF Bancorp's loan portfolio. The provision for loan losses
increased from $.2 million at December 31, 1993 to $1.9 million during 1994. The
allowance for loan losses increased from $2.7 million at December 31, 1993 to
$6.0 million at December 31, 1994. The increase is due to the acquisition of Key
Bank and to the adoption of a new loan loss policy. Management has adopted a
uniform and more stringent method of determining these allowances (for all
financial institutions it operates) including a more aggressive and more
standardized approach to grading loans as well as using standard factors for
calculating estimated losses on nonclassified loans. Management has made this
change effective December 31, 1994 and has reported the effect of this change in
the fourth quarter of 1994. This change resulted in a provision of $1.9 million
recorded
53
<PAGE> 56
in the fourth quarter of 1994. While management believes that its allowance for
loan losses is adequate as of December 31, 1994, future adjustments to FF
Bancorp's allowance for loan losses may be necessary if economic conditions
differ substantially from the assumptions used in making the initial
determination.
The following table presents information regarding FF Bancorp's total
allowance for loan losses as well as the allocation of such amounts to the
various categories of loans.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
----------------- ----------------- ----------------- ----------------- -----------------
% OF % OF % OF % OF % OF
LOANS TO LOANS TO LOANS TO LOANS TO LOANS TO
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate
loans........................ $2,818 46.7% $2,068 91.3% $2,033 91.1% $1,082 90.7% $1,461 90.2%
Commercial real estate loans
(including multi-family and
land loans)................. 3,034 50.3 607 7.4 486 7.7 566 7.8 673 8.1
Consumer loans................ 183 3.0 51 1.3 64 1.2 60 1.5 17 1.7
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
Total allowance for
loan losses......... $6,035 100% $2,726 100% $2,583 100% $1,708 100% $2,151 100%
====== ======= ====== ======= ====== ======= ====== ======= ====== =======
</TABLE>
MORTGAGE-BACKED SECURITIES
FF Bancorp has invested in a portfolio of mortgage-backed securities which
are guaranteed as to principal and interest by the full faith and credit of the
United States or insured or guaranteed by agencies of or corporations or
entities chartered by the Federal government. Approximately 53.6% of the
mortgage-backed securities owned by FF Bancorp are currently insured or
guaranteed by the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage
Corporation ("FHLMC"), with the remaining 46.4% in collateralized mortgage
obligations ("CMO's"), real estate mortgage investment conduit securities
("REMIC's") or other mortgage-backed securities. Mortgage backed securities
generally increase the quality of FF Bancorp's assets by virtue of the agency
guarantees that back them, are more liquid than individual mortgage loans and
may be used to collateralize borrowings or other obligations of FF Bancorp. Due
to repayment and prepayments of the underlying loans, the actual maturities of
mortgage-backed securities are substantially less than the scheduled maturities.
All mortgage-backed and related securities at December 31, 1992, were considered
held-to-maturity and recorded at amortized cost. On December 31, 1993, FF
Bancorp adopted Statement of Financial Accounting Standards No. 115 and
reclassified certain of its mortgage-backed securities as available-for-sale.
This resulted in an increase in the recorded amount of mortgage-backed
securities by $1,481,000 and an increase in stockholders' equity of $918,000,
which is net of the income tax effect of $563,000. At December 31, 1994, FF
Bancorp's total mortgage-backed securities portfolio was classified as
available-for-sale and had a market value of $16.8 million and a weighted
average yield of 7.0%. As of such date, $6.1 million of mortgage-backed
securities were adjustable rate securities and $10.7 million were fixed rate
securities.
FF Bancorp's holdings of mortgage-backed securities comprise almost
entirely fixed and variable rate federal agency pass-through securities. While
their market values are generally more variable than, for example, comparable
maturity U.S. Treasury and federal agency notes and debentures, management
believes the increased variability is acceptable in view of the higher returns
provided by the pass-through securities. In addition, FF Bancorp has holdings of
adjustable rate CMO and REMIC securities. These securities are also subject to
relatively high market valuation risk, but management believes the exposure is
dampened adequately by the responsiveness of their coupon rates to changing
market rates. The adjustable coupons also result in exemption from OTS high-risk
investment criteria.
54
<PAGE> 57
The following table sets forth mortgage-backed securities purchased, sold
and repaid during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Purchases............................................ $ -- $ 20,008 $ 14,999
Sales................................................ (28,742) -- --
Principal reductions net............................. (16,304) (39,866) (40,313)
Unrealized gain (loss) on mortgage-backed securities
available-for-sale................................. (2,122) 1,481 --
-------- -------- --------
Increase (decrease) in mortgage-backed securities.... $ 47,168 $(18,377) $(25,314)
======== ======== ========
</TABLE>
INVESTMENT ACTIVITIES
FF Bancorp and the FF Subsidiaries have authority to invest in various
types of securities, including U.S. Treasury obligations and securities of
various federal agencies, certificates of deposit at insured banks and savings
institutions, bankers acceptances, and federal funds. Subject to various
restrictions, federally-chartered savings institutions may invest a portion of
their assets in commercial paper, corporate debt securities and mutual funds
whose assets conform to the investments that a federally chartered savings
institution is authorized to make directly.
As members of the FHLB System, New Smyrna Bank and Citrus Bank must
maintain a minimum liquidity level specified by the OTS which may vary from time
to time. New Smyrna Bank and Citrus Bank comply with this requirement primarily
by maintaining a significant amount of funds in interest-bearing deposits at the
FHLB of Atlanta. Liquidity may increase or decrease depending upon the yields
available on investment opportunities and upon management's judgment as to the
attractiveness of such yields and its expectation of the level of yields that
will be available in the future. Membership in the FHLB also requires an
investment in the common stock of FHLB of Atlanta.
State chartered banks like Key Bank have authority to invest in various
types of securities, including U.S. Treasury obligations and securities of
various federal agencies, certificates of deposits at insured banks and savings
institutions, bankers acceptances and federal funds.
As a state chartered bank, Key Bank must maintain a minimum liquidity
level. Key Bank complies with this requirement primarily by maintaining a
significant amount of federal funds and short-term U.S. Government securities.
Liquidity may increase or decrease depending upon the yields available on
investment opportunities and upon management's judgement as to the
attractiveness of such yields and its expectation of the level of yields that
will be available in the future.
55
<PAGE> 58
The following table sets forth the carrying value of FF Bancorp's
investment portfolio as of the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1993 1992
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term investments
Interest-bearing deposits............................... $ 87,731 $ 87,860 $83,280
-------- -------- -------
Federal funds sold...................................... 1,150 -- --
-------- -------- -------
Equity securities:
FHLB stock............................................ 4,265 4,326 4,337
-------- -------- -------
FHLMC common stock available for sale................. 1,337 1,320 104
-------- -------- -------
Debt Securities:
FNMA debentures....................................... -- 5,080 5,161
FHLB debentures....................................... 3,050 5,000 --
United States Government and Agency Obligations....... 8,933 -- 5,010
-------- -------- -------
Total......................................... 11,983 10,080 10,171
-------- -------- -------
$106,466 $103,586 $97,892
======== ======== =======
</TABLE>
The following table sets forth, by maturity distribution, certain
information pertaining to the investment and debt securities and other funds
portfolio at December 31, 1994.
<TABLE>
<CAPTION>
AFTER ONE
ONE YEAR YEAR AFTER FIVE YEARS OVER
OR LESS TO FIVE YEARS TO TEN YEARS TEN YEARS TOTAL
------------------ ------------- ----------------- ------------------ ------------------
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
----------- ----- ------ ----- ---------- ----- ----------- ----- ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1994:
United States Government
and Agency Obligations... $ -- -- -- -- -- -- -- -- -- --
Mortgage-Backed Securities:
FHLMC certificates....... -- -- -- -- -- -- -- -- -- --
GNMA certificates........ -- -- -- -- -- -- -- -- -- --
FNMA certificates........ -- -- -- -- -- -- -- -- -- --
Collateralized Mortgage
Obligations............ -- -- -- -- -- -- -- -- -- --
REMIC.................... -- -- -- -- -- -- -- -- -- --
Other mortgage-backed
securities............. -- -- -- -- -- -- -- -- -- --
----------- ------ ---------- ----------- -----------
Total
mortgage-backed
securities
held-to-
maturity......... $ -- -- -- -- -- -- -- -- -- --
========== ====== ========= ========== ==========
GNMA certificates........ -- -- -- -- 4,444 8.08 4,444 8.08
FNMA certificates........ -- -- -- -- -- -- 4,540 8.90 4,540 8.90
Collateralized mortgage
obligations............ -- -- -- -- -- -- 6,458 5.18 6,458 5.18
Other mortgage-backed
securities............. -- -- -- -- -- -- 1,342 5.38 1,342 5.38
----------- ------ ---------- ----------- -----------
Total mortgaged-
backed securities
available-for-
sale............. $ -- -- -- -- -- -- 16,784 -- 16,784 --
========== ====== ========= ========== ==========
FHLB debentures.......... -- -- -- -- 3,050 7.15% -- -- 3,050 7.15%
FHLMC common stock....... 1,337 -- 1,337 --
United States Treasury
Notes.................. 4,472 4.00% 4,461 6.65% -- -- -- -- 8,933 5.35%
----------- ------ ---------- ----------- -----------
Total other
securities
available-for-
sale............. $ 4,472 -- 4,461 -- 3,050 -- 1,337 -- 13,320 --
========== ====== ========= ========== ==========
Other Funds:
Interest-bearing
deposits............... 87,731 4.33% -- -- -- -- -- -- 87,731 4.33%
----------- ------ ---------- ----------- -----------
Total
investments(1)... $ 92,203 4,461 3,050 18,121 117,835
========== ====== ========= ========== ==========
</TABLE>
- ---------------
(1) On December 31, 1994, FF Bancorp classified all mortgage-backed securities
as available-for-sale.
56
<PAGE> 59
SOURCE OF FUNDS
General
Deposit accounts are FF Bancorp's primary source of funds for use in
lending and for other general business purposes. In addition to deposit
accounts, FF Bancorp obtains funds from normal loan amortization and prepayments
and from operations. Contractual loan payments are a relatively stable source of
funds, while deposit inflows and outflows and loan prepayments are significantly
influenced by general market interest rates and economic conditions. Borrowings
may be used on a short-term basis to compensate for seasonal or other reductions
in normal sources of funds. Borrowings may also be used on a longer term basis
to support expanded lending or investment activities. At December 31, 1994, FF
Bancorp had no borrowings outstanding.
Deposits
Due to changes in regulatory and economic conditions in recent years, FF
Bancorp has increasingly emphasized deregulated fixed-rate certificate accounts
and other types of deposit accounts. A number of different programs have been
designed to attract both short-term and long-term deposits of the general public
by providing an assortment of accounts and rates. These programs include
passbook accounts, NOW accounts, MMDAs and certificates of deposit currently
ranging in terms from 91 days to 120 months. In the unlikely event of
liquidation, account holders will be entitled to full payment of their accounts
prior to payment to shareholders.
Deposit accounts are obtained primarily from customers residing in FF
Bancorp's primary market areas. The principal methods used to attract deposit
accounts include offering a wide variety of services and accounts, competitive
interest rates and convenient office locations, including access to automated
teller machines ("ATMs") through the HONOR shared ATM network. FF Bancorp does
not utilize brokered deposits or actively seek negotiated rate certificates of
deposit in excess of $100,000 ("jumbo certificates").
The following table shows the distribution of, and certain other
information relating to, FF Bancorp's deposit accounts by type:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------
1994 1993 1992
------------------ ------------------ ------------------
% OF % OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSIT AMOUNT DEPOSIT
-------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing commercial
checking accounts............. $ 17,605 3.3% $ 6,200 1.3% $ 1,736 .3%
Regular savings accounts........ 87,073 16.1 89,299 18.2 86,185 17.2
MMDAs........................... 43,119 8.0 39,723 8.1 39,419 7.9
NOW accounts.................... 47,434 8.8 42,507 8.7 40,363 8.1
-------- ------- -------- ------- -------- -------
Subtotal.............. 195,231 36.2 177,729 36.3 167,703 33.5
-------- ------- -------- ------- -------- -------
Certificate of deposits:
2.00% - 2.99%................ 300 .1 3,091 .6 -- --
3.00% - 4.99%................ 183,176 34.0 191,302 39.0 197,355 39.4
5.00% - 6.99%................ 156,500 29.0 104,486 21.3 103,152 20.6
7.00% - 8.99%................ 3,143 .5 11,102 2.3 24,341 4.8
9.00% - 10.99%............... 844 .2 1,200 .3 7,129 1.4
11.00% - 12.99%............... -- -- 1,131 .2 1,416 .3
-------- ------- -------- ------- -------- -------
Total certificates of
deposit(1).................... 343,963 63.8 312,312 63.7 333,393 66.5
-------- ------- -------- ------- -------- -------
Total deposits........ $539,194 100% $490,041 100% $501,096 100%
======== ====== ======== ====== ======== ======
</TABLE>
- ---------------
(1) Includes individual retirement accounts ("IRAs") totalling $40.0 million,
$24.4 million and $30.5 million at December 31, 1994, 1993, and 1992,
respectively, all of which are in the form of certificates of deposits and
MMDAs.
57
<PAGE> 60
The following table shows the average amount of and the average rate paid
on each of the following deposit account categories during the years indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994 1993 1992
------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD BALANCE YIELD
-------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MMDA's, Now and noninterest
bearing commercial checking
accounts....................... $ 92,216 1.97% $ 85,089 2.46% $ 68,642 3.23%
Regular savings.................. 91,110 3.02 88,107 2.62 79,142 3.48
Certificates of deposits:........ 338,076 4.55 319,476 4.69 354,853 5.68
-------- -------- --------
Total deposits......... $521,402 3.81% $492,672 3.93% $502,637 5.01%
======== ====== ======== ====== ======== ======
</TABLE>
The following table sets forth the net deposit flows of FF Bancorp during
the years indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net (decrease) before interest credited................ $(35,360) $(28,760) $(38,938)
Interest credited...................................... 18,420 17,705 22,049
-------- -------- --------
Net deposit increase (decrease).............. $(16,940) $(11,055) $(16,889)
======== ======== ========
</TABLE>
Borrowings
FF Bancorp is permitted to obtain advances from the FHLB of Atlanta upon
the security of the capital stock owned in the FHLB of Atlanta and certain home
mortgage loans and other assets (principally, securities which are obligations
of, or guaranteed by, the U.S. government or agencies thereof), provided certain
standards related to credit worthiness have been met. Such advances may be made
pursuant to several different credit programs. Each credit program has its own
interest rate and range of maturities, and the FHLB of Atlanta prescribes the
acceptable uses to which the advances pursuant to each program may be made, as
well as limitations on the size of such advances. Depending on the program, such
limitations are based either on a fixed percentage of FF Bancorp's thrift
subsidiaries regulatory capital or their liability for shares and deposits or on
the FHLB's assessment of the credit worthiness of FF Bancorp's thrift
subsidiaries. The FHLB is required to review their credit limitations and
standards at least once every six months. Prepayment of FHLB of Atlanta advances
may incur prepayment penalties.
At December 31, 1993, FF Bancorp had $5.0 million in FHLB advances
outstanding and had no borrowings or advances outstanding at December 31, 1994.
AFFILIATES OF NEW SMYRNA BANK AND CITRUS BANK
At December 31, 1994, New Smyrna Bank and Citrus Bank each had one
affiliate (collectively "Affiliates"). New Smyrna Bank's affiliate, First
Florida Agency, Inc. ("FFA") was founded in 1985 but had not carried on any
business activities until 1993. Citrus Bank's affiliate, Home Assets, Inc.
("Home Assets"), was incorporated in 1972 and its last major activity prior to
1993 involved a joint venture agreement in 1986. Home Assets' only activity from
1986 until April 5, 1993 was the receipt of payments and the marketing of two
remaining lots from the joint venture.
In November, 1992 FF Bancorp expanded its financial services available to
customers to include mutual funds and fixed and variable rate annuities. Because
savings institutions are prohibited by law from the direct solicitation of
insurance and securities products on the savings institution's premises and from
entering directly into contracts with broker-dealers for such securities
services, the Affiliates entered into separate Service Agreements with a third
party, unaffiliated licensed broker-dealer, to sell mutual funds and variable
annuities
58
<PAGE> 61
to customers of unaffiliated licensed broker-dealer, to sell mutual funds and
variable annuities to customers of FF Bancorp. New Smyrna Bank and Citrus Bank,
in turn, entered into separate lease agreements with licensed insurance agency
to lease a portion of space at each respective branch office for the purpose of
selling fixed and variable annuities. The Service Agreements require the
broker-dealer to pay the Affiliates a portion of commissions received by the
broker-dealer from the sale of securities. The lease agreements require the
insurance agency to pay fixed lease payments to New Smyrna Bank and Citrus Bank
for use of the leased premises to sell insurance. The lease payment may be
adjusted on a quarterly basis. The lease agreements were entered into and
effective November 30, 1992. The Service Agreements were entered into in
February, 1992, but brokerage activities did not commence until April 5, 1993,
after appropriate notices had been filed with the FDIC and OTS and those
agencies had indicated that they had no objection to the brokerage activities.
59
<PAGE> 62
FF BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
FF Bancorp is a Florida corporation which was established on May 12, 1992.
FF Bancorp is a multiple thrift and one-bank holding company whose principal
activity is the operation of its wholly-owned subsidiaries, New Smyrna Bank,
Citrus Bank and its 98.6% owned bank holding company Key Bancshares.
FF Bancorp became a multiple thrift holding company as a result of separate
transactions. The transactions involved the reorganization of New Smyrna Bank, a
federally chartered stock savings bank, and the reorganization and acquisition
of Citrus Bank, a federally chartered mutual savings association. In the
reorganization of New Smyrna, each of the outstanding shares of common stock of
New Smyrna Bank were exchanged for shares of FF Bancorp's common stock on a one
for one basis. The acquisition and reorganization of Citrus Bank resulted in
Citrus Bank's conversion from a federally chartered mutual savings association
to a federally chartered stock savings bank, and involved an offering by FF
Bancorp of its common stock in a Subscription and Community Offering in an
aggregate amount equal to the appraised value of Citrus Bank at the time of the
conversion. These two transactions closed on July 8, 1992.
On April 8, 1994, FF Bancorp acquired Key Bancshares for a combination of
$1.6 million in cash and 71,142 shares of common stock. Key Bancshares is the
parent company for Key Bank. Key Bank operates as a commercial bank subsidiary.
The acquisition has been accounted for using the purchase method of accounting.
FF Bancorp, for the year ended December 31, 1994, had net consolidated
earnings of $6.5 million or $1.44 per share compared to $7.8 million or $1.68
per share in 1993. FF Bancorp's main business, conducted through its banking
subsidiaries New Smyrna Bank, Citrus Bank and Key Bank, is to attract deposits
and to invest those funds in mortgage loans for financing the purchase of real
estate properties, primarily secured by owner-occupied, single family
(one-to-four units) residential properties, including construction loans for
such properties, and to a lesser extent, the origination of loans secured by
commercial and multi-family residential real estate properties and consumer
loans.
FF Bancorp's consolidated assets amounted to $590 million as of December
31, 1994, an increase of 8% over total assets of $545 million as of December 31,
1993, the increase resulted from the acquisition of Key Bank. During the year
ended December 31, 1994 net loans receivable increased $67 million or 18% to
$421 million. FF Bancorp's portfolio of mortgage-backed securities decreased
substantially to $17 million as of December 31, 1994 from $64 million as of
December 31, 1993 because of restructuring the securities portfolio of FF
Bancorp in order to reduce interest-rate risk. FF Bancorp's deposit accounts
increased to $539 million as of December 31, 1994 from $490 million as of
December 31, 1993, an increase of 10.0%. The increase in deposit accounts
resulted from the acquisition of Key Bank reduced by a net outflow from total
deposit accounts.
BANKING SUBSIDIARIES
New Smyrna Bank was founded in 1935 as a mutual savings association and
converted to a stock company on July 1, 1991. Gross proceeds from the sale of
New Smyrna Bank's common stock totalled $11.5 million and after deduction of
offering expenses, net proceeds amounted to $10.7 million. At December 31, 1994,
New Smyrna Bank had total assets of $310.5 million, total deposits of $283.2
million and equity capital of $24.2 million. New Smyrna Bank's activities are
conducted from its main office in New Smyrna Beach, Florida and its two full
service branch facilities in Edgewater and New Smyrna Beach, Florida. New Smyrna
Bank makes mortgage loans on real estate primarily located in Volusia County.
Citrus Bank was founded in 1963 as a mutual savings association and
converted to a stock savings bank on July 8, 1992. FF Bancorp issued 152,554
shares of its common stock in the acquisition of Citrus Bank. Gross proceeds
from the offering totaled $2.4 million and, after deduction of offering
expenses, net proceeds from the offering amounted to $2.1 million. At December
31, 1994, Citrus Bank had total assets of
60
<PAGE> 63
$211.7 million, total deposits of $194.7 million and equity capital of $15.3
million. Citrus Bank conducts its business through three full service branch
facilities in Crystal River, Homosassa Springs and Beverly Hills, Florida and
its corporate headquarters in Inverness, Florida. Citrus Bank's primary market
area for making mortgage loans is in Citrus, Hernando, and Marion Counties.
Key Bank was founded in 1973 as a state (Florida) chartered commercial
bank. Key Bank reorganized in 1982 as a subsidiary of Key Bancshares. At
December 31, 1994, Key Bank had total assets of $67.2 million, total deposits of
$61.8 million and equity of $4.8 million. Key Bank conducts it business through
one full-service facility and its corporate headquarters in Hillsborough County.
Key Bank's primary market area is in Hillsborough and Pinellas Counties.
New Smyrna Bank and Citrus Bank are members of the Federal Home Loan Bank
System and their deposit accounts are insured by the Savings Association
Insurance Fund of the FDIC. Key Bank's deposits are insured by the Bank
Insurance Fund of the FDIC. FF Bancorp and the FF Subsidiaries are Equal
Opportunity Employers and are Equal Housing Lenders.
REGULATION AND LEGISLATION
The operating results of FF Bancorp and its subsidiaries are affected by
federal and state laws and federal regulations. As a multiple savings and loan
holding company and a one-bank holding company, FF Bancorp is subject to
regulation and supervision by the Office of Thrift Supervision ("OTS") under the
Savings and Loan Holding Company Act, the Florida Department of Banking and
Finance ("Department"), the Federal Reserve Board of Governors ("FRB") and the
FDIC. In recent years, measures have been taken to reform the banking industry
and to strengthen the insurance funds for depository institutions. The most
significant of these measures was the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA"), which in general has had a major impact
on the operation and regulation of savings associations. In 1991, a
comprehensive deposit insurance and banking reform plan, the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), became law. Although
the FDICIA's primary purpose is to recapitalize the Bank Insurance Fund of the
FDlC, which insures the deposits of commercial banks, the FDICIA also affects
the supervision and regulation of all federally insured depository institutions.
New Smyrna Bank and Citrus Bank are subject to regulation and supervision
by the OTS and the FDIC and are restricted in their dealings with companies that
are affiliates of FF Bancorp under the Home Owners Loan Act and the Federal
Reserve Act which were made applicable to savings associations by the FIRREA.
Transactions with affiliates of savings associations are now subject to the
limitations of Sections 23A, 23B and 22(h) of the Federal Reserve Act. Upon the
consummation of the acquisition of Key Bancshares, FF Bancorp became a one-bank
holding company with Key Bancshares as its subsidiary. FF Bancorp is also
subject to regulation and supervision by the FRB under the Bank Holding Company
Act and the Change in Bank Control Act.
The FIRREA established new capital standards for savings associations which
have been codified in the OTS' capital regulations. All savings associations
must now meet three separate minimum capital-to-assets requirements: (i) a
leverage requirement of 3% core capital to adjusted total assets; (ii) a
tangible capital requirement of 1.5% tangible capital to adjusted total assets;
and (iii) a risk-based capital standard of 8.0% total capital (which is defined
as core and supplementary capital) to risk-weighted assets. The components of
supplementary capital include cumulative perpetual preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock and allowance for loan and lease losses.
Allowance or loan and lease losses includable in supplementary capital is
limited to a maximum of 1.25%. Overall, the amount of supplementary capital
counted toward total capital cannot exceed 100% of core capital. In determining
the amount of risk-weighted assets, all assets, including certain off balance
sheet assets, are multiplied by a risk weight of 0% to 100%, as assigned by the
OTS capital regulation based on the risks OTS believes are inherent in the type
of asset. The OTS has proposed to modify the core capital requirement, whereby
only savings associations rated composite 1 under the OTS macro rating system
would be permitted to operate with a minimum regulatory leverage ratio of 3%.
For all other savings
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<PAGE> 64
associations, the minimum core capital leverage ratio will be 3%, plus at least
an additional 100 to 200 basis points.
In August 1993, the OTS issued a final rule which sets forth the
methodology for calculating an interest-rate risk component. The final
interest-rate risk rule which became effective January 1, 1994 and made part of
the OTS' capital regulations, adjusts the risk-weighting for certain mortgaged
derivative securities. The interest-rate risk components is an amount equal to
one-half of the difference between the savings association's measured interest
rate risk and 2%, multiplied by the estimated economic value of the savings
association's assets. The dollar amount is deducted from the savings
association's total capital in calculating compliance with its risk-based
capital requirement. The rule provides for a two quarter lag between the
reporting date of a savings institution's financial data and the effective date
for new capital requirement based on that data. Thus, the first date that the
component will be deducted from total capital under the final rule will be March
31, 1995, based on the interest-rate risk component calculated using data as of
September 30, 1994. The rule also provides that the Director of the OTS may
waive or defer a savings association's interest-rate risk component on a
case-by-case basis. At December 31, 1994, New Smyrna Bank and Citrus Bank met
their respective capital requirements. The FDICIA adopted a number of new
mandatory supervisory measures applicable to savings associations, as well as
banks, designed to reduce the cost to the deposit funds in resolving problems
presented by undercapitalized financial institutions. In addition, the federal
regulatory agencies are also required to adopt and enforce final regulations
prescribing standards relating to a variety of operating matters such as
internal controls, information systems and external audit systems, loan
documentation and credit underwriting, interest rate exposure, asset growth and
quality and employee compensation.
The FIRREA established new capital standards for state chartered nonmember
banks and savings associations which have been codified in the FDIC and the OTS'
capital regulations. All financial institutions must now meet three separate
minimum capital-to-assets requirements: (i) a leverage requirement of 3% core
capital to adjusted total asset; (ii) a tangible capital requirement of 1.5%
tangible capital to adjusted total assets; and (iii) a risk-based capital
standard of 8.0% total capital (which is defined as core and supplementary
capital) to risk-weighted assets. The components of supplementary capital
include cumulative perpetual preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate
preferred stock and allowance for loan and lease losses. Allowance or loan and
lease losses includable in supplementary capital is limited to a maximum of
1.25%. Overall, the amount of supplementary capital counted toward total capital
cannot exceed 100% of core capital. In determining the amount of risk-weighted
assets, all assets including certain off balance sheet assets, are multiplied by
a risk weight of 0% to 100%, as assigned by the FDIC and OTS capital regulations
based on the risks the FDIC and the OTS believes are inherent in the type of
asset.
