<PAGE>
FILE NO. 33-62347
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
SEPTEMBER 28, 1995
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
OLD NATIONAL BANCORP
--------------------
(Exact name of registrant as specified in its charter)
INDIANA 6021 35-1539838
- ---------------------------- ------------------------- --------------------
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
420 MAIN STREET, EVANSVILLE, INDIANA 47708, (812) 464-1434
------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JEFFREY L. KNIGHT, ESQ. TIMOTHY M. HARDEN, ESQ.
CORPORATE SECRETARY & GENERAL COUNSEL NICHOLAS J. CHULOS, ESQ.
OLD NATIONAL BANCORP KRIEG DEVAULT ALEXANDER & CAPEHART
420 MAIN STREET ONE INDIANA SQUARE, SUITE 2800
EVANSVILLE, INDIANA 47708 INDIANAPOLIS, INDIANA 46204-2017
(812) 464-1363 (317) 636-4341
(AGENT FOR SERVICE) (COPY TO)
- -------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET
FOR
REGISTRATION STATEMENT ON FORM S-4 AND PROSPECTUS
<TABLE>
<CAPTION>
Items of Form S-4 Headings in Prospectus
----------------- ----------------------
<S> <C>
1. Forepart of Registration Statement and Forepart of Registration
Outside Front Cover Page of Prospectus Statement; Outside Front
Cover Page
2. Inside Front and Outside Back Cover Inside Front Cover Page
Pages of Prospectus of Prospectus
3. Risk Factors, Ratio of Earnings to Summary; Summary of
Fixed Charges and Other Information Selected Financial
Data; Comparative
Per Share Data
4. Terms of the Transaction Summary; General
Information; Proposed
Affiliation; Federal
Income Tax Consequences;
Comparative Per Share Data;
Comparison of Common Stock
5. Pro Forma Financial Information Pro Forma Condensed
Combined Financial
Information
6. Material Contacts with the Company Not Applicable
Being Acquired
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Counsel Opinion of Financial
Advisor to FUSB
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
10. Information with Respect to S-3 Registrants Summary of Selected
Financial Data;
Regulatory Considerations;
Comparative Per Share Data
11. Incorporation of Certain Information Incorporation of Certain
by Reference Documents by Reference
12. Information with Respect to S-2 or Not Applicable
S-3 Registrants
13. Incorporation of Certain Information Not Applicable
by Reference
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Items of Form S-4 Headings in Prospectus
----------------- ----------------------
<S> <C>
14. Information with Respect to Registrants Not Applicable
Other Than S-3 or S-2 Registrants
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or Summary of Selected
S-3 Companies Financial Data
17. Information with Respect to Companies Not Applicable
Other Than S-3 or S-2 Companies
18. Information if Proxies, Consents or General Information;
Authorizations are to be Solicited Proposed Affiliation;
Description of ONB;
Description of FUSB
19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited or
in an Exchange Offer
</TABLE>
<PAGE>
[FIRST UNITED SAVINGS BANK, F.S.B. LETTERHEAD]
October ____, 1995
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
First United Savings Bank, f.s.b. ("FUSB") to be held at DePauw University,
Memorial Student Union Building, Room 221, 408 Locust Street in Greencastle,
Indiana on October 31, 1995, at 2:00 p.m., local time.
The purposes of the Annual Meeting are (i) to elect two (2) directors of
FUSB for terms expiring in 1998, subject to earlier termination as a consequence
of the affiliation of FUSB with Old National Bancorp ("ONB"), and (ii) to
consider and vote upon the Amended and Restated Agreement of Affiliation and
Merger ("Agreement"), dated as of September 29, 1994, by and among ONB, two of
its subsidiaries and FUSB. Under the terms of the Agreement, FUSB will affiliate
with ONB, and each outstanding share of FUSB common stock will be converted into
the right to receive .8925 of a share of ONB common stock, as adjusted for the
5% stock dividend issued by ONB on February 10, 1995, and subject to further
adjustment, if any, as described in the Agreement, a copy of which is attached
to the accompanying Proxy Statement-Prospectus.
The Board of Directors of FUSB believes that the proposed affiliation
between ONB and FUSB is in the best interests of the shareholders of FUSB and
the customers and employees of FUSB and the communities which FUSB serves. Your
Board of Directors has unanimously approved the Agreement and recommends that
the shareholders approve it.
Enclosed with this letter are (i) a Notice of Annual Meeting of
Shareholders, (ii) a Proxy Statement-Prospectus containing information about the
Annual Meeting and the proposed affiliation, (iii) FUSB's Annual Report to
shareholders for the fiscal year ended June 30, 1995, (iv) a proxy card for you
to complete, sign, date and return, and (v) a postage pre-paid envelope for your
use to return your proxy card to FUSB. We encourage you to read the enclosed
materials carefully and in their entirety.
Whether or not you attend the Annual Meeting, your Board of Directors
requests that you complete, sign and date the enclosed proxy card and return it
in the enclosed postage pre-paid envelope at your earliest convenience prior to
the Annual Meeting. If you desire, you may cancel your proxy at any time before
it is voted at the special meeting.
Please give this matter your careful consideration.
Sincerely,
William M. Marley
President and Chief Executive Officer
<PAGE>
FIRST UNITED SAVINGS BANK, f.s.b.
ONE NORTH LOCUST STREET
GREENCASTLE, INDIANA 46135
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on October 31, 1995
To Our Shareholders:
Notice is hereby given that, pursuant to the call of the Board of Directors, the
Annual Meeting of Shareholders of First United Savings Bank, f.s.b. ("FUSB")
will be held on October 31, 1995, at 2:00 p.m., local time, at DePauw
University, Memorial Student Union Building, Room 221, 408 Locust Street in
Greencastle, Indiana.
The purposes of the Annual Meeting are:
1. Affiliation with Old National Bancorp. To consider and vote upon the
Amended and Restated Agreement of Affiliation and Merger dated as of
September 29, 1994, among Old National Bancorp, Evansville, Indiana
("ONB"), two of its subsidiaries and FUSB. Under the terms of the
Agreement, FUSB will affiliate with ONB and each outstanding share of FUSB
common stock will be converted into the right to receive .8925 of a share
of ONB common stock, as adjusted for the 5% stock dividend issued by ONB on
February 10, 1995, and subject to further adjustment, if any, as described
in the accompanying Proxy Statement-Prospectus;
2. Election of Directors. To elect two Directors of FUSB for terms expiring
in 1998, subject to earlier termination as a consequence of the affiliation
with ONB; and
3. Other Business. To transact such other business which may properly be
presented at the Annual Meeting or any adjournment thereof.
Only shareholders of record at the close of business on September 8, 1995,
will be entitled to notice of, and to vote at, the Annual Meeting and any
adjournment thereof.
October ___, 1995 BY ORDER OF THE BOARD OF DIRECTORS
WILLIAM M. MARLEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT -- PLEASE MAIL YOUR PROXY PROMPTLY.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST
TWO-THIRDS OF THE OUTSTANDING SHARES OF FUSB COMMON STOCK
IS REQUIRED FOR APPROVAL OF THE ONB AGREEMENT.
IN ORDER THAT THERE MAY BE PROPER REPRESENTATION AT THE MEETING,
YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED REVOCABLE PROXY IN THE ENVELOPE PROVIDED.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
PROSPECTUS
OF
OLD NATIONAL BANCORP
FOR UP TO
519,614 SHARES OF COMMON STOCK
(NO PAR VALUE)
--------------------------
THIS PROSPECTUS ALSO CONSTITUTES
THE PROXY STATEMENT
OF
FIRST UNITED SAVINGS BANK, F.S.B.
FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 31, 1995
--------------------------
This Proxy Statement-Prospectus ("Proxy Statement") constitutes the
Prospectus of Old National Bancorp with respect to a maximum of 519,614 shares
of ONB common stock, no par value per share ("ONB Common Stock"), being offered
to the shareholders of FUSB in connection with the proposed affiliation of ONB
and FUSB. It also serves as the Proxy Statement of FUSB in connection with the
solicitation of proxies by the Board of Directors of FUSB for use at the Annual
Meeting of Shareholders to be held on October 31, 1995, and at any adjournment
thereof, for the purpose of considering and voting upon (1) a proposal to
approve the Amended and Restated Agreement of Affiliation and Merger
("Agreement"), dated as of September 29, 1994, between ONB and FUSB, (2)
election of two Directors of FUSB for terms expiring in 1998, subject to earlier
termination as a consequence of the affiliation with ONB, and (3) any other
business which may properly be presented at the Annual Meeting or any
adjournment thereof.
As more fully discussed hereinafter, on the effective date of the proposed
affiliation, FUSB will affiliate with ONB and each outstanding share of FUSB
common stock, $.01 par value per share ("FUSB Common Stock"), will be converted
into the right to receive .8925 of a share of ONB Common Stock, as adjusted for
the 5% stock dividend issued by ONB on February 10, 1995, and subject to further
adjustment, if any, in the event of certain deviations in the market price of
ONB Common Stock (the "Exchange Ratio") or a recapitalization of ONB. ONB will
pay cash for any fractional share interests resulting from the Exchange Ratio.
The proposed affiliation is subject to approval by the holders of at least two-
thirds of the outstanding shares of FUSB Common Stock, receipt of required
regulatory approvals and certain other conditions set forth in the Agreement
attached hereto as Appendix A.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
The date of this Proxy Statement is October __, 1995.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
AVAILABLE INFORMATION ..............................................
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ....................
SUMMARY ............................................................
SUMMARY OF SELECTED FINANCIAL DATA .................................
GENERAL INFORMATION ................................................
PROPOSED AFFILIATION ...............................................
Description of the Affiliation ................................
Stock Option Agreement ........................................
Background of and Reasons for the Affiliation .................
Opinion of Financial Advisor to FUSB ..........................
Recommendation of the Board of Directors ......................
Exchange of FUSB Common Stock .................................
No Dissenters or Appraisal Rights ............................
Resale of ONB Common Stock by FUSB Affiliates .................
Conditions to Consummation ....................................
Termination ...................................................
Restrictions Affecting FUSB ...................................
Regulatory Approvals ..........................................
Accounting Treatment for the Affiliation ......................
Effective Date ................................................
Management, Personnel and Operations After the Affiliation ....
Interests of Certain Persons in the Affiliation ...............
FEDERAL INCOME TAX CONSEQUENCES ....................................
Tax Ruling ....................................................
Tax Consequences to ONB and FUSB ..............................
Tax Consequences to FUSB Shareholders .........................
COMPARATIVE PER SHARE DATA .........................................
Nature of Trading Market ......................................
Dividends .....................................................
Existing and Pro Forma Per Share Information ..................
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION .................
DESCRIPTION OF ONB .................................................
Business ......................................................
Acquisition Policy and Pending Affiliations ...................
Incorporation of Certain Information by Reference .............
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
<S> <C>
DESCRIPTION OF FUSB ................................................
Business ......................................................
Incorporation of Certain Information by Reference .............
REGULATORY CONSIDERATIONS ..........................................
Regulation of ONB and Affiliates ..............................
Regulation of FUSB ............................................
Capital Adequacy Guidelines ...................................
Branching and Acquisitions ....................................
Interstate Banking ............................................
FDICIA ........................................................
Deposit Insurance .............................................
Recent Legislation ............................................
Additional Matters ............................................
COMPARISON OF COMMON STOCK .........................................
Authorized But Unissued Shares ................................
Preemptive Rights .............................................
Dividend Rights ...............................................
Voting Rights .................................................
Dissenters' Rights ............................................
Liquidation Rights ............................................
Assessment and Redemption .....................................
Anti-Takeover Provisions ......................................
Director Liability ............................................
Director Nominations ..........................................
ELECTION OF FUSB DIRECTORS .........................................
Nominees and Directors ........................................
Meetings and Committees of the Board of Directors .............
Remuneration of Named Executive Officer .......................
Stock Options .................................................
Employment Agreements .........................................
Compensation of Directors .....................................
Transactions with Certain Related Persons .....................
OPINIONS ...........................................................
EXPERTS ............................................................
OTHER MATTERS ......................................................
APPENDICES:
A. Amended and Restated Agreement of Affiliation and Merger.... A-1
B. Purchase and Assumption Agreement........................... B-1
C. Fairness Opinion of McDonald & Co. Securities, Inc.......... C-1
</TABLE>
<PAGE>
AVAILABLE INFORMATION
ONB and FUSB are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
ONB files reports, proxy statements and other information with the Securities
and Exchange Commission ("SEC"), while FUSB, as a federally chartered savings
bank, files such information with the Office of Thrift Supervision ("OTS"). Such
reports, proxy statements and other information filed by ONB may be inspected
and copied at prescribed rates at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and
may also be inspected and copied at prescribed rates at the SEC's regional
offices located at Seven World Trade Center, 13th Floor, New York, New York
10048 and at Northwestern Atrium Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. Reports, proxy statements and
other information filed by FUSB may be inspected and copied at the public
information office of the OTS, 1700 G Street, N.W., Washington, D.C. 20552, and
at the OTS Chicago Office located at 111 East Wacker Drive, Suite 800, Chicago,
Illinois 60601. ONB Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") National Market System
and FUSB Common Stock is quoted on the NASDAQ Small Capital Market System, and
reports, proxy statements and other information concerning ONB are available for
inspection and copying at prescribed rates at the office of the National
Association of Securities Dealers, Inc., 1735 K Street, Washington, D.C.
20006.
ONB has filed with the SEC a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended ("Securities Act"), with respect to the
shares of ONB Common Stock to be issued in connection with its affiliation with
FUSB. This Proxy Statement does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the SEC. Reference is made to the Registration
Statement, including the exhibits filed as a part thereof or incorporated
therein by reference, which can be inspected and copied at prescribed rates at
the public reference facilities maintained by the SEC at the addresses set forth
above.
All information contained in this Proxy Statement with respect to FUSB has
been supplied by FUSB, and all information contained in this Proxy Statement
with respect to ONB has been supplied by ONB.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (EXCLUDING UNINCORPORATED
EXHIBITS) ARE AVAILABLE WITHOUT CHARGE TO EACH PERSON (INCLUDING ANY BENEFICIAL
OWNER) TO WHOM THIS PROXY STATEMENT IS DELIVERED UPON WRITTEN OR ORAL REQUEST.
DOCUMENTS RELATING TO ONB MAY BE REQUESTED FROM, JEFFREY L. KNIGHT, CORPORATE
SECRETARY AND GENERAL COUNSEL, OLD NATIONAL BANCORP, 420 MAIN STREET, P.O. BOX
718, EVANSVILLE, INDIANA 47705, (812) 464-1363. DOCUMENTS RELATING TO FUSB MAY
BE REQUESTED FROM WILLIAM M. MARLEY, PRESIDENT, FIRST UNITED SAVINGS BANK,
F.S.B., ONE NORTH LOCUST STREET, GREENCASTLE, INDIANA 46135, (317) 653-9793. IN
ORDER TO ASSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUESTS SHOULD BE MADE
BY OCTOBER ___, 1995.
-i-
<PAGE>
The following documents previously filed by ONB (SEC File No. 0-10888) with
the SEC and FUSB (Docket No. 4886) with the OTS pursuant to the Exchange Act are
incorporated herein by reference:
1. ONB's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995
and June 30, 1995.
2. ONB's Annual Report on Form 10-K for the fiscal year ended December 31,
1994.
3. ONB's Annual Report to Shareholders for the fiscal year ended December 31,
1994.
4. The description of ONB's common stock contained in ONB's Current Report on
Form 8-K, dated January 6, 1983, and the description of ONB's Preferred
Stock Purchase Rights contained in ONB's Form 8-A, dated March 1, 1990,
including the Rights Agreement, dated March 1, 1990, between the Registrant
and Old National Bank, as Trustee.
5. The following information under the captions contained in the specified
pages of FUSB's Annual Report on Form 10-K for the fiscal year ended June
30, 1995: (a) "Business" on pages ___ to ___, (b) "Legal Proceedings" on
pages ___ to ___, and (c) "Properties" on pages ___ to ___.
6. FUSB's Form 8-K, dated September 15, 1995.
7. The following information contained in the specified pages of FUSB's
Annual Report for its fiscal year ended June 30, 1995, which accompanies
this Proxy Statement: (a) audited consolidated financial statements of
FUSB, the notes thereto and the Report of Independent Auditors on pages ___
to ___, (b) Common Stock Data on page ___ (under the caption "Market Price
and Dividends"), (c) Selected Consolidated Financial Data on page ___, and
(d) Management's Discussion and Analysis of Financial Condition and Results
of Operations (under the caption "Management's Discussion and Analysis") on
pages ___ through ___.
All documents subsequently filed by ONB pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act prior to the date on which the Annual Meeting is
held shall be deemed to be incorporated by reference into this Proxy Statement
and to be a part hereof from the date of filing such documents.
A COPY OF THE ANNUAL REPORT OF FUSB FOR THE FISCAL YEAR ENDED JUNE 30, 1995
ACCOMPANIES THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE AS
SPECIFIED ABOVE.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
ANY STATEMENTS CONTAINED IN THIS PROXY STATEMENT INVOLVING MATTERS OF OPINION,
WHETHER OR NOT SO STATED, ARE INTENDED AS SUCH AND NOT AS REPRESENTATIONS OF
FACT. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO PURCHASE ANY OF THE SECURITIES OFFERED BY THIS PROXY
STATEMENT, NOR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR
PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT NOR ANY DISTRIBUTION OF THE SECURITIES COVERED HEREBY AT ANY TIME
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF ONB OR FUSB SINCE THE DATE
-ii-
<PAGE>
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROXY STATEMENT.
-iii-
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
herein and was prepared to assist FUSB shareholders in their review of the Proxy
Statement. This summary does not purport to be complete and is qualified in all
respects by reference to the full text of this Proxy Statement and the
appendices hereto.
THE ANNUAL MEETING:
Date, Time and Place of October 31, 1995, at 2:00 p.m., local time, at
Annual Meeting the main office of FUSB, located at One
Locust Street, Greencastle, Indiana.
Purpose of Annual Meeting (1) To consider and vote upon the Amended and
Restated Agreement of Affiliation and Merger
("Agreement"), under the terms of which FUSB
will affiliate with ONB. A copy of the
Agreement, which is incorporated herein by
reference, is attached to this Proxy Statement
as Appendix A. (2) To elect two Directors of
FUSB for terms expiring in 1998, subject to
earlier termination as a consequence of the
affiliation with ONB. See "NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS" and the discussions
under the captions "GENERAL INFORMATION,"
"PROPOSED AFFILIATION," and "ELECTION OF FUSB
DIRECTORS."
Required Shareholder Vote on The affirmative vote, in person or by proxy,
Agreement of the holders of at least two-thirds of the
issued and outstanding shares of FUSB Common
Stock is required for approval of the
Agreement. As of September 8, 1995, members of
the Board of Directors and executive officers
of FUSB beneficially owned in the aggregate,
directly and indirectly, approximately 12.45%
of the outstanding shares of FUSB Common
Stock, including shares subject to option
which must be exercised prior to the
affiliation with ONB. It is expected that the
shares held by members of the Board of
Directors and executive officers of FUSB will
be voted in favor of the Agreement. See
"GENERAL INFORMATION," "PROPOSED AFFILIATION
--Conditions to Consummation." The approval of
the Agreement by the shareholders of ONB is
not required.
Required Shareholder Vote on The nominees for Director of FUSB this year
Election of Directors are Earl E. Clodfelter and William M. Marley,
each of whom is a current Director of FUSB.
The election of Directors requires receipt of
a plurality of affirmative votes cast at the
Annual Meeting. Shareholders are entitled to
vote their shares cumulatively for the
election of Directors. See "GENERAL
INFORMATION" and "Election of FUSB Directors."
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<PAGE>
Shares Outstanding and Entitled As of September 8, 1995, there were 546,550
to Vote shares of FUSB Common Stock issued and
outstanding. Shareholders of FUSB of record at
the close of business on September 8, 1995,
are entitled to notice of, and to vote at, the
Annual Meeting. See "GENERAL INFORMATION."
Revocable Proxies Proxies are revocable at any time before they
are exercised by means of a later dated proxy
delivered to FUSB, by written notice delivered
to the Secretary of FUSB or in person at the
Annual Meeting. See "GENERAL INFORMATION."
THE PARTIES TO THE
AFFILIATION:
Old National Bancorp As the largest independent bank holding
420 Main Street company headquartered in the State of
Evansville, Indiana 47708 Indiana, ONB owns and operates 23 affiliate
(812) 464-1434 banks with 112 offices located in the
tri-state area of southwestern Indiana,
southern and eastern Illinois and northwestern
Kentucky. As of June 30, 1995, ONB had total
assets of approximately $4.4 billion and its
ratio of total capital to risk-adjusted assets
was 15.79%. This capital ratio is well in
excess of applicable regulatory requirements.
See "DESCRIPTION OF ONB."
ONB is currently analyzing a number of
potential acquisitions. As of the date of this
Proxy Statement, ONB has entered into
definitive agreements to acquire (i) City
National Bancorp, Inc. ("City National"),
Fulton, Kentucky and (ii) Shawnee Bancorp,
Inc. ("Shawnee Bancorp"), Harrisburg,
Illinois, in connection with which Shawnee
Bancorp's wholly-owned subsidiary, The Bank of
Harrisburg, will merge into The First National
Bank of Harrisburg, an affiliate of ONB. See
"DESCRIPTION OF ONB -- Acquisition Policy and
Pending Affiliations."
First United Savings Bank, f.s.b. FUSB is a federally chartered savings bank
One North Locust Street with full-service offices located in
Greencastle, Indiana 46135 Greencastle and Bloomington, Indiana and a
(317) 653-9793 loan production office located in Danville,
Indiana. It owns one operating subsidiary,
Greenmark, Inc., which markets and sells
property, casualty, life and crop insurance
("Greenmark"), as well as a non-operating
subsidiary, Kirkwood Corporation. As of June
30, 1995, FUSB had total assets of
approximately $142 million and its ratio of
total capital to risk-adjusted assets was
11.4%. See "DESCRIPTION OF FUSB."
THE AFFILIATION:
Description of the Under the Agreement and its related Purchase
Affiliation and Assumption Agreement (attached as Appendix
B), the affiliation between FUSB and ONB will
be accomplished through three sequential
steps: (1) the Asset Purchase ~ First Citizens
Bank & Trust Company, ONB's affiliate bank in
Greencastle ("First Citizens"), will purchase
the assets and
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<PAGE>
assume the liabilities of the office of FUSB
located in Greencastle and the loan production
office located in Danville for a purchase
price equal to the fair market value of those
assets and liabilities; (2) the Greenmark
Purchase ~ First Citizens will purchase the
outstanding stock of Greenmark from FUSB for a
purchase price of $310,000; and (3) the Merger
~ a newly formed savings bank subsidiary of
ONB will then merge with and into FUSB, as it
exists following these steps. The Asset
Purchase, Greenmark Purchase and Merger are
collectively referred to herein as the
"Affiliation."
As a result of these steps, FUSB's existing
operations will be divided geographically with
First Citizens acquiring the Greencastle and
Danville operations, as well as Greenmark, and
with ONB directly acquiring the Bloomington
office as a separately operating savings bank
("New FUSB"). All of the steps are dependent
upon each other and will consummate
sequentially on the effective date of the
Affiliation. See "PROPOSED AFFILIATION --
Description of the Affiliation" and Appendices
A and B of this Proxy Statement.
Exchange of FUSB Common Stock At the effective date of the Affiliation, each
outstanding share of FUSB Common Stock (other
than those 1,000 shares owned by Greenmark,
which will be canceled, but including 35,650
shares currently subject to options, which are
required by the terms of the Agreement to be
exercised prior to the effective date) will be
converted into the right to receive .8925 of a
share of ONB Common Stock, as adjusted for the
5% stock dividend issued by ONB on February
10, 1995, and subject to further adjustment,
if any, in the event of certain deviations in
the market price of ONB Common Stock or a
recapitalization of ONB. No fractional shares
will be issued and ONB will pay cash for any
fractional share interests resulting from the
Exchange Ratio. The price at which ONB Common
Stock traded on ----------, 1995, as reported
by the NASDAQ National Market System, was
$-----per share. See "PROPOSED AFFILIATION --
Exchange of FUSB Common Stock" and Appendix A
to this Proxy Statement.
Reasons for the Affiliation After careful review and consideration, FUSB's
Board of Directors has determined that the
terms of the Affiliation are fair to, and in
the best interest of, FUSB and its
shareholders. FUSB's Board believes that the
Affiliation will provide significant value to
all FUSB shareholders and, at the same time,
enable holders of FUSB Common Stock to
participate in the expanded opportunities for
growth that the Affiliation will make
possible. FUSB's Board also determined that
the Affiliation would have a positive, long-
term impact on its customers and employees and
the communities it serves. See "PROPOSED
AFFILIATION -- Background of and Reasons for
the Affiliation."
-vi-
<PAGE>
Opinion of FUSB's Financial FUSB has retained McDonald & Company
Advisor Securities, Inc. ("McDonald & Company") as its
financial advisor in the Affiliation. McDonald
& Company rendered its oral opinion on
September 29, 1994, which was subsequently
confirmed in writing, that as of the date of
such opinion, the Exchange Ratio pursuant to
the Affiliation was fair, from a financial
point of view, to the holders of FUSB Common
Stock. The opinion was updated and confirmed
on the date of this Proxy Statement. A copy of
the opinion of McDonald & Company dated as of
the date of this Proxy Statement is attached
hereto as Appendix C and should be read in its
entirety with respect to the assumptions made,
limitations on reviews undertaken and other
matters. See "PROPOSED AFFILIATION -- Opinion
of Financial Advisor to FUSB."
Recommendation of the The Board of Directors of FUSB has
Board of Directors of unanimously approved the Agreement and
FUSB recommends that FUSB shareholders approve the
Agreement. See "PROPOSED AFFILIATION --
"Background of and Reasons for the
Affiliation" and "Recommendation of the Board
of Directors."
Conditions to the Consummation of the Affiliation is subject
Affiliation to certain conditions which include, among
others, (1) approval of the Agreement by the
affirmative vote of the holders of at least
two-thirds of the outstanding shares of FUSB
Common Stock, (2) receipt of regulatory
approvals for each step of the Affiliation,
and (3) receipt of a private letter ruling
from the Internal Revenue Service or an
opinion of counsel with respect to certain
federal income tax matters. The Affiliation
will not proceed unless all of the conditions
relating to each step are met. For tax
purposes, the Asset Purchase and the Greenmark
Purchase must be consummated prior to the
Merger. See "PROPOSED AFFILIATION --Conditions
to Consummation."
Termination of the Affiliation The Agreement may be terminated before the
Affiliation becomes effective upon the
occurrence of certain events which include,
among others, (1) a misrepresentation or
breach of any representation or warranty set
forth in the Agreement by ONB or FUSB, which
would result in material adverse change in
either ONB or FUSB on a consolidated basis,
(2) a breach of or failure to comply with any
covenant or mutual agreement set forth in the
Agreement by ONB or FUSB, (3) the commencement
or threat of certain claims, proceedings or
litigation, (4) a material adverse change in
ONB or FUSB, since June 30, 1994, and (5) the
Affiliation not having been consummated by
January 31, 1996. Further, ONB may terminate
the Affiliation if it reasonably determines
that a condition imposed by a regulatory
agency in connection with antitrust
implications of the Affiliation would render
consummation of the Affiliation unacceptable
or otherwise imprudent, or if the Affiliation
is not able to be consummated because of
agency disapproval or if a lawsuit is
instituted to enjoin the Affiliation on
antitrust grounds. At present, ONB does not
anticipate that any
-vii-
<PAGE>
conditions to consummation of the Asset
Purchase will be imposed for antitrust
purposes. The parties may also mutually agree
to terminate the Agreement. See "PROPOSED
AFFILIATION -- Termination."
Effective Date of the ONB and FUSB anticipate that the Affiliation
Affiliation will be completed in the last calendar quarter
of 1995. See "PROPOSED AFFILIATION --Effective
Date."
Management, Personnel and The Directors and officers of FUSB will
Operations After the continue to serve following the
Affiliation effective date of the Affiliation until
otherwise determined by ONB. ONB has agreed
that the six Directors of FUSB will continue
to serve for not less than three years
following the effective date with the
directors residing in and around Greencastle
serving First Citizens and the directors
residing in and around Bloomington serving New
FUSB. William M. Marley, President of FUSB,
will serve as Vice Chairman of First Citizens,
and other officers will serve as officers of
First Citizens or New FUSB, with those serving
in Bloomington serving New FUSB's operations
and those serving in Greencastle and Danville
serving First Citizens operations. Following
the Affiliation, employees of FUSB will
receive benefits in accordance with the
current policies and employee benefit plans of
ONB, subject to the continuation of certain of
FUSB plans until December 31, 1995. See
"PROPOSED AFFILIATION -- Description of the
Affiliation" and "Management, Personnel and
Operations After the Affiliation."
Federal Income Tax ONB and FUSB have requested a private letter
Consequences to FUSB ruling from the Internal Revenue
Shareholders Service to the effect that the Affiliation
will constitute a tax-free reorganization, but
if such a ruling is not received prior to
consummation of the Affiliation, ONB's
counsel, Krieg DeVault Alexander & Capehart,
has agreed to render a tax opinion as to the
tax consequences of the Affiliation. In
general, FUSB shareholders who receive solely
ONB Common Stock in exchange for their shares
of FUSB Common Stock will not recognize gain
or loss as a result of the exchange.
Shareholders are urged to consult with their
tax advisors with respect to the tax
consequences of the Affiliation to them. See
"FEDERAL INCOME TAX CONSEQUENCES."
No Dissenters' Rights Shareholders of FUSB have no dissenters' or
appraisal rights in connection with the
Affiliation under federal law applicable to
FUSB. See "PROPOSED AFFILIATION--No
Dissenters' or Appraisal Rights."
Interests of Certain Persons in Certain members of management and the Board
the Affiliation of Directors of FUSB have interests in the
Affiliation that are in addition to those of
FUSB shareholders generally. See "PROPOSED
AFFILIATION -- Interests of Certain Persons in
the Affiliation."
-viii-
<PAGE>
Resale of ONB Common Stock Certain resale restrictions apply to the sale
or transfer of shares of ONB Common Stock
issued to Directors, executive officers and
10% shareholders of FUSB in exchange for their
shares of FUSB Common Stock. See "PROPOSED
AFFILIATION -- Resale of ONB Common Stock by
FUSB Affiliates."
Comparative Shareholder Rights The rights of shareholders of ONB and
shareholders of FUSB differ in a number of
respects. Upon consummation of the
Affiliation, FUSB shareholders who receive ONB
Common Stock will take such stock subject to
its terms and conditions. The Articles of
Incorporation of ONB contain certain anti-
takeover measures which may discourage or
render more difficult a subsequent takeover of
ONB by another corporation. Further, ONB has
adopted a shareholder rights plan which has a
similar consequence. See "COMPARISON OF COMMON
STOCK.
Trading Market for Common Stock Shares of ONB Common Stock are traded on the
NASDAQ National Market System. The closing
price of ONB Common Stock as reported by the
NASDAQ National Market System was $35.25 per
share on September 29, 1994, the business day
before the Affiliation was publicly announced,
and was $----- per share on -----------, 1995.
Both of these per share prices of ONB Common
Stock reflect the 5% stock dividend issued by
ONB on February 10, 1995.
Shares of FUSB Common Stock are traded in the
over-the-counter market and are listed on the
NASDAQ. The high and low bid prices of FUSB
Common Stock as reported by NASDAQ were:
. each $21.25 per share on July 26, 1994,
the day before FUSB retained McDonald &
Company,
. each $20.50 per share on September 29,
1994, the day before the Affiliation was
publicly announced, and
. $----- and $----- per share on September
-----, 1995.
Assuming the Affiliation had been consummated
on September ---, 1995, FUSB shareholders
entitled to receive ONB Common Stock would
have received, in exchange for all of the
shares of FUSB Common Stock, ---------------
shares of ONB Common Stock having an aggregate
market value of approximately $-----million,
which represents $------ per share of FUSB
Common Stock (including cash received in lieu
of any fractional share interest). See
"COMPARATIVE PER SHARE DATA."
-ix-
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA -- ONB
(UNAUDITED -- DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The following summary sets forth selected consolidated financial
information relating to ONB, giving effect to the consummated affiliations with
Citizens National Bank Corporation, Tell City, Indiana, and Oblong Bancshares,
Inc., Oblong, Illinois, which occurred in 1995. This information should be read
in conjunction with the financial statements and notes incorporated herein by
reference.
<TABLE>
<CAPTION>
Twelve Months ended December 31,
---------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Results of Operations
- ---------------------
(Taxable equivalent basis)
Interest income $ 308,636 $ 302,728 $ 315,087 $ 348,575 $ 356,156
Interest expense 126,109 124,958 144,908 190,721 210,573
---------- ---------- ---------- ---------- ----------
Net interest income 182,527 177,770 170,179 157,854 145,583
Provision for loan losses 6,241 9,989 11,731 11,514 10,025
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 176,286 167,781 158,448 146,340 135,558
Noninterest income 33,656 32,451 28,082 25,452 22,935
Noninterest expense 134,774 125,525 113,548 108,022 101,773
---------- ---------- ---------- ---------- ----------
Income before income taxes 75,168 74,707 72,982 63,770 56,720
Income taxes 27,190 28,534 28,245 23,918 21,365
---------- ---------- ---------- ---------- ----------
Net income $ 47,978 $ 46,173 $ 44,737 $ 39,852 $ 35,355
========== ========== ========== ========== ==========
Year-End Balances
- -----------------
Total assets $4,386,839 $4,233,780 $3,949,725 $3,917,024 $3,857,020
Total loans--net of unearned income 2,718,041 2,456,946 2,279,245 2,264,064 2,244,545
Total deposits 3,469,753 3,484,294 3,343,146 3,223,359 3,200,193
Shareholders' equity 391,223 383,367 356,890 329,892 314,378
Per Share Data (1)
- ------------------
Net income - primary $ 2.03 $ 1.95 $ 1.88 $ 1.67 $ 1.43
Net income - fully diluted (2) 1.98 1.90 1.82 1.62 1.43
Cash dividends paid 0.88 0.76 0.72 0.69 0.66
Book value at year-end 16.75 16.18 15.00 13.72 12.65
Selected Performance Ratios
- ---------------------------
(based on averages)
Return on assets 1.12% 1.12% 1.14% 1.04% 0.95%
Return on equity 12.29 12.56 13.06 12.45 11.32
Equity to assets 9.14 8.89 8.75 8.39 8.38
Primary capital to assets 10.12 9.83 9.65 9.23 9.21
Net charge-offs to average loans 0.31 0.27 0.35 0.41 0.55
Allowance for loan losses to average loans 1.62 1.65 1.56 1.42 1.44
</TABLE>
(1) Restated for all stock dividends.
(2) Assumes the conversion of ONB's subordinated debentures.
-x-
<PAGE>
In years prior to 1991, the assumed conversion would not be significant.
-xi-
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA -- ONB (CONTINUED)
(UNAUDITED -- DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months ended June 30,
-------------------------
1995 (3) 1994 (3)
---------- ----------
<S> <C> <C>
Results of Operations
- ---------------------
(Taxable equivalent basis)
Interest income $ 169,354 $ 149,410
Interest expense 77,768 59,949
---------- ----------
Net interest income 91,586 89,461
Provision for loan losses 2,183 3,018
---------- ----------
Net interest income after provision
for loan losses 89,403 86,443
Noninterest income 18,869 17,068
Noninterest expense 68,247 64,796
---------- ----------
Income before income taxes 40,025 38,715
Income taxes 15,711 15,081
---------- ----------
Net income $ 24,314 $ 23,634
========== ==========
Period-End Balances
- -------------------
Total assets $4,429,994 $4,249,617
Total loans--net of unearned income 2,811,216 2,583,073
Total deposits 3,595,004 3,434,838
Shareholders' equity 394,517 391,134
Per Share Data (1)
- ------------------
Net income - primary $ 1.05 $ 1.00
Net income - fully diluted (2) 1.02 0.97
Cash dividends paid 0.46 0.44
Book value at period-end 17.24 16.61
Selected Performance Ratios
- ---------------------------
(based on averages)
Return on assets 1.11% 1.12%
Return on equity 12.44 12.22
Equity to assets 8.95 9.15
Primary capital to assets 9.97 10.24
Net charge-offs to average loans 0.08 0.13
Allowance for loan losses to average loans 1.49 1.68
</TABLE>
(1) Restated for all stock dividends.
(2) Assumes the conversion of ONB's subordinated debentures.
(3) The accompanying consolidated interim financial statements include the
accounts of ONB and affiliated entities. In the opinion of management, the
consolidated interim financial statements and summaries of interim selected
financial data contain all the normal and recurring adjustments necessary
to present fairly the financial position of ONB.
-xii-
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA -- FUSB
The following summary sets forth selected consolidated financial
information relating to FUSB. This information should be read in conjunction
with the financial statements and notes incorporated herein by reference.
<TABLE>
<CAPTION>
Twelve Months ended June 30,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Results of Operations
- ---------------------
(Taxable equivalent basis)
Interest income $ 9,537,512 $ 8,686,589 $ 9,219,921 $ 10,821,579 $ 12,337,901
Interest expense 5,858,417 5,414,275 6,175,994 7,784,664 9,129,001
------------ ------------ ------------ ------------ ------------
Net interest income 3,679,095 3,272,314 3,043,927 3,036,915 3,208,900
Provision for loan losses 745,774 121,614 89,674 127,391 57,313
------------ ------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 2,933,321 3,150,700 2,954,253 2,909,524 3,151,587
Noninterest income 603,668 599,654 582,538 710,855 504,347
Noninterest expense (1) 4,476,285 5,408,571 2,824,628 3,476,139 3,031,596
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes
and cumulative effect of change
in accounting principle (927,048) (1,658,217) 712,163 144,240 624,338
Income taxes (277,000) (657,800) 228,500 (14,000) 243,000
------------ ------------ ------------ ------------ ------------
Income (loss) before cumulative effect
of change in accounting principle (650,048) (1,000,417) 483,663 158,240 381,338
Cumulative effect of change in
accounting principle --- --- --- 30,400 ---
------------ ------------ ------------ ------------ ------------
Net income ($650,048) ($1,000,417) $ 483,663 $ 188,640 $ 381,338
============ ============ ============ ============ ============
Year-End Balances
- -----------------
Total assets $142,039,710 $133,703,636 $138,590,017 $130,060,846 $137,675,350
Total loans--net of unearned income 121,593,615 110,900,334 111,765,436 102,010,050 102,621,053
Total deposits 112,343,290 113,248,577 116,902,114 116,090,522 121,798,106
Shareholders' equity $ 9,240,514 $ 9,841,899 $ 10,972,468 $ 10,523,197 $ 10,486,335
Regulatory Capital
- --------------------
Tangible capital $ 6,518,000 $ 7,718,000 $ 10,548,000 $ 8,608,000 $ 8,294,000
- -------------------- ============ ============ ============ ============ ============
Core capital $ 6,836,000 $ 8,119,000 $ 10,987,000 $ 10,348,000 $ 10,438,000
- -------------------- ============ ============ ============ ============ ============
Rick-based capital $ 7,699,000 $ 7,603,000 $ 8,763,000 $ 9,846,000 $ 10,069,000
- -------------------- ============ ============ ============ ============ ============
Per Share Data
- --------------
Net income (loss) ($1.15) ($1.84) $ .90 $ .35 $ .71
Cash dividends paid - $ .24 $ .20 $ .40 $ .60
Book value at year-end $ 16.93 $ 18.15 $ 20.23 $ 19.52 $ 19.46
Selected Performance Ratios
- ---------------------------
(based on averages)
Return on assets (.48%) (.73%) .36% .14% .28%
Return on equity (7.30%) (9.16%) 4.50% 1.78% 3.65%
Equity to assets 6.56% 8.01% 7.98% 7.85% 7.68%
Primary capital to assets 5.8% 6.2% 7.9% 8.0% 6.1%
Net charge-offs to average loans .11% .04% .07% .06% .07%
Allowance for loan losses to average loans .74% .22% .15% .14% .08%
</TABLE>
(1) Includes charges for declines in net realizable value of direct investments
in real estate and investment securities of $200,000, $2,463,000 and
$625,000 in fiscal 1995, 1994 and 1992, respectively.
-xiii-
<PAGE>
PROSPECTUS PROXY STATEMENT
OF OF
OLD NATIONAL BANCORP FIRST UNITED SAVINGS BANK, f.s.b.
----------------------------------
ANNUAL MEETING OF SHAREHOLDERS OF
FIRST UNITED SAVINGS BANK, f.s.b.
TO BE HELD ON OCTOBER 31, 1995
----------------------------------
GENERAL INFORMATION
This Proxy Statement is furnished to the shareholders of FUSB in connection
with the solicitation by the Board of Directors of FUSB of proxies for use at
the Annual Meeting of Shareholders to be held on October 31, 1995, at 2:00 p.m.,
local time, at the main office of the FUSB located at One North Locust Street,
Greencastle, Indiana 46135. This Proxy Statement is first being mailed to FUSB
shareholders on October , 1995.
The purposes of the Annual Meeting of Shareholders are to (1) consider and
vote upon the Agreement, under the terms of which FUSB will affiliate with ONB
and each outstanding share of FUSB Common Stock will be converted into the right
to receive .8925 of a share of ONB Common Stock, as adjusted for the 5% stock
dividend issued by ONB on February 10, 1995, and subject to further adjustment,
if any, as described hereinafter; (2) elect two Directors of FUSB for terms
expiring in 1998, subject to earlier termination as a consequence of the
Affiliation; and (3) transact such other business which may properly be
presented at the Annual Meeting or any adjournment thereof.
Only holders of FUSB Common Stock of record at the close of business on
September 8, 1995 ("Record Date") are entitled to notice of, and to vote at, the
Annual Meeting. There were 546,550 shares of FUSB Common Stock outstanding on
the Record Date, which were held of record by approximately 369 shareholders. A
majority of outstanding shares of Common Stock of FUSB entitled to vote,
represented in person or by proxy, at the Annual Meeting is necessary for a
quorum. Shareholders who abstain, cast broker non-votes or withhold authority
to vote on one or more Director nominees will be deemed present at the Annual
Meeting for purposes of determining whether a quorum is present.
The affirmative vote of the holders of at least two-thirds of the outstanding
shares of FUSB Common Stock is required for approval of the Agreement, for which
matter each share of FUSB Common Stock is entitled to one vote. In this regard,
it is expected that the members of the Board of Directors and executive officers
of FUSB will vote all of their shares of FUSB Common Stock in favor of the
Agreement. Directors will be elected upon receipt of a plurality of affirmative
votes cast at the Annual Meeting. See "ELECTION OF FUSB DIRECTORS." In the
election of Directors, every holder of a share of FUSB Common Stock has the
right to vote his shares cumulatively. Under cumulative voting, the number of
shares a shareholder is entitled to vote multiplied by the number of Directors
to be elected represents the number of votes he may cast at such election, and
he may cast all such votes for one candidate or distribute them among any two or
more candidates.
The cost of soliciting proxies will be borne by FUSB. In addition to use of
the mails, proxies may be solicited personally or by telephone or telegraph by
directors, officers and certain employees of FUSB, who will not be specially
compensated for such soliciting.
<PAGE>
The shares represented by proxies properly signed and returned will be voted
at the Annual Meeting as instructed by the shareholders of FUSB giving the
proxies. In the absence of specific instructions to the contrary, proxies will
be voted FOR approval of the Agreement described in this Proxy Statement, FOR
election of the slated Directors and in accordance with the recommendation of
the Board of Directors of FUSB with respect to any other matter which may
properly be presented at the Annual Meeting. Unless otherwise specified on the
accompanying proxy, it is the intention of the persons named in the proxy to
cast one vote per share for each of the Director nominees named herein.
However, such persons reserve the right to vote each proxy cumulatively and for
the election of fewer than all of the nominees for Directors, but they do not
intend to do so unless candidates other than those Director nominees named
herein are proposed at the Annual Meeting by persons other than the Board of
Directors.
Any shareholder giving a proxy has the right to revoke it at any time before
it is exercised. Therefore, execution of a proxy will not affect a
shareholder's right to vote in person if he or she attends the Annual Meeting.
Revocation may be made by a later dated proxy delivered to FUSB, by written
notice delivered to the Secretary of FUSB prior to the Annual Meeting, or by
written notice delivered to the Secretary of FUSB at the Annual Meeting. To be
effective, any revocation must be received before the proxy is exercised.
PROPOSED AFFILIATION
At the Annual Meeting, shareholders of FUSB will consider and vote upon the
Agreement, certain features of which are summarized below. The following
summary of certain aspects of the Agreement does not purport to be a complete
description of the terms and conditions of the Agreement and is qualified in its
entirety by reference to the Agreement, which is attached to this Proxy
Statement as Appendix A and is incorporated herein by reference.
DESCRIPTION OF THE AFFILIATION
The Affiliation involves three sequential steps, the purposes of which are to
divide the operations of FUSB geographically within the ONB organization and
to enable FUSB to affiliate with ONB. Notwithstanding that the Affiliation
involves three sequential steps, the shareholders of FUSB of record upon
consummation (excluding Greenmark, which will have its 1,000 shares canceled
on the effective date) will be entitled to receive as their sole consideration
in the Affiliation .8925 of a share of ONB Common Stock, as adjusted for the
5% stock dividend issued by ONB on February 10, 1995, in exchange for each
share of FUSB Common Stock held, subject to further adjustments as set forth
in the Agreement. See "PROPOSED AFFILIATION - Exchange of FUSB Common Stock."
