As filed with the Securities and Exchange Commission on July __, 1995
Registration No. 33-91154
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
________________
FINANCIAL TRUST CORP
(Exact name of registrant as specified in its charter)
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Pennsylvania 6711 23-2229155
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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1415 Ritner Highway, Carlisle, Pennsylvania 17013
(717-243-8003)
(Address, including zip code and telephone number,
including area code of registrant's principal executive offices)
________________
Bradley S. Everly, Secretary, Financial Trust Corp
1415 Ritner Highway, Carlisle, Pennsylvania 17013
(717-241-7744)
(Name, address including zip code, and telephone number,
including area code, of agent for service)
________________
Copies to:
W. Jeffry Jamouneau Melissa Allison Warren
McNees Wallace & Nurick Shapiro and Olander
100 Pine Street 36 South Charles Street, Twentieth Floor
Harrisburg, PA 17101 Baltimore, MD 21201
(717) 237-5230 (410) 385-0202
Approximate date of commencement of the proposed sale of
the securities to the public:
The date of mailing the Proxy Statement/Prospectus contained herein.
________________
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. _/ /_
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1993 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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FINANCIAL TRUST CORP
Cross-Reference Sheet between Items of Form S-4
and Captions in the Proxy Statement/Prospectus
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Form S-4 Item Caption(s) or Location in
Number and Caption Proxy Statement/Prospectus
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A. Information About the Transaction
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus.................................................. Outside Front Cover Page of
Proxy Statement/Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus................................... Available Information; Table of
Contents
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information................................................. Summary
4. Terms of the Transaction.................................... Proposed Merger-Conversion of
WCNB Common Stock in the
Merger
5. Pro Forma Financial Information............................. Pro Forma Combined Financial
Information
6. Material Contacts With the
Company Being Acquired...................................... Proposed Merger - Interests of
Certain Persons in the Merger
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters................................................ Not applicable
8. Interest of Named Experts
and Counsel................................................. Proposed Merger-Opinion of
Financial Advisor
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities............................................. Certain Differences of Rights of
Shareholders of FTC and WCNB-
Indemnification
<PAGE>
B. Information About the Registrant
10. Information with Respect to S-3 Registrants................. Available Information;
Incorporation of Certain FTC
Documents by Reference
11. Incorporation of Certain Information
by Reference................................................ Information Concerning Financial
Trust Corp; Available
Information; Incorporation of
Certain FTC Documents by
Reference
12. Information with Respect to
S-2 or S-3 Registrants...................................... Not applicable
13. Incorporation of Certain
Information by Reference.................................... Not applicable
14. Information with Respect to
Registrants other than S-2 or
S-3 Registrants............................................. Not applicable
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies................... Not applicable
16. Information with Respect to
S-2 or S-3 Companies........................................ Not applicable
17. Information with Respect to
Companies Other Than S-2 or S-3
Companies................................................... Information Concerning
Washington County National
Bank; Management of Washington
County National Bank
D. Voting and Management Information
18. Information if Proxies, Consents
or Authorizations are to be
Solicited
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Item Number and Caption in
Schedule 14A of the Securities Caption(s) or Location in
Exchange Act of 1934 or Regulation S-K Proxy Statement/Prospectus
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(1) Date, Time and Place Information..................................... Introduction - Date, Place and
Time of Special Meeting
(2) Revocability of Proxy................................................ Introduction-Revocation and
Voting of Proxies
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(3) Dissenters' Rights of Appraisal...................................... Proposed Merger-Dissenters'
Rights of WCNB Shareholders
(4) Persons Making the Solicitation...................................... Introduction-General
(5) Interest of Certain Persons in
Matters to be Acted Upon............................................. Proposed Merger-Management
Following the Merger; Interests of
Certain Persons in the Merger
(6) Voting Securities and Principal
Holders Thereof...................................................... Introduction-Voting of Shares and
Principal Holders Thereof
(21) Vote Required for Approval........................................... Summary-Shareholder Voting;
Proposed Merger-Required Vote
of Shareholders
(401) Directors and Executive Officers..................................... Proposed Merger-Management
after the Merger; Incorporation of
Certain FTC Documents by
Reference; Management of
Washington County National Bank
(402) Executive Compensation............................................... Incorporation of Certain FTC
Documents by Reference;
Management of Washington
County National Bank
(404) Certain Relationships and
Related Transactions................................................. Incorporation of Certain FTC
Documents by Reference;
Management of Washington
County National Bank-Certain
Transactions
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange
Offer................................................................ Not applicable
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LETTERHEAD OF WCNB
------------------
July 10, 1995
Dear Shareholder:
Enclosed are materials relating to a Special Meeting of Shareholders of
Washington County National Bank to be held at 10:00 a.m. on Tuesday, August 8,
1995 at the office of the Bank at 14 West Potomac Street, Williamsport,
Maryland.
The purpose of the meeting is to consider and vote on the proposed
acquisition of Washington County National Bank by Financial Trust Corp pursuant
to a merger of WCNB into a wholly-owned subsidiary of Financial Trust Corp. If
the merger is completed, each outstanding share of WCNB common stock will be
exchanged for 2.25 shares of the common stock of Financial Trust Corp. The Board
of Directors of WCNB believes that the merger is in the best interest of the
shareholders of WCNB.
This matter is fully described in the attached Proxy Statement/Prospectus.
For the merger to be approved, two-thirds of the outstanding shares of WCNB
must vote FOR the merger. We urge you to take time to consider this important
matter and vote now. In order to make sure that your vote is represented,
indicate your choice on the enclosed proxy form, date and sign it, and return it
in the enclosed envelope.
Your prompt response will ensure that your shares are counted at the
meeting. If you are able to attend the meeting in person, you may revoke your
proxy at the meeting and vote in person.
M.L. Patterson, Jr.
President
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WASHINGTON COUNTY NATIONAL BANK
14 West Potomac Street
Williamsport, Maryland 21795
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 8, 1995
To the Shareholders:
A Special Meeting of Shareholders of Washington County National Bank
("WCNB") will be held at the office of the Bank at 14 West Potomac Street,
Williamsport, Maryland on August 8, 1995, at 10:00 a.m., local time, for the
following purposes:
1. To consider and act upon an Agreement and Plan of Affiliation between WCNB
and Financial Trust Corp ("FTC"), which is described in the accompanying
Proxy Statement/Prospectus, whereby, among other things, WCNB would be
merged into a subsidiary of FTC and thereby become a wholly-owned
subsidiary of FTC and the shareholders of WCNB would be entitled to receive
2.25 shares of FTC Common Stock for each share of WCNB Common Stock held.
2. To act upon such other matters as may properly come before the Special
Meeting.
Only shareholders of record at the close of business on June 20, 1995 are
entitled to notice of and to vote at the Special Meeting.
Approval of the proposal described above requires the affirmative vote of
two-thirds of the outstanding shares of WCNB Common Stock. Accordingly, all
shareholders are urged to complete, sign, date and return the enclosed proxy
card promptly, whether or not they expect to attend the Special Meeting. If you
attend the Special Meeting, you may, if you wish, withdraw your proxy and vote
your shares in person.
By order of the Board of Directors
Nancy L. Michael, Secretary
July 10, 1995
YOUR ATTENTION IS DIRECTED TO THE PROXY STATEMENT/PROSPECTUS
ACCOMPANYING THIS NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
<PAGE>
PRELIMINARY COPY
PROXY STATEMENT/PROSPECTUS
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
OF WASHINGTON COUNTY NATIONAL BANK
TO BE HELD ON AUGUST 8, 1995
______________________
PROSPECTUS FOR
SHARES OF COMMON STOCK
OF
FINANCIAL TRUST CORP
This Proxy Statement/Prospectus is being furnished to the shareholders of
Washington County National Bank ("WCNB") in connection with the solicitation of
proxies by the WCNB Board of Directors for use at the Special Meeting of
Shareholders of WCNB to be held on August 8, 1995. The purpose of the Special
Meeting is to consider a proposed merger of WCNB with and into a wholly-owned
subsidiary of Financial Trust Corp ("FTC") in which each outstanding share of
WCNB Common Stock, except for shares for which dissenters' rights are properly
claimed, will be converted automatically into 2.25 shares of FTC Common Stock
(the "Merger"). FTC has filed this Proxy Statement/Prospectus with the
Securities and Exchange Commission as part of a Registration Statement under the
Securities Act of 1933 with respect to a maximum of 1,054,888 shares of FTC
Common Stock, par value $5.00 per share, which will be issued in the Merger to
the shareholders of WCNB.
________________
THE SHARES OF FTC COMMON STOCK TO BE ISSUED IN 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 PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
________________
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<PAGE>
All information contained herein with respect to WCNB has been furnished by
the management of WCNB and all information contained herein with respect to FTC
has been furnished by the management of FTC. Although the information concerning
WCNB and FTC contained herein has been taken from sources believed to be
reliable, neither company can take responsibility for the accuracy or
completeness of the information concerning the other contained herein or for the
disclosure of events, unknown to the managements of WCNB or FTC respectively,
which may have occurred and might affect the significance or adequacy of such
information.
No person has been authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus, and, if given
or made, any such information or representation should not be relied upon as
having been authorized by WCNB or FTC. This Proxy Statement/Prospectus does not
constitute an offer to sell or a solicitation of an offer to purchase in any
State or other jurisdiction in which such offer or solicitation would be
unlawful. Neither the delivery of this Proxy Statement/Prospectus at any time
nor the distribution of FTC Common Stock hereunder shall imply that the
information contained herein is correct as of any time subsequent to the date
hereof.
The approximate date on which this Proxy Statement/Prospectus is first
being mailed to the shareholders of WCNB is July 10, 1995.
_____________________
The date of this Proxy Statement/Prospectus is July 10, 1995.
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<PAGE>
AVAILABLE INFORMATION
As permitted by the rules and regulations of the Securities and Exchange
Commission (the "Commission"), this Proxy Statement/Prospectus omits certain
information contained in the Registration Statement and exhibits thereto. FTC is
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Commission. The
Registration Statement of which this Proxy Statement/Prospectus forms a part, as
well as reports, proxy statements and other information filed by FTC, can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the Commission's regional offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the
Commission as prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
WCNB is not subject to the informational requirements of the Exchange Act
and does not make such filings with the Commission.
Shares of FTC Common Stock are traded in the NASDAQ National Market System
under the symbol "FITC".
This Proxy Statement/Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. These documents (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into the information incorporated herein) are available without
charge, upon oral or written request by any person receiving this Proxy
Statement/Prospectus, from Nancy L. Michael, Secretary, Washington County
National Bank, 14 West Potomac Street, P.O. Box 378, Williamsport, Maryland
21795, telephone (301) 223-7600, in the case of documents relating to WCNB, or,
in the case of documents relating to FTC, from Bradley S. Everly, Secretary,
Financial Trust Corp, 1415 Ritner Highway, Carlisle, Pennsylvania 17013,
telephone (717) 243-3212. In order to ensure timely delivery of the documents
prior to the Special Meeting, any such request should be received by July 28,
1995.
INCORPORATION OF CERTAIN FTC DOCUMENTS BY REFERENCE
The following documents of FTC previously filed with the Commission
pursuant to the Exchange Act are hereby incorporated by reference into this
Proxy Statement/Prospectus:
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<PAGE>
Annual Report on Form 10-K of FTC for the fiscal year ended December
31, 1994 (which includes certain information contained in FTC's 1994
Annual Report to Shareholders and in FTC's Proxy Statement for its
1995 Annual Meeting of Shareholders and which information is
incorporated therein by reference).
Current Report on Form 8-K filed January 25, 1995.
Quarterly Report on Form 10-Q of FTC for the quarterly period ended
March 31, 1995.
All documents subsequently filed by FTC pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act prior to the WCNB Special Meeting, including any
postponement or adjournment thereof, shall be deemed to be incorporated by
reference into this Proxy Statement/Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Proxy
Statement/Prospectus, 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.
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<PAGE>
FINANCIAL TRUST CORP
and
WASHINGTON COUNTY NATIONAL BANK
________________________
Proxy Statement/Prospectus
_______________________
TABLE OF CONTENTS
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Page
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SUMMARY
General..................................................................................................9
The Parties.............................................................................................10
The WCNB Meeting........................................................................................11
Effective Date..........................................................................................11
Shareholder Voting......................................................................................12
Reasons for the Merger and Recommendations of the Board of Directors....................................12
Opinion of Financial Advisor............................................................................13
Interests of Certain Persons in the Mergers.............................................................13
Management After the Mergers............................................................................13
Federal Income Tax Consequences.........................................................................13
Conditions to Consummation..............................................................................14
Amendment, Waiver and Termination.......................................................................14
Accounting Treatment....................................................................................14
Certain Differences of Rights of Shareholders of FTC and WCNB...........................................15
Dissenters' Rights......................................................................................15
Comparative Stock Prices................................................................................15
Selected Financial Data (Unaudited).....................................................................16
Comparative Per Share Data (Unaudited)..................................................................21
INTRODUCTION
General.................................................................................................23
Date, Place and Time of Special Meeting.................................................................23
Purpose of Special Meeting..............................................................................23
Revocation and Voting of Proxies........................................................................24
Voting of Shares and Principal Holders Thereof..........................................................24
Solicitation of Proxies.................................................................................25
Recommendation of the Board of Directors Concerning the Merger..........................................25
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<PAGE>
PROPOSED MERGER
The Merger in General; Effective Date...................................................................26
Conversion of WCNB Common Stock in the Merger...........................................................26
Background of and Principal Reasons for the Merger......................................................27
Opinion of Financial Advisor............................................................................31
Management after the Merger.............................................................................36
Interests of Certain Persons in the Merger..............................................................36
Required Vote of Shareholders...........................................................................37
Exchange of Stock Certificates..........................................................................37
Treatment of Fractional Interests.......................................................................38
Conditions of the Merger and Governmental Approvals.....................................................38
Representations and Warranties..........................................................................39
Amendment, Waiver and Termination.......................................................................39
Merger-Related Expenses.................................................................................40
Dissenters' Rights of WCNB Shareholders.................................................................40
Federal Income Tax Consequences.........................................................................41
Restrictions on Resales of FTC Common Stock.............................................................42
Accounting Treatment....................................................................................42
Recommendations of the FTC and WCNB Boards..............................................................42
MARKET PRICES, DIVIDENDS, AND RELATED SHAREHOLDER MATTERS
FTC.....................................................................................................43
FTC Dividend Reinvestment Plan..........................................................................44
WCNB....................................................................................................45
PRO FORMA COMBINED FINANCIAL INFORMATION
Information Concerning the Pro Forma Combined Financial Data............................................46
FINANCIAL TRUST CORP
Pro Form Combined Condensed Balance Sheet...............................................................47
Pro Forma Combined Condensed Statements of Income.......................................................49
WASHINGTON COUNTY NATIONAL BANK - SELECTED FINANCIAL DATA........................................................55
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<PAGE>
WASHINGTON COUNTY NATIONAL BANK - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summary.................................................................................................57
Net Interest Income.....................................................................................57
Loans...................................................................................................60
Investment Securities...................................................................................61
Deposits................................................................................................62
Noninterest Income and Expenses.........................................................................63
Federal Income Taxes....................................................................................64
Asset Quality/Risk Analysis.............................................................................64
Liquidity and Rate Sensitivity..........................................................................67
Capital Adequacy........................................................................................70
Regulatory Matters......................................................................................71
INFORMATION CONCERNING WASHINGTON COUNTY NATIONAL BANK
General.................................................................................................73
Properties..............................................................................................73
Competition.............................................................................................74
Regulation and Supervision..............................................................................74
Legal Proceedings.......................................................................................75
Employees...............................................................................................75
Relations with Independent Certified Public Accountants.................................................75
MANAGEMENT OF WASHINGTON COUNTY NATIONAL BANK
Directors and Executive Officers........................................................................76
Executive Compensation..................................................................................78
Compensation and Benefit Plans..........................................................................79
Compensation of Directors...............................................................................81
Certain Transactions....................................................................................81
Securities Ownership of Certain Beneficial Owners and Management........................................82
INFORMATION CONCERNING FINANCIAL TRUST CORP......................................................................84
DESCRIPTION OF FTC COMMON STOCK..................................................................................86
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<PAGE>
CERTAIN DIFFERENCES OF RIGHTS OF SHAREHOLDERS OF FTC AND WCNB
Authorized Common Stock.................................................................................87
Voting Rights...........................................................................................87
Amendment of Articles and Bylaws........................................................................87
Required Vote for Mergers and Similar Transactions......................................................88
Dissenters' Rights......................................................................................88
Board of Directors......................................................................................89
Nomination of Directors.................................................................................89
Call of Special Shareholders Meeting....................................................................89
Anti-Takeover Provisions................................................................................90
Indemnification.........................................................................................91
Miscellaneous...........................................................................................92
EXPERTS..........................................................................................................92
LEGAL OPINIONS...................................................................................................92
OTHER MATTERS....................................................................................................93
Return of Proxy.........................................................................................93
FINANCIAL STATEMENTS OF WASHINGTON COUNTY NATIONAL BANK..........................................................94
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EXHIBIT A - Agreement and Plan of Affiliation between FTC and WCNB
EXHIBIT B - Opinion of Berwind Financial Group, L.P. to
Board of Directors of WCNB
EXHIBIT C - Statutory Provisions Concerning Dissenters' Rights of WCNB
Shareholders
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/Prospectus and in the documents incorporated herein by
reference. This summary is not intended to be complete and is qualified in its
entirety by reference to more detailed information contained elsewhere in this
Proxy Statement/Prospectus, including the Exhibits hereto, and the documents
incorporated herein by reference. All shareholders are urged to review this
Proxy Statement/Prospectus carefully.
General
This Proxy Statement/Prospectus relates to the merger (the "Merger") of
Washington County National Bank ("WCNB") with and into a wholly-owned national
bank subsidiary being organized by Financial Trust Corp ("FTC") for that
purpose. The Merger will be consummated pursuant to the Agreement and Plan of
Affiliation dated December 23, 1994 (the "Affiliation Agreement"), a copy of
which is attached hereto as Exhibit A.
Upon the Effective Date of the Merger (as defined below in this Summary),
each share of WCNB Common Stock, par value $10.00 per share ("WCNB Common
Stock"), issued and outstanding immediately prior to the Effective Date, except
for shares for which dissenters' rights are properly claimed, will be converted
automatically into 2.25 shares of common stock, $5.00 par value, of FTC ("FTC
Common Stock"). Fractional shares of FTC Common Stock will not be issued, but in
lieu thereof each holder of shares of WCNB Common Stock who would otherwise have
been entitled to a fraction of a share of FTC Common Stock will be paid an
amount in cash equal to such fraction multiplied by the Closing Market Value Per
Share (as defined in the Affiliation Agreement) of FTC. See "PROPOSED
MERGER--Treatment of Fractional Interests." Cash received in lieu of fractional
shares may be taxable income to the recipient.
As soon as practicable after the Effective Date of the Merger, a letter of
transmittal will be mailed to all holders of record of WCNB Common Stock for use
in surrendering their WCNB Common Stock certificates in exchange for FTC Common
Stock certificates and cash in lieu of fractional shares. The transmittal
materials will contain forms and instructions concerning the surrender of such
WCNB Common Stock certificates. See "PROPOSED MERGER--Exchange of Stock
Certificates."
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<PAGE>
The Parties
FTC is a Pennsylvania business corporation and a registered bank holding
company, headquartered in Carlisle, Pennsylvania. In addition to the
nonoperating national bank subsidiary of FTC being organized for purposes of the
Merger, FTC's five operating subsidiaries are (i) Farmers Trust Company, a bank
and trust company organized under Pennsylvania law; (ii) Chambersburg Trust
Company, also a Pennsylvania bank and trust company; (iii) First National Bank
and Trust Co., a national banking association; (iv) First Federal Savings Bank,
also a national banking association; and (v) Financial Trust Life Insurance
Company, an insurance company organized under the laws of Arizona. As of March
31, 1995, FTC's four bank subsidiaries operated 34 banking offices and 16 remote
service facilities in seven south central Pennsylvania counties which include
the cities of Carlisle, Chambersburg, Waynesboro and Hanover. First National
Bank and Trust Co. is a member of the Federal Reserve System. All banks are
insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent
provided by law, and engage in general commercial banking and provide
individuals, businesses, municipalities and state agencies with comprehensive
financial services. FTC also offers, through its insurance subsidiary, credit
life and disability insurance to the banks' consumer loan customers. FTC and its
subsidiaries employed approximately 436 full-time equivalent employees as of
March 31, 1995. FTC intends, subject to necessary regulatory approvals, to merge
First Federal Savings Bank into Farmers Trust Company, and to change the name of
the latter bank to Financial Trust Company. Additionally, FTC has applications
pending for regulatory approvals to form a new subsidiary, Financial Trust
Services Co., into which all trust services of the bank subsidiaries would be
consolidated.
At March 31, 1995, FTC had consolidated total assets, deposits and
shareholders' equity of $952.5 million, $777.2 million and $118.3 million,
respectively. FTC's personal and corporate trust assets totalled $345.6 million
at December 31, 1994, and at that date on the basis of total assets, FTC was the
eighteenth largest independent bank holding company in Pennsylvania.
The principal executive offices of FTC are located at 1415 Ritner Highway,
Carlisle, Pennsylvania 17013, and its telephone number is (717) 243-8003.
For further information about FTC, see "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN FTC DOCUMENTS BY REFERENCE".
WCNB is a national bank, incorporated under the National Bank Act and
headquartered in Williamsport, Maryland. As of March 31, 1995, WCNB operated
eight banking offices and four automated teller machines in Washington County,
Maryland which
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<PAGE>
includes the cities of Hagerstown, Williamsport, Sharpsburg, Boonsboro,
Keedysville and Clear Spring. WCNB is insured by the FDIC and offers a wide
variety of banking services to all segments of its service area. WCNB engages in
mortgage lending, primarily for one- to-four family properties, and provides
other business financial services. WCNB's commercial lending services include
lines of credit, revolving credit, mortgages, term loans and other forms of
secured financing. WCNB employed approximately 89 full-time equivalent employees
as of March 31, 1995.
WCNB's total assets have grown from $107.7 million at December 31, 1990 to
$136.9 million at March 31, 1995. At March 31, 1995, WCNB had deposits and
shareholders' equity of $124.9 million and $11.0 million, respectively.
The principal executive offices of WCNB are located at 14 West Potomac
Street, Williamsport, Maryland 21795, and its telephone number is (301)
223-7600.
For further information concerning WCNB, see "INFORMATION CONCERNING
WASHINGTON COUNTY NATIONAL BANK" and "MANAGEMENT OF WASHINGTON COUNTY NATIONAL
BANK."
The WCNB Meeting
The Special Meeting of Shareholders of WCNB will be held at the WCNB office
at 14 West Potomac Street, Williamsport, Maryland, on August 8, 1995, at 10:00
a.m. (local time). The purpose of the meeting is to consider and act on the
proposed Merger, as well as any other matters properly brought before the
meeting (management presently knows of no other such matters). Only holders of
record of WCNB Common Stock at the close of business on June 20, 1995, will be
entitled to vote at the Special Meeting. At that date, 468,839 shares of WCNB
Common Stock were outstanding. Each share will be entitled to one (1) vote on
the proposed Merger and any other matters presented.
Effective Date
The Merger will become effective (the "Effective Date") following approval
of the Merger by the WCNB shareholders and the securing of all necessary
regulatory approvals, provided that all conditions required by the Affiliation
Agreement have been met (or if not met, are waived by the party for whose
benefit the condition exists). It presently is believed that the Merger will be
consummated during the third quarter of 1995. See "PROPOSED
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<PAGE>
MERGER--The Merger in General; Effective Date" and "--Conditions of the
Merger and Governmental Approvals."
Shareholder Voting
Pursuant to the National Bank Act, the affirmative vote of the holders of
at least two-thirds of the outstanding shares of WCNB Common Stock at the
Special Meeting is required to approve the Merger. As of May 31, 1995, the
directors and executive officers of WCNB and their affiliates were entitled to
cast 60,122 votes at the Special Meeting, representing approximately 12.82% of
the 468,839 total votes entitled to be cast. See "INTRODUCTION--Voting of Shares
and Principal Holders Thereof." Such persons intend to vote all of these shares
in favor of the Merger. No vote or action will be required by holders of FTC
Common Stock.
Reasons for the Merger and Recommendation of the Board of Directors
The Board of Directors of WCNB believes that WCNB shareholders will benefit
from the Merger through their ownership of the stock of a bank holding company
with more diversified banking operations and substantially greater assets than
those of WCNB. Following the Merger, WCNB will operate as a subsidiary of FTC
and will have the support of FTC's greater managerial and administrative
resources and greater scope and depth of service. The Board believes that this
should enable WCNB offices to serve effectively a wider range of businesses and
other customers, and to compete more effectively in the rapidly changing
marketplace for banking and financial services.
The terms of the Merger were determined by FTC and WCNB on the basis of
arms-length negotiations. In arriving at the terms of the Merger, the Boards of
Directors of FTC and WCNB gave consideration to many factors, including, without
limitation, information concerning the financial condition, current business and
future prospects of FTC and WCNB. In addition, the Boards considered stock
market data for FTC and WCNB, the financial terms of other recent business
combinations in the banking industry and the tax consequences of the Merger to
shareholders of WCNB. See "PROPOSED MERGER--Background of and Principal Reasons
for the Merger."
THE BOARD OF DIRECTORS OF WCNB HAS UNANIMOUSLY APPROVED THE AFFILIATION
AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE WCNB SHAREHOLDERS VOTE "FOR"
THE MERGER.
- 12 -
<PAGE>
Opinion of Financial Advisor
Berwind Financial Group, L.P., which provides bank financial advisory and
investment banking services, has rendered an opinion to the Board of Directors
of WCNB as to the fairness, from a financial point of view, to WCNB's
shareholders of the share conversion of 2.25 shares of FTC Common Stock for each
share of WCNB Common Stock. This opinion, a copy of which is attached hereto as
Exhibit B, should be read in its entirety. See "PROPOSED MERGER--Opinion of
Financial Advisor."
Interests of Certain Persons in the Merger
In connection with the proposed Merger, M. L. Patterson, Jr., President and
Chief Executive Officer of WCNB, and David E. Drury, Vice-President, Staff
Accountant and Cashier of WCNB, will enter into Employment Agreements with WCNB,
effective upon the Effective Date of the Merger, providing for their continued
employment in their respective positions for a term of three years after the
Merger. See "PROPOSED MERGER--Interests of Certain Persons in the Merger."
Management After the Merger
Upon the Effective Date of the Merger, the executive officers and members
of the Board of Directors of WCNB will continue to serve as such, and Ray L.
Wolfe, President and Chief Executive Officer of FTC, will become a member of the
WCNB Board. The Board of Directors of FTC will consist of those persons who are
Directors of FTC on the Effective Date, and three of the current directors of
WCNB (M. L. Patterson, Jr., James E. Byron and Thomas H. Shank) will be added to
the FTC Board. See "PROPOSED MERGER--Interests of Certain Persons in the Merger"
and --"Management after the Merger."
Federal Income Tax Consequences
It is a condition to the Merger that FTC and WCNB shall have received
either a ruling from the Internal Revenue Service or an opinion of counsel to
FTC to the effect that no gain or loss will be recognized for federal income tax
purposes by holders of shares of WCNB Common Stock who receive shares of FTC
Common Stock in exchange for their shares, except that gain or loss will be
recognized with respect to cash received in lieu of fractional shares or for
dissenting shares. FTC and WCNB have determined that a ruling
- 13 -
<PAGE>
will not be sought. McNees Wallace & Nurick, counsel to FTC, expects to deliver
its opinion substantially to this effect, which opinion will be based in part on
certain representations and warranties of FTC and WCNB as of and on the
Effective Date. See "PROPOSED MERGER--Federal Income Tax Consequences."
Each holder of shares of WCNB Common Stock is urged to consult his or her
own tax advisor concerning the federal (and any state and local) tax
consequences of the Merger as they may affect his or her particular
circumstances.
Conditions to Consummation
Consummation of the Merger is subject to various conditions, including
approval by (i) the shareholders of WCNB; (ii) the Board of Governors of the
Federal Reserve System under the Bank Holding Company Act of 1956, as amended;
(iii) the Office of the Comptroller of the Currency; (iv) the Pennsylvania
Department of Banking, and (v) the Office of the Bank Commissioner of Maryland.
There can be no assurance that the shareholders of WCNB or the various
regulatory authorities will approve the Merger. In addition, the Merger is
contingent upon the satisfaction of a number of other conditions and
requirements, including the conditions that the covenants, warranties and
representations made and given by each party are met and that the Merger
qualifies for pooling-of-interests accounting treatment. See "PROPOSED
MERGER--Conditions of the Merger and Governmental Approvals"; --"Representations
and Warranties"; and "--Accounting Treatment."
Amendment, Waiver and Termination
FTC and WCNB may amend or terminate the Affiliation Agreement at any time
prior to the Effective Date, providing that no amendment may be made after
approval of the Merger by the WCNB shareholders that would materially adversely
affect such shareholders. Either party may terminate the Agreement in the event
of a material breach by the other party or under certain other circumstances,
and may waive any of the terms or conditions intended for its benefit. See
"PROPOSED MERGER--Amendment, Waiver and Termination."
Accounting Treatment
It is a condition to consummation of the Merger that the Merger will be
accounted for as a pooling-of-interests transaction under generally accepted
accounting principles. See
- 14 -
<PAGE>
"PROPOSED MERGER--Conditions of the Merger and Governmental Approvals" and "--
Accounting Treatment."
Certain Differences of Rights of Shareholders of FTC and WCNB
Upon completion of the Merger, WCNB shareholders will become shareholders
of FTC and their rights as such will be governed by the Pennsylvania Business
Corporation Law, as amended, and FTC's Articles of Incorporation and ByLaws. The
rights of shareholders of FTC are different in certain respects from the rights
of shareholders of WCNB. See "CERTAIN DIFFERENCES OF RIGHTS OF SHAREHOLDERS OF
FTC AND WCNB."
Dissenters' Rights
WCNB shareholders will have dissenters' rights in accordance with the
statutory provisions set forth in the National Bank Act. A copy of these
provisions is attached as Exhibit C. See "PROPOSED MERGER--Dissenters' Rights of
WCNB Shareholders."
Comparative Stock Prices
The following table sets forth (i) the closing sale price for FTC Common
Stock on the NASDAQ National Market System on December 22, 1994, the last
trading day prior to the first public announcement of the Merger, (ii) the sale
price for WCNB Common Stock quoted by Ferris, Baker, Watts, Incorporated on
December 19, 1994, which, to the knowledge of WCNB management, was the last
trading day on which a sale of WCNB Common Stock took place prior to the first
public announcement of the Merger, and (iii) an equivalent per share price for
WCNB Common Stock computed by multiplying the closing sale price for FTC Common
Stock on December 22, 1994, by 2.25, the exchange ratio in the Merger:
<TABLE>
<CAPTION>
Last
Pre-Announcement Equivalent Per
Prices Share Price
---------------- --------------
<S> <C> <C>
FTC Common Stock.................... $27.75
WCNB Common Stock................. $39.00 $62.44
</TABLE>
- 15 -
<PAGE>
Selected Financial Data (Unaudited)
The following tables present for FTC and for WCNB, on a historical basis,
selected unaudited financial data, and unaudited pro forma combined amounts for
FTC on a consolidated basis assuming the Merger had been effective for each of
the five years ended December 31, 1994, and for the three months ended March 31,
1995 and 1994. The Merger will be accounted for under the pooling-of-interests
method and pro forma combined data is derived in accordance with such method.
This information should be read in conjunction with the pro forma combined
financial statements, including the notes thereto, set forth elsewhere herein,
and the historical financial statements of FTC, including the notes thereto,
which are incorporated herein by reference, and in conjunction with the
historical financial statements of WCNB, including the notes thereto, which are
contained elsewhere herein. After the selected financial data tables is selected
information concerning components of the investment securities portfolio as of
December 31, 1994.
- 16 -
<PAGE>
FINANCIAL TRUST CORP
SELECTED HISTORICAL FINANCIAL DATA
(In thousands)
<TABLE>
<CAPTION>
At or for the At or for the
Quarter Ended March 31 Year Ended December 31
---------------------- -----------------------
1995 1994 1994 1993 1992 1991 1990
--------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
- ---------------------
Net interest income $10,449 $9,576 $40,294 $37,847 $36,228 $32,294 $30,225
Provision for loan losses 130 165 795 1,345 2,373 1,191 970
------------------ -------------------------------------------------------
Net interest income after
provision for loan losses 10,319 9,411 39,499 36,502 33,855 31,103 29,255
Other operating income 1,712 1,638 6,950 6,413 5,903 5,435 4,817
Other operating expense 6,829 5,960 25,856 23,731 22,326 20,904 18,469
Income tax expense 1,200 1,238 5,045 4,769 4,079 3,416 4,000
------------------ -------------------------------------------------------
Income before cumulative effect
of changes in accounting
principles 4,002 3,851 15,548 14,415 13,353 12,218 11,603
Cumulative effect of a change in
an accounting principle -
income taxes 0 0 0 410 0 0 0
------------------ -------------------------------------------------------
Net Income $4,002 $3,851 $15,548 $14,825 $13,353 $12,218 $11,603
================== =======================================================
Average Balance Sheet Totals:
- ----------------------------
Assets $948,531 $863,040 $930,866 $838,675 $806,690 $758,563 $697,510
Investment securities and
money market investments 263,415 220,560 274,020 227,230 223,053 194,607 181,676
Loans and leases (net of
unearned income) 619,850 577,506 593,167 553,599 527,801 514,911 471,141
Deposits 769,843 711,929 770,741 708,655 692,399 660,584 608,274
Long-term debt and
lease obligations 805 609 697 651 1,110 1,484 1,408
Shareholders' equity 115,965 109,421 110,765 98,133 88,548 80,134 72,147
Actual Balance at Period End:
- ----------------------------
Assets $952,461 $876,188 $953,918 $858,340 $830,098 $788,137 $753,445
Loans and leases (net of
unearned income) 622,727 579,247 619,273 567,578 540,458 519,668 513,555
Deposits 777,234 725,433 774,470 711,264 705,800 677,776 655,992
Long-term debt and lease
obligations 795 598 811 615 683 1,402 1,563
Shareholders' equity 118,266 108,674 115,541 104,108 93,880 84,972 76,844
Perfomance Statistics:
- ---------------------
Return on avearge assets 1.69% 1.78% 1.67% 1.77% 1.66% 1.61% 1.66%
Return on average equity 13.80% 14.08% 14.04% 14.69% 15.08% 15.25% 16.09%
Average equity/average assets 12.23% 12.68% 11.90% 11.70% 10.98% 10.56% 10.34%
Per Common Share Data*
- ---------------------
Income before cumulative effect
of an accounting change -
operating income $0.60 $0.58 $2.32 $2.15 $2.00 $1.83 $1.75
Net income 0.60 0.58 2.32 2.21 2.00 1.83 1.75
Cash dividends 0.23 0.21 0.87 0.78 0.72 0.68 0.65
Book value at period end 17.62 16.19 17.22 15.51 14.03 12.73 11.55
* All prior year per common share amounts have been restated to reflect:
the 3 for 2 stock split, in the form of a 50% stock dividend paid June 1, 1992
the 10% stock dividend paid August 30, 1993.
the 4 for 3 stock split in the form of a 33 1/2% stock dividend paid August 29, 1994.