Both the risk-based capital guidelines and the leverage ratio are minimum
requirements, applicable only to top-rated financial institutions. Institutions
operating at or near these levels are expected to have well-diversified risk,
excellent asset quality, high liquidity, good earnings and in general, have to
be considered strong organizations, rated composite 1 under the appropriate
regulatory rating system for banks and thrifts or the BOPEC rating system for
bank holding companies. Institutions with lower ratings and institutions with
high levels of risk or experiencing or anticipating significant growth would be
expected to maintain ratios 100 to 200 basis points above the stated minimums.
LIQUIDITY AND CAPITAL RESOURCES
New Smyrna Bank and Citrus Bank are required by OTS regulations to maintain
average daily balances of liquid assets and short-term liquid assets (as
defined) in amounts equal to 5% and 1%, respectively, of net withdrawable
deposits and borrowings payable in one year or less to assure its ability to
meet demand for withdrawals and repayment of short-term borrowings. The
liquidity requirements may vary from time to time at the direction of the OTS
depending upon economic conditions and deposit flows. New Smyrna Bank and Citrus
Bank generally maintain a minimum liquidity ratio significantly in excess of
these requirements. New Smyrna Bank's and Citrus Bank's average daily liquidity
ratio for December, 1994 were 18.3% and 18.7%, respectively, and their
short-term liquidity ratio at December 31, 1994 were approximately 18.3% and
18.7%,
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<PAGE> 65
respectively. New Smyrna Bank and Citrus Bank each maintain a liquidity ratio
which is higher than required levels as part of its asset and liability
management strategy.
As a state-chartered commercial bank, Key Bank is required to maintain a
liquidity reserve of at least 15% of its transaction accounts and 8% of its
total nontransaction accounts. The liquidity reserve may consist of cash on
hand, cash on demand deposit with other correspondent banks, and other
investments and short-term marketable securities as determined by the rules of
the Department, such as federal funds sold and United States securities or
securities guaranteed by the United States. As of December 31, 1994 Key Bank
exceeded these requirements.
During the year ended December 31, 1994, FF Bancorp's primary sources of
funds consisted of principal payments on loans and mortgage-backed securities,
the sale of mortgage-backed securities and net earnings. FF Bancorp used its
capital resources principally to fund existing and continuing loan commitments
and to fund the net outflow in deposit accounts. At December 31, 1994, FF
Bancorp had commitments to originate loans totalling $8.3 million and had $6.7
million of undisbursed loans in process. Scheduled maturities of certificates of
deposit during the 12 months following December 31, 1994 totalled $221.6 million
as of December 31, 1994. FF Bancorp management believes that FF Bancorp has
adequate resources to fund all its commitments, that substantially all of its
existing commitments will be funded in 1995 and, if so desired, that it can
adjust the rates on certificates of deposit to retain deposits in a changing
interest rate environment.
On December 31, 1993, FF Bancorp adopted Statement of Financial Accounting
Standards No. 115 ("SFAS 115") and classified certain investment securities as
available-for-sale. This resulted in a net increase in the recorded amount of
investment securities by $2,698,000 and stockholders' equity by $1,673,000 net
of the estimated tax effect of the unrealized gains at December 31, 1993.
In 1994, the classification of investment securities, including
mortgage-backed securities, changed significantly from December 31, 1993 to
December 31, 1994. At year end 1993, investment securities totaled $75.4 million
with $52.0 million classified as held-to-maturity and $23.4 million classified
as available-for-sale. The changes occurred primarily at Citrus Bank, where the
interest-rate risk position was a concern to management. Citrus Bank was in
negative gap position, and the longer term, low yielding securities were having
a negative effect on earnings in the rising interest rate environment. FF
Bancorp management decided to deal with the interest-rate risk problem and the
future effect on earnings by the sale of some securities and the
reclassification of others to the available-for-sale category. Specifically, in
addition to other normal recurring securities transactions during 1994, in the
fourth quarter FF Bancorp management of FF Bancorp caused its subsidiaries to
sell approximately $15,100,000 of fixed rate mortgage-backed securities from
available-for-sale portfolio and approximately $12,700,000 of fixed rate
mortgage-backed securities from held-to-maturity portfolio at a combined pre-tax
loss of approximately $600,000. Additionally, in the fourth quarter of 1994,
management of FF Bancorp decided to cause its subsidiaries to reclassify all
remaining investment securities as available-for-sale. This resulted in FF
Bancorp having no securities at December 31, 1994 classified as held-to-maturity
and $30.1 million of investment securities classified as available-for-sale.
This reclassification resulted in a net decrease in the recorded amount of
stockholders' equity of $1,742,000, net of the estimated tax effect of the
unrealized losses.
REGULATORY CAPITAL REQUIREMENTS
Under OTS regulations New Smyrna Bank and Citrus Bank are required to meet
three minimum regulatory capital requirements. The following is a summary of the
capital requirements, the regulatory capital
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<PAGE> 66
of New Smyrna Bank and Citrus Bank, and the amount by which the capital of each
exceeds the capital requirement for each institution as of December 31, 1994:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
---------------- ---------------- -----------------------
% OF
% OF % OF RISK-WEIGHTED
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
------- ------ ------- ------ ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
NEW SMYRNA BANK:
Regulatory capital............... $24,364 7.8% $24,364 7.8% $26,211 17.8%
Requirement...................... 4,665 1.5 9,331 3.0 11,809 8.0
------- ------ ------- ------ ------- -----
Excess........................... $19,699 6.3% $15,033 4.8% $14,402 9.8%
======= ===== ======= ===== ======= ===========
CITRUS BANK:
Regulatory capital............... $15,890 7.5% $15,890 7.5% $17,209 16.4%
Requirement...................... 3,192 1.5 6,384 3.0 8,418 8.0
------- ------ ------- ------ ------- -----
Excess........................... $12,698 6.0% $ 9,506 4.5% $ 8,791 8.4%
======= ===== ======= ===== ======= ===========
</TABLE>
The FDIC requires banks to maintain a minimum leverage-capital ratio of
Tier I capital (as defined) to total assets. The leverage-capital ratio ranges
from 3% to 5% based on the bank's rating under the regulatory rating system. Key
Bank's required leverage-capital ratio at December 31, 1994 was 4%.
The FDIC has also adopted a risk-based capital statement of policy which
imposes an additional capital standard on insured banks. Under this regulation,
a bank must classify its assets and certain off-balance sheet activities into
categories, and maintain specified levels of capital for each category. The
amount of capital that is required is dependent upon the amount of risk
attributed to each category by the FDIC. A bank must have a total risk-based
capital ratio of no less than 8% and a Tier I capital to risk-weighted assets
ratio of no less than 4%. Under the statement of policy, certain assets are
required to be deducted from risk-based capital. Such assets include certain
nonqualifying intangible assets, nonqualifying equity investments,
unconsolidated banking and finance subsidiaries, investments in securities
subsidiaries and reciprocal holdings of capital instruments with other banks. In
addition, the FDIC may consider deducting other assets on a case-by-case basis
or investments in other subsidiaries on a case-by-case basis or based on the
general characteristics or functional nature of the subsidiaries.
At December 31, 1994 a comparison of the required capital ratios to actual
capital ratios of Key Bank was as follows:
<TABLE>
<CAPTION>
RATIOS
OF REGULATORY
KEY BANK REQUIREMENT
-------- -----------
<S> <C> <C>
Total capital to risk-weighted assets........................... 10.41% 8.00%
Tier I capital to risk-weighted assets.......................... 9.12% 4.00%
Tier I capital to total assets -- leverage ratio................ 7.36% 4.00%
</TABLE>
The FDICIA authorizes the FDIC to assess deposit insurance premiums based
on risk. The FDIC is mandated to establish a schedule to increase the reserve
ratio of the SAIF to 1.25% of insured deposits within a "reasonable period of
time." The FDIC may impose higher deposit insurance premiums on SAIF members, if
necessary, to achieve that ratio. The FDIC's new risk-based premium structure
became effective on January 1, 1993. The deposit premiums for a savings
association can range from $.23 to $.31 per $100 of deposits based upon a
grouping of supervisors evaluations and capital ratios. The savings
association's primary regulator makes the initial decision as to which category
the savings association should come under. A savings association with lower
capital and supervisory problems will be charged more for insurance with lower
rates being the incentive for the savings institution to improve its financial
condition and operations. Risk-based premium assessments are reviewed
semi-annually. New Smyrna Bank and Citrus Bank fell into the lowest risk
category for the 1994 calendar year.
Key Bank's deposits are insured by the FDIC under the BIF Fund. The current
assessment rate applicable to BIF insured deposits ranges from 23 basis points
to 31 basis points. In January of 1995 the FDIC
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<PAGE> 67
proposed a major reduction in the low end of this range. The proposed new range
is from 4 basis points to 31 basis points. If adopted the new range would take
effect when the FDIC has verified that the BIF reserve ratio has reached 1.25
percent of total estimated deposits. This is expected to take place between May
1 and July 31, 1995.
ASSET AND LIABILITY MANAGEMENT
The lending activities of savings associations and community banks, have
historically emphasized the origination of long-term, fixed-rate loans secured
by single-family residences. The primary source of funds of such savings
associations and community banks to support such activities is deposits. The
deposit accounts of savings associations and community banks largely mature or
are subject to repricing within a short period of time. The principal
determinant of the exposure of FF Bancorp's earnings to interest rate risk is
the timing difference between the repricing or maturity of FF Bancorp's
interest-earning assets and the repricing or maturity of its interest-bearing
liabilities.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds interest rate sensitive liabilities. A gap is considered negative when
the amount of interest rate sensitive liabilities exceeds interest rate
sensitive assets. During a period of rising interest rates, a negative gap would
adversely affect net interest income, while a positive gap would result in an
increase in net interest income. During a period of falling interest rates, a
negative gap would result in an increase in net interest income, while a
positive gap would adversely affect net interest income.
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on FF Bancorp's results of operations, FF
Bancorp's management has implemented and continues to monitor asset and
liability management policies to better match the maturities and repricing terms
of FF Bancorp's interest-earning assets and interest-bearing liabilities. Such
policies have consisted primarily of: (i) emphasizing the origination of
single-family residential adjustable-rate mortgage loans ("ARMs"); (ii)
maintaining a stable core deposit base with a relatively high percentage of
low-cost deposits; and (iii) maintaining a significant portion of liquid assets
(cash and interest-bearing deposits).
Between 1984 and 1989, FF Bancorp successfully emphasized the origination
of single-family residential ARMs. However, due to the generally lower interest
rates which have prevailed during the past few years, FF Bancorp's originations
of ARMs has decreased since 1990, due to the preference of FF Bancorp's
customers for fixed-rate residential mortgage loans. However, as a consequence
of management's efforts, $23.4 million or 36.7% of the single-family residential
mortgage loans originated by FF Bancorp during 1994 consisted of ARMs, a $10
million increase compared to 1993. As a result, as of December 31, 1994, $109.9
million or 30.7% of FF Bancorp's portfolio of one-to-four-family residential
mortgage loans consisted of ARMs and 33.3% of FF Bancorp's total loan portfolio
had adjustable interest rates.
FF Bancorp has also maintained a relatively large portfolio of liquid
assets (cash and assets maturing in one year or less) in order to reduce its
vulnerability to shifts in market rates of interest. At December 31, 1994, 17.1%
of FF Bancorp's total assets consisted of cash and interest-bearing deposits.
FF Bancorp also seeks to maintain a large stable core deposit base by
providing quality service to its customers without significantly increasing its
cost of funds or operating expenses. The success of the Company's core deposit
strategy is demonstrated by the stability of its money market deposit accounts
("MMDA"), savings accounts and negotiable order of withdrawal ("NOW") accounts,
which totalled $195.2 million or 36.2% of total deposits at December 31, 1994.
These accounts, bore a weighted average nominal rate of 2.35% at December 31,
1994. Management anticipates that these accounts will continue to comprise a
significant portion of its deposit base.
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<PAGE> 68
Although management believes that the implementation of the foregoing
strategies has reduced the potential adverse effects of changes in interest
rates on FF Bancorp's results of operations, any substantial and prolonged
increase in market rates of interest would have an adverse impact on FF
Bancorp's results of operations. Management of FF Bancorp monitors FF Bancorp's
interest rate sensitivity on a quarterly basis and believes that its present gap
position is appropriate for the current interest rate environment.
The following table reflects the contractual principal repayment periods of
FF Bancorp's loan portfolio at December 31, 1994.
<TABLE>
<CAPTION>
REAL REAL SAVINGS
YEARS ESTATE ESTATE ACCOUNT AND
ENDED MORTGAGE CONSTRUCTION INSTALLMENT
DECEMBER 31, LOANS LOANS LOANS TOTAL
- --------------------------------------------------- -------- ------------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995............................................... $ 6,088 765 1,596 8,449
1996............................................... 27,002 601 1,107 28,710
1997............................................... 6,082 544 425 7,051
1998-1999.......................................... 12,016 7 2,876 14,899
2000-2004.......................................... 31,199 187 1,074 32,460
2005-2009.......................................... 61,490 15 148 61,653
2010 and thereafter................................ 275,469 8,053 563 284,085
-------- ------------ ----------- --------
Total.................................... $419,346 10,172 7,789 437,307
======== ========= ========= ========
</TABLE>
Of the $428.9 million in loans due after 1995, 66.2% of such loans have
fixed interest rates and 33.8% have adjustable interest rates.
INTEREST RATE SENSITIVITY
The following table sets forth certain information relating to FF Bancorp's
interest-earning assets and interest-bearing liabilities at December 31, 1994
that are estimated to mature or are scheduled to reprice within the period
shown(1):
<TABLE>
<CAPTION>
MORE THAN
ONE YEAR MORE THAN MORE THAN
LESS THAN TO 3 ONE YEAR FIVE
ONE YEAR YEARS TO 5 YEARS YEARS TOTAL
--------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Mortgage loans and mortgage-backed
securities:
First mortgage loans(2) -- Balloon
and adjustable rate (all
property types)................ $ 115,606 1,622 124 -- 117,352
Fixed rate 1-4 dwelling units..... 53,735 83,623 62,180 52,100 251,638
Collateralized mortgage
obligations and REMICs......... 1,231 2,745 2,482 -- 6,458
Other residential and all
nonresidential................. 32,435 16,187 8,998 3,762 61,382
--------- --------- ----------- --------- --------
Total mortgage loans and
mortgage-backed
securities.............. 203,007 104,177 73,784 55,862 436,830
Consumer and other loans............ 2,008 3,267 2,478 36 7,789
Investments(3)...................... 93,352 2,231 2,230 8,653 106,466
--------- --------- ----------- --------- --------
Total financial assets.... 298,367 109,675 78,492 64,551 551,085
Unearned discounts and deferred loan
fees.............................. (296) (593) (595) (2,485) (3,969)
--------- --------- ----------- --------- --------
Total rate-sensitive
assets.................. 298,071 109,082 77,897 62,066 547,116
--------- --------- ----------- --------- --------
</TABLE>
66
<PAGE> 69
<TABLE>
<CAPTION>
MORE THAN
ONE YEAR MORE THAN MORE THAN
LESS THAN TO 3 ONE YEAR FIVE
ONE YEAR YEARS TO 5 YEARS YEARS TOTAL
--------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Deposit accounts:
Fixed maturity deposits........... 221,591 76,956 45,416 -- 343,963
NOW, Super NOW and other
transaction accounts........... 24,064 22,028 5,894 13,053 65,039
Money market deposit accounts..... 34,064 4,744 2,259 2,052 43,119
Passbook accounts................. 14,802 22,483 14,658 35,130 87,073
--------- --------- ----------- --------- --------
Total rate-sensitive
liabilities............. 294,521 126,211 68,227 50,235 539,194
--------- --------- ----------- --------- --------
GAP (repricing differences)......... $ 3,550 (17,129) 9,670 11,831 7,922
======== ======== ======== ======== ========
Cumulative GAP...................... $ 3,550 (13,579) (3,909) 7,922
======== ======== ======== ========
Cumulative GAP/total assets......... .70% (2.67)% (.77)% 1.55%
======== ======== ======== ========
</TABLE>
- ---------------
(1) In preparing the above table, it was assumed, that: (i) adjustable-rate
first mortgage single-family residential loans will prepay at a rate of 15%
per year; (ii) fixed-rate first mortgage single family residential loans
will prepay annually as follows:
<TABLE>
<CAPTION>
PREPAYMENT
INTEREST RATE ASSUMPTION
-------------------------------------------------------------- ----------
<S> <C>
Less than 8.00%............................................... 13%
8.00% to 8.99%................................................ 19%
9.00% to 9.99%................................................ 27%
10.00% to 10.99%.............................................. 33%
11.00% and above.............................................. 37%
</TABLE>
(iii) second mortgage loans will prepay at a rate of 18% per year; (iv) all
other loans will prepay at a rate of 12% per year; (v) fixed maturity
deposits will not be withdrawn prior to maturity; and (vi) passbook, money
market deposit and NOW accounts will decay at the following rates:
<TABLE>
<CAPTION>
OVER ONE OVER 3
ONE YEAR THROUGH 3 THROUGH 5
OR LESS YEARS YEARS THEREAFTER
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Passbook accounts................................ 17% 17% 16% 14%
Money market deposit accounts.................... 79% 31% 31% 31%
NOW accounts..................................... 37% 32% 17% 17%
</TABLE>
The above assumptions utilized are annual percentages based on remaining
balances and should not be regarded as indicative of the actual prepayments
and withdrawals that may be experienced by FF Bancorp. Moreover, certain
shortcomings are inherent in the analysis presented in the foregoing table.
For example, although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different manners to
changes in market interest rates. Also, interest rates on certain types of
assets and liabilities may fluctuate in advance of or lag behind changes in
market interest rates. Additionally, certain assets, such as ARM loans,
have features that restrict changes in interest rates on a short-term basis
and over the life of the assets. Moreover, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table.
(2) Does not include nonaccrual loans.
(3) Consists of interest-bearing deposits, Federal Funds Sold, FHLB stock and
investment securities.
CREDIT RISK
FF Bancorp's primary business is lending on residential real estate and to
a lesser extent on commercial real estate. That activity entails potential loan
losses, the magnitude of which depend on a variety of economic factors affecting
borrowers which are beyond the control of FF Bancorp. While FF Bancorp has
instituted
67
<PAGE> 70
underwriting guidelines and credit review procedures to protect FF Bancorp from
avoidable credit losses, some losses will inevitably occur.
RESULTS OF OPERATIONS
The operating results of FF Bancorp depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets, primarily single-family residential loans, and interest expense on
interest-bearing liabilities, consisting primarily of deposits. Net interest
income is determined by (i) the difference between yields earned on
interest-earning assets and rates paid on interest-bearing liabilities
("interest rate spread") and (ii) the relative amounts of interest-earning
assets and interest-bearing liabilities. FF Bancorp's interest rate spread is
affected by regulatory, economic and competitive factors that influence interest
rates, loan demand and deposit flows. In addition, FF Bancorp's net earnings are
also affected by the level of nonperforming loans and real estate owned, as well
as the level of its noninterest income, including loan related fees, and its
noninterest expenses, such as salaries and employee benefits, occupancy and
equipment costs and provisions for losses on real estate owned and income taxes.
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of FF
Bancorp from interest-earning assets and the resultant average yields; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and the
resultant average costs; (iii) net interest/dividend income; (iv) interest rate
spread; (v) net interest margin.
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------ ------------------------------ ------------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
-------- --------- ------- -------- --------- ------- -------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans...................... $399,968 $33,852 8.46% $345,037 $30,500 8.84% $346,550 $32,996 9.52%
Mortgage-backed
securities............... 51,973 3,982 7.66% 82,925 6,029 7.27% 96,615 7,708 7.98%
Investment securities...... 20,379 1,187 5.82% 9,946 672 6.76% 10,218 709 6.94%
Other interest-earning
assets(1)................ 86,510 3,748 4.33% 81,101 2,545 3.14% 68,186 2,461 3.61%
-------- --------- -------- --------- -------- ---------
Total interest-earning
assets............... 558,830 42,769 7.65% 519,009 39,746 7.66% 521,569 43,874 8.41%
--------- --------- ---------
Noninterest-earning assets... 26,979 27,587 26,525
-------- --------
Total assets........... $585,809 $546,596 $548,094
======== ======== ========
Interest-bearing liabilities:
NOW and money market
accounts................. 92,216 1,873 1.97% 85,089 2,094 2.46% 68,642 2,219 3.23%
Passbook................... 91,110 2,753 3.02% 88,107 2,311 2.62% 79,142 2,757 3.48%
Certificates of deposit.... 338,076 15,239 4.55% 319,476 14,970 4.69% 354,853 20,167 5.68%
-------- --------- -------- --------- -------- ---------
Total deposit
accounts............. 521,402 19,865 3.81% 492,672 19,375 3.93% 502,637 25,143 5.00%
Borrowed funds............. 426 21 4.93% 5,000 276 5.50% 4,588 255 5.56%
-------- --------- -------- --------- -------- ---------
Total interest-bearing
liabilities.......... 521,828 19,886 3.81% 497,672 19,651 3.95% 507,225 25,398 5.01%
--------- --------- ---------
Noninterest-bearing
liabilities................ 19,224 10,856 9,711
Retained earnings and
stockholders' equity....... 44,757 38,068 31,158
-------- -------- --------
Total liabilities and
retained earnings and
stockholders'
equity............... $585,809 $546,596 $548,094
======== ======== ========
Net interest/dividend
income..................... $22,883 $20,095 $18,476
======== ======== ========
Interest rate spread(2)...... 3.84% 3.71% 3.40%
====== ====== ======
Net interest margin(3)....... 4.09% 3.87% 3.54%
====== ====== ======
Ratio of average
interest-earning assets to
average interest-bearing
liabilities................ 1.07 1.04 1.03
====== ====== ======
</TABLE>
- ---------------
(1) Includes interest-bearing deposits and stock in FHLB of Atlanta.
68
<PAGE> 71
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin is net income dividend by average interest-earning
assets.
The following table sets forth certain information regarding changes in
interest income and interest expense of FF Bancorp for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in rate (change
in rate multiplied by prior volume), (ii) changes in volume (change in volume
multiplied by prior rate) and (iii) changes in rate-volume (change in rate
multiplied by change in volume).
<TABLE>
<CAPTION>
INCREASE (DECREASE) DUE TO
------------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994 VS. 1993:
Interest-earning assets:
Loans receivable (1)............................. $(1,297) 4,856 (207) 3,352
Mortgage-backed securities....................... 324 (2,250) (121) (2,047)
Investment securities............................ (93) 705 (97) 515
Other interest-earning assets (2)................ 969 169 65 1,203
------- ------- ----- -------
Total....................................... (97) 3,480 (360) 3,023
------- ------- ----- -------
Interest-bearing liabilities:
Deposit accounts:
NOW and money market.......................... (420) 249 (50) (221)
Passbook...................................... 351 79 12 442
Certificates of deposit....................... (441) 731 (21) 269
------- ------- ----- -------
Total deposit accounts...................... (510) 1,059 (59) 490
Borrowed funds................................... (262) 150 (143) (255)
------- ------- ----- -------
Total....................................... (772) 1,209 (202) 235
------- ------- ----- -------
Net change in net interest income before
provision for loan losses..................... $ 675 2,271 (158) 2,788
======= ======= ===== =======
YEAR ENDED DECEMBER 31, 1993 VS. 1992:
Interest-earning assets:
Loans receivable (1)............................. $(2,362) (144) 10 (2,496)
Mortgage-backed securities....................... (684) (1,092) 97 (1,679)
Investment securities............................ (19) (19) 1 (37)
Other interest-earning assets (2)................ (321) 466 (61) 84
------- ------- ----- -------
Total....................................... (3,386) (789) 47 (4,128)
------- ------- ----- -------
Interest-bearing liabilities:
Deposit accounts:
NOW and money market.......................... (530) 532 (127) (125)
Passbook...................................... (681) 312 (77) (446)
Certificates of deposit....................... (3,539) (2,011) 353 (5,197)
------- ------- ----- -------
Total deposit accounts...................... (4,750) (1,167) 149 (5,768)
Borrowed funds................................... (2) 23 -- 21
------- ------- ----- -------
Total....................................... (4,752) (1,144) 149 (5,747)
------- ------- ----- -------
Net change in net interest income before
provision for loan losses..................... $ 1,366 355 (102) 1,619
======= ======= ====== =======
</TABLE>
- ---------------
(1) Does not include interest on loans 90 days or more past due.
(2) Includes interest-bearing deposits and stock in the FHLB of Atlanta.
69
<PAGE> 72
COMPARISON OF YEARS ENDED DECEMBER 1994 AND 1993
General
Net earnings for the year ended December 31, 1994 were $6.5 million or
$1.44 per share compared to earnings before the cumulative effect of the change
in accounting principle of $7.0 million or $1.50 per share for 1993. The
decrease in earnings was primarily due to an increase in provision for loan
loss, and an increase in noninterest expense partially offset by an increase in
net interest income. Effective January 1, 1993, FF Bancorp adopted Statement of
Financial Accounting Standards ("SFAS") 109 relating to the method of accounting
for income taxes. The cumulative effect on years ending prior to January 1, 1993
amounted to $824,000 or $.18 per share.
Interest Income and Expense
Interest income increased $3.0 million or 7.6% to $42.8 million for the
year ended December 31, 1994. Interest on loans increased $3.4 million due to an
increase in the average balance of the loan portfolio, partially offset by a
decrease in the weighted average yield from 8.84% during the year ended December
31, 1993, to 8.46% during the year ended December 31, 1994. The average balance
increased primarily because of the acquisition of Key Bank during 1994. Interest
on mortgage-backed securities decreased $2.0 million due primarily to a decrease
in the average amounts invested in these securities during 1994 compared to
1993.
Interest expense on deposit accounts increased from $19.4 million for the
year ended December 31, 1993, to $19.9 million for the year ended December 31,
1994. This increase was the result of an increase in the average balance of
deposit accounts due to acquisition of Key Bank during 1994, partially offset by
a decrease in rates paid on deposit accounts.
Provision for Loan Losses
The provision for loan losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by FF Bancorp,
industry standards, the amount of nonperforming loans, general economic
conditions, particularly as they relate to FF Bancorp's market areas, and other
factors related to the collectibility of FF Bancorp's loan portfolio. The
provision for loan losses increased from $.2 million for the year ended December
31, 1993, to $1.9 million during 1994. The allowance for loan losses increased
from $2.7 million at December 31, 1993, to $6.0 million at December 31, 1994.