Shareholders of FUSB will not receive additional consideration for either the
Asset Purchase or the Greenmark Purchase.
(1) The Asset Purchase. In the first step of the Affiliation, First
Citizens will purchase the assets and assume the liabilities of the
full service branches of FUSB located in Greencastle and of the loan
production office located in Danville, Indiana. In the transfer,
First Citizens will pay the fair market value of the acquired assets
of FUSB by assuming the liabilities associated with the Greencastle
and Danville, Indiana offices of FUSB and by paying FUSB approximately
$ in cash or other immediately available funds. Such funds will
not be distributed to shareholders of FUSB, as such shareholders will
be entitled to receive solely shares of ONB in accordance with the
Merger. As a result, First Citizens will continue to operate as ONB's
affiliate doing business in Putnam and Hendricks Counties. The
specific provisions relating to the Asset Purchase are provided for in
the Purchase and Assumption Agreement attached to this Proxy Statement
as Appendix B.
(2) The Greenmark Purchase. First Citizens will then purchase the
outstanding stock of Greenmark from FUSB for a purchase price of
$310,000, payable by First Citizens to FUSB in cash or other
immediately available funds. As permitted by Indiana law applicable
to state banks, First Citizens will continue the property, casualty
and crop insurance agency operations of Greenmark. It must, however,
divest the life insurance operations to a third party, which will then
independently market life insurance to First Citizens' customers.
-2-
<PAGE>
(3) The Merger. FUSB, as it exists following the foregoing steps, will
immediately merge with ONB Interim Federal Savings Bank, a newly
formed interim savings bank subsidiary of ONB, to create New FUSB. By
reason of the merger, New FUSB will be a subsidiary of ONB. It will
retain the corporate title and charter of FUSB as a federal savings
bank, continuing FUSB's Bloomington operations.
All three steps will consummate sequentially on the effective date of the
Affiliation. Under the terms of the Agreement, none of the steps may consummate
independently; however, for tax purposes, the Asset Purchase and Greenmark
Purchase must consummate prior to the Merger.
ONB determined that New FUSB should continue to operate as a federal
savings bank in order to avoid certain adverse federal income tax consequences
which would have resulted to ONB had the surviving institution been a commercial
bank. ONB also determined that New FUSB should maintain its principal office in
Bloomington, Indiana because no affiliate bank of ONB currently has an office in
Bloomington. The Greencastle and Danville, Indiana offices of FUSB will be
combined with First Citizens for operational efficiency reasons since First
Citizens, an existing affiliate bank of ONB, already had offices and extensive
operations in the Greencastle area.
One of the principal business reasons that ONB and FUSB structured the
Affiliation into the three separate steps described above was to accomplish the
ultimate corporate structure that ONB desired when it determined to pursue an
affiliation with FUSB. This structure entailed combining the operations of FUSB
in Greencastle and Danville into the existing operations of First Citizens and
establishing a new presence in Bloomington. The Affiliation was structured in
this manner so as to avoid certain potential adverse federal income tax
consequences to ONB following consummation. Another reason for the Affiliation's
structure was regulatory convenience in that ONB believed that the three-step
structure would more likely result in the regulatory approvals for the
Affiliation being obtained with fewer antitrust law implications.
As of June 30, 1995, FUSB had consolidated assets of $142.0 million,
consolidated deposits of $112.3 million, consolidated shareholders' equity of
$9.2 million and consolidated net income for the six calendar months then ended
of $1.6 million. Based upon the pro forma financial information included
elsewhere in this Proxy Statement and assuming that the Affiliation had been
consummated on June 30, 1995, FUSB represented as of such date 3.21% of the
consolidated assets of ONB, 3.12% of its consolidated deposits, 2.33% of its
consolidated shareholders' equity and, for the six month period ended June 30,
1995, 6.58% of its consolidated net income. See "PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION."
STOCK OPTION AGREEMENT
At the time of execution of the Agreement, ONB and FUSB entered into a
Stock Option Agreement dated as of September 29, 1994, as amended as of June 29,
1995 ("Stock Option Agreement"), pursuant to which FUSB granted an irrevocable
option ("Option") to ONB to purchase up to such number of shares of FUSB Common
Stock, which will, immediately following the exercise of the Option in its
entirety, aggregate twenty-four and 80/100 percent (24.80%) of the issued and
outstanding shares of FUSB Common Stock ("Option Shares") at a price per Option
Share ("Purchase Price") equal to $26.50 per Option Share. Assuming ONB could
have exercised the Option on September 8, 1995, it could have purchased up to
180,245 shares of FUSB Common Stock.
The Stock Option Agreement provides that ONB may exercise the Option only
if any of the following events has occurred: (i) the acquisition by any person
or group of persons, other than ONB or any of its subsidiaries, of beneficial
ownership of fifteen percent (15%) or more of the outstanding shares of FUSB
Common Stock; (ii) the making by any person or group of persons, other than ONB
or any of its subsidiaries, of a tender or exchange offer for fifteen percent
(15%) or more of the shares of FUSB Common Stock if such person or group of
persons has announced its opposition to the Affiliation or an intention not to
vote in favor of the Affiliation or if such person or group of persons has
announced its intention to enter into or entered into, an agreement to effect a
merger, consolidation, share exchange or other combination with FUSB; or (iii)
the acceptance by FUSB of any firm proposal, however conditional or future, by
any person or group of persons, other than ONB or any of its subsidiaries, to:
(a) acquire FUSB by merger, consolidation, purchase of all or substantially all
of FUSB's assets or capital stock or any other similar transaction, or (b) make
a tender or exchange offer described in (ii) above.
If the conditions to exercise of the Option have been met, the Option may
be exercised by ONB in whole or in part at any time prior to January 31, 1996,
provided, however, that the Option will automatically expire if the Affiliation
is consummated as contemplated by the Agreement. In the event that ONB
exercises the Option, the option fee of $1,000 previously paid by ONB to FUSB
will be applied against the Purchase Price of the Option Shares. ONB must
receive the prior approval of the OTS before it exercises the Option.
Additionally, ONB may not acquire more than 5% of the outstanding shares of FUSB
Common Stock without the prior approval of the Board of Governors of the Federal
Reserve System under the Bank Holding Company Act of 1956, as amended.
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The Stock Option Agreement provides that in the event that ONB has
purchased all of the Option Shares pursuant to the Stock Option Agreement, ONB
may require FUSB to pay ONB an amount in cash equal to the highest price paid or
to be paid by any person or group of persons for any share of FUSB Common Stock
(or the aggregate consideration paid for the assets of FUSB divided by the
number of shares of FUSB Common Stock then outstanding), as the case may be,
multiplied by the total number of Option Shares, plus interest at the rate of
eight percent (8%) per annum from the date of the purchase of the Option Shares
through the date of such repurchase. Additionally, the value of any such price
or consideration other than cash will be determined, in the case of
consideration with a readily-ascertainable market value, on the basis of such
market value and, in the case of any other consideration, by agreement between
ONB and FUSB.
The Stock Option Agreement provides that in the event the Option is
exercised by ONB and the Agreement is terminated in accordance with the terms
thereof, FUSB will have the right to purchase, and ONB will have the right to
require FUSB to purchase, for cash, all of the Option Shares purchased by ONB
pursuant to the Stock Option Agreement. The purchase price for such Option
Shares will be calculated in the manner described in the previous paragraph.
The Option could have the effect of discouraging persons who now or prior
to the effective date of the Affiliation might be interested in acquiring all or
a significant interest in FUSB from considering or proposing such an
acquisition, even if such persons were prepared to pay more consideration per
share for FUSB Common Stock than the consideration per share payable under the
Agreement.
BACKGROUND OF AND REASONS FOR THE AFFILIATION
Until 1985 Indiana banking laws prohibited banks located in Indiana from
expanding outside of their home counties. Moreover, until 1989 federal law
prohibited affiliations between healthy savings and loan associations and banks
or bank holding companies. The changes since that time have been swift, first
permitting in-state acquisitions of banks by bank holding companies, then
permitting regional interstate acquisitions and finally permitting virtual
nationwide expansion opportunities, including cross-industry acquisitions.
These developments stimulated aggressive acquisition activity among financial
institutions located in Indiana and neighboring states, resulting in the entry
of large bank holding companies into virtually every attractive market in the
midwestern United States. Moreover, developments and deregulation in the
industry generally have led to further increases in competition for financial
institution services. Compounded by the significant increase in regulatory
burdens over the past several years, these competitive factors have created an
environment in which it is increasingly difficult for community organizations
such as FUSB to achieve the economies of scale necessary to compete effectively.
In April of 1994, FUSB received an unsolicited indication of interest from
a bank holding company regarding an affiliation with FUSB. Partly in response
to this unsolicited proposal and after an evaluation of the competitive and
regulatory factors described above and other financial, legal, economic and
market considerations, FUSB engaged McDonald & Company in June of 1994, to
contact a number of institutions on behalf of FUSB which might be interested in
a business combination with FUSB. During June and July of 1994, 24 bank and
thrift holding companies were contacted by McDonald & Company. The institutions
contacted included companies which FUSB and McDonald & Company believed would
have a strategic interest in FUSB and the financial ability to acquire FUSB and
companies that expressed an interest in a business combination following FUSB's
public announcement of its evaluation of strategic alternatives and were deemed
to have the financial ability to pursue such a transaction. On June 27, 1994,
FUSB announced that it had hired McDonald & Company to assist it in locating a
financial institution with whom it might affiliate and, as a result of that
announcement, received inquiries from a number of other financial institutions.
Twenty-two of those institutions executed confidentiality agreements, after
which they were provided selected confidential information regarding FUSB.
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As a result of these contacts, seven institutions submitted written proposals
during July of 1994, and four were offered the opportunity to conduct a due
diligence investigation of FUSB.
Final proposals were submitted by three of these institutions, including
ONB, in September of 1994. At a Board of Directors meeting held on September
16, 1994, FUSB, with the assistance of McDonald & Company and legal counsel,
analyzed each proposal and determined that the proposal submitted by ONB
provided the best opportunity for FUSB and its shareholders. As a result, the
directors authorized McDonald & Company and its legal counsel to proceed with
negotiations on behalf of FUSB for a definitive agreement with ONB.
On the evening of September 29, 1994, the agreement was approved by both
parties and a press release regarding the execution of that agreement was issued
the next day. At the September 29, 1994 meeting of the FUSB Board, McDonald &
Company rendered its oral opinion, which was subsequently delivered in writing,
to the effect that, as of that date, the Exchange Ratio pursuant to the
Affiliation was fair, from a financial point of view, to the holders of FUSB
Common Stock. On the same date, FUSB granted ONB an option to acquire 24.8% of
its Common Stock, in order to protect ONB's proposed affiliation with FUSB from
other interested parties.
After review of regulatory considerations regarding the proposed
transaction, ONB and FUSB determined that it was in the best interests of the
parties to structure the transaction in the steps comprised of the Asset
Purchase, Greenmark Purchase and the Merger. To reflect this structure, the
parties amended and restated the original agreement on June 29, 1995, and
entered into the Purchase and Assumption Agreement relating to the Asset
Purchase and Greenmark Purchase, annexed hereto as Appendix B.
In determining to pursue the Affiliation, the Board of Directors of FUSB
specifically considered financial, managerial and other information regarding
ONB and its affiliate banks. In particular, the Board of Directors of FUSB
evaluated the respective businesses, financial condition and future prospects of
FUSB and ONB. The earnings history and stock performance of ONB were carefully
reviewed and discussed with McDonald & Company with a view towards the
investment potential for shareholders of FUSB.
Among other items considered in this evaluation were the prospects of FUSB
and ONB, as separate institutions and as combined; the compatibility of ONB's
affiliate bank markets to those of FUSB; the anticipated tax-free nature of the
Affiliation to FUSB shareholders receiving solely ONB Common Stock in exchange
for their shares of FUSB Common Stock; the timeliness of a merger given the
state of the economy and the stock markets as well as anticipated trends in
both; regulatory requirements; relevant price information involving recent
comparable bank acquisitions which occurred in the Midwest United States; an
analysis of alternatives to affiliating with ONB, including other potential
acquirors; the fact that the consideration to be received in the Affiliation by
FUSB shareholders reflects a significant premium for FUSB Common Stock over the
market prices at which such stock had traded in the weeks prior to the public
announcement relating to the retention of McDonald & Company and the Affiliation
on July 27, 1994 and September 30, 1994, respectively; the competitive process
undertaken by FUSB with the assistance of McDonald & Company and the expressions
of interest made by other financial institutions; the value implicit in the
Exchange Ratio in relation to book value and earnings of FUSB and the dividend
rate that FUSB shareholders who become ONB shareholders would be expected to
enjoy as a result of the Affiliation; the terms of the Agreement; and McDonald &
Company's fairness opinion.
The Board of Directors of FUSB also considered the impact of the
Affiliation on its customers and employees and the communities it serves. ONB's
historical practice of retaining employees of acquired institutions with
competitive salary and benefit programs was considered, as was the opportunity
for training, education, growth and advancement of FUSB s employees within ONB
or one of its affiliates. The Board of
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Directors of FUSB examined ONB's continuing commitment to the communities served
by institutions previously acquired by ONB. Further, from the standpoint of
customers, it was anticipated that more products and services would become
available because of ONB's greater resources.
Based upon the foregoing factors, the Board of Directors concluded that it
was advantageous to affiliate with ONB. The importance of the various factors
relative to one another cannot be precisely determined or stated.
OPINION OF FINANCIAL ADVISOR TO FUSB
FUSB retained McDonald & Company to act as its financial advisor in
connection with the Affiliation. McDonald & Company participated with
management of FUSB in negotiating the terms of the Affiliation. Representatives
of McDonald & Company attended meetings of FUSB's Board of Directors in
connection with the evaluation of a possible business combination with another
financial institution and in connection with the evaluation of the Affiliation,
including the meeting held on September 29, 1994 at which time the Affiliation
was approved. At such meeting, representatives of McDonald & Company made an
oral presentation to FUSB's Board and reviewed with the Directors the various
aspects of the Affiliation, including the financial terms and conditions
thereof.
At the September 29, 1994 meeting of FUSB's Board, McDonald & Company
rendered its oral opinion to the effect that, as of that date, the Exchange
Ratio pursuant to the Affiliation was fair, from a financial point of view, to
the holders of FUSB Common Stock. In addition, McDonald & Company has delivered
its written opinion to FUSB's Board dated as of September 29, 1994 and as of the
date of this Proxy Statement stating that, as of September 29, 1994 and as of
the date of this Proxy Statement, the Exchange Ratio pursuant to the Affiliation
is fair, from a financial point of view, to the holders of FUSB Common Stock.
McDonald & Company has consented to the inclusion herein of the summary of its
opinion to FUSB's Board dated September 29, 1994 and to the reference to the
entire opinion dated as of the date of this Proxy Statement attached hereto as
Appendix C.
THE FULL TEXT OF MCDONALD & COMPANY'S FAIRNESS OPINION ("OPINION"), DATED
AS OF THE DATE OF THIS PROXY STATEMENT, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX
C TO THIS PROXY STATEMENT. FUSB SHAREHOLDERS ARE URGED TO READ THE OPINION IN
ITS ENTIRETY. MCDONALD & COMPANY HAS NOT MADE OR SOUGHT TO OBTAIN APPRAISALS OF
FUSB'S ASSETS IN RENDERING THE OPINION. NEITHER FUSB NOR ONB PLACED ANY
LIMITATION UPON MCDONALD & COMPANY WITH RESPECT TO THE INVESTIGATIONS MADE OR
PROCEDURES FOLLOWED BY MCDONALD & COMPANY IN RENDERING THE OPINION. THE OPINION
IS DIRECTED SOLELY TO THE BOARD OF DIRECTORS OF FUSB AND CONCERNS ONLY THE
CONSIDERATION PROVIDED FOR IN THE AGREEMENT AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY OF FUSB'S SHAREHOLDERS AS TO HOW SUCH SHAREHOLDER SHOULD
VOTE AT THE ANNUAL MEETING. THE SUMMARY OF THE OPINION SET FORTH IN THIS PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION INCLUDED IN APPENDIX C HERETO.
In arriving at its opinion, McDonald & Company reviewed, among other
things, the Agreement together with exhibits and schedules thereto, certain
publicly available information relating to the business, financial condition and
operations of FUSB and ONB as well as certain other non-public information
primarily financial in nature, furnished to it by FUSB and ONB relating to the
respective businesses, earnings, assets, financial forecasts and prospects.
McDonald & Company also held discussions with members of senior management of
FUSB and ONB concerning their respective businesses, assets, financial forecasts
and prospects. McDonald & Company also reviewed certain publicly available
information concerning the trading of, and the trading market for, FUSB Common
Stock and ONB Common Stock and certain publicly available information concerning
comparable companies and transactions, all as more fully set forth in its
opinion.
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McDonald & Company was not engaged to and did not conduct a physical
inspection of any of the assets, properties or facilities of either FUSB or ONB,
and was not engaged to do and has not made, obtained or been furnished with any
independent evaluation or appraisal of any such assets, properties or facilities
or any of the liabilities of FUSB or ONB. McDonald & Company has assumed and
relied, without independent investigation, upon the accuracy and completeness of
the financial and other information provided to it or publicly available, has
relied upon the representations and warranties of FUSB and ONB contained in the
Agreement, and has not independently attempted to verify any such information.
McDonald & Company has also assumed that all of the conditions to the
Affiliation as set forth in the Agreement, including the tax-free treatment of
the Affiliation to the shareholders of FUSB Common Stock, would be consummated
on a timely basis in the manner contemplated by the Agreement. No limitations
were imposed by FUSB upon McDonald & Company with respect to the scope of its
investigation nor were any specific instructions given to McDonald & Company in
connection with its opinion.
In connection with rendering its opinion dated September 29, 1994, McDonald
& Company considered a variety of financial analyses which are summarized below.
McDonald & Company believes that its analyses must be considered as a whole and
that selecting portions of such analyses and factors may create an incomplete
view of the analytical process underlying McDonald & Company's opinion. In its
analyses, McDonald & Company made numerous assumptions with respect to industry
performance, business and economic conditions, and other matters. Any estimates
contained in McDonald & Company's analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable than
such estimates.
The following is a summary of selected analyses considered by McDonald &
Company in connection with McDonald & Company's opinion dated September 29,
1994:
COMPARISON WITH SELECTED COMPANIES. McDonald & Company compared the
financial performance and stock market valuation of FUSB with corresponding data
for the following selected thrifts: First Financial Bancorp, Inc., Glenway
Financial Corp., Haverfield Corporation, LGF Bancorp, Inc., SuburbFed Financial
Corp., Security Savings Bank, FSB, and United Financial Bancorp. In addition,
McDonald & Company compared such data of ONB with the following selected banking
companies: Citizens Banking Corporation, Commerce Bancshares, Inc., Chemical
Financial Corporation, FirstMerit Corp., First Commerce Bancshares, First
Financial Bancorp, FirsTier Financial, Inc., Fort Wayne National Corp., Hawkeye
Bancorporation, Mid-America Bancorp, Mid Am, Inc., Peoples First Corporation,
Park National Corp., and Star Banc Corp. At the time, none of the companies
listed above had announced a merger transaction or disclosed a possible interest
in pursuing a possible merger transaction which would have significantly
affected its stock market valuation.
PRO FORMA MERGER ANALYSES. McDonald & Company analyzed the changes in per
share amount of earnings, book value and indicated dividend represented by one
share of FUSB Common Stock after the Affiliation. The analysis was performed on
the basis of financial information for both companies as of and for the twelve
months ended June 30, 1994, December 31, 1993, and December 31, 1992. The
analysis indicated, among other things, that exchanging one share of FUSB Common
Stock at the Exchange Ratio for shares of ONB Common Stock on a pro forma basis
would have resulted in a 59.5% increase in earnings per share for each share of
FUSB Common Stock for the twelve months ended December 31, 1993, an 18.6%
decrease in book value per share for each share of FUSB Common Stock as of June
30, 1994, and a 225.0% increase in dividends per share of FUSB Common Stock
based on FUSB's and ONB's indicated annual dividend rate as of September 29,
1994.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. McDonald & Company reviewed four
groups of selected pending thrift transactions involving (i) selling thrifts
with total assets less than $400 million, (ii) selling thrifts having a tangible
equity to assets ratio of more than 6.00%, (iii) selling thrifts having a return
on assets of less than 0.70%, and (iv) selling thrifts having non-performing
assets as a percent of total assets less than 2.00%. McDonald & Company
reviewed the ratios of the offer value to stated book value and tangible book
value, the
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multiple of the last twelve months earnings of the acquired company, and the
ratio of the offer value to assets in each such transaction and computed mean
and median ratios and multiples for each group. The calculations yielded ranges
of median ratios of price to stated book value and tangible book value of 131%
to 168% and 133% to 169%, respectively. Median multiples of earnings among the
four groups ranged from 13.7x to 17.7x, and median ratios of offer value to
assets ranged from 10.0% to 14.6%. Based on the Exchange Ratio and the ONB
equivalent price per share as of September 29, 1994 of $36.50, the ratio of
price to stated book value and tangible book value were 171% and 177%,
respectively. The multiple of price to last twelve months earnings before
extraordinary charges of FUSB through June 30, 1994 was 32.0x and the ratio of
price to assets at June 30, 1994 was 13.5%.
NO COMPANY OR TRANSACTION USED IN THE ABOVE ANALYSES AS A COMPARISON IS
IDENTICAL TO FUSB, ONB, OR THE AFFILIATION. ACCORDINGLY, AN ANALYSIS OF THE
RESULTS OF THE FOREGOING NECESSARILY INVOLVES COMPLEX CONSIDERATIONS AND
JUDGEMENTS CONCERNING THE DIFFERENCES IN FINANCIAL AND OPERATING CHARACTERISTICS
OF THE COMPANIES AND OTHER FACTORS THAT COULD AFFECT THE PUBLIC TRADING VALUES
OR ACQUISITION VALUES OF THE COMPANIES TO WHICH THEY ARE BEING COMPARED.
MATHEMATICAL ANALYSIS (SUCH AS DETERMINING THE MEAN OR MEDIAN) IS NOT, IN
ITSELF, A MEANINGFUL METHOD OF USING COMPARABLE COMPANY OR COMPARABLE
TRANSACTION DATA.
DISCOUNTED CASH FLOW ANALYSIS. Using a discounted cash flow analysis,
McDonald & Company estimated the present value of the future streams of after-
tax cash flows that FUSB could produce over a five year period from 1995 through
1999, under various assumptions, based upon FUSB management's forecasts.
McDonald & Company estimated the terminal value of FUSB after the five year
period by applying an estimated perpetual growth rate to the terminal year's
projected after-tax cash flow and then applied to this, multiples ranging from
9x to 11x. The cash flow streams and terminal values were then discounted to
present values using different discount rates chosen to reflect different
assumptions regarding the required rates of return of prospective buyers of
FUSB. On the basis of such varying assumptions, this discounted cash flow
analysis indicated a reference range of $20.67 to $27.92 per share of FUSB
Common Stock. This analysis was based upon management projections including
variations and assumptions made by McDonald & Company which included adjustments
to reflect the anticipated effects of potential merger-related cost savings
estimated by FUSB, as well as the effects of the potential tax liability for
conversion of FUSB Savings Bank to a commercial bank charter. Management's
projections are based upon many factors and assumptions, many of which are
beyond the control of FUSB or ONB. As indicated above, this analysis is not
necessarily indicative of actual values or actual future results and does not
purport to reflect the process at which any securities may trade at the present
time or at any time in the future.
In performing its analyses, McDonald & Company made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters. The analyses performed by McDonald & Company are not
necessarily indicative of actual values, which may be significantly more or less
favorable than the values suggested by such analyses. Such analyses were
prepared solely as part of McDonald & Company's opinion. The term "fair from a
financial point of view" is a standard phrase contained in investment banker
fairness opinions and refers to the fact that McDonald & Company's opinion as to
the fairness of the Exchange Ratio is addressed solely to the financial
attributes of the Exchange Ratio. The analyses do not purport to be appraisals
or to reflect the prices at which a company might actually be sold. In
addition, as described above, McDonald & Company's fairness opinion and
presentation to the FUSB Board of Directors were one of many factors taken into
consideration by the FUSB Board of Directors in making its determination to
approve the Agreement. Consequently, the McDonald & Company analyses described
above should not be viewed as determinative of the FUSB Board of Directors'
conclusions with respect to the value of FUSB or of the decision of the FUSB
Board of Directors to agree to the Exchange Ratio.
McDonald & Company's opinions are based on economic and market conditions
and other circumstances existing on, and information made available as of, the
date of such opinion. In addition, the opinions do not
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address FUSB's underlying business decision to effect the Affiliation or any
other terms of the Affiliation. McDonald & Company is not rendering any opinion
as to the value of FUSB Common Stock or ONB Common Stock at the Effective Time.
In connection with its opinion dated as of the date of this Proxy
Statement, McDonald & Company performed procedures to update certain of its
analyses and reviewed the assumptions on which such analyses were based and the
factors considered therewith.
McDonald & Company, as part of its investment banking business, is
customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. McDonald & Company has
extensive experience with the valuation of financial institutions. FUSB's Board
of Directors selected McDonald & Company as its financial advisor because of
McDonald & Company's industry expertise with respect to financial institutions
and because of McDonald & Company's industry experience in transactions similar
to the Affiliation. McDonald & Company is not affiliated with either FUSB or
ONB.
In the ordinary course of business, McDonald & Company makes a market in
FUSB Common Stock and ONB Common Stock and may actively trade the securities of
FUSB and ONB for its own account and for the accounts of its customers.
Accordingly, at any time McDonald & Company may hold a long or short position in
such securities. In addition, McDonald & Company from time to time has provided
investment banking services to FUSB and may provide such services to ONB in the
future.
For its services as financial advisor, FUSB has paid McDonald & Company a
retainer of $15,000 and a fee of $35,000 upon the rendering of McDonald &
Company's September 29, 1994 fairness opinion. Additional fees equal to
approximately $189,000 will be payable to McDonald & Company upon consummation
of the Affiliation. FUSB has also agreed to reimburse McDonald & Company for
its reasonable out-of-pocket expenses, which are estimated not to exceed
$15,000, and to indemnify McDonald & Company against certain liabilities,
including certain liabilities under federal securities laws.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF FUSB HAS CAREFULLY CONSIDERED AND UNANIMOUSLY
APPROVED THE AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF FUSB
APPROVE THE AGREEMENT.
Certain members of the management and Board of Directors of FUSB have
interests in the Affiliation that are in addition to those of FUSB shareholders
generally. See "Interests of Certain Persons in the Affiliation" and
"Management, Personnel and Operations After the Transaction."
EXCHANGE OF FUSB COMMON STOCK
Under the terms of the Agreement, shareholders of FUSB of record upon
consummation of the Affiliation (excluding Greenmark, which will have its 1,000
shares canceled on the effective date) will be entitled to receive .8925 of a
share of ONB Common Stock, as adjusted for the 5% stock dividend issued by ONB
on February 10, 1995, in exchange for each share of FUSB Common Stock held,
subject to further adjustment if the Average Price Per Share (as defined below)
is more than ten percent above or below $34.7619 or in the event of a
recapitalization of ONB. The Agreement may not be terminated solely due to
changes in the closing prices of ONB Common Stock. As a result of the ten
percent limitation:
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(1) Increase in Average Price Per Share. If the Average Price Per Share
of ONB Common Stock exceeds $38.2381, then the exchange ratio will be
adjusted such that each issued and outstanding share of FUSB Common
Stock will be converted into the right to receive a fraction of a
share of ONB Common Stock determined by dividing $34.1275 by the
Average Price Per Share of ONB Common Stock.
(2) Decrease in Average Price Per Share. Similarly, if the Average Price
Per Share of ONB Common Stock is less than $31.2857, then the exchange
ratio will be adjusted such that each issued and outstanding share of
FUSB Common Stock will be converted into the right to receive a
fraction of a share of ONB Common Stock determined by dividing
$27.9225 by the Average Price Per Share of ONB Common Stock.
(3) Less Than Ten Percent Change. If the Average Price Per Share of ONB
Common Stock is not less than $31.2857 nor more than $38.2381, then
there will be no adjustment to the exchange ratio.
The "Average Price Per Share" of ONB Common Stock is defined in the Agreement as
the average of the per share closing prices of ONB Common Stock, as reported on
the NASDAQ National Market System, for the first five (5) business days on which
shares of ONB Common Stock are traded within the ten (10) calendar days
immediately preceding the effective date of the Affiliation. Each Average Price
Per Share of ONB Common Stock discussed above has been adjusted to reflect the
5% stock dividend issued by ONB on February 10, 1995.
As of September , 1995, the closing price of ONB Common Stock was $
per share, as reported by the NASDAQ National Market System. If the Affiliation
had been consummated on that date, the number of shares of ONB Common Stock
exchanged in the merger would have been , with an aggregate market
value of approximately $ million. The shares of ONB Common Stock exchanged
in the merger will be newly issued shares of ONB Common Stock.
No fractional shares of ONB Common Stock will be issued to shareholders of
FUSB in connection with the Affiliation. Each shareholder of FUSB who otherwise
would be entitled to a fractional interest in a share of ONB Common Stock as a
result of the Exchange Ratio will be paid a cash amount equal to such fractional
interest multiplied by the Average Price Per Share of ONB Common Stock.
In connection with the Affiliation, Directors and executive officers of
FUSB who hold outstanding options to purchase FUSB Common Stock are required to
exercise such options prior to consummation. Accordingly, those shares will be
exchanged for ONB Common Stock on the same terms disclosed above.
After the effective time of the Affiliation, stock certificates previously
representing FUSB Common Stock will represent only the right to receive shares
of ONB Common Stock and cash for any fractional shares. Following the effective
date of the Affiliation and prior to the surrender by holders of FUSB of their
stock certificates to ONB for exchange, such holders will not be entitled to
receive payment of dividends or other distributions declared on shares of ONB
Common Stock. Upon the subsequent exchange of such certificates, however, any
accumulated dividends or other distributions previously declared and withheld on
the shares of ONB Common Stock will be paid, without interest. At the effective
date of the Affiliation, the stock transfer books of FUSB will be closed and no
transfers of shares of FUSB Common Stock will thereafter be made. If, after the
effective date, certificates representing shares of FUSB Common Stock are
presented for registration or transfer, they will be canceled and exchanged for
shares of ONB Common Stock.
Distribution of stock certificates representing shares of ONB Common Stock
and any cash payment for fractional shares (without interest) will be made,
after the effective date of the Affiliation, to each former shareholder of FUSB
within ten (10) business days following the shareholder's delivery to ONB of his
or her
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certificate(s) representing shares of FUSB Common Stock. Instructions as to
delivery of FUSB stock certificates to ONB will be sent to each FUSB shareholder
shortly after the effective date of the Affiliation.
NO DISSENTERS OR APPRAISAL RIGHTS
In connection with the Affiliation, shareholders of FUSB do not have the
statutory right to dissent and require appraisal of their shares of FUSB Common
Stock and to receive cash instead of ONB Common Stock in exchange for their
shares of FUSB Common Stock. Federal law applicable to FUSB excepts
transactions from dissenters rights provisions when the stock held by
shareholders is listed on the NASDAQ as of the date of the shareholder meeting
and when the stock being offered is listed as of the effective date. FUSB
Common Stock and ONB Common Stock, respectively, meet these tests. Shareholders
of FUSB who would otherwise dissent to the Affiliation may sell their shares of
ONB Common Stock in the open market at the market price following the effective
date.
RESALE OF ONB COMMON STOCK BY FUSB AFFILIATES
No restrictions on the sale or transfer of the shares of ONB Common Stock
issued in the Affiliation will be imposed solely as a result of the Affiliation,
other than restrictions on the transfer of such shares issued to any FUSB
shareholder who may be deemed to be an "affiliate" of FUSB for purposes of Rule
145 under the Securities Act. Directors, executive officers and 10%
shareholders are generally deemed to be affiliates for purposes of Rule 145.
The Agreement provides that FUSB will provide ONB with a list identifying
each affiliate of FUSB. The Agreement also requires that each FUSB affiliate
deliver to ONB, prior to the effective date of the Affiliation, a written
agreement to the effect that such affiliate (1) has not sold, pledged,
transferred, disposed of or otherwise reduced the affiliate's market risk with
respect to the shares of FUSB Common Stock directly or indirectly owned or held
by such person during the thirty (30) day period prior to the effective date,
and (2) will not sell, pledge, transfer or otherwise dispose of or reduce the
affiliate's market risk with respect to the shares of ONB Common Stock to be
received by such person pursuant to the Agreement (i) until such time as
financial results covering at least thirty (30) days of combined operations of
FUSB and ONB have been published within the meaning of Section 201.01 of the
Commission's Codification of Financial Reporting Policies and (ii) unless done
pursuant to an effective registration statement under the Securities Act or
pursuant to Rule 145 or another exemption from the registration requirements
under the Securities Act. The certificates representing ONB Common Stock issued
to FUSB affiliates in the Affiliation may contain a legend indicating these
resale restrictions.
This is only a general statement of certain restrictions regarding the sale
or transfer of the shares of ONB Common Stock to be issued in the Affiliation.
Therefore, those shareholders of FUSB who may be deemed to be affiliates of FUSB
should consult with their legal counsel regarding the resale restrictions that
may apply to them.
CONDITIONS TO CONSUMMATION
Consummation of the Affiliation is conditioned upon, among other items, (1)
approval of the Agreement by the affirmative vote of the holders of at least
two-thirds of the outstanding shares of FUSB Common Stock, (2) receipt by ONB
and FUSB of all applicable regulatory approvals required for each step of the
Affiliation, (3) receipt of an Internal Revenue Service letter ruling or opinion
of counsel with respect to certain federal income tax matters, (4) the issuance
by McDonald & Company of a written fairness opinion stating that the terms of
the Affiliation are fair to the shareholders of FUSB from a financial point of
view dated as of the date hereof and confirmed as of the effective date, (5)
receipt by ONB of certain undertakings from affiliates of FUSB, (6) receipt by
ONB and FUSB of certain officers' certificates and legal opinions, (7) the
accuracy at the effective
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<PAGE>
date of the Affiliation of representations and warranties contained in the
Agreement, (8) the fulfillment of certain covenants and mutual agreements set
forth in the Agreement and (9) the exercise of all stock options held by
officers and directors of FUSB prior to the effective date. While the three
steps of the Affiliation will consummate on the effective date, it is a
condition of the Affiliation imposed for tax purposes that the Asset Purchase
and the Greenmark Purchase consummate prior to the Merger. The conditions to
consummation of the Affiliation, which are more fully enumerated in the
Agreement, are requirements subject to unilateral waiver by the party entitled
to the benefit of such conditions, as set forth in the Agreement.
TERMINATION
The Agreement may be terminated before consummation of the Affiliation by
either ONB or FUSB (as set forth in the Agreement) if, among other reasons, (1)
there has been a misrepresentation or a breach of any representation or warranty
set forth in the Agreement by FUSB or ONB which has had or could be expected to
have a material adverse effect on the financial condition, results of
operations, business, prospects, assets or capitalization of FUSB or ONB, or in
the number of issued and outstanding shares of FUSB, (2) ONB or FUSB has
breached or failed to comply with any covenant or mutual agreement set forth in
the Agreement, (3) consummation of the Affiliation has become inadvisable or
impracticable due to the commencement or threat of any claim, litigation or
proceeding against ONB, FUSB, First Citizens or any subsidiary of ONB or of
FUSB, or any officer or director of either relating to the Agreement or which is
likely to have a material adverse effect on the financial condition, results of
operations, business, prospects, assets or capitalization of ONB or FUSB, each
on a consolidated basis, (4) there has been a material adverse change in the
financial condition, results of operations, business, prospects, assets or
capitalization of ONB or FUSB, each on a consolidated basis, as of the effective
date of the Affiliation as compared to that in existence as of June 30, 1994,
(5) ONB's accountants conclude that ONB cannot utilize the pooling-of-interests
method of accounting for the Affiliation, or (6) consummation of the Affiliation
has not occurred by January 31, 1996. Further, ONB may terminate the Affiliation
if it reasonably determines that a term or condition imposed by a regulatory
agency in connection with antitrust implications of the Asset Purchase would so
materially and adversely impact the anticipated financial condition or results
of operations of New FUSB or First Citizens on a consolidated basis with ONB as
to render consummation unacceptable or otherwise imprudent, or the Affiliation
is not able to be consummated because of governmental disapproval or a lawsuit
is filed to enjoin the Affiliation on antitrust grounds. At present, ONB does
not anticipate that the Asset Purchase will be subject to conditions to
consummation as a result of the antitrust implications. The parties may also
mutually agree to terminate the Affiliation. Upon termination for any of these
reasons, the Agreement will be of no further force or effect.
RESTRICTIONS AFFECTING FUSB
The Agreement contains a number of restrictions regarding the conduct of
business of FUSB pending consummation of the Affiliation. Among other items,
FUSB may not, without the prior written consent of ONB, (1) change its capital
stock accounts, (2) distribute or pay any dividends, except that FUSB may pay to
its shareholders its normal and customary quarterly cash dividend in amounts not
to exceed $0.12 per share; provided, however, that no dividend may be paid to
shareholders of FUSB during the quarter in which the Affiliation is consummated,
if, during such quarter, FUSB shareholders will become entitled to receive
dividends on their shares of ONB Common Stock received pursuant to the
Agreement, (3) amend its Charter or By-Laws, (4) carry on its business other
than substantially in the manner as conducted as of the date of the Agreement
and in the ordinary course of business, or (5) negotiate or discuss with third
parties relative to a merger, combination or sale of FUSB, except under certain
limited circumstances.
-12-
<PAGE>
REGULATORY APPROVALS
Each step of the Affiliation requires regulatory approvals before the
Affiliation will become effective: the Asset Purchase and Greenmark Purchase
require the approvals of the Office of Thrift Supervision ("OTS"), Indiana
Department of Financial Institutions and FDIC; while the Merger requires the
approvals of the Board of Governors of the Federal Reserve System under the Bank
Holding Company Act of 1956, as amended and of the OTS. The Asset Purchase
involves antitrust considerations because First Citizens and FUSB compete
directly in Greencastle and Putnam County. ONB, however, does not anticipate
that the Asset Purchase will raise significant antitrust issues. With respect
to the Asset Purchase, approvals of the Indiana Department of Financial
Institution and FDIC have been obtained. No other regulatory approvals have
been obtained as of the date of this Proxy Statement.
Approval of the Affiliation is not to be interpreted as the opinion of
these regulatory authorities that the Affiliation is favorable to the
shareholders of FUSB from a financial point of view or that those regulatory
authorities have considered the adequacy of the terms of the Affiliation.
Regulatory approval in no way constitutes an endorsement or a recommendation of
the Affiliation by such regulatory authorities.
ACCOUNTING TREATMENT FOR THE AFFILIATION
It is anticipated that the Affiliation will be accounted for as a "pooling-
of-interests" transaction and it is a condition precedent to ONB's obligation to
consummate the Affiliate that it be so treated. Under this method of
accounting, shareholders of ONB and shareholders of FUSB will be deemed to have
combined their existing voting common stock interests. See "SUMMARY OF SELECTED
FINANCIAL DATA" and "PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
EFFECTIVE DATE
The Affiliation will become effective at the close of business on the day
specified in certificates filed with the OTS, Indiana Department of Financial
Institutions and FDIC. The effective date will occur on the last business day
of the month during which occurs (1) the fulfillment of all conditions precedent
to the Affiliation set forth in the Agreement and (2) the expiration of all
waiting periods in connection with the regulatory applications filed for
approval of the Affiliation.
ONB and FUSB currently anticipate that the Affiliation will consummate
during the last calendar quarter of 1995.
MANAGEMENT, PERSONNEL AND OPERATIONS AFTER THE AFFILIATION
The Directors of FUSB elected at the Annual Meeting and serving at the
effective date of the Affiliation will continue as Directors of either New FUSB
or First Citizens. Following the effective date of the Affiliation, ONB, as the
sole shareholder of New FUSB and First Citizens, will have the ability to elect
the respective Boards of Directors; however, ONB has agreed that the former
Directors of FUSB will continue as Directors for at least three years following
the effective date of the Affiliation. The directors based in and around
Greencastle will serve as directors of First Citizens; those based in and around
Bloomington will serve as directors of New FUSB. William M. Marley, President
of FUSB, will serve as Vice Chairman of First Citizens. The remaining officers
of FUSB will continue as officers of either First Citizens or New FUSB after
the effective date, with geographic distribution between New FUSB's Bloomington
operations and First Citizens' Greencastle operations. The officers working in
Greencastle and Danville at the effective date will serve as officers of First
Citizens; those working in Bloomington on the effective date will serve as
officers of New FUSB.
-13-
<PAGE>
In general, employees of FUSB will receive benefits in accordance with
policies of ONB following the Affiliation. In particular, those persons who are
full-time officers or employees of FUSB as of the effective date of the
Affiliation, who continue as full-time officers or employees of First Citizens,
New FUSB or any other subsidiary of ONB after the effective date, will receive
substantially the same employee benefits on substantially the same terms and
conditions that ONB may offer to similarly situated officers and employees of
its banking subsidiaries from time to time, including participation in the ONB
Employees' Retirement Plan ("ONB Pension Plan") and the ONB Employees' Savings
and Profit Sharing Plan ("ONB Profit Sharing Plan"). In addition, years of
service of an employee of FUSB prior to the effective date of the Affiliation
will be credited to each such employee for purposes of eligibility under ONB's
employee welfare benefit plans and for purposes of eligibility and vesting, but
not for benefit accrual or contributions under the ONB Pension Plan and the ONB
Profit Sharing Plan.
Those officers and employees of FUSB who otherwise meet the eligibility
requirements of the ONB Profit Sharing Plan, based upon their age and years of
service for FUSB, will become participants thereunder as of the January 1st
which coincides with or next follows the effective date of the termination of
the employee stock ownership plan sponsored by FUSB. Those employees of FUSB
who otherwise meet the eligibility requirements of the ONB Pension Plan, based
upon their age and years of service, will become participants thereunder on the
January 1st which coincides with or next follows the effective date of the
termination of the defined benefit pension plan sponsored by FUSB. Those
officers and employees who do not meet the eligibility requirements of the ONB
Pension Plan or ONB Profit Sharing Plan on such dates will become participants
thereunder on the first "plan entry date" (as defined in the ONB Pension Plan or
the ONB Profit Sharing Plan, as the case may be), which coincides with or next
follows the date on which such eligibility requirements are satisfied.
Further, FUSB has agreed that prior to the effective date, it will amend
each Director Supplemental Benefit Plan Agreement for each director of FUSB who
is not in pay status as of such effective date to (1) increase the monthly
allocation due under of the agreement from $350 to $700 to be effective as of
the effective date of the Affiliation; (2) provide for the cessation of benefit
accruals under each agreement effective as of the end of the month which
coincides with or next follows the end of the three year period beginning at the
effective date of the Affiliation in addition to provisions for benefit accrual
cessation currently in the agreements; (3) eliminate the minimum monthly benefit
provisions; and (4) provide for a lump sum cash payment of the director's
account balance under the agreement payable within ten business days following
the earliest of the benefit cessation date or the date the director ceases to be
a director of an affiliate of ONB or the date the director attains age sixty-
five.
In addition, prior to the effective date of the Affiliation, FUSB will
enter into a Director Supplemental Benefit Plan Agreement with Alan G. Stanley
to (1) provide for a monthly allocation in the amount of $350 to be effective as
of the effective date of the Affiliation, such monthly allocations to be made
for a period ending as of the end of the month which coincides with or next
follows the end of the three year period beginning at the effective date of the
Affiliation; (2) provide for the cessation of benefit accruals under such
agreement effective as of the end of the month which coincides with or next
follows the end of the three year period beginning at such effective date of the
Affiliation; and (3) provide for a lump sum cash payment of the account balance
under the agreement payable within ten business days following the earliest of
the benefit cessation date or the date Mr. Stanley ceases to be a director of an
affiliate of ONB.
ONB has also agreed not to reduce the monthly allocation under the Director
Supplemental Benefit Plan Agreements for the three year period beginning as of
the effective date of the Affiliation. During such three year period, ONB will
not make any other modifications to any of the foregoing agreements (whether or
not in pay status) without first receiving the written consent of the affected
individual, unless otherwise required by law.
-14-
<PAGE>
The changes to the Director Supplemental Benefit Plans of FUSB discussed
above will enable the Directors of FUSB to receive approximately the same level
of director benefits (including director's fees) as they are presently receiving
from FUSB for three years following the Affiliation and do not represent an
increase in those benefits.