</TABLE>
- 17 -
WASHINGTON COUNTY NATIONAL BANK
SELECTED HISTORICAL FINANCIAL DATA
(In thousands)
<TABLE>
<CAPTION>
At or for the At or for the
Quarter Ended March 31 Year Ended December 31
---------------------- ----------------------
1995 1994 1994 1993 1992 1991 1990
--------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
- ---------------------
Net interest income $1,405 $1,382 $5,719 $6,103 $6,044 $4,773 $4,183
Provision for loan losses (54) 45 45 2,295 427 307 150
----------------- ------------------------------------------------------
Net interest income after
provision for loan losses 1,459 1,337 5,674 3,808 5,617 4,466 4,033
Other operating income 87 78 343 451 416 368 340
Other operating expense 1,095 1,089 4,755 4,299 3,665 3,159 2,909
Income tax expense 125 82 381 413 701 441 351
----------------- ------------------------------------------------------
Income (loss) before cumulative
effect of changes in
accounting principles 326 244 881 (453) 1,667 1,234 1,113
Cumulative effect of a change in
an accounting principle -
income taxes 0 0 0 (37) 0 0 0
----------------- ------------------------------------------------------
Net Income (loss) $326 $244 $881 ($490) $1,667 $1,234 $1,113
================= ======================================================
Average Balance Sheet Totals:
- ----------------------------
Assets $136,638 $138,715 $139,611 $135,789 $134,039 $115,343 $103,562
Investment securities and
money market investments 40,647 39,191 44,711 35,902 36,488 29,308 23,197
Loans and leases (net of
unearned income) 88,395 87,659 88,176 92,844 90,293 79,506 73,497
Deposits 124,257 127,151 128,002 124,235 122,229 104,876 94,056
Long-term debt and
lease obligations 0 0 0 0 0 0 0
Shareholders' equity 10,619 10,742 10,761 11,012 10,891 9,757 8,822
Actual Balance at Period End:
- ----------------------------
Assets $136,897 $140,223 $136,658 $136,831 $134,819 $130,047 $107,738
Loans and leases (net of
unearned income) 88,200 88,006 88,222 88,434 95,476 83,821 76,464
Deposits 124,872 128,644 124,389 125,469 122,887 119,167 97,805
Long-term debt and lease
obligations 0 0 0 0 0 0 0
Shareholders' equity 10,968 10,817 10,328 10,630 11,495 10,199 9,263
Performance Statistics:
- ----------------------
Return on average assets 0.95% 0.70% 0.63% -0.36% 1.25% 1.08% 1.07%
Return on average equity 12.29% 9.10% 8.00% -4.62% 14.50% 12.62% 11.95%
Average equity/average assets 7.77% 7.74% 7.71% 8.11% 8.12% 8.46% 8.52%
Per Common Share Data*
- ---------------------
Income before cumulative effect
of an accounting change -
operating income $0.70 $0.52 $1.88 ($0.97) $3.55 $2.63 $2.37
Net income 0.70 0.52 1.88 (1.05) 3.55 2.63 2.37
Cash dividends 0.15 0.15 0.80 0.80 0.79 0.63 0.60
Book value at period end 23.39 23.07 22.03 22.67 24.52 21.75 19.76
* All prior year per common share amounts have been restated to reflect:
the 5% stock dividend paid December 1991.
the 20% stock dividend paid in December 1992
</TABLE>
- 18 -
<PAGE>
FINANCIAL TRUST CORP/WASHINGTON COUNTY NATIONAL BANK
SELECTED HISTORICAL FINANCIAL DATA
(In thousands)
<TABLE>
<CAPTION>
At or for the At or for the
Quarter Ended March 31 Year Ended December 31
---------------------- ----------------------
1995 1994 1994 1993 1992 1991 1990
--------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
- ---------------------
Net interest income $11,854 $10,958 $46,013 $43,950 $42,272 $37,067 $34,408
Provision for loan losses 76 210 840 3,640 2,800 1,498 1,120
----------------- ------------------------------------------------------
Net interest income after
provision for loan losses 11,778 10,748 45,173 40,310 39,472 35,569 33,288
Other operating income 1,799 1,716 7,293 6,864 6,319 5,803 5,157
Other operating expense 7,924 7,049 30,611 28,030 25,991 24,063 21,378
Income tax expense 1,325 1,320 5,426 5,182 4,780 3,857 4,351
----------------- ------------------------------------------------------
Income before cumulative effect
of changes in accounting
principles 4,328 4,095 16,429 13,962 15,020 13,452 12,716
Cumulative effect of a change
in an accounting principle -
income taxes 0 0 0 373 0 0 0
----------------- ------------------------------------------------------
Net Income $4,328 $4,095 $16,429 $14,335 $15,020 $13,452 $12,716
================= ======================================================
Average Balance Sheet Totals:
- ----------------------------
Assets $1,085,169 $1,001,755 $1,070,477 $974,464 $940,729 $873,906 $801,072
Investment securities and
money market investments 304,062 259,751 318,731 263,132 259,541 223,915 204,873
Loans and leases (net of
unearned income) 708,245 665,165 681,343 646,443 618,094 594,417 544,638
Deposits 894,100 839,080 898,743 832,890 814,628 765,460 702,330
Long-term debt and
lease obligations 805 609 697 651 1,110 1,484 1,408
Shareholders' equity 126,584 120,163 121,526 109,145 99,439 89,891 80,969
Actual Balance at Period End:
- ----------------------------
Assets $1,089,358 $1,016,411 $1,090,576 $995,171 $964,917 $918,184 $861,183
Loans and leases (net of
unearned income) 710,927 667,253 707,495 656,012 635,934 603,489 590,019
Deposits 902,106 854,077 898,859 836,733 828,687 796,943 753,797
Long-term debt and lease
obligations 795 598 811 615 683 1,402 1,563
Shareholders' equity 129,234 119,491 125,869 114,738 105,375 95,171 86,107
Performance Statistics:
- ----------------------
Return on average assets 1.60% 1.64% 1.53% 1.47% 1.60% 1.54% 1.59%
Return on average equity 13.68% 13.63% 13.52% 13.13% 15.10% 14.96% 15.70%
Average equity/average assets 11.66% 12.00% 11.35% 11.20% 10.57% 10.29% 10.11%
</TABLE>
- 19 -
<PAGE>
FTC and WCNB both hold structured notes in their investment securities
portfolios as of December 31, 1994. All such notes are classified as Other U.S.
Government Agencies securities and are included as part of the Other U.S.
Government Agencies totals that are disclosed throughout this Proxy
Statement/Prospectus. All structured note holdings are either "step-ups" or
"floaters." Step-ups are notes whose coupon rates increase by predetermined
amounts at predetermined dates. Floaters are notes whose coupon rate can vary up
or down at predetermined dates based upon specified indices. The indices used
for the WCNB holdings include 5 year U.S. Treasury securities, 7 year U.S.
Treasury securities, 10 year U.S. Treasury securities, the cost of funds index
for the 11th Federal Reserve District and the cost of funds index for the State
of California. FTC holds no floaters. The following tables compile the holdings
by company and type as of December 31, 1994:
<TABLE>
<CAPTION>
December 31, 1994
Amortized Cost Fair Value
-------------- ----------
(in thousands)
<S> <C> <C>
Financial Trust Corp $14,748 $14,158
Washington County National Bank 6,685 6,317
------- -------
Total $21,433 $20,475
======= =======
Financial Trust Corp:
Federal Home Loan Bank Step-Ups $13,248 $12,718
Student Loan Marketing Association Step-Ups 1,000 982
Federal Home Loan Mortgage Corporation Step-Ups 500 458
------- -------
Total $14,748 $14,158
======= =======
Washington County National Bank:
Federal Home Loan Mortgage Corporation Step-Ups $ 250 $ 238
Federal Home Loan Bank Floaters 2,439 2,285
Federal Farm Credit Bank Floaters 1,047 975
Student Loan Marketing Association Floaters 1,249 1,186
Federal Home Loan Mortgage Corporation Floaters 250 250
Federal National Mortgage Association Floaters 1,450 1,383
------- -------
Total $ 6,685 $ 6,317
======= =======
</TABLE>
- 20 -
<PAGE>
Comparative Per Share Data (Unaudited)
The following summary presents selected comparative unaudited per share
data for both FTC and WCNB on a historical basis, for FTC on a pro forma
combined basis assuming the Merger had been effective during the periods
presented and for WCNB on a pro forma equivalent basis. Pro forma information
for FTC is based on the exchange ratio of 2.25 shares of FTC Common Stock for
each share of WCNB Common Stock. These data are not necessarily indicative of
the results of the future operations of the combined entity or the actual
results that would have occurred had the Merger been consummated prior to the
periods indicated.
- 21 -
SELECTED HISTORICAL AND PRO FORMA COMBINED PER SHARE DATA
<TABLE>
<CAPTION>
FOR THREE MONTHS
ENDED MARCH 31 YEARS ENDED DECEMBER 31
---------------- ------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL TRUST CORP (FTC)
Historical Per Common Share:
Average Shares Outstanding: 6,710,867 6,711,692 6,711,407 6,702,545 6,680,701 6,663,033 6,643,202
Book Value $17.62 $16.19 $17.22 $15.51 $14.03 $12.73 $11.53
Cash Dividends 0.23 0.21 0.87 0.78 0.72 0.68 0.65
Income From Continuing Operations 0.60 0.58 2.32 2.15 2.00 1.83 1.75
WASHINGTON COUNTY
NATIONAL BANK (WCNB)
Historical Per Common Share:
Average Shares Outstanding: 468,839 468,839 468,839 468,839 468,839 468,839 468,839
Book Value $23.39 $23.07 $22.03 $22.67 $24.52 $21.75 $19.76
Cash Dividends 0.15 0.15 0.80 0.80 0.79 0.63 0.60
Income From Continuing Operations 0.70 0.52 1.88 (0.97) 3.55 2.63 2.37
FTC, WCNB Combined Pro Forma
Per Common Share of FTC (A)
Average Shares Outstanding: 7,765,755 7,766,580 7,766,295 7,757,433 7,735,589 7,717,921 7,698,090
Book Value $16.64 $15.39 $16.21 $14.77 $13.60 $12.31 $11.16
Cash Dividends 0.21 0.19 0.80 0.72 0.67 0.63 0.59
Income From Continuing Operations 0.56 0.53 2.12 1.80 1.94 1.74 1.65
Equivalent Pro Forma Per Share
Data for WCNB (B)
Book Value $37.44 $34.62 $36.47 $33.24 $30.60 $27.70 $25.10
Cash Dividends 0.47 0.43 1.80 1.63 1.51 1.41 1.34
Income From Continuing Operations 1.26 1.19 4.76 4.05 4.37 3.92 3.71
</TABLE>
(A) The above combined pro forma per-share equivalent information is based on
average shares outstanding during the period except for the book value per
share which is based on period end shares outstanding. The number of shares
in each case has been adjusted for stock dividends by each institution
through the periods. Pro forma information for FTC is based on the exchange
ratio of 2.25 shares of FTC common stock for each share of WCNB common
stock.
(B) Equivalent pro forma per share data for WCNB is arrived at by multiplying
the FTC, WCNB combined pro forma per common share of FTC data by the
exchange ratio of 2.25 for each current WCNB share.
- 22 -
<PAGE>
INTRODUCTION
General
This Proxy Statement/Prospectus is being furnished to holders of WCNB
Common Stock in connection with the solicitation of proxies by the Board of
Directors of WCNB for use at a Special Meeting of Shareholders to be held on
August 8, 1995 and any adjournments or postponements thereof, to consider and
act upon (i) the Affiliation Agreement and the Merger, and (ii) the transaction
of such other business as may properly come before the meeting or any
adjournment or postponement thereof. Each copy of this Proxy
Statement/Prospectus mailed to shareholders of WCNB is accompanied by a form of
proxy for use at the WCNB Special Meeting of Shareholders.
This document is also furnished by FTC to WCNB shareholders as a Prospectus
in connection with the issuance by FTC of the shares of FTC Common Stock upon
consummation of the Merger. All information contained herein with respect to FTC
has been supplied by FTC and all information with respect to WCNB has been
supplied by WCNB. This Proxy Statement/Prospectus, the attached Notice of
Special Meeting and the form of proxy enclosed herewith are first being mailed
to shareholders of WCNB on or about July 10, 1995.
Date, Place and Time of Special Meeting
The Special Meeting of Shareholders of WCNB will be held at the WCNB
offices at 14 West Potomac Street, Williamsport, Maryland, on Tuesday, August 8,
1995, at 10:00 a.m. (local time). Only holders of record of WCNB Common Stock at
the close of business on June 20, 1995 will be entitled to vote at the Special
Meeting.
Purpose of Special Meeting
At the Special Meeting, the holders of WCNB Common Stock will be asked to
approve the Affiliation Agreement and the Merger. A copy of the Affiliation
Agreement is attached to this Proxy Statement/Prospectus as Exhibit A.
Pursuant to the Affiliation Agreement, WCNB will be merged with and into a
wholly-owned national bank subsidiary being organized by FTC. Upon the Effective
Date of the Merger, each share of WCNB Common Stock issued and outstanding
immediately prior to the Effective Date, except for shares for which dissenters'
rights are properly claimed, will be converted automatically into 2.25 shares of
FTC Common Stock.
- 23 -
<PAGE>
Revocation and Voting of Proxies
The execution and return of the enclosed proxy will not affect a
shareholder's right to attend the Special Meeting and to vote in person. Any
proxy given pursuant to this solicitation may be revoked by delivering written
notice of revocation to the Secretary of WCNB, at any time before the proxy is
voted at the Special Meeting. Unless revoked, any proxy given pursuant to this
solicitation will be voted at the Special Meeting in accordance within the
instructions thereon of the shareholder giving the proxy. In the absence of
instructions, all proxies will be voted FOR the approval of the Affiliation
Agreement and the Merger.
The enclosed proxy also confers discretionary authority to vote with
respect to such other business as may properly come before the Special Meeting
or any postponement or adjournment thereof, including, without limitation, on a
motion to adjourn the meeting. Neither the Board of Directors nor management of
WCNB currently is aware of any matters (other than procedural matters) which
will be brought before the meeting and which are not referred to in the enclosed
meeting notice. However, in the event that any other matters are brought before
the meeting, any proxy given pursuant to this solicitation will be voted in
accordance with the discretion of the persons named in the proxies.
Voting of Shares and Principal Holders Thereof
At the close of business on June 20, 1995, which is the record date for
determination of WCNB shareholders entitled to receive notice of and to vote at
the Special Meeting and any adjournments or postponements thereof, WCNB had
outstanding 468,839 shares of WCNB Common Stock. There is no other class of
stock authorized, issued or outstanding. The presence, in person or by proxy, of
shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast on a particular matter constitutes a quorum
for the purpose of considering such matter. Pursuant to the National Bank Act,
approval of the Merger requires the affirmative vote of at least a two-thirds of
the outstanding WCNB Common Stock at the Special Meeting. Each share has one (1)
vote with respect to the Merger. Because the two-thirds vote requirement is
based on the total number of outstanding shares, the effect of a WCNB
shareholder not voting or abstaining from voting is the equivalent of such
shareholder casting a vote against the Merger. As of May 31, 1995, the directors
and executive officers of WCNB and their affiliates were entitled to cast 60,122
votes at the Special Meeting with respect to the Merger or approximately 12.82%
of the total votes entitled to be cast. Such persons intend to vote all of these
shares in favor of the Merger.
To the knowledge of WCNB, three persons owned beneficially on the record
date more than five percent (5%) of the outstanding WCNB Common Stock. See
- 24 -
<PAGE>
"MANAGEMENT OF WASHINGTON COUNTY NATIONAL BANK--Securities
Ownership of Certain Beneficial Owners and Management".
Solicitation of Proxies
In addition to solicitation by mail, directors, officers and employees of
WCNB, who will not be specifically compensated for such services, may solicit
proxies from the shareholders of WCNB personally, by telephone or other forms of
communication. Brokerage houses, nominees, fiduciaries and other custodians will
be requested to forward soliciting materials to beneficial owners and will be
reimbursed for expenses incurred in sending proxy materials to beneficial
owners. WCNB will bear its own expenses in connection with the solicitation of
proxies for its Special Meeting. See "PROPOSED MERGER--Merger-Related Expenses."
HOLDERS OF WCNB COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO WCNB IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
Recommendation of the Board of Directors Concerning the Merger
THE BOARD OF DIRECTORS OF WCNB UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" THE APPROVAL FOR THE MERGER DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS.
PROPOSED MERGER
The following description contains summaries of certain provisions of the
Affiliation Agreement, and is qualified in its entirety by reference to the full
text of the Affiliation Agreement which is attached to this Proxy
Statement/Prospectus as Exhibit A.
SHAREHOLDERS ARE URGED TO CAREFULLY REVIEW THE AFFILIATION AGREEMENT AS
WELL AS ALL OTHER INFORMATION PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS.
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The Merger in General; Effective Date
The Affiliation Agreement provides that on the Effective Date WCNB will be
merged with and into a wholly-owned national bank subsidiary of FTC ("FTC
Interim Bank") being organized for that purpose, thereby becoming a wholly-owned
subsidiary of FTC, and that WCNB shareholders will be entitled to receive 2.25
shares of FTC Common Stock for each share of WCNB Common Stock. FTC, as the sole
shareholder of FTC Interim Bank, will cause its subsidiary to take all action
necessary to approve the Merger and to enter the Bank Merger Agreement with
WCNB.
On the Effective Date, all assets and liabilities of WCNB will become the
assets and liabilities of FTC Interim Bank, which as the surviving bank entity
will carry on the business of WCNB under the name "Washington County National
Bank". The principal office and branch offices of WCNB will remain the same
following the Effective Date. References herein to WCNB, as constituted after
the Effective Date, are to the continuing entity.
The Merger is subject to the satisfaction of a number of conditions,
including approval of the shareholders of WCNB, the Board of Governors of the
Federal Reserve System ("Federal Reserve"), the Office of the Comptroller of the
Currency ("Comptroller"), the Office of the Bank Commissioner of Maryland and
the Pennsylvania Department of Banking. The Effective Date will be the date on
which WCNB is merged with and into FTC Interim Bank and will be the earliest
practicable date (consistent with good accounting practices) following the
receipt of all necessary shareholder and regulatory approvals and favorable
opinions of counsel and the satisfaction of all other conditions of the
Affiliation Agreement. It is presently believed that the Merger will be
consummated during the third quarter of 1995. See "Conditions of the Merger and
Governmental Approvals" below.
After the Effective Date, giving effect to the merger of WCNB with and into
FTC Interim Bank and on the basis of the pro forma financial information given
elsewhere in this Proxy Statement/Prospectus, the portion of FTC represented by
WCNB in terms of (1) assets would be 12.6%; (2) shareholder equity would be
8.5%; (3) voting power would be 13.6%; (4) interest income would be 12.0%; and
(5) net income would be 7.5%.
Conversion of WCNB Common Stock in the Merger
On the Effective Date of the Merger, each of the then issued and
outstanding shares of WCNB Common Stock, except for the shares held by
dissenting shareholders (see "PROPOSED MERGER--Dissenters' Rights of WCNB
Shareholders"), shall automatically be converted into 2.25 shares of FTC
Common Stock.
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<PAGE>
Fractional shares of FTC Common Stock will not be issued, but in lieu
thereof each holder of shares of WCNB Common Stock who would otherwise have been
entitled to a fraction of a share of FTC Common Stock will be paid an amount in
cash equal to such fraction multiplied by the Closing Market Value Per Share of
FTC as defined in the Affiliation Agreement. See "PROPOSED MERGER--Treatment of
Fractional Interests". Cash received in lieu of fractional shares may be taxable
income to the recipient. See "PROPOSED MERGER--Federal Income Tax Consequences."
Any share of WCNB Common Stock which, immediately prior to the Effective
Date of the Merger, is issued and held in the treasury of WCNB will be canceled
and retired. As of May 31, 1995, no shares of WCNB Common Stock were held in the
treasury of WCNB.
Each share of FTC Common Stock outstanding on the Effective Date will
remain outstanding and unchanged by reason of the Merger. Likewise, the shares
of FTC Interim Bank held by FTC as its sole shareholder will remain outstanding
following the Merger.
As soon as practicable after the Effective Date, a form letter of
transmittal will be mailed to all holders of record of WCNB Common Stock for use
by such holders in surrendering their WCNB Common Stock certificates in exchange
for certificates representing FTC Common Stock. The transmittal materials will
contain instructions concerning the surrender of such WCNB Common Stock
certificates. See "PROPOSED MERGER--Exchange of Certificates".
Background of and Principal Reasons for the Merger
Recent changes in federal and state banking laws and regulations have had a
major impact upon the banking industry in Pennsylvania, Maryland and throughout
the United States. For example, Maryland law permits statewide branching by
Maryland banks and also permits bank holding companies located in other states
to acquire Maryland banks under specified conditions. Similarly, due to changes
in Pennsylvania law that became effective in March, 1990, Pennsylvania banks may
establish banking offices throughout the state, and bank holding companies
located in a number of other states may acquire Pennsylvania banks. In response
to these and other recent changes, many mergers and consolidations involving
Pennsylvania and Maryland banks and bank holding companies have occurred.
Further merger activity within Pennsylvania and Maryland is likely to occur
in the future, resulting in increased concentration levels in banking markets
within Pennsylvania and Maryland and other significant changes in the
competitive environment. Mergers and acquisitions across state lines are likely
to occur with the enactment of federal legislation that permits bank holding
companies to acquire banks on a nationwide basis, and that allows national banks
to establish nationwide branches.
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<PAGE>
All these changes are expected to intensify competition in local, regional
and national banking markets.
In addition, recent changes in federal banking laws have significantly
increased the severity and complexity of federal banking regulations, as well as
the costs that banks must incur in complying with those regulations. For
example, pursuant to the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), the federal banking agencies have established guidelines for
real estate lending by FDIC-insured banks, including maximum loan-to-value
ratios for various types of real estate loans. FDICIA also contains "Truth in
Savings" provisions that require extensive disclosures regarding the rates of
interest paid and the fees charged by FDIC-insured banks with respect to their
deposit accounts. FDICIA further provides greatly expanded authority to the
federal banking agencies to impose administrative enforcement sanctions
(including cease-and-desist orders, civil money penalties, and officer removal
or suspension orders) against FDIC-insured banks. These changes in federal law
have added significantly to the cost and complexity of operating a bank and have
made it more difficult for smaller independent banks like WCNB to compete with
large banking organizations.
From the standpoint of WCNB, the Merger presents an attractive opportunity
for WCNB to gain access to the managerial expertise and specialized services
offered by FTC, thereby permitting WCNB's banking offices to provide a broader
range of services to their customers in the face of increasing competition from
larger financial institutions. For example, small business customers of WCNB
will have access to FTC's greater expertise, flexibility, and capacity in
extending credit. Because FTC shares WCNB's philosophy of community banking,
WCNB's offices will maintain their community orientation after WCNB merges into
FTC. Thus, the Merger will enhance the ability of WCNB's offices to remain
competitive and to satisfy local customers' financial needs. The Merger will
benefit FTC by establishing a market presence in Washington County, Maryland,
which will be its first banking operation outside of Pennsylvania. FTC's senior
management has selected western Maryland as a strategic area for expansion of
its business and believes that the Merger will result in a favorable
diversification of FTC's banking operations. In sum, the Merger will benefit
both parties by creating a larger multibank holding company that has a
significant presence in central Pennsylvania and western Maryland and is in a
better position to compete effectively in the rapidly changing market for
financial services. WCNB's Board of Directors believes that the terms of the
Merger are fair to and in the best interests of WCNB and its shareholders.
WCNB's Board of Directors also believes that the Merger will significantly
enhance the ability of WCNB's offices to satisfy the financial needs of their
customers and the communities which they serve.
Discussions regarding a possible merger commenced in the first quarter of
1994 when WCNB was approached by a number of financial institutions that had
expressed interest in merging with WCNB. By the early fall of 1994, the WCNB
Board of Directors had received two written preliminary merger proposals. In
early October
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<PAGE>
1994, WCNB retained Berwind Financial Group, L.P. , formerly Berwind
Financial Group, Inc. ("Berwind"), an investment banking firm located at 3000
Centre Square West, 1500 Market Street, Philadelphia, Pennsylvania, to evaluate
proposals previously received by WCNB regarding a merger. Berwind was selected
to act as WCNB's financial advisor based upon its qualifications, expertise and
experience. The terms of Berwind's engagement were set forth in a written
agreement dated October 3, 1994.
On November 4, 1994, the Board of Directors of WCNB met with
representatives of Berwind to discuss the two proposals that had previously been
received by WCNB from potential acquirors, including the initial proposal from
FTC. At that meeting, Berwind provided an analysis in connection with the
proposals, including comparable merger transactions on national and local
levels. The Board considered the relative merits of the two proposals as well as
the relative merits of maintaining the independence of WCNB and of merging WCNB
with a larger financial institution. In analyzing a merger partner, the Board's
primary consideration was financial return to WCNB's shareholders. Other factors
considered by the Board were increase in the liquidity of WCNB stock,
maintenance of autonomy for WCNB, retention of the WCNB name, representation on
the acquiring party's board of directors, financial and market strength of the
acquiror, and market area compatibility.
At the conclusion of its November 4 presentation, Berwind suggested that
the Board of Directors had three options: (i) accept one of these existing
proposals; (ii) return to the offerors and ask for certain clarification of
their respective proposals; and/or (iii) approach other potential merger
partners. After discussing the merits of each of the above-referenced options,
the Board decided to return to the original offerors to seek revised proposals
and to approach certain other financial institutions identified by the Board to
solicit expressions of interest to a merger.
On December 9, 1994, Berwind presented to WCNB's Board of Directors certain
information Berwind had assembled regarding five potential merger partners which
had made formal, written expressions of interest to WCNB, including FTC. The
information compiled by Berwind included financial information concerning the
potential merger partners, the stock trading prices and volumes of the potential
merger partners over the past twelve months and over the past five years,
analyst reports on the potential merger partners published by various third
parties and maps showing the combined market areas of the potential acquirors
after a merger with WCNB. The information also contained a comparison of the
terms of the various expressions of interest. In evaluating the five expressions
of interest the Board of Directors considered many factors. The Board focused
not only on the value of the stock price as of a date but also considered the
long-term trends and prospects of and the depth and breadth of the market for
the stock. One of the five expressions of interest received was for between
$42-$45 in cash and was eliminated from consideration by the Board of
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<PAGE>
Directors due to the comparative low value and taxable nature of the
transaction to WCNB shareholders. The second expression of interest received had
an approximate value of $55.15 per share in stock. This offer was eliminated
from consideration by the Board of Directors due to its relative low value and
low pro forma increase in dividend, earnings and book value per share to the
WCNB shareholders. The third expression of interest contemplated a share
exchange based upon 2.8 times WCNB's book value as of the last day of the
quarter preceding the effective date of the proposed transaction. Based upon the
price on that day, the offer resulted in a value of approximately $73.00 per
share. This expression of interest was eliminated from consideration by the
Board of Directors due to this offer being based upon a multiple of "closing
book value" which presented a higher level of risk; further, the offer was based
upon a less liquid stock, the stock traded at a significantly higher price to
earnings and price to book value resulting in a higher level of market risk, and
the pro forma effect on earnings resulted in significant dilution which was
considered by WCNB's Board of Directors to be disadvantageous to the WCNB
shareholders. The fourth expression received contemplated a value of 2.375 times
WCNB's book value at the date of closing, which equated to approximately $62.23
per share. This offer was eliminated from consideration due to the low value of
the offer relative to the expression of interest of FTC. FTC's expression of
interest contemplated a share exchange based upon 2.5 times WCNB's closing
book value, subject to certain minimum (2.0 to 1) and maximum (2.1 to 1) share
exchange ratios, which on December 9 equated to a share exchange ratio of
2.1 to 1 or approximately $60.90 per share. Based upon the monetary and
non-monetary factors discussed above, WCNB concluded that acceptance of
FTC's proposal was in the best interest of WCNB's shareholders, provided
that FTC would agree to a fixed share exchange ratio of 2.25 to 1.
Over the following two weeks, each of WCNB and FTC conducted due
diligence reviews of the other institution to determine the economic
viability and desirability of a merger. In addition, FTC instructed its
counsel to prepare an agreement as the basis of negotiation for a
possible merger. Upon the conclusion of its review, the board of
directors of FTC voted unanimously to increase the proposed merger
consideration to 2.25 shares for each WCNB share, which equated to
$65.25 per share.
On December 22, 1994, the WCNB Board met with and received a presentation
from Berwind indicating that the consideration of 2.25 shares of FTC to be
received in a proposed transaction was fair to WCNB shareholders from a
financial point of view. After extensive discussions, the Board determined that
FTC's proposal was preferable and recommended that WCNB pursue a merger with
FTC. After further discussion, the Board agreed, by a unanimous vote of the
directors present, to finalize a definitive merger agreement. The Merger
Agreement was signed on December 23, 1994, and both WCNB and FTC issued related
press releases that day.
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<PAGE>
The Board of Directors of WCNB has concluded that the Merger is in the best
interests of WCNB's shareholders, employees, customers, and community. The
following discussion explains how the Merger is expected to benefit each of
these groups.
Berwind has advised WCNB's Board of Directors that the terms of the Merger
Agreement are fair to WCNB's shareholders from a financial point of view. In
addition, the Board of Directors expects that the Merger will benefit the
shareholders of WCNB by providing them with equity ownership in a larger banking
organization whose stock is listed on a national securities exchange, thereby
increasing the liquidity of their investment. Historically, WCNB's Common Stock
has been traded on a limited basis in the over the counter market and in
privately negotiated transactions. Upon consummation of the Merger, the
shareholders of WCNB will receive FTC Common Stock, which is actively traded and
is listed for quotation on the National Market System of the National
Association of Securities Dealers Automated Quotation System (NASDAQ).
In addition to the benefits that the Merger would provide to WCNB's
shareholders, the Board of Directors of WCNB determined that FTC would be an
attractive merger partner for other reasons. First, FTC will provide additional
management expertise and resources which will enable WCNB to expand the range of
products and services it can offer to its customers. In addition, WCNB hopes
that the Merger will enable WCNB not only to maintain, but improve its
competitive position in the Washington County, Maryland market. A further
benefit of the Merger to WCNB's customers is that FTC shares with WCNB a strong
commitment to the concept of community-oriented banking. FTC will provide WCNB's
employees with employee benefits that are substantially equivalent in the
aggregate to those they were receiving before the Merger, and after the Merger,
WCNB's Board of Directors will be able to designate three persons for
appointment to the Board of Directors of FTC (subject to the concurrence of FTC
as to the persons designated). Thus, following the Merger, WCNB's offices will
continue to employ and to be administered by local residents for the benefit of
the local community. WCNB's management believes that, in view of the
difficulties that WCNB would face in continuing to operate as an independent
bank, the employees of WCNB will benefit from the Merger by receiving the
opportunity to associate with a larger but still community-oriented banking
organization such as FTC.
Opinion of Financial Advisor
WCNB has retained Berwind Financial Group, L.P. ("Berwind") to act as its
financial advisor and to render a fairness opinion in connection with the
Merger. Berwind has rendered its opinion to the Board of Directors of WCNB that,
based upon and subject to the various considerations set forth therein, as of
December 22, 1994, and as of the date of the Proxy Statement/Prospectus, the
consideration to be received
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in the Merger is fair, from a financial point of view, to the holders of
WCNB Common Stock.
The full text of Berwind's opinion as of the date thereof, which sets forth
the assumptions made, matters considered and limitations of the review
undertaken, is attached as Exhibit B to this Proxy Statement/Prospectus, is
incorporated herein by reference, and should be read in its entirety in
connection with this Proxy Statement/Prospectus. The summary of the opinion of
Berwind set forth herein is qualified in its entirety by reference to the full
text of such opinion attached as Exhibit B to this Proxy Statement/Prospectus.
Berwind was selected to act as WCNB's financial advisor in connection with
the Merger based upon its qualifications, expertise and experience. Berwind has
knowledge of, and experience with, Maryland banking markets and banking
organizations operating in those markets and was selected by WCNB because of its
knowledge of, experience with, and reputation in the financial services
industry. Berwind, as part of its investment banking business, is engaged
regularly in the valuation of assets, securities and companies in connection
with various types of asset and security transactions, including mergers,
acquisitions, private placements, and valuation for various other purposes and
in the determination of adequate consideration in such transactions.
As WCNB's financial advisor, Berwind provided financial advice with respect
to the pricing of the Merger, but the conversion ratio was determined by WCNB in
the process of its negotiations with FTC. On December 22, 1994, WCNB's Board of
Directors approved and executed the Affiliation Agreement. Prior to such
approval, Berwind delivered an opinion (the "December Opinion") to WCNB's Board
stating that, as of such date, the consideration to be received in the Merger
was fair to the shareholders of WCNB from a financial point of view. Berwind
reached the same opinion as of the date of this Proxy Statement/Prospectus (the
"Proxy Opinion"). The full text of the Proxy Opinion which sets forth
assumptions made, matters considered and limits on the review undertaken is
attached as Exhibit B to this Proxy Statement/Prospectus. No limitations were
imposed by WCNB's Board of Directors upon Berwind with respect to the
investigations made or procedures followed by Berwind in rendering the December
Opinion or the Proxy Opinion.
In rendering its Proxy Opinion, Berwind: (i) reviewed the historical
financial performances, current financial positions and general prospects of
WCNB and FTC, (ii) reviewed the Affiliation Agreement, (iii) reviewed and
analyzed stock market performance of FTC, (iv) studied and analyzed the
consolidated financial and operating data of WCNB and FTC, (v) considered the
terms and conditions of the proposed Merger as compared with the terms and
conditions of comparable bank mergers and acquisitions, (vi) met and/or
communicated with certain members of WCNB's and FTC's senior management to
discuss their respective operations, historical financial statements, and future
prospects, (vii) reviewed this Proxy Statement/Prospectus, and
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(viii) conducted such other financial analyses, studies and investigations
as Berwind deemed appropriate.
In delivering its December Opinion and Proxy Opinion, Berwind assumed that
in the course of obtaining the necessary regulatory and governmental approvals
for the Merger, no restriction will be imposed on FTC that would have a material
adverse effect on the contemplated benefits of the Merger. Berwind also assumed
that there would not occur any change in applicable law or regulation that would
cause a material adverse change in the prospects or operations of FTC after the
Merger.
Berwind relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinion. With respect to WCNB's financial
forecasts reviewed by Berwind in rendering its opinion, Berwind assumed that
such financial forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of WCNB as to the
future financial performance of WCNB. Berwind did not make an independent
evaluation or appraisal of the assets (including loans) or liabilities of WCNB
or FTC nor was it furnished with any such appraisal. Berwind also did not
independently verify and has relied on and assumed that all allowances for loan
and lease losses set forth in the balance sheets of WCNB and FTC were adequate
and complied fully with applicable law, regulatory policy and sound banking
practice as of the date of such financial statements.
The following is a summary of selected analyses prepared by Berwind and
presented to WCNB's Board in connection with the December Opinion and analyzed
by Berwind in connection with the December and Proxy Opinions. In connection
with delivering its Proxy Opinion, Berwind updated certain analyses described
above to reflect current market conditions and events occurring since the date
of the Affiliation Agreement. Such reviews and updates led Berwind to conclude
that it was not necessary to change the conclusions it had reached in connection
with rendering the December opinion.
Comparable Companies and Comparable Acquisition Transaction Analyses.
Berwind compared selected financial and operating data for WCNB with those of a
peer group of selected banks and bank holding companies with assets between
approximately $100 million and $200 million, as of the most recent financial
period publicly available, located in Maryland and surrounding selected counties
located in Pennsylvania, Virginia and West Virginia. Financial data and
operating ratios compared in the analysis of the WCNB peer group included but
was not limited to: return on average assets, return on average equity,
shareholders' equity to assets ratio and certain asset quality ratios.
Berwind also compared selected financial, operating and stock market data
for FTC with those of a peer group of selected commercial banks with assets
between $700 million and $1.4 billion, as of the most recent period publicly
available, located in Maryland, Pennsylvania, Virginia and West Virginia.