The increase is due to the acquisition of Key Bank and to the adoption of a new
loan loss policy. Management has adopted a uniform (for all financial
institutions it operates) and more stringent method of determining these
allowances including a more aggressive and more standardized approach to grading
loans as well as using standard factors for calculating estimated losses on
nonclassified loans. Management has made this change effective December 31, 1994
and has reported the effect of this change in the fourth quarter of 1994. This
change resulted in an provision of $1.9 million recorded in the fourth quarter
of 1994. While management believes that its allowance for loan losses is
adequate as of December 31, 1994, future adjustments to FF Bancorp's allowance
for loan losses may be necessary if economic conditions differ substantially
from the assumptions used in making the initial determination.
Noninterest Expense
Total noninterest expense increased $2.3 million to $12.1 million for the
year ended December 31, 1994. Most categories of noninterest expenses increased
and the increase was primarily due to the acquisition of Key Bank during 1994.
Income Tax Provision
The income tax provision decreased from $4.3 million for the year ended
December 31, 1993 (an effective rate of 38%) to $3.3 million (an effective rate
of 34%) for 1994. The decrease the effective rate was due to a favorable
resolution of income taxes which were previously provided for.
70
<PAGE> 73
COMPARISON OF YEARS ENDED DECEMBER 1993 AND 1992
General
Net earnings for the year ended December 31, 1993 were $7.8 million or
$1.68 per share. Earnings before the cumulative effect of the change in
accounting principle were $7.0 million or $1.50 per share compared to net
earnings of $5.5 million or $1.24 per share for 1992. The increase in earnings
was primarily due to an increase in net interest income and a decrease in the
provision for loan loss, partially offset by an increase in the provision for
income taxes. Effective January 1, 1993, FF Bancorp adopted SFAS 109 relating to
the method of accounting for income taxes. The cumulative effect on years ending
prior to January 1, 1993 amounted to $824,000 or $.18 per share.
Interest Income and Expense
Interest income decreased $4.1 million or 9.4% to $39.7 million during the
year ended December 31, 1993. Interest on loans decreased $2.5 million due to a
decrease in the weighted average yield from 9.52% during the year ended December
31, 1992 to 8.84% during the year ended December 31, 1993 and a decrease in the
average loan portfolio balance. Interest on mortgage-backed securities decreased
$1.7 million due primarily to a decrease in the average amounts invested in
these securities during 1993 compared to 1992.
Interest expense on deposit accounts decreased from $25.1 million for the
year ended December 31, 1992 to $19.4 million for the year ended December 31,
1993. This decrease was the result of a decrease in rates paid on deposit
accounts and a decrease in the average balance of deposit accounts.
Provision for Loan Losses
The provision for loan losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by FF Bancorp,
industry standards, the amount of nonperforming loans, general economic
conditions, particularly as they relate to FF Bancorp's market areas, and other
factors related to the collectibility of FF Bancorp's loan portfolio. The
provision for loan losses decreased from $1.0 million for the year ended
December 31, 1992 to $.2 million during 1993. The allowance for loan losses
increased from $2.6 million at December 31, 1992 to $2.7 million at December 31,
1993. While management believes that its allowance for loan losses is adequate
as of December 31, 1993, future adjustments to FF Bancorp's allowance for loan
losses may be necessary if economic conditions differ substantially from the
assumptions used in making the initial determination.
Noninterest Expense
Total noninterest expense increased $.2 million for the year ended December
31, 1993 from the year ended December 31, 1992. Compensation increased $488,000
primarily as a result of regular merit salary increases and additional personnel
required to provide expanded services. This increase in compensation expense was
offset by decreases in professional fees as well as a decrease in the loss on
real estate operations.
Income Tax Provision
The income tax provision increased from $3.3 million for the year ended
December 31, 1992 (an effective rate of 37.5%) to $4.3 million (an effective
rate of 37.9%) for 1993.
STOCK REPURCHASE PROGRAM
On June 30, 1993, FF Bancorp's Board of Directors authorized management to
develop a Stock Repurchase Program ("Program") which allows FF Bancorp to
acquire its outstanding common stock in the open market. Under the Program, FF
Bancorp was limited to repurchasing no more than 5% of FF Bancorp's publicly
held shares during any six month period. During 1993, FF Bancorp purchased
24,000 shares for $295,000 at an average purchase price per share of $12.32. In
October, 1994 the Board of Directors of FF
71
<PAGE> 74
Bancorp adopted the 1994 Stock Repurchase Plan. No shares have been purchased
under the Plan, and none are expected to be purchased.
On June 30, 1993, FF Bancorp's Board of Directors authorized management to
develop a Stock Repurchase Program ("Program") which allows FF Bancorp to
acquire its outstanding common stock in the open market, under the Program, FF
Bancorp was limited to repurchasing no more than 5% of FF Bancorp's publicly
held shares during any six month period. During 1993, FF Bancorp purchased
24,000 shares for $295,000 or average purchase price per share of $12.32. In
October, 1994 the Board of Directors of FF Bancorp adopted the 1994 Stock
Repurchase Plan. No shares have been purchased under the plan, and none are
expected to be purchased.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with GAAP, which requires the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, substantially all of the assets and
liabilities of FF Bancorp are monetary in nature because of the FF Banking
Subsidiaries. As a result, interest rates have a more significant impact on FF
Bancorp's performance than the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or in the same magnitude as
the prices of goods and services, since such prices are affected by inflation to
a larger extent than interest rates.
FUTURE ACCOUNTING REQUIREMENTS
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits Other Than Pensions," which requires employers to accrue
the cost of certain benefits to former or inactive employees when it is probable
that a liability for such costs has been incurred and the amount can be
reasonably estimated. FF Bancorp expects to adopt this Statement in 1995. FF
Bancorp is still evaluating the standard to determine its impact on annual
operating expense and reviewing the appropriate method and timing for
implementation. However, based on a preliminary assessment, FF Bancorp believes
adoption of the Statement will not significantly affect future operating
expenses as FF Bancorp does not currently provide post-employment benefits.
In May 1993, FASB issued SFAS No. 114 which addresses the accounting by
creditors for impairment of certain loans. It requires that impaired loans that
are within the scope of this Statement be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. This Statement
applies to FF Bancorp's financial statements for 1995. Management does not
anticipate this Statement will have a material impact on FF Bancorp.
72
<PAGE> 75
FF BANCORP SHAREHOLDERS
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial owners of FF Bancorp's only
outstanding class of stock, (voting common stock, $.01 par value) who to FF
Bancorp's knowledge own beneficially more than five percent (5%) of FF Bancorp's
outstanding common stock as of December 31, 1994. The table also indicates the
number and percentage of total outstanding shares of First Bancorp common stock
which such persons would own if they receive .825 First Bancorp shares in the
merger in exchange for each share of their FF Bancorp stock, assuming 3,885,050
shares of First Bancorp common stock will be issued in exchange for 4,709,151.8
FF Bancorp shares, which includes 28,254.8 shares to be issued prior to the
merger pursuant to exercise of options.
<TABLE>
<CAPTION>
FF BANCORP FIRST BANCORP STOCK
COMMON STOCK AS RESULT OF MERGER
-------------------------- -----------------------
AMOUNT & AMOUNT &
NATURE OF NATURE OF
BENEFICIAL PERCENT BENEFICIAL PERCENT
NAME AND ADDRESS OWNERSHIP OF CLASS(1) OWNERSHIP OF CLASS
- ----------------------------------------------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Charles H. Byrd................................ 258,164 5.52% 212,985 1.04%
900 N. Dixie Freeway
New Smyrna Beach, FL 32168
First Manhattan Co.(2)......................... 392,375 8.38 323,709 1.60
437 Madison Avenue
New York, New York 10022
Frances R. Ford................................ 287,508(3) 6.14 237,194 1.16
900 N. Dixie Freeway
New Smyrna Beach, FL 32168
Tildon W. Smith................................ 292,758.7(4) 6.18 241,525.65(4) 1.18
3217 Country Club Drive
Valdosta, Georgia 31602
</TABLE>
- ---------------
(1) Percentage based upon 4,680,897 shares of common stock outstanding, except
for Tildon W. Smith where 4,736,960.7 shares (as if outstanding) was used
which includes 56,063.7 shares subject to options held by Mr. Smith, which
options will be converted to First Bancorp options.
(2) First Manhattan Co. is the general partner of and investment adviser to
First Save Associates, L.P. and Second First Save Associates, L.P.
(3) Since the table is as of December 31, 1994, the number of shares shown for
Mrs. Ford includes an aggregate of 40,000 shares sold by her in January and
March, for personal financial reasons.
(4) Amount includes 56,063.7 shares subject to purchase by Mr. Smith pursuant to
stock options granted by FF Bancorp to Mr. Smith, which options will be
converted to options to purchase 46,252.6 shares of First Bancorp stock as
a result of the merger.
SHARES OF MANAGEMENT
The directors and officers of FF Bancorp and the common stock of FF Bancorp
beneficially owned by them as of December 31, 1994, are set forth in the
following table. The table also indicates the number and percentages of total
outstanding shares of First Bancorp common stock which such persons would own if
they receive .825 First Bancorp shares in the merger in exchange for each share
of their FF Bancorp stock, assuming 3,885,000 shares of First Bancorp common
stock will be issued.
73
<PAGE> 76
<TABLE>
<CAPTION>
FF BANCORP FIRST BANCORP STOCK
COMMON STOCK AS A RESULT OF MERGER
------------------------------------- -----------------------------------
NUMBER NUMBER
OF SHARES PERCENT OF SHARES PERCENT
NAME AND OFFICE BENEFICIALLY OWNED(1) OF CLASS BENEFICIALLY OWNED OF CLASS
- ----------------------------- ---------------------- -------- ---------------------- --------
<S> <C> <C> <C> <C>
Frances R. Ford.............. 287,508 (2) 6.14% 237,194 1.16%
Director, Chairman of the
Board, President and Chief
Executive Officer
Charles H. Byrd.............. 258,164 5.52 212,985 1.04
Director, Vice Chairman of
the Board and Vice
President
James E. Tumblin............. 33,000 .70 27,225 .13
Director
Fred J. Faust (3)............ 640 .01 528 --
Director
Cyril Marchinton............. 13,200 .28 10,890 .05
Director
Raymond H. Hester............ 32,992 .70 27,218 .13
Director
Tildon W. Smith.............. 292,758.7(4) 6.18 241,525.6(4) 1.18
Executive Vice President
All Directors and Executive
Officers as a group (Nine
individuals)............... 937,333 (4) 19.78% 798,608 (4) 3.90%
</TABLE>
- ---------------
(1) "Beneficial ownership of common stock" includes: stock held in joint
tenancy; stock owned as tenants in common; and stock owned or held by a
spouse or other member of the individual's household. Each person or
relative of such person whose shares are included herein, exercises sole
(or shared with spouse or other relative) voting and dispositive power as
to the shares reported.
(2) Since the table is as of December 31, 1994, the number of shares shown for
Mrs. Ford includes an aggregate of 40,000 shares sold by her in January and
March, 1995 for personal financial reasons.
(3) Mr. Faust has resigned from the FF Bancorp Board of Directors in November
1994, due to his health.
(4) Amount includes 56,063.7 shares subject to purchase by Mr. Smith pursuant to
stock options granted by FF Bancorp to Mr. Smith, which options will be
converted to options to purchase 46,252.6 shares of First Bancorp stock as
a result of the merger.
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<PAGE> 77
MANAGEMENT OF FIRST BANCORP AND FNB SUBSIDIARY
Information, with respect to each person who will serve as a director or an
executive officer of First Bancorp after the consummation of the Merger Plan,
set forth in First Bancorp's Annual Report on Form 10-K for the year ended
December 31, 1993, and also set forth in First Bancorp's 1994 Annual Meeting
Proxy Statement, is hereby incorporated herein by reference. A copy of First
Bancorp's 1994 Annual Meeting Proxy Statement accompanies this Proxy Statement.
Under the Merger Plan, First Bancorp has agreed to appoint Charles H. Byrd,
Vice Chairman of FF Bancorp, and Tildon W. Smith, Executive Vice President of FF
Bancorp, to the Board of Directors of First Bancorp at the first scheduled Board
Meeting following consummation of the merger.
Charles H. Byrd serves as Vice Chairman of the Board of Directors of FF
Bancorp and as President of New Smyrna Bank. He is 56 years of age and has
served as an officer and director of New Smyrna Bank since 1973 and as an
officer and director of FF Bancorp since its formation in 1992.
Tildon W. Smith was appointed as Executive Vice President of FF Bancorp on
July 9, 1992. Mr. Smith oversees stockholder relations, corporate strategic
planning, development of new bank products and asset management for FF Bancorp.
Prior to his association and employment with FF Bancorp and New Smyrna Bank, Mr.
Smith served as Senior Financial Advisor for Synovus Securities, Inc., a wholly
owned subsidiary of Synovus Financial Corp. from August, 1990 to February, 1992.
From August, 1989 until August, 1990, Mr. Smith was President and Chief
Executive and Operating Officer of Nature Preserves of America, a Florida
resort. From 1981 to August 1989, Mr. Smith was a Vice President and Senior
Securities Trader with First Wachovia of Atlanta.
Upon consummation of the merger, the Board of Directors of FNB Subsidiary
will be comprised of Peter D. Miller, President of First Bancorp, Charles H.
Byrd, Vice Chairman of FF Bancorp and President of New Smyrna Bank, and Tildon
W. Smith, Executive Vice President of FF Bancorp. Peter D. Miller also serves as
President of FNB Subsidiary. C. Talmadge Garrison, Senior Vice President,
Secretary and Treasurer of First Bancorp, serves as Secretary and Treasurer of
FNB Subsidiary. Upon consummation of the merger, Tildon W. Smith will serve as
Vice President and Assistant Secretary of FNB Subsidiary.
DESCRIPTION OF STOCK
FIRST BANCORP
Under First Bancorp's Articles of Incorporation, it is authorized to issue
up to 30,000,000 shares of common stock, $1.00 par value per share. As of
December 31, 1994, there were 16,540,495 shares of common stock issued and
outstanding, all of which shares were duly authorized, validly issued, fully
paid and non-assessable. The shares of common stock which will be issued in
connection with the Merger Plan will be validly issued, fully paid and
non-assessable.
Holders of First Bancorp common stock are entitled to dividends when, as,
and if declared by the corporation's Board of Directors out of funds legally
available therefor.
All voting rights are vested in the holders of First Bancorp common stock,
each share being entitled to one vote except in the election of directors. The
shares of common stock of First Bancorp have cumulative voting rights in the
election of directors. The cumulative voting rights for the election of
directors of First Bancorp were derived from the Articles of Incorporation and
Bylaws of The First National Bank of Gainesville, when First Bancorp was formed
as a one-bank holding company. Cumulative voting rights have the effect of
giving minority interests a greater chance to elect a director to the Board of
Directors of First Bancorp and might help preclude a takeover by spreading
control of the Board among a greater number of shareholders. There are no other
provisions in First Bancorp's Articles of Incorporation or Bylaws which have an
anti-takeover effect.
75
<PAGE> 78
Holders of the common stock of First Bancorp do not have preemptive rights
to subscribe for additional shares of common stock issued by First Bancorp. The
common stock has no redemption, sinking fund or right of conversion provisions
applicable thereto.
For additional information see "EFFECT OF MERGER ON SHAREHOLDERS."
FF BANCORP
FF Bancorp is authorized by its Articles of Incorporation to issue up to
5,000,000 shares of common stock, $.01 par value per share, and 2,500,000 shares
of preferred stock, $.01 par value per share. As of December 31, 1994, there
were 4,680,897 shares validly issued and outstanding and no shares of preferred
stock outstanding, and there were outstanding employee stock options to purchase
84,318.5 shares of common stock. The outstanding shares of common stock are
fully paid and non-assessable.
Holders of FF Bancorp common stock are entitled to dividends when, as, and
if, declared by the corporation's Board of Directors out of funds legally
available therefor.
All voting rights are vested in the holders of FF Bancorp common stock,
each share being entitled to one vote. The shares do not have cumulative voting
rights in the election of directors.
Holders of common stock of FF Bancorp do not have preemptive rights to
subscribe for additional shares of common stock issued by FF Bancorp. The common
stock has no redemption, sinking fund or right of conversion provisions
applicable thereto.
Certain provisions of FF Bancorp Articles and FF Bancorp Bylaws may have
the effect of preventing, discouraging or delaying any change in control of FF
Bancorp. The authority of the FF Bancorp Board to issue FF Bancorp preferred
stock with such rights and privileges, including voting rights, as it may deem
appropriate may enable the FF Bancorp Board to prevent a change in control
despite a shift in ownership of the FF Bancorp Common Stock. In addition, FF
Bancorp Board's power to issue additional shares of FF Bancorp common stock may
help delay or deter a change in control by increasing the number of shares
needed to gain control. The following provisions in FF Bancorp Articles and FF
Bancorp Bylaws also may deter any change in control of FF Bancorp.
The FF Bancorp Board is divided into three classes, each serving three-year
terms, so that approximately one-third of the directors of FF Bancorp are
elected at each annual meeting of the shareholders of FF Bancorp. Classification
of the FF Bancorp Board has the effect of decreasing the number of directors
that could be elected in a single year by any person who seeks to elect its
designees to a majority of the seats on the FF Bancorp Board and thereby could
impede a change in control of FF Bancorp.
The FF Bancorp Bylaws provide that a director of FF Bancorp may be removed
from the Board of Directors prior to the expiration of his or her term only for
cause by the affirmative vote of the holders of 60% of the shares of FF Bancorp
common stock then entitled to vote at an election of directors. In the absence
of this provision, a simple majority of the holders of FF Bancorp common stock
could effect the director's removal.
The FF Bancorp Articles prohibit any person (including any business entity
or group acting in concert) from offering to acquire or acquiring more than 10%
of the outstanding shares of any class of equity securities of FF Bancorp for
five years following incorporation. FF Bancorp Articles also provide that all
equity securities beneficially owned by any person in excess of 10% of any class
of equity securities during the five-year period of the restriction shall be
considered "excess shares", and that excess shares shall not be counted as
voting shares in connection with any matters submitted to the stockholders for a
vote. The terms "person", "offer", "acquire" and "group acting in concert" are
broadly defined in FF Bancorp Articles to prevent circumvention of the 10%
restriction. This limitation, however, will not apply to the purchase of shares
by underwriters in connection with a public offering. As long as it is in
effect, such provision may have the effect of preventing a hostile acquisition
of FF Bancorp.
Special meetings of stockholders of FF Bancorp may be called only by the
Board of Directors of FF Bancorp. The FF Bancorp Articles also provides that any
action required or permitted to be taken by the
76
<PAGE> 79
stockholders of FF Bancorp may be taken only at an annual or special meeting and
prohibits stockholder action by written consent in lieu of a meeting.
The FF Bancorp Articles require the approval of the holders of at least 60%
of FF Bancorp's outstanding shares of voting stock to approve certain "Business
Combinations", as defined therein, and related transactions. Under the FF
Bancorp Articles, the approval of at least 60% of the outstanding voting stock
is required in connection with any transaction involving an Interested
Stockholder (as defined below), except approval by only a majority vote is
required (i) in cases where the proposed transaction has been approved in
advance by a majority of those members of FF Bancorp's Board who are
unaffiliated with the Interested Stockholder and were directors prior to the
time when the Interested Stockholder became an Interested Stockholder and (ii)
if the proposed transaction meets certain conditions set forth therein which are
designed to afford the shareholders a fair price in consideration for their
shares in which cases approval of only a majority of the outstanding shares of
voting stock is required. The term "Interested Stockholder" is defined to
include any individual, corporation, partnership or other entity (other than FF
Bancorp or its subsidiaries) which owns beneficially or controls, directly or
indirectly, 10% or more of the outstanding shares of voting stock of FF Bancorp.
This provision of FF Bancorp Articles applies to any "Business Combination",
which is defined to include (i) any merger or consolidation of FF Bancorp or any
of its subsidiaries with or into any Interested Stockholder or Affiliate (as
defined in the FF Bancorp Articles) of an Interested Stockholder; (ii) any sale,
lease, exchange, mortgage, transfer, or other disposition to or with any
Interested Stockholder or Affiliate of 25% or more of the assets of FF Bancorp
or combined assets of FF Bancorp and its subsidiaries; (iii) the issuance or
transfer of any securities of FF Bancorp in exchange for any assets, cash or
securities the value of which equals or exceeds 25% of the fair market value of
the common stock; (iv) the adoption of any plan for the liquidation or
dissolution of FF Bancorp proposed by or on behalf of any Interested Stockholder
or Affiliate thereof; and (v) any reclassification of securities,
recapitalization, merger or consolidation of FF Bancorp which has the effect of
increasing the proportionate shares of FF Bancorp common stock or any class of
equity or convertible securities of FF Bancorp owned directly or indirectly, by
an Interested Stockholder or Affiliate thereof.
The FF Bancorp Articles further provide that the Board of Directors of FF
Bancorp, when evaluating any offer of another "Person", as defined therein, to
(i) make a tender or exchange offer for any equity security of FF Bancorp, (ii)
merge or consolidate FF Bancorp with another corporation or entity or (iii)
purchase or otherwise acquire all or substantially all of the properties and
assets of FF Bancorp, may, in connection with the exercise of its judgment in
determining what is in the best interests of FF Bancorp, the FF Banking
Subsidiaries and the stockholders, give due consideration to all relevant
factors, including, without limitation, the social and economic effects of
acceptance of such offer on the FF Banking Subsidiaries' customers and the
present and future account holders, borrowers and employees; on the communities
in which FF Bancorp and the FF Banking Subsidiaries operate or are located; and
on the ability of FF Bancorp to fulfill its corporate objectives as a thrift
holding company and on the ability of the FF Banking Subsidiaries to fulfill the
objectives of federally chartered stock savings banks under applicable statutes
and regulations. By having these standards in FF Bancorp Articles, the Board of
Directors may be in stronger position to oppose such a transaction if the Board
concludes that the transaction would not be in the best interests of FF Bancorp,
even if the price offered is significantly greater than the then market price of
any equity security of FF Bancorp.
Amendments to FF Bancorp Articles must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock, provided, however, that an affirmative vote of at least 60% of the
outstanding voting stock entitled to vote (after giving effect to the provision
limiting voting provisions) relating to approval of certain business
combinations, calling special meetings, the amendment of FF Bancorp Bylaws and
FF Bancorp Articles. FF Bancorp Bylaws may be amended by the Board of Directors,
or by a vote of a majority of the total votes eligible to be voted at a duly
constituted meeting of stockholders.
The FF Bancorp Bylaws also require a stockholder who intends to nominate a
candidate for election to the Board of Directors, or to raise new business at a
stockholder meeting to give not more than 60 days nor less than 10 days advance
notice to the Secretary of FF Bancorp. The notice provision requires a
stockholder who desires to raise new business to provide certain information to
FF Bancorp concerning the nature of the new
77
<PAGE> 80
business, the stockholder wishing to nominate any person for election as a
director must provide FF Bancorp with certain information concerning the nominee
and the proposing stockholder.
Certain provisions of FF Bancorp's 1992 Key Employee Stock Compensation
Program adopted by FF Bancorp provide or accelerate benefits to participants in
the event of a change in control of FF Bancorp. In addition, FF Bancorp, New
Smyrna Bank, Citrus Bank and Key Bank have entered into agreements with certain
key officers which provide such officers with additional payments and benefits
if such officers are terminated in connection with a change in control of FF
Bancorp or the FF Subsidiaries.
EXPERTS
The consolidated financial statements of First National Bancorp and
subsidiaries (collectively, "First National Bancorp") as of December 31, 1994
and 1993, and for each of the years in the three-year period ended December 31,
1994, incorporated by reference herein, have been so incorporated by reference
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. The report of KPMG
Peat Marwick LLP covering the December 31, 1994 consolidated financial
statements of First National Bancorp refers to a change in the accounting for
income taxes in 1993 to adopt the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," refers to a change
in the accounting for investment securities at December 31, 1993 to adopt the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," and also refers to a
change in the accounting for post-retirement benefits other than pensions in
1993 to adopt the provisions of Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Post-Retirement Benefits Other than Pensions."
The consolidated financial statements of FF Bancorp, Inc. and subsidiaries
as of December 31, 1994 and 1993, and for each of the years in the three-year
period ended December 31, 1994, included herein have been included herein in
reliance upon the report of Hacker, Johnson, Cohen & Grieb, independent
auditors, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL OPINION
The legality of the shares of common stock of First Bancorp to be issued in
the merger and certain other legal matters in connection with the merger will be
passed upon by Stewart, Melvin & Frost, Attorneys-at-Law, Sixth Floor, Hunt
Tower, 200 Main Street, Gainesville, Georgia 30501. W. Woodrow Stewart is a
partner in said firm and is a stockholder and director of First Bancorp and a
director of The First National Bank of Gainesville. J. Kenneth Nix is also a
partner in said firm and is a stockholder and director of First Bancorp and a
director of First National Bank of White County. In addition, certain partners
and associates of Stewart, Melvin & Frost, including those attorneys in the firm
who have participated in this matter, own substantial shares in First Bancorp
(an aggregate of less than 1.5% of outstanding shares). Stewart, Melvin & Frost
serves as general counsel to First Bancorp, The First National Bank of
Gainesville and First National Bank of White County.
INDEMNIFICATION
The bylaws of First Bancorp provide for the indemnification of officers and
directors of First Bancorp under certain circumstances. In addition, Georgia law
provides broad discretion to directors and shareholders of corporations to
indemnify officers, directors and employees against liabilities and expenses of
defending civil (and in some cases criminal) matters. See O.C.G.A. Section
14-2-851 and Section 14-2-857. See "EFFECT OF MERGER ON
SHAREHOLDERS -- Limitations of Liability and Indemnification of Officers,
Directors and Employees."
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING
78
<PAGE> 81
FIRST BANCORP PURSUANT TO THE FOREGOING PROVISIONS, FIRST BANCORP HAS BEEN
INFORMED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS
THEREFORE UNENFORCEABLE.
SHAREHOLDER PROPOSALS
Any proposal that a shareholder of First Bancorp intends to present at the
annual meeting of shareholders of First Bancorp to be held in April 1996 must be
received at First Bancorp's principal executive offices (please address to the
attention of C. Talmadge Garrison, Secretary) not later than November 30, 1995.
Any such proposal must comply with Rule 14a-8 of Regulation 14A of the proxy
rules of the Securities and Exchange Commission. If the merger is not approved
by the shareholders, any proposal that a shareholder of FF Bancorp intends to
present at the annual meeting of shareholders of FF Bancorp to be held in April
1996 must be received at FF Bancorp's principal executive offices not later than
November 30, 1995.
OTHER BUSINESS
Action will be taken on whatever other business may properly come before
the special meeting of FF Bancorp shareholders. Management is not aware of any
other business matters to be considered at the special meeting. If any other
matters properly come before the meeting, the persons named in the enclosed form
of proxy will have discretionary authority to vote all proxies with respect to
such matters and in accordance with the recommendations of management.
ADDITIONAL INFORMATION
First Bancorp has filed a Registration Statement (herein together with all
amendments thereto called the "Registration Statement") with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act of 1933, as
amended, with respect to First Bancorp common stock to be issued in the merger.