Upon consummation of the Affiliation, ONB will cause the Employee
Supplemental Benefit Plan Agreements entered into between FUSB and each of Rosa
Ada Wood, Donna L. Bouslog and William M. Marley, as amended, to be terminated;
provided, however, that within ten business days of the termination of such
agreements, ONB must make a lump sum cash payment to each such employee equal to
the amount accrued on the books and records of FUSB for the benefit of such
employee on the effective date of the Affiliation. FUSB has agreed to amend
each of such Employee Supplemental Benefit Plan Agreements, prior to the
effective date of the Affiliation, to provide for the cessation of benefit
accruals under the agreements as of such effective date and for the payment of
benefits to be made in a lump sum in the event the agreement is terminated. As
of June 30, 1995, approximately $12,450, $35,530, and $72,875 had been accrued
under these plans for the benefit of Rosa Ada Wood, Donna L. Bouslog and William
M. Marley, respectively.
Further, ONB will cause New FUSB or First Citizens to assume FUSB's
obligations (1) to pay health insurance premiums under FUSB's health insurance
plan (or another comparable plan) for Mr. Jim Ross, a former employee of FUSB,
until he attains age sixty-two on September 8, 1995; (2) to pay him $586.85 per
month until his death (with payments guaranteed for not less than a ten year
period beginning January 1, 1991) as a supplement to his retirement benefit
under the defined benefit pension plan sponsored by FUSB to a level which he
would have received had he retired effective December 31, 1995; and (3) to pay
him $1,041.67 per month until December 31, 2000. This covenant is made on the
condition that the obligations of FUSB being assumed by ONB's affiliate bank
have been fully accrued for on the books and records of FUSB, subject only to an
interest expense with respect to such accrual of $300 per month.
In connection with effecting the changes from FUSB benefit plans to ONB
plans, FUSB's Retirement Plan and Employee Stock Ownership Plan will be
terminated or frozen as of December 31, 1995, and FUSB's Stock Option Plan will
be terminated as of the effective date of the Affiliation. Benefits under the
FUSB Retirement Plan will be left in trust and payable at the times and in the
amounts provided for under that Plan. Benefits under the FUSB ESOP will be
distributed to participants in a lump sum or by direct rollover to the ONB
Profit Sharing Plan (without any separate or segregated account for the
transferred assets) or into individual retirement accounts.
INTERESTS OF CERTAIN PERSONS IN THE AFFILIATION
FUSB and William M. Marley, its President, entered into an employment
agreement in 1986 which was renewed for one additional year on October 30, 1994.
The agreement was amended in connection with the Affiliation to provide that Mr.
Marley will serve as Vice Chairman following the Affiliation and to further
conform his rights to employee benefits to those provided by ONB. This
agreement currently terminates on March 27, 1998.
ONB has agreed to assume certain obligations regarding retired officers and
Directors and has, further, agreed to fund the Directors Supplemental Benefit
Plan Agreements in existence for Directors of FUSB at increased levels for three
years following the effective date, following which it will cease such funding.
In connection with the Affiliation, the Employee Supplemental Benefit Plans for
three FUSB employees, including William M. Marley, will be terminated and all
accrued benefits thereunder will be paid to those employees in a lump sum cash
payment within 10 days following consummation of the Affiliation. See
"Management, Personnel and Operations after the Affiliation."
-15-
<PAGE>
Further, ONB has agreed to provide extended indemnification to the same
extent provided by FUSB at the effective date to directors or officers of New
FUSB and First Citizens who were directors and officers of FUSB or any
subsidiaries against any and all losses in connection with or arising out of any
claim which is based upon any actual or alleged act or omission occurring at or
prior to the effective date. Indemnification of employees and directors
following the effective date will be provided to the same extent it is provided
to individuals working in similar capacities for ONB or its subsidiaries. In
addition, ONB has agreed for a period of one year after the effective date to
use all reasonable efforts to cause to be maintained in effect the policies of
directors and officers liability insurance maintained by FUSB with respect to
claims arising from facts or events which occurred before the effective date of
the Affiliation. Following the effective date, ONB will provide FUSB employees
who become officers of ONB or any of its subsidiaries with the same directors
and officers liability insurance coverage that ONB provides to other similarly
situated directors and officers of ONB and its bank subsidiaries.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax aspects of
the Affiliation. This discussion does not purport to cover all federal income
tax consequences relating to the Affiliation and does not contain any
information with respect to state, local or other tax laws.
TAX RULING
ONB and FUSB have requested a private letter ruling from the Internal
Revenue Service ("Service") substantially to the effect that:
(1) The merger of ONB Federal Interim Savings Bank into FUSB, with
shareholders of FUSB being entitled to exchange their shares of
FUSB Common Stock solely for voting common stock of ONB and cash for
fractional shares will qualify as a reorganization within the meaning
of Section 368(a)(1)(A) and Section 368(a)(2)(E) of the Internal
Revenue Code of 1986 (the "Code"). ONB, the Interim Savings Bank and
FUSB will each be a "party to a reorganization" under Section 368(b)
of the Code. The sale by FUSB of the Greencastle branch in connection
with the Asset Purchase will not prevent the Affiliation from
qualifying as a tax-free reorganization under (a) the continuity of
interest, (b) the continuity of business enterprise or (c) the
"substantially all" requirements applicable to tax-free
reorganizations of this type.
(2) The shareholders of FUSB will not recognize any gain or loss on the
exchange of their FUSB stock solely for ONB voting stock.
(3) The Interim Savings Bank will not recognize any gain or loss on its
receipt of FUSB stock in exchange solely for ONB stock.
(4) Each FUSB shareholder's basis in the ONB stock received in the
exchange will equal the basis of the FUSB stock surrendered therefor.
(5) Each FUSB shareholder's holding period for the ONB stock received in
the exchange will include the holding period of the FUSB stock
surrendered therefor, provided the FUSB stock was held as a capital
asset on the date of the exchange.
The Service may refuse to rule on all or certain aspects of the private letter
ruling request. Generally, the Service has taken the position that the Service
will not rule on the tax treatment of a reorganization, even if it is an
integral part of a larger transaction that involves other issues upon which the
Service will rule and it is impossible to determine the tax consequences of the
larger transaction without determining the tax consequences of the
reorganization. However, the Service has the discretion to rule on significant
subissues that must be resolved
-16-
<PAGE>
to determine whether the transaction qualifies under Code Section 368(a)(1)(A)
(including transactions qualifying by reason of Code Section 368(a)(2)(E)).
The ruling issued by the Internal Revenue Service will be based upon the
assumption of certain facts to be stated in the opinion. Under the Agreement,
the obligations of each of ONB and FUSB to consummate the Affiliation is
conditioned upon the receipt of a tax ruling or a tax opinion from Krieg DeVault
Alexander & Capehart substantially to the effect as set forth above. In the
event that the Service refuses to rule on the tax-free nature of the
Affiliation, the Boards of Directors of ONB and FUSB have indicated that they
will rely on opinion of counsel to the same effect.
TAX CONSEQUENCES TO ONB AND FUSB
ONB will acquire the stock of FUSB in exchange for ONB Common Stock.
Consequently, based upon the assumption of certain facts to be stated in the
ruling, the merger of FUSB with ONB should constitute a tax-free reorganization.
TAX CONSEQUENCES TO FUSB SHAREHOLDERS
A FUSB shareholder who receives solely ONB Common Stock in exchange for all
of the shares of FUSB Common Stock actually owned by the shareholder will not
recognize any gain or loss upon such exchange for federal income tax purposes.
See the following paragraph for a discussion of the tax consequences of the
receipt of cash in lieu of fractional share interests of ONB Common Stock.
A FUSB shareholder who receives cash in lieu of a fractional share interest
of ONB Common Stock will be treated as having received such fraction of a share
of ONB Common Stock and then as having received cash in redemption of the
fractional share interest, under the provisions of Sections 302(a) and 302(b)(1)
of the Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON THE FEDERAL INTERNAL REVENUE CODE AS IN
EFFECT ON THE DATE OF THIS PROXY STATEMENT WITHOUT CONSIDERATION OF ANY STATE
LAWS OR THE PARTICULAR FACTS OR CIRCUMSTANCES OF ANY FUSB SHAREHOLDER. THE
ABOVE DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO SHARES ACQUIRED PURSUANT
TO THE EXERCISE OF STOCK OPTIONS OR OTHERWISE RECEIVED AS COMPENSATION.
SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISOR WITH RESPECT TO ALL TAX
CONSEQUENCES OF THE AFFILIATION TO THEM, INCLUDING THE EFFECT OF FEDERAL, STATE
AND LOCAL TAX LAWS AND ANY OTHER TAX CONSEQUENCES.
COMPARATIVE PER SHARE DATA
NATURE OF TRADING MARKET
Shares of ONB Common Stock are traded in the over-the-counter market and
share prices are reported by the NASDAQ National Market System under the symbol
OLDB. On September 29, 1994, the business day immediately preceding the public
announcement of the Affiliation, the closing price of ONB Common Stock reported
by the NASDAQ National Market System was $35.25 per share. Both of these per
share prices of ONB Common Stock reflect the 5% stock dividend issued by ONB on
February 10, 1995. The following table sets forth, for the periods indicated,
the high and low per share closing prices of ONB Common Stock as reported
-17-
<PAGE>
by the NASDAQ National Market System. The prices shown below have been adjusted
for all stock splits and stock dividends paid by ONB.
HIGH LOW
-------- --------
1992
----
First Quarter $26-5/8 $24-3/4
Second Quarter 26-3/8 25-3/8
Third Quarter 27-5/8 25-3/4
Fourth Quarter 28-1/8 26-5/8
1993
----
First Quarter $30-3/8 $27-5/8
Second Quarter 31-1/2 29-5/8
Third Quarter 33-5/8 30-7/8
Fourth Quarter 36-1/8 33-1/4
1994
----
First Quarter $35-7/8 $34-1/2
Second Quarter 34-3/4 34-1/4
Third Quarter 35-1/2 34-1/4
Fourth Quarter 35-1/4 34-3/4
1995
----
First Quarter $35-1/4 $34-1/2
Second Quarter 34-3/4 34
Third Quarter
============== ======= =======
(through ________)
===================
Shares of FUSB Common Stock are traded in the over-the-market and share
prices are reported by NASDAQ under the symbol FUSB. On July 24, 1994, the
business day prior to FUSB retaining McDonald & Company, the high and low bid
prices of FUSB Common Stock were each $21.25. On September 29, 1994, the
business day immediately preceding the public announcement of the Affiliation,
the high and low bid prices of FUSB Common Stock reported by NASDAQ were each
$20.50. On ___________, 1995, the high and low bid prices of FUSB Common
Stock reported by NASDAQ were $______ and $______________ per share.
The following table sets forth, for the periods indicated, the high and low
per share bid prices of FUSB Common Stock as reported by NASDAQ, adjusted for
all stock splits and stock dividends.
-18-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 HIGH LOW
------------------ ---- ---
<S> <C> <C>
1993
----
First Quarter $13.50 $11.25
Second Quarter 13.25 13.25
Third Quarter 13.75 13.25
Fourth Quarter 14.75 13.50
1994
----
First Quarter $15.75 $14.75
Second Quarter 16.00 14.50
Third Quarter 14.50 13.75
Fourth Quarter 20.25 14.00
1995
----
First Quarter $27.50 $26.75
Second Quarter 26.75 26.75
Third Quarter . .
(through _________)
</TABLE>
DIVIDENDS
The following table sets forth the per share cash dividends paid on shares
of ONB Common Stock and shares of FUSB Common Stock since January 1, 1993. All
dividends have been adjusted to give effect to their respective stock dividends
and stock splits (if any).
<TABLE>
<CAPTION>
ONB COMMON STOCK(1) FUSB COMMON STOCK(2)
------------------- --------------------
<S> <C> <C>
YEAR ENDED DECEMBER 31
----------------------
1993
----
First Quarter $.19 $-0-
Second Quarter .19 .20
Third Quarter .19 -0-
Fourth Quarter .19 -0-
1994
----
First Quarter $.22 .12
Second Quarter .22 .12
Third Quarter .22 -0-
Fourth Quarter .22 -0-
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
1995
----
<S> <C> <C>
First Quarter $.23 -0-
Second Quarter .23 -0-
Third Quarter . .
(through ________)
</TABLE>
(1) There can be no assurance as to the amount of future dividends that may be
declared or paid on shares of ONB Common Stock since dividend policies are
subject to the discretion of the Board of Directors of ONB, general
business conditions and dividends paid to ONB by its affiliate banks. For
certain restrictions on the payment of dividends on shares of ONB Common
Stock, see "COMPARISON OF COMMON STOCK -- Dividend Rights."
(2) The Agreement provides that FUSB shareholders will not receive in any
quarter in which the proposed Affiliation is consummated a cash dividend
from both FUSB and ONB, see "COMPARISON OF COMMON STOCK -- Dividend
Rights."
EXISTING AND PRO FORMA PER SHARE INFORMATION
The following table sets forth certain historical, pro forma and equivalent
information, giving effect to the pending affiliations with City National and
Shawnee Bancorp. The data is based on historical financial statements and the
pro forma financial information included on pages 23 through 29 and has been
restated to give effect to all stock dividends, including the 5% stock dividend
issued by ONB on February 10, 1995. Equivalent per share data is calculated by
multiplying the pro forma ONB information by the Exchange Ratio under the
Agreement.
<TABLE>
<CAPTION>
As Reported
---------------------------------------------
Net Income Cash Book Value at
ONB (Loss) Dividends Period End
- ------------- ------------- ------------- ---------------
<S> <C> <C> <C>
Six Months Ended
June 30, 1995 $ 1.05 $ 0.46 $17.24
Year Ended December 31,
1994 2.03 0.88 16.76
1993 1.95 0.76 16.18
1992 1.88 0.72 15.00
FUSB
- -------------
Six Months Ended
June 30, 1995 $ 0.14 -0- $16.93
Year Ended December 31,
1994 (3.41) 0.24 14.08
1993 1.11 0.20 20.82
1992 0.15 0.20 20.08
</TABLE>
-20-
<PAGE>
** 1 EXISTING AND PRO FORMA PER SHARE INFORMATION - (Continued)
<TABLE>
<CAPTION>
Net Income
---------------------------------------------------------------
ONB FUSB ONB FUSB
Pro Forma(1) Equivalent(1) Pro Forma(2) Equivalent(2)
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Six Months Ended
June 30, 1995 $1.03 $0.92 $1.03 $0.92
Year Ended December 31,
1994 1.90 1.70 1.90 1.70
1993 1.94 1.73 1.93 1.72
1992 1.85 1.65 1.84 1.64
Cash Dividends
---------------------------------------------------------------
ONB FUSB ONB FUSB
Pro Forma(1) Equivalent(1) Pro Forma(2) Equivalent(2)
------------ ------------- ------------ -------------
Six Months Ended
June 30, 1995 $0.46 $0.41 $0.46 $0.41
Year Ended December 31,
1994 0.88 0.79 0.88 0.79
1993 0.76 0.68 0.76 0.68
1992 0.72 0.64 0.72 0.64
Shareholders' Equity
---------------------------------------------------------------
ONB FUSB ONB FUSB
Pro Forma(1) Equivalent(1) Pro Forma(2) Equivalent(2)
------------ ------------- ------------ -------------
As of June 30, 1995 $17.25 $15.40 $17.20 $15.35
As of December 31, 1994 16.71 14.91 16.61 14.82
Market Value of Common Stock
---------------------------------------------------------------
FUSB
----------------------------
ONB Historical Equivalent
--- ---------- ----------
As of September 29, 1994(3) $35.25 $20.50 $31.46
</TABLE>
(1) Considers the pending merger with FUSB. See "PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION".
(2) Considers the pending merger with FUSB, as well as the pending mergers with
City National and Shawnee Bancorp. See "PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION" and "DESCRIPTION OF ONB -- Acquisition Policy and
Pending Affiliations".
(3) Represents the last business day prior to the public announcement of the
proposed merger with FUSB.
-21-
<PAGE>
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The accompanying financial statements present a Pro Forma Condensed
Combined Balance Sheet of ONB as of June 30, 1995 and Pro Forma Condensed
Combined Statements of Income for the six months ended June 30, 1995 and for
the years ended December 31, 1994, 1993, and 1992.
The Pro Forma Condensed Combined Balance Sheet as of June 30, 1995 is
presented giving effect to the mergers pending as of June 30, 1995 with Shawnee
Bancorp and City National and the consummated affiliations with Citizens
National Bank Corporation and Oblong Bancshares, Inc., which occurred in 1995.
See "DESCRIPTION OF ONB -- Acquisition Policy and Pending Affiliations."
The Pro Forma Condensed Combined Statements of Income for the six months ended
June 30, 1995 and the years ended December 31, 1994, 1993, and 1992 are
presented giving effect to each of these pending mergers as of January 1 of each
of the years presented.
The pro forma information is based upon historical financial statements.
The Pro Forma Condensed Combined income statements have been presented using the
registrant's (ONB's) fiscal year end of December 31 and the most recent interim
date. FUSB's fiscal year end is June 30. As a result, for each period Pro Forma
Condensed Combined income statements have been presented, the same interim
periods of FUSB's historical results have been compiled and presented. The
assumptions give effect to the proposed mergers under the pooling-of-interests
method of accounting. The information has been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission and is provided
for comparative purposes only. The information does not purport to be indicative
of the results that actually would have occurred had the mergers been effected
on January 1 of the years presented.
-22-
<PAGE>
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1995
(Unaudited - Dollars in Thousands)
<TABLE>
<CAPTION>
CITY SHAWNEE
ASSETS ONB(d) FUSB ADJUSTMENTS PRO FORMA NATIONAL BANCORP ADJUSTMENTS PRO FORMA
---------- ------- ----------- ---------- -------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks...........$ 179,590 $ 879 $ 180,469 $ 2,507 $ 1,270 $ 184,246
Money market investments.......... 5,324 5,614 10,938 3,150 14,088
Investment securities............. 1,318,535 5,327 1,323,862 54,711 13,413 1,391,986
Loans............................. 2,811,216 122,457 2,933,673 39,559 13,432 2,986,664
Reserve for loan losses........... (40,953) (863) (41,816) (505) (235) (42,556)
Excess cost over assets acquired.. 12,954 287 13,241 312 206 13,759
Other intangibles................. 1,175 0 1,175 0 1,175
Premises and equipment............ 65,037 1,514 66,551 1,073 716 68,340
Other assets...................... 77,116 6,825 83,941 2,662 469 87,072
---------- -------- -- ---------- -------- ------- -- ----------
$4,429,994 $142,040 $0 $4,572,034 $103,469 $29,271 $0 $4,704,774
========== ======== == ========== ======== ======= == ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits..........................$3,595,004 $112,343 $3,707,347 $ 88,335 $24,082 $3,819,764
========== ======== ---------- -------- ------- ----------
Medium term notes................. 32,000 0 32,000 0 0 32,000
Subordinated debentures........... 31,545 0 31,545 0 0 31,545
Other borrowings.................. 332,114 19,000 351,114 5,616 2,795 359,525
Other liabilities................. 44,814 1,456 46,270 789 360 47,419
---------- -------- -- ---------- -------- ------- -- ----------
Total Liabilities.............. 4,035,477 132,799 0 4,168,276 94,740 27,237 0 4,290,253
---------- -------- -- ---------- -------- ------- -- ----------
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock...................... 22,890 6 514 (a) 23,410 360 59 271 (b)(c) 24,100
Capital surplus................... 209,631 4,956 (514)(a) 214,073 1,140 1,357 (271)(b)(c) 216,299
Retained earnings................. 160,778 4,279 165,057 7,403 614 173,074
Net unrealized loss............... 1,218 0 1,218 (174) 4 1,048
---------- -------- -- ---------- -------- ------- -- ----------
Total shareholders' equity..... 394,517 9,241 0 403,758 8,729 2,034 0 414,521
---------- -------- -- ---------- -------- ------- -- ----------
$4,429,994 $142,040 $0 $4,572,034 $103,469 $29,271 $0 $4,704,774
========== ======== == ========== ======== ======= == ==========
Outstanding common shares........ 22,890,065 23,409,678 24,099,478
========== ========== ==========
Shareholders' equity per share.... 17.24 17.25 17.20
===== ===== =====
See Notes to Pro Forma Financial Information.
</TABLE>
-24-
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(Unaudited -- Dollars in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
As Reported As Reported
------------------- -----------------
CITY SHAWNEE
ONB FUSB PRO FORMA NATIONAL BANCORP PRO FORMA
--- ---- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income................................... $ 162,966 $5,095 $ 168,061 $3,687 $1,859 $ 172,837
Interest expense.................................. 77,768 3,166 80,934 2,068 549 83,551
---------- ------ ---------- ------ ------ ----------
Net interest income............................... 85,198 1,929 87,127 1,619 540 89,286
Provision for loan losses......................... 2,183 186 2,369 30 (2) 2,397
---------- ------ ---------- ------ ------ ----------
Net interest income after
provision for loan losses....................... 83,015 1,743 84,758 1,589 542 86,889
Noninterest income................................ 18,869 355 19,224 221 56 19,501
Noninterest expense............................... 68,247 1,933 70,180 1,180 498 71,858
---------- ------ ---------- ------ ------ ----------
Income (loss) before income taxes................. 33,637 165 33,802 630 100 34,532
Provision for income taxes........................ 9,323 53 9,376 129 38 9,543
---------- ------ ---------- ------ ------ ----------
Net income (loss)................................. $ 24,314 $ 112 $ 24,426 $ 501 $ 62 $ 24,989
========== ====== ========== ====== ====== ==========
Net income per common share: (e)
Assuming no dilution......................... $1.05 $1.03 $1.03
===== ===== =====
Assuming full dilution....................... $1.02 $1.01 $1.00
===== ===== =====
Weighted average common shares outstanding: (e)
Assuming no dilution......................... 23,140,212 23,659,825 24,349,622
========== ========== ==========
Assuming full dilution....................... 24,481,411 25,001,024 25,690,821
========== ========== ==========
</TABLE>
See Notes to Pro Forma Financial Information.
-25-
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(Unaudited -- Dollars in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
As Reported As Reported
------------------- -----------------
CITY SHAWNEE
ONB FUSB PRO FORMA NATIONAL BANCORP PRO FORMA
--- ---- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income................................... $ 291,077 $9,045 $ 300,122 $5,900 $1,779 $ 307,801
Interest expense.................................. 124,958 5,841 130,799 2,841 844 134,484
---------- ------ ---------- ------ ------ ----------
Net interest income............................... 166,119 3,204 169,323 3,059 935 173,317
Provision for loan losses......................... 9,989 106 10,095 100 (6) 10,189
---------- ------ ---------- ------ ------ ----------
Net interest income after
provision for loan losses....................... 156,130 3,098 159,228 2,959 941 163,128
Noninterest income................................ 32,451 640 33,091 325 183 33,599
Noninterest expense............................... 125,525 2,813 128,338 1,924 835 131,097
---------- ------ ---------- ------ ------ ----------
Income (loss) before income taxes................. 63,056 925 63,981 1,360 289 65,630
Provision for income taxes........................ 16,883 329 17,212 316 71 17,599
---------- ------ ---------- ------ ------ ----------
Net income (loss)................................. $ 46,173 $ 596 $ 46,769 $1,044 $ 218 $ 48,031
========== ====== ========== ====== ====== ==========
Net income per common share: (e)
Assuming no dilution......................... $1.95 $1.94 $1.93
===== ===== =====
Assuming full dilution....................... $1.90 $1.88 $1.88
===== ===== =====
Weighted average common shares outstanding: (e)
Assuming no dilution......................... 23,632,680 24,152,293 24,842,090
========== ========== ==========
Assuming full dilution....................... 25,335,954 25,855,567 26,545,364
========== ========== ==========
</TABLE>
See Notes to Pro Forma Financial Information.
-26-
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1992
(Unaudited -- Dollars in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
As Reported As Reported
------------------- -----------------
CITY SHAWNEE
ONB FUSB PRO FORMA NATIONAL BANCORP PRO FORMA
--- ---- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income................................... $ 304,695 $9,712 $ 314,407 $6,231 $1,839 $ 322,477
Interest expense.................................. 144,908 6,785 151,693 3,364 999 156,056
---------- ------ ---------- ------ ------ ----------
Net interest income............................... 159,787 2,927 162,714 2,867 840 166,421
Provision for loan losses......................... 11,731 93 11,824 60 (44) 11,840
---------- ------ ---------- ------ ------ ----------
Net interest income after
provision for loan losses....................... 148,056 2,834 150,890 2,807 884 154,581
Noninterest income................................ 28,082 598 28,680 293 179 29,152
Noninterest expense............................... 113,548 3,473 117,021 1,768 858 119,647
---------- ------ ---------- ------ ------ ----------
Income (loss) before income taxes................. 62,590 (41) 62,549 1,332 205 64,086
Provision for income taxes........................ 17,853 (127) 17,726 324 61 18,111
---------- ------ ---------- ------ ------ ----------
Net income (loss)................................. $ 44,737 $ 86 $ 44,823 $1,008 $ 144 $ 45,975
========== ====== ========== ====== ====== ==========
Net income per common share: (e)
Assuming no dilution......................... $1.88 $1.85 $1.84
===== ===== =====
Assuming full dilution....................... $1.82 $1.79 $1.79
===== ===== =====
Weighted average common shares outstanding: (e)
Assuming no dilution......................... 23,772,874 24,292,487 24,982,284
========== ========== ==========
Assuming full dilution....................... 25,781,590 26,301,203 26,991,000
========== ========== ==========
</TABLE>
See Notes to Pro Forma Financial Information.
-27-
<PAGE>
OLD NATIONAL BANCORP
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(a) Exchange of 100% of FUSB for 519,613 shares of ONB Common Stock.
$519,613 Value of 519,613 shares of ONB Common Stock at $1.00 par
value issued to shareholders of FUSB.
(5,498) Value of 545,800 shares of FUSB Stock at $.01
par value retired.
$514,115
(b) Exchange of 100% of City National common stock for 551,597 shares of ONB
Common Stock.
(c) Exchange of 100% of Shawnee Bancorp common stock for 138,200 shares of
ONB Common Stock.
(d) Reflects the Asset Purchase and the Greenmark Purchase.
$551,597 Value of 551,597 shares of ONB Common Stock at $1.00
par value issued to shareholders of City National.
138,200 Value of 138,200 shares of ONB Common Stock at $1.00
par value issued to shareholders of Shawnee Bancorp.
(359,738) Value of 47,965 shares of City National Common Stock
at $7.50 par value retired.
(59,000) Value of 118,000 shares of Shawnee Bancorp Common
Stock at $.50 par value retired.
$271,059
(e) All share and per share information has been restated for the 5% stock
dividend issued by ONB on February 10, 1995. Net income per share on a
fully diluted basis assumes the conversion of ONB's convertible
subordinated debentures.
-28-
<PAGE>
DESCRIPTION OF ONB
BUSINESS
ONB is a multi-bank holding company with 23 affiliate banks located in the
tri-state area comprised of southwestern Indiana and neighboring portions of
Illinois and Kentucky. With total consolidated assets of $4.4 billion as of
June 30, 1995, ONB is the largest independent bank holding company headquartered
in the State of Indiana. Since 1985, ONB has acquired 31 financial
institutions, 9 of which were combined with existing affiliate banks, and has
increased its banking offices to 112.
The principal activity of ONB is to own, manage and supervise its affiliate
banks and its non-bank subsidiaries, each of which is held by ONB as a separate
wholly-owned subsidiary. The primary sources of ONB's revenues are dividends
and fees received from its subsidiaries. There are various legal limitations on
the extent to which the affiliate banks may finance, pay dividends to or
otherwise supply funds to ONB. See "REGULATORY CONSIDERATIONS."
ONB's affiliate banks engage in a wide range of commercial and consumer
banking activities and provide other services relating to the general banking
business. Set forth below is a list of ONB's affiliate banks by state.
<TABLE>
<CAPTION>
Illinois Indiana Kentucky
-------- ------- --------
<S> <C> <C>
. First National Bank . Bank of Western Indiana . Farmers Bank & Trust
(Oblong) (Covington) Company (Henderson)
. Palmer-American National . Citizens National Bank(Tell City) . Farmers Bank & Trust
Bank (Danville) . Clinton State Bank (Clinton) Company (Madisonville)
. Peoples National Bank . Dubois County Bank (Jasper) . First State Bank (Greenville)
(Lawrenceville) . First Citizens Bank & Trust . Morganfield National Bank
. Security Bank & Trust Company (Greencastle)
Company (Mt. Carmel) . Gibson County Bank (Princeton)
. First National Bank . Indiana State Bank (Terre Haute)
(Harrisburg) . Merchants National Bank
(Terre Haute)
. Old National Bank (Evansville)
. Orange County Bank (Paoli)
. People's Bank & Trust Company
(Mt. Vernon)
. Rockville National Bank
(Rockville)
. Security Bank & Trust Company
(Vincennes)
. United Southwest Bank
(Washington)
</TABLE>
In addition to these affiliate banks, ONB has three non-bank affiliates.
Indiana Old National Insurance Company reinsures credit life, accident and
health insurance of installment consumer borrowers of ONB's affiliate banks;
Old National Realty Company, Inc. owns real properties which are incidental to
ONB's
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<PAGE>
operations; and Old National Service Corporation provides data processing
services to ONB's affiliate banks and to third parties. ONB Investment Services,
Inc., a subsidiary of Old National Bank in Evansville and a registered
broker/dealer, provides brokerage services to a number of affiliate bank
customers.
ACQUISITION POLICY AND PENDING AFFILIATIONS
ONB anticipates that it will continue its policy of geographic expansion
through consideration of acquisitions of financial institutions located in
Indiana, Kentucky and Illinois. Management of ONB currently is reviewing and
analyzing potential acquisitions, as well as engaging in discussions or
negotiations preliminary to letters of intent or agreements in principle
concerning potential acquisitions. There can be no assurance that any of these
discussions or negotiations will result in definitive agreements or consummated
transactions.
As of the date of this Proxy Statement, ONB is a party to definitive
agreements to acquire City National Bank and Shawnee Bancorp. In connection
with the acquisition of City National and City National Bank, a wholly-owned
bank subsidiary of City National, City National will merge into ONB. Following
this merger, City National Bank will be a wholly-owned subsidiary of ONB. Under
the agreement with City National, each outstanding share of City National Common
Stock will be converted into the right to receive eleven and one-half (11.5)
shares of ONB Common Stock. In connection with the acquisition of Shawnee
Bancorp and Shawnee Bancorp's 98.5% owned bank subsidiary, The Bank of
Harrisburg, Harrisburg, Illinois, Shawnee Bancorp will first merge into ONB and,
immediately thereafter, The Bank of Harrisburg will merge into The First
National Bank of Harrisburg, a wholly-owned bank subsidiary of ONB. Under the
agreement to acquire Shawnee Bancorp and The Bank of Harrisburg, each
outstanding share of Shawnee Bancorp will be converted into the right to receive
such number of shares of ONB Common Stock which have a market value equal to
Forty-One Dollars ($41.00), and each outstanding share of The Bank of Harrisburg
common stock owned by the individual minority shareholders of The Bank of
Harrisburg will be converted into the right to receive from ONB an amount of
Seventeen Dollars ($17.00) in cash, except two (2) individual minority
shareholders may exchange their shares for such number of shares of ONB Common
Stock which have a market value equal to Seventeen Dollars ($17.00). Under these
agreements, ONB proposes to issue approximately 689,797 shares of ONB Common
Stock. ONB intends to exchange newly issued shares of ONB Common Stock in these
affiliations.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The foregoing information concerning ONB does not purport to be complete. For
additional information, see the documents filed by ONB and listed under
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" in this Proxy Statement which
are specifically incorporated herein by reference.
DESCRIPTION OF FUSB
BUSINESS
FUSB is a federally-chartered, SAIF insured stock savings bank headquartered
in Greencastle, Indiana. In 1986, FUSB converted from a federally-chartered
mutual association to a federally-chartered stock savings bank through the
issuance of common stock. In 1988, it acquired Fountain Federal Savings Bank of
Bloomington, Indiana and further expanded its market area in 1994 by opening a
loan production
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<PAGE>
office in the Avon area of Danville, Indiana. Currently,
FUSB conducts its business from one office in Greencastle, Indiana, two full
service branches in Bloomington, Indiana, and its loan production office in
Danville, Indiana. It owns two subsidiaries: Greenmark which currently
operates as a property, casualty, life and crop insurance agency and Kirkwood
Corporation which is currently non-operating.
The principal business of FUSB has always been to accept deposits from the
general public and invest those deposits, together with funds from earnings and
borrowings, primarily in first mortgage loans secured by one to four family
residential properties and, to a lesser extent, in multi-family residential and
consumer loans.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The foregoing information concerning FUSB does not purport to be complete.
For additional information, see the documents filed by FUSB and listed under
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" in this Proxy Statement which
are specifically incorporated herein by reference.
REGULATORY CONSIDERATIONS
REGULATION OF ONB AND AFFILIATES
ONB Regulation. ONB is registered as a bank holding company and is subject
to the regulations of the Board of Governors of the Federal Reserve System
("Federal Reserve") under the Bank Holding Company Act of 1956, as amended
("BHC Act"). Bank holding companies are required to file periodic reports with
and are subject to periodic examination by the Federal Reserve. The Federal
Reserve has issued regulations under the BHC Act requiring a bank holding
company to serve as a source of financial and managerial strength to its
subsidiary banks. It is the policy of the Federal Reserve that, pursuant to
this requirement, a bank holding company should stand ready to use its
resources to provide adequate capital funds to its subsidiary banks during
periods of financial stress or adversity. Additionally, under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a bank
holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" (as
defined in the statute) with the terms of any capital restoration plan filed by
such subsidiary with its appropriate federal banking agency up to the lesser of
(i) an amount equal to 5% of the institution's total assets at the time the
institution became undercapitalized, or (ii) the amount that is necessary (or
would have been necessary) to bring the institution into compliance with all
applicable capital standards as of the time the institution fails to comply
with such capital restoration plan. Under the BHC Act, the Federal Reserve has
the authority to require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of
a bank) upon the Federal Reserve's determination that such activity or control
constitutes a serious risk to the financial soundness and stability of any bank
subsidiary of the bank holding company.
ONB and its affiliate banks are subject to the Federal Reserve Act, which
restricts financial transactions between banks and affiliated companies. The
statute limits credit transactions between a depository institution and its
executive officers and its affiliates, prescribes terms and conditions for
affiliate transactions deemed to be consistent with safe and sound banking
practice, and restricts the types of collateral security permitted in
connection with an institution s extension of credit to an affiliate.
-31-
<PAGE>
Affiliate Regulation. The affiliate banks of ONB which are national banks
are supervised, regulated and examined by the OCC. The affiliate banks of ONB,
including First Citizens, which are state banks chartered in Indiana, are
supervised, regulated and examined by the Indiana Department of Financial
Institutions. ONB's affiliate banks chartered in Kentucky are supervised,
regulated and examined by the Kentucky Commissioner of Financial Institutions
and those affiliate banks chartered in Illinois are supervised, regulated and
examined by the Illinois Commissioner of Banks and Trust Companies. In
addition, those ONB affiliate banks which are state banks and members of the
Federal Reserve are supervised and regulated by the Federal Reserve and those
which are not members of the Federal Reserve, including First Citizens, are
supervised and regulated by the FDIC. Each regulator has the authority to
issue cease-and-desist orders if it determines that activities of the bank
regularly represent an unsafe and unsound banking practice or a violation of
law.
Both federal and state law extensively regulate various aspects of the
banking business such as reserve requirements, truth-in-lending and truth-in-
savings disclosure, equal credit opportunity, fair credit reporting, trading in
securities and other aspects of banking operations. Current federal law also
requires banks, among other things to make deposited funds available within
specified time periods.
Each affiliate of ONB has the power to engage in the business of banking as
provided by the law of its incorporation. These laws differ from state to
state and from federal law to state law. However, insured state-chartered
banks are prohibited under FDICIA from engaging as principal in activities that
are not permitted for national banks under federal law, unless (i) the FDIC
determines that the activity would pose no significant risk to the appropriate
deposit insurance fund, and (ii) the bank is, and continues to be, in
compliance with all applicable capital standards.
REGULATION OF FUSB
General. As a SAIF-insured savings association, FUSB is subject to
supervision and regulation by the Director of the OTS, as will be New FUSB
following the Affiliation. Under the OTS regulations, FUSB is required to
obtain audits by independent auditors and to be examined periodically by the
Director of the OTS. FUSB is subject to assessments by the OTS and the FDIC to
cover the costs of such examinations. The Director of the OTS also is
authorized to promulgate regulations to ensure the safe and sound operations of
savings associations and may impose various requirements and restrictions on
the activities of savings associations. For additional information concerning
the regulation of FUSB, see "Regulation" under the caption "Management
Discussion and Analysis" contained in FUSB's Annual Report to shareholders for
the fiscal year ended June 30, 1995.
The activities of savings associations are governed by the Home Owners Loan
Act of 1933 ("HOLA") and, in certain respects, the Federal Deposit Insurance
Act, as amended ("FDI Act").
Qualified Thrift Lender Requirement. In order for FUSB to exercise the
powers granted to federally-chartered savings associations and maintain full
access to Federal Home Loan Bank advances, it must be a "qualified thrift
lender" ("QTL"). A savings institution is a QTL if its qualified thrift
investments continue to equal or exceed 65% of the savings institution's
portfolio assets on a monthly average basis in 9 out of 12 months. As of June
30, 1995, FUSB's qualified thrift investments represented 95.96% of its
portfolio assets. Qualified thrift investments generally consist of (i)
various housing related loans and investments (such as residential construction
and mortgage loans, home improvement loans, manufactured housing loans, home
equity loans and mortgage-backed securities), (ii) certain obligations of the
FSLIC, the FDIC, the FSLIC Resolution Fund and the Resolution Trust Corporation
(for limited periods), and
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<PAGE>
(iii) shares of stock issued by any Federal Home
Loan Bank, the Federal Home Loan Mortgage Corporation or the Federal National
Mortgage Association.
Liquidity. Under applicable federal regulations, savings associations are
required to maintain an average daily balance of liquid assets (including cash,
certain time deposits, certain banker's acceptances, certain corporate debt
securities and highly rated commercial paper, securities of certain mutual
funds and specified United States government, state or federal agency
obligations) of not less than 5% of the average daily balance of the savings
association's net withdrawable deposits plus short-term borrowing during the
preceding calendar month. As of June 30, 1995, FUSB's liquid assets
represented 5.36% of its net withdrawable deposits plus short-term borrowings
during the preceding calendar month. Under HOLA, this liquidity requirement
may be changed from time to time by the Director of the OTS to any amount
within the range of four percent to ten percent, depending upon economic
conditions and the deposit flows of member institutions. A savings institution
is also required to maintain an average daily balance of short-term liquid
assets of not less than 1% of the average daily balance of its net withdrawable
deposits and short-term borrowing during the preceding calendar month. At June
30, 1995, FUSB was in compliance with these liquidity requirements.
Loans-to-One-Borrower Limitations. HOLA generally requires savings
associations to comply with the loans-to-one-borrower limitations applicable to
national banks. In general, national banks may make loans to one borrower in
amounts up to 15% of the bank's unimpaired capital and surplus, plus an
additional 10% of capital and surplus for loans secured by readily marketable
collateral. At June 30, 1995, FUSB's loan-to-one-borrower limitation was
approximately $1.5 million. Under certain OTS regulations, a savings
institution may make loans to one borrower for residential housing developments
in amounts up to 30% of the bank's unimpaired capital and surplus upon prior
notice to and approval of the OTS and provided that all loans made in reliance
upon the increased lending limit do not, in the aggregate, exceed 150% of the
bank's unimpaired capital and surplus. At June 30, 1995, FUSB had one loan
made under this higher lending limit and one loan which was in excess of the
15% lending limit, but had been grandfathered.
Commercial Real Property Loans. HOLA limits the aggregate amount of
commercial real estate loans that a federal savings institution may make to an
amount not in excess of 400% of the savings institution's capital.
FUSB's Subsidiaries. The OTS regulations permit federal savings
associations to invest in the capital stock, obligations or specified types of
securities of subsidiaries (referred to as "service corporations") and to make
loans to such subsidiaries and joint ventures in which such subsidiaries are
participants in an aggregate amount not exceeding three percent of an
institution's assets, provided any investment over two percent is used for
specified community or inner-city development purposes. In addition, federal
regulations permit institutions to make specified types of loans to such
subsidiaries, in which the institution owns more than ten percent of the stock,
in an aggregate amount not exceeding 50% of the institution's regulatory
capital if the institution's investment is in compliance with applicable loans-
to-one-borrower regulations. A savings institution which acquires a non-
savings institution subsidiary, or which elects to conduct a new activity
within a subsidiary, must give the FDIC and the OTS at least 30 days' advance
written notice. The FDIC may, after consultation with the OTS, prohibit
specific activities if it determines such activities pose a serious threat to
SAIF. FUSB has two such subsidiaries, Greenmark and Kirkwood Corporation.
Branching. The rules of the OTS on branching by federally-chartered savings
associations permit nationwide branching to the extent allowed by federal
statute. This permits federal savings associations with
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<PAGE>
inter-state networks to diversify their loan portfolio and lines of business.
The OTS authority pre-empts any state law purporting to regulate branching by
federal savings associations.
CAPITAL ADEQUACY GUIDELINES
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines which require a minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities such as
standby letters of credit) of 8%. At least half of the total required capital
must be "Tier 1 capital," consisting principally of common shareholders'
equity, noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interest in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The remainder ("Tier 2
capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, cumulative perpetual preferred stock, and a limited amount of
the general loan loss allowance. In addition to the risk-based capital
guidelines, the Federal Reserve has adopted a Tier 1 (leverage) capital ratio
under which the bank holding company must maintain a minimum level of Tier 1
capital to average total consolidated assets of 3% in the case of bank holding
companies which have the highest regulatory examination ratings and are not
contemplating significant growth or expansion. All other bank holding
companies are expected to maintain a ratio of at least 1% to 2% above the
stated minimum.
The following are ONB's regulatory capital ratios as of June 30, 1995:
Tier 1 Capital: 13.49%
Total Capital: 15.79%
Leverage Ratio: 8.6%
Depository institution affiliates of ONB and FUSB are required to meet
similar capital adequacy ratios. The FDIC, OCC and OTS have adopted risk-based
capital ratio guidelines to which depository institutions under their
respective supervision are subject. The guidelines establish a systematic
analytical framework that makes regulatory capital requirements more sensitive
to differences in risk profiles among banking organizations. Risk-based
capital ratios are determined by allocating assets and specified off-balance
sheet commitments to four risk weighted categories, with higher levels of
capital being required for the categories perceived as representing greater
risk.
Like the capital guidelines established by the Federal Reserve, these
guidelines divide an institution's capital into two tiers. Depository
institutions are required to maintain a total risk-based capital ratio of 8%.
The agencies may, however, set higher capital requirements when an
institution's particular circumstances warrant. Depository institutions
experiencing or anticipating significant growth are expected to maintain
capital ratios, including tangible capital positions, well above the minimum
levels.
In addition, the agencies established guidelines prescribing a minimum Tier
1 leverage ratio of 3% for depository institutions that meet certain specified
criteria, including that they have the highest regulatory rating and are not
experiencing or anticipating significant growth. All other institutions are
required to maintain a Tier 1 leverage ratio of 3% plus an additional 100 to
200 basis points.
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All of ONB's affiliate banks as well as FUSB exceed the risk-based capital
guidelines as of June 30, 1995. For additional information pertaining to
FUSB's regulatory capital, see "Liquidity and Capital Resources" under the
caption "Management Discussion and Analysis" contained in FUSB's Annual Report
to shareholders for the fiscal year ended June 30, 1995.
Effective September 1, 1995, the OCC, the Federal Reserve and the FDIC
amended their capital standards to specify that the banking agencies will
include, in their evaluations of a bank's capital adequacy, an assessment of
its exposure to declines in the economic value of the bank's capital due to
changes in interest rates. Concurrently, these banking agencies issued for
comment a joint policy statement describing the process the banking agencies
will use to measure and assess the exposure of a bank's net economic value to
changes in interest rates. The information and exposure estimates collected
through this new proposed supervisory measurement process will be one
quantitative factor used by examiners to determine the adequacy of an
individual bank's capital for interest rate risk. Other quantitative factors
that examiners will consider include the bank's historical financial
performance and its earnings exposure to interest rate movements. Examiners
will also consider qualitative factors, including the adequacy of the bank's
internal interest rate risk management.
After the banking agencies and banking industry gain sufficient experience
with the proposed measurement process, the banking agencies intend, through a
subsequent rulemaking process, to issue a proposed rule that would establish an
explicit capital charge for interest rate risk that will be based upon the
level of a bank's measured interest rate risk exposure.
The proposed interagency supervisory policy statement requires certain banks
to submit new interest rate risk consolidated reports of condition and income,
or call report, schedules beginning in March 1996, indicating the maturity,
repricing or price sensitivity of their various on- and off-balance-sheet
instruments. A bank would also have the option of reporting its internal
market estimates of the price sensitivity of its major portfolios and its net
economic value. Banks with assets under $300 million, composite CAMEL
supervisory ratings of 1 or 2, and moderate or low holdings of assets with
intermediate-and long-term maturity or repricing characteristics would be
exempt from expanded reporting requirements.
The supervisory model would apply a series of interest rate risk weights to
a bank's reported repricing and maturity balances. The risk weights estimate
price sensitivity of a bank's reported balances to a 200 basis-point change in
interest rates. The summation of these weighted balances, along with certain
price sensitivity information that a bank may be required to report, results in
a net risk-weighted exposure for the institution. That exposure represents the
estimated change in the bank's economic value to the specified change. Full
implementation of the proposed supervisory policy statement for assessing the
adequacy of bank capital for interest rate risk would occur on December 31,
1996.