Financial, operating and stock
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<PAGE>
market data, ratios and multiples compared in the analysis of the FTC peer
group included but was not limited to: return on average assets, return on
average equity, shareholders' equity to asset ratios, certain asset quality
ratios, price to book value, price to tangible book value, price to earnings
(latest twelve months) and dividend yield.
Berwind also compared the multiples of book value, tangible book value and
latest twelve months' earnings inherent to the Merger with the multiples paid in
recent acquisitions of banks and bank holding companies that Berwind deemed
comparable. The transactions deemed comparable by Berwind included both
interstate and intrastate acquisitions announced since January 1, 1994, in which
the selling institution's assets were between $100 million and $300 million. No
company or transaction, however, used in this analysis is identical to WCNB, FTC
or the Merger. Accordingly, an analysis of the result of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that would affect the public trading values of the
companies or company to which they are being compared.
Discounted Dividend Analyses. Using discounted dividend analyses, Berwind
estimated the present value of the future dividend streams that WCNB could
produce over a five year period under different assumptions as to dividend
payout levels, if WCNB performed in accordance with various earnings growth
forecasts. Berwind also estimated the terminal value for WCNB's Common Stock
after the five year period by applying a range of earnings multiples to WCNB's
terminal year earnings. The range of multiples used reflected a variety of
scenarios regarding the growth and profitability prospects of WCNB. The dividend
streams and terminal values were then discounted to present value using discount
rates, reflecting different assumptions regarding the rates of return required
by holders or prospective buyers of WCNB's Common Stock.
Pro Forma Contribution Analysis. Berwind analyzed the changes in the amount
of earnings, book value and dividends represented by one share of WCNB stock
prior to the Merger and two and one-quarter (2.25) shares of FTC stock after the
Merger. The analysis considered, among other things, the changes that the Merger
would cause to WCNB's earnings per share, book value per share, and indicated
dividends. In reviewing the pro forma combined earnings, equity and assets of
FTC based on the Merger with WCNB, Berwind analyzed the contribution that WCNB
would have made to the combined company's earnings, equity and assets as of and
for the period ended September 30, 1994. Berwind also reviewed the percentage
ownership that WCNB's shareholders would hold in the combined company.
In connection with rendering its December Opinion and Proxy Opinion,
Berwind performed a variety of financial analyses. Although the evaluation of
the fairness, from a financial point of view, of the consideration to be paid in
the Merger was to some extent a subjective one based on the experience and
judgment of Berwind and not merely the result of mathematical analysis of
financial data, Berwind principally relied
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on the previously discussed financial valuation methodologies in its
determinations. Berwind believes its analyses must be considered as a whole and
that selecting portions of such analyses and factors considered by Berwind
without considering all such analyses and factors could create an incomplete
view of the process underlying Berwind's opinion. In its analysis, Berwind made
numerous assumptions with respect to business, market, monetary and economic
conditions, industry performance and other matters, many of which are beyond
WCNB's and FTC's control. Any estimates contained in Berwind's analyses are not
necessarily indicative of fixture results or values, which may be significantly
more or less favorable than such estimates.
In reaching its opinion as to fairness, none of the analyses performed by
Berwind was assigned a greater or lesser weighting by Berwind than any other
analysis. As a result of its consideration of the aggregate of all factors
present and analyses performed, Berwind reached the conclusion, and opined, that
the consideration to be received in the Merger as set forth in the Affiliation
Agreement, is fair from a financial point of view to WCNB and its shareholders.
Berwind's Proxy Opinion was based solely upon the information available to
it and the economic, market and other circumstances as they existed as of the
date its Proxy Opinion was delivered; events occurring after the date of its
Proxy Opinion could materially affect the assumptions used in preparing its
Proxy Opinion. Berwind has not undertaken to reaffirm and revise its Proxy
Opinion or otherwise comment upon any events occurring after the date thereof.
Pursuant to the terms of the engagement letter dated October 3, 1994 WCNB
has paid Berwind $50,000 for acting as financial advisor in connection with the
Merger including delivering its December and Proxy Opinions. In addition, WCNB
has also agreed to pay Berwind $200,000 upon the consummation of the Merger and
to reimburse Berwind for its reasonable out-of-pocket expenses. Whether or not
the Merger is consummated, WCNB has also agreed to indemnify Berwind and certain
related persons against certain liabilities relating to or arising out of its
engagement.
The full text of the Proxy Opinion of Berwind dated as of the date of this
Proxy Statement/Prospectus, which sets forth assumptions made and matters
considered, is attached hereto as Exhibit B. WCNB's shareholders are urged to
read the Proxy Opinion in its entirety. Berwind's Proxy Opinion is directed only
to the consideration to be received by WCNB shareholders in the Merger and does
not constitute a recommendation to any holder of WCNB Common Stock as to how
such holder should vote at the WCNB Special Meeting.
THE FOREGOING PROVIDES ONLY A SUMMARY OF THE PROXY OPINION OF BERWIND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT OPINION,
WHICH IS SET FORTH IN EXHIBIT B TO THIS PROXY STATEMENT/PROSPECTUS.
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Management after the Merger
On the Effective Date, the Board of Directors and executive officers of
WCNB as presently constituted will continue, except that Ray L. Wolfe, President
and Chief Executive Officer of FTC, will become a member of the WCNB Board. On
the Effective Date, in addition to the then-current persons serving on FTC's
Board of Directors, M. L. Patterson, Jr., James E. Byron and Thomas H. Shank who
are currently Directors of WCNB will be appointed to the FTC Board to serve
until the expiration of the respective class of Directors to which each belongs,
which will be the class of 1998 in the case of Mr. Patterson and the class of
1997 in the case of Messrs. Byron and Shank. See "CERTAIN DIFFERENCES OF RIGHTS
OF SHAREHOLDERS OF FTC AND WCNB--Board of Directors" for further information
concerning the organization of the FTC Board.
Detailed information about the business experience and compensation of the
current Directors and executive officers of WCNB and their ownership of WCNB
Common Stock is provided under "MANAGEMENT OF WASHINGTON COUNTY NATIONAL BANK".
Interests of Certain Persons in the Merger
Employment Agreements of Messrs. Patterson and Drury. M. L. Patterson, Jr.
and David E. Drury each will have a three-year Employment Agreement with WCNB
that becomes effective upon the Effective Date. Prior to the Effective Date,
neither Mr. Patterson nor Mr. Drury has had an employment agreement with WCNB.
Under such Agreements, Mr. Patterson will continue to serve as President and
Chief Executive Officer at an annual base salary of $100,000 and Mr. Drury will
continue to serve as Vice President, Cashier and Finance Division Manager at an
annual base salary of $50,000. These base salaries are the same as the salaries
each currently receives from WCNB. Each will be entitled to participate in
employee benefit plans and may receive increases based on merit review and to
reflect cost of living adjustments. Mr. Patterson additionally will be entitled
to participate in executive incentive compensation programs. Under FTC's current
executive incentive plan, named individuals including the chief executive
officer of each subsidiary bank are awarded annual incentive bonuses based on
the annual growth and profitability of the bank in question and FTC's
consolidated results. Such bonuses typically range between 5% and 17% of base
salary, are not vested and are payable over a three-year period. Information
concerning WCNB executive compensation appears herein under the caption
"MANAGEMENT OF WASHINGTON COUNTY NATIONAL BANK - Executive Compensation."
No Material Contracts. Neither WCNB nor FTC is aware of any material
contract or other relationship (i) between WCNB or its directors or executive
officers and FTC or (ii) between FTC or its directors or executive officers and
WCNB.
- 36 -
<PAGE>
Required Vote of Shareholders
To be approved, the Merger must receive the affirmative vote of the holders
of not less than two-thirds of the outstanding Common Stock of WCNB. The
Affiliation Agreement further requires that the percentage of WCNB Common Stock
voting against or dissenting from the Merger may not exceed 10% of the
outstanding shares. Because the two-thirds vote requirement is based on the
total number of outstanding shares, the effect of a WCNB shareholder not voting
or abstaining from voting is the equivalent of such shareholder casting a vote
against the Merger. Approval by the shareholders of FTC is not required.
Exchange of Stock Certificates
Following the Effective Date, each holder of WCNB Common Stock who
surrenders to FTC the certificates representing such stock will receive a
certificate or certificates representing the number of whole shares of FTC
Common Stock into which his shares of WCNB Common Stock shall have been
converted plus cash representing any fractional interests. All surrendered
certificates for WCNB Common Stock will be canceled. Until a WCNB shareholder
has surrendered his certificates, no dividends or other distributions on the FTC
Common Stock will be paid to such former WCNB shareholder.
If certificates for shares of WCNB Common Stock are exchanged for FTC
Common Stock at a date after one or more dividend payment dates on the shares of
FTC Common Stock but within two years from the Effective Date, FTC shall pay
cash in an amount equal to dividends theretofore payable on such FTC Common
Stock and pay or deliver any other distribution to which holders of shares of
FTC Common Stock become entitled. No interest will accrue or will be payable in
respect of any such dividends or distributions.
If certificates representing shares of WCNB Common Stock are not
surrendered for exchange until after two years from the Effective Date, the
shares of FTC Common Stock that otherwise would have been issued in exchange may
be sold by FTC and the net proceeds of such sale shall be held by FTC for the
benefit of the WCNB shareholder. If such sale takes place, the sole right of the
WCNB shareholder thereafter, upon surrender of his WCNB Common Stock
certificate, shall be the right to collect the net sale proceeds and dividends
accumulated to the date of sale held for the shareholder's account, which right
shall be subject to such escheat or similar laws as shall then be in effect. No
interest shall accrue or be payable with respect to any such net sale proceeds
or dividends accumulated to the date of sale and held for the shareholder's
account.
Each certificate for shares of WCNB Common Stock delivered for exchange
must be endorsed in blank by the registered holder thereof or accompanied by a
power
- 37 -
<PAGE>
of attorney to transfer such shares endorsed by such registered holder. If
shares of FTC Common Stock are to be issued or delivered to someone other than
the registered holder of the surrendered certificate, such certificate must be
properly endorsed or otherwise be in proper form for transfer and the person to
whom FTC Common Stock is to be issued must pay any transfer or other taxes
required in connection therewith.
On the Effective Date, the stock transfer books for WCNB Common Stock will
be closed and no further transfers of WCNB Common Stock will be made or
recognized. All surrendered certificates for WCNB Common Stock will be canceled
by FTC.
FOLLOWING THE EFFECTIVE DATE, WCNB SHAREHOLDERS WILL BE PROVIDED WITH A
WRITTEN LETTER OF TRANSMITTAL DESCRIBING THE PROCEDURES TO BE FOLLOWED.
CERTIFICATES FOR SHARES OF WCNB COMMON STOCK SHOULD NOT BE SURRENDERED, OTHER
THAN IN CONNECTION WITH THE EXERCISE OF DISSENTERS' RIGHTS, EXCEPT IN ACCORDANCE
WITH SUCH PROCEDURES.
Treatment of Fractional Interests
Neither certificates nor scrip for fractional interests in FTC Common Stock
will be issued in the Merger, but in lieu thereof each WCNB shareholder who
would otherwise have been entitled to a fraction of a share of FTC Common Stock
will be paid an amount in cash equal to such fraction multiplied by the Closing
Market Value Per Share of the FTC Common Stock. For this purpose, "Closing
Market Value Per Share" means the average of the closing sales price of FTC
Common Stock as reported by the National Association of Securities Dealers'
Automated Quotation System ("NASDAQ") for the ten consecutive trading days
ending on and including the second trading day prior to Closing.
Conditions of the Merger and Governmental Approvals
In addition to shareholder approval by WCNB shareholders, consummation of
the Merger is contingent upon the satisfaction of a number of conditions,
including, among others: (i) approval of the Merger by the Federal Reserve, the
Comptroller, the Office of the Bank Commissioner of Maryland and the
Pennsylvania Department of Banking; (ii) receipt of favorable opinions of
respective counsel to the parties concerning certain matters, including an
opinion on tax matters from counsel to FTC; (iii) the effectiveness of FTC's
registration statement filed with the Securities and Exchange Commission
registering the shares of FTC Common Stock issuable to WCNB shareholders in the
Merger; (iv) the qualification of the Merger for pooling of interests accounting
treatment; and (v) the receipt by FTC of agreements restricting the sale or
other disposition of FTC Common Stock from all holders of WCNB Common Stock
- 38 -
<PAGE>
who, on or before the Effective Date, may be deemed to be "affiliates" of
WCNB or FTC within the meaning of SEC Rule 145 under the Securities Act of 1933.
Additionally, each party must give to the other a certificate to the effect that
all representations and warranties given by it are true and correct in all
material respects, and that it has complied with all applicable agreements,
covenants and conditions pursuant to the Affiliation Agreement.
Representations and Warranties
The representations and warranties of WCNB and FTC are set forth in Article
5 of the Affiliation Agreement. The representations and warranties relate, among
other things, to good standing and adequate capitalization of WCNB and FTC and
the authorization by each of the Affiliation Agreement; the accuracy and
completeness of published financial statements of WCNB and of the information
provided by WCNB for inclusion in the registration statement of which this Proxy
Statement/Prospectus is a part; the absence of undisclosed liabilities; the
absence of certain material adverse changes; the status of title to properties;
non-existence of any contract which would be breached by the Merger; the
existence of and compliance with employee benefit plans; absence of material
litigation; and material compliance with all laws. As described in the preceding
section, WCNB and FTC each must present to the other a certificate evidencing
the continued material accuracy of the representations and warranties as a
condition of closing.
Amendment, Waiver and Termination
Amendment of the Affiliation Agreement by the parties acting through their
Boards of Directors is permitted at any time before the Effective Date, provided
that once approval has been given by the WCNB shareholders, no amendment may be
made which would change the type or amount of consideration receivable by the
WCNB shareholders (i.e., FTC shares) or otherwise materially adversely affect
the WCNB shareholders.
The Affiliation Agreement may be terminated at any time prior to the
Effective Date by joint action of the FTC and WCNB Boards of Directors. Further,
either party may terminate if there has been a material breach by the other of
any representation, warranty or covenant; litigation or proceedings are pending
against the other party making it inadvisable or undesirable to carry out the
Agreement; upon a failure of the other party to satisfy a condition intended to
benefit the acting party; or the Merger is not consummated by October 31, 1995.
Either party, however, may waive any of the terms or conditions of the
Affiliation Agreement intended to benefit such party.
- 39 -
<PAGE>
Merger-Related Expenses
The Affiliation Agreement provides that each party is to bear its own
expenses, except that the costs of printing the registration statement including
this Proxy Statement/Prospectus and certain filing fees are to be divided evenly
between FTC and WCNB. Notwithstanding the foregoing, however, if the Affiliation
Agreement is terminated as the result of a material breach by either party, such
party will be liable to the other for all costs and expenses incurred pursuant
to the Affiliation Agreement, except that WCNB in all events will bear the cost
of any financial advisor it retains (including Berwind Financial Group, L.P.) in
connection with the proposed transaction.
Dissenters' Rights of WCNB Shareholders
In accordance with the National Bank Act, any shareholder of WCNB who votes
against the Merger at the Special Meeting or gives notice in writing at or prior
to the Special Meeting to the WCNB officer presiding at the Special Meeting that
he dissents from the Merger will be entitled to receive the value of the shares
of WCNB Common Stock held by him upon written request made to the receiving
association not later than thirty (30) days following the Effective Date. (As
used in this section, "receiving association" means Washington County National
Bank following its merger with the nonoperating national bank subsidiary
organized by FTC for purposes of the Merger transaction). The presiding officer
at the WCNB Special Meeting is expected to be M. L. Patterson, Jr., President
and CEO of WCNB. WCNB shareholders will be notified as soon as practicable after
the Effective Date. A dissenting shareholder must accompany his written request
with the surrender of his WCNB share certificates.
The value of the shares of any dissenting WCNB shareholder will be
determined as of the Effective Date of the Merger by an appraisal made by a
committee of three persons composed of (i) one person selected by the majority
vote of all dissenting shareholders; (ii) one person chosen by the Board of
Directors of the receiving association; and (iii) one person selected by the
other two committee members. The valuation agreed upon by any two of the three
committee members will control. If the value so fixed is not satisfactory to any
dissenting WCNB shareholder who has requested payment, such shareholder may,
within five days after being notified of the appraised value of his shares,
appeal to the Comptroller of the Currency, who will cause a final and binding
reappraisal to be made.
If within ninety days following the Effective Date, one or more committee
members is not selected or if such committee fails to appraise the value of the
dissenters' shares, the Comptroller, upon the written request of any interested
party, will cause a binding and final appraisal of such shares to be made. The
expenses incurred by the Comptroller in any appraisal or reappraisal will be
borne by the receiving association.
- 40 -
<PAGE>
THE STATUTORY PROVISIONS RELATING TO THE DISSENTERS' RIGHTS OF WCNB
SHAREHOLDERS ARE SET FORTH IN EXHIBIT C TO THIS PROXY STATEMENT/PROSPECTUS AND
SHOULD BE REVIEWED VERY CAREFULLY BY ANY SHAREHOLDER WHO IS CONSIDERING CLAIMING
DISSENTERS' RIGHTS. AS DESCRIBED ABOVE, ANY WCNB SHAREHOLDER WHO WISHES TO
EXERCISE DISSENTERS' RIGHTS MUST EITHER VOTE AGAINST THE MERGER AT THE SPECIAL
MEETING OR PROVIDE WRITTEN NOTICE AT OR PRIOR TO THE MEETING THAT HE DISSENTS
FROM THE MERGER, AND MUST DELIVER A WRITTEN REQUEST FOR THE VALUE OF HIS SHARES,
ACCOMPANIED BY THE SURRENDER OF HIS SHARE CERTIFICATES FOR WCNB COMMON STOCK,
WITHIN THIRTY (30) DAYS FOLLOWING THE EFFECTIVE DATE OF THE MERGER.
Federal Income Tax Consequences
FTC does not intend to apply to the Internal Revenue Service for a ruling
concerning the federal income tax consequences of the Merger. The obligation of
each party to consummate the Merger is conditioned upon receipt of such ruling
or an opinion of McNees Wallace & Nurick, counsel to FTC, satisfactory in form
and in substances to the parties, substantially to the effect that for federal
income tax purposes:
1. The Affiliation Agreement and the Merger provided for therein will
constitute a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended;
2. No gain or loss will be recognized by WCNB or FTC by reason of the
Merger; and
3. No income, gain or loss will be recognized by WCNB shareholders on
the exchange of their shares of WCNB Common Stock for shares of FTC Common
Stock, except to the extent cash is received in lieu of fractional shares.
The summary of the expected opinion of counsel concerning federal income
tax consequences set forth above is intended for general information only. Each
WCNB shareholder is urged to consult his or her tax adviser with respect to the
federal income tax consequences (and any state or local tax consequences) of the
Merger. McNees Wallace & Nurick expects to deliver such opinion, which will be
based in part on certain representations and warranties of FTC and WCNB as of
and on the Effective Date.
- 41 -
<PAGE>
Restrictions on Resales of FTC Common Stock
Although the shares of FTC Common Stock issuable in connection with the
Merger have been registered under the Securities Act of 1933, as amended (the
"1933 Act"), such registration does not cover resales by shareholders of WCNB
who may be deemed to control or be under common control with WCNB or FTC at the
time of and after the Special Meeting and who therefore may be deemed
"Affiliates" of WCNB or FTC as that term is used in Rule 145 under the 1933 Act.
Such Affiliates may not sell their shares of FTC Common Stock acquired in
connection with the Merger except pursuant to: (i) an effective registration
statement under the 1933 Act covering such shares of FTC Common Stock; (ii) the
conditions contemplated by paragraph (d) of Rule 145; or (iii) another
applicable exemption from the registration requirements of the 1933 Act. The
management of WCNB has notified those persons whom it believes to be Affiliates.
FTC Common Stock received in connection with the Merger by persons who are not
Affiliates may be freely traded.
FTC is under no obligation to register any shares acquired by Affiliates of
WCNB in connection with the Merger.
Accounting Treatment
The Merger will be treated as a "pooling of interests" for accounting
purposes unless the holders of more than 10% of the outstanding shares of WCNB
Common Stock perfect dissenters' rights, in which case the Merger will be
treated as a "purchase" for accounting purposes. See "PROPOSED
MERGER--Dissenters' Rights of WCNB Shareholders". In accordance with generally
accepted accounting principles, if the Merger is treated as a "pooling of
interests", the historical value of assets and liabilities of WCNB will be
recorded on the books of FTC at the time of the Effective Date and shareholders'
equity will reflect the elimination of WCNB shareholders' equity and be adjusted
for the issuance of FTC Common Stock to effect the transaction. Accounting for
the transaction as a "pooling of interests" is a condition to consummating the
Merger.
Recommendations of the FTC and WCNB Boards
Both the FTC and WCNB Boards approved the Merger, and the WCNB Board
unanimously recommends that the Merger be approved by the WCNB shareholders.
- 42 -
<PAGE>
MARKET PRICES, DIVIDENDS AND
RELATED SHAREHOLDER MATTERS
FTC
Shares of FTC Common Stock are traded on the NASDAQ National Market System
under the symbol "FITC". The following table sets forth the range of prices of
FTC Common Stock and cash dividends declared per share for the calendar quarters
indicated. The price information has been provided by the National Association
of Securities Dealers as reported by NASDAQ. The price information provided
below reflects actual high and low sales prices and has been restated to reflect
the 10% stock dividend which was paid in 1993 and the 4 for 3 stock split in the
form of a 33-1/3% stock dividend which was paid in August, 1994 with respect to
the FTC Common Stock.
<TABLE>
<CAPTION>
Cash
Dividends
Declared
High Low Per Share
---- --- ---------
<S> <C> <C> <C> <C>
1993 First Quarter........... $24.20 $21.39 .19
Second Quarter.......... 25.57 23.52 .19
Third Quarter........... 31.88 23.86 .19
Fourth Quarter.......... 33.00 30.38 .21
1994 First Quarter........... 34.88 31.50 .21
Second Quarter.......... 33.38 30.75 .21
Third Quarter........... 32.25 30.75 .22
Fourth Quarter.......... 32.00 27.00 .23
1995 First Quarter........... 29.00 26.75 .23
Second Quarter
(through 5-31)......... 28.00 26.75 .23
</TABLE>
On December 22, 1994, the last trading day prior to the public announcement
of the Merger, the closing sales price for FTC Common Stock as reported by
NASDAQ was $27.75 per share.
As of May 31, 1995, there were approximately 2,995 record holders of FTC
Common Stock.
Holders of FTC Common Stock are entitled to dividends when, as and if
declared by the FTC Board of Directors out of funds legally available. FTC has
paid regular quarterly cash dividends each quarter since November, 1982 when FTC
was organized as a holding company and acquired all of the outstanding stock of
Farmers Trust Company. Prior to that date, Farmers paid regular quarterly cash
dividends for many years.
- 43 -
<PAGE>
The principal source of funds to pay cash dividends on FTC Common Stock is
the earnings of FTC's bank subsidiaries; consequently, dividends are dependent
upon earnings, capital needs, regulatory requirements and policies and other
factors affecting such subsidiaries. Under applicable state and federal laws,
the dividends that may be paid by the bank subsidiaries of FTC without prior
regulatory approval are subject to certain prescribed limitations. The two state
bank subsidiaries of FTC that are chartered under the Pennsylvania Banking Code
of 1965, may pay dividends only out of accumulated net earnings and may not
declare or pay any dividend requiring a reduction of the statutorily required
surplus of the institution. In the case of national banks, the approval of the
Office of the Comptroller of the Currency is required if the total of all
dividends declared during any calendar year would exceed the net profits (as
defined) of the bank for the year, combined with its retained net profits (as
defined) for the two preceding calendar years. In addition to the foregoing
statutory restrictions on dividends, state and federal bank regulators have
adopted minimum capital standards and have broad authority to prohibit a bank
from engaging in unsafe or unsound banking practices. The payment of a dividend
by a bank could, depending upon the financial condition of the bank involved and
other factors, be deemed to impair its capital or to be such an unsafe or
unsound practice.
As a Pennsylvania business corporation, FTC is prohibited from paying a
dividend or making any other corporate distribution if after giving effect
thereto the corporation would be unable to pay its debts as they become due in
the usual course of business or its total assets would be less than the sum of
its total liabilities plus any dissolution rights of shareholders whose rights
are superior to the class of shareholders receiving the dividend or
distribution.
Farmers Trust Company, a subsidiary of FTC, acts as Transfer Agent for FTC
Common Stock.
FTC Dividend Reinvestment Plan
FTC has a Dividend Reinvestment Plan, which provides, for those
shareholders who elect to participate, that dividends paid on FTC Common Stock
may be invested in additional shares of FTC Common Stock at the then-current
market price without payment of brokerage commissions, fees or service charges.
The Plan also permits participants to invest voluntary cash payments, within
certain dollar limitations, in additional shares of FTC Common Stock at the
then-current market price. It is anticipated that, after the Effective Date,
FTC will continue to offer its Dividend
- 44 -
<PAGE>
Reinvestment Plan and that shareholders of WCNB who receive FTC Common
Stock in the Merger will have the right to participate therein.
WCNB
WCNB Common Stock has been traded in the over-the-counter market for many
years. Trading activity historically has been light and has occurred through
registered market makers including Ferris, Baker, Watts, Incorporated. The
following table sets forth the range of bid prices for the WCNB Common Stock and
declared per share cash dividends for the calendar quarters indicated.
<TABLE>
<CAPTION>
Cash
Dividends
Declared
High Low Per Share
---- --- ---------
<S> <C> <C> <C> <C>
1993 First Quarter................... $36.00 $36.00 $.15
Second Quarter.................. 36.00 36.00 .15
Third Quarter................... 36.00 35.00 .15
Fourth Quarter.................. 34.00 32.50 .35
1994 First Quarter................... 32.75 32.75 .15
Second Quarter.................. 32.75 32.25 .15
Third Quarter................... 37.00 33.00 .15
Fourth Quarter.................. 52.00 38.00 .35
1995 First Quarter................... 53.00 49.00 .15
Second Quarter
(through 5-31)............. 54.00 51.00 .00
</TABLE>
Stock price range information given above was obtained from the registered
market makers for WCNB Common Stock for the periods indicated. These quotes
represent inter-dealer prices without adjustment for retail markup, markdown or
commission and do not necessarily represent actual transactions.
On December 19, 1994, the last day prior to the public announcement of the
Merger on which, to the knowledge of WCNB management, the WCNB Common Stock
traded, the last sale price for WCNB Common Stock was $39.00 per share.
As of May 31, 1995, there were approximately 480 record holders of WCNB
Common Stock.
WCNB has paid regular cash dividends for several decades. WCNB serves as
its own transfer agent.
- 45 -
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
Information Concerning The
Pro Forma Combined Financial Data
The Merger of WCNB with and into a wholly-owned subsidiary of FTC will be
accounted for under the pooling-of-interests method of accounting, which views
the merger as a uniting of the separate ownership interests through means of an
exchange of equity securities. As such, the pro forma financial information
represents the combined historical financial data, adjusted for elimination of
intercompany activity.
The pro forma financial information is unaudited and is not necessarily
indicative of the results of operations or financial condition of FTC as they
would have been had the Merger occurred during the periods presented, or as they
may be in the future. The pro forma financial information should be read in
conjunction with the historical financial statements of FTC, including the notes
thereto, which are incorporated herein by reference, and in conjunction with the
historical financial statements of WCNB, including the notes thereto, which are
included elsewhere herein.
- 46 -
<PAGE>
FINANCIAL TRUST CORP
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(Unaudited)
(Dollars in thousands)
The following unaudited pro forma combined condensed balance sheet for FTC
has been prepared based upon the historical consolidated balance sheets for FTC
and WCNB as of March 31, 1995, and gives effect to the Merger. This statement
should be read in conjunction with the historical financial statements of FTC,
including the notes thereto, which are incorporated by reference herein, the
historical financial statements of WCNB, including the notes thereto, which are
included elsewhere herein, and the notes to this unaudited pro forma combined
condensed balance sheet.
- 47 -
<PAGE>
FINANCIAL TRUST CORP / WASHINGTON COUNTY NATIONAL BANK
PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Financial Washington
Trust County
Corp National Bank
(FTC) (WCNB) Adjustments Pro Forma
-------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Cash and due from banks $34,285 $3,394 $37,679
Federal funds sold 3,090 1,075 4,165
Interest bearing bank balances 265 0 265
Investment securities held to maturity 245,917 0 245,917
Investment securities available for sale 12,861 40,039 52,900
Loans 622,727 88,200 710,927
Less: Reserve for loan losses (8,961) (2,386) (11,347)
--------- --------- -----------
Net Loans 613,766 85,814 699,580
Premises and equipment 17,903 3,009 20,912
Accrued interest receivable 7,249 865 8,114
Intangible assets 8,617 531 9,148
Other assets 8,508 2,170 10,678
--------- --------- -----------
TOTAL ASSETS $952,461 $136,897 $1,089,358
======== ======== ==========
Liabilities
Deposits:
Noninterest bearing $87,597 $15,532 $103,129
Interest bearing 689,637 109,340 798,977
--------- --------- -----------
Total Deposits 777,234 124,872 902,106
Short-term borrowings 47,193 0 47,193
Long-term debt 795 0 795
Accrued interest payable 1,897 237 2,134
Other liabilities 7,076 820 7,896
--------- --------- -----------
TOTAL LIABILITIES 834,195 125,929 960,124
Shareholders' Equity
Common stock, par value $5 per share - authorized 8,000,000 shares;
issued 6,710,867 FITC, 7,765,755 Pro Forma 33,554 4,688 (a) (4,688) 38,829
(b) 5,275
Surplus 29,443 4,689 (c) (587) 33,545
Unrealized holding gain from securities
available for sale, net of taxes 2,030 (423) 1,607
Retained earnings 53,239 2,014 55,253
--------- --------- -----------
TOTAL SHAREHOLDERS' EQUITY 118,266 10,968 129,234
--------- --------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $952,461 $136,897 $1,089,358
========= ========= ===========
</TABLE>
Explanation of adjustments:
(a) Elimination of WCNB's 468,839 common shares at $10 par value.
(b) Issuance of 1,054,888 FTC common shares at $5 par value in
exchange for the 468,839 WCNB common shares eliminated in
adjustment (a).
(c) Reduction of surplus for the difference between par value of FTC
shares issued in adjustment (b) and par value of WCNB shares
eliminated in adjustment (a).
- 48 -
<PAGE>
FINANCIAL TRUST CORP
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
The following unaudited pro forma combined condensed statements of income
for FTC have been prepared from the historical results of operations of both FTC
and WCNB for each of the periods presented. The unaudited pro forma combined
condensed statements of income present the combined income and expenses of FTC
and WCNB as if the Merger had been consummated on January 1, 1992. These
statements should be read in conjunction with the historical financial
statements of FTC, including the notes thereto, which are incorporated by
reference herein, the historical financial statements of WCNB, including the
notes thereto, which are presented elsewhere herein, and the notes to these
unaudited pro forma combined condensed statements of income. The pro forma
combined results are not necessarily indicative of the combined results of
future operations.
- 49 -
<PAGE>
FINANCIAL TRUST CORP / WASHINGTON COUNTY NATIONAL BANK
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Quarter Ended March 31, 1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Financial Washington
Trust County
Corp National Bank
(FTC) (WCNB) Pro Forma
----------- -------------- ----------
<S> <C> <C> <C>
Interest Income
Loans, including fees $13,538 $1,795 $15,333
Investment securities:
Taxable 2,764 409 3,173
Tax-exempt 1,010 154 1,164
Other 36 1 37
------- ------ -------
17,348 2,359 19,707
------- ------ -------
Interest Expense
Deposits 6,150 943 7,093
Short-term borrowings and long-term debt 749 11 760
------- ------ -------
6,899 954 7,853
------- ------ -------
NET INTEREST INCOME 10,449 1,405 11,854
Provision for loan losses 130 (54) 76
------- ------ -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 10,319 1,459 11,778
------- ------ -------
Other Income
Trust department income 491 0 491
Service charges on deposit accounts 488 55 543
Investment security gains 19 0 19
Other 714 32 746
------- ------ -------
1,712 87 1,799
------- ------ -------
Other Expenses
Salaries and employee benefits 3,329 588 3,917
Net occupancy 517 64 581
Equipment 365 36 401
Other 2,618 407 3,025
------- ------ -------
6,829 1,095 7,924
------- ------ -------
INCOME BEFORE INCOME TAXES 5,202 451 5,653
Applicable income taxes 1,200 125 1,325
------- ------ -------
NET INCOME $4,002 $326 $4,328
======= ====== =======
Pro Forma Per Share Data
Net income $0.60 $0.31 $0.56
Cash dividends 0.23 0.07 0.21
Weighted average equivalent number of FTC shares outstanding
during the quarter 6,710,867 1,054,888 7,765,755
Historical Per Share Data
Net income $0.60 $0.70
Cash dividends $0.23 $0.15
Weighted average equivalent number of FTC shares outstanding
during the quarter 6,710,867 468,839
</TABLE>
- 50 -
<PAGE>
FINANCIAL TRUST CORP / WASHINGTON COUNTY NATIONAL BANK
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1994
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Financial Washington
Trust County
Corp Bank
(FTC) (WCNB) Pro Forma
--------- ---------- ---------
<S> <C> <C> <C>
Interest Income
Loans, including fees $48,994 $7,111 $56,105
Investment securities:
Taxable 10,641 1,525 12,166
Tax-exempt 3,857 660 4,517
Other 788 116 904
- ----------------------------------------------------------------------------------------------
64,280 9,412 73,692
--------------------------------
Interest Expense
Deposits 22,241 3,691 25,932
Short-term borrowings and long-term debt 1,745 2 1,747
- ----------------------------------------------------------------------------------------------
23,986 3,693 27,679
--------------------------------
NET INTEREST INCOME 40,294 5,719 46,013
Provision for loan losses 795 45 840
- ----------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 39,499 5,674 45,173
- ----------------------------------------------------------------------------------------------
Other Income
Trust department income 2,315 0 2,315
Service charges on deposit accounts 1,916 248 2,164
Investment security gains 195 (51) 144
Other 2,524 145 2,669
- ----------------------------------------------------------------------------------------------
6,950 342 7,292
--------------------------------
Other Expenses
Salaries and employee benefits 12,337 2,298 14,635
Net occupancy 1,913 271 2,184
Equipment 1,419 192 1,611
Other 10,187 1,993 12,180
- ----------------------------------------------------------------------------------------------
25,856 4,754 30,610
--------------------------------
INCOME BEFORE INCOME TAXES 20,593 1,262 21,855
Applicable income taxes 5,045 381 5,426
- ----------------------------------------------------------------------------------------------
NET INCOME $15,548 $881 $16,429
=========================================================================================
Pro forma Per Share Data
Net income $2.32 $0.84 $2.12
Cash dividends - equivalent FTC shares $0.87 $0.36 $0.80
Weighted average equivalent number of FITC shares
outstanding during the year 6,711,407 1,054,887 7,766,294
Historical Per Share Data
Net income $2.32 $1.88
Cash dividends 0.87 0.80
Weighted average shares outstanding during the year 6,711,407 468,839
</TABLE>
- 51 -
<PAGE>
FINANCIAL TRUST CORP / WASHINGTON COUNTY NATIONAL BANK
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1993
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Financial Washington
Trust County
Corp National Bank
(FTC) (WCNB) Pro Forma
--------- ------------- ---------
<S> <C> <C> <C>
Interest Income
Loans, including fees $47,117 $7,953 $55,070
Investment securities:
Taxable 9,147 1,205 10,352
Tax-exempt 4,019 691 4,710
Other 425 91 516
-------- ------ -------
60,708 9,940 70,648
-------- ------ -------
Interest Expense
Deposits 22,070 3,834 25,904
Short-term borrowings and long-term debt 791 3 794
-------- ------ -------
22,861 3,837 26,698
-------- ------ -------
NET INTEREST INCOME 37,847 6,103 43,950
Provision for loan losses 1,345 2,295 3,640
-------- ------ -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 36,502 3,808 40,310
-------- ------ -------
Other Income
Trust department income 2,086 32 2,118
Service charges on deposit accounts 1,705 271 1,976
Investment security gains 21 17 38
Other 2,601 132 2,733
-------- ------ -------
6,413 452 6,865
-------- ------ -------
Other Expenses
Salaries and employee benefits 11,349 2,138 13,487
Net occupancy 1,683 240 1,923
Equipment 1,151 162 1,313
Other 9,548 1,760 11,308
-------- ------ -------
23,731 4,300 28,031
-------- ------ -------
INCOME BEFORE INCOME TAXES 19,184 (40) 19,144
Applicable income taxes 4,769 413 5,182
-------- ------ -------
Income (loss) from continuing operations 14,415 (453) 13,962
======= ====== =======
Pro Forma Per Share Data
Income (loss) from continuing operations $2.15 ($0.43) $1.80
Cash dividends - equivalent FTC shares 0.78 0.36 0.72
Weighted average equivalent number of FTC shares outstanding
during the year 6,702,545 1,054,888 7,757,433
Historical Per Share Data
Income (loss) from continuing operations $2.15 ($ .97)
Cash dividends 0.78 0.80
Weighted average shares outstanding during the year 6,702,545 468,839
</TABLE>
- 52 -
<PAGE>
FINANCIAL TRUST CORP / WASHINGTON COUNTY NATIONAL BANK
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1992
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Financial Washington
Trust County
Corp National Bank
(FTC) (WCNB) Pro Forma
--------- ------------- ---------
<S> <C> <C> <C>
Interest Income
Loans, including fees $50,180 $8,681 $58,861
Investment securities:
Taxable 10,162 1,568 11,730
Tax-exempt 4,600 736 5,336
Other 528 31 559
- -----------------------------------------------------------------------------------------------
65,470 11,016 76,486
-------------------------------
Interest Expense
Deposits 28,545 4,949 33,494
Short-term borrowings and long-term debt 697 23 720
- -----------------------------------------------------------------------------------------------
29,242 4,972 34,214
-------------------------------
NET INTEREST INCOME 36,228 6,044 42,272
Provision for loan losses 2,373 427 2,800
- -----------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 33,855 5,617 39,472
- -----------------------------------------------------------------------------------------------
Other Income
Trust department income 1,966 3 1,969
Service charges on deposit accounts 1,547 261 1,808
Investment security gains 174 18 192
Other 2,216 134 2,350
- -----------------------------------------------------------------------------------------------
5,903 416 6,319
-------------------------------
Other Expenses
Salaries and employee benefits 10,955 1,871 12,826
Net occupancy 1,547 205 1,752
Equipment 992 169 1,161
Other 8,832 1,420 10,252
- -----------------------------------------------------------------------------------------------
22,326 3,665 25,991
-------------------------------
INCOME BEFORE INCOME TAXES 17,432 2,368 19,800
Applicable income taxes 4,079 701 4,780
- -----------------------------------------------------------------------------------------------
NET INCOME $13,353 $1,667 $15,020
===========================================================================================
Pro forma Per Share Data
Net income $2.00 $1.58 $1.94
Cash dividends - equivalent FTC shares 0.72 0.35 0.67
Weighted average equivalent number of FITC shares
outstanding during the year 6,680,701 1,054,887 7,735,588
Historical Per Share Data
Net income $2.00 $3.55
Cash dividends 0.72 0.79
</TABLE>
- 53 -
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(1) The unaudited historical financial data of FTC and WCNB do not include any
intercompany items.