This document does not contain all of the information set forth in the
Registration Statement. For further information, reference is made to the
Registration Statement including the exhibits filed or incorporated by reference
as a part thereof. The Registration Statement is available for inspection at no
fee at the Commission's public reference room in Washington, D.C. Copies of the
material contained in the Registration Statement may be obtained from the
Commission upon payment of the fees prescribed in its rules and regulations.
<TABLE>
<S> <C>
FF BANCORP, INC.
New Smyrna Beach, Florida
/s/ Frances R. Ford
-------------------------------------------
May 1, 1995 Frances R. Ford,
Chairman of the Board, President and C.E.O.
FIRST NATIONAL BANCORP
Gainesville, Georgia
/s/ Peter D. Miller
-------------------------------------------
May 1, 1995 Peter D. Miller,
President, C.A.O. and C.F.O.
</TABLE>
79
<PAGE> 82
FF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report........................................................... F-2
Consolidated Balance Sheets, December 31, 1994 and 1993................................ F-3
Consolidated Statements of Earnings for each of the Years in the Three-Year Period
ended December 31, 1994.............................................................. F-4
Consolidated Statements of Stockholders' Equity for each of the Years in the Three-Year
Period ended December 31, 1994....................................................... F-5
Consolidated Statements of Cash Flows for each of the Years in the Three-Year Period
ended December 31, 1994.............................................................. F-6
Notes to Consolidated Financial Statements for each of the Years in the Three-Year
Period Ended December 31, 1994....................................................... F-8
</TABLE>
All schedules are omitted because of the absence of the conditions under
which they are required or because the required information is included in the
financial statements and related notes.
F-1
<PAGE> 83
INDEPENDENT AUDITORS' REPORT
The Board of Directors
FF Bancorp, Inc.
New Smyrna Beach, Florida:
We have audited the accompanying consolidated balance sheets of FF Bancorp,
Inc. and Subsidiaries (the "Company") as of December 31, 1994 and 1993 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1994. These
financial statements are the responsibility of the Company'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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1994 and 1993 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1994 in
conformity with generally accepted accounting principles.
As discussed in Notes 1, 2 and 3 to the consolidated financial statements,
the Company changed its method of accounting for investment and mortgage-backed
securities as of December 31, 1993, to conform with Statement of Financial
Accounting Standards No. 115. Also, as discussed in Notes 1 and 10 to the
consolidated financial statements, the Company changed its method of accounting
for income taxes as of January 1, 1993, to conform with Statement of Financial
Accounting Standards No. 109.
/s/ HACKER, JOHNSON, COHEN & GRIEB
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
January 27, 1995
F-2
<PAGE> 84
FF BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Cash.................................................................... $ 12,173 $ 7,644
Interest-bearing deposits............................................... 87,731 87,860
Federal funds sold...................................................... 1,150 --
-------- --------
Cash and cash equivalents..................................... 101,054 95,504
Investment securities available-for-sale................................ 13,320 1,320
Investment securities held-to-maturity.................................. -- 10,080
Mortgage-backed securities available-for-sale........................... 16,784 22,019
Mortgage-backed securities held-to-maturity............................. -- 41,933
Loans receivable, net................................................... 420,631 353,756
Receivable from sale of mortgage-backed securities...................... 12,581 --
Accrued interest receivable:
Investment securities................................................. 334 182
Mortgage-backed securities............................................ 68 447
Loans receivable...................................................... 2,132 1,639
Real estate owned....................................................... 5,363 4,769
Premises and equipment, net............................................. 9,969 8,091
Federal Home Loan Bank stock, at cost................................... 4,265 4,326
Prepaid expenses and other assets....................................... 1,135 795
Prepaid income taxes.................................................... 476 --
Deferred income taxes................................................... 2,096 --
-------- --------
Total......................................................... $590,208 $544,861
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposit accounts........................................................ 539,194 490,041
Accrued interest on deposit accounts.................................... 354 249
Borrowed funds.......................................................... -- 5,000
Official checks......................................................... 1,600 2,915
Advance payments by borrowers for taxes and insurance................... 1,268 1,209
Deferred income taxes................................................... -- 1,805
Current income taxes payable............................................ -- 365
Other liabilities and accrued expenses.................................. 2,297 1,000
-------- --------
Total liabilities............................................. 544,713 502,584
-------- --------
Commitments and contingencies (notes 12 and 13)
Stockholders' equity:
Preferred stock, 2,500,000 shares authorized, issued none............. -- --
Common stock, $ .01 par value, 5,000,000 shares authorized, 4,680,897
in 1994 and 3,970,662 in 1993 shares issued and outstanding........ 47 40
Additional paid-in capital............................................ 20,673 12,830
Retained earnings, substantially restricted........................... 25,854 27,907
Unrealized gain (loss) on securities available-for-sale............... (993) 1,673
Stock held by Management Recognition Plan............................. (86) (173)
-------- --------
Total stockholders' equity.................................... 45,495 42,277
-------- --------
Total......................................................... $590,208 $544,861
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 85
FF BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
($ IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest on loans receivable............................. $ 33,852 30,500 32,996
Interest on mortgage-backed securities................... 3,982 6,029 7,708
Interest and dividends on investment securities.......... 1,187 672 709
Other interest-earning assets............................ 3,748 2,545 2,461
---------- ---------- ----------
Total interest income............................ 42,769 39,746 43,874
---------- ---------- ----------
Interest expense:
Deposit accounts......................................... 19,865 19,375 25,143
Borrowed funds........................................... 21 276 255
---------- ---------- ----------
Total interest expense........................... 19,886 19,651 25,398
---------- ---------- ----------
Net interest income.............................. 22,883 20,095 18,476
Provision for loan losses.................................. 1,939 177 1,011
---------- ---------- ----------
Net interest income after provision for loan
losses......................................... 20,944 19,918 17,465
---------- ---------- ----------
Noninterest income:
Fees and service charges................................. 1,312 862 843
Loss on sale of mortgage-backed securities............... (601) -- --
Other.................................................... 320 336 216
---------- ---------- ----------
Total noninterest income......................... 1,031 1,198 1,059
---------- ---------- ----------
Noninterest expense:
Employee compensation and benefits....................... 5,728 4,211 3,723
Occupancy and equipment.................................. 1,813 1,684 1,489
Federal insurance premiums............................... 1,375 1,325 1,250
Data processing.......................................... 855 674 605
Professional fees........................................ 501 345 556
Loss on real estate operations........................... 174 272 711
Other.................................................... 1,695 1,366 1,342
---------- ---------- ----------
Total noninterest expense........................ 12,141 9,877 9,676
---------- ---------- ----------
Earnings before provision for income taxes and
cumulative effect of change in accounting
principle...................................... 9,834 11,239 8,848
Provision for income taxes................................. 3,332 4,258 3,320
---------- ---------- ----------
Earnings before cumulative effect of change in
accounting principle........................... 6,502 6,981 5,528
Cumulative effect of change in accounting principle........ -- 824 --
---------- ---------- ----------
Net earnings..................................... $ 6,502 7,805 5,528
========= ========= =========
Earnings per share:
Earnings before cumulative effect of change in accounting
principle............................................. $ 1.44 1.50 1.24
Cumulative effect of change in accounting principle...... -- .18 --
---------- ---------- ----------
Net earnings..................................... $ 1.44 1.68 1.24
========= ========= =========
Proforma amounts assuming the new accounting method for
income taxes is applied retroactively:
Net earnings............................................. $ 6,502 6,981 5,530
========= ========= =========
Earnings per share....................................... $ 1.44 1.50 1.24
========= ========= =========
Weighted average number of shares outstanding.............. 4,529,847 4,637,287 4,445,862
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 86
FF BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN STOCK HELD
RETAINED (LOSS) ON BY
ADDITIONAL EARNINGS, SECURITIES MANAGEMENT TOTAL
NUMBER OF COMMON PAID-IN SUBSTANTIALLY AVAILABLE- RECOGNITION STOCKHOLDERS'
SHARES STOCK CAPITAL RESTRICTED FOR-SALE PLAN EQUITY
--------- ------ ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991....... 3,450,000 $ 35 10,622 17,761 -- (345) 28,073
Net proceeds from the sale of
common stock................... 457,662 5 2,055 -- -- -- 2,060
Issuance of 25,872 shares of
common stock held by Management
Recognition Plan Trust......... -- -- -- -- -- 86 86
Proceeds from common stock issued
under the employee stock option
plan........................... 38,994 -- 130 -- -- -- 130
Dividends at $.33 per share...... -- -- -- (1,161) -- -- (1,161)
Net earnings for the year ended
December 31, 1992.............. -- -- -- 5,528 -- -- 5,528
--------- ------ ---------- ------------- ---------- ----- -------------
Balance, December 31, 1992....... 3,946,656 40 12,807 22,128 -- (259) 34,716
Issuance of 25,872 shares of
common stock held by Management
Recognition Plan Trust......... -- -- 149 -- -- 86 235
Proceeds from common stock issued
under the employee stock option
plan........................... 48,006 -- 169 -- -- -- 169
Retire common stock.............. (24,000) -- (295) -- -- -- (295)
Dividends at $.50 per share...... -- -- -- (2,026) -- -- (2,026)
Net earnings for the year ended
December 31, 1993.............. -- -- -- 7,805 -- -- 7,805
Unrealized gain on securities
available-for-sale............. -- -- -- -- 1,673 -- 1,673
--------- ------ ---------- ------------- ---------- ----- -------------
Balance, December 31, 1993....... 3,970,662 40 12,830 27,907 1,673 (173) 42,277
Issuance of 25,878 shares of
common stock held by Management
Recognition Plan Trust......... -- -- 224 -- -- 87 311
Issuance of 71,142 shares of
common stock for purchase of
Key Bancshares, Inc............ 71,142 1 888 -- -- -- 889
Proceeds from common stock issued
under the employee stock option
plan, including related
tax benefits................... 311,941 3 1,808 -- -- -- 1,811
Net earnings for the year ended
December 31, 1994.............. -- -- -- 6,502 -- -- 6,502
Change in unrealized gain (loss)
on securities
available-for-sale............. -- -- -- -- (2,666) -- (2,666)
Retire common stock.............. (97,900) (1) (1,183) -- -- -- (1,184)
Dividends at $.53 per share...... -- -- -- (2,445) -- -- (2,445)
10% stock dividend declared July
18, 1994....................... 425,052 4 6,106 (6,110) -- -- --
--------- ------ ---------- ------------- ---------- ----- -------------
Balance, December 31, 1994....... 4,680,897 $ 47 20,673 25,854 (993) (86) 45,495
========= ======= ======== ========== ======== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 87
FF BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net earnings................................................. $ 6,502 7,805 5,528
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation of premises and equipment.................. 746 634 574
Provision for losses on real estate owned............... 317 312 539
Provision for loan losses............................... 1,939 177 1,011
Increase in refundable income taxes..................... -- -- 574
Increase (decrease) in current income taxes............. (365) (353) 681
Credit for deferred income taxes........................ (302) (20) (58)
Cumulative effect of change in accounting principle..... -- (824) --
Decrease in accrued interest receivable................. 178 218 485
Amortization of deferred loan fees, net................. (1,193) (1,190) (1,112)
Decrease (increase) in other assets..................... 423 (117) 20
Increase (decrease) in accrued interest payable......... 13 (6) (86)
Increase (decrease) in other liabilities................ (1,141) 163 (50)
Origination of loans held for sale...................... -- -- (3,264)
Proceeds from loan sales................................ -- -- 3,225
Loss on sale of mortgage-backed securities.............. 601 -- --
Gain on sale of premises and equipment.................. -- -- (5)
Amortization of premium on investment securities........ 106 91 59
Amortization of discount on mortgage-backed
securities........................................... (118) (152) (260)
Net gain on sale of real estate owned................... (504) (309) (316)
Issuance of common stock held by management recognition
plan trust........................................... 311 235 86
-------- -------- --------
Net cash provided by operating activities............ 7,513 6,664 7,631
-------- -------- --------
Investing activities:
Principal collected on loans................................. 53,594 50,152 57,894
Loans originated............................................. (76,049) (57,507) (46,998)
Purchases of loans........................................... -- (2,389) --
Loan origination fees received............................... 839 1,368 1,381
Loan origination costs paid.................................. (388) (378) (318)
Proceeds from maturity of investment securities.............. 11,050 5,000 --
Purchases of investment securities........................... (1,981) (5,000) --
Proceeds from sale of mortgage-backed securities............. 15,560 -- --
Purchases of mortgage-backed securities...................... -- (20,007) (14,999)
Principal collected on mortgage-backed securities............ 16,422 40,018 40,573
Proceeds from sale of real estate owned...................... 1,689 1,468 3,265
Payments capitalized to real estate owned.................... (36) (372) (56)
Purchases of premises and equipment.......................... (1,501) (1,023) (613)
Sale of premises and equipment............................... -- 2 6
Redemption of FHLB stock..................................... 115 251 247
Purchases of FHLB stock...................................... (54) (240) (284)
Purchase of Key Bancshares, Inc. net cash acquired........... 2,952 -- --
-------- -------- --------
Net cash provided by investing activities............ 22,212 11,343 40,098
-------- -------- --------
</TABLE>
F-6
<PAGE> 88
FF BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Financing activities:
Net decrease in deposit accounts............................. (16,940) (11,055) (16,891)
Net increase (decrease) in advance payments by borrowers for
taxes and insurance....................................... 59 (112) 669
Proceeds from FHLB advances.................................. -- -- 5,000
Repayment of FHLB advances................................... (5,000) -- --
Payment of cash dividends.................................... (2,445) (2,026) (1,161)
Proceeds from issuance of common stock, net.................. -- -- 2,060
Purchase of treasury stock, retired.......................... (1,184) (295) --
Proceeds from stock options exercised........................ 1,335 169 130
-------- -------- --------
Net cash used in financing activities................ (24,175) (13,319) (10,193)
-------- -------- --------
Net increase in cash and cash equivalents...................... 5,550 4,688 37,536
Cash and cash equivalents at beginning of year................. 95,504 90,816 53,280
-------- -------- --------
Cash and cash equivalents at end of year....................... $101,054 $ 95,504 $ 90,816
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes.............................................. $ 4,291 $ 4,632 $ 2,123
======== ======== ========
Interest expense.......................................... $ 19,781 $ 19,381 $ 25,483
======== ======== ========
Noncash investing and financing activities:
Transfers of mortgage loans receivable to real estate
owned................................................... $ 1,878 $ 963 $ 6,005
======== ======== ========
Loans originated for the sale of real estate owned........ $ 4,239 $ 5,195 $ 3,321
======== ======== ========
Income tax benefit from the exercise of stock options..... $ 476 $ -- $ --
======== ======== ========
Securities sold not paid.................................. $ 12,581 $ -- $ --
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE> 89
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background: Holding Company Formation, Conversion, and Acquisition. FF
Bancorp, Inc. (the "Holding Company") a Florida Corporation is organized as a
multiple thrift and one-bank holding company. On July 8, 1992, the Holding
Company, in two separate transactions, acquired all the outstanding capital
stock of First Federal Savings Bank of New Smyrna ("New Smyrna") and First
Federal Savings Bank of Citrus County ("Citrus"). Both New Smyrna and Citrus are
federally chartered, SAIF-insured savings associations. On April 8, 1994, the
Holding Company acquired Key Bancshares, Inc. and its subsidiary The Key Bank of
Tampa ("Key"). Key is a state (Florida) chartered nonfederal reserve member
commercial bank.
New Smyrna conducts business from its headquarters and main office in New
Smyrna Beach, Florida and from offices located in Edgewater and New Smyrna
Beach. New Smyrna was founded as First Federal Savings and Loan Association of
New Smyrna in 1935 as a mutual institution. On July 1, 1991, New Smyrna
consummated its conversion to a federally-chartered stock savings bank by
issuing 3,450,000 shares of common stock, $.01 par value per share, at $3.33 per
share (adjusted for stock split). Conversion costs of approximately $843,000
were deducted from the gross proceeds of $11.5 million.
New Smyrna entered into a Reorganization/Acquisition Agreement
("Reorganization Agreement") whereby New Smyrna reorganized into a wholly-owned
subsidiary of the Holding Company by exchanging 3,450,000 shares (adjusted for
stock split) of $.01 par value common stock for all the outstanding shares of
the Holding Company.
Citrus conducts business from its headquarters and main office in
Inverness, Florida and from branch offices located in Beverly Hills, Crystal
River and Homosassa Springs. Citrus was founded as First Federal Savings and
Loan Association of Citrus County in 1963 as a mutual institution. In accordance
with the Reorganization Agreement, Citrus consummated its conversion to a
federally-chartered stock savings bank on July 8, 1992 and was acquired by the
Holding Company through the issuance of 457,662 shares of $.01 par value Holding
Company common stock at $5.29 per share (adjusted for stock split). In
connection with the conversion Citrus changed its name to First Federal Savings
Bank of Citrus County. The Holding Company's common stock was offered to the
account holders and other members of Citrus, and stockholders of New Smyrna in a
Subscription Offering and to the general public in a Community Offering.
Conversion costs of $361,107 were deducted from the gross proceeds of
$2,421,795.
The Holding Company formation and acquisition of Citrus has been accounted
for as a pooling of interest and all amounts prior to the acquisition have been
restated to include the results of operations, financial positions and cash
flows of Citrus and New Smyrna. Net interest income and net earnings for the
individual entities were as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1992
-----------------
<S> <C>
Interest and other income:
New Smyrna................................................ $13,092
Citrus.................................................... 10,132
-----------------
Combined............................................... $23,224
==============
Net earnings:
New Smyrna................................................ 1,498
Citrus.................................................... 1,043
-----------------
Combined............................................... $ 2,541
==============
</TABLE>
F-8
<PAGE> 90
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Expenses of approximately $175,000 related to the acquisition of Citrus
were charged to expense during 1992.
On April 8, 1994 FF Bancorp acquired Key Bancshares, Inc., for a
combination of $2.6 million in cash and 71,142 shares of common stock. Key
Bancshares is the parent company for The Key Bank of Florida, a state-chartered
commercial bank with total assets at March 31, 1994 of $71 million located in
Tampa, Florida. The Key Bank of Florida operates as a commercial bank
subsidiary. The acquisition has been accounted for using the purchase method of
accounting. Negative goodwill of $771,000 resulted from this transaction. The
negative goodwill was applied to reduce premises and equipment and will be
amortized over the lives of these assets.
The Holding Company has accounted for this acquisition as if the purchase
occurred on March 31, 1994. Consolidated results of operations on a proforma
basis as though Key had been purchased January 1, 1992 follows (in thousands,
except per share figures):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Interest income.................................... $43,927 44,940 51,455
Interest expense................................... 20,481 22,379 29,667
Noninterest income................................. 1,425 2,035 2,259
Noninterest expense................................ 13,008 13,030 14,427
Earnings before cumulative effect of accounting
change........................................... 6,291 6,812 3,197
Net earnings....................................... 6,291 7,636 3,197
Per share amounts:
Earnings before cumulative effect of
accounting change........................... $ 1.37 1.45 .71
======= ======= =======
Net earnings.................................. $ 1.37 1.62 .71
======= ======= =======
</TABLE>
General. The accounting and reporting policies of FF Bancorp, Inc. and
subsidiaries (the "Company") conform to generally accepted accounting principles
and to general practices within the thrift and banking industries. The following
summarizes the significant accounting policies of FF Bancorp:
Principles of Consolidation. The consolidated financial statements include
the accounts of the Holding Company and its subsidiaries New Smyrna, Citrus,
their subsidiaries, First Florida Agency, Inc. and Home Assets, Inc. and Key
Bancshares, Inc. and its subsidiary, Key. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Cash and Due From Banks. The Holding Company's subsidiaries are required
to maintain certain average reserve balances pursuant to regulations of the
Federal Reserve Board. These balances must be maintained in the form of vault
cash or noninterest bearing deposits at other financial institutions. New Smyrna
exceeded this requirement, which was $889,000 and $986,000 at December 31, 1994
and 1993, respectively. Citrus exceeded this requirement which was $370,000 and
$411,000 at December 31, 1994 and 1993, respectively. Key exceeded this
requirement which was $186,000 and $160,000 at December 31, 1994 and 1993,
respectively.
Cash Equivalents. Cash equivalents include cash and interest bearing
deposits. For purposes of the statements of cash flows, FF Bancorp considers all
highly liquid debt instruments, with original maturities when purchased of three
months or less, to be cash equivalents.
Investment and Mortgage-Backed Securities. On December 31, 1993, FF
Bancorp adopted Statement of Financial Accounting Standards No. 115. This
Statement requires that securities which FF Bancorp has the positive intent and
ability to hold to maturity be classified as held-to maturity securities and
reported at amortized cost. Securities that are held principally for selling
them in the near term are to be classified as trading securities and reported at
fair value, with unrealized gains and losses included in earnings. Securities
F-9
<PAGE> 91
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
not classified as either held-to-maturity securities or trading securities are
to be classified as available-for-sale securities and reported at fair value,
with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity. Gains or losses are recognized based
on the specific identification method.
Prior to December 31, 1993 investment and mortgage-backed securities were
carried at cost, adjusted for amortization of premiums and accretion of
discounts. These securities were not adjusted to the lower of cost or market
because management had the intent and ability to hold them to maturity. Premiums
were amortized and discounts accreted to income using the interest method over
the estimated remaining life of the securities.
Allowance for Possible Loan Losses. The provision for loan losses is
charged to earnings to bring the total allowance to a level deemed appropriate
by management and is based upon historical experience, the volume and type of
lending conducted by FF Bancorp, industry standards, the amount of nonperforming
loans, general economic conditions, particularly as they relate to FF Bancorp's
market areas, and other factors related to the collectibility of FF Bancorp's
loan portfolio. The provision for loan losses increased from $.2 million for the
year ended December 31, 1993 to $1.9 million during 1994. The allowance for loan
losses increased from $2.7 million at December 31, 1993 to $6.0 million at
December 31, 1994. The increase is due to the acquisition of Key and to the
adoption of a new loan loss policy. Management has adopted a uniform (for all
financial institutions it operates) and more stringent method of determining
these allowances including a more aggressive and more standardized approach to
grading loans as well as using standard factors for calculating estimated losses
on nonclassified loans. Management has made this change effective December 31,
1994 and has reported the effect of this change in the fourth quarter of 1994.
This change resulted in an provision of $1.9 million recorded in the fourth
quarter of 1994. While management believes that its allowance for loan losses is
adequate as of December 31, 1994, future adjustments to FF Bancorp's allowance
for loan losses may be necessary if economic conditions differ substantially
from the assumptions used in making the initial determination.
Loan Origination Fees and Premiums and Discounts. Loan origination fees,
net of certain direct costs associated with loan originations, are deferred and
amortized over the life of the loan using the interest method as an adjustment
of yield. Premiums and discounts on loans purchased are amortized to income over
the remaining life of the loan, using the interest method as an adjustment of
yield.
Uncollected Interest. FF Bancorp maintains allowance for the possible loss
of accrued but uncollected interest on mortgage loans which are more than 90
days past due and on other loans when management believes the collection of
interest is doubtful. If the ultimate collectibility of principal, either in
whole or in part, is in doubt, any payment received on a loan for which the
accrual of interest has been discontinued is applied to reduce principal to the
extent necessary to eliminate such doubt. If the ultimate collectibility of
principal is not in doubt, interest is credited to income in the period of
recovery.
Real Estate Owned. In-substance foreclosures are recorded at the lower of
the loan balance or fair value. Real estate acquired through foreclosure or by
deed in lieu of foreclosure, is initially recorded at the lower of cost or fair
value less estimated costs to sell, at the time of acquisition. Costs relating
to development and improvement are capitalized, whereas cost relating to holding
the property are charged to expense. Accrued interest receivable on loans
foreclosed is charged against the allowance for uncollected interest on the date
of foreclosure.
Valuations of real estate owned are performed periodically by management,
and an allowance for losses is established by a charge to operations if the
carrying value of a property exceeds its estimated fair value.
Premises and Equipment. Premises and equipment are carried at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets.
F-10
<PAGE> 92
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Retirement Benefits. FF Bancorp has two noncontributory defined benefit
pension plans covering all employees who meet certain eligibility requirements.
Pension costs are computed based on the provisions of Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions", ("SFAS No.
87").
Income Taxes. In 1992 and prior years, FF Bancorp computed income tax
expense in accordance with Statement of Financial Accounting Standards No. 96
("SFAS 96").
In February 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 109 ("SFAS 109") relating to the
method of accounting for income taxes. SFAS 109 requires companies to take into
account changes in tax rates when valuing the deferred income tax amounts
carried on their balance sheets (the "Liability Method"). SFAS 109 also requires
that deferred income taxes be provided for all temporary differences between
financial statement income and taxable income, however, a deferred tax liability
is not recognized for bad debt reserves of savings associations that arose in
tax years beginning before December 31, 1987 (base year reserves). Effective
January 1, 1993, FF Bancorp adopted SFAS 109 and has reported the cumulative
effect of that change in the method of accounting for income taxes in the 1993
consolidated statement of earnings. Periods prior to 1993 were not restated.
The Holding Company and its subsidiaries file a consolidated income tax
return. Income taxes are allocated proportionately to the Holding Company and
its subsidiaries as though separate income tax returns were filed.
Future Accounting Requirements. In November 1992, the FASB issued
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits Other Than Pensions," which requires employers to accrue
the cost of certain benefits to former or inactive employees when it is probable
that a liability for such costs has been incurred and the amount can be
reasonably estimated. The Company expects to adopt this Statement in 1995. FF
Bancorp is still evaluating the standard to determine its impact on annual
operating expense and reviewing the appropriate method and timing for
implementation. However, based on a preliminary assessment, FF Bancorp believes
adoption of the Statement will not significantly affect future operating
earnings as FF Bancorp does not currently provide postemployment benefits.
In May 1993, FASB issued Statement of Financial Accounting Standards No.
114 which addresses the accounting by creditors for impairment of certain loans.
It requires that impaired loans that are within the scope of this Statement be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. This Statement applies to FF Bancorp's financial
statements for 1995. Management does not anticipate this Statement will have a
material impact on the Company.
Reclassification. Certain amounts for 1993 and 1992 have been reclassified
to conform with the current financial statement presentation.