The OTS has adopted a rule which sets forth the methodology for calculating
an interest rate risk component to be incorporated into the OTS regulatory
capital rule. Under the rule, only savings associations with "above normal"
interest rate risk (institutions whose portfolio equity would decline in value
by more than 2% of assets in the event of a hypothetical 200-basis point move
in interest rates) will be required to maintain additional capital for interest
rate risk under the risk-based capital framework. An institution with an
"above normal" level of exposure will have to maintain additional capital equal
to one-half the difference between its measured interest rate risk (the most
adverse change in the market value of its portfolio resulting from a 200-basis
point move in interest rates divided by the estimated market value of its
assets) and 2%, multiplied by the market value of its assets. That dollar
amount of capital is in addition to an institution's existing risk-based
capital requirement. The OTS decided to delay implementation of this rule,
pending the
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testing of an OTS appeals process for certain institutions subject
to capital deductions under the new rule. However, during this delay, the OTS
has stated that it will continue to closely monitor interest rate risk at
individual institutions and it retains the authority, on a case-by-case basis,
to impose additional capital requirements for individual institutions with
significant interest rate risk.
It is too early to assess the impact, if any, these new rules and proposals
will have on ONB or its subsidiaries.
BRANCHING AND ACQUISITIONS
Branching. Branching by ONB affiliate banks in Indiana, Kentucky and
Illinois is subject to the jurisdiction, and requires the prior approval, of
the bank's primary federal regulatory authority and, if the branching bank is a
state bank, of the Indiana Department of Financial Institutions, Kentucky
Department of Financial Institutions or Illinois Commissioner of Banks and
Trust Companies (depending upon the location of the principal office of the
bank). Under current law, branches may be established by banks in Illinois and
Indiana throughout the state; whereas in Kentucky, branches may only be
established in the home county of the bank. As discussed below, Congress
recently authorized interstate branching, with certain limitations, beginning
in 1997.
Acquisitions. Bank holding companies, such as ONB, are prohibited by the
BHC Act from acquiring direct or indirect control of more than 5% of the
outstanding shares of any class of voting stock or substantially all of the
assets of any bank or savings association or merging or consolidating with
another bank holding company without prior approval of the Federal Reserve.
The BHC Act also currently prohibits ONB from acquiring control of any bank
operating outside the State of Indiana unless such action is specifically
authorized by the statutes of the state where the bank to be acquired is
located. That prohibition will no longer be applicable as of September 29,
1995, as discussed below. Additionally, ONB is prohibited by the BHC Act from
engaging in or from acquiring ownership or control of more than 5% of the
outstanding shares of any class of voting stock of any company engaged in a
nonbanking business unless such business is determined by the Federal Reserve
to be so closely related to banking as to be a proper incident thereto. The
BHC Act does not place territorial restrictions on the activities of such
nonbanking-related activities.
The BHC Act specifically authorizes a bank holding company, upon receipt of
appropriate approvals from the Federal Reserve and the Director of the OTS, to
acquire control of any savings association or holding company thereof wherever
located. Similarly, a savings and loan holding company may acquire control of
a bank. A savings association acquired by a bank holding company cannot
continue any non-banking activities not authorized for bank holding companies.
For this reason, Greenmark must be purchased by First Citizens, which may
legally preserve most of its insurance agency powers. Savings associations
acquired by a bank holding company may, if located in a state where the bank
holding company is legally authorized to acquire a bank, be converted to the
status of a bank, but deposit insurance assessments and payments continue to be
paid by the association to the Savings Association Insurance Fund ("SAIF"). A
savings association so converted to a bank becomes subject to the branching
restrictions applicable to banks. Also, any insured depository institution may
merge with, acquire the assets of, or assume the liabilities of any other
insured depository institution with the appropriate regulatory approvals if (i)
continued payments of deposit insurance premiums are made on the acquired
depository institution's deposits (including an assumed rate of growth in such
deposits) to SAIF (if the acquired institution was a SAIF member) or to the
Bank Insurance Fund ("BIF") (if the acquired institution was a BIF member),
(ii) the acquiring institution and any holding company in control thereof meet
all applicable capital requirements
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at the time of the transaction, and (iii)
if the acquiring institution is a BIF member, the transaction meets any
limitations on geographic expansion.
INTERSTATE BANKING
In 1994, Congress enacted sweeping changes to the interstate branching and
expansion powers of depository institutions and their holding companies in The
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which
allows for interstate banking and interstate branching without regard to
whether such activity is permissible under state law. Beginning on September
29, 1995, bank holding companies may acquire banks anywhere in the United
States subject to certain state restrictions. Beginning on June 1, 1997, an
insured bank may merge with an insured bank in another state without regard to
whether such merger is prohibited by state law. Additionally, an out-of-state
bank may acquire the branches of an insured bank in another state without
acquiring the entire bank; provided, however, that the law of the state where
the branch is located permits such an acquisition. States may permit
interstate branching earlier than June 1, 1997, where both states involved with
the bank merger expressly permit it by statute. Further, bank holding
companies may merge existing bank subsidiaries located in different states into
one bank.
Beginning on September 29, 1995, an insured bank subsidiary may act as an
agent for an affiliated bank or savings association in offering limited banking
services (receive deposits, renew time deposits, close loans, service loans and
receive payments on loans obligations) both within the same state and across
state lines.
FDICIA
FDICIA accomplished a number of sweeping changes in the regulation of
depository institutions. FDICIA requires, among other things, federal bank
regulatory authorities to take "prompt corrective action" with respect to banks
which do not meet minimum capital requirements. For these purposes, FDICIA
establishes five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective action
provisions of FDICIA. Among other things, the regulations define the relevant
capital measures for the five capital categories. An institution is deemed to
be "well capitalized" if it has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater, and a leverage
ratio of 5% or greater, and is not subject to a regulatory order, agreement or
directive to meet and maintain a specific capital level for any capital
measure. An institution is deemed to be "adequately capitalized" if it has a
total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital
ratio of 4% or greater, and generally a leverage ratio 4% or greater. An
institution is deemed to be "undercapitalized" if it has a total risk-based
capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than
4%, or generally a leverage ratio of less than 4%, and "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is deemed to be "critically undercapitalized" if it
has a ratio of tangible equity (as defined in the regulations) to total assets
that is equal to or less than 2%.
"Undercapitalized" banks are subject to growth limitations and are required
to submit a capital restoration plan. A bank's compliance with such plan is
required to be guaranteed by any company that controls the undercapitalized
institution as described above. If an "undercapitalized" bank fails to submit
an acceptable plan, it is treated as if it is significantly undercapitalized.
"Significantly undercapitalized" banks are subject to one or more of a number
of requirements and restrictions, including an order by the
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FDIC to sell sufficient voting stock to become adequately capitalized,
requirements to reduce total assets and case receipt of deposits from
correspondent banks, and restrictions on compensation of executive officers.
"Critically undercapitalized" institutions may not, beginning 60 days after
becoming "critically undercapitalized," make any payment of principal or
interest on certain subordinated debt or extend credit for a highly leveraged
transaction or enter into any transaction outside the ordinary course of
business. In addition, "critically undercapitalized" institutions are subject
to appointment of a receiver or conservator.
FDICIA further directs that each federal banking agency prescribe standards
for depository institutions and depository institution holding companies
relating to internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth,
management compensation, a maximum ratio of classified assets to capital,
minimum earnings sufficient to absorb losses, a minimum ratio of market value
to book value of publicly traded shares and such other standards as the agency
deemed appropriate.
DEPOSIT INSURANCE
The deposits of ONB's affiliate banks are insured up to $100,000 per insured
account, by the BIF, except for deposits acquired in connection with
affiliations with savings associations, which deposits are insured by the SAIF.
FUSB's deposits are insured by SAIF. Accordingly, ONB pays deposit insurance
premiums to both BIF and SAIF and will continue to pay SAIF premiums with
respect to all deposits of FUSB acquired in the Affiliation. If the FDIC
believes that an increase in the insurance rates is necessary, it may increase
the insurance premiums applicable to BIF or SAIF. Currently SAIF premiums are
significantly higher than BIF premiums; however, Congress is considering a
number of alternatives to address this issue and maintain relative equality
among premium payments, including a large one-time assessment on savings
associations, requiring banks to help finance the bonds issued to recapitalize
the thrift industry, and merging SAIF and BIF. Some Congressional proposals
also require savings associations to convert to bank charters. It is difficult
at this time to assess whether Congress will address the SAIF/BIF premium
differential and, if so, what impact its legislative solution to that problem
will have on ONB and its subsidiaries, FUSB, or New FUSB.
Effective January 1, 1993, the FDIC adopted a final rule that implements a
transitional risk-based assessment system whereby a base insurance premium will
be adjusted according to the capital category and subcategory of an institution
to one of three capital categories consisting of (1) well capitalized, (2)
adequately capitalized, or (3) undercapitalized, and one of three subcategories
consisting of (a) health, (b) supervisory concern, or (c) substantial
supervisory concern. An institution's assessment rate will depend upon the
capital category and supervisory category to which it is assigned. Assessment
rates for banks range from .04% for an institution in the highest category
(i.e., well capitalized) to 0.31% for an institution in the lowest category
(i.e. undercapitalized and substantial supervisory concern), and for savings
associations range from .23% for well capitalized institutions to .31% for
institutions in the lowest category. The supervisory subgroup to which an
institution is assigned by the FDIC is confidential and may not be disclosed.
Deposit insurance assessments may increase depending upon the category and
subcategory, if any, to which the bank is assigned by the FDIC. Any increase
in insurance assessments could have an adverse effect on the earnings of ONB's
affiliate banks.
RECENT LEGISLATION
Congress is currently considering two pieces of proposed legislation which
would impact financial institutions. The first such bill, the Financial
Services Competitiveness Act, seeks to repeal the Glass-
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Steagall Act which has severely limited the ability of financial institutions
to underwrite securities since immediately after the Depression. Should this
bill be enacted in its form as of the date of this Proxy Statement, it would
expand the securities powers of bank holding companies, like ONB, permitting
them to form a subsidiary to underwrite and deal in securities and debt
instruments. ONB currently may act as a broker/dealer for securities (as it
does through its affiliate ONB Investment Services), but it may not generally
underwrite corporate securities or debt. The effect of the bill would also be
to permit bank holding companies to acquire, and be acquired by, securities
firms.
The second bill, the Financial Institutions Relief Act, would scale back
certain laws which are deemed by Congress to impose regulatory burdens on banks
and would eliminate redundancies in the law. Included in the affected laws are
the Truth-in-Savings Act, the Community Reinvestment Act and certain laws with
respect to disclosures in mortgage lending and the like.
The progress of both of these bills is currently suspended while Congress
determines what, if any, provisions regarding insurance powers should be
included. The extent of the ability of banks to sell insurance is highly
controversial, involving two powerful trade groups with a history of
intractability. The insurance issue could halt permanently the attempts to
obtain either Glass-Steagall relief or regulatory relief.
It cannot be predicted with certainty whether such legislation will be
enacted or the extent to which the banking industry in general, or ONB and its
affiliate banks in particular, would be affected.
Congress is currently considering a number of alternatives to address the
problems arising from the fact that FDIC deposit insurance premiums for banks
are currently higher than those for savings associations and for deposits of
savings associations that have been acquired by banks. The House Banking
Committee has voted to add to the budget bill being considered by Congress
provisions which would (1) impose a one-time assessment on thrift deposits of
85 basis points due January 1, 1996, to build up SAIF's reserves, (2) merge BIF
and SAIF by January 1, 1998, and (3) require banks to pay the bulk of the
interest due on Financing Corp. bonds. These same provisions have been
proposed by the Senate Banking Committee, although its proposed legislation
would provide for a lower one-time assessment for banks which had acquired SAIF
deposits.
In addition, the House Banking Committee proposal would eliminate the 8% of
bad debt reserve deduction now permitted for savings associations, but would
not require savings associations to pay taxes on accumulated bad debt reserves.
Moreover, all thrift holding companies would be required to become bank holding
companies by January 1, 1998. The OTS would be abolished. Powers of unitary
savings and loan holding companies would be grandfathered (to the extent they
exist under existing law) until the holding company or savings association is
sold. Such unitary holding companies would be subject to the qualified thrift
lender test and limits on commercial lending. Savings associations would
either be required to convert to a state bank or national bank charter by
January 1, 1998. Except with respect to unitary savings and loan companies,
activities of those new banks not permitted to commercial banks would have to
terminate within four years.
Similar legislation has also been introduced in the House. Under some of
the proposals being considered by Congress, the FDIC's authority to build
reserves beyond 1.25% would be limited. It is difficult at this time to assess
whether or how Congress will address the SAIF/BIF premium differential and, if
so, what impact its legislative solution to the problem will have on ONB and
its subsidiaries, FUSB, or New FUSB.
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ADDITIONAL MATTERS
In addition to the matters discussed above, ONB's affiliate banks and FUSB
are subject to additional regulation of their activities, including a variety
of consumer protection regulations affecting their lending, deposit and
collection activities and regulations affecting secondary mortgage market
activities.
The extensive regulation, supervision and examination of financial
institutions by the bank regulatory agencies is intended primarily for the
protection of the insurance fund and depositors. Moreover, such regulation
imposes substantial restrictions on the operations and activities of such
institutions, and grants to regulators broad discretion in connection with
their supervisory and enforcement activities and examination policies,
including policies with respect to classification of assets and establishment
of adequate loan loss reserves. Any changes in such regulations, whether by
legislation or regulatory action, could have a material impact on ONB
affiliates and their operations. ONB cannot predict what, if any, future
actions may be taken by legislative or regulatory authorities or what impact
any such actions may have on the operations of its affiliates.
The earnings of financial institutions are also affected by general economic
conditions and prevailing interest rates, both domestic and foreign and by the
monetary and fiscal policies of the United States Government and its various
agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting the banking
industry may be considered by Congress, state legislatures and various
regulatory agencies, including those referred to above. It cannot be predicted
with certainty whether such legislation of administrative action will be
enacted or the extent to which the banking industry in general or ONB and its
affiliate banks in particular would be affected thereby.
COMPARISON OF COMMON STOCK
The rights of holders of FUSB Common Stock who receive ONB Common Stock in
the Affiliation will be governed by the laws of the State of Indiana, the state
in which ONB is incorporated, and by ONB's Amended and Restated Articles of
Incorporation ("ONB's Articles of Incorporation") and ONB's By-Laws, as amended
("ONB's By-Laws"). The rights of FUSB shareholders are presently governed by
federal law applicable to savings associations and by FUSB's Charter and By-
Laws. The rights of FUSB shareholders differ in certain respects from the
rights they would have as ONB shareholders, including for ONB anti-takeover
measures and the vote required for the amendment of significant provisions of
the articles of incorporation and for the approval of significant corporate
transactions. The following summary comparison of ONB Common Stock and FUSB
Common Stock includes all material features of such shares but does not purport
to be complete and is qualified in its entirety by reference to ONB's Articles
of Incorporation and By-Laws and the Charter and By-Laws of FUSB.
AUTHORIZED BUT UNISSUED SHARES
ONB's Articles of Incorporation authorize the issuance of 30,000,000 shares
of ONB Common Stock, of which 22,890,065 whole shares were outstanding as of
June 30, 1995. The remaining authorized but unissued shares of common stock
may be issued upon authorization of the Board of Directors of ONB without prior
shareholder approval. ONB has 2,000,000 shares of preferred stock authorized.
These shares are available to be issued, without prior shareholder approval, in
classes with relative rights, privileges and
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preferences determined for each
class by the Board of Directors of ONB. No shares of preferred stock are
presently outstanding.
The Board of Directors of ONB has authorized a series of preferred stock
designated as Series A preferred stock. The Board of Directors of ONB has
designated 200,000 shares of Series A preferred stock in connection with the
shareholder rights plan of ONB. The ONB Series A preferred stock may not be
issued except upon exercise of certain rights ("Rights") pursuant to such
shareholder rights plan. No shares of Series A preferred stock have been
issued as of the date of this Proxy Statement. See "Anti-Takeover Provisions -
- ONB's Shareholder Rights Plan" below.
The shares of ONB Series A preferred stock are nonredeemable and, unless
otherwise provided in connection with the creation of a subsequent series of
preferred stock, are subordinate to all other series of preferred stock of ONB.
Each share of ONB Series A preferred stock will be entitled to receive, when,
as and if declared, a quarterly dividend in an amount equal to the greater of
$1.00 per share or 100 times the quarterly cash dividend declared on ONB Common
Stock. In addition, the ONB Series A preferred stock is entitled to 100 times
any non-cash dividends (other than dividends payable in equity securities)
declared on the ONB Common Stock, in like kind. In the event of liquidation,
the holders of ONB Series A preferred stock will be entitled to receive a
liquidation payment in an amount equal to the greater of $100.00 per share or
100 times the liquidation payment made per share of ONB Common Stock. Each
share of ONB Series A preferred stock will have 100 votes, subject to
adjustment, voting together with the ONB Common Stock and not as a separate
class unless otherwise required by law or ONB's Articles of Incorporation. In
the event of any merger, consolidation or other transaction in which common
shares are exchanged, each share of ONB Series A preferred stock will be
entitled to receive 100 times the amount received per share of ONB Common
Stock. The rights of the ONB Series A preferred stock as to dividends, voting
rights and liquidation are protected by antidilution provisions. See
"COMPARISON OF COMMON STOCK -- Anti-Takeover Provisions."
As of June 30, 1995, ONB had 1.4 million shares of ONB Common Stock reserved
for issuance under ONB's dividend reinvestment and stock purchase plan and 1.5
million shares of its common stock reserved for issuance upon conversion of its
outstanding 8% convertible subordinated debentures. Such debentures are
convertible at any time prior to maturity, unless previously redeemed, into
shares of ONB Common Stock at a conversion rate of 42.517 shares per $1,000
principal amount of debentures (equivalent to a conversion price of
approximately $24.70 per share), subject to adjustment in certain events.
The issuance of additional shares of ONB Common Stock to persons who were
not holders of ONB Common Stock prior to such issuance or the issuance of ONB
preferred stock may adversely affect the interests of ONB shareholders.
The Charter of FUSB authorizes the issuance of 5,000,000 shares of FUSB
Common Stock, $.01 par value per share, of which 546,550 shares were issued and
outstanding as of September 8, 1995, and options for 35,650 shares, which must
be exercised prior to the effective date of the Affiliation, were outstanding
on that date. Following the Affiliation, all of the outstanding shares of FUSB
Common Stock will be held by ONB.
FUSB has 2,000,000 shares of Preferred Stock, $1 par value, authorized, of
which none are issued. Such shares are available to be issued without
shareholder approval under the Charter of FUSB; however, pursuant to the
Agreement, FUSB is restricted in issuing such shares.
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PREEMPTIVE RIGHTS
Neither ONB's nor FUSB s shareholders have preemptive rights to subscribe
for any new or additional ONB Common Stock or FUSB Common Stock, respectively,
or other securities.
DIVIDEND RIGHTS
The holders of common stock of ONB and FUSB, respectively, are entitled to
dividends and other distributions when, as and if declared by their respective
Boards of Directors out of funds legally available therefor. A dividend may not
be paid by ONB if, after giving it effect, (1) ONB would not be able to pay its
debts as they become due in the usual course of business, or (2) ONB's total
assets would be less than the sum of its total liabilities plus, unless ONB's
Articles of Incorporation permitted otherwise, the amount that would be needed
to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the dividend if ONB were to
be dissolved at the time of the dividend.
The amount of dividends, if any, that may be declared by ONB in the future
will necessarily depend upon many factors, including, without limitation,
future earnings, capital requirements, business conditions and capital levels
of subsidiaries (since ONB is primarily dependent upon dividends paid by its
subsidiaries for its revenues), the discretion of ONB's Board of Directors and
other factors that may be appropriate in determining dividend policies.
Cash dividends paid to ONB by its Illinois-chartered affiliate banks are
limited by Illinois law to the bank's net profits then on hand, less losses and
statutorily-defined bad debts. Cash dividends paid to ONB by its Indiana-
chartered affiliate banks are limited by Indiana law to the balance of the
bank's undivided profits account adjusted for statutorily-defined bad debts.
Cash dividends paid to ONB by its Kentucky-chartered affiliate banks are
limited by Kentucky law to so much of the net profits of the banks, after
deducting all expenses, losses, bad or suspended debts and interest and taxes
accrued or due from the banks, as the boards of directors of the banks deem
expedient. In addition, the approval of the Kentucky Commissioner of Banks is
required if the total of all dividends declared by a Kentucky bank in any
calendar year exceeds the bank's net profit for that year and the net retained
profits from the preceding two years, less any transfers to surplus or a fund
for retirement of preferred stock or debt. ONB's national affiliate banks and
the Bank may pay cash dividends on their common stock only out of adjusted
retained net profits for the year in which the dividend is paid and the two
preceding years.
The OTS regulations impose limitations on capital distributions by savings
associations, including FUSB. Under the rule, a savings institution is
classified as a tier 1 institution, a tier 2 institution, or a tier 3
institution, depending on its level of regulatory capital both before and after
giving effect to a proposed capital distribution. A tier 1 institution may
generally make capital distributions in any calendar year up to 100% of its net
income to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (i.e., the percentage by which the
institution's capital-to-assets ratio exceeds the ratio of its capital
requirements to its assets) at the beginning of the calendar year. No
regulatory approval of the capital distribution is required, but prior notice
must be given to the OTS. Restrictions exist on the ability of tier 2 and tier
3 institutions to make capital distributions. For purposes of this regulation,
FUSB is a tier --1 institution.
Dividends paid by ONB's affiliate banks and FUSB will ordinarily be
restricted to a lesser amount than is legally permissible because of the need
for the banks to maintain adequate capital consistent with the
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capital adequacy guidelines promulgated by the banks' principal federal
regulatory authorities. See "REGULATORY CONSIDERATIONS." If a bank's capital
levels are deemed inadequate by the regulatory authorities, payment of
dividends to its parent holding company may be prohibited without prior
regulatory approval. None of ONB's affiliate banks nor FUSB is currently
subject to such a restriction.
VOTING RIGHTS
The holders of the outstanding shares of ONB Common Stock and FUSB Common
Stock are entitled to one vote per share on all matters presented for
shareholder vote. ONB shareholders do not have cumulative voting rights in the
election of directors. FUSB shareholders have the right to cumulative voting
in the election of Directors. Under cumulative voting, the number of shares a
shareholder is entitled to vote multiplied by the number of Directors to be
elected represents the number of votes a shareholder may cast at such election,
and a shareholder may cast all such votes for one candidate or distribute them
among any two or more candidates. See "GENERAL INFORMATION" and "ELECTION OF
FUSB DIRECTORS." The absence of cumulative voting rights in the election of
Directors may render it more difficult for a minority shareholder to elect a
nominee as a Director.
Indiana law generally requires that mergers, consolidations, sales, leases,
exchanges or other dispositions of all or substantially all of the assets of a
corporation be approved by the affirmative vote of a majority of the issued and
outstanding shares entitled to vote at the shareholders meeting, subject in
each case to provisions in the corporation's articles of incorporation
requiring a higher percentage vote for certain transactions. ONB's Articles of
Incorporation provide that certain business combinations may, under certain
circumstances, require approval of more than a simple majority of the issued
and outstanding shares of ONB Common Stock. See "-- Anti-Takeover Provisions."
The laws applicable to FUSB require a two-thirds vote of shareholders to
approve mergers and consolidations.
Indiana law requires shareholder approval for most amendments to a
corporation's articles of incorporation -- under Indiana law, by a majority of
a quorum present at a shareholders' meeting (and, in certain cases, a majority
of all shares held by any voting group entitled to vote). Indiana law permits
a corporation in its articles of incorporation to prescribe a higher
shareholder vote for certain amendments to the Articles of Incorporation.
ONB's Articles of Incorporation require a super-majority shareholder vote of
eighty percent (80%) of the outstanding shares of ONB Common Stock for the
amendment of certain significant provisions. Amendments to FUSB s Charter must
be approved by a majority vote of shareholders.
DISSENTERS' RIGHTS
The holders of FUSB Common Stock and ONB Common Stock possess no dissenters'
rights in connection with the Affiliation. ONB shareholders would not have
dissenters rights for any future merger or acquisition so long as ONB Common
Stock is traded on the NASDAQ National Market System.
LIQUIDATION RIGHTS
In the event of any liquidation or dissolution of ONB, the holders of shares
of ONB Common Stock are entitled to receive pro rata with respect to the number
of shares held by them any assets distributable to shareholders, subject to the
payment of ONB's liabilities and any rights of creditors and holders of shares
of ONB preferred stock then outstanding.
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At the time of its conversion to stock form, FUSB established a liquidation
account in an amount equal to its net worth at that time. This account is
maintained for the benefit of certain of its depositors at the time of its
stock conversion, but declines over time as depositors close or reduce their
accounts. In the event of a complete liquidation of FUSB (which would not
include a merger with another FDIC-insured institution), those depositors would
be entitled to a liquidation distribution from the liquidation account prior to
any distribution to FUSB s shareholders. Thus, in the event of any
liquidation, dissolution or winding up of FUSB, the holders of shares of FUSB
Common Stock are entitled to receive pro rata with respect to the number of
shares held by them any assets distributable to shareholders, subject to the
payment of FUSB liabilities, payments to depositors with interests in its
liquidation account, any rights of creditors and rights of any holder of FUSB
Preferred Stock then outstanding.
ASSESSMENT AND REDEMPTION
Shares of ONB Common Stock and FUSB Common Stock are not liable to further
assessment. Under Indiana law, ONB may redeem or acquire shares of ONB Common
Stock with funds legally available therefor, and shares so acquired constitute
authorized but unissued shares. ONB may not redeem or acquire shares of ONB
Common Stock if, after giving such redemption or acquisition effect, ONB would
not be able to pay its debts as they become due in the usual course of
business, or ONB's total assets would be less than the sum of its total
liabilities plus, unless ONB's Articles of Incorporation permitted otherwise,
the amount that would be needed to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to those
whose stock is being redeemed or acquired if ONB were to be dissolved at the
time of the redemption or acquisition.
In addition, ONB must give prior notice to the Federal Reserve if the
consideration to be paid by them for any redemption or acquisition of their
respective shares, when aggregated with the consideration paid for all
redemptions or acquisitions for the preceding twelve (12) months, equals or
exceeds 10% of their respective consolidated net worth.
Stock redemptions by FUSB would be deemed made by FUSB from its tax bad debt
reserve and would result in adverse tax consequences to FUSB. Moreover, FUSB
may not repurchase any of its capital stock if the effect thereof would cause
the net worth of the stock to be reduced below the amount required for its
liquidation account. For a description of certain OTS limitations on FUSB's
ability to repurchase its shares, see "Comparison of Common Stock - Dividend
Rights."
ANTI-TAKEOVER PROVISIONS
The anti-takeover measures applicable to ONB, as described below, may have
the effect of discouraging or rendering it more difficult for a person or other
entity to acquire control of ONB. These measures may have the effect of
discouraging certain tender offers for shares of ONB Common Stock which might
otherwise be made at premium prices or certain other acquisition transactions
which might be viewed favorably by a significant number of shareholders.
FUSB's Charter and By-Laws do not contain any anti-takeover provisions, other
than cumulative voting rights in the election of Directors. See "GENERAL
INFORMATION" and "ELECTION OF FUSB DIRECTORS."
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Indiana Law. Under the business combinations provision of Indiana law, any
10% shareholder of an Indiana corporation, with a class of voting shares
registered under Section 12 of the Securities and Exchange Act or which has
specifically adopted this provision in the corporation's articles of
incorporation, is prohibited for a period of five (5) years from completing a
business combination with the corporation unless, prior to the acquisition of
such 10% interest, the board of directors of the corporation approved either
the acquisition of such interest or the proposed business combination. Further,
the corporation and a 10% shareholder may not consummate a business combination
unless all provisions of the articles of incorporation of the corporation are
complied with and a majority of disinterested shareholders approve the
transaction or all shareholders receive a price per share determined in
accordance with the business combinations provision of Indiana law.
An Indiana corporation may elect to remove itself from the protection
provided by the Indiana business combinations provision, but such an election
remains ineffective for eighteen (18) months and does not apply to a
combination with a shareholder who acquired a 10% ownership position prior to
the effective date of the election. ONB is covered by the business combinations
provision of Indiana law.
In addition to the business combinations provision, Indiana law also
contains a "control share acquisition" provision which, although different in
structure from the business combinations provision, may have a similar effect
of discouraging or making more difficult a hostile takeover of an Indiana
corporation. This provision also may have the effect of discouraging premium
bids for outstanding shares. Indiana law provides that, unless otherwise
provided in an Indiana corporation's articles of incorporation or by-laws,
certain acquisitions of shares of the corporation's common stock will be
accorded voting rights only if a majority of the disinterested shareholders
approves a resolution granting the potential acquiror the ability to vote such
shares. Upon disapproval of the resolution, the shares held by the acquiror
shall be redeemed by the corporation at the fair value of the shares as
determined by the control share acquisition provision.
This provision does not apply to a plan of affiliation and merger, if the
corporation complies with the applicable merger provisions and is a party to
the agreement of merger or plan of share exchange. ONB is subject to the
control share acquisition provision.
ONB's Articles of Incorporation. In addition to the protections provided by
Indiana law, ONB's Articles of Incorporation require the affirmative vote of
the holders of at least eighty percent (80%) of the issued and outstanding
shares of capital stock for any business combination which is not recommended
by the vote of two-thirds or more of the members of the Board of Directors. For
purposes of ONB's Articles of Incorporation, "business combination" is defined
to include: (1) a merger or consolidation of ONB with or into any other
corporation, (2) any sale, lease, exchange or other disposition of any material
part of the assets of ONB, or (3) any liquidation or dissolution of ONB or any
material subsidiary of ONB. Further, this provision cannot be altered, amended
or repealed without the affirmative vote of the holders of at least eighty
percent (80%) of the issued and outstanding shares of ONB Common Stock entitled
to vote thereon.
ONB's Articles of Incorporation also include provisions requiring (1) the
Board of Directors to consider non-financial factors in the evaluation of
business combinations and tender or exchange offers, and (2) any person
acquiring fifteen percent (15%) of the then issued and outstanding stock of ONB
to pay equal consideration in connection with the acquisition of any further
shares. These provisions require an eighty percent (80%) affirmative vote of
the issued and outstanding shares of ONB Common Stock entitled to vote thereon
in order to be altered, amended or repealed.
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<PAGE>
ONB's Shareholder Rights Plan. On January 25, 1990, the Board of Directors
of ONB declared a dividend of one (1) right for each issued and outstanding
share of ONB Common Stock ("Right"). See "COMPARISON OF COMMON STOCK --
Authorized But Unissued Shares." The dividend was payable on March 15, 1990 to
holders of record of ONB Common Stock at the close of business on March 1,
1990. Each Right entitles the registered holder to purchase from ONB one-
hundredth (1/100) of a share of ONB Series A preferred stock at an initial
Purchase Price of $60.00, subject to adjustment. The terms and conditions of
the Rights are contained in a Rights Agreement between ONB and Old National
Bank in Evansville, as Rights Agent.
The foregoing information concerning ONB's Shareholder Rights Plan does not
purport to be complete. For additional information, see the Rights Agreement,
dated March 1, 1990, between ONB and Old National Bank, as Trustee, which is
specifically incorporated herein by reference. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
DIRECTOR LIABILITY
Under Indiana law, a director of ONB will not be liable to shareholders for
any action taken as a director, or any failure to take any action, unless (1)
the director has breached or failed to perform his duties as a director in good
faith with the care an ordinarily prudent person in a like position would
exercise under similar circumstances and in a manner the director reasonably
believes to be in the best interests of the corporation and (2) such breach or
failure to perform constitutes willful misconduct or recklessness. There is no
similar provision applicable to FUSB under federal law.
DIRECTOR NOMINATIONS
ONB's By-Laws require that all nominations for election as directors of ONB
shall be made by the Board of Directors of ONB in accordance with the By-Laws.
The Nominating Committee is comprised of five (5) directors of ONB, none of
whom is an officer or employee of ONB. The Nominating Committee maintains the
responsibility to recruit potential director candidates, recommend changes to
the entire Board of Directors concerning the size, composition and
responsibilities of the Board of Directors, review proxy documents received
from shareholders relating to the Board of Directors and review suggestions of
shareholders regarding nominees for election as directors. All such suggestions
of shareholders with respect to director nominations must be submitted in
writing to the Nominating Committee not less than 120 days prior to the date of
the annual or Annual Meeting of shareholders at which directors will be
elected.
With respect to FUSB, the Chairman of the Board of Directors is required by
the bylaws to appoint a Nominating Committee consisting of the Board of
Directors or a committee of the Board of Directors of not less than three
members. Such committee is authorized to make nominations for Directors in
writing to the Secretary of FUSB at least twenty days prior to the Annual
Meeting, which nominations are then posted at FUSB's office. Nominations for
Directors may also be made in writing by shareholders and delivered to the
Secretary of FUSB at least five days prior to the Annual Meeting.
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<PAGE>
ELECTION OF FUSB DIRECTORS
NOMINEES AND DIRECTORS
The Board of Directors of FUSB is currently composed of six members. FUSB's
bylaws provide that the Directors shall be divided into three classes as nearly
equal in number as possible. Directors of FUSB are generally elected to serve
for a three-year period or until their respective successors are elected and
qualified. The nominees for Director this year are Earl E. Clodfelter and
William M. Marley, each of whom is a current Director of FUSB. If elected by the
Shareholders at the Annual Meeting, Messrs. Clodfelter and Marley will serve as
Directors of FUSB until 1998, subject to earlier termination upon consummation
of the Affiliation. Following the Affiliation, they will serve as Directors of
First Citizens in accordance with the bylaws of First Citizens, which provide
that Directors serve one year terms.
The following table sets forth certain information regarding each nominee
for election as a Director and each Director continuing in office after the
Annual Meeting. It is intended that the proxies solicited on behalf of the Board
of Directors (other than proxies as to which authorization is withheld) will be
voted at the Annual Meeting for the election of the nominees identified below.
If any Director nominee is unable or declines to serve (an event which the Board
of Directors does not anticipate), the proxies will have discretionary authority
to vote for a substitute nominee named by the Board of Directors if the Board
elects to fill such nominee s position. The table also sets forth the number of
shares of FUSB Common Stock beneficially owned by all Directors and executive
officers of FUSB as a group.
<TABLE>
<CAPTION>
Expiration Shares of Common
Director of of Term as Stock Beneficially Percent
Director Age FUSB Since Director* Owned on 9/8/95 (1) of Class
- -------- --- ----------- ---------- ------------------- --------
<S> <C> <C> <C> <C> <C>
NOMINEES
Earl E. Clodfelter 61 1974 1998 4,200 (2) .76%
William M. Marley 55 1985 1998 24,182 (3) 4.36%
DIRECTORS CONTINUING IN OFFICE
John W. Bender 56 1990 1996 1,800 (4) .33%
Harold A. Harrell 59 1989 1997 1,500 (5) .27%
Gary R. Pershing 46 1983 1996 12,917 (6) 2.35%
Alan G. Stanley 69 1986 1997 6,200 (7) 1.13%
All Directors and
executive officers as a
group (10) persons 71,971 (8) 12.45%
</TABLE>
* Terms assume continuation of staggered Board provided by the bylaws of FUSB.
Following the Affiliation, all Directors will serve one year terms expiring
in 1996.
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<PAGE>
(1) Includes shares beneficially owned by members of the immediate families of
the directors or director nominees residing in their homes. Unless
otherwise indicated, each shareholder has sole investment and/or voting
power with respect to the shares shown as beneficially owned by him.
(2) Includes 1,000 shares held jointly by Mr. Clodfelter and his wife and 3,200
shares subject to stock options granted under the First United Savings Bank
Stock Option Plan ("Stock Option Plan").
(3) Includes 10,000 shares held jointly by Mr. Marley and his wife, 8,200
shares subject to stock options granted under the Stock Option Plan, and 50
shares held by Mr. Marley's daughter. Also includes 3,950 whole shares
allocated to Mr. Marley's account under the First United Savings Bank
Employee Stock Ownership Plan and Trust (the "ESOP") as of December 31,
1994, but does not include any shares allocated to such account since that
date.
(4) Includes 800 shares subject to a stock option granted under the Stock
Option Plan.
(5) Includes 1,000 shares subject to stock options granted under the Stock
Option Plan.
(6) Includes 1,885 shares held jointly by Mr. Pershing and his wife, 3,200
shares subject to stock options granted under the Stock Option Plan, 1,745
shares held by a profit sharing plan of which Mr. Pershing and his wife are
beneficiaries, 2,202 shares held by his wife, 1,000 shares held jointly by
his wife and son, and 100 shares held jointly by Mr. Pershing and his son.
(7) Includes 620 shares held jointly by Mr. Stanley and his wife, 3,200 shares
subject to stock options granted under the Stock Option Plan, 1,190 shares
held by his wife in an individual retirement account, and 1,190 shares held
in Mr. Stanley's individual retirement account.
(8) Includes 31,400 shares subject to stock options granted under the Stock
Option Plan and 8,392 whole shares allocated as of December 31, 1994, under
the ESOP.
Presented below is certain information concerning the Directors of FUSB.
John W. Bender serves as Chairman of Bender Lumber Co., Inc., Bloomington,
Indiana. Mr. Bender will serve on the Board of New FUSB following the
Affiliation.
Earl E. Clodfelter is a farmer and insurance agent. He served on the Putnam
County Council for twenty years and now serves as Putnam County Commissioner.
He also serves as a director of Communications Corporation, Inc., a company
providing local telephone service, based in Roachdale, Indiana. Mr. Clodfelter
will serve on the Board of First Citizens following the Affiliation.
Harold A. Harrell is an attorney with the law firm of Andrews, Harrell,
Mann, Chapman & Coyne of Bloomington, Indiana. He serves as Vice-Chairman of
the Board of Directors of FUSB. Mr. Harrell will serve on the Board of New FUSB
following the Affiliation.
William M. Marley has been President and Chief Executive Officer of FUSB
since August 1, 1985. He served as Executive Vice President between 1983 and
1985, and prior thereto served as Vice President-Financial Services. Mr. Marley
served on the Board of the Indiana League of Savings Institutions from 1989 to
1992. Mr. Marley will serve on the Board of First Citizens following the
Affiliation.
Gary R. Pershing has served as Chairman of the Board, President and Managing
Partner of Pershing & Company, Inc., a certified public accounting firm in
Greencastle, since 1977. He serves as Chairman of the Board of Directors of
FUSB. Mr. Pershing will serve on the Board of First Citizens following the
Affiliation.
Alan G. Stanley has been a self-employed professional engineer and
professional land surveyor and served as Putnam County Surveyor for more than
twenty years. He served as the President of Alan Stanley
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<PAGE>
& Associates, Inc. from 1980 until 1993 and is currently President of Alan
Stanley PE/PC. Mr. Stanley will serve on the Board of First Citizens following
the Affiliation.
Ernest H. Collins and Norman J. Knights now serve as honorary Directors of
FUSB.
Directors will be elected upon receipt of a plurality of affirmative votes
cast at the Annual Meeting. Plurality means that individuals who receive the
largest number of votes cast are elected up to the maximum number of Directors
to be chosen at the Annual Meeting. Abstentions, broker non-votes and
instructions on the accompanying proxy to withhold authority to vote for one or
more of the nominees will result in the respective nominees receiving fewer
votes. However, the number of votes otherwise received by the nominee will not
be reduced by such action.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS OF FUSB
The Board of Directors meetings are generally held on a monthly basis. The
Board of Directors held a total of 14 meetings during the fiscal year ended June
30, 1995. No Director attended fewer than 75% of the sum of the meetings of the
Board of Directors held while he served as a Director and the meetings of
committees on which he served.
The Audit Committee, comprised of Messrs. Stanley (Chairman), Clodfelter and
Bender, recommends the appointment of FUSB's independent accountants in
connection with its annual audit and meets with them to outline the scope and
review of such audit. That committee met three times during the year ended June
30, 1995.
FUSB's Compensation Committee administers the Stock Option Plan and the
ESOP, and consists of all members of the Board of Directors except William M.
Marley. The Compensation Committee met two times during the year ended June 30,
1995.
The Board of Directors of FUSB also has a Pension Committee, the members of
which are Messrs. Harrell, Stanley, and Clodfelter. This committee has
responsibility for decisions affecting First United's pension plan, and it met
three times during the year ended June 30, 1995.
The Board of Directors served as the Nominating Committee for the 1995
Annual Meeting.
REMUNERATION OF NAMED EXECUTIVE OFFICER
The following table sets forth information as to annual, long-term and other
compensation for services in all capacities to FUSB and its subsidiaries for the
last three fiscal years, of the person who served as chief executive officer of
FUSB during the fiscal year ended June 30, 1995 (the "Named Executive Officer").
There were no executive officers of FUSB who earned over $100,000 in salary and
bonuses during that fiscal year.
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<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
-------------------------------------------- ---------------------------------------
Other Annual Restricted Securities All Other
Fiscal Compensation Stock Underlying Compensation
Name and Principal Position Year Salary($) Bonus($) ($)(1) Awards($) Options($) ($)(2)
- --------------------------- ------ -------- -------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
William M. Marley 1995 $94,300 $7,728 -- -- -- $23,679
President, Chief Executive 1994 90,100 -0- -- -- 2,200 20,474
1993 86,000 6,615 -- -- 400 8,659
</TABLE>
(1) The Named Executive Officer of FUSB receives certain perquisites, but the
incremental cost of providing such perquisites does not exceed the lesser
of $50,000 or 10% of the officer's salary and bonuses.
(2) Includes FUSB's contributions to the ESOP allocable to the Named Executive
Officer and allocations made for Mr. Marley under the First United Savings
Bank Supplemental Benefit Plan.
STOCK OPTIONS
The following table includes the number of shares covered by stock options
held by the Named Executive Officer as of June 30, 1995. Also reported are the
values for "in-the-money" options (options whose exercise price is lower than
the market value of the shares at fiscal year end) which represent the spread
between the exercise price of any such existing stock options and the fiscal
year-end market price of the stock.
OUTSTANDING STOCK OPTIONS GRANTED AND VALUE REALIZED AS OF 6/30/95
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Fiscal Year End Options at Fiscal Year End (1)
-------------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
William M. Marley 8,200 -- $130,626 --
</TABLE>
(1) Amounts reflecting gains on outstanding options are based on the June 30,
1995, average between bid and asked prices, which was $27.75 per share.
EMPLOYMENT AGREEMENT
The Board of Directors of FUSB has approved a three-year employment contract
with its President and Chief Executive Officer, William M. Marley. The contract
can be extended for additional one-year terms to maintain a three-year term
unless notice is properly given by either party to the contract. Unless extended
further, the contract will expire in 1997. Mr. Marley receives his current
salary under the contract, which salary is subject to increases approved by the
Board of Directors. The contract also provides, among other things, for
participation in other fringe benefits and benefit plans available to FUSB
employees. Mr. Marley may terminate his employment upon 30 days' written notice
to FUSB. FUSB may discharge Mr. Marley for "cause" (as defined in the contract)
at any time or in certain events specified by OTS regulations. Upon termination
of Mr. Marley's employment by FUSB for other than cause or in the event of
termination by Mr. Marley "for cause" (as defined in the contract), Mr. Marley
will receive his base compensation under the contract (a) for an additional
three years (or the remaining term of the contract, if shorter) if the
termination follows a change of control (as defined in the contract), or (b)
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for an additional two years (or the remaining term of the contract, if shorter)
if the termination does not follow a change of control. In addition, during such
period, Mr. Marley will continue to participate in FUSB's group insurance plans
or receive comparable benefits. Moreover, within a period of three months after
such termination following a change of control, Mr. Marley will have the right
to cause FUSB to purchase any stock options he holds for a price equal to the
fair market value (as defined in the contract) of the shares subject to such
options minus their option price. Payments pursuant to the contract may trigger
adverse tax consequences to FUSB and Mr. Marley under the so-called "golden
parachute" provision of the Code.
The employment contract provides FUSB protection of its confidential
business information and protection from competition by Mr. Marley should he
voluntarily terminate his employment without cause or be terminated by FUSB for
cause.
COMPENSATION OF DIRECTORS
Each Director (including Directors who are also employees) of FUSB receives
a monthly honorarium of $250 and an additional fee of $500 for each monthly
Board meeting attended by him. Directors are not reimbursed for expenses
incurred in attending meetings. There are no fees paid for attendance at Board
committee meetings. Directors are also entitled to receive stock options under
FUSB's Stock Option Plan.
In addition, FUSB has adopted a supplemental benefit plan which provides
each of FUSB's Directors with supplemental benefits after the Director ceases to
be a member of the Board, attains age 65, or upon death. The retirement benefits
payable for a period of 120 months are equal to the balance of the Director's
account under the Plan; provided that for Directors on the Board as of June 30,
1993, who serve until age 65, the minimum monthly benefit is $650. The Director
s account consists of all amounts accrued under FUSB's prior supplemental
benefit plan for Directors as of June 30, 1993, plus $350 per month consisting
of fees deferred by the Director while on the Board. Interest equal to the
United States Treasury Bill two years interest rate in effect as of the last
business day of each month is credited to the balance of such accounts. Death
benefits are also payable under the plan. Except in the event of a change of
control, Directors must serve for five years in order to receive the retirement
benefits provided under the plan.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
FUSB has followed the policy of offering loans to its Directors, officers
and employees for the financing of their principal residences and for other
personal loan purposes, including overdraft and credit card lines of credit. All
such loans made since the adoption of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 and all such loans in excess of $60,000
were made in the ordinary course of business on substantially the same terms and
collateral as those of comparable transactions prevailing at the time and do not
involve more than the normal risk of collectibility or present other unfavorable
features.