(2) The pro forma combined condensed statements of income do not reflect
Merger- related expenses, which are not expected to be material, that will
be deducted in determining net income in the period(s) in which the Merger
is consummated.
(3) Pro forma net income per share is based upon the weighted average number of
shares outstanding during the periods presented, adjusted to reflect the
conversion of each share of WCNB Common Stock into 2.25 shares of FTC
Common Stock.
- 54 -
<PAGE>
WASHINGTON COUNTY NATIONAL BANK
SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 1994, and for each
of the five years then ended, has been derived from the financial statements of
WCNB which have been examined by independent certified public accountants. In
the opinion of the management of WCNB, all adjustments, which include only
normal recurring adjustments necessary for a fair presentation of such data,
have been included. The selected financial data should be read in conjunction
with the financial statements of WCNB, related notes and other information
appearing elsewhere herein.
- 55 -
<PAGE>
WASHINGTON COUNTY NATIONAL BANK
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------
Year Ended December 31 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest income $ 9,412 $ 9,940 $ 11,016 $ 10,616 $ 9,928
Interest expense 3,693 3,837 4,972 5,843 5,745
-------- -------- -------- -------- ---------
Net interest income 5,719 6,103 6,044 4,773 4,183
Provision for loan losses 45 2,295 417 307 150
-------- -------- -------- -------- ---------
Net interest income after provision
for loan losses 5,674 3,808 5,617 4,466 4,033
Securities gains (losses) (51) 17 18 0 0
Other income 394 434 398 368 340
Other expenses 4,755 4,299 3,665 3,159 2,909
-------- -------- -------- -------- ---------
Income (loss) before taxes and effect of
change in accounting principle 1,262 (40) 2,368 1,675 1,464
Applicable income taxes 381 413 701 441 351
Effect of change in accounting
principle - income taxes 0 (37) 0 0 0
-------- -------- -------- -------- ---------
Net Income (Loss) 881 (490) 1,667 1,234 1,113
======== ======== ======== ======== =========
Per Common Share Data*
Income (loss) before cumulative effect
of an accounting change $ 1.88 $ -0.97 $ 3.55 $ 2.63 $ 2.37
Net income (loss) 1.88 -1.05 3.55 2.63 2.37
Cash dividends 0.80 0.80 0.79 0.63 0.60
Book value at year-end 22.03 22.67 24.52 21.75 19.76
Year-End Balance Sheet Data
Assets $136,658 $136,831 $134,819 $130,047 $107,738
Loans 88,222 88,434 95,476 83,821 76,464
Deposits 124,389 125,469 122,887 119,167 97,805
Shareholders' equity 10,328 10,630 11,495 10,199 9,263
Performance Statistics
Return on average assets 0.63% -0.36% 1.25% 1.08% 1.07%
Return on average equity 8.00 -4.62 14.50 12.62 11.95
Average equity/average assets 7.71 8.11 8.12 8.46 8.52
</TABLE>
* All prior year per common share amounts have been restated to reflect the
20% stock dividend paid in December 1992 and 5% stock dividend paid
December 1991.
- 56 -
<PAGE>
WASHINGTON COUNTY NATIONAL BANK - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations as of and through December 31, 1994, should be read in conjunction
with the financial statements of WCNB included elsewhere in this Proxy
Statement/Prospectus.
Additional discussion and analysis of financial condition and results of
operations relating to WCNB's unaudited financial statements for the first
quarter of 1995 begins on page F-8 of this Proxy Statement/Prospectus.
Summary
For the year ended December 31, 1994, Washington County National Bank
("WCNB" or the "Bank") recorded net income of $881,000, an increase of
$1,371,000 over the 1993 loss of $490,000, which was a decrease of $2,157,000
from net income of $1,667,000 in 1992.
The significant fluctuations in net income are primarily the result of the
provision for loan losses. The provision for loan losses was $427,000 in 1992,
$2,295,000 in 1993 and $45,000 in 1994. WCNB also incurred significant other
operating expenses in 1993 and 1994 for consulting and professional fees related
to responding to required actions imposed by a Formal Agreement with the Office
of the Comptroller of the Currency (OCC). Other operating expenses were
$3,666,000 in 1992, $4,299,000 in 1993 and $4,754,000 in 1994, representing
increases over the respective prior years of 16.0%, 17.3 % and 10.6%.
Net Interest Income
Net interest income is the amount by which interest income on earning
assets exceeds interest paid on interest bearing balances. The amount of net
interest income is affected by changes in interest rates, account balances or
volume and the mix of earning assets and interest bearing liabilities. Net
interest income is the primary source of bank profits.
- 57 -
<PAGE>
For the year ended December 31, 1994, net interest income was $5,719,000,
a decrease of $384,000 or 6.3% compared to 1993. Net interest income was
$6,103,000 in 1993, an increase of $59,000 or 1.0% compared to 1992. Interest
income decreased $528,000 or 5.3% in 1994 and decreased $1,076,000 or 9.8% in
1993. The decrease in interest income in 1994 is primarily the result of a
decrease in interest rates which more than offset the increase in the average
balances of earning assets of $4,141,000 in 1994 over 1993. The decrease in
interest income in 1993 is primarily the result of a decrease in rates which
offset the $1,861 000 increase in the average balances of earning assets in 1993
over the prior year.
Interest expense decreased $ 144,000 or 3.7% in 1994 and decreased
$1,135,000 or 22.8% in 1993 compared to the respective prior year. The decrease
in 1994 is primarily the result of rate decreases which more than offset the
$2,616,000 increase in the average balances of interest bearing deposits. The
decrease in 1993 is primarily a result of decreases in rates which more than
offset the $369,000 increase in the average balance of interest bearing
liabilities.
The decrease in the yield on interest earning assets from 9.01% in 1992 to
7.99% in 1993 and to 7.33% in 1994 reflects the general market rates of interest
in these years. The decrease in the cost of funds from 4.51% in 1992 to 3.47% in
1993 and to 3.26% in 1994 also reflects the general market rates for the cost of
funds.
As a result of the above changes, the net interest margin decreased
slightly from 5.09% in 1992 to 5.01% in 1993, while decreasing to 4.55% in
1994, representing a decrease of.46% in 1994.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS (TAXABLE EQUIVALENT BASIS)
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------
1994 vs. 1993 1993 vs. 1992
Increase (Decrease) Due to: Increase (Decrease) Due to:
-------------------------- --------------------------
Volume Rate Net Volume Rate Net
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal funds sold and interest bearing
bank balances $ 1 $ 24 $ 25 $ 65 $ (5) $ 60
Taxable investment securities 450 (130) 320 (165) (112) (277)
Tax-exempt investment securities 25 (72) (47) (8) (187) (195)
Taxable loans (376) (466) (842) 218 (946) (728)
Tax-exempt loans 0 0 0 0 0 0
- -------------------------------------------------------------------------------------------------
NET CHANGE IN
INTEREST INCOME 100 (644) (544) 110 (1,250) (1,140)
-----------------------------------------------------------------------------------------
Interest Bearing Liabilities:
Interest bearing demand deposits 20 (61) (41) 23 (233) (210)
Savings deposits 204 (41) 163 251 (259) (8)
Time deposits (152) (114) (266) (296) (600) (896)
Other (3) 3 0 (15) (6) (21)
- -------------------------------------------------------------------------------------------------
NET CHANGE IN
INTEREST EXPENSE 69 (213) (144) (37) (1,098) (1,135)
-----------------------------------------------------------------------------------------
INCREASE IN NET
INTEREST INCOME $ 31 $ (400)$ (410) $ 150 $ (152) $ (5)
=========================================================================================
</TABLE>
- 58 -
<PAGE>
ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES (TAXABLE EQUIVALENT BASIS)
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
Tax Tax Tax Tax Tax Tax
Average Equiv. Equiv. Average Equiv. Equiv. Average Equiv. Equiv.
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------- -------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest Earning Assets:
Federal funds sold
and interest bearing
bank balances $ 3,061 $ 116 3.79% $ 3,038 $ 91 3.00% $ 856 $ 31 3.62%
- -------------------------------------------------------------- -------------------------- ---------------------------
Investment Securities:
Taxable investment securities 28,692 1,525 5.32% 20,220 1,205 5.96% 22,994 1,482 6.45%
Tax-exempt investment
securities 12,958 990 7.64% 12,644 1,037 8.20% 12,742 1,232 9.67%
- -------------------------------------------------------------- -------------------------- ---------------------------
Total investment securities 41,650 2,515 6.04% 32,864 2,242 6.82% 35,736 2,714 7.59%
- -------------------------------------------------------------- -------------------------- ---------------------------
Loans:
Taxable loans 88,176 7,111 8.06% 92,844 7,953 8.57% 90,293 8,681 9.61%
Tax-exempt loans 0 0 0.00% 0 0 0.00% 0 0 0.00%
- -------------------------------------------------------------- -------------------------- ---------------------------
Total loans 88,176 7,111 8.06% 92,844 7,953 8.57% 90,293 8,681 9.61%
- -------------------------------------------------------------- -------------------------- ---------------------------
Total Interest
Earning Assets 132,887 9,742 7.33% 128,746 10,286 7.99% 126,885 11,426 9.01%
Noninterest Earning Assets:
Cash and due from banks 3,623 3,525 3,120
Other assets 5,726 5,254 4,575
Less allowance for loan losses (2,625) (1,736) (541)
- -------------------------------------------------------------- -------------------------- ---------------------------
TOTAL $ 139,611 $ 135,789 $ 134,039
========================================================= ========================== ===========================
Liabilities and Shareholders'
Equity:
Interest Bearing Liabilties:
Interest bearing demand deposits $ 34,248 $ 947 2.77% $ 33,536 $ 988 2.95% $ 32,755 $ 1,198 3.66%
Savings deposits 44,143 1,473 3.34% 38,022 1,310 3.45% 30,740 1,318 4.29%
Time deposits 34,908 1,271 3.64% 39,087 1,537 3.93% 46,613 2,433 5.22%
Other interest bearing liabilities 30 2 6.67% 68 2 2.94% 236 23 9.75%
- -------------------------------------------------------------- -------------------------- ---------------------------
Total Interest
Bearing Liabilities 113,329 3,693 3.26% 110,713 3,837 3.47% 110,344 4,972 4.51%
Noninterest Bearing Liabilities:
Demand deposits 14,703 13,595 12,122
Other 818 469 682
- -------------------------------------------------------------- -------------------------- ---------------------------
Total liabilties 128,850 124,777 123,148
Shareholders' equity 10,761 11,012 10,891
- -------------------------------------------------------------- -------------------------- ---------------------------
TOTAL $ 139,611 $ 135,789 $ 134,039
========================================================= ========================== ===========================
Net interest income/
net interest spread 6,049 4.07% 6,449 4.52% 6,454 4.50%
============================================================== ========================== ===========================
Net interest margin 4.55% 5.01% 5.09%
============================================================== ========================== ===========================
</TABLE>
- 59 -
<PAGE>
Loans
The loan portfolio before the allowance for loan losses decreased slightly
from $88,434,000 at December 31, 1993 to $88,222,000 at December 31, 1994, a
decrease of .3%. The balance of the loan portfolio decreased significantly from
1992 to 1993, decreasing from $95,476,000 to $88,434,000 a decrease of
$7,042,000 or 7.4%. The decrease in the loan portfolio between 1992 and 1993 was
primarily the result of management's decision to reduce the installment loan and
commercial/demand portfolios in response to the intense competition from
automobile manufacturers offering favorable interest rates for vehicle financing
and general market conditions relative to commercial loans. Installment loans
decreased $3,731,000 and commercial/demand loans decreased $2,737,000 from 1992
to 1993.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
LOANS
COMPOSITION OF LOANS OUTSTANDING
(Dollars in thousands)
- -------------------------------------------------------------------------------------------
December 31 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 3,102 $ 4,543 $ 5,580 $ 6,527 $ 5,393
Loans secured by real estate:
Construction 4,157 4,275 4,833 1,396 1,785
Commercial 16,270 16,174 10,575 6,024 4,245
Residential 59,848 57,866 63,860 57,263 48,376
Personal 4,845 5,576 10,628 12,611 16,965
- -------------------------------------------------------------------------------------------
Total $ 88,222 $ 88,434 $ 95,476 $ 83,821 $ 76,764
===================================================================================
</TABLE>
- 60 -
<PAGE>
Investment Securities
The Bank's investment securities portfolio increased $3,972,000 or 10.7% in
1994 based on year end balances. The investment securities portfolio increased
$6,547,000 or 21.4% from 1992 to year end 1993 balances.
The increases in 1994 and 1993 are primarily in the U.S. Treasury and other
government agencies classification which reported an increase of $4,420,000 or
18.9% and $6,469,000 or 38.3% over the year end 1993 and 1992 balances,
respectively.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
INVESTMENT SECURITIES
INVESTMENT SECURITIES BY MAJOR CLASSIFICATION
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------
December 31 1994 1993 1992
-------------------- ---------------- -------------------
Book Value Amount % Amount % Amount %
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
government agencies $ 29,018 68.5% $ 23,361 63.0% $ 16,892 55.4%
State and municipal 12,552 29.6% 12,922 34.9% 12,691 41.6%
Other 781 1.8% 781 2.1% 934 3.1%
- ---------------------------------------------------------------------------------------------
Total Book Value $ 42,351 100.0% $ 37,064 100.0% $ 30,517 100.0%
Fair Value
- ---------------------------------------------------------------------------------------------
U.S. Treasury and other
government agencies $ 27,781 67.7% $ 23,890 63.0% $ 17,268 55.1%
State and municipal 12,471 30.4% 13,221 34.9% 13,085 41.8%
Other 784 1.9% 807 2.1% 978 3.1%
Total Market Value $ 41,036 100.0% $ 37,918 100.0% $ 31,331 100.0%
</TABLE>
Effective January 1, 1994, the Bank adopted Statement of Financial
Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt
and Equity Securities," which required management to classify investments in
equity securities that have readily determinable fair values and all investments
in debt securities as either held-to-maturity and reported at amortized cost,
available for sale and reported at fair value with unrealized gains and losses
reported in a separate component of shareholders' equity, or trading securities
and reported at fair value with unrealized gains and losses included in
earnings. On January 1, 1994, the Bank classified all securities as available
for sale. The adoption of SFAS No. 115 resulted in the Bank recording $807,000
in unrealized losses on securities available for sale net of taxes as a separate
component of shareholders' equity at December 31, 1994 with no impact on the
results of operations for 1994.
- 61 -
<PAGE>
Deposits
The deposit balances remained relatively stable at the end of 1994
reflecting a decrease of $1,080,000 or .9% from the year end 1993 totals which
reported a $2,582,000 or 2.1% increase over year end 1992 totals. The Bank
continues to rely on core deposits as its major source of funds. Core deposits
represent noninterest bearing demand deposits, interest bearing demand deposits,
savings deposits, and time deposits in amounts less than $100,000. Core deposits
represent over 98% of deposit totals and continue to be a very stable deposit
base.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
DEPOSITS
DEPOSITS BY MAJOR CLASSIFICATION
(Dollars in thousands)
- ---------------------------------------------------------------------------------------
1994 1993 1992
------------------ ------------------ ------------------
December 31 Amount % Amount % Amount %
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $ 14,448 11.6% $ 13,745 11.0% $ 13,396 10.9%
Interest bearing demand
bearing deposits 31,667 25.5% 35,069 28.0% 33,527 27.3%
Savings deposits 45,267 36.4% 39,784 31.7% 33,992 27.7%
Time deposits under $100,000 30,764 24.7% 34,496 27.5% 38,367 31.2%
Time deposits of $100,000
or more 2,243 1.8% 2,375 1.9% 3,605 2.9%
- ---------------------------------------------------------------------------------------
$ 124,389 100.0% $ 125,469 100.0% $ 122,887 100.0%
============================================================
</TABLE>
Short-Term Borrowings
Short-term borrowings consist of repurchase agreements and federal funds
purchased, typically written for one to thirty day periods.
The Bank's use of short-term borrowings represents a minor source of funds.
Short-term borrowings represented .8% of liabilities at December 31, 1994 and
there were no short-term borrowings at December 31, 1993 or 1992.
The maximum amounts of borrowings outstanding at any month-end during each
year of the reporting period were as follows:
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount $ 1,000 $ 2,000 $ 2,000
Date December 3 January 2 October 28
</TABLE>
- 62 -
<PAGE>
Average amounts outstanding and weighted average rates thereon for each
year of the reporting period were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Average outstanding $ 30 $ 68 $ 236
Rate 5.70% 3.25% 3.45%
</TABLE>
Noninterest Income and Expense
Noninterest income has primarily been from service charges on deposits
accounts and other service charges. The Board of Directors, with Office of the
Comptroller of the Currency (OCC) approval, terminated the Bank's trust powers
at the end of 1993. The income from fiduciary activities was insignificant
compared to the Bank's total income.
Other income decreased $110,000 or 24.3% in 1994 primarily due to realized
securities losses of $51,000 a $23,000 decrease in service charges on deposit
accounts, which more than offset the $13,000 increase in other operating income.
Other income increased $35,000 or 8.7% in 1993 compared to 1992, primarily as a
result of a $29,000 increase in fiduciary income in 1993, the final year for
fiduciary activities.
Other expenses increased $455,000 or 10.6% in 1994 and $633,000 or 17.3% in
1993. The increases in 1994 and 1993 were primarily due to the addition of
personnel and consulting and professional fees incurred both of which were
attributable to the cost of the Bank's responses to the OCC's July 1993 Formal
Agreement requirements.
ANALYSES OF NONINTEREST INCOME AND EXPENSES
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------------
% Change
------------------------
Year Ended December 31 1994 1993 1992 1994-1993 1993-1992
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Other income:
Fiduciary income $ 0 $ 32 $ 3 -100.0% 966.7%
Service charges on deposit
accounts 248 271 262 -8.5% 3.4%
Securities gains (losses) (51) 17 18 -400.0% -5.6%
Other operating income 145 131 133 9.8% -0.8%
- --------------------------------------------------------------------------------------
$ 342 $ 451 $ 416 -24.3% 8.7%
Other expenses:
Salaries $ 1,767 $ 1,609 $ 1,445 9.8% 11.3%
Employee benefits 531 529 426 0.4% 24.2%
Occupancy expenses 271 240 205 12.9% 17.1%
Furniture and equipment
expenses 192 162 169 18.5% -4.1%
Federal deposit insurance
assessment 322 278 266 15.8% 4.5%
Other operating expenses 1,671 1,481 1,155 12.8% 28.3%
- --------------------------------------------------------------------------------------
$ 4,754 $ 4,299 $ 3,666 10.6% 17.3%
-----------------------------------------------------
Noninterest income as a
% of noninterest expense 7.2% 10.5% 11.3%
</TABLE>
- 63 -
Federal Income Taxes
The Bank's effective federal income tax rate for 1994 was 30.2% and 29.6%
in 1992. The effective rates in 1994 and 1992 are representative of typical
rates for the Bank. The year 1993 was unusual because the Bank reported a loss
before taxes of $40,000 primarily as a result of a $2,295,000 provision for loan
losses. The Bank's bad debt deduction for income tax purposes is based on
specific loan charge-offs. The loans to which the provision was attributable
were not charged off resulting in significant deferred income taxes and a
corresponding valuation allowance attributable to a certain amount of the
temporary difference between the financial and tax reporting of the bad debt
allowance. The result was income tax expense in 1993 of $413,000 despite the
loss before taxes of $40,000.
The Bank adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" and changed from the deferred method of accounting
for income taxes to the asset and liability method per SFAS No. 109 effective
January 1, 1993. The cumulative effect of this change in accounting for income
taxes was a decrease in net income of $37,000 and is reported separately in the
statement of income for the year ended December 31, 1993.
Asset Quality/Risk Analysis
Management devotes a substantial amount of time to overseeing the
investment of funds in loans and securities and the formulation of policies
directed toward the minimization of risk associated with such outlays. Asset
quality was stable between 1994 and 1993 through management's efforts to improve
loan policies and procedures.
Loan Risk Analysis: The Bank follows generally conservative lending
practices and continues to carry a good quality loan portfolio with no unusual
or undue concentrations of credit. No loans are extended to nondomestic
borrowers or governments, consistent with past practice and policy. Net
charge-offs historically have been quite low when compared to industry
standards. Net charge-offs represented .24%, .23% and .4% of average outstanding
loans in 1994, 1993 and 1992, respectively. Nonperforming loans, as represented
by nonaccrual and restructured items were 3.08%, 3.18% and .38% of outstanding
loans at December 31, 1994 1993 and 1992, respectively. Loans 90 days or more
past due and still accruing represents .08%, .47% and .38% of outstanding loans
at December 31 1994, 1993 and 1992, respectively.
Allowance for Loan Losses: The provision for loan losses for 1994 totaled
$45,000 compared to $2,295,000 in 1993 and $427,000 in 1992. The increase in the
provision was made in 1993 because of an adverse change in the local real estate
market which resulted in
- 64 -
<PAGE>
nonperforming assets increasing from $362,000 in 1992 to $2,819,000 in 1993
an increase of $2,457,000 or 678.7%. The total of nonperforming assets decreased
by $77,000 or 2.7% between 1993 and 1994 to a level of $2,742,000. As a result
of these changes the allowance for loan losses increased from $505,000 at
December 31, 1992 to $2,594,000 at December 31, 1993, an increase of $2,089,000
or 413.7%, while decreasing $169,000 or 6.5% to $2,425,000 at December 31, 1994.
The Bank experienced net charge-offs of $214.000, $206,000 and $462,000 in 1994,
1993 and 1992, respectively. The ratio of net charge-offs compared to loans
outstanding remained relatively stable, decreasing from .48% at year end 1992 to
.23% at year end 1993 and increasing to .24% at year end 1994. The reserve for
loan losses represented 2.75%, 2.93% and .53% of loans outstanding at December
31, 1994, December 31, 1993 and December 31, 1992, respectively.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
- -------------------------------------------------------------------------------------------
Year Ended December 31 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding at
end of period $ 88,222 $ 88,434 $ 95,476 $ 83,821 $ 76,464
===========================================================================================
Daily average loans outstanding $ 89,016 $ 88,634 $ 96,010 $ 83,584 $ 76,527
===========================================================================================
Balance of allowance for possible
loan losses at beginning of
period $ 2,594 $ 505 $ 540 $ 485 $ 429
Loans charged off (293) (308) (510) (262) (112)
Recoveries of loans previously
charged off 79 102 48 10 18
- -------------------------------------------------------------------------------------------
Net loans recovered (charged off) (214) (206) (462) (252) (94)
Additions to allowance charged to
expense 45 2,295 427 307 150
- -------------------------------------------------------------------------------------------
Balance at end of period $ 2,425 $ 2,594 $ 505 $ 540 $ 485
===========================================================================================
Ratio of net charge-offs to
average loans outstanding 0.24% 0.23% 0.48% 0.30% 0.12%
===========================================================================================
Ratio of reserve to gross loans
outstanding at December 31 2.75% 2.93% 0.53% 0.64% 0.63%
===========================================================================================
</TABLE>
The allocation of the reserve for loan losses for the years ended December
31, 1994, and 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------------------------
Percent of Percent of Percent of
Applicable Applicable Applicable
Amount Loan Portfolio Amount Loan Portfolio Amount Loan Portfo
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate $ 1,245 1.55% $ 750 0.96% $ 146 1.84%
Commercial 429 13.83% 634 13.96% 123 2.20%
Consumer 30 0.62% 86 1.54% 17 0.16%
Unallocated 721 --1,124 --- 219
- --------------------------------------------------------------------------------------------------
$ 2,425 2.75% $ 2,594 2.93% $ 505 0.53%
==================================================================================================
</TABLE>
- 65 -
<PAGE>
Risk Elements: Nonperforming assets are comprised of nonaccrual and
restructured loans and real estate owned other than bank premises (OREO). OREO
represents property acquired through foreclosure or settlements of loans and is
carried at the lower of the principal amount of the loan outstanding at the time
acquired or the estimated fair value of the property minus the estimated cost to
sell the asset. The excess, if any, of the principal balance at the time
acquired over the carrying amount is charged against the reserve for loan
losses.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------
December 31 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual (cash) basis $ 1,927 $ 2,740 $ 141 $ 65 $ 169
Loans whose terms have been negotiated to
provide a reduction of deferral of
interest or principal because of a
deterioration in the financial position
of the borrower 0 0 0 0 0
OREO 815 79 221 235 136
- -----------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 2,742 $ 2,819 $ 362 $ 300 $ 305
===================================================================================================
Ratio of nonperforming assets to
total loans and OREO 3.08% 3.18% 0.38% 0.37% 0.40%
===================================================================================================
Ratio of nonperforming assets to
total assets 2.01% 2.25% 0.27% 0.23% 0.28%
===================================================================================================
OTHER RISK ITEMS
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------
December 31 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------
Loans past due 90 or more days and still
accruing $ 68 $ 418 $ 153 $ 166 $ 370
- -----------------------------------------------------------------------------------------------------------
Percentage of total loans and OREO 0.08% 0.47% 0.16% 0.20% 0.48%
===========================================================================================================
Percentage of total assets 0.05% 0.33% 0.11% 0.13% 0.34%
===========================================================================================================
</TABLE>
The Bank's loan loss history has been quite good compared to industry
standards and current risk analysis appears favorable, but the continuing
softness of the national economy will affect some borrowers' ability to comply
with the terms of their loan agreements. Under these circumstances, increases in
nonperforming assets, credit losses and/or provisions for loan losses may
result.
In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS
No. 114 "Accounting by Creditors for Impairment of a Loan." SFAS No. 114
requires that certain impaired loans 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. SFAS No. 114, as
subsequently amended by SFAS No. 118, is required to be adopted in the fiscal
year beginning January 1, 1995. While management has not definitely concluded as
to the effects of SFAS No. 114 and SFAS No. 118 on operations, they are not
expected to be material.
- 66 -
<PAGE>
Liquidity and Rate Sensitivity
The primary function of asset liability management is to assure adequate
liquidity and rate sensitivity. Liquidity management involves the ability to
meet the cash flow requirements of customers who may be either depositors
wanting to withdraw funds or borrowers needing assurance that sufficient funds
will be available to met their credit needs. Interest rate sensitivity
management requires the maintenance of appropriate balance between interest-
sensitive assets and liabilities. Interest-bearing assets and liabilities that
are maturing or repricing should be adequately balanced to avoid fluctuating net
interest margins and to enhance consistent growth of net interest income through
periods of changing interest rates.
The Bank has consistently followed a strategy of pricing assets and
liabilities according to prevailing market rates and matching maturities as
prudently as possible, within the guidelines of sound marketing and competitive
practices. The goal is to maintain a predominantly matched position with very
few planned mismatches. Rate spreads will be sacrificed at times in order to
enable the overall rate sensitivity position to stay within the guidelines
called for by asset/liability management policy. Rate sensitivity is measured by
monthly gap analyses plus earnings at risk analyses. Investment and pricing
decisions are made using both liquidity and rate sensitivity analyses as tools.
The schedules that follow reflect maturities and interest rate sensitivity of
certain of the Bank's assets and liabilities at December 31, 1994.
- 67 -
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO
MATURITY AND SENSITIVITY TO CHANGES IN INTEREST RATES
(YIELDS AND % OF PORTFOLIO BASED ON AMORTIZED COST)
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------
After One Over
One Year But Within Five-Ten Ten
or Less Five Years Years Years Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury:
Market Value $ 2,518 $ 5,475 $ 0 $ 0 $ 7,993
Amortized Costs 2,554 5,685 0 0 8,239
Yield 4.25% 5.43% 0.00% 0.00% 5.07%
U.S. Government
agencies:
Market Value 985 18,802 0 0 19,787
Amortized Costs 988 19,791 0 0 20,779
Yield 6.89% 5.57% 0.00% 0.00% 5.63%
States and political
subdivisions: (Tax
Exempt)
Market Value 2,697 9,774 0 0 12,471
Amortized Costs 2,683 9,869 0 0 12,552
Tax-equivalent yield
(35% bracket) 8.11% 7.43% 0.00% 0.00% 7.57%
States and political
subdivisions: (Taxable)
Market value 0 0 0 0 0
Amortized costs 0 0 0 0 0
Yield 0.00% 0.00% 0.00% 0.00% 0.00%
Mortgage backed
securities:
Market Value 0 0 0 0 0
Amortized Costs 0 0 0 0 0
Yield 0.00% 0.00% 0.00% 0.00% 0.00%
Other securities:
Market Value 503 0 0 0 503
Amortized Costs 500 0 0 0 500
Yield 9.30% 0.00% 0.00% 0.00% 9.30%
- -----------------------------------------------------------------------------------------------
Total Market Value $ 6,703 $ 34,051 $ 0 $ 0 $ 40,754
=======================================================================================
Total Amortized costs$ 6,725 $ 35,345 $ 0 $ 0 $ 42,070
=======================================================================================
Yield 6.55% 6.07% 0.00% 0.00% 6.14%
=======================================================================================
% of Portfolio 16.0% 84.0% 0.0% 0.0% 100.0%
</TABLE>
- 68 -
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF LOAN PORTFOLIO MATURITY AND SENSITIVITY TO
CHANGES IN INTEREST RATES
(Dollars in thousands)
- ----------------------------------------------------------------------------------------
Loans Maturing or Repricing
------------------------------------------------------
After One After
One Year But Within Five
or Less Five Years Years Total
------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 2,583 $ 519 $ 0 $ 3,102
Loans secured by real estate
Construction 4,157 0 0 4,157
Mortgage 50,456 19,491 6,171 76,118
Installment loans to Individuals 2,416 2,265 164 4,845
- ----------------------------------------------------------------------------------------
Total $ 59,812 $ 22,275 $ 6,335 $ 88,222
----- ======================================================
% of Portofolio 67.8% 25.2% 7.2% 100.0%
---------------- ======================================================
Loans Maturing or Repricing
Predetermined interest rates $ 2,784 $ 6,335
Floating or adjustable interest rates 19,491 0
---------- -----------
$ 22,275 $ 6,335
- ----------------------------------------------------------------------------------------
</TABLE>
Maturities of time certificates of deposit of $100,000 or more, issued by
domestic offices, outstanding at December 31, 1994, are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
------------------------------------------------------------------------
Matures in: Amount
------------------------------------------------------------------------
<S> <C>
3 months or less $ 536
Over 3 through 12 months 1,153
Over 1 through 5 years 554
Over 5 through 10 years 0
------------------------------------------------------------------------
TOTAL $ 2,243
========================================================================
</TABLE>
Interest rate sensitivity varies with different types of interest earning
assets and interest bearing liabilities. Overnight federal funds on which rates
change daily and loans which are tied to the prime rate differ considerably from
long term investment securities and fixed rate loans. Similarly, time deposits
over $100,000 and short term certificates are much more rate sensitive than
passbook savings accounts and long term certificates. The shorter term interest
rate sensitivities are key to measuring the interest sensitivity gap, or excess
of interest earning assets or interest bearing liabilities.
The following table shows the interest sensitivity gaps for five different
time intervals as of December 31, 1994. For the first 30 days there was an
excess of interest earning assets over interest bearing liabilities. A balanced
position is achieved, on a cumulative basis, for the remainder of the first
year. A positive cumulative position or excess of interest earning assets over
interest bearing liabilities, is maintained through the remaining time frames
and is within the confines of Bank asset/liability management policy.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY GAPS AS OF DECEMBER 31, 1994
(Dollars in millions)
- ---------------------------------------------------------------------------------
0-30 31-90 91-365 1-5 Over 5
Days Days Days Years Years
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest earning assets $ 22 $ 17 $ 32 55 $ 6
Interest bearing liabilities 10 18 35 48 0
- ---------------------------------------------------------------------------------
Interest sensitivity gap $ 12 $ -1 $ -3 $ 7 $ 6
=================================================================================
</TABLE>
- 69 -
<PAGE>
Capital Adequacy
The Bank maintains a strong capital base in order to take advantage of
business opportunities while ensuring that it has adequate resources to absorb
both normal and unusual risks inherent in the banking business. Internal capital
generation, net income retained after declaration of dividends, has been the
primary method employed to increase capital accounts.