Earnings Per Share. On July 18, 1994, the Board of Directors approved a
10% stock dividend to stockholders of record on September 13, 1994. On June 22,
1993, FF Bancorp's Board of Directors approved a three-for-one stock split
effective July 26, 1993; accordingly, all per share amounts have been adjusted
to
F-11
<PAGE> 93
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
include the effects of both of these transactions. Fully-diluted and primary
earnings per share are not materially different. The following table presents
information necessary to calculate earnings per share:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Average common shares outstanding.................. 4,529,847 4,366,804 4,308,902
Common shares assumed outstanding to reflect the
dilutive effect of common stock options.......... -- 270,483 136,960
---------- ---------- ----------
Weighted average shares.......................... 4,529,847 4,637,287 4,445,862
========= ========= =========
</TABLE>
(2) INVESTMENT SECURITIES
Investment securities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
AT DECEMBER 31, 1994:
FHLMC Common Stock........................... $ 103 $1,234 -- 1,337
FHLB Debentures.............................. 5,000 -- 1,950 3,050
United States Treasury Notes................. 9,175 -- 242 8,933
--------- ---------- ---------- ---------
Total................................ $14,278 $1,234 $2,192 $13,320
======= ======== ======== =======
AT DECEMBER 31, 1993--
FHLMC Common Stock........................... $ 103 $1,217 -- 1,320
======= ======== ======== =======
SECURITIES HELD-TO-MATURITY--
AT DECEMBER 31, 1993:
FNMA Debentures.............................. 5,080 214 -- 5,294
FHLB Debentures.............................. 5,000 -- 625 4,375
--------- ---------- ---------- ---------
Total................................ $10,080 214 625 9,669
======= ======== ======== =======
</TABLE>
On December 31, 1993, FF Bancorp adopted Statement of Financial Accounting
Standards No. 115 and classified certain investment securities as
available-for-sale. This resulted in a net increase in the recorded amount of
investment securities by $1,217,000 and stockholders' equity by $754,000 net of
the estimated tax effect of the unrealized gains. On December 31, 1994, FF
Bancorp classified all investment securities as available-for-sale. This
resulted in a net decrease in the recorded amount of investment securities by
$958,000 and stockholders' equity of $595,000, net of the estimated tax effect
of the unrealized losses.
The amortized cost and estimated market value of securities by contractual
maturity are shown below (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
-----------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less....................................... $ 4,488 4,472
Due after one year through five years......................... 4,687 4,461
Due after five years through ten years........................ 5,000 3,050
FHLMC common stock............................................ 103 1,337
--------- ---------
Total............................................... $14,278 13,320
======= =======
</TABLE>
F-12
<PAGE> 94
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There were no sales of investment securities during the years ended
December 31, 1994, 1993 and 1992.
(3) MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
PRINCIPAL UNAMORTIZED UNEARNED AMORTIZED MARKET
BALANCE PREMIUMS DISCOUNTS COST VALUE
--------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
AT DECEMBER 31, 1994:
GNMA certificates.................. $ 4,643 71 -- 4,714 4,444
FNMA certificates.................. 4,581 48 (5) 4,624 4,540
Collateralized Mortgage
Obligations..................... 6,676 1 -- 6,677 6,458
Other mortgage-backed securities... 1,392 18 -- 1,410 1,342
--------- --- ---------- --------- ---------
Total......................... $ 17,292 138 (5) 17,425 16,784
======= ========= ======== ======= =======
AT DECEMBER 31, 1993:
FHLMC certificates................. 1,677 -- -- 1,677 1,738
GNMA certificates.................. 19,264 -- (403) 18,861 20,281
--------- --- ---------- --------- ---------
Total......................... $ 20,941 -- (403) 20,538 22,019
======= ========= ======== ======= =======
HELD-TO-MATURITY--
AT DECEMBER 31, 1993:
FHLMC certificates................. 11,811 -- -- 11,811 12,454
GNMA certificates.................. 10,116 85 (35) 10,166 10,790
FNMA certificates.................. 7,219 57 (28) 7,248 7,535
Collateralized Mortgage
Obligations..................... 10,924 5 -- 10,929 10,921
Other mortgage-backed securities... 1,757 22 -- 1,779 1,780
--------- --- ---------- --------- ---------
Total......................... $ 41,827 169 (63) 41,933 43,480
======= ========= ======== ======= =======
</TABLE>
F-13
<PAGE> 95
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated market values of mortgage-backed
securities are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
AT DECEMBER 31, 1994:
GNMA certificates............................ $ 4,714 -- 270 4,444
FNMA certificates............................ 4,624 18 102 4,540
Collateralized Mortgage Obligations.......... 6,677 -- 219 6,458
Other mortgage-backed securities............. 1,410 -- 68 1,342
--------- ---------- --- ---------
Total................................... $17,425 18 659 16,784
======= ======== ======== =======
AT DECEMBER 31, 1993:
FHLMC certificates........................... 1,677 61 -- 1,738
GNMA certificates............................ 18,861 1,420 -- 20,281
--------- ---------- --- ---------
Total................................... $20,538 1,481 -- 22,019
======= ======== ======== =======
SECURITIES HELD-TO-MATURITY:
AT DECEMBER 31, 1993:
FHLMC certificates........................... 11,811 643 -- 12,454
GNMA certificates............................ 10,166 624 -- 10,790
FNMA certificates............................ 7,248 287 -- 7,535
Collateralized mortgage obligations.......... 10,929 3 11 10,921
Other mortgage-backed securities............. 1,779 1 -- 1,780
--------- ---------- --- ---------
Total................................... $41,933 1,558 11 43,480
======= ======== ======== =======
</TABLE>
On December 31, 1993, FF Bancorp adopted Statement of Financial Accounting
Standards No. 115 and reclassified certain of its mortgage-backed securities as
available-for-sale. This resulted in an increase in the recorded amount of
mortgage-backed securities by $1,481,000 and increase in stockholders' equity of
$919,000 which is net of the income tax effect of $562,000. On December 31,
1994, FF Bancorp classified all mortgage-backed securities as
available-for-sale. This resulted in a net decrease in the recorded amount of
mortgage-backed securities of $641,000 and stockholders' equity of $398,000, net
of the estimated tax effect of the unrealized losses.
Sales of mortgage-backed securities during 1994 were $28.1 million. Gross
gains of $13,000 and gross losses of $614,000 were realized on the sales of
mortgage-backed securities during 1994. There were no sales of mortgage-backed
securities during the years ended December 31, 1993 and 1992.
F-14
<PAGE> 96
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) LOANS RECEIVABLE, NET
The Portfolio. Loans receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
First mortgage loans:
Secured by one-to-four-family residences................... $357,964 324,902
Secured by other properties................................ 59,859 22,831
Construction loans......................................... 10,172 10,317
Other...................................................... 1,523 4,323
-------- --------
429,518 362,373
-------- --------
Consumer and other loans:
Automobile................................................. 371 297
Mobile homes............................................... 70 --
Home equity and second mortgage............................ 3,331 1,767
Loans on deposit accounts.................................. 1,959 2,197
Other...................................................... 2,058 598
-------- --------
7,789 4,859
-------- --------
Total loans............................................. 437,307 367,232
Less:
Allowance for loan losses.................................. (6,035) (2,726)
Undisbursed portion of loans in process.................... (6,672) (6,350)
Unearned discounts......................................... (1) (6)
Deferred origination fees and costs........................ (3,968) (4,394)
-------- --------
Loans receivable, net................................... $420,631 353,756
======== ========
</TABLE>
Credit Risk and Loan Losses. FF Bancorp grants primarily long-term real
estate loans collateralized by single-family residences and other residential
properties and installment loans throughout the state. The majority of FF
Bancorp's loans are in the Hillsborough, Pinellas, Citrus, Hernando, Marion and
Volusia Counties. Although, FF Bancorp has a diversified loan portfolio, a
significant portion of its debtors' ability to honor their contracts is
dependent upon the economy of these counties. The activity in the allowance for
loan losses was as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Balance, beginning of year............................. $2,726 2,583 1,708
Allowance of Key at time of acquisition................ 1,858 -- --
Provision charged against earnings..................... 1,939 177 1,011
Charge-offs............................................ (488) (34) (136)
------ ------ ------
Balance, end of year................................... $6,035 2,726 2,583
====== ====== ======
</TABLE>
See Note 1 for an explanation of increase in the provision.
Nonaccrual loans for which interest has been reduced totaled approximately
$2.8 million, $2.0 million and $2.5 million at December 31, 1994, 1993 and 1992,
respectively. Interest income that would have been
F-15
<PAGE> 97
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded under the original terms of such loans and the interest income actually
recognized are summarized below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest income that would have been recorded............... $238 169 231
Interest income recognized.................................. (70) (52) (118)
---- ---- ----
Interest income foregone.................................... $168 117 113
==== ==== ====
</TABLE>
(5) LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these mortgage
loans are summarized as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Mortgage loan portfolios serviced for:
FHLMC............................................. $20,668 27,117 47,761
FNMA.............................................. 3,731 4,271 5,217
Other investors................................... 618 841 1,115
------- ------- -------
$25,017 32,229 54,093
======= ======= =======
</TABLE>
Custodial escrow balances maintained in connection with the foregoing loans
serviced were approximately $139,000 and $205,000 at December 31, 1994 and 1993,
respectively.
The following is an analysis of the changes in excess servicing fees
receivable which is included in other assets (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year................................ $ 77 88 79
Additions................................................... -- -- 21
Amortization................................................ (10) (11) (12)
---- ---- ----
Balance at end of year.................................... $ 67 77 88
==== ==== ====
</TABLE>
(6) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1994 1993
------ ------
<S> <C> <C>
Land............................................................. $2,159 1,521
Buildings and improvements....................................... 9,067 7,662
Leasehold improvements........................................... 1,584 249
Furniture and equipment.......................................... 2,229 3,407
------ ------
Total, at cost.............................................. 15,039 12,839
Accumulated depreciation......................................... 5,070 4,748
------ ------
Premises and equipment, net...................................... $9,969 8,091
====== ======
</TABLE>
F-16
<PAGE> 98
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) REAL ESTATE OWNED
Real estate owned consists of the following (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1994 1993
------ ------
<S> <C> <C>
In-substance foreclosures........................................ $2,973 3,949
Real estate acquired by foreclosure or deed in lieu of
foreclosure.................................................... 3,163 1,563
Real estate held for investment.................................. -- 21
------ ------
6,136 5,533
Allowance for loss............................................... 773 764
------ ------
Total real estate owned, net................................ $5,363 4,769
====== ======
</TABLE>
Loss on real estate owned operations consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net gain on sale............................................ $504 309 316
Less operating costs........................................ 361 269 488
Less provision for loss..................................... 317 312 539
---- ---- ----
Net loss on real estate operations..................... $174 272 711
==== ==== ====
</TABLE>
The following is an analysis of the activity in the allowance for loss on
real estate acquired by foreclosure or deed in lieu of foreclosure and real
estate held for investment (in thousands):
<TABLE>
<CAPTION>
REAL
REAL ESTATE ESTATE
ACQUIRED BY HELD FOR
FORECLOSURE INVESTMENT TOTAL
------------ ---------- -------
<S> <C> <C> <C>
Balance at December 31, 1991.......................... $ 1,730 29 1,759
Provision charged to earnings......................... 533 6 539
Charge-offs........................................... (1,247) (19) (1,266)
------------ ---------- -------
Balance at December 31, 1992.......................... 1,016 16 1,032
Provision charged to earnings......................... 308 4 312
Charge-offs........................................... (572) (8) (580)
------------ ---------- -------
Balance at December 31, 1993.......................... 752 12 764
Provision charged to earnings......................... 317 -- 317
Charge-offs........................................... (296) (12) (308)
------------ ---------- -------
Balance at December 31, 1994.......................... $ 773 -- 773
========== ======== =======
</TABLE>
F-17
<PAGE> 99
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) DEPOSIT ACCOUNTS
Deposit accounts consist of the following (in thousands):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE RATE AT
DECEMBER 31, AT DECEMBER 31,
--------------- ---------------------
1994 1994 1993
--------------- -------- --------
<S> <C> <C> <C>
NOW accounts, including noninterest bearing
deposits of $17.6 million in 1994 and $6.2
million in 1993................................. 1.63% $ 65,039 48,707
Money market deposit accounts..................... 2.89% 43,119 39,723
Passbook accounts................................. 2.62% 87,073 89,299
-------- --------
Subtotal........................................ 2.35% 195,231 177,729
-------- --------
Certificate accounts by interest rates:
2.50% -- 2.99%.................................. 2.50% 300 3,091
3.00% -- 4.99%.................................. 4.24% 183,176 191,302
5.00% -- 6.99%.................................. 5.63% 156,500 104,486
7.00% -- 8.99%.................................. 7.44% 3,143 11,102
9.00% -- 10.99%................................. 9.68% 844 1,200
11.00% -- 12.99%................................ --% -- 1,131
-------- --------
Total certificates........................... 4.91% 343,963 312,312
-------- --------
Total................................... 3.98% $539,194 490,041
======== ========
</TABLE>
The aggregate amount of short-term jumbo certificates of deposits with a
minimum denomination of $100,000 was approximately $34.1 million and $42.4
million at December 31, 1994 and 1993, respectively.
The following table presents, by various interest rate categories, the
amounts of certificate accounts at December 31 , 1994 maturing during the
periods reflected below ($ in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------------------
1995 1996 1997 1998 1999 TOTAL
-------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
2.50% -- 2.99%................. $ 300 -- -- -- -- 300
3.00% -- 4.99%................. 161,840 17,365 2,551 990 430 183,176
5.00% -- 6.99%................. 57,143 34,803 20,658 26,234 17,662 156,500
7.00% -- 8.99%................. 1,865 1,178 -- -- 100 3,143
9.00% -- 10.99%................ 443 401 -- -- -- 844
-------- ------- ------- ------- ------- --------
$221,591 53,747 23,209 27,224 18,192 343,963
======== ======= ======= ======= ======= ========
</TABLE>
Interest expense on deposit accounts is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
NOW and money market deposit accounts................. $ 1,873 2,094 2,219
Passbook accounts..................................... 2,753 2,311 2,757
Certificate accounts.................................. 15,349 15,052 20,260
Less early withdrawal penalties....................... (110) (82) (93)
------- ------- -------
$19,865 19,375 25,143
======= ======= =======
</TABLE>
F-18
<PAGE> 100
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) BORROWED FUNDS
The Federal Home Loan Bank advance outstanding at December 31, 1993 was
$5,000,000 and which was collateralized by certain mortgage-backed securities
with a book value of $5,963,567 and a market value of approximately $6,330,000.
The Federal Home Loan Bank stock was also pledged as collateral for the advance.
There were no Federal Home Loan Bank advances outstanding at December 31, 1994.
Interest expense on borrowed funds is summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Federal Home Loan Bank advance................................ $21 276 255
</TABLE>
(10) INCOME TAXES
As discussed in Note 1, FF Bancorp adopted SFAS 109 as of January 1, 1993.
The cumulative effect of this change in accounting for income taxes increased
net earnings by $824,000 and earnings per share by $.18 and is reported
separately in the consolidated statement of earnings for the year ended December
31, 1993. The effect of applying SFAS 109 on earnings before the cumulative
effect of the change in accounting principle for the year ended December 31,
1993 was not significant.
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Federal:
Current............................................ $3,042 $3,754 $3,083
Deferred........................................... (257) (19) (33)
------ ------ ------
Total...................................... 2,785 3,735 3,050
State:
Current............................................ 592 524 295
Deferred........................................... (45) (1) (25)
------ ------ ------
Total...................................... 547 523 270
------ ------ ------
$3,332 $4,258 $3,320
====== ====== ======
</TABLE>
Total income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 34% to 1994, 1993 and 1992 to earnings before
income taxes and the cumulative effect of change in accounting for income taxes
as a result of the following ($ in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1993 1992
------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Tax at federal income tax rate.............. $3,343 34% $3,821 34% $3,009 34%
Increase (decrease) resulting from:
Bad debt deduction........................ -- -- -- -- (62) (1)
State income tax.......................... 352 4 345 3 195 3
Reserve for refund adjustment............. (400) (4) -- -- -- --
Other, net................................ 37 -- 92 1 178 2
------ --- ------ --- ------ ---
Total............................. $3,332 34% $4,258 38% $3,320 38%
====== == ====== == ====== ==
</TABLE>
F-19
<PAGE> 101
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences between the financial statement carrying amount and
tax bases of assets and liabilities that gave rise to significant portions of
the deferred tax asset (liability) relates to the following (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1994 1993
------ -------
<S> <C> <C>
Unearned profit on real estate owned............................ $ 108 $ 110
Allowance for loan losses....................................... 1,420 818
Net operating loss carryforward relating to Key Bank............ 919 --
Alternative minimum tax credit carryforward..................... 79 --
Unrealized (gain) loss on securities available-for-sale......... 607 (1,025)
Market value adjustments related to Key acquisition............. 423 --
Premises and equipment.......................................... (95) (187)
Deferred origination fees and costs............................. (729) (693)
Federal Home Loan Bank stock.................................... (538) (548)
Loans and mortgage-backed securities............................ (78) (150)
Accrued pension liability....................................... (19) (83)
Other........................................................... (1) (47)
------ -------
Net deferred tax asset (liability).................... $2,096 $(1,805)
====== =======
</TABLE>
The following is a reconciliation of the deferred tax asset and liability
for the year ended December 31, 1994 (in thousands):
<TABLE>
<S> <C>
Deferred tax liability at December 31, 1993................................ $(1,805)
Current year provision for income taxes.................................... 302
Change in unrealized loss on securities available-for-sale................. 1,632
Acquisition of Key Bank.................................................... 1,967
-------
Deferred tax asset at December 31, 1994.................................... $ 2,096
=======
</TABLE>
Retained earnings at December 31, 1994 and 1993 include approximately
$3,912,000 and $4,088,000, respectively, for which no deferred federal income
tax liability has been recognized. These amounts represent an allocation of
income to bad debt deduction for tax purposes only. Reduction of amounts so
allocated for purposes other than tax bad debt losses or adjustments arising
from carryback of net operating losses would create income for tax purposes
only, which would be subject to the then current corporate income tax rate. The
unrecorded deferred income tax liability on the above amounts was approximately
$1,478,000 and $1,533,000 at December 31, 1994 and 1993, respectively.
Earnings appropriated to bad debt reserves and deducted for federal income
tax purposes are not available for payment of cash dividends or other
distributions to stockholders, including distributions on redemption,
dissolution, or liquidation without payment of taxes by FF Bancorp on the amount
of earnings removed from the reserves for such distribution at the then current
tax rate. Under applicable Code provisions, the amount which would be deemed
removed from such reserves by FF Bancorp, in the event of any such distribution
to stockholders, and which would be subject to taxation at FF Bancorp level at
the normal tax rate would approximate one hundred and fifty percent (150%) of
the net amount actually distributed to the stockholders. At December 31, 1994,
FF Bancorp had approximately $20,407,000 in tax earnings and profits available
for dividend distribution to its stockholders without the imposition of any tax
at FF Bancorp level.
(11) PENSION AND PROFIT SHARING PLAN
New Smyrna has a noncontributory defined pension plan covering all
full-time employees who have met certain age and length of service requirements.
The benefits are based on years of service and average monthly
F-20
<PAGE> 102
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation. New Smyrna's current funding policy is to make an annual
contribution that will not be less than the minimum required contribution nor
greater than the maximum federal income tax deductible limit. Net periodic
pension expense included the following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Service cost............................................... $ 161 $ 137 $ 99
Interest cost.............................................. 179 163 137
Return on plan assets...................................... (161) (139) (118)
Net amortization and deferral.............................. 48 38 20
----- ----- -----
Net periodic pension expense..................... $ 227 $ 199 $ 138
===== ===== =====
</TABLE>
The status of the plan at October 1 as determined by consulting actuaries
is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested......................................................... $ 1,656 $ 1,596
Nonvested...................................................... 59 88
------- -------
Total.................................................. 1,715 1,684
======= =======
Accrued pension liability:
Projected benefit obligation................................... (2,488) (2,748)
Fair value of plan assets...................................... 1,976 1,666
------- -------
Projected benefit obligation in excess of plan assets............ (512) (1,082)
Unrecognized net transition liability............................ 503 1,111
------- -------
Prepaid (accrued) pension costs........................ $ (9) $ 29
======= =======
</TABLE>
In 1994 and 1993, the expected long-term rate of return on plan assets was
9% and the discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the accumulated benefit obligation
were 6.50% and 7.25%, and 6.00% and 8.25% in 1994 and 1993, respectively. Plan
assets are invested primarily in guaranteed accumulation contracts. The
guaranteed accumulation contracts include a general account comprising 66% of
the plan assets and separate accounts representing 34% of the plan assets. The
assets comprising the portfolio of the general account are bonds 39%, mortgages
33%, real estate 27% and other 11%.
Citrus has a noncontributory pension plan covering substantially all of its
employees. Benefits under the plan are provided by a multi-employer defined
benefit plan. Actuarial present value of accumulated plan benefits and net
assets available for benefits are not available on an individual employer basis.
No amounts were required to be contributed to the plan during the years ended
December 31, 1994, 1993 and 1992.
Key sponsors a profit sharing plan available to all employees electing to
participate after meeting certain length- of-service requirements. FF Bancorp's
contributions to the profit sharing plan are discretionary and are determined
annually prior to the end of the calendar year. FF Bancorp did not contribute to
the profit sharing plan during the years ended December 31, 1994, 1993 and 1992.
(12) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND LOAN COMMITMENTS
FF Bancorp is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its borrowers.
These financial instruments consist of loan commitments to extend credit. These
instruments may, but not necessarily, involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the balance
sheet. The contract amounts of these
F-21
<PAGE> 103
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
instruments reflect the extent of involvement FF Bancorp has in these financial
instruments. FF Bancorp's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend credit
is represented by the contractual amount of those instruments. FF Bancorp uses
the same credit policies in making commitments as it does for on-balance-sheet
loans receivable. Loan commitments whose contract amounts represent credit and
interest rate risk are as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1994 1993
------ ------
<S> <C> <C>
Outstanding loan commitments, exclusive of loans in process:
At fixed rates................................................... $1,760 5,620
At variable rates................................................ 6,558 2,580
------ ------
Total loan commitments................................... $8,318 8,200
====== ======
Undisbursed portion of lines of credit............................. $4,594 --
====== ======
Standby letters of credit.......................................... $ 718 --
====== ======
</TABLE>
Commitments to extend credit are agreements to lend monies to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. FF Bancorp evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by FF Bancorp upon extension of credit, is based on management's
credit evaluation of the borrower.
Standby letters of credit issued are conditional commitments issued by FF
Bancorp to guarantee the performance of a customer to a third party. All of the
standby letters of credit outstanding at December 31, 1994 expire during 1995
and 1996. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loans to customers.
(13) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, FF Bancorp has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. In addition, FF Bancorp is a defendant in
certain claims and legal actions arising in the ordinary course of business. In
the opinion of management, after consultation with legal counsel, the ultimate
disposition of these matters is not expected to have a material adverse effect
on the financial position of FF Bancorp. The principal commitments of FF Bancorp
are as follows:
Lease Commitments. During the year ended December 31, 1994, FF Bancorp was
operating one branch office under a month-to month lease. Net rent expense under
operating leases, included in occupancy and equipment expense, was approximately
$73,000, $74,000 and $61,000 for the years ended December 31, 1994, 1993 and
1992, respectively. No branch office lease commitments exist at December 31
1994.
(14) REGULATORY MATTERS
In connection with the insurance of deposit accounts, the Holding Company's
Subsidiaries are required to maintain certain minimum regulatory capital
requirements. These are not valuation allowances and have not been created by
charges against earnings. They represent a restriction on stockholders' equity.
F-22
<PAGE> 104
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the regulatory capital requirements, as well
as, the Holding Company's thrift subsidiaries regulatory capital and the amounts
in excess of such required capital as of December 31, 1994 ($ in thousands):
<TABLE>
<CAPTION>
RISK-BASED
------------------
TANGIBLE CORE % OF
---------------- ---------------- RISK-
% OF % OF WEIGHTED
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
------- ------ ------- ------ ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
NEW SMYRNA:
Regulatory capital............... $24,364 7.8% $24,364 7.8% $26,211 17.8%
Requirement...................... 4,665 1.5 9,331 3.0 11,809 8.0
------- ------ ------- ------ ------- --------
Excess........................... $19,699 6.3% $15,033 4.8% $14,402 9.8%
======= ===== ======= ===== ======= =======
CITRUS:
Regulatory capital............... 15,890 7.5% $15,890 7.5% $17,209 16.4%
Requirement...................... 3,192 1.5 6,384 3.0 8,418 8.0
------- ------ ------- ------ ------- --------
Excess........................... $12,698 6.0% $ 9,506 4.5% $ 8,791 8.4%
======= ===== ======= ===== ======= =======
</TABLE>
At the time of the conversions of New Smyrna and Citrus, liquidation
accounts were established for each institution in amounts equal to the total
regulatory capital as of July 30, 1990 and December 31, 1991, respectively. Each
eligible deposit account holder, as described in the respective plans of
conversion, is entitled to a proportionate share of such liquidation account in
the event of a complete liquidation of the institution in which such account is
held, but only in such event. This share cannot be increased but will be reduced
if the account holder's deposit falls below the amount on the dates of record,
and will cease to exist if the account is closed. The liquidation accounts will
never be increased despite any increase after the conversions in the related
deposit of an account holder. This account is reduced annually in proportion to
the reduction of eligible savings account balances measured on December 31 of
each year.
New Smyrna and Citrus may not declare or pay a cash dividend on, or
repurchase any of its capital stock, if the effect thereof would cause the
stockholders' equity of either institution to be reduced below either, the
amount required for their respective liquidation accounts or the regulatory
capital requirements, imposed by the regulatory authorities.
Banking laws and regulations limit the amount of dividends that may be paid
by Key. The FDIC requires insured banks to maintain two separate levels of
capital.
The FDIC requires banks to maintain a minimum leverage-capital ratio of
Tier I capital (as defined) to total assets. The leverage-capital ratio ranges
from 3% to 5% based on the bank's rating under the regulatory rating system. Key
required leverage capital ratio at December 31, 1994 was 4%.
The FDIC has also adopted a risk-based capital statement of policy which
imposes an additional capital standard on insured banks. Under this regulation,
a bank must classify its assets and certain off-balance sheet activities into
categories, and maintain specified levels of capital for each category. The
amount of capital that is required is dependent upon the amount of risk
attributed to each category by the FDIC. A bank must have a total risk-based
capital ratio of no less than 8% and a Tier I capital to risk-weighted assets
ratio of no less than 4%. Under the statement of policy, certain assets are
required to be deducted from risk based capital. Such assets include certain
nonqualifying intangible assets, unconsolidated banking and finance
subsidiaries, investments in securities subsidiaries and reciprocal holdings of
capital instruments with other banks. In addition, the FDIC may consider
deducting other assets on a case-by-case basis or investments in other
subsidiaries on a case-by-case basis or based on the general characteristics or
functional nature of the subsidiaries.