The law firm of Andrews, Harrell, Mann, Chapman & Coyne, of which Harold A.
Harrell is a partner, rendered legal services during the year ended June 30,
1995, to FUSB, and it is expected that the firm will continue to do so in the
next fiscal year. The legal services were rendered in the ordinary course of
business and the amount of fees paid to the law firm by FUSB did not exceed 5%
of the firm's gross revenues for the firm's last full fiscal year.
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OPINIONS
Certain legal matters in connection with the Agreement will be passed upon
for ONB by the law firm of Krieg DeVault Alexander & Capehart, One Indiana
Square, Suite 2800, Indianapolis, Indiana 46204, and for FUSB by the law firm of
Barnes & Thornburg, 11 South Meridian Street, Suite 1313, Indianapolis, Indiana
46240.
EXPERTS
The consolidated financial statements of ONB and affiliates incorporated by
reference in this Proxy Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and have been so incorporated by reference in this Proxy Statement in
reliance upon the authority of said firm as experts in auditing and accounting
in giving said report.
The consolidated financial statements of FUSB at June 30, 1995 and for each
of the three years in the period then ended incorporated into this Proxy
Statement have been audited by Ernst & Young, LLP, independent auditors, as set
forth in their reports thereon incorporated by reference herein, and are
included in reliance upon such reports given upon the authority of such firm as
experts in auditing and accounting.
Representatives of Ernst & Young, LLP are not expected to be at the Annual
Meeting.
OTHER MATTERS
The Annual Meeting is called for the purposes set forth in the Notice
attached to this Proxy Statement. The Board of Directors of FUSB knows of no
other matters for action by shareholders at the Annual Meeting other than the
matters described in the Notice. However, the enclosed revocable proxy will
confer discretionary authority to the persons named therein with respect to any
such matters, none of which are known to the Board of Directors of FUSB as of
the date hereof, which may properly come before the Annual Meeting. It is the
intention of the persons named in the proxy to vote pursuant to the proxy with
respect to such matters in accordance with the recommendation of the Board of
Directors of FUSB.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation provide that the Registrant will
indemnify any person who is or was a director, officer or employee of the
Registrant or of any other corporation for which he is or was serving in any
capacity at the request of the Registrant against all liability and expense that
may be incurred in connection with any claim, action, suit or proceeding with
respect to which such director, officer or employee is wholly successful or
acted in good faith in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Registrant or such other corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that his conduct was unlawful. A director, officer or employee of the Registrant
is entitled to be indemnified as a matter of right with respect to those claims,
actions, suits or proceedings where he has been wholly successful. In all other
cases, such director, officer or employee will be indemnified only if the Board
of Directors of the Registrant or independent legal counsel finds that he has
met the standards of conduct set forth above.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are being filed as part of this Registration
Statement:
2.01 Amended and Restated Agreement of Affiliation and Merger (included as
Appendix A to Prospectus)
2.02 Purchase and Assumption Agreement (included as Appendix B to
Prospectus)
3(i) Articles of Incorporation of the Registrant (incorporated by reference
to Registrant's Registration Statement on Form S-4, File No. 33-57207,
dated January 22, 1993)
3(ii) By-Laws of the Registrant (incorporated by reference to Registrant's
Registration Statement on Form S-4, File No. 33-80670, dated June 23,
1994)
4 (a) the description of Registrant's common stock contained in its
Current Report on Form 8-K, dated January 6, 1983 (incorporated by
reference thereto), and (b) the description of Registrant's Preferred
Stock Purchase Rights contained in Registrant's Form 8-A, dated March
1, 1990, including the Rights Agreement, dated March 1, 1990, between
the Registrant and Old National Bank in Evansville, as Trustee
(incorporated by reference thereto)
5* Opinion of Krieg DeVault Alexander & Capehart re: legality
8 Opinion of Krieg DeVault Alexander & Capehart re: certain federal
income tax matters
10 Material Contracts (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1991
and to the Distribution Agreement set forth in Exhibit 1 of the
Registrant's Registration Statement on Form S-3, File No. 33-55222,
dated December 2, 1992)
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<PAGE>
21* Subsidiaries of the Registrant
23.01 Consent of Krieg DeVault Alexander & Capehart (included in
Opinion of Krieg DeVault Alexander & Capehart re: legality at
Exhibit 5)
23.02* Consent of Arthur Andersen LLP
23.03 Consent of Ernst & Young, LLP
23.04 Consent of McDonald & Company Securities, Inc.
24* Powers of Attorney
99.01 Form of Proxy
99.02 FUSB's Annual Report to Shareholders for the fiscal year ended
June 30, 1995
99.03 Business, Legal Proceedings and Properties Items of FUSB's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1995
99.04 FUSB's Form 8-K, dated September 15, 1995 (without exhibits
because the information contained in such exhibits has been
previously filed with the Commission by ONB)
(b) Financial Data Schedules: not applicable
(c) Opinion of McDonald & Company Securities, Inc. (included as Appendix C to
Prospectus)
* Previously filed in Registrant's Registration Statement on Form S-4 filed
with the Securities and Exchange Commission on September 1, 1995.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes 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.
(b) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through the use
of a 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.
(2) The undersigned registrant hereby undertakes that every prospectus
(i) that is filed pursuant to paragraph (b)(1) immediately preceding or (ii)
that purports to meet the requirements of Section 10(a)(3) of the Act, and is
used in connection with an offering of securities subject to Rule 415, 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 Act, 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-2
<PAGE>
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and 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.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, 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.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(f) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14-c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-3
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Evansville, State of
Indiana, on September ____, 1995.
OLD NATIONAL BANCORP
By: /s/ RONALD B. LANKFORD
-------------------------------
Ronald B. Lankford, President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment has been signed by the following persons in the capacities indicated
below as of September ____, 1995.
Name Title
- ---- -----
/s/ JOHN N. ROYSE Chairman of the Board, Director and Chief
- ---------------------------- Executive Officer (Chief Executive Officer)
John N. Royse
/s/ STEVE H. PARKER Senior Vice President (Chief Financial
- ---------------------------- Officer and Principal Accounting Officer)
Steve H. Parker
DAVID L. BARNING* Director
- ----------------------------
David L. Barning
RICHARD J. BOND* Director
- ----------------------------
Richard J. Bond
ALAN W. BRAUN* Director
- ----------------------------
Alan W. Braun
JOHN J. DAUS, JR.* Director
- ----------------------------
John J. Daus, Jr.
WAYNE A. DAVIDSON* Director
- ----------------------------
Wayne A. Davidson
LARRY E. DUNIGAN* Director
- ----------------------------
Larry E. Dunigan
DAVID E. ECKERLE* Director
- ----------------------------
David E. Eckerle
THOMAS B. FLORIDA* Director
- ----------------------------
Thomas B. Florida
II-4
<PAGE>
PHELPS L. LAMBERT* Director
- ----------------------------
Phelps L. Lambert
RONALD B. LANKFORD* President and Director
- ----------------------------
Ronald B. Lankford
LUCIEN H. MEIS* Director
- ----------------------------
Lucien H. Meis
DAN W. MITCHELL* Director
- ----------------------------
Dan W. Mitchell
MARJORIE Z. SOYUGENC* Director
- ----------------------------
Marjorie Z. Soyugenc
CHARLES D. STORMS* Director
- ----------------------------
Charles D. Storms
EDWARD T. TURNER, JR.* Director
- ----------------------------
Edward T. Turner, Jr.
*By: /s/ JEFFREY L. KNIGHT
----------------------------
Attorney-in-Fact
Printed Name: Jeffrey L. Knight
-------------------------------
II-5
<PAGE>
EXHIBIT 8
---------
September 27, 1995
Board of Directors Board of Directors
Old National Bancorp First United Savings Bank, f.s.b.
420 Main Street 1 North Locust Street
Evansville, Indiana 47708 Greencastle, Indiana 46135
RE: Merger of ONB Interim Federal Savings Bank into First United Savings
Bank, f.s.b. and the Exchange of Common Stock of First United Savings
Bank, f.s.b. for Common Stock of Old National Bancorp
Ladies and Gentlemen:
The respective Boards of Directors of Old National Bancorp ("ONB") and
First United Savings Bank, f.s.b. ("FUSB") have requested our opinion as to
certain federal income tax consequences of a reorganization involving ONB, First
Citizens Bank & Trust Company ("First Citizens"), ONB Interim Federal Savings
Bank ("Interim Thrift") and FUSB.
In summary, the proposed transaction involves the following steps in the
following order: (1) First Citizens purchasing certain assets and assuming
certain liabilities related to FUSB's Greencastle, Indiana operations ("Asset
Sale"), and (2) the merger of Interim Thrift with and into FUSB, in exchange
solely for voting stock of ONB ("Thrift Merger"). In consideration of the
proposed transaction, FUSB shareholders will receive solely ONB voting common
stock. Upon and after consummation of the Thrift Merger, FUSB will be a wholly-
owned subsidiary of ONB.
FACTS
-----
In connection with the Thrift Merger, the following facts have been
provided to us, and we have relied upon them for purposes of this opinion:
A. OLD NATIONAL BANCORP
--------------------
ONB has its principal office at 420 Main Street, Evansville, Vanderburgh
County, Indiana 47708. ONB is a corporation duly incorporated and existing under
the laws of the State of Indiana and is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended. As of June 30, 1995, ONB had
30,000,000 shares of voting, no par value common stock authorized, of which
approximately 22,890,064 shares were issued and outstanding. ONB common stock is
traded in the over-the-counter market and stock prices are reported on the
NASDAQ National Market System. No shareholder of ONB holds five percent (5%) or
more of ONB's outstanding common stock.
ONB also has 2,000,000 shares of Series A, no par value, preferred stock
authorized. The preferred stock has no stated dividend rate. No shares of ONB
preferred stock have been issued, and ONB presently has no intent and no
commitments to issue any of such shares. However, during the first fiscal
quarter of 1990, ONB declared and paid a dividend in the form of rights
("Rights") to purchase shares of its Series A preferred stock pursuant to a
Rights Agreement. One Right was issued for each outstanding share of ONB common
stock. Subsequent issuances of ONB common stock also included such Rights. Each
Right entitles the holder thereof, upon the occurrence of certain events
<PAGE>
Old National Bancorp
First United Savings Bank, f.s.b.
September 27, 1995
Page 2
involving a change in control of ONB, to purchase from ONB 1/100 of a share of
the Series A preferred stock at an initial purchase price equal to $60.00,
subject to adjustment. Unless earlier exercised or redeemed, the Rights will
expire at the close of business on March 1, 2000. A Right is transferred
automatically with a transfer of each underlying share of ONB common stock, and
future issuances of ONB common stock will also include such Rights.
ONB maintains its accounting on a calendar year basis, and computes its
income under the accrual method of accounting. ONB is the parent corporation of
an affiliated group of subsidiaries consisting of twenty-three (23) operating
banks, one insurance company, one realty company, three (3) national trust
companies, and one data processing company ("ONB Group"). The ONB Group files a
consolidated federal income tax return and will continue to file consolidated
federal income tax returns after the effective time of the Thrift Merger.
B. INTERIM THRIFT
--------------
Interim Thrift will have its principal office at 420 Main Street,
Evansville, Indiana 47708. Interim Thrift will be a federally-chartered savings
bank duly organized and validly existing under the laws of the United States of
America. Interim Thrift will not own or operate any subsidiaries. Interim Thrift
will have 1,000 shares of common stock authorized, no par value per share, all
of which will be issued and outstanding and held by ONB. Interim Thrift will be
subject to primary regulatory supervision and examination by the Office of
Thrift Supervision ("OTS"). Interim Thrift is not yet formed.
Interim Thrift will maintain its accounting on a calendar year basis, and
compute its income under the accrual method of accounting. Interim Thrift will
file as a member of the ONB consolidated federal income tax return.
C. FIRST CITIZENS
--------------
First Citizens has its principal office at 1 North Indiana Street,
Greencastle, Indiana 46135. First Citizens is an Indiana charted bank pursuant
to the provisions of the Indiana Financial Institutions Act, as amended. First
Citizens does not own or operate any subsidiaries. All of the issued and
outstanding shares of First Citizens are owned by ONB. First Citizens is subject
to primary regulatory federal supervision and examination by the Federal Deposit
Insurance Corporation ("FDIC"). First Citizens and its predecessor have been in
existence since approximately 1863.
First Citizens maintains its accounting on a calendar year basis, and
computes its income under the accrual method of accounting. First Citizens files
as a member of the ONB consolidated federal income tax return.
<PAGE>
Old National Bancorp
First United Savings Bank, f.s.b.
September 27, 1995
Page 3
D. FUSB
----
FUSB has its principal office at 1 North Locust Street, Greencastle,
Indiana 46135. FUSB is a federally-chartered savings bank duly organized and
validly existing under the laws of the United States of America. As of December
31, 1994, FUSB had 1,000,000 shares of common stock authorized, $.01 par value
per share, 546,200 (including 1,000 shares owned by the subsidiary, Greenmark,
Inc., which 1,000 shares will be canceled as of the effective time of the Thrift
Merger) of which shares are issued and outstanding. The number of issued and
outstanding shares of FUSB common stock is subject to increase to a total of
583,200 shares pursuant to the exercise of options (collectively, the "Stock
Options") granted under the FUSB Stock Option Plan ("Stock Option Plan"). As of
June 30, 1994, there were approximately 425 FUSB shareholders. FUSB common stock
is traded and stock prices are reported on the NASDAQ Small-Cap System. As of
December 31, 1994, no shareholders held five percent (5%) or more of FUSB's
outstanding common stock.
FUSB also has 2,000,000 shares of $1.00 par value preferred stock
authorized. No shares of FUSB preferred stock have been issued, and FUSB
presently has no plan or intent and no commitments to issue any of such shares.
ONB purchased on October 13, 1994 for a total price of $732,375.00 in cash
and continues to own 27,000 shares of the outstanding shares of common stock of
FUSB. These shares were purchased in the open market and represent less than
five percent (5%) of the outstanding shares of common stock of FUSB.
FUSB was organized in 1911 as an Indiana savings institution, became a
federal savings and loan association in 1966, became a federal savings bank in
1984 and converted to a federal stock savings bank in 1987. FUSB maintains its
main office and one branch in Greencastle, Indiana and two full-service branches
in Bloomington, Indiana. In addition, FUSB maintains a loan origination office
in Danville, Indiana. FUSB is subject to primary federal regulatory supervision
and examination by the OTS.
FUSB maintains its accounting records on a fiscal year ending on June 30.
FUSB computes its income under the accrual method of accounting. FUSB is the
parent corporation of an affiliated group of corporate subsidiaries consisting
of one (1) insurance agency and one (1) company that has no operations, business
or assets (other than $1,000 in cash or cash equivalents)(collectively the "FUSB
Group"). The FUSB Group files a consolidated federal income tax return and will
file a consolidated federal income tax return as part of the ONB Group after the
Thrift Merger.
BUSINESS PURPOSES
-----------------
The shareholders of ONB and the stockholders of FUSB desire to reorganize
their stock interests to accomplish the following business objectives, among
others:
<PAGE>
Old National Bancorp
First United Savings Bank, f.s.b.
September 27, 1995
Page 4
1. To obtain greater financial and managerial strength for future growth
and to achieve economies of scale and other operational benefits.
2. To allow ONB, First Citizens and FUSB to compete more effectively with
other financial institutions and financial services providers and to enable
FUSB to provide new or broader services to the its customers.
3. To provide the shareholders of FUSB an interest in a more widely held
enterprise that is potentially more liquid than FUSB common stock.
4. To allow ONB access to the financial services market in the
Bloomington, Indiana area.
5. To maintain separate subsidiaries in each major geographic area where
financial services are located.
6. To reduce the likelihood of a challenge by the Federal Reserve Board
to the acquisition of the FUSB Greencastle operations due to certain anti-trust
implications arising from the transaction.
PROPOSED TRANSACTION
--------------------
As used herein, "Code" refers to the Internal Revenue Code of 1986, as
amended, and "Regulations" refers to regulations promulgated thereunder by the
Secretary of the Treasury, all as in effect as of the date of this opinion.
To accomplish the objectives specified above, ONB, First Citizens, and FUSB
have entered into an Amended Agreement of Affiliation and Merger, effective
September 29, 1994 ("Agreement"). Under the terms of the Agreement, the
following transactions will occur:
Step 1 - Asset Sale. Pursuant to an overall plan and as an integral part
of the proposed transaction, ONB and FUSB entered into a Purchase and Assumption
Agreement which provides that FUSB will sell the assets related to its
Greencastle and Danville, Indiana operations to First Citizens, including all of
the stock of Greenmark, for cash and the assumption of certain liabilities
related to its Greencastle and Danville operations ("Greencastle Branch"). The
Greencastle Branch predominately consists of operations located in Greencastle,
Indiana. Danville, Indiana is in close proximity to Greencastle. The Greencastle
Branch assets represent less than fifty percent (50%) of the fair market value
of all assets of FUSB. The sale of the above assets will be a fully taxable
sale.
The Boards of Directors of First Citizens and FUSB must approve the Asset
Sale. Approval of the Asset Sale by the shareholders of ONB and FUSB is not
required or contemplated. The acquisition by First Citizens of the Greencastle
Branch requires the prior approval of the OTS, FDIC and Indiana Department of
Financial Institutions ("IDFI").
<PAGE>
Old National Bancorp
First United Savings Bank, f.s.b.
September 27, 1995
Page 5
ONB and First Citizens are currently studying the status of the location of
the Greencastle Branch. ONB and First Citizens have no current intent to dispose
of any of the assets to be acquired by First Citizens in the proposed Step 1
Asset Sale. However, ONB and First Citizens are reviewing the operation of all
branch locations and are considering whether any branch locations should be
closed or sold. Any decision by the management of ONB and First Citizens will be
made in the ordinary course of business based on, among other factors, the
desirability to consolidate branches that may be in close proximity to one
another.
Step 2 - Thrift Merger. Pursuant to the Agreement, the second step of the
proposed transaction will involve the merger of Interim Thrift with and into
FUSB, with FUSB as the surviving federally chartered stock savings bank. FUSB
will become a wholly-owned subsidiary of ONB. FUSB will continue its corporate
existence under the laws of the United States of America. On the effective date
of the Thrift Merger, each issued and outstanding share of FUSB common stock
will be converted into the right to receive solely 0.85 shares of ONB common
stock (subject to certain adjustments as set forth in the Agreement).
No fractional shares of ONB common stock will be issued with respect to
fractional share interests arising from the exchange ratio specified above.
Rather, any shareholder of FUSB entitled to a fractional share interest will
receive cash in lieu thereof in an amount equal to the fraction multiplied by
the average of the per share closing prices of ONB common stock as quoted on the
NASDAQ National Market System for the first five (5) business days on which
shares of ONB common stock are traded within the ten (10) calendar days
immediately preceding the effective date of the Thrift Merger.
No cash or other property, except for ONB common stock and cash paid in
lieu of fractional shares, will be allocated to the shareholders of FUSB.
Shareholders of FUSB are not entitled to statutory dissenters' rights because
FUSB is listed on NASDAQ.
The Agreement will be submitted to the shareholders of FUSB for approval at
a meeting called and held in accordance with applicable law and the Charter and
By-Laws of FUSB. The holders of a majority of the outstanding shares of FUSB
common stock and a majority of the Board of Directors of FUSB must approve the
Agreement. Approval of the Agreement by the shareholders of ONB is not
contemplated or required. Approval of the Agreement by ONB as the sole
shareholder of First Citizens and Interim Thrift is required and will be
obtained.
ASSUMPTIONS
-----------
In connection with the Step 1 Asset Sale, we have relied upon the following
assumptions for the purpose of issuing this opinion:
<PAGE>
Old National Bancorp
First United Savings Bank, f.s.b.
September 27, 1995
Page 6
1. The fair market value of the consideration, including the assumption of
liabilities, received by FUSB for the Greencastle Branch assets will be
approximately equal to the fair market value of the Greencastle Branch assets
surrendered in the exchange.
2. The Greencastle Branch assets represent less than fifty percent (50%)
of the historic assets of FUSB.
3. ONB and First Citizens have no plan or intention to sell or otherwise
dispose of any of the assets of the Greencastle Branch acquired in the proposed
transaction, except for dispositions made in the ordinary course of business or
transfers described in Section 368(a)(2)(C) of the Code.
4. The liabilities of the Greencastle Branch assumed by First Citizens and
the liabilities to which the transferred assets of the Greencastle Branch are
subject were incurred by FUSB in the ordinary course of its business.
5. Following the proposed transaction, First Citizens will continue the
historic business of the Greencastle Branch or use a significant portion of the
Greencastle Branch's historic business assets in a business.
6. ONB, First Citizens, FUSB and Interim Thrift will pay their respective
expenses, if any, incurred in connection with the transaction.
7. There is no intercorporate indebtedness existing between FUSB and First
Citizens that was issued, acquired or will be settled at a discount.
8. No two parties to the transaction are investment companies as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
9. Other than the 27,000 shares of common stock of FUSB purchased by ONB
on October 13, 1994 and still owned by ONB, neither ONB nor First Citizens
owns, directly or indirectly, nor has either ONB or First Citizens owned
during the past five (5) years, directly or indirectly, any stock of FUSB.
10. The fair market value of the assets of the Greencastle Branch
transferred to First Citizens will equal or exceed the sum of the cash paid, the
liabilities assumed by First Citizens, plus the amount of liabilities, if any,
to which the transferred assets are subject.
11. FUSB is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code.
12. Prior to the proposed transaction, ONB will be in control of First
Citizens within the meaning of Section 368(c) of the Code.
<PAGE>
Old National Bancorp
First United Savings Bank, f.s.b.
September 27, 1995
Page 7
13. Following the proposed transaction, First Citizens will not issue
additional shares of its stock that would result in ONB losing control of
First Citizens within the meaning of Section 368(c) of the Code.
In connection with the Step 2 Thrift Merger, we have relied upon the
following assumptions for the purpose of issuing this opinion:
14. The fair market value of the ONB stock and other consideration
received by each FUSB shareholder will be approximately equal to the fair
market value of the FUSB stock surrendered in the exchange.
15. There is no plan or intention by the shareholders of FUSB who own five
percent (5%) or more of the FUSB stock, and to the best of the knowledge of the
management of FUSB, there is no plan or intention on the part of the remaining
shareholders of FUSB, to sell, exchange or otherwise dispose of a number of
shares of ONB stock received in the transaction that would reduce the FUSB
shareholders' ownership of ONB stock to a number of shares having a value, as of
the date of the transaction, of less than fifty percent (50%) of the value of
all of the formerly outstanding stock of FUSB as of the same date. For purposes
of this representation, shares of FUSB stock exchanged for cash or other
property, surrendered by dissenters or exchanged for cash in lieu of fractional
shares of ONB stock will be treated as outstanding FUSB stock on the date of the
transaction. Moreover, shares of FUSB stock and shares of ONB stock held by FUSB
shareholders and otherwise sold, redeemed or disposed of prior or subsequent to
the transaction will be considered in making this representation.
16. Following the transaction, FUSB will hold at least ninety percent
(90%) of the fair market value of its net assets and at least seventy percent
(70%) of the fair market value of its gross assets and at least ninety percent
(90%) of the fair market value of Interim Thrift's net assets and at least
seventy percent (70%) of the fair market value of Interim Thrift's gross assets
held immediately prior to the transaction, but subsequent to the proposed Step 1
Asset Sale. For purposes of this representation, amounts paid by FUSB or Interim
Thrift to shareholders who receive cash or other property, amounts used by FUSB
or Interim Thrift to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by FUSB will be
included as assets of FUSB or Interim Thrift, respectively, immediately prior to
the transaction.
17. Prior to the transaction, ONB will be in control of Interim Thrift
within the meaning of (S) 368(c) of the Code.
18. FUSB has no plan or intention to issue additional shares of its stock
that would result in ONB losing control of FUSB within the meaning of Section
368(c) of the Code.
19. ONB has no plan or intention to reacquire any of its stock issued in
the transaction. ONB may, however, acquire ONB stock on a periodic basis through
purchases on an anonymous basis on the open market at open market prices.
<PAGE>
Old National Bancorp
First United Savings Bank, f.s.b.
September 27, 1995
Page 8
20. Other than the proposed Step 1 transaction, ONB has no plan or
intention to liquidate FUSB; to merge FUSB into another corporation; to cause
FUSB to sell or otherwise dispose of any of its assets, except for dispositions
made in the ordinary course of business; or to sell or otherwise dispose of any
of the FUSB stock acquired in the transaction, except for transfers described in
Section 368(a)(2)(C) of the Code; or to cause FUSB to sell or otherwise dispose
of any of its assets or of any of the assets acquired from Interim Thrift,
except for dispositions made in the ordinary course of business or transfers of
assets to a corporation controlled by FUSB.
21. Interim Thrift will have no liabilities assumed by FUSB and will not
transfer to FUSB any assets subject to liabilities, in the transaction.
22. Following the transaction, FUSB will continue its historic business or
use a significant portion of its historic business assets in a business.
23. ONB, FUSB, and the shareholders of FUSB will pay their respective
expenses, if any, incurred in connection with the transaction.
24. There is no intercorporate indebtedness existing between ONB and FUSB
or between Interim Thrift and FUSB that was issued, acquired, or will be
settled at a discount.
25. In the transaction, shares of FUSB common stock representing control
of FUSB, as defined in Section 368(c) of the Code, will be exchanged solely for
voting common stock of ONB. For purposes of this representation, shares of FUSB
common stock exchanged for cash or other property originating with ONB will be
treated as outstanding FUSB common stock on the date of the transaction.
26. At the time of the transaction, FUSB will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in FUSB that, if exercised or converted,
would affect ONB's acquisition or retention of control of FUSB, as defined in
Section 368(c) of the Code.
27. Other than the 27,000 shares of common stock of FUSB purchased by ONB
on October 13, 1994 and still owned by ONB, ONB does not own directly or
indirectly, nor has it owned during the past five years, directly or indirectly,
any stock of FUSB.
28. No two parties to the transaction are investment companies as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
29. On the date of the transaction, the fair market value of the assets of
FUSB will exceed the sum of its liabilities plus the liabilities, if any, to
which the assets are subject.
30. FUSB is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code.
<PAGE>
Old National Bancorp
First United Savings Bank, f.s.b.
September 27, 1995
Page 9
31. The payment of cash in lieu of fractional shares of ONB common stock
resulting from the exchange ratio is solely for the purpose of avoiding the
expense and inconvenience to ONB of issuing fractional shares of ONB common
stock and does not represent separately bargained-for consideration. The total
cash consideration that will be paid in the transaction to the FUSB shareholders
instead of issuing fractional shares of ONB common stock will not exceed one
percent (1%) of the total consideration that will be issued in the transaction
to the FUSB shareholders in exchange for their shares of FUSB common stock. The
fractional share interests of each FUSB shareholder will be aggregated, and no
FUSB shareholder will receive cash in an amount equal to or greater than the
value of one (1) full share of ONB common stock.
32. None of the compensation received by any shareholder-employee of FUSB
will be separate consideration for, or allocable to, any of their shares of FUSB
stock; none of the shares of ONB stock received by any shareholder-employee will
be separate consideration for, or allocable to, any employment agreement; and
the compensation paid to any shareholder-employees will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's-length for similar services.
33. The shareholders of FUSB (immediately before the transaction)
receiving shares of ONB common stock in the transaction will not own
(immediately after the transaction) more than fifty percent (50%) of the fair
market value of ONB common stock.
OPINION
-------
Based solely upon the facts, assumptions and other information set forth
above, and so long as such facts, assumptions and other information are true and
correct on the date of the consummation of the Thrift Merger, it is our opinion
with respect to the Thrift Merger that:
1. Provided that the merger of Interim Thrift with and into FUSB qualifies
as a statutory merger under applicable law, and, following the Thrift
Merger, FUSB will hold substantially all of its assets and the assets
of Interim Thrift, and in the Thrift Merger, the shareholders of FUSB
will exchange an amount of stock constituting control of FUSB (within
the meaning of Section 368(c) of the Code) solely for ONB voting common
stock, the proposed merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) by reason of Section 368(a)(2)(E) of
the Code. The reorganization will not be disqualified by reason of the
fact that voting stock of ONB is being used in the merger. For purposes
of this opinion, "substantially all" means at least ninety percent
(90%) of the fair market value of the net assets and at least seventy
percent (70%) of the fair market value of the gross assets of FUSB.
ONB, Interim Thrift, and FUSB will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code.
<PAGE>
Old National Bancorp
First United Savings Bank, f.s.b.
September 27, 1995
Page 10
2. No gain or loss will be recognized by the shareholders of FUSB upon the
exchange of FUSB common stock solely for ONB common stock.
3. No gain or loss will be recognized by Interim Thrift on the transfer of
its assets to FUSB and the assumption by FUSB of the liabilities, if any, of
Interim Thrift.
4. Each FUSB shareholder's basis in the ONB stock received in the exchange
will equal the basis of the FUSB stock surrendered therefor.
5. Each FUSB shareholder's holding period for the ONB stock received in
the exchange will include the holding period of the FUSB stock surrendered
therefor, provided the FUSB stock was held as a capital asset on the date of the
exchange.
The opinion expressed herein represents our conclusions as to the
application of existing federal income tax law to the facts as presented to us
relating to the Thrift Merger, and we give no assurance that changes in such law
or any interpretation thereof will not affect the opinion expressed by us.
Moreover, there can be no assurance that this opinion will not be challenged by
the Internal Revenue Service or that a court considering the issues will not
hold contrary to such opinion. We express no opinion on the treatment of the
Thrift Merger under the income tax laws of any state or other taxing
jurisdiction. We assume no obligation to advise you of any changes concerning
the above, whether or not deemed material, which may hereafter come or be
brought to our attention. The opinion expressed herein is a matter of
professional judgment and is not a guarantee of result.
This opinion is addressed to you and is solely for your use in connection
with the Thrift Merger and your role as members of your respective Boards of
Directors. We assume no professional responsibility to any other person or
entity whatsoever, including, without limitation, any shareholder of ONB or
stockholder of FUSB. Accordingly, the opinion expressed herein is not to be
utilized or quoted by, or delivered or disclosed to, in whole or in part, any
other person, corporation, entity or governmental authority without, in each
instance, our prior written consent.
Very truly yours,
/s/ KRIEG DeVAULT ALEXANDER & CAPEHART
KRIEG DeVAULT ALEXANDER & CAPEHART
<PAGE>
EXHIBIT 23.03
-------------
We consent to the reference to our firm under the caption "Experts" and to use
of our reports dated August 4, 1995, with respect to the consolidated financial
statements of First United Savings Bank, f.s.b. incorporated by reference in the
Registration Statement on Form S-4 of Old National Bancorp and related Proxy
Statement of First United Savings Bank f.s.b. and related Prospectus of Old
National Bancorp dated September 1, 1995 as amended by Amendment No. 1.
/s/ ERNST & YOUNG, LLP
Indianapolis, Indiana
September 25, 1995
<PAGE>
EXHIBIT 23.04
-------------
CONSENT OF McDONALD & COMPANY SECURITIES, INC.
We consent to the inclusion in this Registration Statement on Form S-4 of
Old National Bancorp of the use of our opinion dated as of the date of the Proxy
Statement, set forth as Appendix C to the Proxy Statement, which is part of this
Registration Statement, and to the summarization thereof in the Proxy Statement
and our opinion dated September 29, 1994 in the Proxy Statement under the
caption "Opinion of Financial Advisor to FUSB." Further, we consent to all
references to our firm in such Registration Statement.
/s/ McDONALD & COMPANY SECURITIES, INC.
McDONALD & COMPANY SECURITIES, INC.
Cleveland, Ohio
September 25, 1995
<PAGE>
EXHIBIT 99.01
-------------
REVOCABLE PROXY
FIRST UNITED SAVINGS BANK, F.S.B.
ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 31, 1995
The undersigned hereby appoints the Board of Directors of First United
Savings Bank, f.s.b., or the majority of such directors, with full powers of
substitution, to act as attorneys and proxies for the undersigned to vote all
shares of capital stock of First United Savings Bank, f.s.b., which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held
at the DePauw University Memorial Student Union Building, Greencastle, Indiana,
on Tuesday, October 31, 1995, at 2:00 P.M., and at any and all adjournments
thereof, as follows:
1. The election as directors of all nominees listed below, except as marked to
the contrary.
[_] FOR [_] VOTE WITHHELD
INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list below:
Earl E. Clodfelter William M. Marley
(each for a three year term)
2. Approval and adoption of Amended and Restated Agreement of Affiliation and
Merger among First United Savings Bank, f.s.b., Old National Bancorp, First
Citizens Bank & Trust Company and ONB Interim Federal Savings Bank.
[_] FOR [_] AGAINST [_] ABSTAIN
In their discretion, the proxies are authorized to vote on any other
business that may properly come before the Meeting or any adjournment
thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSITIONS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
This proxy may be revoked at any time prior to the voting thereof.
The undersigned acknowledges receipt from First United, prior to the
execution of this proxy, of notice of the Meeting, a proxy statement and an
Annual Report to shareholders.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED
IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF
DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
Date_____________________________, 1995
_______________________________________________
Print Name of Shareholder
_______________________________________________
Signature of Shareholder
_______________________________________________
Print Name of Shareholder
_______________________________________________
Signature of Shareholder
Please sign as your name appears on the
envelope in which this card was mailed. When
signing as attorney, executor, administrator,
trustee or guardian, please give your full
title. If shares are held jointly, each holder
should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
<PAGE>
EXHIBIT 99.02
TO OUR SHAREHOLDERS
As you know, the Board of Directors of First United has accepted a proposal from
Old National Bancorp, Evansville, Indiana to be acquired by them and join the
ONB family. The acquisition offers a tremendous opportunity for the
shareholders, customers and employees of First United. We also feel that both
of our communities will benefit as we become part of the ONB organization.
Old National Bancorp is the largest independent bank holding company
headquartered in the State of Indiana, and we believe that it's the best. ONB
had total assets of approximately $4.4 billion as of June 30, 1995. Your Board
of Directors has unanimously approved the agreement and recommends that First
United shareholders also give their approval. Complete details of the
transaction are included with the proxy information.
We have been busy during the past year preparing for our merger into the ONB
family. As we reported on December 31, 1994 several steps were taken in
anticipation of the pending merger. During that quarter, the bank recorded a
net loss of $2,307,778, which was attributable to approximately $2,344,000 in
recorded charges directly related to the pending merger.
Included in the after-tax charges was an income tax liability of $1,443,889 on
previously untaxed bad debt reserves. This charge was recorded in December with
the understanding that First United, which has a savings and loan charter, would
be converted into a bank charter. After studies by all involved parties, it was
determined that the First United savings and loan charter would remain open in
the Bloomington market. Consequently, the tax liability taken in December of
1994, was reversed in June of 1995. Also during June, additional expenses were
recorded for Shorewalk in the amount of $270,850 as that project was sold. We
also added $140,000 to general reserves to conform to ONB loan loss reserves.
After all the December, 1994, and June 1995 adjustments were completed, the Bank
recorded a net loss for the fiscal year of $650,048. Operationally, the Bank
continued to grow and prosper, but the merger-planned charges which were
recorded in December resulted in the overall loss.
As of June 30, 1995, assets had grown to $142,039,710 from $133,703,636 the
prior year. Our capital was $9,240,514 which remained above our regulatory
requirements. Loans receivable increased from $110,900,334 to $121,593,615,
while savings deposits showed a slight decrease from $113,248,577 to
$112,343,290. The growth in loans was funded by the use of Federal Home Loan
Bank advances which increased from $9,000,000 to $19,000,000. As I mentioned,
operationally we remain strong and we look forward to being a positive factor in
the ONB family.
I would like to take a moment for a personal note. It's difficult to believe
that over twenty years have passed since I joined Greencastle Federal Savings
and Loan at the corner of Washington and Jackson. Ernie Collins was chairman of
the bank and Norman Knights was President and Chief Executive Officer. Both are
extremely fine gentlemen and very knowledgeable businessmen. I appreciated
their training and patience through the years and would be remiss at this time
not to thank them for all their help. They laid a solid foundation for the
growth of the savings and loan. Both are now retired from active participation
with the Bank and we continue to miss their wise counsel.
I've had the pleasure of working with an outstanding Board through the years.
Their wise guidance helped direct the Bank through conversion to stock form in
1987, and the acquisition of Fountain Federal in Bloomington in 1989. They are
dedicated individuals and I have truly enjoyed working with them.
Our management and staff over the years have been the best. They have never
failed to perform at the highest levels to help achieve Bank goals. I've
appreciated each and every one of them. I can't thank them enough. (All will
have the opportunity of being a part of FUSB's success within the ONB family).
Our loyal customers and shareholders have been a pleasure to serve. After all,
without them, our Bank would cease to exist.
As to the future, we look forward to working with the Old National organization.
As First United and First Citizens are joined together, I believe the
opportunities for building an outstanding Bank are unlimited.
Many thanks to all of you. I look forward to working with you as we build the
best financial institution that we can be.
Sincerely,
William M. Marley
President and Chief Executive Officer
<PAGE>
FIRST UNITED SAVINGS BANK AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF FINANCIAL CONDITION
Cash $ 878,992 $ 756,129 $ 923,290 $ 1,014,706 $ 1,001,531
Interest-bearing deposits 5,614,245 5,161,337 5,474,824 2,397,691 4,580,437
Investment and mortgage-backed securities 4,252,373 6,196,225 7,697,341 10,861,800 14,657,224
Loans receivable, net 121,593,615 110,900,334 111,765,436 102,010,050 102,621,053
Direct investment in real estate 900,000 1,677,944 3,806,687 4,630,607 5,780,362
Other assets(1) 8,800,485 9,011,667 8,922,439 9,145,992 9,034,743
------------ ------------ ------------ ------------ ------------
Total assets 142,039,710 133,703,636 138,590,017 130,060,846 137,675,350
Deposits 112,343,290 113,248,577 116,902,114 116,090,522 121,798,106
FHLB advances 19,000,000 9,000,000 9,100,000 2,000,000 4,300,000
Other liabilities(2) 1,455,906 1,613,160 1,615,435 1,447,127 1,090,909
------------ ------------ ------------ ------------ ------------
Total liabilities 132,799,196 123,861,737 127,617,549 119,537,649 127,189,015
------------ ------------ ------------ ------------ ------------
Net worth $ 9,240,514 $ 9,841,899 $ 10,972,468 $ 10,523,197 $ 10,486,335
============ ============ ============ ============ ============
Book value per share $ 16.93 $ 18.15 $ 20.23 $ 19.52 $ 19.46
Year Ended June 30,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Total interest income $ 9,537,512 $ 8,686,589 $ 9,219,921 $ 10,821,579 $ 12,337,901
Total interest expense 5,858,417 5,414,275 6,175,994 7,784,664 9,129,001
------------ ------------ ------------ ------------ ------------
Net interest income 3,679,095 3,272,314 3,043,927 3,036,915 3,208,900
Provision for loan losses 745,774 121,314 89,674 127,391 57,313
------------ ------------ ------------ ------------ ------------
Net interest income after provision for loan losses 2,933,321 3,150,700 2,954,253 2,909,524 3,151,587
Loan origination and other fees 212,230 191,514 181,485 186,409 207,028
(Loss) on sale of investments (35,733) (68,975) (100,780) (35,697) (32,137)
Other income 427,171 477,115 501,833 560,143 329,456
Other expense(3) 4,476,285 5,408,571 2,824,628 3,476,139 3,031,596
------------ ------------ ------------ ------------ ------------
Income (loss) before federal income taxes and
cumulative effect of change in accounting principle (927,048) (1,658,217) 712,163 144,240 624,338
Income tax expense (credit) (277,000) (657,800) 228,500 (14,000) 243,000
------------ ------------ ------------ ------------ ------------
Income (loss) before cumulative effect of change in
accounting principle (650,048) (1,000,417) 483,663 158,240 381,338
Cumulative effect of change in accounting principle -- -- -- 30,400 --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (650,048) $ (100,417) $ 483,663 $ 188,640 $ 381,338
============ ============ ============ ============ ============
Earnings (loss) per share $ (1.15) $ (1.84) $ .90 $ .35 $ .71
Cash dividends per share $ -- $ .24 $ .20 $ .40 $ .60
REGULATORY CAPITAL
Tangible capital $ 6,518,000 $ 7,718,000 $ 10,548,000 $ 8,608,000 $ 8,294,000
Core capital $ 6,836,000 $ 8,119,000 $ 10,987,000 $ 10,348,000 $ 10,438,000
Risk-based capital $ 7,699,000 $ 7,603,000 $ 8,763,000 $ 9,846,000 $ 10,069,000
Other data
Earning assets to interest bearing liabilities 1.02 1.01 .99 .98 .97
Interest rate spread during period 2.61% 2.59% 2.49% 2.49% 2.50%
Net yield on interest-earning assets(4) 2.92% 2.68% 2.52% 2.47% 2.61%
Dividend payout ratio(5) NM NM 22% 114% 85%
Number of full service facilities 3 3 3 3 3
</TABLE>
NM - Not meaningful.
1 Includes stock in FHLB of Indianapolis, real estate owned, premises and
equipment, accrued investment interest receivable, goodwill and miscellaneous
other assets.
2 Includes advance payments by borrowers for taxes and insurance and
miscellaneous other liabilities.
3 Includes charges for declines in net realizable value of direct investments
in real estate and investment securities of $200,000, $2,463,000 and
$625,000 in fiscal 1995, 1994 and 1992, respectively.
4 Net interest income divided by weighted average interest-earning assets.
5 Dividends declared per share divided by net income per share.
<PAGE>
First United Savings Bank
Management Discussion and Analysis
GENERAL
The principal business of First United Savings Bank, f.s.b. ("First United" or
the "Bank") has always been to accept deposits from the general public and
invest those deposits, together with funds from earnings and borrowings,
primarily in first mortgage loans secured by one-to-four family residential
properties and, to a lesser extent, in multi-family residential and consumer
loans. In the fiscal year ended June 30, 1995, specific steps were taken to
ensure that business will be carried out in the best interests of the Bank's
customers and shareholders.
Effective September 29, 1994, First United entered into an Agreement of
Affiliation and Merger (as amended and restated, the "Agreement") with Old
National Bancorp ("Old National"), pursuant to which a federally chartered
interim savings bank and wholly-owned subsidiary of Old National will be merged
with and into First United (the "Merger"). Immediately prior to the Merger, the
assets and liabilities associated with First United's Greencastle and Danville,
Indiana operations, and shares of its insurance subsidiary, will be transferred
to a commercial bank subsidiary of Old National. Following the Merger, First
United's Bloomington operation will operate as a wholly-owned thrift subsidiary
of Old National and its the Greencastle and Danville operations will be
conducted as part of First Citizens Bank and Trust Company. In connection with
the Merger, each issued and outstanding share of First United common stock will
be converted into the right to receive .8925 shares of Old National common
stock, subject to adjustments more particularly described in the Agreement. It
is expected that the Merger will be consummated by the end of 1995.
In the second quarter of fiscal 1995, First United recorded merger charges of
approximately $1,286,000 on a pre-tax basis. These charges included an
additional $500,000 loan loss provision to conform to Old National's loan loss
provisioning policies, a $321,000 liability for professional fees relating to
the pending merger, a reduction in a lease intangible asset value by $131,000, a
liability of $105,000 for anticipated costs to terminate a data processing
contract, and an additional provision of $200,000 relating to the Bank's
investment in the Shorewalk at Geist condominium project. These charges do not
violate any provision of the Agreement.
Since the Bank acquired Fountain Federal Savings Bank, Bloomington, Indiana, in
1988, a great deal of time and energy was devoted to the development and sale of
the Shorewalk condominium project in Indianapolis acquired in the merger. At
the end of fiscal 1994, the Bank decided not to develop the final phase of the
Shorewalk project, reduced its basis in Shorewalk, and placed the land on the
market for sale in undeveloped form. At June 30, 1995, the Bank sold Shorewalk
on contract to an independent third party for a purchase price of $900,000. The
contract did not require any down payment but requires payment, in advance, on a
lot by lot basis as the purchaser commences condominium development of on each
lot. In connection with the sale, the Bank recorded additional charges of
$270,000 to reduce the Bank's basis to the sales price and carries this contract
on the balance sheet as a direct investment in real estate. The contract
currently requires the purchaser to pay for at least two lots per month for 18
consecutive months commencing January, 1996. The purchaser paid for eight lots
in July, 1995.
As a result of the various charges described above, the Bank incurred a net loss
for fiscal 1995 of $650,000, or $1.15 per share, as compared to a net loss for
in the prior year of $1,000,000, or $1.84 per share. Net interest income before
provision for loan losses and, therefore, before any merger related or Shorewalk
adjustments, was $3,679,000 compared to $3,272,000 in the prior year.