Total shareholders' equity decreased $302,000 during 1994 primarily as a
result of recording a net unrealized loss on securities available for sale of
$807,000. Shareholders' equity would have increased $505,000 or 4.8% in 1994
without considering the effect of recording the unrealized losses. Total
shareholders' equity decreased in 1993 by $865,000 or 7.5% as a result of a
$490,000 loss for the year that was primarily the result of the additional
provision for loan losses.
Cash dividends remained at the same level of $375,000 or $.80 per common
share for both 1994 and 1993. The 1993 dividends were $4,000 or 1% higher than
the 1992 amount of $.79 per common share.
The Bank's capital position has been relatively stable as demonstrated by
the ratios that follow:
<TABLE>
<CAPTION>
CAPITAL AND DIVIDEND RATIOS
(Dollars in thousands) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
At December 31:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity/Assets 7.56% 7.77% 8.53%
For the Year
- ----------------------------------------------------------------------------------------------------
Average Equity/Average Assets 7.71% 8.11% 8.13%
Dividends paid 375 375 371
Dividend payout 42.58% Not Calculated 22.27%
</TABLE>
In 1990, bank regulators began to phase in risk-based and minimum leverage
capital ratios for assessing capital adequacy. The risk-based capital ratios,
based upon guidelines adopted by bank regulators in 1989, focus upon credit
risk. In general, the standards require banks and bank holding companies to
maintain capital based on "risk-adjusted" assets so that categories of assets
with potentially higher credit risk will require more capital backing than
assets with lower risk. In addition, banks and bank holding companies are
required to maintain capital to support, on a risk-adjusted basis, certain
off-balance-sheet activities such as loan commitments and interest rate swaps.
- 70 -
<PAGE>
At December 31, 1992, risk-based capital requirements became fully
implemented. Capital elements are segmented into two tiers. Tier 1 capital
represents shareholders' equity reduced by intangible assets, while Tier II
capital includes certain allowable long-term debt and the portion of the
allowance for loan losses equal to 1.25% of risk-adjusted assets. The minimum
leverage ratio guideline is intended to supplement the risk-based capital ratios
and is based upon Tier I capital less intangibles as a percentage of average
assets.
The capital ratios of the Bank have consistently exceeded regulatory
requirements by a substantial amount. The Bank's capital ratios were as follows:
<TABLE>
<CAPTION>
Regulatory
At December 31 1994 1993 1992 Minimum
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier I capital ratio 13.57% 13.18% 14.03% 4.00%
Total (Tier II) capital ratio 14.84% 14.46% 14.68% 8.00%
Leverage ratio 7.75% 7.28% 8.04% 3.00%
</TABLE>
Regulatory Matters
WCNB is subject to periodic examinations by the OCC and the Maryland
Banking Commission. During 1993 and 1994 several examinations were conducted of
the Bank. These examinations included, but were not limited to, procedures
designed to review lending practices, credit quality liquidity compliance,
operations, and capital adequacy of the Bank. In July 1993 the Bank entered into
a Formal Agreement with the OCC. The agreement required the Board of Directors,
among other things, to appoint a Compliance Committee, to employ an outside
management consultant to review and evaluate the effectiveness of the Board's
supervision, to evaluate the adequacy of Bank policies and procedures, to
evaluate the adequacy of staffing levels and to assess the Bank's current
strategic plan and its applicability to present and future activities. The
agreement required the Compliance Committee to submit progress reports to the
Board and the OCC regarding the development and implementation of plans in the
areas of management, dividends, loan portfolio management, compliance, internal
audit, and trust activities. As of December 31, 1994 the Bank submitted all
required reports and had begun the implementation of plans outlined under the
agreement.
As of the March 31, 1994 examination, the OCC reported that the Bank was in
partial compliance with the formal agreement. Throughout the remainder of 1994
the Bank continued its efforts to comply with all articles under the agreement.
Management expects that OCC will reevaluate the Bank's compliance with the
agreement as of March 31, 1995.
Late in 1991, Congress enacted the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA). This law has established a new framework for
the relationship between insured depository institutions and the various
regulatory agencies. Numerous banking regulations implementing FDICIA were
released during 1992, 1993 and
- 71 -
<PAGE>
1994. While all of the regulations mandated by this legislation are not yet
in final form, the enactment of FDICIA is expected to dominate the regulatory
landscape for the foreseeable future. New regulations addressing capital
adequacy, risk-based insurance premiums, brokered deposits, annual audits,
interbank liabilities, audit committee composition, truth in savings provisions,
market-based accounting and generally expanded regulatory requirements are
either already adopted or in varying stages of completion. These final
regulations are expected to have a pervasive impact on the management and
regulation of the banking and thrift industries. At the same time, this
legislation is expected to increase the compliance costs required to conform to
this new level of regulatory authority. Notwithstanding the additional
compliance costs associated with FDICIA, WCNB does not expect these regulations
to materially impact operations during 1995.
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share data)
- --------------------------------------------------------------------------------------------
Three Months Ended March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Interest income $ 2,294 $ 2,398 $ 2,349 $ 2,371
Interest expense 912 921 926 934
Net interest income 1,382 1,477 1,423 1,437
Provision for loan losses 45 0 0 0
Securities gains (losses) 0 0 0 (51)
Other income 78 90 129 96
Other expenses 1,088 1,069 1,089 1,508
Income(loss) before income taxes 327 498 463 (26)
Applicable income taxes 83 140 155 3
Net income(loss) 244 358 308 (29)
Net income(loss) per share 0.52 0.76 0.66 -0.06
Return on average assets 0.71% 1.01% 0.88% -0.09%
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share data)
- --------------------------------------------------------------------------------------------
Three Months Ended March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
Interest income $ 2,546 $ 2,521 $ 2,474 $ 2,399
Interest expense 999 964 945 929
Net interest income 1,547 1,557 1,529 1,470
Provision for loan losses 2,070 75 75 75
Securities gains (losses) 13 2 2 0
Other income 87 90 132 125
Other expenses 1,017 937 1,082 1,263
Income(loss) before taxes (1,440) 637 506 257
and effect of change in
accounting principle
Applicable income taxes (35) 232 138 78
Net income (loss) before
cumulative effect of
change in account (1,405) 405 368 179
Cumulative effect of change in
accounting principle -
income taxes (37) 0 0 0
Net Income (loss) (1,442) 405 368 179
Net income (loss) per share -3.08 0.86 0.79 0.38
Return on average assets -4.27% 1.20% 1.08% 0.53%
</TABLE>
- 72 -
<PAGE>
INFORMATION CONCERNING WASHINGTON COUNTY NATIONAL BANK
General
WCNB is an independent full-service bank, engaged in substantially all of
the business operations customarily conducted by independent federally chartered
banks, including but not limited to taking deposits, granting loans, financing
commercial transactions and rendering nontrust services. It is a member of the
FDIC.
WCNB traces its history to 1815, when The Conococheague Bank was formed by
a group of distinguished Washington County citizens. In 1827, the Bank was
reorganized under the name of "Washington County Bank." In 1865, the Bank became
a national bank under laws then newly in effect. In 1951, the Bank merged with
The Savings Bank, also located in Williamsport, and became Washington County
National Savings Bank. WCNB purchased the Clear Spring office of Maryland
National Bank in 1984 and, in 1985, acquired Citizens' Bank of Keedysville. Also
in 1985, the Bank officially changed its name again to Washington County
National Bank.
WCNB's executive offices are located at 14 West Potomac Street,
Williamsport, Maryland 21795, and its telephone number is (301) 223-7600.
Properties
The headquarters of WCNB are located at 14 West Potomac Street,
Williamsport, Maryland. The Williamsport property, which is owned in fee simple,
also houses the main branch of the bank. WCNB also has the following branches,
all of which are owned in fee simple:
307 West Potomac Street, Williamsport, Maryland
10721 Fairway Lane, Hagerstown, Maryland
121 South Mill Street, Clear Spring, Maryland
19 South Main Street, Keedysville, Maryland
7620 Old National Pike, Boonsboro, Maryland
103 West Main Street, Sharpsburg, Maryland
17345 Virginia Avenue, Hagerstown, Maryland
In addition, WCNB owns a one-acre parcel of land located at the corner of
Eastern Boulevard and Professional Court, in Hagerstown, which is available for
the construction of an additional branch office.
- 73 -
<PAGE>
Competition
The banking industry is highly competitive. WCNB faces strong competition
in all areas of its operations, primarily from entities operating in Washington
County, Maryland including branches of some of the largest banks in Maryland.
Its most direct competition for deposits historically has come from other
commercial banks, savings banks, savings and loan associations and credit unions
operating in Washington County. WCNB competes with money market mutual funds and
corporate and government securities for deposits. WCNB competes for loans with
banking entities, as well as mortgage banking companies and other institutional
lenders. The competition for loans varies from time to time depending upon
certain factors including the general availability of lendable funds and credit,
general and local economic conditions, current interest rate levels, conditions
in the mortgage market and other factors which are not readily predictable.
Regulation and Supervision
WCNB is subject to regulation by the Office of the Comptroller of the
Currency ("OCC") and the Maryland Banking Commission and is insured by FDIC. As
a result of several periodic examinations by the OCC in 1993, WCNB entered into
a Formal Agreement with the OCC in July 1993. A "formal agreement" within the
meaning of 12 U.S.C. section 1818(b)(1) is a written agreement which results
from supervisory concerns on the part of the OCC in connection with the
practices of a regulated financial institution. The OCC required WCNB to enter
into this Agreement to ensure timely and effective corrective action regarding
certain practices deemed unsafe and unsound by the OCC, as identified in two
Reports of Examination prepared on behalf of WCNB as of January 31, 1993. The
Agreement required the Board of Directors to appoint a Compliance Committee, and
to employ an outside management consultant to review and evaluate the
effectiveness of the Board's supervision, the adequacy of WCNB's procedures, and
the adequacy of staffing levels and to assess the Bank's current strategic plan
and its applicability to present and future activities. The Agreement required
the Compliance Committee to submit progress reports to the Board of Directors
and the OCC regarding the development and implementation of plans in the areas
of management, dividends, loan portfolio management, compliance, internal audit,
and trust activities. As of December 31, 1994, WCNB had submitted all required
reports and had begun the implementation of plans outlined under the agreement.
As of the March 31, 1994 examination, the OCC reported that WCNB was in
partial compliance with the Formal Agreement. Throughout the remainder of 1994
WCNB continued its efforts to comply with all provisions of the Agreement. The
OCC is reevaluating WCNB's compliance with the Agreement as of March 31, 1995.
- 74 -
<PAGE>
During 1992, 1993 and 1994, numerous regulations were promulgated under the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). While
all of the regulations mandated by the legislation are not in final form, FDICIA
is expected to dominate the regulatory environment for the foreseeable future.
The regulations govern such matters as capital adequacy, risk-based insurance
premiums, brokered deposits, annual audits, interbank liabilities, audit
committee composition, truth in savings provisions, and market- based
accounting. Increased compliance costs can be expected as a result of FDICIA and
related regulations, but WCNB does not expect these regulations to materially
impact operations during 1995.
Legal Proceedings
From time to time, WCNB is involved in various legal actions arising in the
ordinary course of business, none of which, in Management's opinion, will have a
material adverse effect on the Bank.
Employees
At March 31, 1995, WCNB employed 85 full time employees and 7 part time
employees. The following table reflects the number of employees at each branch.
<TABLE>
<CAPTION>
Branch Full Time Part Time
------ --------- ---------
<S> <C> <C>
14 West Potomac Street 49 1
307 West Potomac Street 6 --
10721 Fairway Lane 6 --
121 South Mill Street 6 --
19 South Main Street 3 3
7620 Old National Pike 5 2
103 West Main Street 6 1
17345 Virginia Avenue 4 --
</TABLE>
Relations with Independent Certified Public Accountants
The accounting firm of Smith Elliott Kearns & Company has acted as
independent certified public accountants for WCNB since 1974. The Firm is a
member of the SEC Practice Section of the American Institute of Certified Public
Accountants and has undergone peer review.
- 75 -
<PAGE>
MANAGEMENT OF WASHINGTON COUNTY NATIONAL BANK
Directors and Executive Officers
The present directors and executive officers of WCNB and their beneficial
ownership of WCNB Common Stock are as follows:
<TABLE>
<CAPTION>
Business Experience
Including Principal
Occupation for the
Past 5 Years and Certain Director
Name and Age Other Directorships Since
- ------------ ------------------------- --------
<S> <C> <C>
James E. Byron (67) International Trade Specialist 1963
U.S. Department of Commerce
David K. Cushwa IV (43) President of District Cycle Supply 1990
Co., Inc.; President of Architectural
Products Inc.
M. L. Patterson, Jr. (64) President & CEO of Washington 1972
County National Bank; Vice Chairman
of the Board
David K. Poole, Jr. (69) Attorney 1976
Poole & Poole, P.A.
Warren A. Resley (66) Co-owner 1989
Resley Tire Company
Leo E. Riffle (79) Retired Restaurateur 1969
Thomas H. Shank (65) Chairman of the Board of 1981
Washington County National Bank;
Chairman of the Board of G.A.
Miller Lumber Co.; Real Estate
Developer
James G. Thompson (54) President of Thompson's Gas & 1987
Electric Service, Inc.
</TABLE>
- 76 -
<PAGE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name Age Position
---- --- ---------
<S> <C> <C>
M. L. Patterson, Jr. 64 President & CEO (since 1979);
Vice Chairman of the Board (since 1991)
Donald W. Crawford 59 Senior Vice President (since 1993);
Vice President (since 1985)
David E. Drury 36 Vice President (since 1991);
Assistant Vice President (1987-1991)
Edward L. Hose 44 Vice President (since 1985)
Charles E. Lumm 61 Vice President (since 1985)
Richard L. Martin 45 Vice President (since 1985)
William K. Walker III 49 Vice President (since 1992);
Vice President (1989-1992), Hagerstown
Trust Company (an unrelated banking
company located in Hagerstown, MD)
</TABLE>
The Board of Directors of WCNB may consist of not less than five nor more
than twenty-five directors. The Board of Directors may from time to time create
such standing or special committees as they deem proper, and may appoint
committee members from among members of the Board of Directors or employees of
WCNB.
As of May 31, 1995, WCNB has six standing committees of the Board of
Directors. As Chairman, Mr. Shank is an ex officio member of all committees.
The Audit Committee, chaired by Mr. Byron, is responsible for reviewing
matters with WCNB's independent auditors. Messrs. Resley and Thompson are
members of this committee.
The Executive Committee, chaired by Mr. Shank, has authority to act between
meetings of the Board of Directors. Messrs. Byron, Riffle and Thompson are
members.
The Director Loan Committee, chaired by Mr. Riffle, is responsible for
approving loans between the amounts of $500,000 and $1,000,000. Mr. Thompson and
Mr. Poole also are members of this committee.
- 77 -
<PAGE>
The Finance Committee, chaired by Mr. Cushwa, is responsible for reviewing
matters of finance for WCNB. Messrs. Poole and Riffle are members of this
Committee.
The Human Resources Committee, chaired by Mr. Resley, oversees personnel
and compensation issues. Messrs. Cushwa and Poole are members.
The Compliance Committee, chaired by Mr. Byron, oversees WCNB's compliance
with regulatory requirements. Messrs. Cushwa, Patterson and Resley are members
of this committee.
Executive Compensation
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding the components of
compensation for the years ended December 31, 1994, 1993 and 1992 for the
executive officer of WCNB whose compensation exceeded $100,000.
<TABLE>
<CAPTION>
Name and Other All
Principal Annual Other
Position(1) Year Salary Bonus(2) Compensation(3) Compensation(4)
- ----------- ---- ------ -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
M.L. Patterson, Jr. 1994 $93,082.50 $16,754.85 $14,091.25 $57.00
President, Chief 1993 $91,000.00 - 0 - $12,703.87 $78.00
Executive Officer 1992 $85,000.05 $13,600.00 $11,867.67 $93.00
and Vice Chairman
of the Board
</TABLE>
(1) For additional information concerning Mr. Patterson's employment
arrangements with WCNB, see "PROPOSED MERGER--Interest of Certain Persons
in the Merger."
(2) Bonus is the result of payments made under WCNB's Cash Incentive Plan.
(3) WCNB has an Executive Compensation Plan for Directors and an Executive
Compensation Plan for Management. Amounts in this column represent the
amounts paid and accrued under the plans in the years 1994, 1993, and 1992.
(4) Amounts appearing in this column represent payment by WCNB for term life
insurance and AD&D coverage, available under a group plan offered on the
same terms to all WCNB employees.
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<PAGE>
Compensation and Benefit Plans
CASH INCENTIVE PLAN
WCNB has established a Cash Incentive Plan which provides all employees
with the ability to share in a portion of the Bank's net income. To be eligible
to participate, an employee must have been employed for one (1) full year as of
December 31 in any program year, or have retired or been displaced due to
acquisition by another financial institution during the program year.
Distributions under the plan are based on a percentage of the participant's
annual wages, less any cash incentive payment received with respect to the
previous year, and less certain insurance costs added to the participant's
wages. Payments under the plan are made within sixty (60) days after the end of
the fiscal year.
Distributions are based on the return on average assets, calculated by
WCNB's independent auditors at the end of each fiscal year. Employees receive a
distribution equal to a percentage of their respective annual salaries. WCNB's
President is eligible to receive a distribution in the range of twelve to
eighteen percent (12% - 18%) of his salary. Other officers, excluding the
President, are eligible to receive a distribution in the range of six to nine
percent (6% - 9%) of their respective salaries. For all other employees, a total
distribution pool is established in an amount equal to fifty percent (50%) of
the total cash incentive distribution amount for all Vice Presidents and the
President. Each employee receives a percentage of the pool, derived by dividing
the total pool by the total compensation of the participants, less any cash
incentive distributions received by those participants in the prior year. The
Board of Directors of WCNB has the authority to modify, change and/or cancel the
Cash Incentive Plan.
EXECUTIVE COMPENSATION PLAN FOR MANAGEMENT
The Board of Directors of WCNB has adopted an Executive Compensation Plan
for Management, to provide supplemental retirement benefits for management. This
is a non- qualified benefit plan. The Board of Directors has the authority to
designate the executive officers of WCNB who are eligible to participate in the
plan. The plan provides for the payment of death benefits prior or subsequent to
retirement, funded by an insurance policy purchased by WCNB. The plan also
provides for a supplemental retirement benefit upon a participant's retirement
on or after the "normal retirement date," which is the first day of the month
following the sixty-fifth (65th) birthday of the participant. Participation in
the plan terminates at the request of a participant, upon the termination of a
participant's employment other than by retirement, disability or death, or at
the discretion of the Bank (except that such termination shall not affect
current participants). In the event that the plan is terminated,
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existing participants' benefits are prorated. In the event of a merger or
acquisition of WCNB, all benefits will be provided for all participants as of
the date of such merger or acquisition, regardless of the years of participation
in the plan and irrespective of whether or not the Bank continues to employ
those participants.
Benefits payable upon death prior to a participant's retirement are payable
monthly for a period of ten (10) years. At WCNB's discretion, a lump sum
settlement may be made. Participants who have at least five (5) years of
credited service will receive a monthly supplemental retirement payment for ten
(10) years commencing on the normal retirement date. In the event that a
participant dies subsequent to his retirement, his designated beneficiary will
receive all remaining payments to which the participant would have been
entitled. At the Bank's sole discretion, a lump sum settlement may be made.
PENSION PLAN
WCNB sponsors a Defined Benefit Pension Plan under the Employee Retirement
Income Security Act of 1974 (ERISA). The plan, as amended January 1, 1991, is
designed to provide bank employees with a fixed monthly retirement benefit
payable at the normal retirement age of 65. The plan was originally established
effective January 1, 1963. Each full-time employee of WCNB becomes an eligible
participant in the plan after completing one year of service and attaining the
age of 21. The plan generally provides for a fixed monthly pension benefit at
the normal retirement age of 65 calculated as follows: 1.40% of average monthly
compensation multiplied by the participant's years of credited service after
January 1, 1989 (limited to 18 years) plus a participant's accrued monthly
benefit calculated based upon pay and service to December 31, 1988. Effective
January 1, 1989, the plan benefit formula was amended to comply with provisions
of the Tax Reform Act of 1986. Average monthly compensation is based on the
participant's highest five consecutive years measured to the earlier of the date
of termination of employment or normal retirement date.
Amounts are set aside each year in trust on the basis of actuarial
calculations. Such amounts cannot be readily determined with respect to any
specified participant. The cost of the plan to WCNB in 1993 and 1994 was equal
to 4.81% and 4.89% respectively of the total salaries of plan participants at
the beginning of each year. Participants' salaries equal base pay plus overtime
and other taxable compensation earned during any given plan year. Retirement
benefits are not subject to any deduction for Social Security benefits or other
offset amounts.
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<PAGE>
The following is a table which shows the estimated annual benefits payable
upon retirement to persons in the identified years of service and salary
categories, assuming retirement at age 65 and during calendar year 1994.
<TABLE>
<CAPTION>
Final Average Annual Retirement Benefits for
Compensation Years of Service Indicated
10 Years 15 Years 20 Years
- --------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
$ 20,000...................... $ 2,800 $ 4,200 $ 5,040
30,000...................... 4,200 6,300 7,560
40,000...................... 5,600 8,400 10,080
50,000...................... 7,000 10,500 12,600
75,000...................... 10,500 15,750 18,900
100,000...................... 14,000 21,000 25,200
</TABLE>
Compensation of Directors
Directors receive a fee of $225 for each Board of Directors meeting
attended and $100 for each committee meeting attended. Messrs. Shank and
Patterson do not receive committee meeting fees. In addition, directors are
eligible to participate in the Bank's Executive Compensation Plan for Directors.
The terms of this plan are virtually identical to those of the Executive
Compensation Plan for Management, described above, except that the plan permits
a director to waive receipt of a portion of his director fees in exchange for
the retirement benefits under the plan. WCNB has used the deferred fees to
acquire life insurance policies on the lives of participating directors to
substantially fund WCNB's obligations under the plan.
Certain Transactions
Certain directors, officers, and shareholders of WCNB, including their
immediate families and companies in which they have a significant interest, have
borrowed funds from the Bank. It is the policy of WCNB that loans to such
persons and entities shall be made on the same terms as loans made to other
borrowers. Each of the loans to directors, officers, their family members and
related entities was made in the ordinary course of business, on substantially
the same credit terms, including interest rate and collateralization, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than the normal risk of collectability or present other
unfavorable features. As of December 31, 1994, the aggregate outstanding
indebtedness of these loans was approximately
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$1,344,000. Five (5) of these loans were in excess of $60,000. None of
these loans is on nonaccrual status, past due, restructured, or presents
potential problems in the judgment of Management.
David K. Poole, Jr., a director of WCNB, is a partner of the law firm of
Poole & Poole, P.A., which in 1994 received $5,388 from WCNB for the performance
of legal services. WCNB intends to continue to engage this firm to render legal
services.
Securities Ownership of Certain Beneficial Owners and Management
WCNB is authorized to issued 1,000,000 shares of common stock. As of May
31, 1995, WCNB had 480 shareholders and 468,839 shares of Common Stock
outstanding. Also as of that date, the following persons were known to WCNB to
own beneficially more than five percent (5%) of the outstanding shares of its
Common Stock:
<TABLE>
<CAPTION>
Shares Beneficially Percentage
Name Owned of Ownership
---- ------------------- ------------
<S> <C> <C>
Thomas H. Shank 31,162 6.65%
1909 Applewood Drive
Hagerstown, MD 21740
Regina F. Cushwa 26,201 5.59%
16014 Cloverton Lane
Williamsport, MD 21795
Marion M. Miller 25,000 5.33%
16614 Tammany Lane
Williamsport, MD 21795
</TABLE>
WCNB knows of no arrangements, other than the Merger, the operation of
which may at a subsequent date result in a change of control of WCNB.
The following table sets forth certain information with respect to the
directors of WCNB, as well as all directors and officers of WCNB as a group. All
of the shares shown in the following table are owned both of record and
beneficially, and the person named possesses sole voting power except as
otherwise indicated in the notes to the table.
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<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned as of
May 31, 1995
--------------------
Percent
Name and Address (1) Amount of Class
- -------------------- ------ --------
<S> <C> <C>
James E. Byron (2) 5,151 1.11%
David K. Cushwa, IV 6,135 1.31%
M. L. Patterson, Jr. (3) 1,288 0.27%
David K. Poole, Jr. (4) 3,600 0.77%
Warren A. Resley (5) 2,124 0.46%
Leo E. Riffle (6) 7,000 1.49%
Thomas H. Shank (7) 31,162 6.65%
James G. Thompson 2,058 0.44%
Officers and directors as a group 60,122 12.82%
(14 persons in group)
</TABLE>
- ------------------------------------
(1) The address of each director is that of WCNB.
(2) Mr. Byron shares voting and investment power with Lynne K. Byron with
respect to 3,521 shares. Mr. Byron disclaims beneficial ownership of 310
shares held by Katharine Devereaux Byron, and 5,169 shares held by Lynne K.
Byron.
(3) Mr. Patterson shares voting and investment power with Maxine B. Patterson
with respect to 1,188 shares. Mr. Patterson disclaims beneficial ownership
of 120 shares held by Maxine B. Patterson and 44 shares held by M. L.
Patterson, III and Maxine B. Patterson.
(4) Mr. Poole shares voting and investment power with Janice Poole with respect
to 2,250 shares.
(5) Mr. Resley shares voting and investment power with Joyce L. Resley with
respect to 1,340 shares.
(6) Mr. Riffle disclaims beneficial ownership of 7,000 shares held by Betty Lee
Riffle.
(7) Mr. Shank shares voting and investment power with Marlene H. Shank with
respect to 600 shares.
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<PAGE>
INFORMATION CONCERNING FINANCIAL TRUST CORP
FTC is a Pennsylvania business corporation and a registered bank holding
company, headquartered in Carlisle, Pennsylvania. In addition to the
nonoperating national bank subsidiary of FTC being organized for purposes of the
Merger, FTC's five operating subsidiaries are (i) Farmers Trust Company, a bank
and trust company organized under Pennsylvania law; (ii) Chambersburg Trust
Company, also a Pennsylvania bank and trust company; (iii) First National Bank
and Trust Company, a national banking association; (iv) First Federal Savings
Bank, also a national banking association; and (v) Financial Trust Life
Insurance Company, an insurance company organized under the laws of Arizona. As
of March 31, 1995, FTC's four bank subsidiaries operated 34 banking offices and
16 remote service facilities in seven south central Pennsylvania counties which
include the cities of Carlisle, Chambersburg, Waynesboro, and Hanover. First
National Bank and Trust Co. is a member of the Federal Reserve System. All banks
are insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent
provided by law, and engage in general commercial banking and provide
individuals, businesses, municipalities and state agencies with comprehensive
financial services. FTC also offers, through its insurance subsidiary, credit
life and disability insurance to the banks' consumer loan customers. FTC and its
subsidiaries employed approximately 436 full-time equivalent employees as of
March 31, 1995. FTC intends, subject to necessary regulatory approvals, to merge
First Federal Savings Bank into Farmers Trust Company, and to change the name of
the latter bank to Financial Trust Company. Additionally, FTC has applications
pending for regulatory approvals to form a new subsidiary, Financial Trust
Services Co., into which all trust services of the bank subsidiaries would be
consolidated.
At March 31, 1995, FTC had consolidated total assets, deposits and
shareholders' equity of $952.5 million, $777.2 million and $118.3 million,
respectively. FTC's personal and corporate trust assets totalled $345.6 million
at December 31, 1994, and at that date on the basis of total assets, FTC was the
eighteenth largest independent bank holding company in Pennsylvania.
As a registered bank holding company, FTC is subject to regulation under
the federal Bank Holding Company Act of 1956, as amended, and the rules adopted
by the Federal Reserve Board (FRB) thereunder. Under applicable FRB policies, a
bank holding company such as FTC is expected to act as a source of financial
strength for each of its subsidiary banks and to commit resources to support
each subsidiary bank in circumstances when it might not do so absent such a
policy. Any capital loans made by a bank holding company to any of its
subsidiary banks would be subordinate in right of payment to the claims of
depositors and certain other creditors of such subsidiary banks.
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<PAGE>
The principal executive offices of FTC are located at 1415 Ritner Highway
Carlisle, Pennsylvania 17013, and its telephone number is (717) 243-8003.
Certain information relating to the executive compensation, benefit plans,
voting securities and the principal holders thereof, certain relationships and
related transactions, and other related matters as to FTC is incorporated herein
by reference. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN FTC
DOCUMENTS BY REFERENCE." Shareholders of WCNB desiring copies of such documents
may contact FTC at its address or phone number given under "AVAILABLE
INFORMATION" above.
Neither FTC nor WCNB is aware of any material relations (i) between FTC or
its directors or executive officers and WCNB or (ii) between WCNB or its
directors or executive officers and FTC, except as described under "PROPOSED
MERGER--Interests of Certain Persons in the Merger."
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<PAGE>
DESCRIPTION OF FTC COMMON STOCK
As of the date of this Proxy Statement/Prospectus, FTC was authorized to
issue 16,000,000 shares of Common Stock, $5.00 par value, of which 6,710,867
shares were issued and outstanding and none were held in treasury. Each share of
FTC Common Stock is entitled to one vote on all matters. The FTC Common Stock is
not redeemable and has no preemptive rights to subscribe for additional shares
that FTC may issue and no exchange or conversion rights. In the event of
dissolution and winding up of the affairs of FTC, holders of FTC Common Stock
would be entitled to receive pro rata any assets of FTC remaining after all
requisite payments have been made to FTC's creditors. Holders of FTC Common
Stock are entitled to dividends when, as and if declared by the FTC Board of
Directors out of funds legally available, and the ability of FTC to pay
dividends is dependent primarily on the earnings and financial condition of its
bank subsidiaries (see "MARKET PRICES, DIVIDENDS AND RELATED SHAREHOLDER
MATTERS"). Shares of FTC Common Stock that are presently issued and outstanding
are, and those shares to be issued in the Merger will be, fully paid and
non-assessable.
This description does not purport to be complete and is qualified in its
entirety by the further description of FTC Common Stock set forth below under
"CERTAIN DIFFERENCES OF RIGHTS OF SHAREHOLDERS OF FTC AND WCNB."
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<PAGE>
CERTAIN DIFFERENCES OF RIGHTS OF SHAREHOLDERS OF FTC AND WCNB
Upon consummation of the Merger, shareholders of WCNB, which is organized
under the National Bank Act, will become shareholders of FTC which is a
Pennsylvania business corporation governed by the Pennsylvania Business
Corporation Law ("BCL"). Shareholders of WCNB who become shareholders of FTC by
reason of the Merger will also become subject to the privileges and restrictions
provided by the Articles of Incorporation and Bylaws of FTC, which differ in
certain respects from those contained in the Articles of Association and Bylaws
of WCNB. The following is a summary of significant differences, and is qualified
in its entirety by reference to the respective Articles and Bylaws of FTC and
WCNB.
Authorized Common Stock
Pursuant to shareholder approval given at FTC's 1995 Annual Meeting, the
number of shares of Common Stock, $5.00 par value, that FTC is authorized to
issue was increased from 8,000,000 to 16,000,000 shares, of which 6,710,867
shares were issued and outstanding and none were held in treasury as of the date
of this Proxy Statement/Prospectus. WCNB is authorized to issue 1,000,000 shares
of Common Stock, par value $10.00 per share, of which 468,839 shares were issued
and outstanding as of May 31, 1995, and none were held in treasury. Neither FTC
nor WCNB is authorized to issue any other class of capital stock. The Boards of
Directors of each entity may issue shares of authorized but unissued Common
Stock without shareholder approval unless the transaction is one which, by its
nature, requires shareholder approval.
Voting Rights
All voting rights are vested in the holders of FTC Common Stock and WCNB
Common Stock, each share of the respective Common Stock being entitled to one
vote on all matters. Although shareholders of WCNB have the right to vote
cumulatively in an election of directors, FTC shareholders do not have
cumulative voting rights.
Amendment of Articles and Bylaws
FTC's Articles of Incorporation provide that those provisions of the
Articles (summarized in the next following paragraph) requiring a sixty-six and
two-thirds percent affirmative vote may be amended or repealed only by a vote of
the holders of sixty-six and
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<PAGE>
two-thirds percent of the FTC Common Stock. Other Articles amendments could
be effected by a majority of the votes cast by all FTC shareholders. Under a
provision of the BCL applicable to FTC as a "registered corporation" (one having
a class of voting stock registered under the Securities Exchange Act of 1934),
its shareholders may not propose amendments to the FTC Articles. FTC's Bylaws
may be amended or repealed by a majority of the votes cast by all FTC
shareholders, or (subject to certain limitations) by majority action of the
Board subject to the right of the FTC shareholders to change such action. In the
case of WCNB, its Articles of Association may be amended by the vote of the
holders of a majority of the WCNB Common Stock and its Bylaws may be amended by
majority vote of all directors then in office. WCNB shareholders may propose
amendments to the Articles of WCNB.
Required Vote for Mergers and Similar Transactions
Under the BCL, a merger, consolidation or sale of all or substantially all
of the assets of a Pennsylvania business corporation generally may be
accomplished by a majority of the votes cast by all shareholders entitled to
vote. However, the Articles of Incorporation of FTC provide that any merger,
consolidation, sale of all or substantially all assets or similar transaction
involving FTC requires the affirmative vote of the holders of at least 66-2/3%
of the outstanding shares entitled to vote. The affirmative vote of the holders
of at least two- thirds of the outstanding WCNB Common Stock is required to
approve the Merger and would be required to approve any other consolidation or
merger of WCNB in accordance with the requirements of the National Bank Act.
Dissenters' Rights
The dissenters' rights, if any, of FTC shareholders are governed by the
BCL. The BCL provides for dissenters' rights in a variety of transactions,
including (i) mergers or consolidations to which a corporation is a party (other
than mergers not requiring a shareholder vote) and (ii) certain sales, leases,
exchanges or other dispositions of all or substantially all of the assets of a
corporation. However, except in the case of a merger or consolidation in which
their shares would be converted into something other than shares of the
surviving or new corporation (or cash in lieu of fractional shares),
shareholders of a Pennsylvania business corporation are not entitled to
dissenters' rights in any of the transactions mentioned above if their stock is
either listed on a national securities exchange or held of record by 2,000 or
more shareholders. While the FTC Common Stock is not listed on either the New
York or the American Stock Exchange, FTC currently has more than
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<PAGE>
2,000 shareholders of record and accordingly dissenters' rights would not
be available upon a merger or consolidation to which FTC is a party.
By virtue of the National Bank Act, WCNB shareholders are entitled to
receive the appraised value of their shares if they oppose a merger or
consolidation and follow certain procedural steps necessary to exercise their
dissenters' rights. Such procedures are applicable to the Merger and are
described at "PROPOSED MERGER--Dissenters' Rights of WCNB Shareholders."
Board of Directors
The Bylaws of FTC provide that FTC directors shall be divided into three
classes with each class being as nearly equal in number as possible, with the
terms of the three classes being staggered so that the term for one class
expires at the annual meeting of the shareholders each year and each director
serves a three-year term. WCNB does not have such a classified or staggered
board and its directors, of whom there must not be less than five nor more than
25, are elected at WCNB's annual meeting of shareholders for one-year terms. The
number of directors of each entity is established from time to time by its
respective Board.
Nomination of Directors
The Bylaws of FTC and WCNB each provide generally that, with certain
exceptions, nominations of candidates for election to the Board of Directors,
other than those made by management, must be made in writing and delivered or
mailed to the President of the company not less than 14 nor more than 50 days
prior to any shareholders' meeting called for the election of directors. Such
written notification must include certain information relating the proposed
nominee, to the extent known to the nominating shareholder. In the case of WCNB,
the notice also must be sent to the Comptroller of the Currency.