F-23
<PAGE> 105
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994 a comparison of the required capital ratios to actual
capital ratios was as follows:
<TABLE>
<CAPTION>
RATIOS OF REGULATORY
KEY REQUIREMENT
--------- -----------
<S> <C> <C>
Total capital to risk-weighted assets........................ 10.41% 8.00%
Tier I capital to risk-weighted assets....................... 9.12% 4.00%
Tier I capital to total assets -- leverage ratio............. 7.36% 4.00%
</TABLE>
(15) STOCK OPTION PLANS
Certain directors, officers and employees have options to purchase shares
of FF Bancorp's common stock, under its stock option plans. The option price is
the fair market value at date of grant. The options are exercisable in one or
more installments until 2002. Under the option plans, 56 shares remain available
for grant to directors, officers and employees on a merit basis. The number of
shares reflect the 10% stock dividend declared July 18, 1994 and the three for
one stock split of July 26, 1993. A summary of transactions follows ($ in
thousands):
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OPTION
OF SHARES PRICE
--------- ---------
<S> <C> <C>
Outstanding at December 31, 1991............................... 329,918 $ 1,000
Options granted February 11, 1992 at $3.79 per share........... 82,500 313
Options granted July 8, 1992 at $4.81 per share................ 54,136 260
Options granted August 24, 1992 at $6.44 per share............. 60,591 390
Options exercised at $3.03 per share........................... (42,893) (130)
Options forfeited at $3.03 per share........................... (3,920) (12)
--------- ---------
Outstanding at December 31, 1992............................... 480,332 1,821
Options exercised at $3.03 per share........................... (52,807) (169)
--------- ---------
Outstanding at December 31, 1993............................... 427,525 1,652
Options exercised at $3.03 per share........................... (213,546) (647)
Options exercised at $3.79 per share........................... (33,000) (125)
Options exercised at $4.81 per share........................... (35,990) (173)
Options exercised at $6.44 per share........................... (60,591) (391)
--------- ---------
Outstanding at December 31, 1994............................... 84,398 $ 316
======== =======
</TABLE>
The outstanding options are exercisable as follows:
<TABLE>
<CAPTION>
YEAR
--------------------------------------------------------------------
<S> <C>
1995................................................................ 47,023
1996................................................................ 18,688
1997................................................................ 18,687
------
84,398
======
</TABLE>
(16) MANAGEMENT RECOGNITION PLAN
The Board of Directors of FF Bancorp has adopted a Management Recognition
Plan (the "MRP"), the objective of which is to enable FF Bancorp to retain its
corporate officers who have the experience and ability necessary to manage FF
Bancorp. Those eligible to receive benefits under the MRP will include certain
officers as determined by members of a committee appointed by the Board of
Directors of FF Bancorp.
F-24
<PAGE> 106
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The MRP is managed by trustees who are directors of FF Bancorp who have the
responsibility to invest all funds contributed by FF Bancorp to the trust
created for the MRP (the "Trust"). FF Bancorp contributed $345,000 to the Trust
at the time the Trust was established. The Trust purchased 113,850 shares
(adjusted for the three for one stock split of July 26, 1993 and the 10% stock
dividend declared on July 18, 1994) of Common Stock issued in the Conversion. On
July 1, 1991, the Committee granted one-half of the MRP shares to Frances Ford
and one-half to Charles Byrd. The shares granted are in the form of restricted
stock to be earned and payable over a four-year period at the rate of 25% of
such shares per year beginning January 1, 1992. Compensation expense in the
amount of the fair market value of the Common Stock at the date of the grant to
the officer or employee is being recognized over the four years during which the
shares are earned and payable.
(17) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents. For those short-term instruments, the
carrying amount is the estimate of fair value.
Investment Securities and Mortgage-Backed Securities. For securities
held-to-maturity, fair value equals market price, if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.
Loans Receivable. The fair value of loans is estimated by discounting
the future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit rating and for the same remaining
maturities.
Deposit Accounts. The fair value of NOW accounts, savings accounts,
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed maturity certificates of deposit
accounts is estimated using the rates currently offered for deposits of
similar remaining maturities.
Commitments to Extend Credit. The fair value of commitments is
estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the present creditworthiness of the counterparties. For fixed-rate loan
commitments, the fair value estimated also considers the difference between
current levels of interest rates and the committed rates.
F-25
<PAGE> 107
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of FF Bancorp's financial instruments are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
----------------------
CARRYING FAIR
AMOUNT VALUE
-------- -------
(IN THOUSANDS)
<S> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents..................................... $101,054 101,054
======== =======
Investment securities......................................... $ 13,320 13,320
======== =======
Mortgage-backed securities.................................... $ 16,784 16,784
======== =======
Loans receivable, net......................................... $420,631 411,316
======== =======
Accrued interest receivable................................... $ 2,534 2,534
======== =======
FINANCIAL LIABILITIES:
Deposit accounts.............................................. $539,194 533,016
======== =======
Unrecognized financial instruments -- Commitments to extend
credit...................................................... $ 13,630 13,630
======== =======
</TABLE>
(18) PARENT COMPANY FINANCIAL INFORMATION
The parent company financial information is as follows (in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1994 1993
------- -------
<S> <C> <C>
ASSETS
Cash, deposited with subsidiaries................................ $ 410 4,091
Investment in subsidiaries....................................... 44,232 38,107
Prepaid income taxes............................................. 476 --
Other assets..................................................... 438 129
------- -------
Total assets........................................... $45,556 42,327
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable to subsidiaries................................. -- 50
Other liabilities................................................ 61 --
Stockholders' equity............................................. 45,495 42,277
------- -------
Total liabilities and stockholders' equity............. $45,556 42,327
======= =======
</TABLE>
F-26
<PAGE> 108
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1993
------- -------
<S> <C> <C>
Revenues......................................................... $ -- 5
Expenses......................................................... 399 378
Loss before earnings of subsidiaries............................. (399) (373)
Earnings of subsidiaries......................................... 6,901 8,178
------- -------
Net earnings........................................... $ 6,502 7,805
======= =======
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
Operating activities:
Net earnings................................................... 6,502 7,805
Adjustments to reconcile net earnings to net cash used in
operating activities:
Equity in undistributed earnings of subsidiaries............ (6,901) (8,178)
Decrease in accounts payable................................ (100) (29)
Issuance of common stock held by management recognition
plan trust................................................ 311 235
Increase in other assets.................................... (259) (77)
Increase in other liabilities............................... 61 --
------- -------
Net cash used in operating activities.................. (386) (244)
Investing activities:
Dividend from Subsidiaries..................................... 3,050 5,750
Investment in Key.............................................. (4,051) --
------- -------
Net cash provided by (used in) investing activities.... (1,001) 5,750
Financing activities:
Sale (retirement) of common stock.............................. (1,184) (296)
Proceeds from stock option exercised........................... 1,335 169
Payment of cash dividends...................................... (2,445) (2,026)
------- -------
Net cash used in financing activities.................. (2,294) (2,153)
------- -------
Net increase (decrease) in cash.................................. (3,681) 3,353
Cash at beginning of the year.................................... 4,091 738
------- -------
Cash at end of year.............................................. $ 410 4,091
======= =======
</TABLE>
F-27
<PAGE> 109
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(19) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data follows ($ in thousands, except per
share figures):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income................................... $ 9,518 10,911 11,084 11,256
Interest expense.................................. 4,497 5,004 5,106 5,279
Net interest income............................... 5,021 5,907 5,978 5,977
Provision for loan losses......................... -- -- -- 1,939
------- ------- ------- -------
Net interest income after provision for loan
losses.......................................... 5,021 5,907 5,978 4,038
Noninterest income................................ 296 586 640 (491)
Noninterest expense............................... 2,357 3,088 3,056 3,640
------- ------- ------- -------
Earnings (loss) before income taxes............... 2,960 3,405 3,562 (93)
Provision (credit) for income taxes............... 1,093 1,008 1,362 (131)
------- ------- ------- -------
Net earnings...................................... $ 1,867 2,397 2,200 38
======= ====== ====== ======
Net earnings per share....................... $ .41 .54 .48 .01
======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income................................... $10,219 10,065 9,821 9,641
Interest expense.................................. 5,145 4,964 4,821 4,722
------- ------- ------- -------
Net interest income............................... 5,074 5,101 5,000 4,919
Provision for loan losses......................... 79 76 22 --
------- ------- ------- -------
Net interest income after provision for loan
losses.......................................... 4,995 5,025 4,978 4,919
Noninterest income................................ 271 323 297 308
Noninterest expense............................... 2,317 2,509 2,431 2,620
------- ------- ------- -------
Earnings before income taxes and cumulative effect
of change in accounting principle............... 2,949 2,839 2,844 2,607
Provision for income taxes........................ 1,090 1,089 1,073 1,007
------- ------- ------- -------
Earnings before cumulative effect of change in
accounting principle............................ 1,859 1,750 1,771 1,600
Cumulative effect of change in accounting
principle....................................... 824 -- -- --
------- ------- ------- -------
Net earnings...................................... $ 2,683 1,750 1,771 1,600
======= ====== ====== ======
Earnings per share:
Earnings before cumulative effect of change in
accounting principle......................... $ .40 .38 .38 .34
Cumulative effect of change in accounting
principle.................................... .18 -- -- --
------- ------- ------- -------
Net earnings...................................... $ .58 .38 .38 .34
======= ====== ====== ======
</TABLE>
F-28
<PAGE> 110
FF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income................................... $11,596 11,083 10,725 10,470
Interest expense.................................. 7,339 6,509 6,015 5,535
------- ------- ------- -------
Net interest income............................... 4,257 4,574 4,710 4,935
Provision for loan losses......................... 304 249 228 230
------- ------- ------- -------
Net interest income after provision for loan
losses.......................................... 3,953 4,325 4,482 4,705
Gain (loss) on sale of assets..................... (19) (17) -- 2
Noninterest income................................ 306 275 314 198
Noninterest expense............................... 2,514 2,442 2,322 2,398
------- ------- ------- -------
Earnings before income tax expense................ 1,726 2,141 2,474 2,507
Provision for income taxes........................ 677 824 982 837
------- ------- ------- -------
Net earnings...................................... $ 1,049 1,317 1,492 1,670
======= ====== ====== ======
Earnings per share................................ $ .24 .30 .33 .37
======= ====== ====== ======
</TABLE>
(20) PENDING MERGER
The Board of Directors has entered into an agreement whereby FF Bancorp
will be acquired by First National Bancorp, Gainesville, Georgia (First
Bancorp). Under the terms of the agreement each share of FF Bancorp's common
stock will be exchanged for .825 shares of First Bancorp's common shares. The
merger is subject to approval by FF Bancorp's stockholders and various
regulatory authorities.
F-29
<PAGE> 111
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter referred to as the
"Agreement"), dated as of November 22, 1994, between FIRST NATIONAL BANCORP, a
Georgia corporation (hereinafter referred to as "Bancorp"), and FF BANCORP, INC.
(hereinafter referred to as "FF"), a Florida corporation.
W I T N E S S E T H:
WHEREAS, Bancorp is a multiple bank holding company duly organized and in
good standing under the laws of the State of Georgia which as of October 31,
1994, had 30,000,000 shares of common stock, $1.00 par value per share ("Bancorp
Common Stock"), with 16,489,469 shares of common stock outstanding; and
WHEREAS, FF is a multiple thrift and one bank holding company operating in
the State of Florida which as of October 31, 1994, had 5,0000,000 authorized
shares of common stock, $.01 par value per share, and 2,500,000 shares of
preferred stock, $.,01 par value per share; 4,680,818 shares of common stock
were issued and outstanding ("FF Common Stock") and no shares of preferred stock
were issued and outstanding; and
WHEREAS, FF owns all of the outstanding stock of First Federal Savings Bank
of New Smyrna, a federal savings bank located in New Smyrna Beach, Florida
(hereinafter sometimes referred to as "New Smyrna Bank"), all of the outstanding
stock of First Federal Savings Bank of Citrus County, a federal savings bank
located in Citrus County, Florida (hereinafter sometimes referred to as "Citrus
Bank"), and 97.3% of the outstanding stock of Key Bancshares, Inc. (hereinafter
sometimes referred to as "Key Bancshares"), which owns all of the outstanding
stock of The Key Bank of Florida, a state-chartered commercial bank located in
Tampa, Florida (hereinafter sometimes referred to as "Key Bank," and together
with New Smyrna Bank, Citrus Bank and Key Bancshares, collectively referred to
as "FF Subsidiaries"); and
WHEREAS, the respective Boards of Directors of Bancorp and FF deem it
desirable to enter into this Agreement providing for FF to be merged into
Bancorp, with Bancorp being the surviving corporation and with the result that
the FF Subsidiaries shall thereafter be the subsidiaries of Bancorp, with
shareholders of FF receiving shares of Bancorp in exchange for their FF shares;
and
WHEREAS, the parties believe that the merger will broaden the capital
markets available to FF Subsidiaries and Bancorp, enable the parties to compete
more effectively with other banks in the FF market area, and give the
shareholders of FF an interest in a more diversified enterprise and securities
in a more widely held company; and
WHEREAS, in adopting this Agreement, the Board of Directors of FF has given
due consideration to the relevant factors for determining what is in the best
interest of FF and its shareholders, including the social and economic effect of
this Agreement on FF's present and future customers and its employees and those
of the FF subsidiaries, as well as on the communities served by FF Subsidiaries.
In addition to the above, the Directors of FF have considered the effect of the
merger on the ability of FF to fulfill its corporate objectives as a savings and
loan and one bank holding company and on the ability of the FF Subsidiaries to
fulfill the objectives of federally chartered stock savings banks under
applicable statutes and regulations.
NOW, THEREFORE, in consideration of their mutual promises, the parties
enter into this Agreement. Paragraphs I through III herein shall constitute the
"Plan of Merger" between FF and Bancorp as contemplated by the Georgia Business
Corporation Code, O.C.G.A. sec. 14-2-1101 et seq., (the "Georgia Code") and the
Florida Business Corporation Act, Chapter 607, Florida Statutes (1993) (the
"Florida Act").
I. AGREEMENT TO MERGE.
(A) On the date designated as such in "Articles of Merger" to be filed by
Bancorp with the Georgia Secretary of State pursuant to the Georgia Code and
with the Florida Secretary of State pursuant to the
A-1
<PAGE> 112
Florida Act, the "Merger Date", FF shall be merged into Bancorp, which shall be
the survivor (hereinafter sometimes referred to as the "Surviving Corporation").
Such merger shall be pursuant to the applicable provisions of the Georgia Code
and Florida Act.
(B) The articles of incorporation of Bancorp shall be the articles of
incorporation of the Surviving Corporation. The bylaws of Bancorp shall be the
bylaws of the Surviving Corporation. The name "First National Bancorp" shall be
the name of the Surviving Corporation.
(C) The board of directors and officers of Bancorp shall continue to be the
board of directors and officers of the Surviving Corporation.
(D) Bancorp agrees to appoint Mr. Charles H. Byrd, Vice Chairman of FF, and
Mr. Tildon W. Smith, Executive Vice President of FF, to the Board of Directors
of Bancorp at the next scheduled Board meeting following consummation of the
Merger.
(E) FF shall receive a fairness opinion and confirmation regarding the
stock conversion in the Merger as contemplated by subparagraph VIII(B) hereof.
(F) The corporate existence of FF and Bancorp shall be merged into and
continued in Bancorp as the Surviving Corporation. The established offices and
facilities of Bancorp immediately prior to the merger shall remain the offices
and facilities of the Surviving Corporation.
(G) All rights, properties and privileges of every kind or character of FF
and Bancorp shall be transferred to or vested in Bancorp as the Surviving
Corporation by virtue of such merger without any deed, assignment or other
transfer. Bancorp, as the Surviving Corporation, shall by virtue of the merger
be responsible and liable for all of the liabilities and obligations of both FF
and Bancorp.
(H) The "Closing Date" shall not be later than the close of business on
August 31, 1995, unless extended by the mutual consent of FF and Bancorp.
II. CONSIDERATION FOR MERGER
(A) On the Merger Date, FF Common Stock shall be converted into the
following rights:
(i) At the time of the merger described in subparagraph I(A), each
share of outstanding FF Common Stock shall be converted into the right to
receive .825 shares of Bancorp Common Stock (the "Conversion Ratio");
provided, however, that the foregoing Conversion Ratio may be subject to
adjustment pursuant to subparagraph II(B).
(ii) Fractional shares of Bancorp Common Stock will not be issued in
the merger. Any FF shareholder who would be entitled to a fraction of a
Bancorp share shall receive cash payment in lieu of such fractional share
in an amount determined by multiplying the fraction of a share he would
otherwise be entitled to receive by $20.50; provided, however, that the
foregoing amount shall be subject to adjustment pursuant to the provisions
of subparagraph II(B).
(B) In the event that prior to the Merger Date, Bancorp or FF declares any
stock split or stock dividend, any reverse stock split or combination, or any
similar transaction where the record date for such transaction precedes the
Merger Date (or such later date that the holders of record of shares of FF
Common Stock would be deemed to be the holders of record of shares of Bancorp
Common Stock as a result of the Merger) the number of shares of Bancorp stock to
be received by shareholders of FF and the amount to be paid for fractional
shares shall be proportionately adjusted.
III. MANNER OF SURRENDERING FF STOCK.
Following consummation of the Merger, each FF shareholder shall receive in
exchange for his or her shares of FF Common Stock a certificate representing the
number of shares of Bancorp Common Stock into which FF shares have been
converted at the Conversion Ratio and a Bancorp check in settlement for a
fractional share of Bancorp Common Stock, if any. After the Merger Date and
until surrendered as provided herein, each FF certificate shall be deemed for
all corporate purposes to evidence the number of whole shares
A-2
<PAGE> 113
of Bancorp Common Stock into which the FF Common Stock represented by such
certificate shall have been converted as provided in Paragraph II, and such
certificates, as between the holders and Bancorp, shall evidence the holder's
right to receive Bancorp Common Stock certificates and cash in accordance with
this Agreement; provided, however, that Bancorp stock certificates will not be
issued to shareholders until their certificates have been surrendered to Mellon
Securities Trust Company, as the exchange agent. Dividends, interest or other
distributions payable to shareholders in respect of Bancorp Common Stock into
which FF Common Stock has been converted shall be retained, without interest, in
an escrow account at Mellon Securities Trust Company, for the account of such
shareholders and shall not be paid until their certificates have been
surrendered in exchange for Bancorp certificates.
IV. REPRESENTATIONS AND WARRANTIES OF BANCORP.
As an inducement to FF to enter into this Agreement, Bancorp hereby
represents and warrants to FF as follows:
(A) Bancorp is a Georgia corporation duly organized, validly existing
and in good standing under the laws of the State of Georgia. Bancorp has
the corporate power and authority to carry on its business as now conducted
and to own, lease and operate its assets, properties and businesses.
Bancorp has in effect 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 now conducted.
(B) Exhibit 21.1 of Bancorp's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, lists all active Bancorp subsidiaries
as of the date of this Agreement(except The Community Bank, Douglasville,
Georgia, which was acquired on February 28, 1994, and Barrow Bank & Trust
Company, which was acquired on July 31, 1994) (together with The Community
Bank and Barrow Bank & Trust Company, the "Bancorp Subsidiaries"). Each of
the Bancorp Subsidiaries:
(i) is either a national banking association or a state banking
corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction in which it is organized or incorporated;
(ii) has the corporate power and authority necessary for it to own
or lease its properties and assets and to carry on its business as now
being conducted; and
(iii) 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 now conducted.
(C) Bancorp owns 100% of the issued and outstanding equity securities
of each of Bancorp Subsidiaries, free and clear of any liens, encumbrances
or restrictions whatsoever, except for the pledge of First National Bank of
Habersham stock, Granite City Bank stock, and a portion of The First
National Bank of Gainesville stock to secure a loan from Trust Company
Bank. Neither Bancorp nor any of the Bancorp Subsidiaries has outstanding
any subscriptions, warrants, rights, options or other agreements or
commitments obligating any of the Bancorp Subsidiaries to issue any
additional shares of equity securities or obligating Bancorp to sell any
shares of the equity securities of any Bancorp Subsidiaries.
(D) Bancorp has 30,000,000 authorized shares of Common Stock, $1.00
par value each, of which 16,489,469 shares were outstanding as of October
31, 1994. No outstanding shares of Bancorp Common Stock have been issued in
violation of the preemptive rights of any person, or in violation of any
federal or state securities laws such that it would have a material adverse
effect on the business, properties, operations, prospects, or assets, or on
the condition, financial or otherwise, of Bancorp.
(E) As of the date of this Agreement, Bancorp does not have
outstanding any subscriptions, warrants, rights, options or other
agreements or commitments obligating Bancorp to issue shares of its capital
stock except the following:
(i) Any shares of Bancorp which may be issued from time to time by
Bancorp pursuant to any of its employee stock option plans and incentive
stock option agreements providing for the potential grant of options for
selected key employees of Bancorp and/or any subsidiary thereof;
A-3
<PAGE> 114
(ii) Any shares of Bancorp which may be issued from time to time
pursuant to the First National Bancorp Dividend Reinvestment Plan which
allows shareholders of Bancorp to elect to receive shares of Bancorp in
lieu of cash dividends; and
(iii) Any shares of Bancorp which may be issued from time to time
by Bancorp pursuant to the First National Bancorp Performance-Based
Restricted Stock Plan.
(F) The execution of this Agreement and the transactions contemplated
hereby have been authorized by all necessary corporate action of Bancorp,
and this Agreement is a valid and legally binding obligation of Bancorp
enforceable in accordance with its terms, subject to any bankruptcy or
moratorium laws now or hereafter in effect. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
provided for herein in the manner herein provided will violate any material
agreement to which Bancorp or any of the Bancorp Subsidiaries is a party or
is bound; nor will the actions described violate any law, order or decree
or any provision of the articles of incorporation or bylaws of Bancorp or
any of the Bancorp Subsidiaries. Bancorp has full power, authority and
legal right to enter into this Agreement and, upon receipt of approval by
the appropriate regulatory authorities governing Florida State chartered
banks, federally chartered savings associations and savings and loan and
bank holding companies, to consummate the transactions provided for herein.
There is no pending or, to the best of Bancorp's knowledge, threatened
litigation which would in any way impair the ability of Bancorp to fulfill
its obligations under this Agreement.
(G) Bancorp Common Stock is registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and Bancorp
has delivered to FF copies of:
(i) its Annual Report on Form 10-K for its fiscal year ended
December 31, 1993 (and those portions of its 1993 Annual Report to
Shareholders incorporated therein by reference), filed pursuant to
Section 13 of the 1934 Act;
(ii) the Proxy Statement for its Annual Meeting of Shareholders
held April 20, 1994, filed pursuant to Section 14 of the 1934 Act;
(iii) its Current Reports on Form 8-K dated January 14, 1994,
February 28, 1994, March 15, 1994, July 31, 1994, and October 28, 1994
filed pursuant to Section 13 of the 1934 Act; and
(iv) its Quarterly Reports on Form 10-Q for the periods ended March
31, 1994, June 30, 1994 and September 30, 1994 filed pursuant to Section
13 of the 1934 Act. These reports and proxy statement include all
regular and periodic reports and proxy statements required to be filed
by Bancorp with the Securities and Exchange Commission ("SEC") since
January 1, 1994 and are herein collectively called the "Bancorp SEC
Reports". The Bancorp SEC Reports taken together correctly describe,
among other things, the business, operations and principal properties of
Bancorp and its Subsidiaries in accordance with the requirements of the
applicable report form. As of the respective dates of filing, none of
the Bancorp SEC Reports contained any untrue statement of material fact
or omitted to state any material fact necessary to make the statements
therein not misleading. The financial statements contained in the
Bancorp SEC Reports have been prepared in accordance with generally
accepted accounting principles consistently applied and present fairly
the consolidated financial condition of Bancorp and its Subsidiaries as
of the dates thereof and the consolidated results of their operations
for the periods covered thereby.
(H) Since the date of its latest published financial statements
included in the Bancorp SEC Reports, there have not been any changes in the
condition of Bancorp or any of the Bancorp Subsidiaries, any contracts
entered into by Bancorp or any of its Subsidiaries, or other changes in the
operations of Bancorp or any of its Subsidiaries which, in either case,
would have a material adverse effect on the condition or results of
operations of Bancorp and its Subsidiaries, taken as a whole.
(I) The shares of Bancorp Common Stock to be issued to shareholders of
FF pursuant to this Agreement and the merger will, when issued according to
the terms of this Agreement, be registered with the SEC and be validly
issued, fully paid, and non-assessable.
A-4
<PAGE> 115
V. COVENANTS OF BANCORP.
(A) From the date of this Agreement until the Merger Date or until this
Agreement is terminated by the parties as herein provided, Bancorp covenants as
follows:
(i) Except as otherwise provided herein or consented to in writing by
FF (which consent will not be unreasonably withheld), Bancorp will conduct
its operations and will cause each of the Bancorp Subsidiaries to conduct
operations in accordance with its ordinary course of business consistent
with past practice, and shall use and shall cause each of the Bancorp
Subsidiaries to use, its best efforts to maintain and preserve its
business, organization, employees and good relationships with its
shareholders and its customers and others having business dealings with it.
(ii) Bancorp shall cause its officers and employees to furnish FF such
information and operating data and other information as to Bancorp's
business and properties, as FF shall from time to time reasonably request
to facilitate the filing of regulatory applications, preparation of
documents and investigations made necessary or appropriate by this
Agreement.
(iii) Except as otherwise provided herein, Bancorp will assure that
neither Bancorp nor any of the Bancorp Subsidiaries will take any of the
following actions without the written consent of FF (which consent will not
be unreasonably withheld):
(1) amend its articles of incorporation or bylaws to change in any
manner the rights of its Common Stock or other securities or the
character of its business;
(2) incur any obligation or liability, direct or indirect, absolute
or contingent, other than those incurred in the ordinary course of
business on reasonable terms;
(3) issue or sell or commit to issue or sell any additional shares
of Bancorp Common Stock or securities convertible into shares of Bancorp
Common Stock for consideration (in the case of convertible securities on
a fully converted basis) of less than $19.00 per share of Bancorp Common
Stock, except pursuant to existing options issued under its employee
stock option plans, or except pursuant to its existing dividend
reinvestment plan, or except pursuant to its restricted stock plan, or
except pursuant to a stock dividend or a stock split referred to in
subparagraph II(B).
(4) except in the ordinary course of business, mortgage pledge or
otherwise encumber any of its properties or assets;
(5) sell or transfer any of its properties or assets, or cancel,
release or assign any indebtedness owed to it or any claim held by it,
except in the ordinary course of business; or
(6) pay any dividends or make other distributions or payments in
respect of capital stock of Bancorp, except for dividends at times and
in amounts consistent with past practice.
(B) Bancorp agrees to promptly take such action as may reasonably be
requested by FF to timely carry out the terms of this Agreement in accordance
with its terms and in accordance with all applicable laws, rules and regulations
relating to banks, savings and loans, bank or savings and loan holding companies
or securities regulations.
(C) Without limiting the generality of subparagraph V(B), Bancorp shall
assist FF in the preparation of a proxy statement (hereinafter sometimes
referred to as the "Proxy Statement") to be contained in a registration
statement of Bancorp (the "Registration Statement") which shall be prepared by
Bancorp, with the assistance of FF, covering the registration of Common Stock of
Bancorp to be issued in the transaction contemplated by this Agreement. The
Proxy Statement shall relate to the meeting of FF shareholders called to
consider and vote upon this Agreement as required by the Florida Act. Such Proxy
Statement and Registration Statements shall be filed on Form S-4 of the 1934 Act
and shall comply with all applicable state and federal securities laws, rules or
regulations, all applicable regulations of the Federal Reserve Board, the Office
of Thrift Supervision, the Federal Deposit Insurance Corporation, the
Comptroller of the Currency, the Georgia Department of Banking and Finance, and
the Florida Department of Banking and Finance, and any other laws, rules or
regulations applicable to the transactions contemplated by this Agreement.