<PAGE>
ASSET/LIABILITY MANAGEMENT
First United's exposure to interest rate risk is due to the differences in
maturities and volatility of rate-sensitive assets and rate-sensitive
liabilities. The term "rate sensitivity" refers to those assets and liabilities
which are "sensitive" to fluctuations in rates and yields. Savings institutions
have historically operated in a mismatched position with interest-sensitive
liabilities greatly exceeding interest-sensitive assets. In periods of rising
interest rates, an institution in this position would almost certainly
experience lower earnings as interest-sensitive liabilities (deposits and other
borrowings) would reprice upward at a more rapid rate than interest-sensitive
assets (loans and investments). First United has attempted to improve its
matching of rate-sensitive assets and rate-sensitive liabilities by promoting
adjustable rate mortgages, selling all currently originated fixed rate long term
mortgage loans and promoting certificates of deposit with maturities of three
years or longer. The following table shows the Bank's projected interest
sensitivity gap based on loan repayment and deposit decay rates used by the
Federal Home Loan Bank of Indianapolis and based on information reported to the
Office of Thrift supervision ("OTS") in the June 30, 1995 "Maturity and Rate
Schedule CMR".
<TABLE>
<CAPTION>
MORE MORE
6 THAN THAN
MONTHS 3 YEARS 5 YEARS MORE
6 MONTHS THROUGH 1-3 THROUGH THROUGH THAN
OR LESS 1 YEAR YEARS 5 YEARS 10 YEARS 10 YEARS TOTAL
-----------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Balloon and adjustable-
rate mortgage loans $ 16,377 $48,560 $34,701 $ -- $ -- $ -- $ 99,638
Fixed-rate mortgage loans 951 780 3,022 3,101 9,890 5,565 23,309
Other loans 437 809 1,953 453 -- -- 3,652
Cash and investment securities 8,710 292 369 202 810 363 10,746
-------- ------- ------- ------- ------- ------- --------
26,475 50,441 40,045 3,756 10,700 5,928 137,345
Rate-sensitive liabilities:
Deposits (1) 38,163 17,930 26,721 3,390 1,454 -- 87,658
Borrowings 19,000 -- -- -- -- -- 19,000
57,163 17,930 26,721 3,390 1,454 -- 106,658
--------- ------- ------- ------- ------- ------- --------
Interest sensitivity gap $(30,688) $32,511 $13,324 $ 366 $ 9,246 $ 5,928 $ 30,687
========= ======= ======= ======= ======= ======= ========
Cumulative difference between
interest-earning assets and
interest-bearing liabilities $(30,688) $ 1,823 $15,147 $15,513 $24,759 $30,687
Cumulative difference as a
percentage of total assets (22.95)% 1.36% 11.33% 11.60% 18.52% 22.95%
</TABLE>
(1) Excludes $24,685,000 of passbook accounts and negotiable order of
withdrawal (NOW) accounts.
The following table sets forth the dollar amount of all loans due or repricing
after one year from June 30, 1995, which have fixed interest rates and which
have floating or adjustable interest rates. (These amounts do not include
$64,937,000 of balloon and one year adjustable rate mortgages).
<TABLE>
<CAPTION>
FIXED RATE ADJUSTABLE RATE
------------------------------
(In Thousands)
<S> <C> <C>
Real estate mortgage loans $21,578 $34,701
Other loans $ 2,406 $ --
</TABLE>
In evaluating First United's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing table
must be considered. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Additionally, the interest rates
on certain types of assets and liabilities may fluctuate in advance of changes
in market interest rates, while interest rates on other types may lag behind
changes in market rates. Further, certain assets, such as adjustable rate
mortgages, have features which restrict changes in interest rates on a short-
term basis and over the life of the asset. In addition, in the event of a
change in interest rates, prepayment and early withdrawal levels could deviate
significantly from those assumed in calculating the table. Moreover, the
ability of many borrowers to service their debt may decrease in the event of an
interest rate increase. First United considers the anticipated effects of these
various factors in implementing its interest rate risk management objectives.
Management believes that continuation of its efforts to manage the rates,
liquidity and interest rate sensitivity of First United's assets and liabilities
is necessary to generate an acceptable return.
-2-
<PAGE>
INTEREST RATE SPREAD
First United's pre-tax earnings depend primarily on its net interest income, the
difference between the income it receives on its loan portfolio and other
investments and its cost of money consisting of interest paid on deposits and
borrowings. When interest-earning assets approximate or exceed interest-bearing
liabilities, a positive interest rate spread will generate net interest income.
Thrift institutions have traditionally used interest rate spreads as a measure
of net interest income. Another indication of an institution's net interest
income is its "net yield on weighted average interest earnings assets", which is
net interest income divided by weighted average interest-earnings assets.
The following table sets forth the weighted average effective interest rate
earned by First United on its loan and investment portfolios, the weighted
average effective cost of First United's deposits and borrowings, the interest
rate spread of First United and the net yield on weighted average interest-
earning assets of First United on its loan portfolio and investments for the
periods and as of the dates shown. Average balances are based substantially on
daily balances.
<TABLE>
<CAPTION>
AT YEAR ENDED JUNE 30
JUNE 30 -----------------------
1995 1995 1994 1993
--------------------------------
<S> <C> <C> <C> <C>
Weighted average effective
interest rate earned on:
Loan portfolio 8.03% 7.68% 7.26% 7.84%
Investment securities 6.00% 4.96% 4.08% 4.92%
Mortgage-backed securities 9.28% 9.01% 8.33% 8.24%
Other interest-earning assets 6.73% 5.46% 3.81% 4.67%
Total interest-earning assets 7.97% 7.56% 7.04% 7.63%
Weighted average effective
interest cost of:
Customer deposits 5.18% 4.66% 4.43% 5.15%
Federal Home Loan Bank advances 6.41% 6.17% 3.63% 3.46%
Total interest-costing liabilities 5.36% 4.95% 4.45% 5.14%
Interest rate spread (1) 2.61% 2.61% 2.59% 2.49%
Net yield on weighted average interest-earnings assets (2) N/A 2.92% 2.68% 2.52%
</TABLE>
(1) Interest rate spread is calculated by subtracting combined weighted average
effective cost from combined weighted average effective interest rate for the
period or at the date indicated.
(2) The net yield on weighted average interest-earning assets is calculated by
dividing net interest income by weighted average interest-earning assets for the
period included.
N/A No net yield figure is presented as of the report date because the
computation of net yield is applicable only over a period rather than at a
specific date.
-3-
<PAGE>
RATE/VOLUME ANALYSIS
The following table describes the extent to which changes in interest rates and
changes in volume of interest-related assets and liabilities have affected the
Bank's interest income and interest expense during the periods indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to (1) changes in rate (change
in rate multiplied by old volume), (2) changes in volume (change in volume
multiplied by old rate), and (3) changes in rate volume (change in rate
multiplied by the change in volume), which have been allocated to the change in
rate and the change in volume based upon their respective percentages of the
combined totals. During 1994 and 1993, the Bank capitalized $35,500 and $51,000
of interest expense, respectively, on the construction of the Shorewalk at Geist
condominium project. To facilitate comparability, the resulting decrease in
interest expense is not considered below.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1992 VS. 1993
INCREASE (DECREASE) DUE TO
---------------------------------------
RATE VOLUME TOTAL
---------------------------------------
<S> <C> <C> <C>
Interest income:
Loan portfolio $(1,490,801) $ 424,774 $(1,066,027)
Investment portfolio (43,148) (40,510) (83,658)
Mortgage-backed securities (8,727) (227,054) (235,781)
Other investments (61,925) (154,267) (216,192)
---------------------------------------
Total (1,604,601) 2,943 (1,601,658)
Interest expense on:
Deposits (1,427,225) (308,831) (1,736,056)
Borrowings (11,644) 78,030 66,386
---------------------------------------
Total (1,438,870) (230,800) (1,669,670)
---------------------------------------
Net change in net interest income before
provision for loan losses $ (165,732) $ 233,744 $ 68,012
=======================================
1993 VS. 1994
INCREASE (DECREASE) DUE TO
---------------------------------------
RATE VOLUME TOTAL
---------------------------------------
Interest income:
Loan portfolio $ (826,838) $ 393,992 $ (432,846)
Investment portfolio (35,694) (32,540) (68,234)
Mortgage-backed securities 167,620 (199,001) (31,381)
Other investments (40,927) 40,056 (871)
---------------------------------------
Total (735,839) 202,507 (533,332)
Interest expense on:
Deposits (854,678) (17,441) (872,119)
Borrowings 4,417 90,483 94,900
Total (850,261) 73,042 (777,219)
---------------------------------------
Net change in net interest income before provision
for loan losses $ 114,422 $ 129,465 $ 243,887
=======================================
1994 VS. 1995
INCREASE (DECREASE) DUE TO
---------------------------------------
RATE VOLUME TOTAL
---------------------------------------
Interest income:
Loan portfolio $ 649,384 $ 307,298 $ 956,682
Investment portfolio 32,295 (40,723) (8,428)
Mortgage-backed securities (58,020) (87,411) (145,431)
Other investments 77,847 (29,748) 48,099
---------------------------------------
Total 701,507 149,415 850,922
Interest expense on:
Deposits 865,257 (277,793) 587,464
Borrowings 176,595 246,154 422,749
---------------------------------------
Total 1,041,852 (31,639) 1,010,213
---------------------------------------
Net change in interest income before provision
for loan losses $ (340,345) $ 181,054 $ (159,291)
=======================================
</TABLE>
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
Net Interest Income
- -------------------
Interest and fees on loans increased $988,000 from that in 1994. The
fluctuation was caused by a rise in the weighted average loan portfolio yield of
.42%, and by an increase in the average daily balance of loans outstanding of
$4,227,000. The Bank experienced an increase in loan demand due to a
combination of factors including general economic growth in the Greencastle and
Bloomington markets, new single family housing in Greencastle, new multi-family
developments in Bloomington and the addition of outside loan originators in
Avon, Indiana. The investment portfolio decreased in order to fund the new loan
originations. Interest income on investments, mortgage-backed securities, and
other interest-bearing assets decreased $137,000 as a result of a .06% increase
in the weighted average yield offset by a decrease in the average daily balance
of $2,370,000. Total interest expense of the Bank increased $444,000 for 1995.
The average daily balance of customer deposits in 1995 was $6,033,000 lower than
in the prior year and the weighted average rate paid on deposits increased .52%.
The results of the above fluctuations was an increase in net interest income of
$407,000 from the previous year.
-4-
<PAGE>
Provision for Loan Losses
- -------------------------
The 1995 provision for loan losses of $746,000 includes an additional $500,000
to conform to Old National's assumptions and practices of dealing with problem
loans. Accordingly, the Bank determined to pursue a more aggressive approach to
resolve certain weaknesses in its loan portfolio. Management of the Bank decided
to take a liquidation approach in resolving certain weak credits, as opposed to
establishing a long-term workout of weak credits over a period of several years.
Although this liquidation approach has resulted in greater loan charge-offs
during the most recent fiscal year, the long-term effect should be positive,
with lower total losses being the result. This approach is consistent with the
policies and practices applied by ONB. In conjunction with this new approach and
in anticipation of implementing ONB's credit standards, management of the Bank,
with ONB's assistance, conducted an extensive evaluation of all credits,
regardless of size, to estimate losses inherent in the loan portfolio. The Bank
recorded charge-offs (net of recoveries) in 1995 totaling $125,000. In the prior
year, the provision for loan losses was $122,000 with net charge-offs of
$45,000.
Other Income
- ------------
Total noninterest income of the Bank increased $16,000 to $616,000 for 1995.
During the current year, the Bank sold loans in the secondary market totaling
$3,194,000 and realized net gains of $12,000 as compared to net gains in the
prior year of $78,000. The secondary market activity was not as favorable in
1995 as in 1994 due to fluctuations in the marketplace and the Bank sold fewer
loans in 1995 than in 1994 as the number of customers refinancing mortgage loans
with fixed-rate loans declined. The Bank actively manages a trading account
portfolio and realized net losses in 1995 of $36,000, as compared to $69,000 in
the prior year, on sales from the trading account as well as a mutual fund.
Other Expense
- -------------
Excluding Shorewalk charges, the Bank's other expenses increased $1,330,000 from
1994 partly from merger related expenses of $450,000 which are included in
miscellaneous expense in fiscal 1995. Also, during fiscal 1995, the Bank
incurred expenses in establishing a loan origination office in Avon, Indiana
which contributed to the overall increase in other expense.
During the fourth quarter of 1994, the Bank decided not to develop the final
phase of the Shorewalk project and reduced its carrying value in the project by
$2,463,000 to its estimated fair value based on an independent appraisal. In
the second quarter of fiscal 1995, the Bank recorded an additional charge of
$200,000 based on its internal review of the project. In the fourth quarter of
fiscal 1995, the Bank charged an additional $270,000 to expense in connection
with the sale of the project, on a contract basis, to a local developer.
The Bank changed from a single-employer pension plan to participation in a
multi-employer plan in 1994. As a result of this change in plans, the Bank was
able to reduce its accrued pension liability to its estimated unfunded accrued
liability which reduced other expense by approximately $152,000 in 1994. Annual
pension expense and additional, merger-related, pension costs increased the
Bank's pension expense by $204,000 in 1995. Increases in data processing costs
over 1994 of $45,000 and an increase in occupancy expense of $106,000 due to a
reduction in the value of a lease intangible asset also contributed to the
change in other expenses.
YEAR ENDED JUNE 30, 1994 COMPARED TO YEAR ENDED JUNE 30, 1993
Net Interest Income
- -------------------
Interest and fees on loans decreased $443,000 from that in 1993. The
fluctuation was caused by a decline in the weighted average loan portfolio yield
of .58% which was partially offset by an increase in the average daily balance
of loans outstanding of $5,194,000. Interest income on investments, mortgage-
backed securities, and other interest-bearing assets decreased $100,000 as a
result of a 1.04% decrease in the weighted average yield and a decrease in the
average daily balance of $1,725,000. Total interest expense of the Bank
decreased $762,000 for 1994. The average daily balance of customer deposits in
1994 was $340,000 lower than in the prior year and the weighted average rate
paid on deposits decreased .72%. In addition, the Bank capitalized $35,500 of
interest on the Shorewalk at Geist condominium project in 1994 as compared to
$51,000 in 1993. The results of the above fluctuations was an increase in net
interest income of $228,000 from the previous year. The Bank has historically
had a high percentage of its loan portfolio in adjustable rate single family
mortgage loans. Decreases in interest rates have therefore affected both the
loan and deposit rates quickly.
Provision for Loan Losses
- -------------------------
During fiscal 1994, the Bank recorded a provision for loan losses of $122,000
and recorded charge-offs (net of recoveries) totaling $45,000. In the prior
year, net charge-offs totaled $72,000 with a provision for loan losses of
$90,000.
Other Income
- ------------
Total noninterest income of the Bank increased $17,000 to $600,000 for 1994.
During the current year, the Bank sold loans in the secondary market totaling
$9,802,000 and realized net gains of $78,000 as compared to net gains in the
prior year of $122,000. The Bank actively manages a trading account portfolio
and realized net losses in 1994 of $69,000, as compared to $101,000 in the prior
year, on sales from the trading account as well as a mutual fund. Activity in
the secondary market for fixed-rate loans and in the market value of the Bank's
trading account securities led to offsetting fluctuations affecting other
income.
-5-
<PAGE>
Other Expense
- -------------
During the fourth quarter of fiscal 1994, the Bank decided not to develop the
final phase of the Shorewalk project and reduced its carrying value in the
project by $2,463,000 to its estimated fair value based on an independent
appraisal. Excluding that charge, the Bank's noninterest expense increased
$121,000. Also during the fourth quarter of fiscal 1994, the Bank reached an
agreement with the Homeowners Association at Shorewalk for $115,500 to settle
claims assessed in a previous year. This settlement was accrued and is included
in miscellaneous expenses in 1994.
Prior to 1994, the Bank's defined benefit pension plan was a single-employer
plan sponsored by First United. Effective July 1, 1993, the Bank elected to
participate in a multi-employer plan. As a result of this change in plans, the
Bank was able to reduce its accrued pension liability to its estimated unfunded
accrued liability which reduced other expenses by approximately $152,000 in
1994.
The Bank's federal deposit insurance premium in 1994 was $89,000 higher than in
1993 as a result of its secondary reserve credit recapture in the prior year.
The Bank also converted to a new service bureau for data processing services in
1994 which resulted in an increase in data processing costs of $36,000.
The following table sets forth, for the indicated periods, First United's return
on assets, return on equity, and equity-to-assets ratio:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
------------------------
<S> <C> <C> <C>
Return on assets (net income divided by average total
assets) (.48%) (.73%) .36%
Return on equity (net income divided by average
total equity) (7.30%) (9.16%) 4.50%
Equity-to-assets ratio (average equity divided by
average total assets) 6.56% 8.01% 7.98%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
First United's liquidity, represented by cash and cash equivalents, is a result
of its operating, investing, and financing activities. During the year ended
June 30, 1995, the Bank's liquidity increased $576,000. The major sources of
cash were from financing and operating activities which generated $11,106,000.
Operating activities including proceeds of $3,039,000 from the sale of trading
account assets provided $1,963,000 of cash and financing activities included
additional Federal Home Loan Bank advances of $10,000,000. The major uses of
cash during the year included an increase in total loans of $10,693,000.
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and regulatory capital regulations, at June 30, 1995, the Bank was
required to have (i) core capital equal to 3% of adjusted total assets, (ii)
tangible capital equal to 1.5% of adjusted total assets, and (iii) total capital
equal to 8% of risk-weighted assets. The Bank met the fully phased-in risk-
based capital requirement of 8% on July 1, 1995.
The OTS has adopted an interest rate risk component to its risk-based capital
requirements to be effective September 1, 1995. Under the new requirement, if a
Bank's market value of portfolio equity decreases by more than two per cent of
total assets from a 200 basis point change in interest rates, it is deemed to
have excessive interest rate risk. In such cases, the Bank will be required to
reduce its total capital by one half the amount by which the change exceeds two
per cent of total assets. Based on the calculations provided by the OTS, First
United would not be affected by this requirement if it were in effect as of
June 30, 1995.
At June 30, 1995, the Bank exceeded all current OTS regulatory capital
requirements as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Tangible capital 8,113 $6,518 4.7% of adjusted assets
Required tangible capital 2,094 1.5% of adjusted assets
------
Excess tangible capital 6,019 $4,424
======
Core capital 8,431 $6,836 4.9% 6.0 of adjusted assets
Required core capital 4,198 3.0% of adjusted assets
------
Excess core capital 4,233 $2,638
======
Risk-based capital 9,294 $7,699 9.4% 11.4 of risk-based assets
Required risk-based capital 6,527 8.0% of risk-based assets
------
Excess risk-based capital 2,767 $1,172
======
</TABLE>
IMPACT OF INFLATION
The consolidated financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles.
These principles require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation.
-6-
<PAGE>
The primary assets and liabilities of First United are monetary in nature. As a
result, interest rates have a more significant impact on First United's
performance than the effects of general levels of inflation. Interest rates,
however, do not necessarily move in the same direction or with the same
magnitude as the price of goods and services, since such prices are affected by
inflation. In a period of rapidly rising interest rates, the liquidity and
maturity structure of First United's assets and liabilities are critical to the
maintenance of acceptable performance levels. For a discussion of First
United's efforts to restructure its assets and to reduce its vulnerability to
changes in interest rates, see "Asset/Liability Management."
The principal effect of inflation, as distinct from levels of interest rates, on
the Bank's earnings is in the area of other expense. Such expense items as
salaries, employee benefits and occupancy costs may be subject to increases as a
result of inflation. An additional effect of inflation is the possible increase
in dollar value of the collateral securing loans made by the Bank. First United
is unable to determine the extent, if any, to which the properties securing its
loans have appreciated in dollar value due to inflation.
MARKET PRICE AND DIVIDENDS
First United converted from mutual to stock form effective March 27, 1987 (the
"Conversion"). First United's common stock, par value $.01 per share ("Common
Stock"), is quoted on the National Association of Securities Dealers Automated
Quotation system ("NASDAQ") under the symbol "FUSB".
For the past eight fiscal quarters, the high and low bid prices, as reported by
NASDAQ, were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
9/30/93 12/31/93 3/31/94 6/30/94
-----------------------------------------
<S> <C> <C> <C> <C>
High $ 15.75 $ 16.00 $ 14.50 $ 20.25
Low 14.75 14.50 13.75 14.00
9/30/94 12/31/94 3/31/95 6/30/95
-----------------------------------------
High $ 27.00 $ 27.50 $ 27.50 $ 26.75
Low 19.75 26.50 26.75 26.75
</TABLE>
Such over-the-counter quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions. As of June 30, 1995, there were approximately 375 shareholders of
record of the Bank's Common Stock.
The Bank does not have an established policy of paying regular dividends.
During 1994, the Bank paid dividends of $.12 per share in March and June.
First United may adopt a policy of paying additional dividends in the future,
subject to the limitations prescribed by the federal regulations discussed
below, when the board of Directors of the Bank deems it to be appropriate.
Adoption of such a policy will depend on First United's net earnings, financial
position and capital requirements as well as economic conditions and other
factors. Accordingly, no assurance can be given regarding the amount or timing
of future dividend payments, if any.
The Bank may not declare or pay a cash dividend or repurchase any of its capital
stock if the effect thereof would cause the net worth of the Bank to be reduced
below the amount required for the liquidation account. Additionally, dividends
are subject to OTS distribution regulations which limit the amount of cash
dividends which may be declared by savings associations based on capital levels.
-7-
<PAGE>
Consolidated Financial Statements
First United Savings Bank, fsb.
Years ended June 30, 1995 and 1994
with Report of Independent Auditors
<PAGE>
First United Savings Bank, fsb.
Consolidated Financial Statements
Years ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Report of Independent Auditors.............................................. 1
Consolidated Financial Statements
Consolidated Statements of Condition........................................ 2
Consolidated Statements of Income........................................... 3
Consolidated Statements of Stockholders' Equity............................. 4
Consolidated Statements of Cash Flows....................................... 5
Notes to Consolidated Financial Statements.................................. 6
</TABLE>
<PAGE>
Report of Independent Auditors
To the Stockholders and
Board of Directors
First United Savings Bank
We have audited the accompanying consolidated statements of condition of First
United Savings Bank, fsb. and subsidiaries as of June 30, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1995. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First United
Savings Bank, fsb. and subsidiaries at June 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
August 4, 1995
1
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Consolidated Statements of Condition
<TABLE>
<CAPTION>
JUNE 30
1995 1994
----------------------------
<S> <C> <C>
ASSETS
Cash $ 878,992 $ 756,129
Interest bearing deposits 5,614,245 5,161,337
Trading account assets (cost: 1995, $1,075,223;
1994, $2,599,040) 1,075,223 2,596,652
Investment securities (market value: 1995,
$1,260,748; 1994, $1,259,264) (Note 2) 1,255,064 1,255,071
Mortgage-backed securities (market value: 1995
$2,036,833; 1994, $2,320,984) (Note 2) 1,922,086 2,344,502
Stock in Federal Home Loan Bank of Indianapolis 1,075,400 1,040,200
Loans receivable, net (Note 3) 121,593,615 110,900,334
Direct investment in real estate 900,000 1,677,944
Premises and equipment (Note 4) 1,514,272 1,616,470
Other assets (Note 7) 6,210,813 6,354,997
----------------------------
$142,039,710 $133,703,636
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 5) $112,343,290 $113,248,577
Advance payments by borrowers for taxes and
insurance 351,494 667,005
Federal Home Loan Bank advances (Note 6) 19,000,000 9,000,000
Other liabilities 1,104,412 946,155
----------------------------
132,799,196 123,861,737
Stockholders' equity (Notes 7, 9, and 10)
Preferred Stock, $1 par value; authorized--
2,000,000 shares; none issued -- --
Common Stock, $.01 par value; authorized--
5,000,000 shares; outstanding:
1995, 545,750 shares;
1994, 542,300 shares 5,458 5,423
Additional paid-in capital 4,956,189 4,907,561
Retained earnings--substantially restricted 4,278,867 4,928,915
----------------------------
9,240,514 9,841,899
----------------------------
$142,039,710 $133,703,636
============================
</TABLE>
See accompanying notes.
2
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
-------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $8,950,258 $ 7,962,250 $8,395,096
Interest on investments 150,241 158,668 226,902
Interest on mortgage-backed securities 188,811 365,568 396,949
Other interest income 248,202 200,103 200,974
-------------------------------------------------
Total interest income 9,537,512 8,686,589 9,219,921
Interest expense:
Interest on deposits:
Passbook 493,786 528,778 436,893
MMDA and NOW 640,443 702,674 783,329
Certificates of deposit 4,122,490 4,003,874 4,871,723
-------------------------------------------------
5,256,719 5,235,326 6,091,945
Interest on Federal Home Loan Bank advances 601,698 178,949 84,049
-------------------------------------------------
Total interest expense 5,858,417 5,414,275 6,175,994
-------------------------------------------------
Net interest income 3,679,095 3,272,314 3,043,927
Provision for loan losses (Note 3) 745,774 121,614 89,674
-------------------------------------------------
Net interest income after provision for loan losses 2,933,321 3,150,700 2,954,253
Other income:
Customer fees and charges 212,230 191,514 181,485
Loss on sale of investments and trading account assets (35,733) (68,975) (100,780)
Gain on sale of loans 12,248 77,904 121,999
Insurance commissions 205,234 183,605 179,653
Increase in cash surrender value of life insurance policies 41,935 40,954 42,962
Miscellaneous 180,002 174,652 157,219
--------------------------------- -----------
Total other income 615,916 599,654 582,538
Other expense:
Salaries and employee benefits 1,447,926 1,104,905 1,228,478
Net occupancy expense 497,814 391,504 390,770
Federal insurance premium 276,177 267,574 178,500
Data processing 196,067 151,489 114,991
Provision for loss on direct investment in real estate 200,000 2,463,049 --
Miscellaneous 1,858,301 1,030,050 911,889
-------------------------------------------------
Total other expense 4,476,285 5,408,571 2,824,628
-------------------------------------------------
Income (loss) before income taxes (927,048) (1,658,217) 712,163
Income tax expense (credit) (Note 7) (277,000) (657,800) 228,500
-------------------------------------------------
Net income (loss) $ (650,048) $(1,000,417) $ 483,663
=================================================
Earnings (loss) per share $ (1.15) $ (1.84) $ .90
=================================================
</TABLE>
See accompanying notes.
3
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED TOTAL
COMMON PAID-IN RETAINED LOSS ON STOCKHOLDERS'
STOCK CAPITAL EARNINGS INVESTMENTS EQUITY
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1992 $5,391 $4,877,093 $ 5,684,280 $(43,567) $10,523,197
Net income for 1993 -- -- 483,663 -- 483,663
Dividends on Common Stock
($.20 per share) -- -- (108,459) -- (108,459)
Exercise of stock option 32 30,468 -- -- 30,500
Net decrease in reserve for
unrealized loss on investments -- -- -- 43,567 43,567
-------------------------------------------------------------------
BALANCE AT JUNE 30, 1993 5,423 4,907,561 6,059,484 -- 10,972,468
Net loss for 1994 -- -- (1,000,417) -- (1,000,417)
Dividends on Common Stock
($.24 per share) -- -- (130,152) -- (130,152)
-------------------------------------------------------------------
BALANCE AT JUNE 30, 1994 5,423 4,907,561 4,928,915 -- 9,841,899
Net loss for 1995 -- -- (650,048) -- (650,048)
Exercise of stock options 35 48,628 -- -- 48,663
-------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 $5,458 $4,956,189 $ 4,278,867 $ -- $ 9,240,514
===================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (650,048) $ (1,000,417) $ 483,663
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 745,774 121,614 89,674
Provisions for loss on direct investment in real estate
and investment securities 200,000 2,463,049 --
Depreciation and amortization 366,339 110,492 227,133
Deferred federal income taxes (223,000) (803,500) 160,000
Loss on sale of investment securities -- -- 62,961
Market value adjustment of trading account assets (2,388) 2,388 (26,686)
Loss on sale of trading account assets 38,121 66,587 64,505
Purchase of trading account assets (1,553,227) (11,628,068) (34,548,945)
Proceeds from sales of trading account assets 3,038,923 11,602,535 34,450,125
Loans originated for sale (3,182,072) (9,770,341) (5,168,992)
Proceeds from sales of loans 3,194,320 9,802,341 5,288,992
(Increase) decrease in other assets 148,007 631,839 (127,709)
Increase (decrease) in other liabilities (157,254) (2,275) 168,308
--------------------------------------------
Net cash provided (used) by operating activities 1,963,495 1,596,244 1,123,029
INVESTING ACTIVITIES:
Purchases of investment securities -- (89,285) (456,416)
Proceeds from maturities of investment securities -- 65,000 9,073
Proceeds from sales of investment securities -- 78,371 1,176,123
Principal collected on mortgage-backed securities 435,576 1,523,610 2,492,338
Purchase of stock in the Federal Home Loan Bank
of Indianapolis (35,200) (10,500) (32,900)
Principal collected on loans 28,326,497 27,258,042 25,963,650
Loans originated or purchased (41,468,372) (26,532,099) (36,444,121)
Direct investment in real estate additions (64,125) (1,389,700) (1,926,867)
Proceeds from sales of direct investment in real estate 500,219 1,055,394 2,780,787
Other investing activities 1,774,306 (152,036) 467,388
--------------------------------------------
Net cash provided (used) by investing activities (10,531,099) 1,806,797 (5,970,945)
FINANCING ACTIVITIES:
Net increase (decrease) in NOW, MMDA and passbook
deposits (8,750,390) 2,234,901 3,786,498
Net increase (decrease) in certificates of deposit 7,845,103 (5,888,438) (2,974,906)
Borrowings under Federal Home Loan Bank advances 58,500,000 33,500,000 22,100,000
Repayments of Federal Home Loan Bank advances (48,500,000) (33,600,000) (15,000,000)
Proceeds from issuance of stock 48,662 -- 30,500
Cash dividends -- (130,152) (108,459)
---------------------------------------------
Net cash provided (used) by financing activities 9,143,375 (3,883,689) 7,833,633
--------------------------------------------
Increase (decrease) in cash and cash equivalents 575,771 (480,648) 2,985,717
Cash and cash equivalents at beginning of year 5,917,466 6,398,114 3,412,397
---------------------------------------------
Cash and cash equivalents at end of year $ 6,493,237 $ 5,917,466 $ 6,398,114
============================================
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 5,827,510 $ 5,400,807 $ 6,195,743
Income taxes $ 31,701 $ 40,200 $ 41,000
</TABLE>
See accompanying notes.
5
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
MERGER AGREEMENT
Effective as of on September 24, 1994, First United Savings Bank entered into
the Amended and Restated Agreement of Affiliation and Merger with Old National
Bankcorp, Evansville, Indiana ("ONB"). It is expected that this merger will be
consummated by the end of 1995.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of First United
Savings Bank, fsb. ("the Bank") and its wholly owned subsidiaries, Greenmark,
Inc. and Kirkwood Service Corp., Inc. Corporation. All significant intercompany
balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and interest-bearing deposits.
Interest-bearing deposits are available on demand.
TRADING ACCOUNT ASSETS
Certain investments in mutual funds are held for trading purposes and are stated
at market value.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," effective for fiscal years beginning after December
15, 1993. Under the new rules, debt securities that the Bank has both the
positive intent and ability to hold to maturity are carried at amortized cost.
Debt securities that the Bank does not have the positive intent and ability to
hold to maturity and all marketable equity securities are to be classified as
available-for-sale or trading and carried at fair value. Unrealized holding
gains and losses on securities classified as available-for-sale are to be
carried as a separate component of shareholders' equity. Unrealized holding
gains and losses on securities classified as trading are reported in earnings.
6
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Presently, the Bank classifies its investment and mortgage-backed securities as
held-for-investment. Investment securities are stated at cost adjusted for
amortization of premium and accretion of discount, both of which are computed by
a method that approximates a level yield. Gains or losses on the sale of these
investments are based on the adjusted cost of the specific investment. The Bank
has the ability and intention to hold investment and mortgage-backed securities
to maturity and, therefore, such securities are carried at amortized cost. The
Bank first applied the new rules starting in the first quarter of fiscal 1995.
Application of the new rules did not have an impact on stockholders' equity as
of July 1, 1994.
STOCK IN FEDERAL HOME LOAN BANK OF INDIANAPOLIS
Stock in the Federal Home Loan Bank of Indianapolis is stated at cost. The
amount of stock held is determined by regulation.
LOANS RECEIVABLE
The Bank primarily originates adjustable rate loans and intends to hold such
loans for long-term investment. Accordingly, such loans are carried at cost.
Fixed rate loans originated are generally sold. Fixed rate loans held for sale,
which were immaterial at June 30, 1995 and 1994, are carried at the lower of
cost or market value.
The Bank has a first mortgage lien on all property on which mortgage,
participation or purchased loans are made. Further, a portion of certain
mortgage loan balances is insured by private or government guaranty insurance
policies. Interest income is computed based upon the daily principal balances of
loans outstanding.
REAL ESTATE OWNED AND IN JUDGMENT
Real estate owned and in judgment arises from loan foreclosure or deed in lieu
of foreclosure and is recorded at the lower of cost (the unpaid balance at the
date of acquisition plus foreclosure and other related costs) or fair value.
Subsequent to acquisition, an allowance is recorded for any excess of carrying
value over fair value minus estimated selling costs. Costs of improvements made
to facilitate sale are capitalized; costs of holding the property are charged to
expense.
7
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DIRECT INVESTMENT IN REAL ESTATE
The Bank acts as developer for a condominium project (i.e. Shorewalk at Geist)
in Indianapolis, Indiana which it acquired in connection with the acquisition of
Fountain Federal Savings and Loan Association of Bloomington, Indiana in 1988.
The Bank had an ownership interest in real estate associated with a second
condominium project in Indianapolis also acquired in connection with the merger
but sold this interest effective June 30, 1993. Construction and holding costs
have been capitalized and revenue received has been used to reduce the Bank's
basis in the projects. A valuation allowance of $625,000 was established during
1992. During the quarter ended June 30, 1994, the Bank decided not to develop
the final phase of the Shorewalk project and reduced its carrying value in the
project by $2,463,049 to its estimated fair value based on an independent
appraisal. During the quarter ended December 31, the Bank reduced Shorewalk's
carrying value by an additional $200,000. On June 30, 1995 the Bank sold
Shorewalk on contract to an independent third party for a purchase price of
$900,000. The contract requires payment, in advance, on lot by lot basis as the
purchaser commences development of each lot.
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is maintained at a level management believes
adequate to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on their evaluation of
the related assets, past experience and current economic and market conditions.
PREMISES AND EQUIPMENT
Premises and equipment is recorded on the basis of cost. Depreciation is
computed on the straight-line method over the estimated useful lives of the
related assets.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income for the period by the
weighted average number of shares outstanding.
8
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS
Investment securities consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1995
------------------------------------------
AMORTIZED GROSS UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------------------------------------
<S> <C> <C> <C> <C>
States and municipalities $ 164,485 $5,684 $ -- $ 170,169
Mutual funds 1,000,000 -- -- 1,000,000
Other 90,579 -- -- 90,579
------------------------------------------
$1,255,064 $5,684 $ -- $1,260,748
==========================================
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1994
------------------------------------------
AMORTIZED GROSS UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------------------------------------
<S> <C> <C> <C> <C>
States and municipalities $ 164,492 $4,193 $ -- $ 168,685
Mutual funds 1,000,000 -- -- 1,000,000
Other 90,579 -- -- 90,579
------------------------------------------
$1,255,071 $4,193 $ -- $1,259,264
==========================================
</TABLE>
The amortized cost and market value of investment securities at June 30, 1995,
by contractual maturity, are as follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
------------------------
<S> <C> <C>
Due within one year $ -- $ --
Due one to five years 114,485 117,034
Due after five years 50,000 53,135
No contractual maturity 1,090,579 1,090,579
------------------------
$1,255,064 $1,260,748
========================
</TABLE>
9
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
No realized gains or losses were realized during 1995 and 1994. Accrued
interest receivable on investment securities totaled approximately $3,800 and
$5,300 at June 30, 1995 and 1994, respectively and is included in other assets
in the consolidated statements of condition.
Gross unrealized gains and losses on mortgage-backed securities at June 30,
1995, were approximately $53,000 and $200, respectively. At June 30, 1994,
gross unrealized gains and losses on mortgage-backed securities were
approximately $248,000 and $1,600, respectively. No mortgage-backed securities
were sold during 1994. Accrued interest receivable on mortgage-backed
securities totaled approximately $24,800 and $27,700 at June 30, 1995 and 1994,
respectively, and is included in other assets in the consolidated statements of
condition.
3. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
JUNE 30
1995 1994
------------------------------
<S> <C> <C>
First mortgage loans $122,047,919 $109,976,922
Loans secured by deposit accounts 550,849 523,948
Home improvement loans 142,996 201,833
Education loans 335,089 358,826
Consumer loans 2,622,262 1,473,117
------------------------------
125,699,115 112,534,646
Deduct:
Undisbursed portion of loans in process (2,806,253) (973,344)
Unamortized net loan origination fees (436,247) (418,661)
Allowance for loan losses (863,000) (242,000)
Unearned discounts -- (307)
------------------------------
(4,105,500) (1,634,312)
------------------------------
$121,593,615 $110,900,334
==============================
</TABLE>
10
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. LOANS RECEIVABLE (CONTINUED)
The Bank had a loan servicing portfolio as of June 30, 1995, 1994 and 1993 of
$23,260,000, $23,130,000 and $22,105,000, respectively. In 1995, the Bank sold
fixed-rate loans totaling $3,182,072 resulting in a gain of $12,248.
Accrued interest on loans receivable was approximately $665,057 and $605,617 as
of June 30, 1995 and 1994, respectively, and is included in other assets in the
consolidated statements of condition.
As of June 30, 1995, there were outstanding commitments to originate loans of
$4,551,870 of which $1,567,077 are to bear fixed interest rates. In addition,
the Bank had commitments to fund customers' unused lines of credit of $2,815,839
as of June 30, 1995.
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
----------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 242,000 $165,000 $147,500
Provision for losses 745,774 121,614 89,674
Charge-offs (136,981) (48,894) (81,821)
Recoveries 12,207 4,280 9,647
----------------------------------
Balance, end of year $ 863,000 $242,000 $165,000
==================================
</TABLE>
The Bank's loan portfolio consists generally of loans to individuals and
businesses located in its central Indiana marketplace.
In May 1993, the Financial Accounting Standards Board issued Statement No. 114,
"Accounting by Creditors For Impairment of a Loan." The Bank plans to adopt
this standard on July 1, 1995 and does not expect the adoption to have a
material impact on financial position or results of operations.
11
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30
1995 1994
---------------------------
<S> <C> <C>
Land $ 398,717 $ 398,717
Office buildings 990,074 986,972
Furniture and equipment 852,695 814,992
Leasehold improvements 1,165,214 1,143,227
Automobiles 21,059 21,059
---------------------------
3,427,759 3,364,967
Less accumulated depreciation (1,913,487) (1,748,497)
---------------------------
$ 1,514,272 $ 1,616,470
===========================
</TABLE>
Depreciation expense for the years ended June 30, 1995, 1994 and 1993 was
approximately $164,200, $164,700, and $144,000, respectively.
5. DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
JUNE 30
1995 1994
------------------------------------------------------
AVERAGE AVERAGE
INTEREST INTEREST
Type AMOUNT RATE AMOUNT RATE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Passbook accounts $ 12,514,041 3.10% $ 16,551,882 3.11%
Money market deposit accounts
(MMDA) 8,421,393 3.53 10,838,593 2.83
Negotiable order of withdrawal
(NOW) accounts 12,171,469 2.17 14,476,731 2.63
Certificate accounts (original term):
12 months or less 29,481,237 5.69 28,846,590 3.68
13 - 24 months 3,771,314 5.75 2,533,330 4.19
25 - 36 months 20,758,377 6.22 11,093,176 5.12
37 - 48 months 1,462,018 5.71 2,826,538 6.98
49 months or more 8,970,991 7.49 10,309,036 8.17
Individual retirement accounts 14,650,406 6.65 15,545,388 7.06
Discount on certificates acquired
through merger 142,044 227,313
-------------- ---------------
79,236,386 71,381,371
-------------- ---------------
$112,343,290 5.22% $113,248,577 4.48%
======================================================
</TABLE>
12
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. DEPOSITS (CONTINUED)
The average interest rates represent the weighted average interest rate in
effect at the end of the period. Accrued interest payable, which relates
primarily to certificate accounts, totaled approximately $91,000 and $80,000 at
June 30, 1995 and 1994, respectively, and is included in other liabilities in
the consolidated statements of condition. As of June 30, 1995, the Bank held
$17,344,000 of deposits of $100,000 or more.
6. FEDERAL HOME LOAN BANK ADVANCES
The Bank utilized variable rate Federal Home Loan Bank advances at various
periods throughout the year. Advances outstanding as of June 30, 1995 are due in
the first quarter of fiscal 1995, and the interest rate adjusts daily (6.79% at
June 30, 1995). The advances are secured by approximately $32,300,000 of first
mortgage loans.
In addition, the Bank has a $500,000 line of credit with the Federal Home Loan
Bank of Indianapolis which is secured by first mortgage loans. As of June 30,
1995, no amounts were outstanding under this line of credit.
7. INCOME TAXES
The Bank has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income a provision for bad debts which differs
from the provisions for such losses recognized in the consolidated statements of
operations. Accordingly, retained earnings at June 30, 1994 includes income of
approximately $3,448,000, (approximately $1,172,000 of unrecognized deferred tax
liability) for which no provision for federal income taxes has been made. If,
in the future, this portion of retained earnings is used for any purpose other
than to absorb bad debt losses, federal income taxes will be imposed at the then
applicable rates.
13
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
The provision for income taxes (credit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
------------------------------------
<S> <C> <C> <C>
Federal:
Current $ -- $ -- $ 5,000
Current tax expense offset by utilization
of tax operating loss carryforwards -- 301,000 --
Deferred (223,000) (803,500) 160,000
------------------------------------
(223,000) (502,500) 165,000
State (54,000) (155,300) 63,500
------------------------------------
$(277,000) $(657,800) $228,500
====================================
</TABLE>
A reconciliation of federal income tax expense in the statements of income with
the amounts computed by applying the statutory federal income tax rate to income
before federal income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
------------------------------------
<S> <C> <C> <C>
Federal income taxes computed at the
statutory rate of 34% $(315,196) $(563,794) $242,135
Add (deduct) the tax effect of:
State taxes 18,446 52,802 (21,590)
Nontaxable interest (11,812) (15,718) (24,634)
Nontaxable purchase accounting
adjustments (32,522) (56,612) (32,624)
Expiration of net operating loss
carryforward -- 70,497 --
Nondeductible merger costs 117,037 -- --
Other 1,047 10,325 1,713
------------------------------------
92,196 61,294 (77,135)
------------------------------------
Federal income taxes (credit) $(223,000) $(502,500) $165,000
====================================
</TABLE>
14
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
The components of the Bank's net deferred tax asset included in other assets in
the consolidated statement of condition are as follows:
<TABLE>
<CAPTION>
JUNE 30
1995 1994
--------------------------
<S> <C> <C>
Deferred tax assets:
Tax operating loss carryforwards $2,038,185 $ 827,168
Reserves for direct investments in real estate -- 1,278,421
Deferred loan fees 185,405 177,931
Allowances for loan losses 293,420 82,280
Deferred compensation 114,294 98,313
Other 122,894 32,763
--------------------------
2,754,198 2,496,876
Deferred tax liabilities:
Depreciation 208,030 192,860
Cash surrender value of life insurance 184,924 167,102
Percentage bad debt deduction 13,054 13,054
Other 23,460 22,445
--------------------------
429,468 395,461
==========================
$2,324,730 $2,101,415
==========================
</TABLE>
The principal sources of federal deferred tax expense (credit) include:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
Depreciation $ 12,136 $ 4,350 $ (17,461)
Deferred loan fees and costs (5,979) (4,926) (22,724)
Gain (loss) on sale of investments -- -- 62,372
Realization of (provisions for) loss on
direct investment in real estate and
investment securities 1,022,737 (827,237) 591,413
Tax operating loss (970,233) -- (483,413)
Provision for loan losses (211,140) (26,106) (5,950)
Other (70,521) 50,419 35,763
----------------------------------------
$ (223,000) $ (803,500) $ 160,000
========================================
</TABLE>
15
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
The Bank obtained tax operating loss carryforwards from the acquisition of a
savings institution in 1988 and recognized tax operating losses for 1993 and
1995. The remaining tax loss carryforwards at June 30, 1995 of approximately
$5,286,000 expire as follows: 2002-$344,000; 2003-$598,000; 2004-$11,000; 2005-
$9,000; 2008-$1,471,000, and 2010-$2,853,000
8. EMPLOYEE BENEFIT PLANS
The Bank has a defined benefit pension plan covering substantially all of its
employees. Prior to July 1, 1993, these benefits were provided under a separate
plan sponsored by the Bank. Effective July 1, 1993, the Bank elected to
participate in Pentegra, formerly known as the Financial Institutions Retirement
Fund, a multi-employer, industry-sponsored plan. Benefits are based on years of
service and the employee's compensation during employment. The Bank transferred
plan assets to Pentegra and Pentegra assumed plan benefit obligations. The
excess of the benefit obligations assumed by Pentegra over the fair value of the
assets transferred represents an unfunded accrued liability which is to be
funded by the Bank, in addition to normal service cost contributions, over a 15
year period through 2009. At June 30, 1995 and 1994, respectively, the
estimated unfunded accrued liability was approximately $82,500 and $63,000.
Pension expense for 1995 was approximately $102,000. Information regarding the
Bank's portion of Pentegra plan assets and accumulated plan benefits is not
available. According to Pentegra, plan assets exceeded vested benefits as of
July 1, 1994, the date of the most recent actuarial valuation.