Call of Special Shareholders Meeting
The Articles of Association and Bylaws of WCNB provide that a special
meeting of shareholders may be called at any time by the Board of Directors or
by any five shareholders owning not less than twenty percent of the outstanding
shares of WCNB Common Stock. In the case of FTC, special meetings of
shareholders may be called at any time by the Chairman of the Board, the
President or the Board of Directors, but under a provision of the BCL
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<PAGE>
applicable to "registered corporations" such as FTC, special meetings may
not be called by FTC shareholders.
Anti-Takeover Provisions
The Articles of Incorporation and Bylaws of FTC contain a number of
provisions that may be considered to be "anti-takeover" in nature. Among these
are the previously described three-year staggered terms of office for directors;
the requirement of the giving of advance written notice as a precondition to
nominations of persons to be elected to the Board other than nominations made by
existing management; the absence of cumulative voting in director elections; and
the sixty-six and two-thirds percent shareholder vote requirements for mergers
and certain similar transactions. Further, a provision in the Articles of
Incorporation of FTC permits its Board of Directors to oppose an "Acquisition
Transaction" (defined generally as including a tender offer, merger proposal,
purchase of assets proposal or similar proposed transaction) on the basis of
factors other than economic benefit to the shareholders, including the impact of
the acquisition on the employees and customers of the corporation and its
subsidiaries and the communities which they serve.
The BCL also contains provisions applicable to "registered corporations"
such as FTC, including those providing generally that, subject to certain
exceptions, (i) a vote of disinterested shareholders is necessary to approve
fundamental transactions between the corporation and any "interested
shareholder", defined to include the shareholder in question and its affiliates;
(ii) in the event any person or group acquires 20% voting power, such acquired
shares lose all voting rights unless the same are restored by action taken by
the shareholders holding a majority of both the disinterested shares and all
voting shares; (iii) in the event any person or group acquires, offers or
acquire, or discloses the intention to acquire, 20% voting power, such person
must disgorge to the corporation any profit realized from the sale of his or its
shares realized within 18 months after the control shares are acquired; and (iv)
if any person or group acquires voting power over 20% or more of the votes
entitled to be cast in an election of directors, the remaining shareholders may
demand that the acquiring person purchase their shares at "fair value", which is
defined to be not less than the highest price per share paid by the acquiring
person within 90 days before obtaining such voting power, plus an increment
representing the proportional value of any control premium. Additionally, as
discussed above, BCL provisions applicable to FTC prohibit FTC shareholders from
proposing amendments to the FTC Articles of Incorporation and from calling
special shareholders' meetings.
The provisions discussed above may be considered to be "anti-takeover" in
nature, because they may have the effect of discouraging or making more
difficult the acquisition of
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control over FTC by means of a hostile tender offer, exchange offer, proxy
contest or similar transaction. These provisions are intended to protect the
shareholders of FTC (including the present shareholders of WCNB, who will become
shareholders of FTC following the Merger) by providing a measure of assurance
that FTC's shareholders will be treated fairly in the event of an unsolicited
takeover bid and by preventing a successful takeover bidder from exercising its
voting control to the detriment of the other shareholders. However, the anti-
takeover provisions set forth in the Articles of Incorporation and Bylaws of FTC
and the BCL provisions, taken as a whole, may discourage a hostile tender offer,
exchange offer, proxy solicitation or similar transaction relating to FTC Common
Stock. To the extent that these provisions actually discourage such a
transaction, holders of FTC Common Stock may not have an opportunity to dispose
of part or all of their stock at a higher price than that prevailing in the
market. In addition, these provisions make it more difficult to remove, and
thereby may serve to entrench, incumbent directors and officers of FTC, even if
their removal would be regarded by some shareholders as desirable. As to
provisions applicable to WCNB that might be considered to be "anti-takeover" in
nature, as noted advance written notification must be given concerning
non-management nominees for election to the WCNB Board of Directors, and mergers
and similar transactions require the approval of the holders of at least
sixty-six and two-thirds percent of the outstanding shares.
Indemnification
The Articles of Incorporation of FTC provide for indemnification by FTC of
all persons whom it has the power to indemnify (which includes its directors and
officers) to the fullest extent permitted under the laws of Pennsylvania, which
indemnification continues as to a person who has ceased to be a director,
officer, employee or agent of FTC. The Articles also provide that such
indemnification is not exclusive of any other rights to which such persons may
be entitled, and FTC has purchased insurance to indemnify its directors,
officers, employees and agents under certain circumstances. The WCNB Articles
and Bylaws similarly provide for the indemnification of directors, officers and
employees except to the extent that such persons are adjudged to be liable for
gross negligence, willful misconduct or criminal acts, and subject to certain
other exceptions. WCNB likewise has purchased directors' and officers' liability
insurance.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling FTC
pursuant to the foregoing provisions of FTC's Articles, FTC has been informed
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and is
therefore unenforceable.
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<PAGE>
Miscellaneous
Neither the FTC nor the WCNB Common Stock has any preemptive rights
entitling the holders to acquire additional stock or securities, subscription or
conversion rights, or redemption or repurchase provisions, and such shares are
non-assessable and require no sinking fund. Shareholders of FTC and WCNB are
entitled to receive dividends that may be declared by the respective Boards of
Directors and to share pro rata in the event of dissolution or liquidation. For
information concerning dividends and dividend restrictions, see "MARKET PRICES,
DIVIDENDS AND RELATED SHAREHOLDER MATTERS."
Holders of FTC Common Stock who are Pennsylvania residents will not be
subject to the Pennsylvania county personal property tax on their shareholdings.
However, in some jurisdictions shares of common stock of a general business
corporation such as FTC may be the subject of personal property taxation.
EXPERTS
The consolidated financial statements of FTC appearing in FTC's Annual
Report (Form 10-K) for the year ended December 31, 1994 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of WCNB as of December 31, 1994 and for each of
the years in the three year period ended December 31, 1994 included in this
Proxy Statement/Prospectus have been audited by Smith Elliott Kearns & Company,
independent certified public accountants, as set forth in their reports, and are
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
LEGAL OPINIONS
The validity of the shares of FTC Common Stock to be issued in connection
with the Merger and certain other legal matters in connection with the Merger
are being passed upon by McNees Wallace & Nurick, Harrisburg, Pennsylvania, as
counsel for FTC. Certain other legal matters in connection with the Merger are
being passed upon by Shapiro and Olander, Baltimore, Maryland, as counsel for
WCNB.
- 92 -
<PAGE>
OTHER MATTERS
The Board of Directors of WCNB does not know of any other matters intended
to be presented for shareholder action at the Special Meeting. However, if any
other matters shall properly come before the Special Meeting or any adjournment
or postponement thereof and be voted upon, any proxy given pursuant to this
solicitation will be voted in accordance with the judgment of the persons named
in the accompanying proxy.
Return of Proxy
YOU ARE URGED TO SIGN, DATE AND RETURN THE ACCOMPANYING PROXY AS PROMPTLY
AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. IF YOU DO
ATTEND THE MEETING, YOU MAY THEN WITHDRAW YOUR PROXY.
- 93 -
<PAGE>
FINANCIAL STATEMENTS
OF WASHINGTON COUNTY NATIONAL BANK
The unaudited financial statements of WCNB for and as of the period ended
March 31, 1995, and management's discussion and analysis of financial condition
and results of operations, are given on pages F-1 through F-10.
After Page F-10 are the 1994 Annual Report and 1992 Annual Report of WCNB
which contain the following financial statements:
Report of Independent Public Accountants
Balance Sheets at December 31, 1994 and 1993
Statements of Income for the years ended December 31, 1994, 1993
and 1992
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1994, 1993 and 1992
Statements of Cash Flow for the years ended December 31, 1994,
1993 and 1992
Notes to Financial Statements
- 94 -
<PAGE>
WASHINGTON COUNTY NATIONAL BANK
BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) March 31 December 31
1995 1994
-------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $3,394 $3,096
Federal funds sold 1,075 -----
Investment securities available - for - sale
(amortized cost basis of $40,729 and $42 40,039 41,036
Loans, net of unearned income of $534
and $435 respectively 88,200 88,222
Less: Reserve for loan losses (2,386) (2,425)
---------------------
Net Loans 85,814 85,797
Premises and equipment 3,009 3,035
Accrued interest receivable 865 854
Intangible assets 531 543
Other assets 2,170 2,297
---------------------
TOTAL ASSETS $136,897 $136,658
=====================
LIABILITIES
Deposits:
Non-interest bearing $15,532 $14,448
Interest bearing 109,340 109,941
---------------------
Total Deposits 124,872 124,389
Short-term borrowings ----- 1,000
Accrued interest payable 237 208
Other liabilities 820 733
---------------------
TOTAL LIABILITIES $125,929 $126,330
SHAREHOLDERS' EQUITY
Common Stock, par value $10 per share-
authorized 1,000,000 shares;
468,839 shares issued and outstanding 4,688 4,688
Surplus 4,689 4,689
Net unrealized holding gain from securities
available - for - sale, net of income taxes (423) (807)
Retained earnings 2,014 1,758
---------------------
TOTAL SHAREHOLDERS' EQUITY 10,968 10,328
---------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $136,897 $136,658
=====================
See notes to consolidated financial statements.
</TABLE>
F-1
<PAGE>
WASHINGTON COUNTY NATIONAL BANK
STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31
1995 1994
---- ----
<S> <C> <C>
Interest Income:
Loans, including fees
Investment securities: $1,795 $1,749
Taxable 409 338
Tax-exempt 154 172
Other, primarily federal funds sold 1 35
-------------------
TOTAL INTEREST INCOME 2,359 2,294
Interest Expense:
Deposits 943 912
Short-term borrowings and long-term debt 11 0
-------------------
TOTAL INTEREST EXPENSE 954 912
NET INTEREST INCOME 1,405 1,382
Provision for possible loan losses (54) 45
-------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 1,459 1,337
Other Operating Income:
Service charges on deposit accounts 55 55
Investment security gains (losses) 0 0
Other 32 23
-------------------
TOTAL OTHER OPERATING INCOME 87 78
Other Operating Expense:
Salaries and employee benefits 588 533
Net occupancy 64 74
Equipment 36 47
Other 407 434
-------------------
TOTAL OTHER OPERATING EXPENSES 1,095 1,088
-------------------
INCOME BEFORE INCOME TAXES 451 327
Applicable income taxes 125 83
-------------------
NET INCOME $326 $244
===================
PER SHARE DATA
Net income $0.70 $0.52
Dividends $0.15 $0.15
Weighted average number of shares outstanding 468,839 468,839
See notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
WASHINGTON COUNTY NATIONAL BANK
STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months ended March 31
1995 1994
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $326 $244
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 44 44
Amortization of intangible assets 12 24
Provision for loan losses (54) 45
Net amortization of investment security premiums (38) (19)
(Increase) decrease in interest receivable (11) 380
Increase (decrease) in interest payable 29 (10)
Increase (decrease) in other liabilities (154) 31
-----------------
CASH FLOW FROM OPERATING ACTIVITIES 154 739
-----------------
CASH FLOW FROM INVESTING ACTIVITIES:
(Increase) decrease in interest bearing bank balances
Proceeds from sales and maturities of investments 1,660 1,300
Purchases of investment securities 0 (5,538)
Net (increase) decrease in loans 22 428
Net loans recovered (charged-off) 15 2
Purchase of premises and equipment (18) (34)
(Increase) decrease in other assets 127 (151)
-----------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 1,806 (3,993)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 483 3,175
Net (decrease) in short-term borrowings (1,000) -----
Cash dividends (70) (70)
-----------------
CASH FLOW USED IN FINANCING ACTIVITIES (587) 3,105
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,373 (149)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 3,096 8,195
-----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,469 $8,046
=================
See notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
WASHINGTON COUNTY NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting interim
financial information and with the instructions to Form Regulation
S-X. Accordingly, they do not include all of the disclosures required
by generally accepted accounting principles. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1995 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1995. For further information, refer to the
financial statements and footnotes thereto included in the Company's
annual report.
NOTE B - INCOME TAXES
Income tax expense is less than the amount calculated using the
statutory tax rate primarily as a result of tax exempt income earned
from state and political subdivision obligations.
NOTE C - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the company makes various commitments
and incurs certain contingent liabilities which are not reflected in
the accompanying financial statements. There were firm commitments to
extend credit in the amount of $4,691,000,000 at March 31, 1995.
Commitments under outstanding standby letters of credit amounted to
$110,000 at March 31, 1995. Management does not anticipate any losses
as a result of these customary banking transactions.
F-4
<PAGE>
NOTE D
The entire investment securities portfolio is considered to be available-for-
sale. The amortized cost and fair values of investment securities were as
follows at the dates indicated:
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, 1995
Amortized Cost Fair Value
-------------- ----------
<S> <C> <C>
U.S. Treasury and other U.S.
government agencies $28,249 $27,548
State and political subdivisions 12,199 12,210
Equity Securities 281 281
------------------------
Total Available-for-sale $40,729 $40,039
========================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Amortized Cost Fair Value
-------------- ----------
<S> <C> <C>
U.S. Treasury and other U.S.
government agencies $29,018 $27,781
States and political subdivisions 12,552 12,471
Corporate and mortgage backed
securities 500 503
Equity Securities 281 281
------- -------
Total Available-for-sale $42,351 $41,036
=======================
</TABLE>
F-5
<PAGE>
NOTE E - LOANS
Loans consisted of the following at the dates indicated:
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Commercial, financial
and agricultural $3,040 $3,102
Real estate - construction 3,413 4,157
Real estate - residential 59,289 59,848
Real estate - other 18,254 16,270
Consumer 4,738 5,280
----------------------
88,734 88,657
Less: unearned income 534 435
----------------------
Total Loans $88,200 $88,222
======================
</TABLE>
NOTE F - DEPOSITS
Deposit composition was as follows, at the dates indicated:
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Non-interest bearing
demand deposits $15,532 $14,448
Interest bearing demand deposits 14,698 15,019
Money market deposit accounts 15,291 16,710
Savings accounts 42,367 45,205
Time deposits under $100,000 33,993 30,764
Time deposits of $100,000
and over 2,991 2,243
-----------------------
$124,872 $124,389
=======================
</TABLE>
F-6
<PAGE>
NOTE G - CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1994, the company adopted the provisions of Statement of
Financial Accounting Standards No. 115 which governs accounting for certain
investments in debt and equity securities. On January 1, 1994 the company
classified all securities as available for sale. Unrealized losses on securities
available-for-sale net of taxes which are recorded as a separate compenent of
shareholder's equity, are $807,348 and $423,405 at December 31, 1994 and March
31, 1995 respectively.
F-7
<PAGE>
WASHINGTON COUNTY NATIONAL BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the unaudited
financial statements of Washington County National Bank at and for the three
month period ended March 31, 1995, and the accompanying notes which precede this
discussion.
RESULTS OF OPERATIONS
Summary
Washington County National Bank recorded net income of $326,000 for the
first quarter of 1995, a 33.6% increase over the $244,000 earned during the
first quarter of 1994. On a per share basis, first quarter 1995 net income was
$.70 compared to $.52 for the first quarter of 1994 and $(.06) for the fourth
quarter of 1994.
The following statistics compare 1995's first quarter performance to that of
1994:
<TABLE>
<CAPTION>
1st Quarter 1st Quarter
1995 1994
---- ----
<S> <C> <C>
Return on average assets 0.95% 0.71%
Return on average equity 12.29% 9.10%
Average equity/Average assets 7.77% 7.74%
</TABLE>
A more detailed discussion of the elements having the greatest impact on net
income follows:
Net Interest Income
Net interest income is the amount by which interest income on earning
assets exceeds interest paid on interest bearing liabilities. The amount of net
interest income is effected by changes in interest rates, account balances or
volume, and the mix of earning assets and interest bearing liabilities.
Net interest income for the first quarter of 1995 increased $23,000, or
1.7%, over the first quarter of 1994. Net interest income increased $13,000, or
0.9% on a full tax equivalent basis.
F-8
<PAGE>
The table that follows states rates on a fully taxable equivalent basis, net of
disallowed interest expense deductions, and demonstrates the aforementioned
effects:
<TABLE>
<CAPTION>
1st Quarter, 1995 1st Quarter, 1994
----------------- -----------------
Avg. Balance Rates Avg. Balance Rates
------------------ ------------------
<S> <C> <C> <C> <C>
Interest earning assets $129,127 7.55% $131,390 7.25%
Interest bearing liabilities 110,227 3.51% 113,099 3.27%
------------------ ------------------
Free Funds $18,900 $18,291
======= =======
Net interest income (F.T.E.) $1,470 $1,457
======= =======
Net interest spread (F.T.E.) 4.04% 3.98%
===== =====
Free funds ratio 14.64% 13.92%
===== =====
Net interest margin (F.T.E.) 4.56% 4.44%
===== =====
</TABLE>
Other Income and Other Expenses
Total non-interest income increased 11.5%, or $9,000, over the first quarter of
1994. Gains were made in service charges, excluding those on deposit accounts,
and in other income areas.
Total non-interest expenses increased 0.6%, or $7,000 over the first quarter of
1994. This increase is primarily atrributable to salaries and employee benefits.
The provision for loan losses decreased by $99,000 compared to first
quarter of 1994 with the ratio of reserves to gross loans at 2.71% on March 31,
1995 versus 3.00% on March 31, 1995 versus 3.00% on March 31, 1994 and 2.75% on
December 31, 1994. Due to the quality of the loan portfolio, management believes
it is well reserved and a negative provision for 1995's first quarter is
justifiable. The unallocated portion of the reserve approximated $1,000,000 at
March 31, 1995.
Income before income taxes is up 37.9%, or $124,000, for the first quarter of
1995. Income tax expense is up $42,000 or 50.6% for the same period. The
effective income tax rates were 27.7% for 1995's first quarter and 25.4% for
1994's first quarter.
F-9
<PAGE>
LIQUIDITY AND RATE SENSITIVITY
The Bank continues to follow a strategy of pricing assets and liabilities
according to prevailing market rates and matching maturities as prudently as
possible within the guidelines of sound marketing and competitive practices. The
overall liquidity is strengthened by the reliance upon core deposits as the
major source of funds.
The primary objective of Washington County National Bank's asset/liability
management is to maximize net interest income while maintaining adequate levels
of liquidity and interest rate risk. Meeting the needs of the local communities
we serve is also quite important. Management is committed to continued
investment in these local communities and is confident that it will be able to
meet credit demands while preserving liquidity and profitability.
Rate sensitivity is measured primarily by the use of a monthly gap analysis
prepared as of March 31, 1995 on a cumulative basis demonstrates the following
rate sensitive asset/rate sensitive liability ratios at that date:
<TABLE>
<CAPTION>
Excluding Prepayments
---------------------
<S> <C>
0 - 3 months 1.38 to 1.00
0 - 6 months 1.31 to 1.00
0 - 12 months 1.62 to 1.00
</TABLE>
Total shareholders' equity represented 7.77% of assets at March 31, 1995, versus
7.74% one year earlier.
Any loans classified for regulatory purposes as loss, doubtful, substandard or
special mention that have not been disclosed under Item III of Industry Guide 3
do not result from trends or uncertainties which management reasonably expects
will materially impact future operating results, liquidity or capital resources.
Washington County National Bank's management is not aware of any current
recommendations by regulatory authorities which, if implemented, would have a
material effect on the corporation's liquidity, capital resources or operations.
F-10
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF AFFILIATION BETWEEN
FINANCIAL TRUST CORP AND WASHINGTON COUNTY NATIONAL BANK
THIS AGREEMENT AND PLAN OF AFFILIATION is made this 23rd day of December,
1994 by and between Financial Trust Corp, a Pennsylvania business corporation
having its principal office in Carlisle, Pennsylvania ("FTC"), and Washington
County National Bank, a national banking association having its principal office
in Williamsport, Maryland ("Bank").
W I T N E S S E T H:
WHEREAS, FTC is a Pennsylvania bank holding company and desires to
affiliate with Bank; and
WHEREAS, the Board of Directors of Bank has determined that it would be in
the best interests of Bank, its shareholders, its customers and the communities
served by it to become affiliated with FTC; and
WHEREAS, it is proposed that FTC and Bank enter into an agreement and plan
of affiliation under which Bank will merge with a wholly-owned national banking
association subsidiary of FTC, newly created for such purpose ("Interim Bank"),
and all the outstanding shares of common stock of Bank will be converted into
the right to receive shares of common stock of FTC; and
WHEREAS, the respective Boards of Directors of FTC and Bank have adopted
resolutions approving the affiliation of Bank with FTC pursuant to the proposed
merger of Bank with and into Interim Bank (hereafter, the "Merger")
substantially upon the terms and conditions set forth in this Agreement and Plan
of Affiliation (hereafter, the "Agreement") and in the Bank Merger Agreement
substantially in the form attached hereto as Appendix A (the "Merger
Agreement"); and
WHEREAS, the parties desire to adopt this Agreement as a plan of
reorganization and to consummate this Merger in accordance with the provisions
of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986,
as amended.
NOW THEREFORE, with the intent to be legally bound, the parties agree as
follows:
<PAGE>
ARTICLE I
MERGER OF BANK AND INTERIM BANK
SECTION 1.01. Interim Bank.
(a) FTC shall cause Interim Bank to be duly organized as a national banking
association. Interim Bank will be wholly-owned by FTC.
(b) FTC shall not permit Interim Bank to conduct any business operations
which would impair or adversely affect the consummation of the Merger or any of
the transactions contemplated in this Agreement or the Merger Agreement.
(c) Prior to the consummation of the Merger, FTC shall cause Interim Bank
to take all necessary and proper action to ratify, approve and adopt this
Agreement and the Merger Agreement and to undertake the performance of all of
the terms and conditions of this Agreement and the Merger Agreement to be
performed by Interim Bank.
SECTION 1.02. Merger.
(a) Promptly upon approval of the organization of Bank by the Comptroller
of the Currency ("Comptroller"), Bank and Interim Bank shall execute the Merger
Agreement.
(b) Subject to the provisions of the Merger Agreement, Bank will be merged
with and into Interim Bank. Each share of common stock of Bank, par value $10.00
per share, outstanding prior to the Merger (hereafter, "Bank Common Stock") will
be converted into 2.25 shares of FTC Common Stock, par value $5.00 per share
("FTC Common Stock"). Upon consummation of the Merger in accordance with the
Merger Agreement, all of the stock of the Surviving Bank, hereinafter defined,
will be issued to and held by FTC.
(c) Interim Bank shall be the surviving bank in the Merger (the "Surviving
Bank") and upon consummation of the Merger in accordance with the Merger
Agreement the separate existence of Bank shall cease. The Articles of
Association of Surviving Bank shall be the Articles of Association of Interim
Bank as in effect immediately prior to the Merger until amended in accordance
with law. The Bylaws of Surviving Bank shall be the Bylaws of the Interim Bank
as in effect immediately prior to the Merger until altered, amended or repealed
in accordance with law. The effect of the Merger shall be as provided in the
Merger Agreement.
(d) Immediately following the Effective Date, the directors, officers and
employees of the Surviving Bank shall be the same as those of the Bank
immediately before the
- 2 -
<PAGE>
Effective Date, except that Ray L. Wolfe shall become a new director of
Surviving Bank. Additionally, but subject nonetheless to satisfaction of any
qualification requirements set forth in the Bylaws of FTC, three directors to be
selected by the Board of Directors of Bank shall become new directors of FTC.
SECTION 1.03. Effective Date.
Subject to the termination provisions of this Agreement, the Effective Date
shall be such date following approval of the Merger by the Comptroller pursuant
to the provisions of Title 12, Section 215a of the United States Code that is no
earlier than the later of:
(i) Thirty-one (31) days following the date of the approval of the
Merger by the Comptroller; or
(ii) Thirty (30) days after the approval of FTC's acquisition of Bank
("Acquisition") by the Board of Governors of the Federal Reserve System
(the "Board"); or
(iii) Immediately following the approval of the Acquisition by the
Pennsylvania Department of Banking; or
(iv) Immediately following the approval of the Acquisition by the
Office of the Bank Commissioner of Maryland; or
(v) Immediately following the securing of any other required
regulatory approval.
SECTION 1.04. Conversion of Shares.
On the Effective Date, by virtue of the Merger and without any action on
the part of any holder thereof:
(a) Subject to the provisions of Article III hereof with respect to
dissenting shares, each share of Bank Common Stock issued and outstanding
immediately prior to the Effective Date will cease to be outstanding and
will, in accordance with and subject to the provisions of Section 1.05, be
converted into 2.25 shares of FTC Common Stock.
- 3 -
<PAGE>
(b) Each share of Bank Common Stock which, immediately prior to the
Effective Date, was issued and held in the treasury of Bank will be
cancelled and retired.
(c) No Perfected Dissenting Shares, as hereinafter defined, will be
converted into FTC Common Stock under this Section 1.04, but such Perfected
Dissenting Shares will be subject to the provisions of Article III hereof.
(d) Each authorized but unissued share of Bank Common Stock will cease
to exist.
(e) Each share of common stock of Interim Bank issued and outstanding
immediately prior to the Effective Date will continue to be issued and
outstanding and shall be held by FTC.
SECTION 1.05. Fractional Interests.
Neither certificates nor script for fractional interests in FTC Common
Stock will be issued, but in lieu thereof each holder who would otherwise have
been entitled to a fraction of a share of FTC Common Stock will be paid an
amount in cash equal to such fraction multiplied by the Closing Market Value Per
Share of the FTC Common Stock. For purposes of this Agreement, "Closing Market
Value Per Share" shall mean the average of the closing sales price of FTC Common
Stock as reported by the National Association of Securities Dealers' Automated
Quotation System ("NASDAQ") for the ten (10) consecutive trading days ending on
and including the second trading day prior to Closing. Such sales prices of FTC
Common Stock shall be determined by reference to quotations contained in the
Wall Street Journal, absent manifest error. Each such payment shall be made from
funds contributed by FTC to enable the Bank to pay for the liquidation of such
fractional interests using funds not acquired from Bank.
ARTICLE II
EXCHANGE OF BANK COMMON STOCK CERTIFICATES FOR FTC
COMMON STOCK CERTIFICATES
SECTION 2.01. Surrender of Certificates.
As promptly as practicable after the Effective Date, each holder of Bank
Common Stock shall be instructed to surrender his certificates with respect to
the same to FTC, and each such holder, in conformity with the provision of
Article I hereof, shall be entitled upon
- 4 -
<PAGE>
such surrender to receive in exchange therefor a certificate or
certificates representing the number of whole shares of FTC Common Stock into
which his shares of Bank Common Stock shall have been converted.
SECTION 2.02. Exchange Procedures.
Each certificate for shares of Bank Common Stock delivered for exchange
under this Section 2.02 shall be endorsed in blank by the registered holder
thereof or accompanied by a power of attorney to transfer such shares endorsed
in blank by such holder. If more than one certificate is surrendered at one
time, and in one transmittal package for the same shareholder account, the
number of whole shares of FTC Common Stock for which certificates will be issued
pursuant to this Section 2.02 shall be computed on the basis of the aggregate
number of shares represented by the certificates so surrendered. If shares of
FTC Common Stock are to be issued to a person other than the one in whose name
the surrendered certificate is registered, the certificate so surrendered shall
be properly endorsed or otherwise be in proper form for transfer and the person
to whom certificates for shares of FTC Common Stock are to be issued shall pay
any transfer or other taxes required by reason of such issuance or payment in
respect to shares of Bank Common Stock which are surrendered.
SECTION 2.03 Rights Evidenced by Certificates.
Each certificate for shares of FTC Common Stock issued in exchange for
certificates of Bank Common Stock pursuant to Section 2.01 shall be dated the
Effective Date and be entitled to dividends and all other rights and privileges
pertaining to such shares of Stock from that date. Until surrendered pursuant to
Section 2.01, each certificate theretofore evidencing shares of Bank Common
Stock shall, from the Effective Date of the Merger, evidence solely the right to
receive a certificate for shares of FTC Common Stock pursuant to Section 2.01
and shareholders of Bank shall not be entitled to any payment of any kind prior
to surrender of such shares.
SECTION 2.04. Failure to Surrender Bank Common Stock Certificates Within Two (2)
Years of Effective Date.
All Bank Common Stock certificates must be surrendered for exchange within
two (2) years from the Effective Date. In the event that any such certificates
are not surrendered for exchange within such two (2) year period, the shares of
FTC Common Stock that would otherwise have been issued in exchange for such
unsurrendered Bank Common Stock certificates may be sold by FTC in which event
the net proceeds of such sale shall be held for the holders of the unsurrendered
Bank Common Stock certificates. From and after any
- 5 -
<PAGE>
such sale, the sole right of the holders of the unsurrendered Bank Common
Stock certificates shall be the right to collect the net sale proceeds and
dividends accumulated to the date of sale held for their account, which right
shall be subject to such escheat or similar laws as shall then be in effect. Any
cash payment that would otherwise have been paid in exchange for such
unsurrendered Bank Common Stock certificates shall be held for the account of
the holder of unsurrendered Bank Common Stock certificates, and such holder's
sole right shall be to collect the cash held for his account, which right shall
be subject to such escheat or similar laws as shall then be in effect. No
interest shall accrue or be payable in respect of such cash payment or net sale
proceeds and dividends accumulated to the date of sale. No party hereto shall be
liable to any holder of Bank Common Stock for any amount paid in good faith to a
public official or agency pursuant to such escheat or similar laws as shall then
be in effect.
ARTICLE III
DISSENTING SHAREHOLDERS OF BANK
SECTION 3.01. Rights of Dissenting Shareholders.
Each holder of Bank Common Stock who objects to the Merger shall be
entitled to such rights and remedies of a dissenting shareholder, and shall be
subject to such limitations on such rights and remedies, as are specified in
Section 215a(b) of Title 12 of the United States Code ("12 U.S.C.
Section 215a(b)").
SECTION 3.02. Disposition of Shares of Dissenting Shareholders.
In the event there are holders of Bank Common Stock who dissent from the
Merger and exercise and perfect the right to obtain appraisal of and payment for
their shares ("Perfected Dissenting Shares") pursuant to 12 U.S.C. Section
215a(b), the following provisions shall govern payments made in respect of
Perfected Dissenting Shares and the rights of conversion and exchange of such
Shares as otherwise contemplated by Article I hereof or by the Merger Agreement:
(a) Payments of Appraised Value and Expenses. All payments in respect
of Perfected Dissenting Shares shall be made directly by FTC or from funds
contributed to the capital of Surviving Bank by FTC. FTC shall be free to
make such arrangements, as in the reasonable judgment of its officers may
be appropriate, to borrow funds and incur indebtedness in order to make
such payments so long as not inconsistent with the representations made in
any request for rulings from the Internal Revenue Service ("IRS",) or in
connection with the opinions of counsel contemplated
- 6 -
<PAGE>
hereunder, or otherwise not permitted under the Internal Revenue Code,
and the substance of the rulings and opinions as received. To the extent
not prohibited by 12 U.S.C. Section 215a(b), FTC shall advance or
contribute to Surviving Bank funds to cover the costs of any appraisal
proceedings in respect of the Perfected Dissenting Shares and all similar
costs and expenses.
(b) Cancellation of Shares and Rights. To the extent that notice given
pursuant to 12 U.S.C. Section 215a(b) in respect of Perfected Dissenting
Shares is received by Bank prior to or on the Effective Date, such Shares
shall be deemed to have been retired and cancelled immediately prior to the
Merger, with the effect that no conversion thereof shall occur pursuant to
Article I hereof or the Merger Agreement. If such notice is received during
the thirty (30) day period immediately following the Effective Date, the
right to shares of FTC Common Stock and all further procedures contemplated
hereby or in the Merger Agreement as might otherwise be applicable shall be
suspended in respect of such Shares.
ARTICLE IV
CERTAIN COVENANTS
SECTION 4.01. Covenants and Actions of Bank Pending the Closing.
(a) Shareholders Meeting. Bank shall take appropriate action to convene and
conduct the Bank Shareholders Meeting after FTC's Registration Statement
containing the Proxy Statement/Prospectus, as hereafter defined, has become
effective under the Securities Act of 1933, as amended ("Securities Act"). The
Board of Directors of Bank, subject to its continuing fiduciary duties to its
shareholders and the provisions of Section 4.01(h)(xii) hereof, shall use its
best efforts to secure approval of the Merger. In connection with the Bank
Shareholders Meeting, Bank shall duly cause its directors and officers to
solicit the vote of the shareholders of Bank to approve the transactions
contemplated by this Agreement by mailing or delivering to each such shareholder
the Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") in the final
form filed with the Comptroller and/or the Securities and Exchange Commission
("SEC",) and by taking other permissible actions in compliance with Section
14(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and
the proxy rules of the Comptroller or the SEC thereunder, to the extent
applicable.
(b) Proxy Statement/Prospectus. Bank shall cooperate with FTC in the
preparation and filing, in accordance with the requirements of the proxy rules
under the Exchange Act, of the Proxy Statement/Prospectus and the filing thereof
as part of the FTC Registration Statement, as hereinafter defined.
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(c) Regulatory Approvals. Bank shall cooperate with FTC: (i) in the
preparation and filing by FTC of applications with the Comptroller for its
approval of the Merger and related transactions, and applications with the Board
and the Pennsylvania Department of Banking and the Office of the Bank
Commissioner of Maryland for their respective approvals of the Merger; (ii) in
publishing all notices in connection with such applications; and (iii) in
supplying all information reasonably requested by FTC, the Comptroller, the
Board, the Pennsylvania Department of Banking, the Office of the Bank
Commissioner of Maryland and any other regulatory agencies in connection with
such applications and related transactions.
(d) Access to Properties and Records. Between the date of this Agreement
and the Effective Date, Bank shall give to FTC and its authorized
representatives reasonable access during normal business hours to the
properties, books and records of Bank, including without limitation all
regulatory reports and comments, and shall cause its officers to furnish such
additional financial and operating data and other information as FTC may
reasonably request, subject to the obligation of FTC and its authorized
representatives to maintain the confidentiality of all information concerning
Bank obtained by reason of such access, except for such information it may be
required to disclose in connection with the Proxy Statement/Prospectus, the FTC
Registration Statement and applications to governmental agencies whose approval
must be obtained to effect the Merger and related transactions.
(e) Notice of Actions and Proceedings. Bank shall promptly notify FTC of
any actions, claims or legal, administrative or arbitration proceedings or
investigations threatened or commenced against Bank of which Bank has knowledge
and which, if pending on the date hereof, would have been required to be
disclosed to FTC to assure the accuracy of the representations of Bank in
Section 5.01 hereof or which otherwise relate to and affect, the business or
assets of Bank in any material respect or the consummation of the Merger and the
transactions contemplated hereby.
(f) Bank Affiliates. Bank shall furnish FTC with a schedule of all holders
of Bank Common Stock and other persons who on the Effective Date may be deemed
to be affiliates of Bank within the meaning of Rule 145 under the Securities Act
and shall use its best efforts to assist FTC in obtaining from each of such
persons an executed affiliate's agreement in a form reasonably satisfactory to
counsel for Bank and for FTC.
(g) Related Party Transactions. Without the prior written consent of FTC,
which shall not be unreasonably withheld or delayed, Bank shall not on or after
the date hereof enter into any transactions of the type described in Section
5.01(s) of this Agreement.
(h) Conduct of Business in the Ordinary Course. Pending the Effective Date,
the business and operations of Bank shall be conducted diligently and only in
the ordinary course and Bank shall use its best efforts to preserve its business
and organization intact, retain its
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employees, and to preserve its goodwill with its customers and others
having business relations with it. Bank shall:
(i) carry on its business diligently and substantially in the same
manner as heretofore and in substantial compliance with applicable law and
will not institute any unusual or novel methods of management or operation
of its properties or business;
(ii) maintain its books and records in the usual, ordinary and normal
course and make no change in any accounting practice, method or
application;
(iii) promptly advise FTC in writing of the happening of any event of
which Bank has knowledge and which may reasonably be expected to have a
material or adverse effect on its financial condition, business, prospects
or affairs;
(iv) continue in effect its present insurance coverage on all
properties, assets, business and personnel;
(v) maintain all of its tangible property in customary repair, order
and condition (reasonable wear and tear excepted); and,
(vi) not do anything, nor fail to do anything which may cause a breach
of, or default in, any material contract, agreement, commitment or
obligation to which it is a party or by which it may be bound.