Bancorp
A-5
<PAGE> 116
covenants that all information relating to Bancorp and the Bancorp Subsidiaries
furnished by it for inclusion in the Proxy Statement and the Registration
Statement, taken as a whole, shall be true, complete and correct, and shall not
contain any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they are made, not
misleading. In addition, Bancorp shall promptly furnish such additional data and
information as may be required for the timely preparation of the Proxy
Statement.
(D) Upon the required approvals by regulatory authorities and upon the
approval of this Agreement by holders of a majority of the outstanding shares of
FF Common Stock, FF will execute in duplicate and return to Bancorp for filing
with the Georgia Secretary of State and the Florida Secretary of State Articles
of Merger prepared by Bancorp containing such information as may be required by
the Georgia Code and the Florida Act, and as may be consistent with this
Agreement.
(E) Upon the required approvals by regulatory authorities and upon the
approval of this Agreement by the holders of a majority of the outstanding
shares of FF Common Stock, Bancorp will execute and file with the Georgia
Secretary of State and the Florida Secretary of State Articles of Merger
prepared by Bancorp containing such information as may be required by the
Georgia Code and the Florida Act, and as may be consistent with this Agreement.
(F) Bancorp shall take such action and shall use its best efforts to cause
the officers, directors and other affiliates of Bancorp to take such action, as
may be necessary to assure that the transactions contemplated by this Agreement
may be accounted for by Bancorp using the "pooling of interests" method of
accounting.
(G) Bancorp's securities have been registered pursuant to Section 12 of the
1934 Act. Bancorp has been subject to the reporting requirements of Section 13
of the 1934 Act for a period of at least twelve (12) months, and has filed all
the reports required to be filed thereunder during the twelve months preceding
the date of this Agreement. Bancorp covenants that it will continue to be
subject to the reporting requirements of Section 13 of the 1934 Act and file all
reports required to be filed thereunder for the period beginning on the date of
this Agreement and ending three years following the Merger Date.
(H) Within 30 days following the end of the first full calendar month after
the Merger Date, Bancorp shall prepare and file with the SEC a Current Report on
Form 8-K containing the financial results of post-Merger combined operations of
Bancorp, FF and FF Subsidiaries meeting the requirements of SEC Accounting
Series Releases Nos. 130 and 135.
(I) Bancorp will use its best efforts to prepare and file all regulatory
applications and securities registrations required to consummate the transaction
as soon as possible.
(J) Bancorp agrees to request that Bancorp's independent accountants make
available to FF all accounting and auditing workpapers of the independent
accountants pertaining to Bancorp that are reasonably requested by FF. Bancorp
shall use its best efforts to make such information reasonably available to FF
during the pendency of the Merger.
(K) Bancorp agrees to cause substantially all of the employees of FF and FF
Subsidiaries to be retained as employees of FF Subsidiaries in their present
positions, subject to such terminations of employment as are necessary in the
ordinary course of business, and except as otherwise provided herein.
(L) Bancorp agrees to cause FF Subsidiaries after the Merger Date to comply
with the terms of the written employment agreements of FF Subsidiaries,
including but not limited to those described on Exhibit "A" attached hereto. The
employment agreements described on Exhibit "A" provide for termination payments
to become payable upon the occurrence of certain events (including consummation
of the Merger contemplated hereunder), coupled with the occurrence of a change
in the employment terms for the particular officer. Bancorp specifically
acknowledges and agrees that the termination payment provisions of the
employment agreements described on Exhibit "A" will be triggered upon
consummation of the Merger due to the Merger and the simultaneous changes which
Bancorp will require to be made in the employment terms for the officers under
said agreements.
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(M) Bancorp agrees not to terminate or cause to be terminated any Employee
Pension Benefit Plan (as that term is defined in subparagraph VI(N) hereof)
until after the expiration of one year from the Merger Date, except if any such
plan will no longer be qualified at an earlier date under Section 401(a) of the
Internal Revenue Code. Bancorp agrees that all assets of any such Plan will be
allocated to the participants upon any termination. Bancorp agrees to cause,
after the Merger, FF Subsidiaries to provide to employees of FF Subsidiaries
substantially similar employee benefits as presently being received by such
employees, subject to such changes in benefits required in the ordinary course
of business.
VI. REPRESENTATIONS AND WARRANTIES OF FF.
As an inducement to Bancorp to enter into this Agreement, FF hereby
represents and warrants to Bancorp as follows:
(A) New Smyrna Bank is a federally chartered savings bank duly
organized and validly existing under the laws of the United States. New
Smyrna Bank has been in existence and continuously operating as a federal
savings and loan association for a period in excess of five years. The
authorized capital stock of New Smyrna Bank consists of 5,000,000 shares of
Common Stock, $1.00 par value per share, of which 1,150,000 shares are
validly issued and outstanding, fully paid and non-assessable and 2,500,000
shares of preferred stock, none of which are outstanding. New Smyrna Bank
does not have any other class of equity securities outstanding nor are
there any outstanding subscriptions, warrants, rights, options or other
agreements or commitments obligating New Smyrna Bank to issue shares of its
Common Stock or any other equity security. One hundred percent (100%) of
the outstanding shares of Common Stock of New Smyrna Bank are owned by FF
free and clear of any liens, encumbrances or restrictions whatsoever.
(B) Citrus Bank is a federally chartered savings bank duly organized
and validly existing under the laws of the United States. Citrus Bank has
been in existence and continuously operating or incorporated as a federal
savings and loan association for a period of five years or more. The
authorized capital stock of Citrus Bank consists of 5,000,000 shares of
common stock, $1.00 par value per share, of which 152,554 shares are
validly issued and outstanding, fully paid and non-assessable and 2,500,000
shares of preferred stock, none of which are outstanding. Citrus Bank does
not have any other class of equity securities outstanding nor are there any
outstanding subscriptions, warrants, rights, options or other agreements or
commitments obligating Citrus Bank to issue shares of its common stock or
any other equity security. One hundred percent (100%) of the outstanding
shares of common stock of Citrus Bank are owned by FF free and clear of any
liens, encumbrances or restrictions whatsoever.
(C) Key Bank is a state commercial bank duly organized and validly
existing under the laws of Florida. Key Bank has been in existence and
continuously operating or incorporated as a state commercial bank for a
period in excess of five (5) years. The authorized capital stock of Key
Bank consists solely of 250,000 shares of common stock, $5.00 par value per
share, of which 217,800 shares are validly issued and outstanding, fully
paid and nonassessable. Key Bank does not have any other class of equity
securities outstanding nor are there any outstanding subscriptions,
warrants, rights, options or other agreements or commitments obligating Key
Bank to issue shares of its common stock or any other equity security. One
hundred percent (100%) of the outstanding shares of common stock of Key
Bank are owned by Key Bancshares free and clear of any liens, encumbrances
or restrictions whatsoever.
(D) Key Bancshares is a one-bank holding company duly organized and
validly existing under the laws of Florida. Key Bancshares has been in
existence and continuously duly operating as a Florida business corporation
and a bank holding company for a period of five years or more. The
authorized capital stock of Key Bancshares consists solely of 3,976,107
shares of common stock, $.10 par value per share, of which 550,000 shares
are validly issued and outstanding, fully paid and non-assessable. Key
Bancshares does not have any other class of equity securities outstanding
nor are there any outstanding subscriptions, warrants, rights, options or
other agreements or commitments obligating Key Bancshares to issue shares
of its common stock or any other equity security. FF owns 97.3% of the
outstanding shares of common stock of Key Bancshares free and clear of any
liens, encumbrances or restrictions whatsoever.
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(E) FF is a Florida corporation duly organized, validly existing and
in good standing under the laws of the State of Florida, and: (i) is duly
authorized by all applicable federal, state and local laws, rules and
regulations; and (ii) has proper power and authority under its articles of
incorporation, bylaws and other corporate documents to operate as a
one-bank holding company and a multiple savings and loan holding company
and to own 100% of the equity securities of the FF Subsidiaries. The
authorized capital stock of FF consists of 5,000,000 shares of common
stock, $.01 par value, of which 4,680,818 shares are validly issued and
outstanding, fully paid and non-assessable as of October 31, 1994, and
2,500,000 shares of preferred stock, $.01 par value, none of which are
outstanding. Also, there are presently exercisable options outstanding for
the purchase of 28,333.8 shares of FF Common Stock and outstanding options
for the purchase of 56,063.7 shares of FF Common Stock which are not
presently exercisable. No outstanding shares of FF Common Stock have been
issued in violation of any federal or state securities laws such that it
would have a material adverse effect on the business, properties,
operations, prospects, or assets, or in the condition, financial or
otherwise, of FF and FF Subsidiaries. FF does not have any outstanding
subscriptions, warrants, rights, options or other agreements or commitments
obligating FF to issue shares of FF Common Stock or any other equity
securities, except for stock options to purchase 84,397.5 shares of FF
Common Stock.
(F) The execution and delivery of this Agreement and the consummation
of the Merger have been duly and validly authorized by all necessary
corporate action on the part of the board of directors of FF, having been
approved by the affirmative, unanimous vote of the members of the board of
directors of FF. The Merger must be submitted to the FF shareholders for
their approval in order for the Merger to be consummated. This Agreement is
a valid and legally binding obligation of FF, enforceable according to its
terms, subject to any bankruptcy or moratorium laws now or hereafter in
effect. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions provided for herein in the manner herein
provided will violate any material agreement to which FF or any of the FF
Subsidiaries is a party or is bound; nor will the actions described violate
any law, order or decree or any provision of the articles of incorporation
or bylaws of FF or any of the FF Subsidiaries. FF has full power, authority
and legal right to enter into this Agreement and, upon the receipt of
approval by the appropriate regulatory authorities governing Florida
chartered commercial banks, bank holding companies, federal savings and
loan associations , and multiple savings and loan holding companies and
upon the affirmative vote of a majority of the total outstanding capital
stock of FF, to consummate the transactions provided for herein. There is
no pending or, to the best of FF's knowledge, threatened litigation which
would in any way impair the ability of FF to fulfill its obligations under
this Agreement.
(G) FF Common Stock is registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and FF has
delivered to Bancorp copies of:
(i) its Annual Report on Form 10-K for its fiscal year ended
December 31, 1993 (and those portions of its 1993 Annual Report to
Shareholders incorporated therein by reference), filed pursuant to
Section 13 of the 1934 Act;
(ii) the Proxy Statement for its Annual Meeting of Shareholders
held April 25, 1994, filed pursuant to Section 14 of the 1934 Act;
(iii) its Current Reports on Form 8-K dated April 25, 1994, and
October 19, 1994, filed pursuant to Section 13 of the 1934 Act; and
(iv) its Quarterly Reports on Form 10-Q for the periods ended March
31, 1994, June 30, 1994 and September 30, 1994 filed pursuant to Section
13 of the 1934 Act. These reports and proxy statement include all
regular and periodic reports and proxy statements required to be filed
by FF with the SEC since January 1, 1994 and are herein collectively
called the "FF SEC Reports". The FF SEC Reports taken together correctly
describe, among other things, the business, operations and principal
properties of FF and FF Subsidiaries in accordance with the requirements
of the applicable report form. As of the respective dates of filing,
none of the FF SEC Reports contained any untrue statement of material
fact or omitted to state any material fact necessary to make the
statements therein not misleading. The financial statements contained in
the FF SEC Reports have been
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prepared in accordance with generally accepted accounting principles
consistently applied and present fairly the consolidated financial
condition of FF and FF Subsidiaries as of the dates thereof and the
consolidated results of their operations for the periods covered
thereby.
(H) Except as reflected or referred to in the consolidated financial
statements of FF and FF Subsidiaries (including the notes thereto) at
September 30, 1994, there were no material liabilities or obligations of FF
or any of the FF Subsidiaries whether liquidated or unliquidated, accrued,
absolute, contingent or otherwise, which were required to be reflected in
the consolidated financial statements of FF and the FF Subsidiaries as of
September 30, 1994, in accordance with generally accepted accounting
principles.
(I) Since September 30, 1994, there have not been: (i) any changes in
the assets, liabilities, or business of FF or the FF Subsidiaries other
than changes in the ordinary course of business, none of which has been,
individually or in the aggregate, materially adverse to the financial
condition and results of operations of FF and FF Subsidiaries taken as a
whole; (ii) any increase in the compensation payable or to become payable
by FF or the FF Subsidiaries to any of its directors, officers, employees,
or agents, or any bonus payment, except normal and customary increases or
bonus payments made in the ordinary course of business; (iii) any labor
dispute, or any event or condition of any character specific to FF and FF
Subsidiaries materially adversely affecting the business or prospects of FF
and the FF Subsidiaries, taken as a whole; or (iv) any redemption, purchase
or other transaction involving shares of FF or FF Subsidiaries to which FF
or FF Subsidiaries or, to the best of FF's knowledge, any "affiliate" of FF
or any of FF Subsidiaries has been a party except in the ordinary course of
business. For purposes of this Agreement, the term "affiliate" shall mean
any "affiliated person" included within the definition of that term under
the 1934 Act.
(J) Neither this Agreement nor any of the documents furnished pursuant
to this Agreement by FF to Bancorp or any of its representatives, taken as
a whole, is or will be false or misleading, or contains or will contain any
material misstatement of fact, or omits or will omit to state any material
fact required to be stated to make the statements therein not misleading.
(K) FF and FF Subsidiaries have prepared and filed, or will prepare
and file with the appropriate government authorities, all federal, state
and local tax returns (including, without limitation, income, franchise,
sales and use, property, payroll and withholding tax returns and
information returns) required to be filed by them on or prior to the
Closing Date. To the best of the knowledge of FF, such returns reflect all
tax liabilities of FF and/or each of the FF Subsidiaries for the periods in
question, and FF and/or any of the FF Subsidiaries has paid or caused to be
paid all taxes shown to be due on such tax returns and on all assessments
received by them to the extent that such assessments have become due.
(L) FF and FF Subsidiaries have good and marketable title to the
properties (real and personal) and assets reflected in the consolidated
September 30, 1994, financial statement (except as sold or otherwise
disposed of in the ordinary course of business for a fair consideration
since the date of said statement), free and clear of all liens, claims and
encumbrances, except: (i) liens for taxes not yet due and payable; and (ii)
easements, rights of way and restrictions which are of record and which do
not materially affect the present use and occupancy of the property by FF
and FF Subsidiaries.
(M) There is no litigation, proceeding or governmental investigation
pending, or to the best of FF's knowledge, threatened, against or relating
to FF or any of the FF Subsidiaries, or their properties or business, or
the transactions contemplated by this Agreement, which will have any
material adverse effect on the business, properties, operations, prospects,
or assets, or on the condition, financial or otherwise of FF or any of the
FF Subsidiaries, taken as a whole.
(N) With respect to any "Employee Pension Benefit Plan," as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), which is contributed to, maintained or administered by
FF or any of the FF Subsidiaries, such Employee Pension Benefit Plan
complies, to the extent applicable, with the requirements of ERISA and the
Internal Revenue Code of 1986, as amended (the "Code"), and has been
determined by the Internal Revenue Service (the "IRS")
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to be qualified under Section 401(a) of the Code. Each of the Employee
Pension Benefit Plans has been maintained and administered in accordance
with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations including, but not limited to,
ERISA and the Code. There are no pending or anticipated claims against or
otherwise involving any of the Employee Pension Benefit Plans, and no suit,
action or other litigation (excluding claims for benefits incurred in the
ordinary course of plan activities) has been brought against or with
respect to any of the Employee Pension Benefit Plans. All contributions,
reserves or premium payments required to be made as of the date hereof have
been made or are reflected in the consolidated September 30, 1994,
financial statements of FF. Further, each of the Employee Pension Benefit
Plans which is subject to the plan termination insurance provisions of
Title IV of ERISA could be terminated as of the date hereof or as of the
Merger Date as a standard termination with the Pension Benefit Guaranty
Corporation.
(O) To the best of their knowledge, FF and FF Subsidiaries are in
compliance with all federal, state and local laws respecting employment and
employment practices, terms and conditions of employment and wages and
hours, and are not engaged in any unfair labor practice; there is no unfair
labor practice complaint against FF or any of the FF Subsidiaries pending
or threatened before the National Labor Relations Board, the Equal
Employment Opportunity Commission or the United States Department of Labor;
and no grievance or arbitration proceedings are pending.
VII. COVENANTS OF FF.
(A) From the date of this Agreement until the Merger Date, or until this
Agreement is terminated by the parties as herein provided, FF covenants as
follows:
(i) Except as otherwise provided herein or consented to in writing by
Bancorp (which consent will not be unreasonably withheld), FF and the FF
Subsidiaries will each conduct their operations in accordance with their
ordinary course of business, consistent with past practice and shall use
its best efforts to maintain and preserve its business, organization, and
employees. FF further agrees to maintain good relationships with its
shareholders and with its customers and others having business dealings
with it.
(ii) FF and FF Subsidiaries shall each cause its officers and
employees to furnish to Bancorp such financial and operating data and other
information as to FF's business and properties as Bancorp shall from time
to time reasonably request to facilitate the filing of regulatory
applications, preparation of documents and investigations made necessary or
appropriate by this Agreement.
(iii) Except as otherwise provided herein, FF will assure that neither
FF nor any of the FF Subsidiaries will take any of the following actions
without the written consent of Bancorp (which consent will not be
unreasonably withheld):
(1) amend its articles of incorporation or bylaws, or merge or
consolidate with or into any other corporation or permit any other
corporation to merge into it, or change in any manner the rights of its
Common Stock or other securities or the character of its business;
(2) incur any obligation or liability, direct or indirect, absolute
or contingent, other than those incurred in the ordinary course of
business on reasonable terms;
(3) except in the ordinary course of business, incur any
indebtedness for borrowed money or assume, guarantee, endorse or
otherwise become responsible for the obligations of any other
individual, firm or corporation, or make any loans or advances to any
other individual, firm or corporation;
(4) issue or sell any additional shares of Common Stock (including
treasury shares), securities convertible into shares of Common Stock or
any other equity securities or options or other commitments for the
issuance of shares of stock or such securities, except pursuant to
presently outstanding stock options to purchase FF shares or except
pursuant to a stock dividend or a stock split referred to in
subparagraph II(B);
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(5) except in the ordinary course of business, mortgage, pledge or
otherwise encumber any of its properties or assets;
(6) sell or transfer any of its properties or assets, or cancel,
release or assign any indebtedness owed to it or any claim held by it;,
(7) make or commit to make any investments in Building, Furniture
and Equipment which individually or in the aggregate exceed $100,000;
(8) except in the ordinary course of business, enter into or
terminate or amend any material contract or agreement or make any
material change in any of its material leases, contracts, arrangements,
plans or other legally binding arrangements;
(9) except for normal and customary actions in the ordinary course
of business, increase in any manner the compensation of any of its
directors, officers or employees, or pay or agree to pay any pension or
retirement allowance not required by any existing plan or agreement to
any such persons, or commit itself to any pension, retirement or
profit-sharing plan or agreement or employment agreement with or for the
benefit of any officer, employee or other person;
(10) cancel or terminate any of its current insurance policies or
any of the coverage thereunder unless simultaneously with such
termination or cancellation, replacement policies substantially similar
to those cancelled or terminated are in full force and effect; or
(11) pay any dividends or make other distributions or payments in
respect of its stock, except FF and the FF Subsidiaries may pay their
normal and customary dividends.
(iv) FF shall use its best efforts to assure that FF, the FF
Subsidiaries, and the members of the boards of directors and executive
officers of FF and each of the FF Subsidiaries shall actively support the
Merger, shall recommend the Merger to the shareholders of FF, shall
actively solicit proxies of shareholders of FF to be voted in favor of the
Merger, and shall urge all shareholders of FF to vote in favor of the
Merger.
(v) FF shall use its best efforts to assure that FF, each of the FF
Subsidiaries, each member of the board of directors of FF and each of the
FF Subsidiaries and each of the officers of FF and each of the FF
Subsidiaries shall take such action as is necessary or appropriate to cause
the Merger to be timely consummated in accordance with the terms of this
Agreement.
(vi) Each of the FF shareholders listed on Exhibit B commits to
publicly support the Merger and FF commits that it will obtain, within ten
(10) days after the date of this Agreement, a Voting Agreement from each
shareholder so listed substantially in the form set forth in Exhibit C.
(vii) In addition, FF will obtain an agreement from each member of the
board of directors of FF and each of the FF Subsidiaries and their
affiliates that such person or entity shall not sell, transfer or dispose
of any FF stock from the date hereof through the date of consummation of
the Merger without Bancorp's consent, which consent shall not be
unreasonably withheld, and that such person or entity shall not sell,
transfer or dispose of Bancorp Common Stock received in the Merger until
after the date on which Bancorp publishes financial results covering at
least thirty (30) days of post Merger combined operations.
(viii) FF will obtain an agreement as described below (the "Agreement
of Affiliates") from each affiliated shareholder of FF (the "Affiliated
Shareholders") prior to the Closing Date. The Affiliated Shareholders shall
be those shareholders of FF who may, in the opinion of counsel for FF and
counsel for Bancorp, be deemed to be "affiliates" of FF within the meaning
of Rule 145 of the 1933 Act, and who may, in the opinion of such counsels,
be deemed, pursuant to the provisions of Rule 145, to be "underwriters", as
such term is defined in the 1933 Act, on resale of the Bancorp Common Stock
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acquired hereunder (herein referred to as the "Acquired Securities"). The
Agreement of Affiliates shall be in a form satisfactory to Bancorp and its
counsel and shall provide that:
(1) the Acquired Securities will not be acquired with a view to the
distribution thereof except as permitted by Rule 145;
(2) the Acquired Securities will not be disposed of in such a
manner as to violate Rule 145 under the 1933 Act or the Agreement of
Affiliates and without Bancorp having received an opinion of counsel
satisfactory to it, to the foregoing effect, or other evidence of
compliance with Rule 145 and the Agreement of Affiliates satisfactory to
Bancorp;
(3) Bancorp may issue appropriate stop transfer instructions to its
transfer agent with respect to the Acquired Securities;
(4) each Affiliated Shareholder will obtain an agreement (a copy of
which will be delivered to Bancorp) similar to that entered into by him
or her from each transferee of Acquired Securities, unless such
transferee may, as evidenced by an opinion of counsel or other evidence,
in each case satisfactory to Bancorp, dispose of the Acquired Securities
transferred to him or her without registration under the 1933 Act; and
(5) the certificates representing Acquired Securities may bear the
following or a substantially similar legend:
"The securities represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933, as amended (the "1933 Act") applies, are held subject to the
terms of an agreement between the holder hereof and First National
Bancorp and may be sold or otherwise transferred only upon receipt by
First National Bancorp of an opinion of counsel (or other evidence)
satisfactory to such corporation and its counsel as to satisfactory
compliance with the limitations of such Rule 145 and such agreement,
or of an opinion of counsel (or other evidence) satisfactory to First
National Bancorp and its counsel that some other exemption from
registration under the Act is available, or pursuant to a
registration statement under the 1933 Act."
(ix) Neither FF, nor any officers of FF, nor any member of the FF
Board of Directors, will enter into negotiations or discussions for the
purpose of selling or exchanging any shares of or a substantial portion of
the assets of FF or any FF Subsidiary, or for the purpose of causing the
merger or consolidation of FF or any FF Subsidiary into or with any other
entity.
(x) Notwithstanding any of the foregoing, however, the directors of FF
and FF Subsidiaries shall not be obligated to take or not to take any
action that they shall be advised in writing by counsel may be contrary to
their fiduciary duties as directors.
(B) FF has caused its independent auditors, Hacker, Johnson, Cohen & Grieb,
to conduct, at its expense, certified audits of FF and the FF Subsidiaries which
comply with the laws, rules or regulations applicable to the Merger as
contemplated by this Agreement, including, without limitation, those necessary
to complete any registration of Bancorp Common Stock under federal securities
laws, and to assure pooling of interests treatment for the transaction, and
agrees to cause said accountants to make such other accounting and/or credit
examination of the books, records, financial statements and loan portfolio of FF
and FF Subsidiaries which Bancorp reasonably deems necessary in connection with
the transactions contemplated by this Agreement.
(C) In connection with the Merger, FF shall cause to be furnished to each
of its shareholders the Proxy Statement as contained in the Registration
Statement to be used in connection with the special meeting of FF shareholders
which will be held to consider and vote on the Plan of Merger. Such Proxy
Statement and Registration Statement shall contain such information as required
by Section 14(a) of the 1934 Act and Form S-4 of the 1933 Act, as well as all
applicable regulations of the Federal Reserve Board, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, the Georgia Department
of Banking and Finance, and the Florida Department of Banking and Finance, and
any other laws, rules or regulations
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applicable to the Merger transactions as contemplated by this Agreement. FF
shall promptly provide to Bancorp all information relating to FF and the FF
Subsidiaries as Bancorp shall request to aid in the preparation of the
Registration Statement, and FF covenants that all information relating to FF and
the FF Subsidiaries furnished by FF for inclusion in the Registration Statement,
taken as a whole, shall be true, complete and correct, and shall not contain any
untrue statement of material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they are made, not misleading. In
addition, FF shall promptly furnish to Bancorp such additional data and
information as may be requested by Bancorp for the timely preparation of the
Registration Statement.
(D) FF agrees to promptly submit this Agreement to its shareholders for
adoption, at a special meeting thereof which shall be called and held at least
twenty (20) business days after the delivery to its shareholders of the
prospectus and Proxy Statement contained in the Registration Statement, but,
unless consented to by Bancorp, not more than forty-five (45) days after the
effective date of the Registration Statement. FF shall solicit proxies from its
shareholders for the purpose of voting on the adoption of this Agreement and
shall mail to each of its shareholders an appropriate and timely notice of such
meeting, a form of proxy and a prospectus and Proxy Statement. FF consents to
the use of the Proxy Statement by Bancorp in connection with the registration
under the Securities Act of 1933 of the Bancorp shares to be issued in the
merger. The notice, Proxy Statement, proxy and any other materials sent to
shareholders shall in all respects be in form and substance reasonably
satisfactory to Bancorp and FF.
(E) Upon the required approvals by regulatory authorities and upon approval
of this Agreement by a majority of the holders of the outstanding shares of FF
Common Stock FF will execute in duplicate and return to Bancorp for filing with
the Georgia Secretary of State and the Florida Secretary of State Articles of
Merger prepared by Bancorp containing such information as may be required by the
Georgia Code and the Florida Act and as may be consistent with this Agreement.
(F) FF shall take such action, shall cause the FF Subsidiaries to take such
action, and shall use its reasonable best efforts to cause the officers,
directors and other affiliates of both FF and the FF Subsidiaries to take such
action, as may be necessary to assure that the transactions contemplated by this
Agreement may be accounted for by Bancorp using the "pooling of interests"
method of accounting.