In addition to providing pension benefits, the Bank adopted two supplemental
benefit plans during 1987 - one for those employees who have completed ten years
of service to the Bank and another for the Bank's directors. Under these plans,
the participants shall receive additional retirement benefits for the ten years
following retirement (generally age 65). During 1994, the Bank adopted
changes to the plans thereby making them defined contribution plans. The cost
of the benefit was recognized as the required contributions were made.
Previously, the cost of these benefits was being recognized generally over the
remaining years of service to the Bank of each participant utilizing the
"projected unit credit" actuarial method. The Bank recognized expense of
$67,000, $52,000 and $32,000 in 1995, 1994 and 1993, respectively.
16
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. STOCKHOLDERS' EQUITY
In 1986, the Board of Directors adopted a Plan of Conversion to convert the Bank
from a mutual to a stock institution. At the time of the conversion, a
liquidation account was established in an amount equal to the Bank's net worth
as reflected in the latest statement of condition used in its final conversion
offering circular. The liquidation account is maintained for the benefit of
eligible deposit account holders who maintain their deposit accounts in the Bank
after conversion. In the event of a complete liquidation (and only in such
event), each eligible deposit account holder will be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current adjusted subaccount balance for deposit accounts then held, before any
liquidation distribution may be made to stockholders. Except for the repurchase
of stock and payment of dividends, the existence of the liquidation account will
not restrict the use or application of net worth. The initial balance of the
liquidation account was $5,267,293.
The Bank may not declare or pay a cash dividend or repurchase any of its capital
stock if the effect thereof would cause the net worth of the Bank to be reduced
below the amount required for the liquidation account. In addition, the Bank
may not declare a dividend in excess of net earnings for the calendar year to
date plus one-half of the amount by which regulatory capital exceeds the fully
phased-in capital requirements imposed by the Office of Thrift Supervision
(OTS).
The Bank is required, pursuant to OTS regulations, to meet various minimum
capital requirements. Following is a reconciliation of net worth, as determined
under generally accepted accounting principles (GAAP net worth), to core
capital, tangible capital and risk-based capital and a comparison of the
respective capital amounts to the minimum balances, and percentages of
regulatory defined assets, required by the OTS at June 30, 1995 (in thousands):
17
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
ACTUAL REQUIRED
$ % $ % EXCESS
-------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GAAP net worth $9,241
Less non-qualifying deferred tax asset
810 2,405
--------
Core capital 6.0
8,431 6,836 4.9% $4,198 3.0% $2,638 4,233
=============================
Less intangibles 318
--------
Tangible capital 5.8
8,113 $6,518 4.7% $2,094 1.5% $4,424 6,019
=====================================
Core capital 8,431 $6,836
Unallocated reserves 863
Less 60% of equity risk investment
--
Risk-based capital 11.4
9,294 $7,699 9.4% $6,527 8.0% $1,172 2,767
=====================================
</TABLE>
10. STOCK COMPENSATION PLANS
The Board of Directors of the Bank adopted a stock option plan in connection
with the conversion in 1986 from a mutual to a stock institution. Effective
with the stock conversion, the Board of Directors granted to key officers and
directors options to purchase 21,500 shares of Common Stock at the conversion
price of $10 per share. Options granted have terms of ten years (12,000 shares)
and ten years and one day (9,500 shares) and are exercisable six months after
the date of grant. Additional grants of options have been made to employees
since 1986. The plan also provides for each outside director to receive an
additional option to purchase 200 shares of common stock each year at the date
of the annual meeting.
18
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. STOCK COMPENSATION PLANS (CONTINUED)
Options outstanding are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------
<S> <C> <C> <C>
Options outstanding at beginning of year 39,900 25,100 24,900
New options granted -- 14,800 3,600
Options exercised (3,450) -- (3,200)
Options terminated due to retirement -- -- (200)
-------------------------
Options outstanding at end of year 36,450 39,900 25,100
=========================
</TABLE>
As of June 30, 1995, total shares which may be purchased under the plans equals
36,450 with option prices ranging from $5.50 to $16.00.
The Bank also has an Employee Stock Ownership Plan in which substantially all
employees participate. Contributions to this plan are in amounts determined by
the Bank's Board of Directors and were $34,000, $42,000 and $32,000 for the
fiscal years ended June 30, 1995, 1994 and 1993, respectively.
Capital stock reserved for issuance under the above stock plans totaled 79,000
shares at June 30, 1995.
11. LEASES
The Bank leases certain properties used in its operation, including main office
space in Bloomington. The approximate minimum rental commitments for operating
leases, including a renegotiated lease effective July 1, 1995, are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30
--------------------------------------------------------------
<S> <C>
1996 $ 119,572
1997 116,122
1998 106,522
1999 104,872
2000 and thereafter 1,782,584
------------
$2,229,672
============
</TABLE>
19
<PAGE>
First United Savings Bank, fsb. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. LOANS TO RELATED PARTIES
Certain directors and officers of the Bank were loan customers in the ordinary
course of business during 1995 and 1994. The aggregate dollar amount of these
loans was $449,000 and $547,000 on June 30, 1995 and 1994, respectively.
During 1995, $22,000 of new loans were made and repayments totaled $120,000.
All of the loans were made on substantially the same terms, including interest
rate and collateral, as those prevailing at the time for comparable transactions
with unrelated parties.
During 1991, the Bank received a grant from the Federal Home Loan Bank of
Indianapolis, under the Affordable Housing Program, to be used to support below
market financing for twenty rental units to be developed for low-income and/or
disabled families. The Bank originated $415,000 and $85,000 in loans during
1995 and 1994, respectively, to Opportunity Housing, Inc. of Putnam County, a
not-for-profit agency that builds and rents such low-income housing. The
proceeds from the grant are being used to subsidize loans granted to the agency.
Certain officers of the Bank are also directors of Opportunity Housing, Inc.
13. LITIGATION
The Bank is subject to certain legal proceedings and claims which have arisen in
connection with a customer's investment held by the Bank. The liability, if
any, associated with these matters is not determinable at June 30, 1995. It is
the opinion of management that the ultimate resolution of these matters will not
have a materially adverse effect on the Bank's financial position.
20
<PAGE>
FIRST UNITED SAVINGS BANK
BOARD OF DIRECTORS
GARY R. PERSHING, CHAIRMAN OF THE BOARD
WILLIAM M. MARLEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER
HAROLD A. HARRELL
JOHN W. BENDER
EARL E. CLODFELTER
ALAN G. STANLEY
<PAGE>
FIRST UNITED SAVINGS BANK
OFFICERS AND MANAGEMENT
WILLIAM M. MARLEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ALAN B. CHANDLER, SENIOR VICE PRESIDENT
DONNA L. BOUSLOG, SENIOR VICE PRESIDENT, OPERATIONS AND SECRETARY
JACK D. DECKARD, VICE PRESIDENT, LOANS, BLOOMINGTON DIVISION
JOVITA S. VANDERSNICK, VICE PRESIDENT, LOANS, GREENCASTLE DIVISION
EDWARD R. TRUAX, ASSISTANT VICE PRESIDENT
KEN W. RITCHIE, BRANCH MANAGER AND ASSISTANT LOAN OFFICER
MELANIE C. SHELDON, ACCOUNTING SPECIALIST
FRED R. OGAN, LOAN SERVICING MANAGER
ROSE ADA WOOD, BOOKKEEPER
<PAGE>
SHAREHOLDER INFORMATION
NOTICE OF ANNUAL MEETING
Tuesday, October 31, 1995
2:00 P.M.
DePauw University Memorial Student Union Building, Room 221
408 South Locust Street
Greencastle, Indiana 46135
Upon written request, First United Savings Bank, f.s.b. will provide, without
charge, to each stockholder a copy of its Annual Report and Form 10-K required
to be filed with the Office of Thrift Supervision.
Send your request to:
First United Savings Bank
One North Locust Street
Greencastle, Indiana 46135
Telephone: 317-653-9793
General Counsel:
Barnes and Thornburg
Indianapolis, Indiana
Auditors:
Ernst & Young, LLP
Transfer Agent and Registrar:
Bank One
111 Monument Circle
Indianapolis, Indiana 46277
First United's Common Stock is traded on the NASDAQ under the trading symbol
FUSB.
Member:
Federal Home Loan Bank System
Federal Deposit Insurance Corporation
United States League of Savings Institutions
Indiana League of Savings Institutions
<PAGE>
PART I
ITEM 1. BUSINESS.
- ------ --------
GENERAL
- -------
First United Savings Bank, f.s.b. ("First United"), was organized on
September 17, 1911, as an Indiana savings institution, became a federal savings
and loan association in 1966, in 1984 became a federal mutual savings bank, and
became a federal stock savings bank on March 27, 1987. First United has its
main office in Greencastle, Indiana with two full-service branches in
Bloomington, Indiana. First United's customers also have access to the Magic
Line(R) and Cirrus System(R) automated teller machine networks in Indiana and
nationwide.
The principal business of First United is to attract deposits from the
general public and to originate mortgage loans (secured primarily by
residential, but also by commercial real estate), and secured and unsecured
consumer loans (including home improvement loans, loans on savings accounts,
automobile loans and student loans). Insurance sales are made by First United's
service corporation, Greenmark, Inc. d/b/a Greenmark Insurance Agency, Inc.
("Greenmark"). Discount brokerage services are provided by arrangement with
BSLA Securities, Inc., a registered broker-dealer and an affiliate of The
Illinois Company, Inc. Monroe Financial Corporation, a full service investment
brokerage firm in Bloomington ("Monroe") leases space in the lobby of First
United's Fountain Square branch. Investment brokerage services are provided to
First United's customers by Monroe. First United concentrates its business
activities in Putnam and Monroe Counties, Indiana, and counties adjacent
thereto.
Effective as of September 29, 1994, First United entered into an Agreement
of Affiliation and Merger (as amended and restated, the "Agreement") with Old
National Bancorp ("Old National"), pursuant to which a federally chartered
interim savings bank and wholly-owned subsidiary of Old National will be merged
with and into First United (the "Merger"). First United will be the surviving
corporation in the Merger and will continue its corporate existence under the
laws of the United States of America. Following the Merger, First United will
operate as a wholly-owned subsidiary of Old National.
In connection with the Merger, each issued and outstanding share of First
United common stock will be converted into the right to receive 0.8925 shares of
Old National common stock, subject to certain adjustments more particularly
described in the Agreement. The annual meeting of First United's shareholders
will be scheduled for a date within the next few weeks for the purpose of voting
on the Merger.
First United's main office is located at One North Locust Street,
Greencastle, Indiana 46135. Its telephone number is (317) 653-9793.
<PAGE>
LENDING ACTIVITIES
- ------------------
General. First United has been writing what are in effect adjustable rate
mortgages since 1967. Until the passage of the Depository Institutions
Deregulation and Monetary Control Act of 1980 (the "Deregulation Act") and the
Garn-St. Germain Depository Institutions Act of 1982 (the "Garn Act"), savings
institutions were not permitted to vary the monthly payments made by mortgagors.
However, they were permitted to keep the monthly payments constant and, with
increases in market interest rates, increase interest rates payable on the
mortgage loans and extend the term of the mortgages up to a 30-year maximum
term. A savings institution writing such mortgage loans with adjustable
interest rates and extendable terms could thereby effectively increase interest
rates payable on mortgages as a result of increases in market interest rates.
Because First United typically originated mortgages for maximum terms of 20
years, it was able to originate mortgages which carried variable interest rates
but provided for constant monthly payments. This origination of mortgages with
variable interest rate terms enabled First United to weather the high interest
rate environment of the late 70's and early 80's more favorably than many of its
peers, and to achieve the favorable ratio of equity to total assets during these
years. At June 30, 1995, First United's equity to assets ratio was 6.5%. First
United's capital ratio has exceeded 7.0% every year for more than 25 years; and,
it consistently has been well above required regulatory levels.
The adoption of the broader lending powers for savings institutions in the
Deregulation Act and the Garn Act did, however, permit First United to
introduce, beginning in 1981, conventional adjustable rate mortgages with
variable monthly payments and new shorter-term consumer and commercial loan
products bearing higher interest rates, and to attract longer-term deposits by
offering 5-year and 7-year certificates of deposit and individual retirement
accounts. At June 30, 1995, approximately 80% of First United's mortgages were
adjustable rate mortgages, and approximately 2.9% of its loans were non-mortgage
loans.
Residential Mortgage Loans. Most of First United's lending activity
involves the origination of loans secured by one-to four-family residential
properties. First United also makes residential mortgage loans secured by
multi-family dwelling units and apartment complexes, but commitments for such
loans generally must be approved in advance by First United's Board of
Directors. The residential mortgage loans included in First United's portfolio
are primarily conventional loans which are not insured by the Federal Housing
Administration ("FHA") or guaranteed by the Veteran's Administration ("VA"). As
of June 30, 1995, $114 million, or 91% of First United's total loan portfolio
consisted of residential mortgage loans, $101 million (or 81% of that total loan
portfolio) of which were secured by single family homes.
Most of the residential mortgage loans currently being originated by First
United are adjustable rate loans, although subject to market conditions and
consumer demand, First United does write fixed-rate residential mortgage loans.
The rates offered on First United's adjustable-rate residential mortgage loans
("ARMs") are generally competitive with the rates offered by other savings
institutions and banks which compete with it in and around Putnam County and
Monroe County. Substantially all of First United's adjustable rate mortgages
written since 1981 have interest rates which adjust (up or down) annually with a
maximum change of 1 or 2% per year and 5% or 6% over the life of the loan. The
adjustment is based upon an index established at the time the loan is closed by
First United. The index which has been used by First United for one-year ARMs
since 1984 is the one-year Treasury Bill constant-maturity yield index. The
Bank uses the three-year Treasury Bill constant-maturity yield index for
three-year ARMs.
The residential mortgage loans are written for amortization terms up to 30
years. However, experience during recent years has indicated that, because of
prepayments in connection with refinancings and sales of properties, residential
mortgage loans generally remain outstanding for a substantially shorter period
of time than the maturity terms of the loan contracts.
-2-
<PAGE>
Substantially all of First United's residential mortgages include "due on
sale" clauses, which are provisions giving First United the right to declare a
loan immediately due and payable in the event that, among other things, the
borrower sells or otherwise disposes of the real property subject to the
mortgage and the loan is not repaid. First United actively utilizes the due on
sale clause as a means of increasing the rate of interest on existing lower rate
loans by negotiating new interest rates and terms at the time of sale with the
mortgagor.
First United will lend up to 95% of the lower of current cost or appraised
value of a residential property, and mortgage insurance is required by First
United on all loans with loan-to-value ratios over 80%. First United also
offers 100% financing on loans guaranteed by the Farmer's Home Adminstration
("FmHA") as a part of a first time home buyer's program. Private mortgage
insurance may be released by First United when a loan is paid down to 80% of
value if payments have been made in full and on time for a period of 12 months
for fixed rate loans and 24 months for adjustable rate loans.
Commercial Mortgage Loans. At June 30, 1995, 4.4% of First United's total
loan portfolio consisted of mortgage loans secured by commercial real estate.
These properties consist primarily of strip shopping centers, churches and
nursing homes. Commercial mortgage loans are written for amortization terms of
up to 20 years, and, when originated by First United, are normally adjustable
rate mortgages. As of June 30, 1995, approximately 85% of First United's
commercial mortgage portfolio consisted of adjustable rate mortgages, none of
which at June 30, 1995 had caps below the current adjustable mortgage rate of
interest. Commitments for these loans must be approved in advance by First
United's Board of Directors. The loan-to-value ratio of commercial real estate
is generally 75% or less. First United had no non-mortgage commercial loans
outstanding as of June 30, 1995.
Generally, commercial mortgage loans involve greater risk to First United
than do residential loans. Commercial mortgage loans typically involve large
loan balances to single borrowers or groups of related borrowers. In addition,
the payment experience on loans secured by income-producing properties is
typically dependent on the successful operation of the related project and thus
may be subject to a great extent to adverse conditions in the real estate market
or in the economy generally. As of June 30, 1995, First United had two
commercial loan customers with an aggregate balance of $457,000 which were more
than 90 days past due.
Mortgage Loans On Property Under Construction. First United offers
conventional short-term construction loans, and also offers commitments for
residential and commercial mortgage loans on property under construction which
permit disbursement of funds during the construction phase. These loans are
offered with respect to owner-occupied residential or commercial property. At
June 30, 1995, approximately 1.2% of First United's total mortgage loan
portfolio consisted of mortgage loans on property under construction. None of
these loans was more than 90 days past due.
Loans on Unimproved Land and Farm Loans. First United also makes some
mortgage loans on lots in platted subdivisions up to 85% of the lesser of the
purchase price or appraised value. Such loans are set with payments amortized
over 10 to 30 years (depending on lot price) and a two year balloon payment.
First United's farm loans or loans on homes with acreage may not exceed 70%
of the appraised value of the land. These loans are generally written for terms
up to 25 years at rates in excess of the prevailing adjustable mortgage rate.
At June 30, 1995, $1,728,000, or approximately 1.4%, of First United's loan
portfolio consisted of farm loans or other loans on unimproved acreage. As of
that date, none of these loans were more than 90 days past due.
-3-
<PAGE>
Consumer Loans. In 1981, First United began to make secured and unsecured
consumer loans including home equity loans (i.e., loans secured by the equity in
the borrower's residence, but not for the purpose of improvement), automobile,
boat and mobile home loans, and unsecured consumer loans including education
loans. Prior to 1981, First United had been writing home improvement loans and
loans secured by savings account deposits, and continues to do so. At June 30,
1995, approximately 2.9% of First United's loan portfolio consisted of consumer
loans.
Federal laws and regulations permit federally chartered savings
institutions to make secured and unsecured consumer loans in an aggregate amount
of up to 35% of the institution's total assets. In addition, a federally
chartered savings institution has lending authority above the 35% limit for
certain consumer loans, such as property improvement loans and deposit account
secured loans. However, the Qualified Thrift Lender test may restrict thrifts
from making consumer loans. See "Regulation -- Qualified Thrift Lender."
Home equity loans and other loans secured by residences may not exceed 80%
of the current appraised value of the property without requiring private
mortgage insurance. These home equity loans generally bear annual rates 2%
above First United's current prime rate and will fluctuate with that rate.
Terms range up to 15 years.
Home improvement loans up to $5,000 generally have terms no greater than
five years. Loans over $5,000 may have terms of up to 10 years. These loans
may not exceed 90% of the appraised value of the home minus outstanding liens,
or, in any event, $15,000. Home improvement loans over $5,000 must be secured
by a second mortgage. Prior to approval of the loan, the borrower must provide
a copy of the bid for the construction work by a designated contractor. If the
borrower is performing the work himself, the loan can be made for costs of
materials only. Loan funds may be disbursed as work progresses and bills are
received.
Loans secured by savings account deposits may be made up to 90% of the
pledged savings collateral at a rate 2.0% above the rate of the pledged savings
account, but in no event less than First United's highest certificate rate. The
loan rate will be adjusted as the rate for the pledged savings account changes.
Education loans are processed and guaranteed by the United Student Aid
Funds ("USA Funds") according to the guidelines and standards of the Indiana
Education Loan Program. The reinsurance trigger default rate for the fiscal
year ended September 30, 1994 was 3.86% and 2.99% for USA Funds and First
United, respectively. Guaranteed student loans are sold to the Indiana
Secondary Market for Education Loans prior to repayment. Guaranteed education
loans to parents are held by First United throughout repayment for a maximum
term of 10 years.
Automobile and boat loans are made for up to five years. Recreational
vehicle loans are made for up to six years.
Unsecured signature loans are made by First United for $1,000 - $10,000, at
maximum terms of 36 months.
As of June 30, 1995, consumer loans greater than 90 days past due totaled
$5,000.
Loan Portfolio Data. The following two tables set forth the composition of
First United's loan portfolio by loan type and security type as of the dates
indicated. The third table represents a reconciliation of gross loans
receivable after consideration of undisbursed portions of loans in process,
allowance for loan losses, unearned discounts on loans, and reserves for
uncollected interest.
-4-
<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30,
----------------------------------------------------------------------
1995 1994 1993
---------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
TYPE OF LOAN
First mortgage loans:
Residential loans................ $114,306,599 90.93% $101,932,709 90.57% $102,526,495 90.52%
Commercial loans................. 5,575,230 4.44 5,710,322 5.07 5,608,726 4.95
Farm loans and loans on
unimproved acreage.............. 1,727,922 1.37 1,740,526 1.55 1,827,557 1.61
Loans to facilitate
(real estate contracts)......... 438,170 0.35 593,365 0.53 575,813 0.51
Consumer loans.................... 2,622,260 2.09 1,473,117 1.31 1,697,993 1.50
Loans on savings accounts......... 550,849 0.44 523,948 0.47 469,814 0.41
Home improvement loans............ 142,996 0.11 201,833 0.18 319,846 0.28
Education loans................... 335,089 0.27 358,826 0.32 244,582 0.22
------------ ------ ------------ ------ ------------ ------
Gross loans receivable........... $125,699,115 100.00% $112,534,646 100.00% $113,270,826 100.00%
============ ====== ============ ====== ============ ======
TYPE OF SECURITY
Secured:
Single family.................... $101,253,634 80.55% $ 90,484,927 80.40% $ 91,986,720 81.21%
2-4 units........................ 2,591,738 2.06 2,757,577 2.45 2,602,435 2.30
Over 4 units..................... 11,042,393 8.78 9,485,403 8.43 8,832,999 7.80
Agricultural real estate......... 1,727,922 1.37 1,740,526 1.55 1,827,557 1.61
Commercial (1)................... 5,575,230 4.44 5,710,322 5.07 5,608,726 4.95
Savings accounts................. 550,849 0.44 523,948 0.47 469,814 0.41
Guaranteed student............... 335,089 0.27 358,826 0.32 244,582 0.22
Motor vehicles................... 1,629,290 1.30 1,054,221 0.94 1,073,693 0.95
Unsecured: Personal............... 992,970 0.79 418,896 0.37 624,300 0.55
------------ ------ ------------ ------ ------------ ------
Gross loans receivable........... $125,699,115 100.00% $112,534,646 100.00% $113,270,826 100.00%
============ ====== ============ ====== ============ ======
LOANS RECEIVABLE-NET
Gross loans receivable............ $125,699,115 103.38% $112,534,646 101.48% $113,270,826 101.35%
Deduct:
- -------
Undisbursed portions of loans
in process....................... 2,806,253 (2.31) 973,344 (0.88) 927,020 (0.83)
Unamortized net loan
origination fees................. 436,247 (0.36) 418,661 (0.38) 404,173 (0.36)
Allowance for loan losses......... 863,000 (0.71) 242,000 (0.22) 165,000 (0.15)
Unearned discounts................ 0 0.00 307 0.00 9,197 (0.01)
Reserve for capitalized interest.. 0 0.00 0 0.00 0 0.00
------------ ------ ------------ ------ ------------ ------
Net loans receivable............ $121,593,615 100.00% $110,900,334 100.00% $111,765,436 100.00%
============ ====== ============ ====== ============ ======
</TABLE>
- ----------------
(1) Includes loans for strip shopping centers, churches, nursing homes and
other non-residential properties.
-5-
<PAGE>
As of June 30, 1995, contractual maturities of fixed rate and variable rate
loans due after one year were $22,535,000 and $89,612,000, respectively. The
following table sets forth the amount of principal maturities contractually due
during the fiscal years indicated by type of loan.
<TABLE>
<CAPTION>
COMMERCIAL
FINANCIAL
MORTGAGE CONSTRUCTION AGRICULTURAL INSTALLMENT TOTAL
-------- ------------ ------------ ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED
JUNE 30,
1996........ $ 8,445 $1,461 $-- $ 881 $ 10,787
1997........ 5,758 -- -- 964 6,722
1998........ 4,935 -- -- 1,056 5,991
1999-2000... 11,044 -- -- 532 11,576
2001-2005... 29,822 -- -- 213 30,035
2006-2010... 29,130 -- -- -- 29,130
After 2011.. 31,458 -- -- -- 31,458
-------- ------ --- ------ --------
Total....... $120,592 $1,461 $-- $3,646 $125,699
======== ====== === ====== ========
</TABLE>
Origination of Loans. First United originates residential loans in
conformity with standard underwriting criteria of the Federal Home Loan Mortgage
Corporation ("FHLMC") and the Federal National Mortgage Association ("FNMA") to
assure maximum eligibility for possible resale in the secondary market.
Although First United currently has authority to lend anywhere in the United
States, it has confined its loan origination activities primarily to the Monroe
and Putnam County areas in Indiana.
First United's loan originations are generated primarily from referrals
from real estate brokers, builders, and existing customers, newspaper, radio and
periodical advertising and walk-in customers.
First United's loan approval depends on the borrower's ability to repay the
loan and the adequacy of the value of the property that will secure the loan.
First United has loan committees which must approve all loans. First United has
a separate loan committee for each market area. The Greencastle loan committee
currently consists of William M. Marley, Donna L. Bouslog, Jovita S. VanDerSnick
and Edward R. Truax. Mr. Marley, Alan B. Chandler and Jack D. Deckard make up
the Bloomington area loan committee. The Board of Directors on a monthly basis
reviews all loan commitments to determine if they comply with First United's
established policies. Moreover, First United's Board of Directors generally
approves in advance commitments for over four-family unit loans and commercial
loans.
First United studies the employment and credit history and information on
the historical and projected income and expenses of its individual and corporate
mortgagors to assess their ability to repay their mortgage loans. It uses
independent qualified appraisers to appraise the property securing its loans and
requires a title opinion, abstract or title insurance on real property securing
its mortgages. Since December 31, 1992, appraisals on real estate underlying
most real estate loans in excess of $100,000 are performed by either
state-certified or state-licensed appraisers depending on the type and size of
the loan. First United requires fire and extended coverage insurance in
amounts at least equal to the principal amount of the loan. It may also
require flood insurance to protect the property securing its interest.
Borrowers on loans with loan-to-value rates of over 80% must make monthly
payments to an escrow account from which First United makes disbursements for
taxes and insurance, and borrowers on other real estate loans have the option to
utilize this escrow procedure.
-6-
<PAGE>
The procedure for approval of loans on property under construction is the
same as for residential mortgage loans, except that the appraisal obtained
evaluates the building plans, construction specifications and estimates of
construction costs. First United also evaluates the feasibility of the
construction project and the experience and track record of the builder or
developer.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
As of June 30, 1995, First United had $3.4 million of loans purchased and
$23.3 million of loans sold. These loans consisted primarily of owner-occupied,
single-family residences in the Midwest.
The following table shows mortgage loan origination and repayment activity
for First United during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Gross loans receivable
at beginning of period..... $112,534,646 $113,270,826 $102,955,935
Loans originated:
First mortgage loans:
Single family............. 33,694,392 31,186,042 37,844,720
Multi-family.............. 4,872,435 1,458,000 400,000
Commercial................ 2,305,362 1,558,995 768,592
Farm...................... 80,000 100,000 787,975
------------ ------------ ------------
Total.................... 40,952,189 34,303,037 39,801,287
Consumer loans............. 3,167,124 1,530,999 1,347,474
Loans on savings accounts.. 531,131 450,983 297,930
Home improvement loans..... -- 17,421 166,422
------------ ------------ ------------
Total loans originated.... 44,650,444 36,302,440 41,613,113
Loan repayments and
other deductions........... 28,291,655 27,236,279 26,009,230
Proceeds from sales of
loans...................... 3,194,320 9,802,341 5,288,992
------------ ------------ ------------
Gross loans receivable
at end of period........... $125,699,115 $112,534,646 $113,270,826
============ ============ ============
</TABLE>
Under federal law, a savings association generally may not make any loan to
a borrower or its related entities if the total of all such loans by the savings
association exceeds 15% of its capital (plus up to an additional 10% of capital
in the case of loans fully collateralized by readily marketable collateral);
provided, however, that loans up to $500,000 irrespective of the percentage
limitations may be made and certain housing development loans of up to $30
million or 30% of capital, whichever is less, are permitted with prior approval
of the Office of Thrift Supervision ("OTS"). The maximum amount which First
United could have loaned to one borrower and the borrower's related entities at
June 30, 1995 under the capital limitations described above was $1.5 million.
At that date, the highest outstanding balance of loans by First United to one
borrower and related entities was approximately $2.5 million. Because the funds
were advanced prior to the enactment of the current law, the loans to this
borrower are not in violation of the limits described above.
Under current law, a thrift's portfolio of commercial real estate loans is
limited to 400% of its capital. Also, the Qualified Thrift Lender test limits
the amount of commercial real estate loans made by thrifts. See "Regulation --
Qualified Thrift Lender." First United currently complies with this commercial
real estate loan limitation, and neither this limitation nor the Qualified
Thrift Lender test limits in any significant manner the ability of First United
to make commercial real estate loans in its market areas. At
-7-
<PAGE>
June 30, 1995, First United's highest outstanding balance of commercial
mortgages was $2.5 million on an apartment complex in Bloomington.
Interest Rates, Commitment and Other Fees. First United earns interest
income from its lending activities. Interest rates charged on First United's
loans are affected primarily by market and general economic conditions and such
other factors as monetary policies of the federal government, including the
Board of Governors of the Federal Reserve System ("FRB"), the general supply of
money in the economy, legislative tax policies, governmental budgetary matters
and First United's cost of funds.
First United also earns income from fees for commitments to originate
loans, late charges, application fees, checking account fees and fees for other
miscellaneous services, including its discount brokerage services and tax
deferred annuity sales.
Income from loan origination and commitment fees and other fees are
volatile sources of income varying with the volume and type of loans and
commitments made and purchased and with competitive and economic conditions.
The following table sets forth loan fees and loan fees as a percentage of
loans originated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Loan fees recorded
in income............. $143,258 $129,183 $115,537
Loan fees recorded in
income as a % of
loans originated...... .31% .36% .28%
</TABLE>
NON-PERFORMING ASSETS
- ---------------------
Any borrower whose payment for a given month is not received by First
United by the 10th of the following month will receive a late notice. Late
payment fees are assessed by First United if a payment is not received by the
25th of the month following the month in which the payment was due.
Any borrower who is two months delinquent is contacted by the assigned loan
officer at First United. A borrower who is three months delinquent receives a
foreclosure warning. Foreclosure proceedings may be initiated on any loan which
is four months delinquent. In certain cases, First United will also consider
accepting from the mortgagor a voluntary deed to the mortgaged premises in lieu
of foreclosure. If foreclosed, the property will be sold at public sale, and
usually is purchased by First United subject to redemption rights of the
borrower. On loans secured by property in Indiana, all redemption rights must
be exercised by the borrower prior to public sale.
First United has acquired certain real estate in lieu of foreclosure by
acquiring title to the real estate and then reselling it on contract to the
original borrower or to third parties. As of June 30, 1995, it held $438,000 of
such real estate being sold on contract.
In addition, at June 30, 1995, First United held no real estate acquired as
a result of foreclosure. Such property is bid for at a sheriff's sale for an
amount not to exceed the amount of the unpaid principal balance of the loan on
the property, attorneys' fees, and other miscellaneous charges.
-8-
<PAGE>
Real estate acquired by First United as a result of foreclosure or by deed
in lieu of foreclosure is classified as "real estate owned" until it is sold.
When property is so acquired, it is recorded at the lower of carrying or fair
market value less estimated selling costs at the date of acquisition and any
writedown resulting therefrom is charged to the allowance for loan losses.
Interest accrual ceases on the date of acquisition and all costs incurred from
that date in maintaining the property are expensed.
Consumer loan borrowers who fail to make payments are contacted to cure the
delinquency and in most cases the delinquency is quickly corrected. Delinquency
notices are sent after a loan is 10 days past due and direct contact is made
before the payment is 30 days past due. If after 90 days the delinquency is not
corrected or arrangements to correct the deficiency are not made, then First
United initiates action to obtain the collateral or collect the debt through the
remedies available. Collateral obtained as a result of loan default is retained
by First United as an asset until sold or otherwise disposed.
The table below sets forth the amounts and categories of First United's
non-performing assets (non-accrual loans, loans past due 90 days or more, and
real estate owned) for the last five years. It is the policy of First United
that all earned but uncollected interest on conventional loans be reviewed
monthly to determine if any portion thereof should be classified as
uncollectible for any portion that is due but uncollected for a period in excess
of 90 days. This determination is based upon factors such as the amount
outstanding of the loan as a percentage of the appraised value of the property
and the delinquency record of the borrower.
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-performing Assets:
Loans:
Non-accrual........................ $ 111 $ -- $ -- $ -- $ --
Past due 90 days or more........... 740 617 400 474 748
----- ----- ----- ----- -----
Total non-performing loans....... 851 617 400 474 748
Real estate owned(1)................ -- -- 4 75 90
----- ----- ----- ----- -----
Total non-performing assets(2)... $ 851 $ 617 $ 404 $ 549 $ 838
===== ===== ===== ===== =====
Non-performing assets to
total assets....................... .60% .46% .29% .42% .61%
Non-performing loans to total
loans and contracts................ .69% .55% .36% .46% .72%
- ---------
</TABLE>
(1) Refers to real estate acquired by First United through foreclosure or
voluntary deed.
(2) At June 30, 1995, 45.8% of First United's non-performing assets consisted of
residential mortgage loans, 53.6% consisted of commercial real estate loans,
and 0.6% consisted of consumer loans.
At June 30, 1995, First United knew of no loans not included above (current
or 30 or 60 days past due) for which the borrowers were experiencing financial
difficulties.
First United has a policy of helping delinquent borrowers work through
their difficulties. Although this has led to higher than otherwise anticipated
nonperforming assets, the losses from this policy have not been excessive. In
fact, First United believes that it is in its best interest to work with its
borrowers to help them, if possible, regain the ability to make payments on
their loans.
Allowance for Loan Losses. The allowance for loan losses represents
amounts available to absorb future loan losses. Such allowance is based on
management's periodic review of the loan portfolio, historical charge-offs and
current economic conditions. Provisions for loan losses are charged to earnings
to bring the allowance to a level considered necessary by management. Loans or
portions thereof are charged to the allowance when losses are considered
probable. During 1995, loans totaling $125,000 were
-9-
<PAGE>
written off (net of $12,000 of recoveries) with $746,000 charged to current
earnings to adjust the allowance for possible losses on loans to $863,000 as of
June 30, 1995. Management believes that this allowance for loan losses is
adequate to absorb anticipated future loan losses.
INVESTMENTS
- -----------
Interest and other income on investments provide First United with its
second largest source of income after interest on loans, constituting 8.95%,
8.34% and 6.16% of total interest income in fiscal years 1993, 1994 and 1995,
respectively. First United's investment portfolio is currently managed by
William M. Marley, President of First United, under guidelines established by
the Board of Directors.
First United invests in various types of liquid assets, including
short-term United States Treasury obligations and securities of various federal
agencies, certificates of deposit at insured savings institutions and banks,
bankers' acceptances, federal funds, life insurance policies, mortgage-backed
securities, and mutual funds which offer investments permissible for First
United.
First United has an investment in a mutual fund that invests primarily in
U.S. Treasury notes and U.S. Government agency obligations. The fund in which
First United has invested to date hold securities which vary in maturity from 1
month to 30 years and provides an interest rate of 5.89% per annum as of
June 30, 1995.
The OTS requires a savings association to maintain an average daily balance
of liquid assets (cash, certain time deposits, bankers' acceptances, specified
United States government, state or federal agency obligations, corporate debt
securities, commercial paper, certain mutual funds, certain mortgage related
securities, and certain first lien residential mortgage loans) equal to a
monthly average of not less than a specified percentage of its net withdrawable
savings deposits plus short-term borrowings. The liquidity requirement may be
changed from time to time by the OTS to any amount within the range of up to 4%
to 10%, and is currently 5%. Monetary penalties may be imposed for failure to
meet the liquidity requirements. At June 30, 1995, First United had liquid
assets of $9.1 million and a liquidity ratio of 7.18%, which exceeded its
liquidity requirement.
DIRECT INVESTMENT IN REAL ESTATE
- --------------------------------
In its merger with Fountain Federal Savings Bank, which was consummated on
December 31, 1988 (the "Fountain Federal Merger"), First United acquired two
real estate projects. One West Condominiums (86th and Meridian Streets in
Indianapolis) is a twelve-unit development which is completed. During 1993,
First United disposed of its remaining interest in the project by selling the
land to the homeowners' association. First United financed this sale.
Shorewalk at Geist is a condominium development at Geist Reservoir in
Indianapolis with approximately 200 units. During the fourth quarter of fiscal
1994, the Bank decided not to develop the final phase of the Shorewalk project
and reduced its carrying value in the project by $2,463,000 to its estimated
fair value based on an independent appraisal. In the second quarter of fiscal
1995, the Bank recorded an additional charge of $200,000 based on its internal
review of the project. In the fourth quarter of fiscal 1995, the Bank charged
an additional $270,000 to expense in connection with the sale of the project, on
a contract basis, to a local developer.
-10-
<PAGE>
SOURCES OF FUNDS
- ----------------
General. Deposits have traditionally been the primary source of funds of
First United for use in lending and investment activities. In addition to
deposits, First United derives funds from loan amortization, prepayments,
borrowings from the Federal Home Loan Bank ("FHLB") of Indianapolis and income
on earning assets. While loan amortization and income on earning assets are
relatively stable sources of funds, deposit inflows and outflows can vary widely
and are influenced by prevailing interest rates, money market conditions and
levels of competition. Borrowings may be used to compensate for reductions in
deposits or deposit inflows at less than projected levels and may be used on a
longer-term basis to support expanded activities.
Deposits. Consumer and commercial deposits are attracted principally from
within First United's primary market areas through the offering of a broad
selection of deposit instruments including consumer and commercial demand
deposit accounts, NOW and super NOW accounts, money market accounts, passbook
accounts, checking accounts, term certificates of deposit, and individual
retirement and Keogh accounts. First United has no brokered deposits and does
not actively solicit or advertise for deposits outside of Putnam and Monroe
Counties, Indiana and contiguous counties. Deposit account terms vary with the
principal differences being the minimum balance required, the amount of time the
funds remain on deposit and the interest rate.
Under regulations adopted by the Federal Deposit Insurance Corporation
("FDIC"), well capitalized insured depository institutions (those with a ratio
of total capital to risk-weighted assets of not less than 10%, with a ratio of
core capital to risk-weighted assets of not less than 6%, with a ratio of core
capital to total assets of not less than 5% and which have not been notified
that they are in troubled condition) may accept brokered deposits without
limitations. Undercapitalized institutions (those that fail to meet minimum
regulatory capital requirements) are prohibited from accepting brokered
deposits. Adequately capitalized institutions (those that are neither well-
capitalized nor undercapitalized) are prohibited from accepting brokered
deposits unless they first obtain a waiver from the FDIC. Under these
standards, First United would be a well-capitalized institution.
An undercapitalized institution may not solicit deposits by offering rates
of interest that are significantly higher than the prevailing rates of interest
on insured deposits (i) in such institution's normal market areas; or (ii) in
the market area in which such deposits would otherwise be accepted.
Adequately capitalized institutions, whether or not they accept brokered
deposits pursuant to a waiver from the FDIC, are prohibited from paying a rate
of interest on such funds which, at the time such funds are accepted,
significantly exceeds (i) the rate paid on deposits of similar maturity in such
institution's normal market area for deposits accepted in the institution's
normal market area; or (ii) the "national rate" paid on deposits of comparable
maturity for deposits accepted outside the institution's normal market area.
The national rate is (i) 120 percent of the current yield on similar maturity
U.S. Treasury obligations, or (ii) in the case of any deposit at least half of
which is uninsured (institutional or wholesale deposits), 130 percent of such
applicable yield. A rate is deemed to be "significantly" higher or excessive if
it exceeds by more than 75 basis points the applicable benchmark (i.e., the
local rate or national rate).
-11-
<PAGE>
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by First United on a periodic basis. Determination of rates and
terms are predicated on funds acquisition and liquidity requirements, rates paid
by competitors, growth goals and federal regulations.
Deposit accounts at First United at June 30, 1995, were as follows:
<TABLE>
<CAPTION>
COMPOSITION OF DEPOSIT ACCOUNTS
WEIGHTED
MINIMUM PERCENTAGE AVERAGE
OPENING AMOUNT OF TOTAL NOMINAL
TYPE OF ACCOUNT BALANCE (IN THOUSANDS) ACCOUNTS RATE
--------------- ------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Withdrawable Accounts:
Passbook Accounts.............. $ 10 $ 12,514 11.14% 3.10%
Money Market
Deposit Accounts............. Various 8,421 7.50 3.53
Negotiable Order of
Withdrawal (NOW)
Accounts..................... Various 12,172 10.83 2.17
Total withdrawable -------- ------
accounts.................... 33,107 29.47 2.86
Certificate accounts
(original term):
12 months or less.............. $1,000 29,481 26.24 5.69
13-24 months................... 500 3,771 3.35 5.75
25-36 months................... 500 20,758 18.48 6.22
37-48 months................... 500 1,462 1.30 5.71
49 months or more.............. 500 8,971 7.99 7.49
Individual retirement
accounts..................... Various 14,651 13.04 6.65
Discount on certificates
acquired through merger...... 142 .13 --
-------- ------
Total certificate accounts.. 79,236 70.53 6.20
-------- ------
Total deposits.............. $112,343 100.00% 5.22%
======== ======
</TABLE>
The following table sets forth by nominal interest rate categories the
composition of certificates of deposits of First United at the dates indicated:
<TABLE>
<CAPTION>
AT JUNE 30,
--------------
1995 1994
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
2.00% - 3.00%..................................... $ -- $ 1,810
3.01% - 4.00%..................................... 1,787 20,783
4.01% - 5.00%..................................... 16,272 23,253
5.01% - 6.00%..................................... 22,190 7,002
6.01% - 7.00%..................................... 29,668 2,365
7.01% - 8.00%..................................... 4,372 3,953
8.01% - 9.00%..................................... 3,069 5,674
9.01% - 10.00%.................................... 620 726
10.01% - 11.00%................................... 1,112 1,431
11.01% - 12.00%................................... 4 4,157
Discount on certificates acquired through merger.. 142 227
------- -------
Total........................................ $79,236 $71,381
======= =======
</TABLE>
-12-
<PAGE>
The following table represents, by various interest rate categories, the
amounts of deposits maturing during each of the three years following June 30,
1995, and the percentage of such maturities to total deposits. Matured
certificates which have not been renewed as of June 30, 1995, have been
allocated based upon certain rollover assumptions.
DEPOSIT MATURITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2.00 3.01 4.01 5.01 6.01 7.01 8.01 9.01 10.01 11.01 PERCENT
TO TO TO TO TO TO TO TO TO TO OF
3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 11.00% 12.00% TOTAL TOTAL
----- ------ ------- ------- ------- ------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts
maturing in the twelve-month
period ending:
June 30, 1996.............. $ -- $1,045 $ 8,480 $13,471 $17,711 $3,006 $2,215 $ 484 $1,112 $ -- $47,524 60.08%
June 30, 1997.............. -- 151 2,638 3,579 2,731 337 110 -- -- -- 9,546 12.07
June 30, 1998.............. -- 540 4,766 3,448 7,571 745 107 -- -- -- 17,177 21.72
Thereafter................. -- 51 388 1,692 1,655 284 637 136 4 -- 4,847 6.13
----- ------ ------- ------- ------- ------ ------ ------ ------ ------ ------- ------
$ -- $1,787 $16,272 $22,190 $29,668 $4,372 $3,069 $ 620 $1,116 $ -- $79,094 100.00%
===== ====== ======= ======= ======= ====== ====== ====== ====== ====== ======= ======
</TABLE>
Included in the deposit totals in the above table are savings certificates
of deposit with balances of over $100,000. The majority of these deposits are
from regular customers of First United. None of these were brokered deposits.
The following table provides a breakdown at June 30, 1995 of certificates of
greater than $100,000 by maturity.
ACCOUNTS GREATER THAN $100,000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2.00 3.01 4.01 5.01 6.01 7.01 8.01 9.01 10.01 11.01 PERCENT
TO TO TO TO TO TO TO TO TO TO OF
3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 11.00 12.00% TOTAL TOTAL
----- ------ ------ ----- ------ ----- ----- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts maturing in
the twelve-month period ending:
June 30, 1996..................... $ -- $ -- $1,571 $ 349 $6,918 $ -- $ -- $ -- $ 350 $ -- $ 9,188 72.93%
June 30, 1997..................... -- -- 494 -- 309 -- -- -- -- -- 803 6.39
June 30, 1998..................... -- -- 100 529 506 919 101 -- -- -- 2,155 17.10
Thereafter........................ -- -- -- 115 131 -- 205 -- -- -- 451 3.58
----- ----- ------ ----- ------ ----- ----- ------ ------ ------ ------- ------
$ -- $ -- $2,165 $ 993 $7,864 $ 919 $ 306 $ -- $ 350 $ -- $12,597 100.00%
===== ===== ====== ===== ====== ===== ===== ====== ====== ====== ======= ======
</TABLE>
-13-
<PAGE>
The following table sets forth the change in dollar amount of deposits in the
various accounts offered by First United for the periods indicated.