Furthermore, without the prior written consent of FTC, which shall not be
unreasonably withheld or delayed, or except as expressly contemplated herein,
Bank shall not:
(vii) amend its articles of incorporation or association or amend its
bylaws;
(viii) issue, sell, purchase, acquire or redeem, or grant options,
calls, warrants, or other rights to purchase, any shares of its capital
stock or other securities;
(ix) adopt or modify any bonus, pension, profit-sharing or other
compensation plan or contract or modify any employee compensation other
than modifications involving normal cost-of-living
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increases, regular and merit bonuses and normal increases related to
promotions or increased job responsibilities and modifications which in the
opinion of Bank's counsel are required by law, such opinion to be reviewed
and approved by FTC's counsel who shall not unreasonably withhold approval;
(x) take any action which if taken prior to the date hereof would
constitute a material breach of any representation or warranty contained
herein;
(xi) declare, pay or set aside a dividend or other distribution in
respect of its capital stock other than regular cash dividends, in an
average amount equal to $.20 per share per quarter (and in no event may the
Bank declare, pay or set aside any dividend after the Comptroller has
approved the Merger), the same to be paid on a date no earlier than the
payment date in the corresponding period of the preceding year;
(xii) merge or consolidate with any other bank, corporation or other
entity, acquire any stock (except in a fiduciary capacity), solicit any
offers for any of its stock or substantially all of its assets, effect any
reorganization or recapitalization, or, except in the ordinary course of
business, acquire any assets of any other person, corporation or business
organization, or enter into discussions with any person concerning, or
agree to do, any of the foregoing. Except as required by applicable
fiduciary duties, in the opinion of counsel to Bank, during the period
prior to the Effective Date, Bank shall give immediate notice, confirmed in
writing, to FTC of any offer, solicitation or proposal by or on behalf of
any bank, corporation, partnership, person or other entity or group with
respect to any possible merger, acquisition or similar transaction
involving Bank or any division or material asset of Bank;
(xiii) incur any liability or obligation, make any commitment or
disbursement, acquire or dispose of any property or asset, make any
contract or agreement, or engage in any transaction, except in the ordinary
course of its business; or
(xiv) subject any of its properties or assets to any material lien,
claim, charge, option or encumbrance not in existence on the date hereof.
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SECTION 4.02. Covenants and Actions of FTC Pending the Closing.
(a) Shareholders Meeting. FTC, as the sole shareholder of Interim Bank and
on its behalf, shall, subject to its right of termination hereunder, approve the
Merger.
(b) Proxy Statement/Prospectus. FTC shall cooperate with Bank in the
preparation and filing, in accordance with the requirements of any applicable
proxy rules, of the Proxy Statement/Prospectus.
(c) Applications for Regulatory Approvals. FTC shall cause Interim Bank to
file all necessary applications and take all reasonable actions related thereto
for consent to the Merger by the Comptroller. FTC shall file all necessary
applications with the Board and with the Pennsylvania Department of Banking and
the Office of the Bank Commissioner of Maryland for their respective approvals
of the Acquisition and shall provide Bank with copies of all correspondence and
notices concerning the Merger and the Acquisition to or from such agencies.
(d) Registration Statement of FTC. FTC shall prepare and file with the SEC
under the Securities Act a registration statement on Form S-4 or on any other
appropriate Form promulgated by the SEC for the registration of the shares of
FTC Common Stock to be issued pursuant to the terms hereof which shall include
the Proxy Statement/Prospectus. FTC shall not be liable for any untrue statement
of a material fact or omission to state a material fact in the FTC Registration
Statement made by FTC in reliance upon, and in conformity with, information
concerning Bank furnished to FTC by Bank or its agents or representatives for
use therein. FTC shall provide Bank with copies of all correspondence, comment
letters or notices to or from FTC concerning or relating to the FTC Registration
Statement and shall advise Bank promptly after it receives notice of the time
when such Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order with respect to the
effectiveness thereof, of the suspension of the qualification of the FTC Common
Stock for offering or sale in any jurisdiction, of the initiation or threat of
any proceeding for any such purpose, or of any request by the SEC for the
amendment or supplement of the FTC Registration Statement or the filing or
submission of additional information. FTC will not file any amendment or
supplement to the FTC Registration Statement without the prior approval of Bank,
which shall not be unreasonably withheld or delayed, except in any instance
where it or its legal counsel determines that such filing is required as a
matter of law or regulation.
(e) Notice of Actions and Proceedings. FTC shall promptly notify Bank of
any actions, claims or legal, administrative or arbitration proceedings or
investigations threatened or commenced against FTC which, if pending on the date
hereof, would have been required to be disclosed to Bank to assure the accuracy
of the representations of FTC in Section 5.02
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hereof or which otherwise relate to, or affect, the business or assets of
FTC in a material respect or the consummation of the Merger and the transactions
contemplated hereby.
(f) Access to Properties and Records. Between the date of this Agreement
and the Effective date, FTC shall give to Bank and its authorized
representatives reasonable access during normal business hours to the
properties, books and records of FTC and shall cause its officers to furnish
such additional financial and operating data and other information as Bank may
reasonably request, subject to the obligation of Bank and its authorized
representatives to maintain the confidentiality of all information concerning
FTC obtained by reason of such access except for such information Bank may be
required to disclose in connection with the Proxy Statement/Prospectus and such
applications to governmental agencies in connection with the Merger as may be
filed by Bank.
(g) Offered Employment. Subject to consummation of the Merger, FTC agrees
to cause Bank to offer employment contracts to each of M. L. Patterson, Jr., and
to David E. Drury providing for a term of three years and compensation in an
amount no less than the amount of compensation that as of the date of this
Agreement each is scheduled to receive during calendar year 1995.
SECTION 4.03. Mutual Covenants and Actions of Bank and FTC.
A ruling from the IRS or an opinion of McNees, Wallace & Nurick to the
effect set forth in Section 6.01(1) hereof shall be obtained. In case a ruling
from the IRS is sought, the parties shall cooperate and each shall furnish to
the other and to the IRS such information and representations as shall, in the
opinion of counsel for FTC and Bank, be necessary or advisable to obtain such
rulings.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Representations and Warranties of Bank.
Bank represents and warrants that:
(a) Organization and Corporate Records. Bank is a national banking
association duly organized, validly existing and in good standing under the laws
of the United States; has full corporate power and authority to own its assets
and to transact the business in which it is engaged and proposes to engage; and
is duly authorized to engage in the banking business as
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a member of the Federal Reserve System and as an insured bank under the
Federal Deposit Insurance Act. The copies of the Articles of Association and
Bylaws of the Bank heretofore delivered to FTC are complete and accurate copies
as existing on the date hereof. The minute books of Bank contain a complete and
accurate record of all meetings of Bank and the stock transfer books of Bank are
complete and accurate.
(b) Capitalization. The authorized capital stock of Bank consists solely of
1,000,000 shares of common stock, par value $10.00 per share, of which 468,839
shares have been issued and are outstanding as of the date of this Agreement.
All of such shares have been validly issued and are fully paid and
non-assessable. Bank is not a party to, or bound by, any option, call, warrant,
or other commitment or agreement obligating Bank at present or upon the
occurrence of any future event to issue or to sell any shares of common stock or
other capital stock of Bank.
(c) Subsidiaries. Bank owns no subsidiaries or equity interest in any
unincorporated entity, either directly or indirectly.
(d) Corporate Authority; Absence of Violation. The Board of Directors of
Bank has authorized the execution and delivery of this Agreement, has directed
that this Agreement be submitted to its shareholders for their approval and,
subject to their approval, has authorized the performance of this Agreement and
the consummation of the Merger. This Agreement has been duly and validly
executed and delivered by and constitutes the Bank's valid and binding
obligation enforceable against Bank in accordance with its terms, except to the
extent enforcement is limited by bankruptcy, insolvency and other similar laws
affecting creditors' rights or the application by a court of equitable
principles. Bank has the full power, authority and legal right to enter into
this Agreement and, subject to the approval of its shareholders and to the
regulatory approvals specified elsewhere in this Agreement, to consummate the
Merger. Neither the execution or delivery hereof, the consummation of the Merger
nor compliance by Bank with any of the provisions of this Agreement shall
violate any provision of the Articles of Association or Bylaws of Bank or
conflict with or result in a material breach of or material default under any
material agreement, obligation or instrument to which Bank is a party or by
which it is bound, or violate any order or decree of any court or any statute,
rule or regulation applicable to Bank or its properties or assets.
Notwithstanding anything contained herein to the contrary, each of FTC and Bank
acknowledges and agrees that (a) Bank has previously delivered, and FTC has
reviewed, each of the documents listed on the attached Schedule 5.01(d), and (b)
nothing contained in any of such documents shall constitute a default under this
Agreement.
(e) Financial Statements. Bank has delivered to FTC copies of the following
financial statements, each of which fairly represents the financial condition
and results of operations of Bank, at the dates and for the periods covered by
such statements and which
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have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods covered by such
statements:
(i) A Balance Sheet, Statement of Income, Statement of Changes in
Shareholders Equity, Statement of Cash Flow, and the Notes thereto, for
each of the years ended December 31, 1993, 1992 and 1991 (its "1993
Financial Statements", "1992 Financial Statement", and "1991 Financial
Statements" respectively), certified by Smith Elliott Kearns & Company
covering the operations of Bank;
(ii) Unaudited Balance Sheet, Statement of Income, Statement of
Changes in Shareholders' Equity and Statement of Cash Flow for the period
ended September 30, 1994 (its "1994 Financial Statements"), certified as
being true, correct and complete by Bank's vice president finance covering
the operations of Bank.
(f) Absence of Undisclosed Liabilities. Except to the extent reflected or
reserved against in the 1994 Financial Statement, as of the date of this
Agreement, Bank has no liability or obligation of any nature, due or to become
due, absolute, contingent or otherwise, including liability for or in respect of
taxes, required to be reflected or reserved against therein by generally
accepted accounting principles. Bank has no liability for accrued vacation and
sick pay (other than such attributable to the current fiscal period).
(g) Absence of Certain Changes. Since January 1, 1994, there has not been:
(i) any material adverse change in the condition, financial or
otherwise, or in the assets, liabilities, business, or prospects of Bank
other than changes in the ordinary course of business which do not in the
aggregate materially and adversely affect the business or prospects of
Bank;
(ii) any damage to or destruction or loss of property of Bank (whether
or not insured) which has had a material, adverse effect on the business of
Bank; or
(iii) any declaration, payment or setting aside of a dividend or
distribution in respect of Bank Common Stock other than regular cash
dividends each in an amount per share no greater than the amount per share
paid, and paid on a date no earlier than the payment date in the
corresponding period of the preceding year, or any direct or indirect
redemption, purchase or acquisition of any Bank Common Stock by Bank; or
(iv) any increase or modification in the compensation (current or
deferred, qualified or nonqualified) payable or to become payable to any of
the officers, directors, agents, consultants or employees of Bank or any
bonus arrangement with any of them (other than normal cost-of-living
increases, regular bonuses and normal increases related to promotions or
increased job responsibilities, and other than
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payments made to consultants for services rendered in connection with
the first listed item referenced in Schedule 5.01(d)) except as set forth
in Schedule 5.01(g)(iv); or
(v) any material obligation incurred other than in the ordinary course
of business; or
(vi) any material change in business practices or procedures; or
(vii) any change or modification in accounting or financial reporting
practices or methods.
(h) Taxes. There are no tax deficiencies, interest or penalties which are
reflected as due under any tax returns or which have been assessed as a result
of any audits that have not been paid in full, nor are there any outstanding
agreements to extend periods during which additional assessments may be made.
Bank has not filed any consent or agreement under Section 341(f) of the Internal
Revenue Code of 1986, as amended ("Internal Revenue Code") or joined in the
filing of, or been required to file, a consolidated return for any year. All
federal income tax returns required for all periods and other returns in respect
of all other federal, state and local taxes of any kind have been properly and
accurately prepared, timely filed and all taxes, interest and penalties due in
respect thereof have been paid. To the best of Bank's knowledge (after due
inquiry), there is no proposed deficiency, assessment, penalty or delinquency
with respect to any of such returns or any of the taxes reflected as due and
payable thereby except as set forth in Schedule 5.01(h).
(i) Title to Properties. Bank has good and marketable title to all of its
real estate and assets (including those reflected in the 1993 Financial
Statements except such as have been disposed of in the ordinary course of
business) free of any mortgage, encumbrance, lien or security interest, except
pledges of assets to secure public deposits and minor imperfections in title and
encumbrances which do not materially detract from the value or impair the use of
the properties affected thereby.
(j) Leases and Contracts. Bank is not a party or subject to any material
lease, contract, license, or commitment of any kind which cannot be cancelled
without material cost or penalty to Bank. There is no material default of Bank
under any material lease, contract or commitment to which Bank is a party or is
subject. All properties held by Bank under leases are held by it under valid,
binding and enforceable leases and Bank enjoys quiet and peaceful possession of
said leased properties except as set forth in Schedule 5.01(j).
(k) Compliance with Laws and Interpretations. Bank (i) is in substantial
compliance with, and is not in default in any material respect under any law,
regulation, ruling, pronouncement, ordinance, order, rule and decree applicable
to the conduct of its business or the ownership of its properties, including
without limitation those relating to regulatory minimum capital requirements,
lending and collection, employee hiring,
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management, compensation, and treatment, shareholders, and fee charging, (ii)
has not failed to file with the proper federal, state, local or other
authorities any material report or other document required to be so filed, and
(iii) has all approvals, authorizations, consents, licenses, clearances and
orders of, and have currently effective all registrations with, all governmental
and regulatory authorities, which are necessary to the business or operations of
Bank as they are now being conducted, the non-receipt of which might in the
aggregate materially adversely affect its businesses except as set forth in
Schedule 5.01(k).
(l) Litigation and Administrative Proceedings. There is no action or suit
or any administrative proceeding to which Bank is or may be a party, pending, or
to its knowledge (after due inquiry) threatened, in which there could be a
judgment, order, decree, liability, fine, penalty, injunction or
cease-and-desist order which may have a material adverse effect on its
condition, financial or otherwise, or the conduct of its business. Bank has no
knowledge of any pending or threatened claims or charges under the Community
Reinvestment Act, or before the Equal Employment Opportunity Commission, the
Office of Federal Contract Compliance, any Human Relations Commission or any
other Federal, state or local government agency except as set forth in Schedule
5.01(l).
(m) Public Health, Safety, and Environmental Laws. Bank (as owner, tenant
and secured lender) is not in violation of, nor has it received notice of a
potential or actual violation of, any applicable federal, state or local law,
statute, rule, regulation or ordinance relating to public health, safety or the
environment, including, without limitation, relating to releases, discharges,
emissions or disposals to air, water, land or ground water, to the withdrawal or
use of ground water, to the use, handling or disposal of polychlorinated
biphenyls (PCB's), asbestos or urea formaldehyde, to the treatment, storage,
disposal or management of hazardous substances (including, without limitation,
petroleum, crude oil or any fraction thereof, or other hydrocarbons), pollutants
or contaminants, to exposure to toxic, hazardous or other controlled, prohibited
or regulated substances which violation may have a material adverse effect on
the business, properties or financial condition of Bank. Any improvements on any
real estate owned or leased by Bank do not contain friable asbestos or
substances containing asbestos and deemed hazardous by any federal, state or
local laws, regulations or orders respecting such materials. After due inquiry,
Bank is unaware of any liability or class of liability of Bank (as owner, tenant
or secured lender) under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), or the
Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section
6901 et seq.).
(n) Employee Benefit Plans. Bank has no employee pension benefit plan
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), except the Bank's Defined Benefit Pension
Plan (the "Bank Pension Plan"), and has no other employee benefit or welfare
plans, or stock option or incentive stock, or other similar plans. Bank provides
no health or other welfare benefits to retirees other than as mandated by COBRA.
The Bank Pension Plan and, to the extent applicable, all
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such other plans, have been maintained and operated in material compliance with
all applicable provisions of ERISA, is not subject to any "accumulated funding
deficiency" within the meaning of ERISA and the regulations thereunder, or any
outstanding liability to the Pension Benefit Guaranty Corporation and has not
been a party to any "prohibited transaction", nor has any "reportable event"
occurred in respect thereof, as such terms are defined in ERISA, and no such
plan is a "Multi-Employer Plan" or a "Multiple Employer Plan", as such terms are
defined in ERISA and the regulations of the Department of Labor, respectively.
Further, on a termination basis, the benefits as of December 31, 1994, for all
plan participants of the Bank Pension Plan and each such other plan will be
fully funded by the assets of such Plan or other plan. In addition, there have
been no breaches of fiduciary duties or responsibilities by any fiduciary under
and with respect to the Bank Pension Plan or other employee benefit or welfare
plans maintained by Bank and no individual, government agency or other entity
has threatened or asserted any claim with respect to such plans under which Bank
has or will have any liability other than the ordinary and normal contributions
to such plans.
The Bank Pension Plan is qualified for favorable income tax treatment under
Section 401(a) and 501(a) of the Internal Revenue Code, and Bank is not aware
(after due inquiry) of any matter that would cause loss of such favorable tax
status.
With respect to the Bank Pension Plan, Bank has delivered to FTC an
accurate and complete copy of (A) the most recent plan documents, (B) the most
recent annual report filed with each of the United States Department of Labor
and the Internal Revenue Service, (C) the most recent financial and actuarial
report, (D) the most recently issued Internal Revenue Service rulings or
determination letters, and (E) all notices to the Pension Benefit Guaranty
Corporation of "reportable events", as defined in the Employee Retirement Income
Security Act of 1974 ("ERISA"). As of January 1, 1994, all accrued contributions
and other payments to be made under the Bank Pension Plan have been made or
reserves adequate for such purpose have been set aside therefor. As of the date
hereof, there was no unfunded liability other than for the current year's
liabilities for which reserves adequate for such purpose have been set aside,
and no funding deficiency existed with regard to the Bank Pension Plan.
This Section 5.01(n) is subject to the disclosures set forth in Schedule
5.01(n).
(o) Proxy Statement/Prospectus. None of the information relating to and
furnished by Bank to be included in the Proxy Statement/Prospectus shall contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they are made, not misleading at the time
the Proxy Statement/Prospectus is distributed to the shareholders of Bank or at
the respective times of the meetings of the shareholders of Bank called to vote
on this Agreement. Bank shall promptly advise FTC in writing if prior to the
Effective Date it shall obtain knowledge of any facts that would make it
necessary to amend the Proxy
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Statement/Prospectus or any Application to a regulatory agency, in order to make
the statements therein not misleading or to comply with applicable law. Bank
shall not be liable for any untrue statement of or omission to state a material
fact in the Proxy Statement/Prospectus which is made in reliance on information
furnished by FTC.
(p) Tax Ruling Application or Tax Opinion. The information and
representations concerning Bank furnished to FTC and to be provided to the IRS
for purposes of the request for tax rulings or to counsel for purposes of the
tax opinions referred to in Section 6.01(1) are as of the date hereof and shall
be on the Effective Date true and correct in all material respects.
(q) Insurance and Fidelity Bonds. Bank is, and continuously since at least
January 1, 1993, has been, insured with reputable insurers against all risks
normally insured against by companies of the same type and in the same line of
business, and all of the insurance policies or bonds maintained by it are in
full force and effect. Bank is not in default thereunder and all material claims
thereunder have been filed in due and timely fashion. Since at least January 1,
1992, Bank has continuously maintained fidelity bonds insuring it against acts
of dishonesty by its employees in such amounts as is customary, usual and
prudent for a bank of its size. Since January 1, 1992, there have been no claims
under such bonds and Bank is not aware of any facts which would form the basis
of a claim under such bonds. Bank has no reason to believe that its fidelity
coverage will not be renewed by its carrier on substantially the same terms as
its existing coverage.
(r) Labor Relations and Contract. Bank is not a party to any contract or
other agreement with any labor union and Bank enjoys good working relationships
with its employees and there are no pending or to Bank's knowledge threatened
disputes with or claims by any of the employees of Bank. Bank is not a party to
any contract with any employee, agent or consultant that is not terminated at
will without liability.
(s) Related Party Transactions. Except as set forth in Schedule 5.01(s),
since December 31, 1992, there have been no transactions between Bank and any of
its officers, directors, shareholder owning 5% or more of the Bank's outstanding
capital stock, or any of their associates, or any businesses of which an officer
or director of Bank is an officer, director, employee or 10% or more equity
owner, which are of the type which would be required to be disclosed in a proxy
statement of Bank pursuant to the Regulations of the Comptroller.
(t) Representations Not Misleading. No representation or warranty by Bank
in this Agreement, nor any statement, exhibit or schedule furnished to FTC by or
on behalf of Bank under and pursuant to the Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
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SECTION 5.02. Representations and Warranties of FTC.
FTC represents and warrants that:
(a) Organization. FTC is a business corporation, duly organized, validly
existing and in good standing under the laws of Pennsylvania; has full corporate
power and authority to own its assets and transact the business in which it is
engaged and proposes to engage; and owns all the issued and outstanding shares
of voting stock of (i) Farmers Trust Company, a bank and trust company duly
organized, validly existing and in good standing under the laws of Pennsylvania
("Farmers"); (ii) Chambersburg Trust Company, a bank and trust company duly
organized, validly existing and in good standing under the laws of Pennsylvania
("Chambersburg"); (iii) First National Bank and Trust Company, a national
banking association duly organized and validly existing under the National Bank
Act ("First National"); (iv) First Federal Savings Bank, a national banking
association duly organized and validly existing under the National Bank Act
("First Federal"); and (v) Financial Trust Life Insurance Company, an insurance
company duly organized, validly existing and in good standing under the laws of
Arizona ("FTLIC"). The said five subsidiaries are referred to hereinafter as the
"Subsidiaries".
(b) Capitalization. The authorized capital stock of FTC, as of the date
hereof, consists of 8,000,000 shares of common stock, $5.00 par value per share,
of which at September 30, 1994, 6,710,861 shares were issued and outstanding.
(c) Subsidiaries. FTC owns all the issued and outstanding shares of the
Subsidiaries free and clear of any liens, security interests and other
encumbrances.
(d) Corporate Authority; Absence of Violation. The Board of Directors of
FTC has authorized the execution and delivery of this Agreement and has
authorized the performance of this Agreement. This Agreement has been duly and
validly executed and delivered by FTC and constitutes the valid and binding
obligation of FTC enforceable against FTC in accordance with its terms, except
to the extent enforcement is limited by bankruptcy, insolvency and other similar
laws affecting creditors' rights or the application by a court of equitable
principles. FTC has the full power, authority and legal right to enter into this
Agreement and, subject to the regulatory approvals specified elsewhere in this
Agreement, to perform its obligations hereunder. Neither the execution or
delivery hereof, the consummation of the Merger nor compliance by FTC with any
of the provisions of this Agreement shall violate any provision of its articles
of incorporation or bylaws or conflict with or result in a material breach of or
material default under any material agreement, obligation or instrument to which
it is a party or by which it is bound, or violate any order or decree of any
court or any statute, rule or regulation applicable to it or its properties or
assets.
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(e) Financial Statements. FTC has delivered to Bank copies of the following
financial statements, each of which fairly represents the consolidated financial
conditions and results of operations of FTC and its Subsidiaries, at the dates
and for the periods covered by such statements, and which have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods covered by such statements:
(i) A Consolidated Balance Sheet, Consolidated Statement of Income,
Consolidated Statement of Changes in Shareholders' Equity, Consolidated
Statement of Cash Flow, and the Notes thereto, for each of the years ended
December 31, 1993, 1992 and 1991 (its "1993 Financial Statements", "1992
Financial Statements" and "1991 Financial Statements", respectively),
certified by Ernst & Young.
(ii) Unaudited Consolidated Balance Sheet, Consolidated Statement of
Income, Consolidated Statement of Changes in Shareholders' Equity and
Consolidated Statement of Cash Flow for the period ended September 30, 1994
(its "1994 Financial Statements"), certified as being true, correct and
complete by FTC's chief financial officer covering the operation of FTC and
Subsidiaries.
(f) Absence of Undisclosed Liabilities. Except to the extent reflected or
reserved against in the 1994 Financial Statement, as of date hereof, FTC has no
liability or obligation of any nature, due or to become due, absolute,
contingent or otherwise, including liability for or in respect of taxes,
required to be reflected or reserved against therein by generally accepted
accounting principles.
(g) Absence of Certain Changes. Since January 1, 1994, there has not been:
(i) any material adverse change in the condition, financial or
otherwise, or in the assets, liabilities or business or prospects of FTC or
the Subsidiaries, other than changes in the ordinary course of business
which do not in the aggregate materially and adversely affect the business
or prospects of FTC and its Subsidiaries on a consolidated basis;
(ii) any damage to or destruction or loss of property of FTC or the
Subsidiaries (whether or not insured) which has had a material, adverse
effect on the business of FTC and its Subsidiaries on a consolidated basis;
(iii) any declaration, payment or setting aside of a dividend or
distribution in respect of common stock of FTC other than the regular
quarterly dividends;
(iv) any material change in business practices or procedures; or
(v) any change or modification in accounting or financial reporting
practices or methods.
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(h) Taxes. There are no known tax deficiencies, interest or penalties which
are reflected as due under any returns or which have been assessed as a result
of any audits which have not been paid in full, and there are no outstanding
agreements to extend periods during which additional assessments may be made.
Neither FTC nor any of its Subsidiaries has filed any consent or agreement under
Section 341(f) of the Internal Revenue Code. All federal income tax returns for
all periods and other returns in respect of all other federal, state and local
taxes of any kind have been timely filed and all taxes, interest and penalties
due in respect thereof have been paid. To the best of FTC's knowledge, there is
no proposed deficiency, assessment, penalty or delinquency with respect to any
of such returns or any of the taxes reflected as due and payable thereby.
(i) Title to Properties. FTC and the Subsidiaries have good and marketable
title to all of their real estate and assets (including those reflected in the
1993 Financial Statements except such as have been disposed of in the ordinary
course of business) free of any mortgage, encumbrance, lien or security
interest, except pledges of assets to secure public deposits and minor
imperfections in title and encumbrances which do not materially detract from the
value or impair the use of the properties affected thereby.
(j) Leases and Contracts. FTC and the Subsidiaries are not a party or
subject to any material lease contract or commitment of any kind which cannot be
cancelled without material cost or penalty to FTC or such Subsidiary. There is
no material default of FTC or any Subsidiary under any material lease, contract
or commitment to which FTC or a Subsidiary is a party or is subject. All
properties held by FTC and its Subsidiaries under leases are held under valid,
binding and enforceable leases and FTC and its Subsidiaries enjoy quiet and
peaceful possession of said leased properties.
(k) Compliance with Laws. FTC (considered on a consolidated basis with its
Subsidiaries) (i) is in substantial compliance with, and is not in default in
any material respect under any law, regulation, ruling, pronouncement,
ordinance, order, rule and decree applicable to the conduct of its business or
the ownership of its properties, including without limitation those relating to
regulatory minimum capital requirements, lending and collection, employee
hiring, management, compensation, and treatment, shareholders, and fee charging,
(ii) has not failed to file with the proper federal, state, local or other
authorities any material report or other document required to be so filed, and
(iii) has all approvals, authorizations, consents, licenses, clearances and
orders of, and has currently effective all registrations with, all governmental
and regulatory authorities, which are necessary to the business or operations of
FTC as they are now being conducted, the non-receipt of which might in the
aggregate materially adversely affect its businesses.
(l) Litigation and Administrative Proceedings. There is no action or suit
or any administrative proceeding to which FTC or any Subsidiary is or may be a
party, pending, or to FTC's knowledge threatened, in which there could be a
judgment, order, decree, liability, fine, penalty, injunction or
cease-and-desist order which would have a material adverse effect
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on their condition, financial or otherwise, or the conduct of their business.
FTC has no knowledge of any pending or threatened claims or charges under the
Community Reinvestment Act, or before the Equal Employment Opportunity
Commission, the Office of Federal Contract Compliance, any Human Relations
Commission or any other federal, state or local government agency.
(m) Public Health, Safety, and Environmental Laws. FTC and Subsidiaries (as
owners, tenants and secured lenders) are not in violation of, nor has it
received notice of a potential or actual violation of, any applicable federal,
state or local law, statute, rule, regulation or ordinance relating to public
health, safety or the environment, including, without limitation, relating to
releases, discharges, emissions or disposals to air, water, land or ground
water, to the withdrawal or use of ground water, to the use, handling or
disposal of polychlorinated biphenyls (PCB's), asbestos or urea formaldehyde, to
the treatment, storage, disposal or management of hazardous substances
(including, without limitation, petroleum, crude oil or any fraction thereof, or
other hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous
or other controlled, prohibited or regulated substances which violation may have
a material adverse effect on the business, properties or financial condition of
FTC. Any improvements on any real estate owned or leased by FTC and Subsidiaries
does not contain friable asbestos or substances containing asbestos and deemed
hazardous by any federal, state or local laws, regulations or orders respecting
such materials. After due inquiry, FTC and Subsidiaries are unaware of any
liability or class of liability of FTC and Subsidiaries (as owners, tenants or
secured lenders) under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), or the
Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section
6901 et seq.).
(n) Employee Benefit Plans. The employee benefit plans maintained by FTC
are described in FTC's 1994 Proxy Statement, a copy of which has been furnished
to Bank, such Proxy Statement and plans being incorporated herein and made a
part hereof by reference. Such plans comply in all material respects with state
and federal laws applicable to them.
(o) Proxy Statement/Prospectus. None of the information relating to and
furnished by FTC to be included in the Proxy Statement/Prospectus shall contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they are made, not misleading at the time
the Proxy Statement/Prospectus is distributed to the shareholders of Bank or at
the time of the meeting of the shareholders of Bank called to vote on this
Agreement. FTC shall not be liable for any untrue statement of or omission to
state a material fact in the Proxy Statement/Prospectus which is made in
reliance on information furnished by Bank.
(p) Tax Ruling Application or Tax Opinion. The information and
representations concerning FTC furnished to Bank and to be provided to the IRS
for purposes of the request
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for tax rulings or to counsel for purposes of the tax opinions referred to in
Section 6.01(1) are as of the date hereof and will be on the Effective Date true
and correct in all material respects.
(q) Insurance. FTC and the Subsidiaries have in effect insurance coverage
with reputable insurers which coverage, with respect to amounts, types and risks
insured, is customary in the industry and adequate for the business conducted by
them. FTC's bank Subsidiaries also have in effect fidelity bonds insuring them
against acts of dishonesty by their respective employees in such amounts as is
customary, usual and prudent for banks of their size, and are not aware of any
facts which would form the basis of a claim under such bonds.
(r) Labor Relations. Neither FTC nor any Subsidiary is a party to any
contract or other agreement with any labor union and each of FTC and its
Subsidiaries enjoys good working relationships with its employees and there are
no pending or to their knowledge threatened labor disputes with any of the
employees of FTC or its Subsidiaries.
(s) Representations Not Misleading. No representation or warranty by FTC in
this Agreement, nor any statement, exhibit or schedule furnished to Bank by or
on behalf of FTC under and pursuant to the Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01. Conditions Precedent to Obligation of the Parties.
The obligation of the parties to consummate the transactions contemplated
by the Agreement and by the Merger Agreement shall be subject to the
satisfaction, on or before the date of Closing (as provided for and defined as
"Closing Date" hereinafter at Article VII), of each and every one of the
following conditions, all or any of which may be waived in writing, in whole or
in part, as hereinafter provided, by the party for whom the provision was
intended to benefit.
(a) Performance of Covenants. Each of the acts and undertakings of the
parties to be performed on or before the Closing Date shall have been duly
performed; and the principal executive officer of each of Bank and FTC shall
have executed and delivered to the other a certificate, dated as of the Closing
Date, to the effect that such officer has no knowledge of the nonfulfillment of
the foregoing condition.
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(b) Representations True at Closing. The representations and warranties
made herein shall be true and correct in all material respects on the Closing
Date hereunder with the same force and effect as though such representations and
warranties had been made on and as of such time (except that such
representations and warranties may be untrue or incorrect as a result of actions
or transactions contemplated or permitted by this Agreement, or actions or
transactions made with the consent of the other) and the principal executive
officer of each of Bank and FTC shall have executed and delivered to the other a
certificate, dated as of the Closing Date, to the effect that such officer
(after due inquiry) has no knowledge of the nonfulfillment of the foregoing
condition.
(c) Changes in Financial Condition. Since the date of the Agreement (i)
there shall not have occurred any material adverse change in the financial
condition, operations, business, assets, liabilities or prospects of Bank
(exclusive however, of any such change(s) thereto, or the stock price thereof,
as may result from or in any manner, directly or indirectly, relate to (i) the
anticipation of the Merger or (ii) any general market or industry condition or
other event or circumstance not directly caused by or related to Bank, each of
which shall be disregarded), nor shall any pre-existing but undisclosed material
adverse condition have been discovered and (ii) there shall not have occurred
any material adverse change in the financial condition, operations, business,
assets, liabilities or prospects of FTC (exclusive however, of any such
change(s) thereto, or the stock price thereof, as may result from or in any
manner, directly or indirectly, relate to (i) the anticipation of the Merger or
(ii) any general market or industry condition or other event or circumstance not
directly caused by or related to FTC, each of which shall be disregarded), nor
shall any pre-existing but undisclosed material adverse condition have been
discovered.
(d) Certified Resolutions. Each party shall have furnished the other with a
certified copy of resolutions duly adopted by its respective Board of Directors
and, to the extent necessary for the due approval of the Merger and other
transactions contemplated by this Agreement, shareholders authorizing the Merger
and the transactions contemplated hereby.
(e) Shareholder Approvals. The Merger shall have been approved by the
affirmative vote of at least two-thirds of the votes which the holders of the
outstanding stock of Bank and Interim Bank, respectively, are entitled to cast,
and the number of shares of Bank voting against or dissenting from the Merger
shall not be more than 10% of the outstanding shares of Bank.
(f) Government Approvals and Other Consents. FTC, Interim Bank and Bank
shall have received in form and substance satisfactory to FTC's and Bank's
counsel all necessary federal and state governmental and regulatory approvals
for the Merger and transactions contemplated thereby and hereby (including but
not limited to the approval of the Board, the Comptroller, the Pennsylvania
Department of Banking and the Office of the Bank Commissioner of Maryland).
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<PAGE>
(g) No Injunction. No action, proceeding, regulation, or legislation shall
have been instituted or threatened before any court, governmental agency or
legislative body to enjoin, restrain or prohibit, or to obtain substantial
damages in respect of, or which is related to or arises out of, the Agreement or
the Merger Agreement or the consummation of the transactions contemplated hereby
or thereby, which in the reasonable judgment of FTC and Bank would make it
inadvisable to consummate such transactions.
(h) Litigation. On the Closing Date, there shall not be pending or
threatened against either party or any of its officers or directors in their
capacity as such, any suit, action or proceeding which, if successful, may have
a material adverse effect on the financial condition, operations, or prospects
of the party.
(i) No Misstatements or Omissions. Neither party shall have discovered any
material error, misstatement or omission in any of the representations or
warranties of the other or in any certification or information furnished or to
be furnished hereunder or in the information contained in the proxy materials
furnished to the shareholders in connection with the Merger or any material
failure to perform or satisfy any covenants of Bank or FTC contained herein.