(G) FF shall promptly take such action and shall cause FF Subsidiaries to
take such action as may be reasonably requested by Bancorp to timely carry out
the terms of this Agreement in accordance with its terms and in accordance with
all applicable laws, rules and regulations.
(H) Each holder of FF stock options which are exercisable prior to the
Closing Date shall agree in writing on or before December 31, 1994, that such
options, if not exercised prior to the Closing Date, shall be cancelled and
converted into the right to receive shares of Bancorp Common Stock, based on the
Conversion Ratio and the midpoint between "bid" and "asked" price for Bancorp
Common Stock as of the Closing Date ("Midpoint Value"). To determine the shares
of Bancorp Common Stock to be received, the aggregate number of all such FF
option shares with the same exercise price shall be multiplied by the difference
between the "Conversion Value" of each such FF option share and the price of
exercising such option share. The result shall then be divided by the Midpoint
Value to determine the number of shares of Bancorp common stock to be received.
"Conversion Value" shall be determined by multiplying the Midpoint Value by the
Conversion Ratio. Further, each holder of FF stock options which are not
exercisable prior to the Closing Date shall agree in writing on or before
December 31, 1994, that such options, if not exercised on the Closing Date as
permitted under their terms, shall be cancelled and converted into the right to
receive the number of shares of Bancorp Common Stock determined in the same
manner as set forth above.
(I) FF will request that FF's independent accountants make available to
Bancorp all accounting and auditing workpapers of the independent accountants
pertaining to FF that are reasonably requested by Bancorp. FF shall use its best
efforts to make such information reasonably available to Bancorp during the
pendency of the Merger.
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(J) Upon election by Bancorp or FF, FF may accrue the expense of the
termination payments referred to in subparagraph V(K) herein at the time it is
determined that consummation of the Merger is probable of occurrence. Any
termination payments that are due may be made by FF or any FF Subsidiary on the
Closing Date.
(K) FF will suspend its 1994 Stock Repurchase Program during the pendency
of the Merger.
VIII. CONDITIONS TO OBLIGATIONS OF FF.
The obligations of FF hereunder shall, at its option, be subject to the
satisfaction of the following conditions:
(A) There shall have been issued an opinion of Stewart, Melvin &
Frost, counsel to Bancorp, in form and substance reasonably satisfactory to
FF, to the effect that, under applicable provisions of the Internal Revenue
Code of 1986, as amended, no gain or loss will be recognized for federal
income tax purposes by FF, Bancorp or the shareholders of FF to the extent
they receive stock of Bancorp in connection with the proposed
reorganization. Said opinion will not state that cash received in exchange
for fractional shares will be non-taxable.
(B) A preliminary fairness opinion shall have been received by FF from
Professional Bank Services, Inc., prior to the distribution of the Proxy
Statement to the shareholders of FF, to the effect that the consideration
to be received by FF's shareholders pursuant to paragraph II of this
Agreement is fair to the shareholders from a financial point of view and
such opinion shall not have been withdrawn or materially modified prior to
the vote of the shareholders. In addition, FF shall receive a confirmation
of the fairness opinion from Professional Bank Services, Inc., dated not
more than 20 days nor less than 10 days from Closing that the consideration
to be received by FF's shareholders is still fair to the shareholders as of
the date of the confirmation.
(C) As of the Closing Date, there shall have occurred no material
adverse change in the financial condition or results of operations of
Bancorp, taken as a whole, from that represented in the consolidated
unaudited financial statements of Bancorp as of September 30, 1994, which
have been previously provided FF, and there shall not have occurred any
loss or damage to any of its properties or assets which would materially
impair its ability to conduct its business after the Merger substantially
as it is now being conducted.
(D) The representations and warranties of Bancorp contained in this
Agreement shall be true in all material respects as of the date hereof and
as of the Closing Date with the same effect as though such representations
and warranties have been made on and as of the Closing Date, except for any
such representations and warranties made as of a specified date, which
shall be true and correct in all material respects as of such date.
(E) Bancorp shall have performed, at or prior to the Closing Date, all
agreements and covenants required by this Agreement to be performed by it.
(F) Bancorp shall have delivered to FF:
(i) a certificate executed by the Chairman or the President of
Bancorp dated as of the Closing Date, and certifying in such detail as
FF may reasonably request to the fulfillment of the conditions specified
in subparagraphs VIII(B), VIII(C) and VIII(D) hereof; and
(ii) duly adopted resolutions of the Board of Directors of Bancorp,
certified by the Secretary or an Assistant Secretary of Bancorp as of
the Closing Date, authorizing and approving the execution of this
Agreement on behalf of Bancorp and the consummation of the transactions
contemplated herein.
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IX. CONDITIONS TO OBLIGATIONS OF BANCORP.
The obligations of Bancorp to consummate and effect the Merger contemplated
by this Agreement shall, at the option of Bancorp, be subject to the
satisfaction of the following conditions:
(A) The representations and warranties of FF contained in this
Agreement shall be true in all material respects as of the date hereof and
as of the Closing Date with the same effect as though all such
representations and warranties have been made on and as of the Closing
Date, except for any such representations and warranties made as of a
specified date, which shall be true and correct in all material respects as
of such date.
(B) FF shall have performed, at or prior to the Closing Date, all
agreements and covenants required by this Agreement to be performed by it.
(C) As of the Closing Date, there shall have occurred no material
adverse change in the financial condition or results of operations of FF
and the FF Subsidiaries, taken as a whole, from that presented in the
consolidated financial statements of FF and the FF Subsidiaries as of
September 30, 1994, which have previously been delivered to Bancorp, and
there shall not have occurred any loss or damage to any of the properties,
assets or business of FF and the FF Subsidiaries, taken as a whole, which
would materially adversely affect their financial condition, taken as a
whole, or impair the ability of either of them to conduct their business,
taken as a whole, after the Merger as now being conducted. For purposes of
this Agreement, changes in interest rate risk associated with FF's
operations shall not be considered a material adverse change, event or
occurrence.
(D) Bancorp shall have received an opinion of KPMG Peat Marwick, in
form and substance reasonably satisfactory to the board of directors of
Bancorp to the effect that the transactions contemplated by this Agreement
may be accounted for by Bancorp using the "pooling of interests" method of
accounting.
(E) FF shall have delivered to Bancorp:
(i) a certificate executed by the Chairman or the President of FF,
dated as of the Closing Date and certifying in such detail as Bancorp
may reasonably request to the fulfillment of the conditions specified in
subparagraphs IX(A), IX(B) and IX(C) hereof; and
(ii) duly adopted resolutions of the board of directors and the
shareholders of FF, certified by the Secretary or an Assistant Secretary
of FF as of the Closing Date, authorizing and approving the execution of
this Agreement on behalf of FF and the consummation of the transactions
contemplated herein.
X. CONDITIONS TO OBLIGATIONS OF BANCORP AND FF.
The obligations of Bancorp and FF to consummate the Merger contemplated
hereby are, at the option of either of them, subject to the following conditions
having been satisfied:
(A) The holders of a majority of the issued and outstanding stock of
FF shall have been voted in favor of the Merger at the special meeting of
the shareholders duly called and held with respect thereto pursuant to
proper notice of such meeting accompanied by proper proxy solicitation and
disclosure documents.
(B) Any and all orders, permits, approvals, licenses or qualifications
from authorities administering federal laws or laws of any state or other
political subdivision having jurisdiction, required for the consummation of
the transaction contemplated by this Agreement shall have been obtained.
This Agreement and the exchange of the shares herein contemplated shall be
in compliance with the regulations and directives of all governmental
agencies having jurisdiction.
(C) At the time of mailing the Proxy Statement to FF shareholders and
thereafter through the Closing Date, the Bancorp Common Stock to be
received by FF shareholders upon the conversion of their stock shall be the
subject of an effective registration statement (subject to no stop order)
under the
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1933 Act and shall be duly registered or qualified under the securities
laws of all states in which registration or qualification is required, or
shall be exempt therefrom.
XI. CLOSING; NOTICE OF CLOSING; MERGER DATE.
(A) The closing of the Merger shall be held on or before the last day of
the month during which the later of the following occurs: (i) the special
meeting of FF shareholders to adopt this Agreement as set forth in subparagraph
VII(D) of this Agreement, or (ii) the receipt of all applicable regulatory
approvals which are required prior to consummation of the reorganization (and
the running of any mandatory waiting periods required by such approvals or by
law), provided all conditions set forth herein have not been satisfied or
waived; which date is herein sometimes referred to as the "Closing Date";
provided, however, that the Closing Date shall not be later than the close of
business on August 31, 1995 (the "Termination Date"). If the conditions to this
Agreement have not been satisfied or waived by the Closing Date, then this
Agreement may be terminated pursuant to Paragraph XII. The closing shall be held
at the offices of Bancorp or any other mutually agreeable location. At the
closing, the parties shall execute and deliver such instruments, documents and
certificates as are required by this Agreement and as are necessary or
appropriate to close the transaction contemplated hereby.
(B) The parties contemplate that the Merger Date shall be the same day as
the Closing Date.
XII. TERMINATION.
(A) This Agreement may be terminated by either Bancorp or FF upon written
notice to the other party if: (i) there is a failure of any of the conditions
set forth in Paragraph X hereof to be satisfied by the Closing Date; or (ii) the
Closing shall not have occurred, due to no fault of the terminating party, on or
before the Termination Date.
(B) This Agreement may be terminated by Bancorp upon written notice to FF
if (i) there is a failure of any of the conditions set forth in Paragraph IX
hereof to be satisfied by the Closing Date, or (ii) there is a material breach
by FF of any representation, warranty or agreement contained herein which cannot
be or has not been cured within thirty (30) days after the giving of written
notice thereof to FF.
(C) This Agreement may be terminated by FF upon written notice to Bancorp
if: (i) there is a failure of any of the conditions of Paragraph VIII hereof to
be satisfied by the Closing Date, (ii) there is a material breach by Bancorp of
any representation, warranty or agreement contained herein which cannot be or
has not been cured within thirty (30) days after the giving of written notice
thereof by FF to Bancorp.
(D) Any notice of termination shall state the basis for such termination.
Upon termination as herein provided, this Agreement shall be void and of no
further force and effect and no party hereto shall have any obligation or
liability to the others hereunder, except that (i) the provisions of
subparagraphs XIII(F), XIII(H), and XIII(I) shall survive any such termination,
and (ii) a termination based on a material breach of this Agreement shall not
relieve the breaching party from liability for an uncured breach of a
representation, warranty or agreement giving rise to such termination.
XIII. MISCELLANEOUS.
(A) Any of the terms or conditions of this Agreement may be waived at any
time by any party hereto for whose benefit the term or condition applies, by
action of its board of directors, evidenced by a certificate signed by its
Chairman or President or other duly authorized person.
(B) This Agreement may be amended (including amendments changing the
Closing Date) or supplemented at any time by action taken by the boards of
directors of Bancorp and FF.
(C) This Agreement, the Plan of Merger and the instruments referred to
herein constitute the entire contract among the parties and supersede all other
understandings with respect to the subject matter hereof.
(D) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall be deemed one
and the same agreement and shall become binding on
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the parties hereto when one or more counterparts has been signed by each of the
parties and delivered to the other parties.
(E) This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their successors and assigns.
(F) FF and Bancorp each represent to the other that no business broker
assisted the representing party in the negotiations leading to the execution of
this Agreement. Each party agrees to indemnify the other and hold and save it
harmless from any claim or demand for commissions or other compensation by any
broker, finder or similar agent claiming to have been employed by or on behalf
of such party.
(G) This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Florida, except where federal law
supersedes state law and except for the application of Florida and Georgia law
to the Merger.
(H) Bancorp and FF shall each pay its own expenses in connection with the
Merger, including the fees and expenses of its respective counsel and
accountants. Any certified audit of FF or the FF Subsidiaries, if required,
shall be the responsibility of FF or the FF Subsidiaries. Notwithstanding the
foregoing, if this Agreement is terminated by either Bancorp or FF as a result
of a material breach by the other party of any representation, warranty,
covenant or other agreement contained in this Agreement which is not timely
cured, or if the Merger is not consummated as a result of the failure of either
Bancorp or FF to satisfy certain conditions set forth in this Agreement, then
the breaching party or the party that failed to satisfy such conditions shall
pay the other party the sum of all its out-of-pocket costs and expenses,
including costs of counsel, accountants and other advisors as can be verified in
writing. Nothing contained in this subparagraph XIII(H) shall constitute or be
deemed to constitute liquidated damages or otherwise limit the rights of the
nonbreaching party.
(I) Any and all information supplied by any party to another party in
connection with the activities contemplated by this Agreement, whether obtained
before or after the execution of this Agreement, shall be held in strict
confidence. The party gaining access to such information shall exercise the same
degree of care with respect thereto that any party uses to protect and safeguard
its own confidential proprietary information. Such information shall not,
directly or indirectly, be divulged, disclosed or communicated to any other
person or entity or used for any purposes other than those expressly
contemplated by this Agreement except for disclosure to representatives of a
party (including, without limitation, legal counsel, accountants and
consultants,) disclosure to regulatory authorities, or as is otherwise required
by judicial or regulatory authorities. If the Merger as contemplated by this
Agreement are not consummated, then all copies of all documents and other
recorded materials supplied by one party to the other shall be immediately
returned to the other. The obligations set forth in this subparagraph XIII(I)
shall not extend to information that:
(i) can be demonstrated to have been in the public domain prior to the
date of disclosure to the party;
(ii) can be demonstrated to have been in the party's possession prior
to the date of disclosure to such party;
(iii) became part of the public domain prior to the date of disclosure
to the party; or
(iv) is supplied to a party by a third party as a matter of right.
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<PAGE> 128
(J) All notices, requests and other communications shall be in writing and
shall be deemed to have been duly given at the time delivered or mailed to the
parties at the following addresses:
(i) FF:
Mrs. Frances Ford
Chairman and C.E.O.
FF Bancorp, Inc.
900 North Dixie Highway
New Smyrna Beach, Florida 32069
with copies to Igler & Dougherty, P.A.
Attention: A. George Igler, Esquire
Barnett Bank Building, Suite 500
315 South Calhoun Street
Tallahassee, Florida 32301
(ii) Bancorp:
Mr. C. Talmadge Garrison
Secretary and Treasurer
303 Jesse Jewell Parkway
Suite 700
P. O. Drawer 937
Gainesville, Georgia 30503
with copies to Stewart, Melvin & Frost
Attention: T. Treadwell Syfan
Hunt Tower, Suite 600
200 Main Street
Gainesville, Georgia 30501
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<PAGE> 129
IN WITNESS WHEREOF, the parties hereto, pursuant to the authority given by
their respective Boards of Directors have caused this Agreement to be duly
executed under seal as of the date first written above.
FIRST NATIONAL BANCORP
By: /s/ PETER D. MILLER
-----------------------------------
Peter D. Miller,
President, C.A.O. & C.F.O.
(CORPORATE SEAL)
Attest: /s/ C. TALMADGE GARRISON
-------------------------------
C. Talmadge Garrison,
Secretary and Treasurer
FF BANCORP, INC.
By: /s/ FRANCES R. FORD
-----------------------------------
Frances R. Ford,
Chairman of the Board, Chief
Executive Officer, President
(CORPORATE SEAL)
Attest: /s/ CHARLES H. BYRD
-------------------------------
Charles H. Byrd,
Vice Chairman
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<PAGE> 130
EXHIBIT A
1. Employment Agreement, dated July 9, 1992, between First Federal Savings
Bank of New Smyrna and Frances R. Ford.
2. Employment Agreement, dated July 9, 1992, between First Federal Savings
Bank of New Smyrna and Charles H. Byrd.
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<PAGE> 131
EXHIBIT B
Frances R. Ford
Charles H. Byrd
Fred J. Faust
Raymond H. Hester
Cyril Marchenton
J.E. Tumblin
Tildon W. Smith
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<PAGE> 132
EXHIBIT C
November , 1994
Richard A. McNeece
Chairman of the Board and
Chief Executive Officer
First National Bancorp
303 Jesse Jewell Parkway
Gainesville, GA 30503
RE: FF Bancorp, Inc.
Dear Mr. McNeece:
I am writing to confirm the following agreement between First National and
me regarding the pending merger between FF Bancorp, Inc. and First National
Bancorp ("Merger"). In consideration of First National Bancorp entering into the
Agreement and Plan of Merger ("Agreement") dated November , 1994, with FF
Bancorp, Inc., I agree to vote all of the shares of FF Bancorp, Inc. which I own
or otherwise have the power to vote in favor of the Merger and in favor of the
other transactions contemplated by the Agreement for a period of nine months
from the date of this letter. Furthermore, for the same period of time, I shall
vote against any business combination or other reorganization of any kind
involving FF Bancorp, Inc. or its subsidiaries with any entity other than First
National Bancorp. If the Agreement is terminated, I shall have no further
obligations under this letter after the date of such termination.
Sincerely,
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<PAGE> 133
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated January 23, 1995,
between FIRST NATIONAL BANCORP, a Georgia corporation (hereinafter referred to
as "Bancorp"), FF BANCORP, INC., a Florida corporation (hereinafter referred to
as "FF"), and FNB SUBSIDIARY CORPORATION, a Florida corporation (hereinafter
referred to as "FNB Subsidiary").
W I T N E S S E T H :
WHEREAS, Bancorp and FF have entered into that certain Agreement and Plan
of Merger dated as of November 22, 1994 (the "Merger Agreement"), providing for
the merger of FF into Bancorp; and
WHEREAS, Bancorp and FF wish to amend the Merger Agreement to provide for
the merger of FF into FNB Subsidiary, a wholly owned subsidiary of Bancorp, in a
forward triangular merger pursuant to which Bancorp will acquire FF in exchange
for shares of common stock of Bancorp; and
WHEREAS, the parties wish to amend the Merger Agreement to make FNB
Subsidiary a party to the Merger Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto hereby agree as follows:
1. Paragraph I of the Merger Agreement is hereby deleted in its
entirety and the following is substituted in lieu thereof:
"I. AGREEMENT TO MERGE.
(a) On the date designated as the merger date in "Articles of
Merger" to be filed with the Florida Secretary of State pursuant to the
Florida Act (hereinafter the "Merger Date"), FF shall be merged into FNB
Subsidiary, which shall be the survivor (hereinafter sometimes referred
to as the "Surviving Corporation"), in a forward triangular merger. Such
merger shall be pursuant to the applicable provisions of the Florida
Act.
(b) The articles of incorporation of FNB Subsidiary shall be the
articles of incorporation of the Surviving Corporation. The bylaws of
FNB Subsidiary shall be the bylaws of the Surviving Corporation.
(c) The name of FNB Subsidiary shall be changed to "FF Bancorp,
Inc." as a result of the merger.
(d) The board of directors and officers of FNB Subsidiary shall
continue to be the board of directors and officers of the Surviving
Corporation.
(e) Bancorp agrees to appoint Charles H. Byrd, Vice Chairman of FF,
and Tildon W. Smith, Executive Vice-President of FF, to the board of
directors of Bancorp at the next scheduled board meeting following
consummation of the merger.
(f) FF shall receive a fairness opinion and confirmation regarding
the stock conversion in the merger as contemplated by Subparagraph
VIII(B) hereof.
(g) The corporate existence of FF and FNB Subsidiary shall be
merged into and continued in FNB Subsidiary as the Surviving
Corporation. The established offices and facilities of FF immediately
prior to the merger shall become the offices and facilities of the
Surviving Corporation.
(h) All rights, properties and privileges of every kind or
character of FF and FNB Subsidiary shall be transferred to or vested in
FNB Subsidiary as the Surviving Corporation by virtue of such merger
without any deed, assignment or other transfer. FNB Subsidiary as the
Surviving Corporation shall by virtue of the merger be responsible and
liable for all of the liabilities and obligations of both FF and FNB
Subsidiary.
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<PAGE> 134
(i) The "Closing Date" shall not be later than the close of
business on August 31, 1995, unless extended by the mutual consent of
FF, Bancorp and FNB Subsidiary."
2. Subparagraph II(A) of the Merger Agreement shall be deleted in its
entirety and the following shall be substituted in lieu thereof:
"(A) On the merger date, FF Common Stock shall be converted into the
following rights:
(i) At the time of the merger described in subparagraph I(A), each
share of outstanding FF Common Stock shall be converted into the right
to receive .825 shares of Bancorp Common Stock (the "Conversion Ratio");
provided, however, that the foregoing Conversion Ratio may be subject to
adjustment pursuant to subparagraph II(B); and
(ii) Fractional shares of Bancorp common stock will not be issued
in the merger. Any FF shareholder who would be entitled to a fraction of
a Bancorp share shall receive cash payment in lieu of such fractional
share in an amount determined by multiplying the fraction of a share he
would otherwise be entitled to receive by $20.50; provided, however,
that the foregoing amount shall be subject to adjustment pursuant to the
provisions of subparagraph II(B)."
3. The conditions to obligations of Bancorp to consummate and effect
the merger contemplated by the Merger Agreement, which conditions are set
forth in Paragraph IX of the Merger Agreement, shall also be conditions to
the obligations of FNB Subsidiary to consummate and effect the merger
contemplated by the Merger Agreement as amended hereby.
4. Subparagraph VII(H) is hereby deleted in its entirety and the
following substituted in lieu thereof:
"(H) Each holder of FF stock options which are exercisable prior to
the Closing Date shall agree in writing on or before February 6, 1995,
that such options, if not exercised prior to the closing date, shall be
canceled and converted into the right to receive shares of Bancorp
Common Stock, based on the Conversion Ratio and the midpoint between
"bid" and "asked" price for Bancorp Common Stock as of the Closing Date
("Midpoint Value"). To determine the shares of Bancorp Common Stock to
be received, the aggregate number of all such FF option shares with the
same exercise price shall be multiplied by the difference between the
"Conversion Value" of each such FF option share and the exercise price
of such option share. The result shall then be divided by the Midpoint
Value to determine the number of shares of Bancorp Common Stock to be
received. "Conversion Value" shall be determined by multiplying the
Midpoint Value by the Conversion Ratio. Further, each holder of FF stock
options which are not exercisable prior to the Closing Date shall agree
in writing on or before February 6, 1995, that such options, if not
exercised on the Closing Date as permitted under their terms, shall be
converted into options to purchase Bancorp Common Stock, with the number
of shares of Bancorp Common Stock to be subject to such stock options to
be determined by multiplying the number of such FF option shares by the
Conversion Ratio and with the exercise price for such Bancorp common
stock to be determined by dividing the stated exercise price set forth
in such FF stock options by the Conversion Ratio."
5. As amended hereby the Merger Agreement shall remain in full force
and effect.
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<PAGE> 135
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the date first above written.
FIRST NATIONAL BANCORP
By: /s/ PETER D. MILLER
--------------------------------
Peter D. Miller,
President, C.A.O. & C.F.O.
Attest: /s/ C. TALMADGE GARRISON
-----------------------------
C. Talmadge Garrison,
Secretary & Treasurer
(CORPORATE SEAL)
FF BANCORP, INC.
By: /s/ FRANCES R. FORD
--------------------------------
Frances R. Ford,
Chairman of the Board, C.E.O., &
President
Attest: /s/ CHARLES H. BYRD
----------------------------
Charles H. Byrd,
Vice-Chairman
(CORPORATE SEAL)
FNB SUBSIDIARY CORPORATION
By: /s/ PETER D. MILLER
------------------------------
Peter D. Miller,
President
Attest: /s/ C. TALMADGE GARRISON
-----------------------------
C. Talmadge Garrison,
Secretary
(CORPORATE SEAL)
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<PAGE> 136
APPENDIX B
[PROFESSIONAL BANK SERVICES LETTERHEAD]
December 16, 1994
Board of Directors
FF Bancorp, Inc.
900 North Dixie Freeway
New Smyrna Beach, Florida 32170
Dear Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial perspective, to the common shareholders of FF Bancorp, Inc.,
New Smyrna Beach, Florida ("FF Bancorp") of the proposed merger of FF Bancorp
with First National Bancorp, Gainesville, Georgia ("First National"). In the
proposed merger, FF Bancorp shareholders will receive .825 First National common
shares for each FF Bancorp common share. The terms of the merger are more fully
set forth in the Agreement and Plan of Merger by and between FF Bancorp and
First National dated November 22, 1994.
PBS is a bank consulting firm and as part of its investment banking
business is continually engaged in reviewing the fairness, from a financial
perspective, of bank and thrift acquisition transactions and in the valuation of
banks and other businesses and their securities in connection with mergers,
acquisitions, estate settlements and other purposes. We are independent with
respect to the parties of the proposed transaction.
For purposes of this preliminary opinion, we have reviewed and analyzed the
performance of FF Bancorp contained in (i) audited financial statements dated
December 31, 1991, 1992 and 1993; (ii) Form 10-Q filed with the Securities and
Exchange Commission for the periods ended March 31, 1994, June 30, 1994 and
September 30, 1994; (iii) September 30, 1994 FR Y-11Q, FR Y-9LP and FR Y-9C
filed with the Federal Reserve; and (iv) historical common stock trading
activity of FF Bancorp. We have reviewed and tabulated statistical data
regarding the loan portfolio, securities portfolio and other performance ratios
and statistics. Financial projections were prepared and analyzed as well as
other financial studies, analyses and investigations as deemed relevant for the
purposes of this preliminary opinion. In review of the aforementioned
information, we have taken into account our assessment of general market and
financial conditions, our experience in other transactions, and our knowledge of
the banking industry generally.
In conjunction with our preliminary opinion, we have evaluated the
historical performance and current financial condition of First National
contained in: (i) audited financial statements for the years ending December 31,
1992 and 1993 included in First National's 1993 Annual Report to Shareholders;
(ii) September 30, 1994 Form 10-Q filed with the Securities and Exchange
Commission; (iii) 1994 Third Quarter Report to Shareholders; (iv) historical
common stock trading and dividend activity to date; (v) the Agreement; (vi)
Investor Summary as of September 30, 1994; and (vii) the financial terms of
certain other comparable transactions. We have prepared and analyzed the pro
forma consolidated financial condition of FF Bancorp and First National. We have
reviewed and tabulated consolidated statistical data regarding growth, growth
prospects for service markets, liquidity, asset composition and quality,
profitability, leverage and capital adequacy.
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We have not compiled, reviewed or audited the financial statements of FF
Bancorp or First National, nor have we independently verified any of the
information reviewed; we have relied upon such information as being complete and
accurate in all material respects. We have not made independent evaluation of
the assets of FF Bancorp or First National.
Based on the foregoing and all other factors deemed relevant, it is our
opinion as investment bankers, that, as of the date hereof, the consideration
proposed to be received by the shareholders of FF Bancorp is, from a financial
perspective, fair to the common shareholders of FF Bancorp.
Very truly yours,
PROFESSIONAL BANK SERVICES, INC.
/s/ CHRISTOPHER L. HARGROVE
Christopher L. Hargrove
Vice President
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<PAGE> 138
(FF BANCORP INC. LOGO)