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
(DOLLARS IN THOUSANDS)
BALANCE BALANCE
BALANCE AT AT
JUNE 30, % OF INCREASE JUNE 30, % OF INCREASE JUNE 30, % OF
1995 DEPOSITS (DECREASE) 1994 DEPOSITS (DECREASE) 1993 DEPOSITS
-------- --------- ---------- -------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Withdrawable Accounts:
Passbook.............................. $ 12,514 11.14% $(4,038) $ 16,552 14.62% $ 2,361 $ 14,191 12.14%
Money Market
deposit accounts..................... 8,421 7.50 (2,418) 10,839 9.57 (709) 11,548 9.88
Negotiable order of withdrawal
(NOW) accounts....................... 12,172 10.83 (2,305) 14,477 12.78 584 13,893 11.88
-------- ------ ------- -------- ------ ------- -------- ------
Total withdrawable accounts......... 33,107 29.47% (8,761) 41,868 36.97 2,236 39,632 33.90
Certificate accounts (original term):
12 months or less..................... 29,481 26.24 634 28,847 25.47 1,680 27,167 23.24
13 to 24 months....................... 3,771 3.35 1,238 2,533 2.23 (356) 2,889 2.47
25 to 36 months....................... 20,758 18.48 9,665 11,093 9.80 (4,801) 15,894 13.59
37 to 48 months....................... 1,462 1.30 (1,365) 2,827 2.50 (1,144) 3,971 3.40
49 months or more..................... 8,971 7.99 (1,338) 10,309 9.10 (1,251) 11,560 9.89
Individual retirement accounts........ 14,651 13.04 (894) 15,545 13.73 81 15,464 13.23
Discounts on certificates acquired
through merger....................... 142 0.13 (85) 227 .20 (98) 325 .28
-------- ------ ------- -------- ------ ------- -------- ------
Total certificate accounts.......... 79,236 70.53% 7,855 71,381 63.03 (5,889) 77,270 66.10
-------- ------ ------- -------- ------ ------- -------- ------
Total deposits.................... $112,343 100.00% $ (906) $113,249 100.00% $(3,653) $116,902 100.00%
======== ====== ======= ======== ====== ======= ======== ======
</TABLE>
-14-
<PAGE>
Borrowings. As a member of the FHLB System and the FHLB of Indianapolis,
First United is eligible to arrange borrowings or advances for various purposes
and on various terms. This facility has been First United's major source of
borrowings. First United utilized variable rate advances throughout fiscal
1995. As of June 30, 1995, First United had an advance outstanding of $19.0
million which was secured by first mortgage loans. First United also has a
$500,000 line of credit available through the FHLB of Indianapolis.
Advances from the FHLB of Indianapolis are typically secured by First
United's stock in the FHLB of Indianapolis and a portion of First United's first
mortgage loans. Current law now requires that advances must be fully secured
with certain low-risk assets such as first mortgages on residential properties
or marketable federal agency securities. Also, long-term advances must be for
the purpose of providing funds for residential housing finance. See "Regulation
- -- Federal Home Loan Bank System."
Each FHLB credit program has its own interest rate, which may be fixed or
variable, and range of maturities. Subject to the express limitations in
current law, the FHLB of Indianapolis may prescribe the acceptable uses to which
these advances may be put, as well as limitations on the size of the advances
and repayment provisions. Under current law, thrifts which are not Qualified
Thrift Lenders are not eligible for advances from their Federal Home Loan Bank.
See "Regulation -- Federal Home Loan Bank System." Under current law, a
Qualified Thrift Lender is an institution which has at least 65% of its tangible
assets, including investments made by a subsidiary of such institution, invested
in loans, equity positions, or securities related to domestic or residential
real estate or manufactured housing and property used by the institution in the
conduct of its business or to facilitate certain acquisitions and mergers. See
"Regulation -- Qualified Thrift Lender." These limitations are not expected to
have any impact on First United's ability to borrow from the FHLB of
Indianapolis because First United is a Qualified Thrift Lender under both
standards.
SERVICE CORPORATION SUBSIDIARIES
- --------------------------------
OTS regulations permit federal savings banks to invest in the capital
stock, obligations, or other specified types of securities of subsidiaries
(referred to as "service corporations") and to make loans to such subsidiaries
and joint ventures in which such subsidiaries are participants in an aggregate
amount not exceeding 2% of an association's assets, plus an additional 1% of
assets if the amount over 2% is used for specified community or inner-city
development purposes. In addition, federal regulations permit associations to
make specified types of loans to such subsidiaries (other than special-purpose
finance subsidiaries), in which the association owns more than 10% of the stock,
in an aggregate amount not exceeding 50% of the association's regulatory capital
if the association's regulatory capital is in compliance with applicable
regulations. Also, current law requires a thrift which acquires a non-thrift
subsidiary, or which elects to conduct a new activity within a subsidiary, to
give the FDIC and the OTS at least thirty (30) days advance written notice. The
FDIC may, after consultation with the OTS, prohibit specific activities if it
determines such activities pose a serious threat to the deposit insurance funds
for thrifts.
First United operates a wholly-owned Indiana service corporation subsidiary
called Greenmark, Inc., d/b/a Greenmark Insurance Agency, Inc., which was formed
on August 2, 1984 ("Greenmark"). Greenmark markets property, casualty, life and
crop insurance on behalf of several insurance carriers. Greenmark also offers
tax deferred annuities. The consolidated statements of operations of First
United and its subsidiary included elsewhere herein include the operations of
Greenmark. Significant intercompany balances and transactions have been
eliminated in the consolidation. To date, operations of Greenmark, while
profitable, have not had a material effect on First United's results of
operations or financial condition. Also, as part of the Fountain Federal
Merger, First United acquired a dormant service corporation.
-15-
<PAGE>
EMPLOYEES
- ---------
As of June 30, 1995, First United employed 41 persons on a full-time basis
and 5 persons on a part-time basis. None of these employees is covered by a
collective bargaining agreement, and First United has enjoyed harmonious
relations with its personnel.
REGULATION
- ----------
General
-------
First United, as a federally chartered stock savings bank, is a member of
the Federal Home Loan Bank System ("FHLB System") and its deposits are insured
by the Savings Association Insurance Fund (the "SAIF") which is administered by
the FDIC. First United is subject to extensive regulation by the OTS. Federal
associations may not enter into certain transactions unless certain regulatory
tests are met or they obtain prior governmental approval and the associations
must file reports with the OTS about their activities and their financial
condition. Periodic examinations of First United are conducted by the OTS which
has, in conjunction with the FDIC in certain situations, examination and
enforcement powers. This supervision and regulation are intended primarily for
the protection of depositors and federal deposit insurance funds. First United
is also subject to certain reserve requirements under regulations of the Board
of Governors of the Federal Reserve System ("FRB").
Congress is considering legislation that would consolidate the supervision
and regulation of all U.S. financial institutions in one administrative body
(the "Legislation"). It cannot be predicted with certainty whether or when the
Legislation will be enacted or the extent to which First United would be
affected thereby.
An OTS regulation establishes a schedule for the assessment of fees upon
all savings associations to fund the operations of the OTS. The regulation also
establishes a schedule of fees for the various types of applications and filings
made by savings associations with the OTS. The general assessment, to be paid
on a semiannual basis, is based upon the savings association's total assets,
including consolidated subsidiaries, as reported in a recent quarterly thrift
financial report. Currently, the assessment rates range from .0172761% of
assets for associations with assets of $67 million or less to .0045864% for
associations with assets in excess of $35 billion. First United's current
semiannual assessment, based upon total assets at March 31, 1995, is $20,900.
Federal Home Loan Bank System
-----------------------------
First United is a member of the FHLB System, which consists of 12 regional
banks. The Federal Housing Finance Board ("FHFB"), an independent agency,
controls the FHLB System including the FHLB of Indianapolis. The FHLB System
provides a central credit facility primarily for member savings associations and
other member financial institutions. First United is required to hold shares of
capital stock in the FHLB of Indianapolis in an amount at least equal to the
greater of 1% of the aggregate principal amount of its unpaid residential
mortgage loans, home purchase contracts and similar obligations at the end of
each calendar year, .3% of its assets or 1/20 (or such greater fraction
established by the FHLB) of outstanding FHLB advances, commitments, lines of
credit and letters of credit. First United is currently in compliance with this
requirement. At June 30, 1995, First United's investment in stock of the FHLB
of Indianapolis was $1,075,400.
In past years, First United received dividends on its FHLB stock. All 12
FHLB's are required to provide funds for the resolution of troubled savings
associations and to establish affordable housing programs through direct loans
or interest subsidies on advances to members to be used for lending at
subsidized interest rates for low- and moderate-income, owner-occupied housing
projects, affordable rental housing,
-16-
<PAGE>
and certain other community projects. These contributions and obligations could
adversely affect the FHLB's ability to pay dividends and the value of FHLB stock
in the future. For the year ending June 30, 1995, dividends paid to First United
by the FHLB of Indianapolis totaled $75,000, for an annual rate of 7.07%.
The FHLB of Indianapolis serves as a reserve or central bank for member
institutions within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
advances to members in accordance with policies and procedures established by
the FHLB and the Board of Directors of the FHLB of Indianapolis.
All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. FIRREA prescribes eligible collateral as first mortgage
loans less than 90 days delinquent or securities evidencing interests therein,
securities (including mortgage-backed securities) issued, insured or guaranteed
by the federal government or any agency thereof, FHLB deposits and, to a limited
extent, real estate with readily ascertainable value in which a perfected
security interest may be obtained. Other forms of collateral may be accepted as
over collateralization or, under certain circumstances, to renew advances
outstanding on the date of enactment of FIRREA. All long-term advances are
required to provide funds for residential home financing and the FHLB has
established standards of community service that members must meet to maintain
access to long-term advances.
Interest rates charged for advances vary depending upon maturity, the cost
of funds to the FHLB of Indianapolis and the purpose of the borrowing. Under
current law, savings associations which cease to be Qualified Thrift Lenders are
ineligible to receive advances from their FHLB.
Liquidity
---------
For each calendar month, First United is required to maintain an average
daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances, specified United States Government, state or federal agency
obligations, shares of certain mutual funds and certain corporate debt
securities and commercial paper) equal to an amount not less than a specified
percentage of its net withdrawable deposit accounts plus short-term borrowings
during the preceding calendar month. This liquidity requirement may be changed
from time to time by the OTS to any amount within the range of 4% to 10%
depending upon economic conditions and the savings flows of member institutions,
and is currently 5%. OTS regulations also require each member savings
institution to maintain an average daily balance of short-term liquid assets at
a specified percentage (currently 1%) of the total of its net withdrawable
deposit accounts and short-term borrowings during the preceding calendar month.
Monetary penalties may be imposed for failure to meet these liquidity
requirements. The monthly average liquidity of First United for June, 1995 was
5.36% which exceeded the then applicable 5% liquidity requirement. Its average
short-term liquidity ratio for June, 1995 was 5.05%. First United has never
been subject to monetary penalties for failure to meet its liquidity
requirements.
Insurance of Deposits
---------------------
The FDIC administers two separate insurance funds, which are not
commingled: one primarily for federally insured banks and one primarily for
federally insured savings associations. The fund for banks is called the "Bank
Insurance Fund" ("BIF"), and the fund for savings associations is called the
"Savings Association Insurance Fund" ("SAIF"). As the federal insurer of
deposits of savings associations, the FDIC determines whether to grant insurance
to newly-chartered savings associations, has authority to prohibit unsafe or
unsound activities and has enforcement powers over savings associations (usually
in conjunction with the OTS or on its own if the OTS does not undertake
enforcement action).
-17-
<PAGE>
Deposit accounts in First United are generally insured by the SAIF to a
maximum of $100,000 for each insured depositor. As a condition to such
insurance, the FDIC is authorized to issue regulations and, in conjunction with
the OTS, conduct examinations and generally supervise the operations of its
insured members. This supervision extends to a comprehensive regulatory scheme
governing, among other things, the form of deposit instruments issued by savings
associations, and certain aspects of their lending activities, including
appraisal requirements, private mortgage insurance coverage and lending
authority.
Until the SAIF is recapitalized such that it reaches a 1.25% reserve ratio
(the "SAIF Capitalization Date"), banks and savings associations are generally
barred from switching insurance funds. There are limited exceptions, such as
when a bank acquires a savings association in default or in danger of default,
if the benefits to the SAIF or the RTC equal or exceed the assessment income
that will be lost during the moratorium. After the SAIF Capitalization Date, any
insured depository institution may switch insurance funds, but only after paying
an exit fee to the old fund and an entrance fee to the new fund.
Notwithstanding the foregoing, savings associations may convert to bank charter
during the moratorium, as long as SAIF premiums continue to be paid.
The FDIC has adopted a final rule that implements a risk-based assessment
system whereby a base insurance premium will be adjusted according to the
capital category and subcategory of an institution to one of three capital
categories consisting of (1) well-capitalized, (2) adequately-capitalized, or
(3) undercapitalized, and one of three subcategories consisting of (a) healthy,
(b) supervisory concern, or (c) substantial supervisory concern. An
institution's assessment rate depends on the capital category and supervisory
category to which it is assigned. Assessment rates range from 23 basis points
for an institution in the highest category (i.e., well capitalized and healthy)
to 31 basis points for an institution in the lowest category (i.e.,
undercapitalized and substantial supervisory concern). First United's deposit
insurance assessments may increase depending upon the category and subcategory,
if any, to which First United is assigned by the FDIC. Any increase in
insurance assessments could have an adverse effect on the earnings of First
United.
Since the BIF is expected to reach the mandated 1.25% reserve ratio in
1995, the FDIC is evaluating proposals to substantially reduce the BIF premiums
paid by healthy banks. SAIF premiums are not expected to decline and may be
raised from current levels to expedite the recapitalization of the SAIF to its
mandated level. The resulting disparity between BIF and SAIF premiums may place
savings associations like First United at a material competitive disadvantage.
Regulatory Capital
------------------
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. Core capital is generally defined as common stockholders' equity
(including retained income), noncumulative perpetual preferred stock and related
surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill (on a declining basis until 1995), purchased mortgage
servicing rights (which may be included in an amount up to 50% of core capital,
but which are to be reported on an association's balance sheet at the lesser of
90% of their fair market value, 90% of their original purchase price, or 100% of
their remaining unamortized book value) and purchased credit card relationships
(which may be included in an amount up to 25% of core capital) less
nonqualifying intangibles. Under the tangible capital requirement, a savings
association must maintain tangible capital (core capital less all intangible
assets except purchased mortgage servicing rights which may be included after
making the above-noted adjustments in an amount
-18-
<PAGE>
up to 100% of tangible capital) of at least 1.5% of total assets. Under the
risk-based capital requirements, a minimum amount of capital must be maintained
by a savings association to account for the relative risks inherent in the type
and amount of assets held by the savings association. The risk-based capital
requirement requires a savings association to maintain capital (defined
generally for these purposes as core capital plus general valuation allowances
and permanent or maturing capital instruments such as preferred stock and
subordinated debt less assets required to be deducted) equal to 8.0% of risk-
weighted assets. Assets are ranked as to risk in one of four categories (0-100%)
with a credit risk-free asset such as cash requiring no risk-based capital and
an asset with a higher credit risk such as a non-accrual loan being assigned a
factor of 100%. At June 30, 1995, based on the capital standards then in effect,
First United was in compliance with its capital requirements.
The Comptroller of the Currency, effective December 31, 1990, adopted a new
minimum leverage ratio of 3% Tier 1 capital-to-total assets for the highest
rated national banks, with an additional requirement of 100 to 200 basis points
for all other national banks. Federal law requires that the capital standards
for savings associations be no less stringent than those applicable to national
banks. Accordingly, the OTS has proposed revised capital regulations imposing a
minimum core capital requirement of 3% for the highest rated savings
associations, with an additional requirement of 100 to 200 basis points for all
other savings associations. These regulations have not become effective and
there can be no assurance as to whether, or in what form, such regulations will
be adopted.
The OTS has issued a final rule (which became effective September 30, 1994)
which sets forth the methodology for calculating an interest rate risk component
to be incorporated into the OTS regulatory capital rule. Under the new rule,
only savings associations with "above normal" interest rate risk (institutions
whose portfolio equity would decline in value by more than 2% of assets in the
event of a hypothetical 200-basis-point move in interest rates) will be required
to maintain additional capital for interest rate risk under the risk-based
capital framework. An institution with an "above normal" level of exposure will
have to maintain additional capital equal to one-half the difference between its
measured interest rate risk (the most adverse change in the market value of its
portfolio resulting from a 200-basis point move in interest rates divided by the
estimated market value of its assets) and 2%, multiplied by the market value of
its assets. That dollar amount of capital is in addition to an institution's
existing risk-based capital requirement.
The following is a summary of First United's regulatory capital and capital
requirements at June 30, 1995:
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
--------- -------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
Regulatory capital........... $6,518 $6,836 $7,699
Minimum capital requirement.. 2,094 4,198 6,527
------ ------ ------
Excess capital............... $4,424 $2,638 $1,172
====== ====== ======
Regulatory capital ratio..... 4.7% 4.9% 9.4%
Minimum capital ratio........ 1.5% 3.0% 8.0%
</TABLE>
If an association is not in compliance with the capital requirements
imposed by current law the OTS is required to prohibit asset growth and to
impose a capital directive that may restrict, among other things, the payment of
dividends and officers' compensation. In addition, the OTS and the FDIC
generally are authorized to take enforcement actions against a savings
association that fails to meet its capital requirements, which actions may
include restrictions on operations and banking activities, the imposition of a
capital directive, a cease and desist order, civil money penalties or harsher
measures such as the appointment of a receiver or conservator or a forced merger
into another institution.
-19-
<PAGE>
Prompt Corrective Action
------------------------
Certain regulatory action is mandated or recommended for savings
associations that are deemed to be adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. At each
successively lower capital category, an institution is subject to more
restrictive and numerous mandatory or discretionary regulatory actions or
limits, and the OTS has less flexibility in determining how to resolve the
problems of the institution. OTS regulations define these capital levels as
follows: (1) well-capitalized associations must have total risk-based capital of
at least 10%, core risk-based capital (consisting only of items that qualify for
inclusion in core capital) of at least 6% and a leverage ratio of at least 5%
and are not subject to any order or written directive of the OTS to maintain a
specific capital level for any capital measure; (2) adequately capitalized
associations are those that meet the regulatory minimum of total risk-based
capital of 8%, core risk-based capital of 4% and a leverage ratio of 4% (except
for institutions receiving the highest examination rating, in which case the
requirement is 3%), but which are not well capitalized; (3) undercapitalized
associations are those that do not meet the requirements for adequately
capitalized associations, but that are not significantly undercapitalized; (4)
significantly undercapitalized associations have total risk-based capital of
less than 6%, core risk-based capital of less than 3% and a leverage ratio of
less than 3%; and (5) critically undercapitalized associations are those with
tangible capital of less than 2% of total assets. In addition, the OTS can
downgrade an association's designation notwithstanding its capital level, based
on less than satisfactory examination ratings in areas other than capital or if
the institution is deemed to be in an unsafe or unsound condition. Each
undercapitalized association must submit a capital restoration plan to the OTS
within 45 days after it becomes undercapitalized. Such institution will be
subject to increased monitoring and asset growth restrictions and will be
required to obtain prior approval for acquisitions, branching and engaging in
new lines of business. Significantly undercapitalized institutions must restrict
the payment of bonuses and raises to their senior executive officers.
Furthermore, a critically undercapitalized institution must be placed in
conservatorship or receivership within 90 days after reaching such
capitalization level, except under limited circumstances. It will also be
prohibited from making payments on any subordinated debt securities without the
prior approval of the FDIC and will be subject to significant additional
operating restrictions. First United's capital at June 30, 1995, meets the
standards for a well-capitalized association.
Federal law prohibits an insured institution from making a capital
distribution to anyone or paying management fees to any person having control of
the institution if, after such distribution or payment, the institution would be
undercapitalized. In addition, each company controlling an undercapitalized
institution must guarantee that the institution will comply with its capital
plan until the institution has been adequately capitalized on an average during
each of four consecutive calendar quarters and must provide adequate assurances
of performance. The aggregate liability pursuant to such guarantee is limited to
the lesser of (a) an amount equal to 5% of the institution's total assets at the
time the institution became undercapitalized, or (b) the amount which is
necessary to bring the institution into compliance with all capital standards
applicable to such institution at the time the institution fails to comply with
its capital restoration plan.
Capital Distributions Regulation
--------------------------------
An OTS regulation imposes limitations upon all "capital distributions" by
savings associations, including cash dividends, payments by an institution to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system of regulation, with
the greatest flexibility being afforded to well-capitalized institutions. A
savings association which has total capital (immediately prior to and after
giving effect to the capital distribution) that is at least equal to its fully
phased-in capital requirements would be a Tier 1 institution ("Tier 1
Institution"). An institution that has total capital at least equal to its
minimum
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capital requirements, but less than its fully phased-in capital requirements,
would be a Tier 2 institution ("Tier 2 Institution"). An institution having
total capital that is less than its minimum capital requirements would be a Tier
3 institution ("Tier 3 Institution"). However, an institution which otherwise
qualifies as a Tier 1 institution may be designated by the OTS as a Tier 2 or
Tier 3 institution if the OTS determines that the institution is "in need of
more than normal supervision." First United is currently a Tier 1 Institution.
A Tier 1 Institution could, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year up to 100% of its net
income to date during the calendar year plus an amount that would reduce by one-
half its "surplus capital ratio" (the excess over its capital requirements) at
the beginning of the calendar year. Any additional amount of capital
distributions would require prior regulatory approval.
The OTS has proposed revisions to these regulations which would permit
savings associations to declare dividends in amounts which would assure that
they remain adequately capitalized following the dividend declaration. Savings
associations in a holding company system which are rated Camel 1 or 2 and which
are not in troubled condition would need to file a prior notice with the OTS
concerning such dividend declaration.
Safety and Soundness Standards
------------------------------
On February 2, 1995, the federal banking agencies adopted final safety and
soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. Additional standards on earnings and classified assets are
expected to be issued in the near future.
Real Estate Lending Standards
-----------------------------
OTS regulations require savings associations to establish and maintain
written internal real estate lending policies. Each association's lending
policies must be consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its
operations. The policies must establish loan portfolio diversification
standards; establish prudent underwriting standards, including loan-to-value
limits, that are clear and measurable; establish loan administration procedures
for the association's real estate portfolio; and establish documentation,
approval, and reporting requirements to monitor compliance with the
association's real estate lending policies. The association's written real
estate lending policies must be reviewed and approved by the association's Board
of Directors at least annually. Further, each association is expected to monitor
conditions in its real estate market to ensure that its lending policies
continue to be appropriate for current market conditions.
Federal Reserve System
----------------------
Under FRB regulations, First United is required to maintain cash reserves
against its transaction accounts (primarily checking and NOW accounts) and non-
personal money market deposit accounts. These regulations generally require
that cash reserves be maintained against transaction accounts in the amount of
3% of the total of such accounts up to $54.0 million (subject to adjustment by
the FRB), plus 10% (subject to adjustment by the FRB between 8% and 14%) of the
total in excess of $54.0 million. In addition, a cash reserve of 3% (subject to
adjustment by the FRB between 0% and 9%) must be maintained on non-personal
money market deposit accounts that have original maturities of less than one and
one-half
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years. No cash reserve is required to be maintained on non-personal time
deposits. Current law permits savings associations to designate and exempt $4.2
million of reservable liabilities from these reserve requirements. The effect of
these reserve requirements is to increase First United's cost of funds. First
United is in compliance with its reserve requirements.
A federal savings association, like other depository institutions
maintaining reservable accounts, may borrow from the Federal Reserve Bank
"discount window," but the FRB's regulations require the savings association to
exhaust other reasonable alternative sources, including borrowing from its
regional FHLB, before borrowing from the Federal Reserve Bank. FDICIA imposes
certain limitations on the ability of undercapitalized depository institutions
to borrow from Federal Reserve Banks.
Transactions with Affiliates
----------------------------
Transactions between savings associations and any affiliate are governed by
Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings
association is any company or entity which controls, is controlled by or is
under common control with the savings association. The subsidiaries of a savings
association are not deemed affiliates under Section 23A and 23B; however,
transactions between a subsidiary of a savings association and any of the
affiliates of a savings association are subject to the requirements and
limitations of Sections 23A and 23B.
Generally, Sections 23A and 23B (i) limit the extent to which the savings
association or its subsidiaries may engage in "covered transactions" with any
one affiliate to an amount equal to 10% of such association's capital stock and
surplus, and contain an aggregate limit on all such transactions with all
affiliates to an amount equal to 20% of such capital stock and surplus and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable, to the association or subsidiary as those provided to a non-
affiliate. The term "covered transaction" includes the making of loans, purchase
of assets, issuance of a guarantee and similar types of transactions.
In addition to the restrictions imposed by Sections 23A and 23B, FIRREA
provides that no savings association may (i) loan or otherwise extend credit to
an affiliate, except for any affiliate which engages only in activities which
are permissible for bank holding companies, or (ii) purchase or invest in any
stocks, bonds, debentures, notes, or similar obligations of any affiliate,
except for affiliates which are subsidiaries of the savings association.
The restrictions contained in Section 22(h) of the Federal Reserve Act on
loans to executive officers, directors and principal shareholders also apply to
savings associations. Under Section 22(h), loans to a director, an executive
officer and to a greater than 10% shareholder of a savings association (18% in
the case of institutions located in an area with less than 30,000 in
population), and certain affiliated entities of either, may not exceed together
with all other outstanding loans to such person and affiliated entities the
association's loan-to-one-borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus and an additional 10% of such
capital and surplus for loans fully secured by certain readily marketable
collateral). Section 22(h) also prohibits loans, above amounts prescribed by the
appropriate federal banking agency, to directors, executive officers and greater
than 10% shareholders of a savings association, and their respective affiliates,
unless such loan is approved in advance by a majority of the board of directors
of the association with any "interested" director not participating in the
voting. Currently, the FRB requires board of director approval for loans to
directors, officers, and 10% shareholders (including all other outstanding loans
to such persons) above the greater of $25,000 or 5% of capital and surplus (up
to $500,000). Further, the FRB requires that loans to directors, executive
officers and principal shareholders be made on terms substantially the same as
offered in comparable transactions to other unaffiliated parties. Section 22(g)
of the Federal Reserve Act, which imposes limitations on loans made to executive
officers, also applies to savings associations.
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Qualified Thrift Lender
-----------------------
Under current OTS regulations, the QTL test requires that a savings
association have at least 65% of its portfolio assets invested in "qualified
thrift investments" on a monthly average basis in 9 out of every 12 months.
Qualified thrift investments under the QTL test include: (i) loans made to
purchase, refinance, construct, improve or repair domestic residential housing
or manufactured housing; (ii) home equity loans; (iii) mortgage-backed
securities; (iv) direct or indirect existing obligations of either the FDIC or
the FSLIC for ten years from the date of issuance, if issued prior to July 1,
1989; (v) obligations of the FDIC, FSLIC, FSLIC Resolution Fund and the
Resolution Trust Corporation for a five year period from July 1, 1989, if issued
after such date; (vi) FHLB stock; (vii) 50% of the dollar amount of residential
mortgage loans originated and sold within 90 days of origination; (viii)
investments in service corporations that derive at least 80% of their gross
revenues from activities directly related to purchasing, refinancing,
constructing, improving or repairing domestic residential real estate or
manufactured housing; (ix) 200% of the dollar amount of loans and investments
made to acquire, develop and construct one- to four-family residences that are
valued at no more than 60% of the median value of homes constructed in the area;
(x) 200% of the dollar amount of loans for the acquisition or improvement of
residential real property, churches, schools, and nursing homes located within,
and loans for any purpose to any small business located within, an area where
credit needs of its low and moderate income residents are determined not to have
been adequately met; (xi) loans for the purchase, construction, improvement or
upkeep of churches, schools, nursing homes and hospitals not qualified under
(x); (xii) up to 10% of portfolio assets held in consumer loans or loans for
educational purposes; and (xiii) FHLMC and FNMA stock. However, the aggregate
amount of investments in categories (vii)-(xiii) which may be taken into account
for the purpose of whether an institution meets the QTL test cannot exceed 15%
of portfolio assets. Portfolio assets under the QTL test include all of an
association's assets less (i) goodwill and other intangibles, (ii) the value of
property used by the association to conduct its business, and (iii) its liquid
assets as required to be maintained under law up to 20% of total assets.
A savings association which fails to meet the QTL test must either convert
to a bank (but its deposit insurance assessments and payments will be those of
and paid to SAIF) or be subject to the following penalties: (i) it may not enter
into any new activity except for those permissible for a national bank and for a
savings association; (ii) its branching activities shall be limited to those of
a national bank; (iii) it shall not be eligible for any new FHLB advances; and
(iv) it shall be bound by regulations applicable to national banks respecting
payment of dividends. Three years after failing the QTL test the association
must (i) dispose of any investment or activity not permissible for a national
bank and a savings association and (ii) repay all outstanding FHLB advances. If
such a savings association is controlled by a savings and loan holding company,
then such holding company must, within a prescribed time period, become
registered as a bank holding company and become subject to all rules and
regulations applicable to bank holding companies (including restrictions as to
the scope of permissible business activities).
A savings association failing to meet the QTL test may requalify as a QTL
if it thereafter meets the QTL test. In the event of such requalification it
shall not be subject to the penalties described above. A savings association
which subsequently again fails to qualify under the QTL test shall become
subject to all of the described penalties without application of any waiting
period.
At June 30, 1995, 96.0% of First United's portfolio assets (as defined on
that date) were invested in qualified thrift investments (as defined on that
date), and therefore First United's asset composition was in excess of that
required to qualify First United as a QTL. First United does not expect to
significantly change its lending or investment activities in the near future and
therefore expects to continue to qualify as a QTL, although there can be no such
assurance.
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Community Reinvestment Act Matters
----------------------------------
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") must be disclosed. The disclosure
includes both a four-unit descriptive rating -- using terms such as outstanding,
satisfactory, unsatisfactory and needs improvement -- and a written evaluation
of each institution's performance. Each FHLB is required to establish standards
of community investment or service that its members must maintain for continued
access to long-term advances from the FHLBs. The standards take into account a
member's performance under the Community Reinvestment Act and its record of
lending to first-time home buyers. The FHLBs have established an "Affordable
Housing Program" to subsidize the interest rate of advances to member
associations engaged in lending for long-term, low- and moderate-income,
owner-occupied and affordable rental housing at subsidized rates. First United
is participating in this program. The examiners have determined that First
United has a satisfactory record of meeting community credit needs.
TAXATION
- --------
Federal Taxation
----------------
Savings institutions, such as First United, are permitted to compute bad
debt deductions using either the bank experience method or the percentage of
taxable income method. In the case of the percentage of taxable income method,
the portion of taxable income (as specially adjusted for purposes of application
of this method) that may be deducted as an addition to a reserve for bad debts
is set at 8%. Any savings institution which holds 60% of its assets in
qualifying assets, defined as loans which are secured by an interest in improved
real property or secured by an interest in real property that is to be improved
out of the proceeds of the loan, will be eligible for the full 8% of taxable
income deduction. The 8% amount must be reduced (but not below zero) by the
amount determined to be a reasonable addition to the reserve for losses on
nonqualifying loans. Reserves for nonqualifying loans are computed on the basis
of a six-year moving average of First United's own experience.
The excess of the percentage of taxable income deduction over the deduction
that would have been allowable on the basis of actual experience is treated as a
preference item for the purpose of computing the corporate minimum tax.
In addition, the bad debt deduction cannot exceed the amount necessary to
increase the year end balance in the bad debt reserve accumulated for
"qualifying real property loans" to an amount equal to 6% of such loans
outstanding at the end of the taxable year. The bad debt reserve deduction is
also limited to the amount by which 12% of deposits at year-end exceeds the sum
of First United's surplus, undivided profits, and reserves, as defined for
federal income tax purposes, at the beginning of the year.
A savings bank organized in stock form that utilizes the percentage method
bad debt reserve deduction described above will be subject to recapture taxes on
such reserve in the event it makes certain types of distributions to its
shareholders. Cash dividends may be paid out of unappropriated retained earnings
without the imposition of any tax on a savings bank to the extent that the
amounts paid as dividends do not exceed such savings bank's current or
accumulated earnings and profits as calculated for federal income tax purposes.
Stock redemptions, dividends paid in excess of a savings bank's current or
accumulated earnings and profits as calculated for tax purposes, and other
distributions made with respect to a savings bank's stock, however, are deemed
under applicable provisions of the Code to be made from the savings bank's tax
bad debt reserve. To the extent additions to a savings bank's bad debt reserves
for "qualifying real property loans" deducted for federal income tax purposes
exceed the allowable amount of such reserves computed under the experience
method and to the extent of the savings bank's supplemental reserves for losses
on loans ("Excess"), such Excess may not, without adverse tax consequences, be
utilized for payment of cash dividends or other distributions to a shareholder
(including distributions on
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redemption, dissolution or liquidation) or for any other purpose (except to
absorb bad debt losses). Distribution of a cash dividend by a savings bank to a
shareholder is treated as made: first out of the savings bank's current and
post-1951 accumulated earnings and profits; second out of the Excess; and third
out of such other accounts as may be proper. To the extent a distribution to a
shareholder by the savings bank is deemed paid out of its Excess under these
rules, the Excess would be reduced and the savings bank's gross income for tax
purposes would be increased by the amount which, when reduced by the income tax,
if any, attributable to the inclusion of such amount in its gross income, equals
the amount deemed paid out of the Excess. The amount of tax that would be
payable upon any distribution which is being treated as having been made from a
savings bank's bad debt reserve could result in a tax which is equal to
approximately 50% of the amount of such distributions, unless offset by net
operating losses. At June 30, 1995, First United had approximately $32,000 of
tax-paid retained earnings from which cash dividends could be paid without
causing any federal income tax to be paid by First United.
Depending on the composition of its items of income and expense, a savings
institution may be subject to the alternative minimum tax. A savings institution
must pay an alternative minimum tax equal to the amount (if any) by which 20% of
alternative minimum taxable income ("AMTI"), as reduced by an exemption varying
with AMTI, exceeds the regular tax due. AMTI equals regular taxable income
increased or decreased by certain tax preferences and adjustments, including
depreciation deductions in excess of that allowable for alternative minimum tax
purposes, tax-exempt interest on most private activity bonds issued after August
7, 1986 (reduced by any related interest expense disallowed for regular tax
purposes), the amount of the bad debt reserve deduction claimed in excess of the
deduction based on the experience method and 75% of the excess of adjusted
current earnings over AMTI (before this adjustment and before any alternative
tax net operating loss). AMTI may be reduced only up to 90% by net operating
loss carryovers, but alternative minimum tax paid that is attributable to most
preferences (although not to post-August 7, 1986 tax-exempt interest) can be
credited against regular tax due in later years.
For federal income tax purposes, First United has been reporting its income
and expenses on the accrual method of accounting. First United and its
subsidiaries file a consolidated federal income tax return for each fiscal year
ending June 30. First United's federal income tax returns have not been audited
in the last five years.
State Taxation
--------------
First United is subject to Indiana's new Financial Institutions Tax
("FIT"), which is imposed at a flat rate of 8.5% on "adjusted gross income."
"Adjusted gross income," for purposes of FIT, begins with taxable income as
defined by Section 63 of the Code and, thus, incorporates federal tax law to the
extent that it affects the computation of taxable income. Federal taxable income
is then adjusted by several Indiana modifications, the most notable of which is
the required addback of interest that is tax-free for federal income tax
purposes. Other applicable state taxes include generally applicable sales and
use taxes plus real and personal property taxes.
First United's state income tax returns have not been audited in the last
five years.
COMPETITION
- -----------
First United operates in Greencastle and Bloomington, Indiana and makes
almost all of its loans to residents of Putnam and Monroe Counties, Indiana, and
contiguous counties. The population of Greencastle is approximately 9,000, with
a county population of approximately 30,000. The population of Bloomington is
53,000, with a total county population of 102,000. Greencastle is surrounded by
farm land and lies 40 miles west of Indianapolis and just north of Interstate
70. Bloomington is a more metropolitan area, and lies approximately 60 miles
south of Indianapolis.
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The economic base of First United's service area is diverse, including
manufacturing and service companies, farms, and quarries. Corn is the primary
crop and the area is a major producer of cattle and hogs. In addition, both
counties have long been a significant commercial supplier of sandstone,
limestone, and shale. Greencastle is also home of DePauw University, a major
employer, and home for over 2,300 students, while Bloomington is the home of
Indiana University with approximately 40,000 students.
First United is subject to competition from various financial institutions
and other companies or firms that provide similar services. It competes for
deposits and loans primarily with two banks located in Greencastle, each of
which has been acquired by financial institutions whose principal offices are
located outside of Greencastle and which have substantially greater financial
resources than First United. First United also competes to a lesser extent with
two other smaller banks in Putnam County. Seven banks, two thrifts, and two
credit unions compete with First United in the Bloomington area. The Indiana
University Credit Union, with approximately $130 million in assets, is a major
competitor in the Bloomington consumer loan market. Banks and savings
institutions in Indianapolis, only an hour's drive from Greencastle, also
compete with First United for deposits and loans. First United also competes
with broker-dealers primarily for individual retirement accounts, and with money
market funds which are currently not subject to reserve requirements.
Indiana law permits acquisitions of certain federal and state SAIF-insured
savings associations and their holding companies ("Savings Associations")
located in Indiana, Ohio, Kentucky, Illinois, and Michigan (the "Region") by
other Savings Associations located in the Region. Savings Associations with
their principal place of business in one of the states in the Region (other than
Indiana) may acquire Savings Associations with their principal place of business
in Indiana if, subject to certain other conditions, the state of the acquiring
association has reciprocal legislation permitting the acquisition of Savings
Associations and their holding companies in that state by Indiana Savings
Associations. Each of the states in the Region has, at least to a certain
degree, reciprocal legislation. The Indiana statute also authorizes Indiana
Savings Associations to acquire other Savings Associations in the Region.
Following the acquisition, an acquired Indiana Savings Association and any other
Indiana Savings Association subsidiary owned by the acquiror must hold no more
than 15% of the total Savings Association deposits in Indiana.
The OTS has adopted regulations which permit nationwide branching to the
extent permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association meets the
domestic building and loan test in (S)7701(a)(19) of the Internal Revenue Code
of 1986, as amended (the "Code") or the asset composition test of (S)7701(c) of
the Code. Branching that would result in the formation of a multiple savings and
loan holding company controlling savings associations in more than one state is
permitted if the law of the state in which the savings association to be
acquired is located specifically authorizes acquisition of its state-chartered
associations by state-chartered associations or their holding companies in the
state where the acquiring association or holding company is located.
Indiana laws allow nationwide acquisitions of and by Indiana banks and bank
holding companies on a reciprocal basis as of July 1, 1992. Moreover, Indiana
banks are also permitted to acquire other Indiana banks and to establish
branches throughout Indiana.
In addition, The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 permits banks to acquire out-of-state branches either through merger
or de novo expansion, subject to certain limitations. This new legislation may
also result in increased competition for First United.
Under current law, savings associations may acquire banks under federal
law. Affiliations between banks and savings associations based in Indiana may
also increase the competition faced by First United.
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The primary factors influencing competition for deposits are interest
rates, service and convenience of office locations. First United competes for
loan originations primarily through the efficiency and quality of services it
provides borrowers and through interest rates and loan fees it charges.
Competition is affected by, among other things, the general availability of
lendable funds, general and local economic conditions, current interest rate
levels, and other factors that are not readily predictable.
CURRENT ACCOUNTING ISSUES
- -------------------------
In December 1991, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Investments" ("SFAS 107"). SFAS 107 requires all companies
including financial institutions to disclose in footnotes to their financial
statements the fair value of all financial investments for which it is
practicable to estimate that value. For companies with assets of less than $150
million (which is the case for First United), SFAS 107 is effective for fiscal
years ending after December 15, 1995.
In May 1993, FASB issued Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). SFAS 114
specifies that allowances for loan losses on impaired loans should be determined
using the present value of estimated future cash flows of the loan, discounted
at the loan's effective interest rate. A loan is impaired when it is probable
that all principal and interest amounts will not be collected according to the
loan contract. SFAS 114 is effective for fiscal years beginning after December
15, 1994. First United's general valuations allowances and provisions for bad
debts will not be significantly affected by the adoption of SFAS 114.
In October 1994, FASB issued Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition
and Disclosures" ("SFAS 118"), that amends SFAS 114 and eliminates the
provisions regarding how a creditor should report income on an impaired loan.
Originally, SFAS 114 would have required creditors to apply one of two allowable
methods. As a result of SFAS 118, creditors may now continue to use existing
methods for recognizing incomes on impaired loans, including methods that are
required by certain industry regulators. SFAS 118 also clarified SFAS 114's
disclosure requirements. SFAS 118 requires creditors to disclose additional
information about its impaired loans including disclosure of the recorded
investment in impaired loans, activity in the allowance for credit losses
account, the creditors policy for recognizing interest income on impaired loans,
and how the creditor records cash receipts. SFAS 118 is effective for fiscal
years beginning after December 15, 1994. First United's allowances and
provisions for loan losses will not be significantly affected by the adoption of
SFAS 118.
In March 1995, FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121"). SFAS 121 prescribes the accounting for
the impairment of long-lived assets, such as property, plant and equipment;
identifiable intangibles, including patents and trademarks; and goodwill related
to those assets. SFAS 121 specifies when assets should be reviewed for
impairment, how to determine whether an asset or group of assets is impaired,
how to measure an impairment loss, and what financial statement disclosures are
necessary. SFAS 121 also prescribes the accounting for long-lived assets and
identifiable intangibles that a company plans to dispose of, other than those
that are part of a discontinued operation. SFAS 121 is effective for fiscal
years beginning after December 15, 1995. First United's financial statements
will not be significantly affected by the adoption of SFAS 121.
In May 1995, SAFB issued Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"), that amends SFAS
65. SFAS 122 requires a mortgage banking enterprise to assess its capitalized
mortgage servicing rights for impairment based on the fair value of those
rights. A mortgage banking enterprise should stratify its mortgage servicing
rights that are capitalized
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after the adoption of SFAS 122 based on one or more of the risk characteristics
of the underlying loans. Impairment should be recognized through a valuation
allowance for each impaired stratum. SFAS 122 is effective for fiscal years
beginning after December 15, 1995. First United's financial statements will not
be significantly affected by the adoption of SFAS 122.
ITEM 2. PROPERTIES.
- ------ ----------
In 1981, First United built its current headquarters, a 10,000 square foot
building, at One North Locust Street, Greencastle, Indiana. First United owns
this building and also owns a lot which is used for parking, and an adjacent lot
which is available for future expansion. First United leases all of its office
space in Bloomington under operating lease agreements. The downtown office is
part of the renovated Fountain Square on the south side of the courthouse
square. The third location is on the corner of State Road 46 and Third Street
at the College Mall. These properties and leasehold improvements had a net book
value of $1.5 million at June 30, 1995.
First United does not own its mainframe computer or data processing
equipment, but has contracted for data processing and reporting services from
Bisys, Inc., located in Cincinnati, Ohio, since October 1993. The contract
expires in October, 1998. The cost of data processing services to First United
is approximately $16,000 per month.
ITEM 3. LEGAL PROCEEDINGS.
- ------ -----------------
First United is a defendant in a case involving certain claims which have
arisen in connection with a customer's investment held by First United. First
United's liability, if any, associated with these claims is not currently
determinable. In management's opinion, the ultimate resolution of these claims
will not have a materially adverse effect on First United's financial condition.
Other than the foregoing, neither First United nor its subsidiary is a party to
any pending legal proceedings, other than routine litigation incidental to its
business activities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------ ---------------------------------------------------
No matter was submitted to First United's shareholders during the quarter
ended June 30, 1995.
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EXHIBIT 99.04
OFFICE OF THRIFT SUPERVISION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 15, 1995
FIRST UNITED SAVINGS BANK, F.S.B.
(Exact name of registrant as specified in its charter)
UNITED STATES
(State or other jurisdiction of incorporation)
4886 35-0352100
(OTS Docket Number) (IRS Employer Identification No.)
One North Locust Street
Greencastle, Indiana 46135
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317)653-9793
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Item 5. Other Events
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First United Savings Bank, f.s.b. (the "Savings Bank") has previously
announced a pending affiliation with Old National Bancorp ("ONB") based in
Evansville, Indiana. The Savings Bank has filed a preliminary proxy statement
with the Office of Thrift Supervision which relates to the annual meeting at
which its shareholders will be asked to vote on the affiliation. The proxy
statement incorporates certain documents which have been filed by ONB with the
Securities and Exchange Commission. In order to make these documents (or
material exhibits thereof) available through the securities disclosure system
under which similar documents are filed with the Office of Thrift Supervision,
the Savings Bank is filing with this Form 8-K copies of those documents, which
are incorporated by reference herein.
Item 7. Financial Statements and Exhibits
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(c) Exhibits
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Exhibit 2(a) Old National Bancorp's Annual Report on Form 10-K for
the year ended December 31, 1994.
Exhibit 2(b) Old National Bancorp's Annual Report to Shareholders for
the year ended December 31, 1994.
Exhibit 2(c) Old National Bancorp's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995.
Exhibit 2(d) Old National Bancorp's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995.
Exhibit 2(e) Old National Bancorp's Amended Articles of Incorporation
as of January 25, 1990.
Exhibit 2(f) Rights Agreement dated March 1, 1990, between Old
National Bancorp and Old National Bank, as Rights Agent.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
By: /s/ William M. Marley
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William M. Marley, President and Chief
Executive Officer
Dated: September 20, 1995
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