(j) Opinion of Bank's Counsel. An opinion of Shapiro and Olander, counsel
to Bank, shall have been delivered to FTC, dated the Closing Date and in form
and substance satisfactory to FTC and its counsel, to the effect that:
(i) Bank has been duly organized and is validly existing as a banking
association in good standing under the laws of the United States of America
and has full corporate power to own its property and assets and to carry on
its business as presently conducted;
(ii) Bank has the full corporate power to execute and deliver the
Agreement and the Merger Agreement. All corporate action of Bank required
to duly authorize the Agreement and the Merger contemplated hereby has been
taken, and the Agreement is valid and binding on Bank in accordance with
its terms, subject, as to the enforcement of remedies, to applicable
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally from time to time in effect, and
subject to any equitable principles limiting the right to obtain specific
performance of certain obligations hereunder;
(iii) All shares of Bank Common Stock issued and outstanding as of the
Closing Date are duly authorized, validly issued, fully paid and
nonassessable other than as provided in Section 55 of Title 12 of the
United States Code;
(iv) The consummation of the Merger contemplated hereby will not
violate any provision of Bank's Articles of Association or Bylaws, or
violate any provision
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of, or result in the acceleration of any material obligation under, any
mortgage, loan agreement, order, judgment, law or decree known to such
counsel to which Bank is a party or by which Bank is bound, and will not
violate or conflict with any other material restriction of any kind or
character known to such counsel to which Bank is subject; and
(v) Such other matters as may be agreed to among the parties hereby
and their respective counsel.
In rendering such opinion, such counsel may rely as to matters of fact, to
the extent such counsel deems such reliance necessary or appropriate, upon
certificates of public officials and of responsible officers of Bank, provided
the extent of such reliance shall be specified in the opinion and executed
counterparts of such certificates have been furnished to FTC.
(k) Financial Confirmation. Smith Elliott Kearns & Company, or such other
accounting firm as is acceptable to the parties, shall have furnished to FTC a
letter, dated the Closing Date, in form and substance satisfactory to FTC to the
effect that, based upon a subsequent event review performed with respect to the
financial condition of Bank for the period from December 31, 1994, to the latest
quarter end prior to the Effective Date, including but not limited to (i) their
inspection of the minute books of Bank, (ii) inquiries made by them of officers
and other employees of Bank responsible for financial and accounting matters as
to transactions and events during the period, as to consistency of accounting
procedures with prior periods and as to the existence and disclosure of any
material contingent liabilities, and (iii) other specified procedures and
inquiries performed by them, nothing has come to their attention that would
indicate that (A) during the period from December 31, 1994, to a specified date
not more than five days prior to the Closing Date there was any change in the
capitalization of Bank, or (B) any material adjustments would be required to be
made to the financial statements for the period ended December 31, 1994, in
order for them to be in conformity with generally accepted accounting principles
applied on a consistent basis with that of prior periods.
(l) Tax Ruling or Opinion. There shall have been received either a
favorable ruling from the IRS or an opinion of McNees, Wallace & Nurick
satisfactory in form and in substance to FTC and Bank to the effect that:
(i) The Merger constitutes a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code;
(ii) No gain or loss shall be recognized by Bank or FTC by reason of
the Merger; and
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(iii) No income, gain or loss shall be recognized by Bank's
shareholders on the exchange of their shares of Bank Common Stock for
shares of FTC Common Stock.
(m) Opinion of Counsel for FTC. Bank shall receive from McNees, Wallace &
Nurick, counsel for FTC, an opinion, dated the Closing Date, in form and
substance satisfactory to Bank and its counsel, covering the same topics, but
with respect to FTC as a Pennsylvania business corporation and bank holding
company, described at subpart (j) above, as well as with respect to the validity
of the Merger, the due authorization and issuance of the shares of FTC Common
Stock to be issued in connection with the Merger and such other matters related
thereto as may be agreed upon among Bank, FTC and their respective counsel. In
rendering such opinion, such counsel may rely as to matters of fact, to the
extent such counsel deems such reliance necessary or appropriate, upon
certificates of public officials and of responsible officers of FTC, provided
the extent of such reliance shall be specified in the opinion and executed
counterparts of such certificates have been furnished to Bank.
(n) Securities Act Registration. The FTC Registration Statement
contemplated by Section 4.02(d) hereof shall have been filed by FTC with the SEC
under the Securities Act and shall have been declared effective prior to the
time at which the Proxy Statement/Prospectus is first mailed, and no stop order
with respect to the effectiveness of the FTC Registration Statement shall have
been issued nor any proceeding therefor initiated or threatened under the
Securities Act. The FTC Registration Statement, when and as declared effective
by the SEC, and on the date of the respective meetings of shareholders of Bank
and Interim Bank, shall not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements made therein not misleading. In addition, the shares of
Common Stock of FTC shall have been duly registered or qualified under or
otherwise sold in compliance with the securities or "blue sky" laws of all
states in which such action is required for purposes of the initial issuance of
such stock and its distribution to the shareholders of Bank entitled to receive
it.
(o) Fairness Opinion. If Bank so elects, Bank shall have obtained an
opinion, in form satisfactory to Bank's Board of Directors, from an independent
financial advisor that the transaction is fair from a financial point of view to
Bank's shareholders. The fees and costs of all services of such financial
advisor, including but not limited to the rendering of a fairness opinion, shall
be borne by Bank notwithstanding any other provision of this Agreement.
(p) Emergencies. No state of war, national emergency or banking moratorium
shall have been declared.
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(q) Availability of Pooling. The Merger shall meet the requirements of
pooling of interests accounting treatment under generally accepted accounting
principles and under the accounting rules of the SEC.
(r) Preservation of Separate Benefit Plans. The determination by counsel(s)
that the continuation by each of Bank and FTC of its current benefit plans
(qualified and nonqualified) for its employees through December 31, 1996,
without inclusion in the other party's plans will not disqualify the tax status
of the other party's benefit plan(s).
ARTICLE VII
CLOSING
Section 7.01. Closing.
The closing hereunder ("Closing") shall take place on the Effective Date or
the immediately preceding business day at the offices of FTC, 310 Allen Road,
Carlisle, Pennsylvania, at 10:00 a.m. local time, or at such other location and
time as the parties may agree to, at which the parties shall exchange the
certificates and other documents provided for in this Article VII, provided that
all conditions precedent to the obligations of Bank and FTC to close have then
been met or waived. Either party may postpone Closing, and thereby delay the
Effective Date, for a reasonable period (not to exceed fifteen days) if
necessary to enable it to perform any obligations hereunder. Subject to the
termination provisions set forth in Article VIII hereof, if either party shall
refuse to close because all the conditions precedent to its obligation to close
shall not have been satisfied by the other party, it may terminate the Agreement
by giving written notice of such termination to the other party. Upon the giving
of any such notice, or upon the mutual agreement of the parties hereto, the
Agreement (except this Section 7.01 and any applicable provisions of Section
8.02) shall terminate and be of no further force or effect.
Section 7.02. Documents to be Delivered by Bank.
Bank shall deliver to FTC at the Closing a certificate of its principal
executive officer acting in his capacity as such to the effect that, except for
changes approved by FTC or contemplated herein, the representations and
warranties of Bank in this Agreement are true and correct in all material
respects as of the Closing Date as if made on that date; that Bank has performed
and complied with all agreements, covenants and conditions to be performed or
complied with by Bank under this Agreement; that the holders of the requisite
number of shares of Bank Common Stock have approved the Merger; and that a list
attached to the certificate contains the names of all the shareholders, if any,
and the number of shares held by each of them, who have given written notice of
dissent from the Merger or who have
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voted against it. In addition, Bank shall deliver to FTC at the Closing all
such other documents as FTC may reasonably request in connection with the
Merger.
Section 7.03 Documents to be Delivered by FTC.
FTC shall deliver to Bank at the Closing a certificate of its principal
executive officer acting in his capacity as such to the effect that, except for
changes approved by Bank or contemplated herein, the representations and
warranties of FTC in this Agreement are true and correct in all material
respects as of the Closing Date as if made on that date; that the shareholders
of FTC have approved the Merger, if required; that the FTC Registration
Statement has been declared effective by order of the SEC; that FTC has
performed and complied with all agreements, covenants and conditions to be
performed or complied with by FTC under this Agreement; that FTC, the sole
shareholder of Interim Bank, has approved the Merger; that the Merger and the
acquisition have been approved by the Board, the Comptroller, Pennsylvania
Department of Banking and the Office of the Bank Commissioner of Maryland; and
that a period of thirty (30) days has expired since the date of the later of the
Comptroller's or the Board's consent without a stay of the effectiveness of that
consent by reason of the filing of an action by the United States under the
antitrust laws during that period. Copies of the written approval of the Board
and the Comptroller shall be attached to the certificate. In addition, FTC shall
deliver to Bank at the Closing all such other documents as Bank may reasonably
request in connection with the Merger.
ARTICLE VIII
TERMINATION OF THE AGREEMENT AND MERGER AGREEMENT;
AMENDMENT AND WAIVER
Section 8.01. Right of Termination.
This Agreement may be terminated prior to the Effective Date as follows:
(a) Joint Action by Both Parties. By joint action of the Board of Directors
of each party hereto.
(b) Unilateral Action by FTC. By action of FTC, if:
(i) there has been a material breach by Bank of any representation,
warranty or covenant contained herein; or
(ii) any litigation or proceeding is pending before any court or
governmental agency against Bank, which in the reasonable business judgment
of the
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board of directors of FTC, because of such litigation or proceeding and the
circumstances relating thereto it would be inadvisable or undesirable for
it to carry out this Agreement; or
(iii) there has been a failure to satisfy a condition set forth in
Article VI intended to benefit FTC.
(c) Unilateral Action by Bank. By action of Bank, if:
(i) there has been a material breach by FTC of any representation,
warranty or covenant contained herein; or
(ii) any litigation or proceeding is pending before any court or
governmental agency against FTC, which in the reasonable business judgment
of the Board of Directors of Bank because of such litigation or proceeding
and the circumstances relating thereto it would be inadvisable or
undesirable for it to carry out this Agreement; or
(iii) there has been a failure to satisfy a condition set forth in
Article VI intended to benefit Bank.
(d) Unilateral Action by Either Party. By action of the board of directors
of either party hereto, if the Merger has not been consummated by October 31,
1995, or such later date as the parties may have agreed previously in writing.
Section 8.02 Effect of Termination.
In the event that this Agreement is terminated as provided herein:
(a) Notice of Termination. Written notice of such termination shall
forthwith be given to the other party.
(b) Limited Liability for Termination. Upon the giving of notice pursuant
to Section 8.02(a) or Section 7.01, this Agreement shall terminate, and subject
to the expense provisions of Section 9.02(a), neither party shall be liable to
the other as a result of such termination unless the termination was the result
of a material breach by the other party, in which event the breaching party
shall be liable to the other for all costs and expenses of the other in
connection with the preparation and implementation of this Agreement, including
the fees and costs of its counsel, accountants and other experts (but excluding
the fees and costs of any financial advisor retained by Bank as referenced in
Section 6.01(o)), but shall not be subject to any other liability.
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(c) Confidentiality. Except as otherwise required by law, neither party
will use or disclose to third parties (except to the extent publicly available)
information obtained by it during any investigation of the other party, and each
party shall promptly return such written information in its possession as the
other party shall request.
Section 8.03. Amendment.
This Agreement may be amended by the parties hereto, by action taken by or
on behalf of their respective Boards of Directors, at any time before or after
approval of the Merger by the shareholders of Bank; provided, however, that
after such approval by the shareholders of Bank no such amendment, without
further shareholder approval, shall reduce the amount or change the form of the
consideration to be delivered to the shareholders of Bank as contemplated by
this Agreement or alter or change any of the terms or conditions of this
Agreement if such alteration or change would materially adversely affect the
shareholders of Bank. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
Section 8.04. Waiver.
Any of the terms or conditions of this Agreement may be waived at any time
by whichever of the parties is, or the shareholders of which are, entitled to
the benefit thereof, by action taken by the Board of Directors of such party.
The failure of a party at any time or times to require performance of any
provision hereof shall in no manner affect such party's right at a later time to
enforce the same. No waiver by a party of any condition, or of the breach of any
term, covenant, representation or warranty contained in this Agreement, whether
by conduct or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
waiver of any other condition or of the breach of any other term, covenant,
representation or warranty.
ARTICLE IX
BROKERS AND EXPENSES
Section 9.01. Brokers.
FTC and Bank each represents and warrants to the other that no broker or
finder has acted for it in connection with the execution and delivery of the
Agreement or the transactions contemplated hereby.
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<PAGE>
Section 9.02. Expenses.
All expenses incurred by FTC and Bank in connection with or related to the
authorization, preparation and execution of the Agreement, the solicitation of
shareholder approvals and all other matters related to the closing of the
transactions contemplated hereby, including, without limitation of the
generality of the foregoing, all fees and expenses of agents, representatives,
counsel and accountants employed by either such party, shall be borne solely and
entirely by the party which has incurred the same, except that:
(a) in the event the transactions contemplated in this Agreement are
not consummated for any reason (other than the material breach by one party
resulting in termination of this Agreement by the other party), each party
shall pay one-half of the costs incurred in printing the FTC Registration
Statement including the Prospectus and Proxy Statement, the registration
fee thereof and the fees for filing applications for governmental
approvals; and
(b) Bank's expenses unpaid on the Effective Date shall be treated as
any other existing Bank indebtedness vested in Surviving Bank as a result
of the Merger.
ARTICLE X
MISCELLANEOUS
Section 10.01. Further Assurances.
Each party agrees to use its best efforts to take or cause to be taken such
action to execute and deliver or cause to be executed and delivered such
additional documents and instruments and to do or cause to be done all things
necessary, proper or advisable under provisions of this Agreement, the Merger
Agreement and under applicable law to consummate and make elective the Merger as
soon as possible.
Section 10.02. Notices.
All notices, requests, demands, and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally
or sent by first-class registered or certified mail, postage prepaid, with
return receipt requested, or by recognized overnight delivery service
guaranteeing next-day delivery, as follows:
- 32 -
<PAGE>
(a) If to Bank, to:
M. L. Patterson, Jr., President and CEO
Washington County National Bank
14 West Potomac Street, P. O Box 378
Williamsport, Maryland 21795
with copy to:
Timothy F. McCormack, Esquire
Shapiro and Olander
Charles Center South, 20th Floor
36 South Charles Street
Baltimore, Maryland 21201-3147
(b) If to FTC, to:
Ray L. Wolfe, President and CEO
Financial Trust Corp
310 Allen Road
Carlisle, Pennsylvania 17013
with copy to:
W. Jeffry Jamouneau, Esquire
McNees, Wallace & Nurick
100 Pine Street
P. O. Box 1166
Harrisburg, Pennsylvania 17108-1166
or to such other person or address as any such person may designate in writing
to FTC and Bank, as the case may be, in accordance with this Section 10.02.
Section 10.03. Binding Effect.
All of the terms and provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
- 33 -
<PAGE>
Section 10.04. Headings.
The Article, Section, paragraph and other headings in this Agreement are
inserted solely as a matter of convenience and for reference and are not a part
of the Agreement.
Section 10.05. Survival.
The representations and warranties of the parties contained herein or in
any documents or certificates delivered in connection herewith shall not survive
the Closing hereunder except to the extent provided to the contrary in Section
9.02.
Section 10.06. Press Releases.
The parties will consult with each other as to the form and substance of
any press release or other public disclosure of matters related to this
Agreement or any of the transactions contemplated hereby.
Section 10.07. Counterparts.
The Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument. Facsimile copies of signatures shall be deemed to be
original signatures for all purposes and shall be conclusive evidence that a
counterpart of this Agreement has been validly executed by the parties so
signing and delivery of such facsimile copy shall constitute a valid and binding
agreement.
Section 10.08. Integration of Agreement.
The Agreement constitutes the entire understanding of the parties with
respect to the subject matter hereof and supersedes all prior agreements,
arrangements or communications, oral or written, between the parties hereto with
respect to the subject matter hereunder. Neither the Agreement, nor any
provisions hereof, may be changed, waived, discharged or terminated orally, but
only by a statement in writing signed by the party against which the enforcement
of such change, waiver, discharge or termination is sought.
- 34 -
<PAGE>
Section 10.09. Governing Law.
The Agreement shall be construed under the laws of the Commonwealth of
Pennsylvania.
- 35 -
<PAGE>
Section 10.10. Incorporation by Reference.
Any and all schedules, exhibits, annexes, statements, reports, certificates
or other documents or instruments referred to herein or attached hereto are
incorporated herein by reference thereto as though fully set forth at the point
referred to in the Agreement.
IN WITNESS WHEREOF, each party hereto has caused the Agreement to be
executed on its behalf and its corporate seal to be affixed hereto by its duly
authorized of officers, all as of the day and year first above written.
<TABLE>
<S> <C>
ATTEST: FINANCIAL TRUST CORP
/s/ J. H. Bowers By: /s/ Ray L. Wolfe
- ---------------------- -------------------------------
Ray L. Wolfe, President and CEO
ATTEST: WASHINGTON COUNTY NATIONAL BANK
/s/ Karen P. Horning By: /s/ M. L. Patterson, Jr.
- ----------------------- ------------------------------
M. L. Patterson, Jr., President and CEO
</TABLE>
- 36 -
<PAGE>
EXHIBIT B
July , 1995
Board of Directors
Washington County National Bank
14 W. Potomac Street
Williamsport, Maryland 21795
Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of Washington County National Bank ("WCNB") of the
financial terms of the proposed affiliation whereby WCNB will be merged into
Financial Trust Corporation ("Financial Trust"). The terms of the proposed
affiliation (the "Proposed Affiliation") between WCNB and Financial Trust are
set forth in the Agreement and Plan of Affiliation (the "Agreement") dated
December 22, 1994, and provide that each outstanding share of WCNB common stock
will be converted into 2.25 shares of Financial Trust common stock subject to
certain terms and conditions as detailed in the Agreement.
Berwind Financial Group, L.P., as part of its investment banking business,
regularly is engaged in the valuation of assets, securities and companies in
connection with various types of asset and security transactions, including
mergers, acquisitions, private placements and valuations for various other
purposes, and in the determination of adequate consideration in such
transactions.
In arriving at our opinion, we have, among other things: (i) reviewed the
historical financial performances, current financial positions and general
prospects of WCNB and Financial Trust, (ii) reviewed the Agreement, (iii)
reviewed and analyzed stock market performance of Financial Trust, (iv) studied
and analyzed the consolidated financial and operating data of WCNB and Financial
Trust, (v) considered the terms and conditions of the Proposed Affiliation
between WCNB and Financial Trust as compared with the terms and conditions of
comparable bank mergers and acquisitions, (vi) met and/or communicated with
certain members of WCNB and Financial Trust's senior management to discuss their
respective operations, historical financial statements, and future prospects,
(vii) reviewed a draft of the proxy statement/prospectus and (viii) conducted
such other financial analyses, studies and investigations as we deemed
appropriate.
<PAGE>
Board of Directors
July , 1995
Page 2
Our opinion is given in reliance on information and representations made or
given by WCNB and Financial Trust, and their respective officers, directors,
auditors, counsel and other agents, and on filings, releases and other
information issued by WCNB and Financial Trust including financial statements,
financial projections, and stock price data as well as certain information from
recognized independent sources. We have not independently verified the
information concerning WCNB and Financial Trust nor other data which we have
considered in our review and, for purposes of the opinion set forth below, we
have assumed and relied upon the accuracy and completeness of all such
information and data. Additionally, we assume that the Proposed Affiliation is,
in all respects, lawful under applicable law.
With regard to financial and other information relating to the general
prospects of WCNB and Financial Trust, we have assumed that such information has
been reasonably prepared and reflects the best currently available estimates and
judgments of the managements of WCNB and Financial Trust as to WCNB's and
Financial Trust's most likely future performance. In rendering our opinion, we
have assumed that in the course of obtaining the necessary regulatory approvals
for the Proposed Affiliation, and in preparation of the final proxy statement,
no conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the Proposed Affiliation to WCNB.
Our opinion is based upon information provided to us by the managements of
WCNB and Financial Trust, as well as market, economic, financial, and other
conditions as they exist and can be evaluated only as of the date hereof and
speaks to no other period. Our opinion pertains only to the financial
consideration of the Proposed Affiliation and does not constitute a
recommendation to the Board of WCNB and does not constitute a recommendation to
WCNB's shareholders as to how such shareholders should vote on the Agreement.
Based on the foregoing, it is our opinion that, as of the date hereof, the
Proposed Affiliation between WCNB and Financial Trust is fair, from a financial
point of view, to the shareholders of WCNB.
Sincerely,
BERWIND FINANCIAL GROUP, L.P.
<PAGE>
EXHIBIT C
STATUTORY DISSENTERS' RIGHTS PROVISIONS
DISSENTERS' RIGHTS OF WCNB SHAREHOLDERS
NATIONAL BANK ACT
12 USC Section 215a
(a) One or more national banking associations or one or more State banks,
with the approval of the Comptroller, under an agreement not inconsistent with
this subchapter [Sections 215-215b], may merge into a national banking
association located within the same State, under the charter of the receiving
association. The merger agreement shall--
(1) be agreed upon in writing by a majority of the board of directors
of each association or State bank participating in the plan of merger;
(2) be ratified and confirmed by the affirmative vote of the share-
holders of each such association or State bank owning at least two-thirds
of its capital stock outstanding...
Dissenting shareholders
(b) If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the shares so
held by him when such merger shall be approved by the Comptroller upon written
request made to the receiving association at any time before thirty days after
the date of consummation of the merger, accompanied by the surrender of his
stock certificates.
Valuation of shares
(c) The value of the shares of any dissenting shareholder shall be
ascertained, as of the effective date of the merger, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one elected by the directors of the receiving association;
and (3) one selected by the two so selected. The valuation agreed upon by any
two of the three appraisers shall govern. If the value so fixed shall not be
satisfactory to any dissenting shareholder who has requested payment, the
shareholder may, within five days after being notified of the appraised value of
his shares, appeal to the Comptroller, who
<PAGE>
shall cause a reappraisal to be made which shall be final and binding as to the
value of the shares of the appellant.
Application to shareholders of merging associations:
appraisal by Comptroller; expenses of receiving association;
sale and resale of shares; State appraisal and merger law
(d) If, within ninety days from the date of consummation of the merger, for
any reason one or more of the appraisers is not selected as herein provided, or
the appraisers fail to determine the value of such shares, the Comptroller shall
upon written request of any interested party cause an appraisal to be made which
shall be final and binding on all parties. The expenses of the Comptroller in
making the reappraisal or the appraisal, as the case may be, shall be paid by
the receiving association. The value of the shares ascertained shall be promptly
paid to the dissenting shareholders by the receiving association. The shares of
stock of the receiving association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at such public
auction, if it is the highest bidder therefor, for the purpose of reselling such
shares within thirty days thereafter to such person or persons and at such price
not less than par as its board of directors by resolution may determine. If the
shares are sold at public auction at a price greater than the amount paid to the
dissenting shareholders, the excess in such sale price shall be paid to such
dissenting shareholders. The appraisal of such shares of stock in any State bank
shall be determined in the manner prescribed by the law of the State in such
cases, rather than as provided in this section, if such provision is made in the
State law; and no such merger shall be in contravention of the law of the State
under which such bank is incorporated. The provisions of this subsection shall
apply only to share- holders of (and stock owned by them in) a bank or
association being merged into the receiving association.
- 2 -
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 1741 of the Pennsylvania Business Corporation Law and Section 14.1
of the registrant's Bylaws provide that the corporation shall (subject to the
provisions described in the second succeeding paragraph) have the power to
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation), by reason of the fact that such person is or was
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that such person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 1742 of the Pennsylvania Business Corporation Law and Section 14.2
of the registrant's Bylaws provide that the corporation shall (subject to the
provisions described in the succeeding paragraph) have the power to indemnify
any person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless, and only to the extent that, the court of
common pleas of the county in which the registered office of the corporation is
located or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the
II-1
<PAGE>
circumstances of the case, such person is fairly and reasonably entitled to
indemnification for such expenses which the court of common pleas or such other
court shall deem proper.
Section 1744 of the Pennsylvania Business Corporation Law and Section 14.4
of the registrant's Bylaws provide that any such indemnification (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because such person has met the
applicable standard of conduct. Such determination shall be made:
(1) By the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding; or
(2) If such quorum is not obtainable, or, even if obtainable a
majority vote of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or;
(3) By the shareholders.
Notwithstanding the above, Section 1743 and Section 14.3 of the Bylaws
provide that to the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any claim, issue
or matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
Section 1745 and Section 14.5 of the Bylaws further provide that expenses
incurred in defending a civil or criminal action, suit or proceeding may be paid
by the corporation in advance of the final disposition of the action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified.
Section 1746 and Section 14.6 of the Bylaws provide that the
indemnification provided shall not be deemed exclusive of any other rights to
which a person seeking indemnification may be entitled under any other bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and inure to the benefit of
his heirs, executors and administrators.
Section 1747 of the Pennsylvania Business Corporation Law and Section 14.7
of the Bylaws permit a Pennsylvania business corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation,
II-2
<PAGE>
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against any liability asserted against such person and
incurred by him in any capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify the director, officer,
employee or agent against such liability. Section 1747 declares such insurance
to be consistent with the public policy of the Commonwealth of Pennsylvania.
Article 12 of the Articles of Incorporation of the registrant provides that
the corporation shall, to the fullest extent permitted by applicable law,
indemnify any and all persons whom it shall have power to indemnify from and
against any and all expenses, liabilities, or other matters for which
indemnification is permitted by applicable law, which indemnification shall not
be deemed exclusive of any other right to which any indemnitee may be entitled.
Section 13.1 of the registrant's Bylaws provides that a person serving as a
director of the corporation shall not be personally liable for monetary damages
for any action taken, or for any failure to take any action, as a director,
unless (1) the director has breached or failed to perform the duties of his
office, and (2) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness. However, such Bylaw does not apply to the
responsibility or liability of a director pursuant to any criminal statute or to
the liability of a director for the payment of taxes pursuant to local, state or
federal law.
The registrant maintains directors' and officers' liability insurance with
respect to liabilities, including liabilities under the Securities Act of 1933,
which they may incur in connection with their serving as such.
II-3
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit No. Description and Method of Filing
----------- --------------------------------
<S> <C>
2.1 Agreement and Plan of Affiliation dated December 23,
1994 between Financial Trust Corp and Washington
County National Bank (previously filed as Exhibit A to
the Proxy Statement/Prospectus).
3.1 Articles of Incorporation of Financial Trust Corp as
amended (previously filed).
3.2 Bylaws of Financial Trust Corp as amended (previously
filed).
5.1 Opinion of McNees Wallace & Nurick regarding the
legality of the shares of Common Stock of Financial
Trust Corp being registered (previously filed).
8.1 Opinion of McNees Wallace & Nurick regarding certain
tax matters (previously filed).
13.1 1994 Annual Report to Shareholders of Financial Trust
Corp (previously filed).
21.1 Subsidiaries of Financial Trust Corp (listed under "Infor-
mation Concerning Financial Trust Corp" in the Proxy
Statement/Prospectus).
23.1 Consent of Ernst & Young LLP, independent accountants
(filed herewith).
23.2 Consent of Smith Elliott Kearns & Company, indepen-
dent accountants (filed herewith).
23.3 Consent of McNees Wallace & Nurick (contained in their
Opinion previously filed as Exhibit 5.1).
23.4 Consent of Berwind Financial Group, L.P. (previously
filed).
23.5 Consent of Persons Named As About to Become
Directors (previously filed).
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
24.1 Power of Attorney (included on signature page of the
Registration Statement).
99.1 Employment Agreement between Washington County
National Bank and M.L. Patterson, Jr. (previously filed).
99.2 Employment Agreement between Washington County
National Bank and David E. Drury (previously filed).
</TABLE>
II-5
<PAGE>
The following exhibits are filed herewith pursuant to Rule 14a-6 under the
Securities Exchange Act of 1934, as amended:*
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C> <C>
A. Proposed form of proxy for use by shareholders of
Washington County National Bank.
Included in Proxy Proposed form of Notice of Annual Meeting of
Statement/Prospectus Shareholders of Washington County National Bank.
Included in Proxy Proposed form of letter to shareholders of Washington
Statement/Prospectus County National Bank to accompany Proxy Statement/
Prospectus.
</TABLE>
_____________________
*Filing not required by Item 601 of Regulation S-K.
Item 22. Undertakings
The undersigned registrant hereby undertakes as follows:
(1) that prior to any public reoffering of the securities registered
hereunder through the use of the prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other items of the applicable form; and
(2) that every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933, and is used in connection
with an offering of securities subject to Rule 415 (Section 230.415 of this
chapter), will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that,
for purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-6
<PAGE>
(3) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of the
Registration Statement on Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(5) To supply by means of a post-effective amendment all information
concerning the transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
(6) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions
described under Item 20 above, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Carlisle, Pennsylvania,
on June 30, 1995.
FINANCIAL TRUST CORP
(Registrant)
By /s/ RAY L. WOLFE
---------------------------
Ray L. Wolfe, President
II-8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
President - Vice Chairman
of the Board - Principal
/s/ RAY L. WOLFE Executive Officer and Director June 30, 1995
- ----------------------
Ray L. Wolfe
Principal Financial
/s/ BRADLEY S. EVERLY and Accounting Officer June 30, 1995
- -----------------------
Bradley S. Everly
Chairman of the Board
* and Director June 30, 1995
- ----------------------
L. Wm. Burkholder, Jr.
* Director June 30, 1995
- ----------------------
Lynn S. Baker
- ---------------------- Director _____ __, 1995
Thomas E. Beck
* Director June 30, 1995
- ----------------------
Harold L. Brake
- ---------------------- Director _____ __, 1995
Robert W. Brown
* Director June 30, 1995
- ----------------------
George P. Buckey
* Director June 30, 1995
- ----------------------
Thomas G. Burkey
</TABLE>
II-9
<PAGE>
<TABLE>
<S> <C> <C>
* Director June 30, 1995
- ------------------------
Dennis G. Caverly
* Director June 30, 1995
- ------------------------
George F. Henneberger
* Director June 30, 1995
- ------------------------
Webb S. Hersperger, M.D.
* Director June 30, 1995
- -----------------------
Allan W. Holman, Jr.
* Director June 30, 1995
- -----------------------
William H. Kiick
* Director June 30, 1995
- -----------------------
Richard G. King
- ----------------------- Director ____ __, 1995
William F. Shull
* Director June 30, 1995
- -----------------------
Paul L. Strickler
* Director June 30, 1995
- -----------------------
Jack K. Sunday
- ----------------------- Director ____ __, 1995
Mary Ann Warrell
* Director June 30, 1995
- -----------------------
Peter C. Zimmerman
</TABLE>
*Signed by Bradley S. Everly as Attorney-in Fact.
/s/ BRADLEY S. EVERLY
- -----------------------
Bradley S. Everly
II-10
<PAGE>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
Page Number
in Sequential
Numbering
Number Description System
- ------ ----------- -------------
<S> <C> <C>
2.1 Agreement and Plan of Affiliation dated
December 23, 1994 between Financial Trust Corp
and Washington County National Bank (previously
filed as Exhibit A to the Proxy
Statement/Prospectus).
3.1 Articles of Incorporation of Financial Trust Corp,
as amended (previously filed).
3.2 Bylaws of Financial Trust Corp as amended (previously
filed).
5.1 Opinion of McNees Wallace & Nurick regarding the
legality of the shares of Common Stock of Financial
Trust Corp being registered (previously filed).
8.1 Opinion of McNees Wallace & Nurick regarding certain
tax matters (previously filed).
13.1 1994 Annual Report to Shareholders of Financial Trust Corp
(previously filed).
21.1 Subsidiaries of Financial Trust Corp (listed under
"Information Concerning Financial Trust Corp" in the
Proxy Statement/Prospectus).
23.1 Consent of Ernst & Young LLP, independent auditors
(filed herewith).
23.2 Consent of Smith Elliott Kearns & Company,
independent accountants (filed herewith).
</TABLE>
II-11
<PAGE>
<TABLE>
<S> <C> <C>
23.3 Consent of McNees Wallace & Nurick (contained
in their Opinion previously filed as Exhibit 5.1).
23.4 Consent of Berwind Financial Group, L.P.
(previously filed).
23.5 Consent of Persons Named As About to
Become Directors (previously filed).
24.1 Power of Attorney (included on
signature page of the Registration Statement).
99.1 Employment Agreement between Washington County
National Bank and M.L. Patterson, Jr. (previously filed).
99.2 Employment Agreement between Washington County
National Bank and David E. Drury (previously filed).
</TABLE>
The following attachments and schedules to the Agreement and Plan of
Affiliation (Exhibit 2.1) are omitted but will be furnished upon the request of
the Securities and Exchange Commission:
Agreement of Merger between Washington County National Bank and FTC Interim
Bank
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Schedule 5.01(d) - list of certain reports, etc., of bank regulators
Schedule 5.01(q)(iv) - list of salary increases
Schedule 5.01(h) - list of certain tax accruals
Schedule 5.01(j) - list of WCNB contracts (one data processing
contract listed)
Schedule 5.01(k) - list of certain reports, etc., of bank regulators
(same list as 5.01(d))
Schedule 5.01(l) - list of certain reports, etc., of bank regulators
(same list as 5.01(d))
Schedule 5.01(n) - list of certain health insurance and retirement benefit
obligations of WCNB
Schedule 5.01(s) - list of certain related party transactions involving
WCNB
</TABLE>
II-12
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Proxy Statement/Prospectus of
Financial Trust Corp for the registration of 1,054,888 shares of its common
stock and to the incorporation by reference therein of our report dated February
17, 1995, with respect to the consolidated financial statements of Financial
Trust Corp included in its Annual Report (Form 10-K) for the year ended December
31, 1994, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Harrisburg, Pennsylvania
June 30, 1995
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement on Form S-4 Amendment
No. 2 of our reports dated January 13, 1995 and January 11, 1993 relating to the
financial statements of Washington County National Bank. We also consent to
the reference made to us under the heading "Experts" in this Registration
Statement and related Proxy Statement/Prospectus.
SMITH ELLIOTT KEARNS & COMPANY
Hagerstown, Maryland
June 30, 1995
EXHIBIT A
[front side of proxy card]
[PRELIMINARY COPY]
WASHINGTON COUNTY NATIONAL BANK
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 8, 1995
This Proxy is Solicited on Behalf of the
Board of Directors of Washington County National Bank
The undersigned shareholder of Washington County National Bank ("WCNB")
hereby constitutes and appoints David K. Cushwa, IV, David K. Poole, Jr., and
Warren A. Resley and each of them acting individually, as the attorneys and
proxies of the undersigned to attend the Special Meeting of Shareholders of WCNB
to be held on August 8, 1995, and any adjournment thereof, and thereat to vote
all shares of Common Stock of WCNB which the undersigned would be entitled to
vote if then personally present on the matters set forth below:
1. Approval of the Agreement and Plan of Affiliation dated December 23,
1995 between WCNB and Financial Trust Corp, which is described in the Proxy
Statement/Prospectus and included therein as Exhibit A.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournment thereof.
<PAGE>
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR Item 1.
[reverse side of proxy card]
In their discretion, the proxy or proxies are authorized to vote upon such
other matters as may properly come before the Special Meeting or any adjournment
thereof.
The undersigned hereby revokes all previous proxies for such Special
Meeting, hereby acknowledges receipt of the Notice of such Special Meeting and
the Proxy Statement/Prospectus furnished therewith and hereby ratifies all
that the said attorneys and proxies may do by virtue hereof.
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Dated:____________________________1995
________________________________(SEAL)
________________________________(SEAL)
Please sign exactly as names appear hereon. When
signing as attorney, executor, administrator, trustee or
guardian, please give your full title as such. For joint
accounts, each joint owner should sign. If a corporation,
please sign in full corporate name by President or other
authorized officer, giving your full title as such. If a
partnership, please sign in partnership name by autho-
rized person, giving your full title as such.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE "FOR" THE MERGER
<PAGE>
